diff --git a/raw/proxies/0000077877/0001047469-18-002965/proxy.txt b/raw/proxies/0000077877/0001047469-18-002965/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..568fb07a9c6b2e03153ee33f8ce3289b959fcf14 --- /dev/null +++ b/raw/proxies/0000077877/0001047469-18-002965/proxy.txt @@ -0,0 +1,5023 @@ +DEF 14A +1 +a2235239zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 19, 2018 +Dear +Stockholder of PDC Energy, Inc.: +You +are cordially invited to attend the 2018 Annual Meeting of PDC Energy, Inc. to be held on May 30, 2018, at 9:15 a.m. Mountain Time, at the Denver Financial +Center at 1775 Sherman Street, Denver, Colorado 80203 (the "Annual Meeting"). +The +accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the +business contained in the Proxy Statement and will not include a management presentation. +We +hope you will join us at the Annual Meeting. We value your opinion and encourage you to participate by voting your proxy. Whether or not you plan to attend personally, it is important +that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If +you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot +attend in person. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +PDC ENERGY, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +WEDNESDAY, MAY 30, 2018 +April 19, 2018 +To +the Stockholders of PDC Energy, Inc.: +The +2018 Annual Meeting of PDC Energy, Inc. (the "Company") will be held on May 30, 2018, at 9:15 a.m. Mountain Time at the Denver Financial Center at 1775 +Sherman Street, Denver, Colorado 80203, for the following purposes: +• To elect the three nominees named in the accompanying Proxy Statement as Class II Directors of the Company, each for a term of three +years; +• To ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the fiscal +year ending December 31, 2018; +• To approve, on an advisory basis, the compensation of the Company's named executive officers; +• To approve the Company's 2018 Equity Incentive Plan; and +• To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The +Board of Directors has fixed the close of business on April 2, 2018 as the record date for determining the stockholders having the right to receive notice of, to attend, and +to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of the Company's common stock +entitled to vote is required to constitute a quorum. +Please vote by using the telephone or Internet voting options described in the accompanying Notice of Internet Availability of Proxy Materials or, if the attached +Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on May 30, 2018 at +9:15 a.m. Mountain Time at +The Denver Financial Center +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors ("Board") of PDC Energy, Inc. ("PDC," the "Company," "we," "us" or "our") to be voted at the +annual meeting of the stockholders of the Company (the "Annual Meeting") to be held on May 30, 2018, at 9:15 a.m. Mountain Time and at any and all adjournments or postponements of the +meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 19, 2018, we began mailing notices containing instructions for +accessing this Proxy Statement and our 2017 Annual Report online, and we began mailing proxy materials to stockholders who had previously requested delivery of the materials in paper form. For +information on how to vote your shares, see the instructions included on the proxy card or instruction form described under "Information About Voting and the Meeting" herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING +TO BE HELD ON MAY 30, 2018 +The Notice of Annual Meeting, the Proxy Statement for the 2018 Annual Meeting, and the 2017 Annual Report, which includes the Company's +Annual Report on Form 10-K for the fiscal year ended December 31, 2017, are available at www.proxyvote.com. +Table of Contents +TABLE OF CONTENTS +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +1 +How Proxies Work +1 +Voting 401(k) and Profit Sharing Plan Shares +1 +Revoking a Proxy +1 +Quorum +2 +Votes Needed +2 +Attending in Person +3 +Conduct of the Meeting +3 +Solicitation of Proxies +4 +Appraisal Rights +4 +Contact Information +4 +PROPOSALS REQUIRING STOCKHOLDER VOTE +4 +PROPOSAL NO. 1—ELECT THREE CLASS II DIRECTORS +4 +Name, Principal Occupation for Past Five Years and Other +Directorships +5 +REPORT OF THE AUDIT COMMITTEE +10 +PROPOSAL NO. 2—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +11 +PROPOSAL NO. 3—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE +COMPANY'S NAMED EXECUTIVE OFFICERS +13 +PROPOSAL NO. 4—APPROVE THE 2018 EQUITY INCENTIVE PLAN +14 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2018 ANNUAL MEETING +22 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED +STOCKHOLDER MATTERS +22 +CORPORATE GOVERNANCE +25 +STANDING COMMITTEES OF THE BOARD +28 +DIRECTOR COMPENSATION +30 +DIRECTOR QUALIFICATIONS AND SELECTION +32 +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +33 +THE BOARD'S ROLE IN RISK MANAGEMENT +33 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +34 +CODE OF BUSINESS CONDUCT AND ETHICS +34 +TRANSACTIONS WITH RELATED PARTIES +34 +ADDITIONAL INFORMATION +35 +EXECUTIVE OFFICERS +35 +COMPENSATION COMMITTEE REPORT +37 +COMPENSATION DISCUSSION AND ANALYSIS +37 +SUMMARY COMPENSATION TABLE +57 +2017 ALL OTHER COMPENSATION +58 +2017 GRANTS OF PLAN-BASED AWARDS +59 +OUTSTANDING EQUITY AWARDS AT 2017 FISCAL YEAR-END +60 +2017 OPTION EXERCISES AND STOCK VESTED +61 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +61 +EQUITY COMPENSATION PLAN INFORMATION +70 +STOCKHOLDER NOMINATIONS AND PROPOSALS +70 +HOUSEHOLDING INFORMATION +71 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company's stock register on the record date of April 2, 2018, may vote at the Annual Meeting. The +outstanding voting securities of the Company as of April 2, 2018 consisted of 66,087,319 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at +the Annual Meeting. +How Proxies Work +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the Annual +Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, one or more of the three Class II Director nominees. You may also vote +for or against the other proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a "stockholder of record"), you can +vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy but do not specify how to vote, your shares will be voted (1) in +favor of approval of all three of the Class II Director nominees named in this Proxy Statement; (2) in favor of the ratification of the appointment of PricewaterhouseCoopers LLP +("PwC") as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2018; (3) to approve, on an advisory basis, the compensation of the +Company's Named Executive Officers (as defined herein); and (4) to approve the 2018 Equity Incentive Plan. If any other business properly comes before the stockholders for a vote at the Annual +Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If +you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order +for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered "routine" matters under applicable rules. Without your +instruction, the nominee may vote only on the ratification of the appointment of PwC as our independent registered public accounting firm for 2018. A nominee's inability to vote because it lacks +discretionary authority to do so is commonly referred to as a "broker non-vote." The effect of broker non-votes may be different for each of the various proposals to be voted upon at the Annual +Meeting. For a description of the effect of broker non-votes on each proposal, see "Votes Needed" below. +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC's 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan account as of the +record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be +counted if your proxy card is not received by May 24, 2018. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +If you are a stockholder of record, you may revoke your initial proxy vote before it is voted at the Annual Meeting +by: +• Submitting a new signed proxy with a later date; +• Notifying PDC's Corporate Secretary in writing before the meeting that you wish to revoke your proxy; or +1 +Table of Contents +• Appearing at the Annual Meeting, notifying the inspector of the election that you wish to revoke your proxy, and voting in person at the Annual +Meeting. Merely attending the Annual Meeting will not result in the revocation of your proxy. +If +you hold your shares through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the Annual Meeting. +Quorum +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding shares +eligible to vote must be represented at the Annual Meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. +Abstentions and broker non-votes will count for quorum purposes. +Votes Needed +The following table presents the voting requirements for electing the three Class II Director nominees and for approving the other +proposals presented in this Proxy Statement. Under the "Uncontested Elections Policy" contained in Section 3(e) of our Corporate Governance Guidelines, which may be viewed on our website at +www.pdce.com, any nominee who receives a greater number of "withhold" votes than "for" votes is required to submit to the Board a letter of resignation for consideration by the Nominating and +Governance ("N&G") Committee. The Company's website materials are not incorporated by reference into this Proxy Statement. For more information about our Uncontested Elections Policy, see "Corporate +Governance—Uncontested Elections Policy" below. +2 +Table of Contents +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Elect three Class II Directors. +The three Class II Director nominees who receive the greatest number of votes will be elected Class II Directors for a three-year term ending in 2021. There is no cumulative voting for Directors. Abstentions and +broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Ratify the appointment of PwC as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2018. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as votes against Proposal No. 2. Brokers will have discretionary +authority to vote on Proposal No. 2. +Proposal No. 3 +Approve, on an advisory basis, the compensation of the Company's Named Executive Officers. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 3. Broker non-votes will have no effect on +the vote on Proposal No. 3. +Proposal No. 4 +Approve the 2018 Equity Incentive Plan. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 4. Broker non-votes will have no effect on +the vote on Proposal No. 4. +Attending in Person +Only stockholders or their proxy holders, and PDC guests, may attend the Annual Meeting. For safety and security reasons, no cameras, audio or +video recording equipment, large bags, briefcases, packages or other items deemed unnecessary in PDC's discretion will be permitted at the Annual Meeting. In addition, each stockholder, proxy holder, +and PDC guest may be asked to present valid, government-issued picture identification, such as a driver's license, before being admitted to the Annual Meeting. +If +your shares are held in the name of your broker, bank, or other nominee, you must bring to the Annual Meeting an account statement or letter from the nominee indicating that you +beneficially owned the shares on April 2, 2018, the record date for receiving notice of, attending, and voting at the Annual Meeting. +Conduct of the Meeting +The Chairman and the Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority +includes establishing rules for stockholders who wish to speak at the Annual Meeting. The Chairman and the Chief Executive Officer may also exercise broad discretion in recognizing stockholders who +wish to speak and in determining the extent of discussion on each item of business. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance +that every stockholder who wishes to speak will be able to do so. The Chairman and the Chief Executive Officer may also rely on applicable law +3 +Table of Contents +regarding +disruptions or disorderly conduct to ensure that the Annual Meeting is conducted in a manner that is fair to all stockholders. +Solicitation of Proxies +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, +nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet Availability of Proxy Materials to the beneficial owners of the Company's common +stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal +interviews, without additional compensation. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our stockholders to +dissent and obtain appraisal of or payment for such stockholders' common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate +Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For +information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit PDC's website at www.pdce.com. The Company's website materials are +not incorporated by reference into this Proxy Statement. +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1—ELECT THREE CLASS II DIRECTORS +(Proposal 1 on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the Company's Bylaws, the Board consists of eight members ("Directors") divided into +three classes. Directors are elected for three-year terms. The terms for members of each class end in successive years. +The +Board has nominated three continuing Class II Directors, Anthony J. Crisafio, Christina M. Ibrahim and Randy S. Nickerson, to stand for re-election to the Board for three-year +terms expiring in 2021. Mr. Crisafio joined the Board in 2006 and currently serves as a member of the Audit Committee, which he chairs, and the Midstream Committee. Ms. Ibrahim joined +the Board in 2018 and does not +currently serve on any Board Committees. Mr. Nickerson joined the Board in 2017 and currently serves as a member of the N&G Committee and the Midstream Committee, each of which he chairs. +The +appointed proxies will vote your shares in accordance with your instructions and for the election of the three Class II Director nominees, unless you withhold your authority +to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the +Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person +4 +Table of Contents +who +is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. +Board of Directors +As of the Annual Meeting, the composition of the Board and the term of each Director is expected to be as follows: +NOMINEES +YEAR THE +DIRECTOR JOINED +THE BOARD +EXPIRATION OF +THE DIRECTOR'S +CURRENT TERM +CLASS II: +Anthony J. Crisafio +2006 +2018 +Christina M. Ibrahim +2018 +2018 +Randy S. Nickerson +2017 +2018 +CLASS III: +Barton R. Brookman +2015 +2019 +Mark E. Ellis +2017 +2019 +Larry F. Mazza +2007 +2019 +CLASS I: +David C. Parke +2003 +2020 +Jeffrey C. Swoveland +1991 +2020 +Name, Principal Occupation for Past Five Years and Other Directorships +NOMINEES FOR TERM EXPIRING IN 2018—CLASS II +Name: +Anthony J. Crisafio, Director +Age: +65 +Committees: +Audit (Chair) +Midstream +• Mr. Crisafio, a Certified Public Accountant ("CPA") and a National Association of Corporate Directors Board Leadership Fellow, joined +the Board in 2006. Mr. Crisafio has served as an independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of +industries. He has served as the part-time contract Chief Financial Officer for a number of companies in the past five years including Empire Energy, LLC, MDS Associated Companies, and +TruFoodMfg. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until 1993. From 1975 until 1989, he was +employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several Securities and Exchange Commission ("SEC") registered client engagements and +gained significant experience with oil and gas industry clients and mergers and acquisitions. Mr. Crisafio has served as an Advisory Board member for a number of privately held companies. He +holds a B.S. from Duquesne University. +5 +Table of Contents +• The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other things, he is a CPA and brings to the +Board more than 30 years of financial accounting business management expertise. +Name: +Randy S. Nickerson, Director +Age: +56 +Committees: +Midstream (Chair) +Nominating and Governance (Chair) +• Mr. Nickerson joined the Board in March 2017. Mr. Nickerson most recently served as the Executive Vice President, Corporate +Strategy of Marathon Petroleum Corporation and as the Executive Vice President and Chief Commercial Officer of the MarkWest assets of MPLX LP since December 2015. Prior to joining Marathon +Petroleum Corporation, Mr. Nickerson served in various capacities of increasing responsibility for MarkWest Energy Partners, L.P. and its predecessor, including most recently as its Senior Vice +President, Corporate Development and Chief Commercial Officer from 2006 until December 2015. Prior to his time with MarkWest, Mr. Nickerson served as Senior Project Manager and Regional +Engineering Manager for Western Gas Resources, Inc., from 1990 to 1995, and for Chevron USA and Meridian Oil Inc. in various process and project engineering positions from 1984 to 1990. +Mr. Nickerson holds a bachelor's degree in Chemical Engineering from Colorado State University. +• The Board has concluded that Mr. Nickerson is qualified to serve as a Director because, among other things, he has over 30 years +of experience in oil and gas operations, with a focus on midstream asset development and management, a critical element of the Company's current strategy. +Name: +Christina M. Ibrahim, Director +Age: +50 +Committees: +None +• Ms. Ibrahim joined the Board in January 2018. She currently serves as the Executive Vice President, General Counsel and Chief Compliance +Officer of Weatherford International plc ("Weatherford"), a position she has held since May 2015. Prior to joining Weatherford in 2015, Ms. Ibrahim held a number of senior leadership +positions of increasing responsibility in the legal department of Halliburton Company since January 2010, including, most recently, as Vice President, Chief Commercial Counsel and Corporate Secretary +with responsibility for the global procurement, employment and real estate practice groups and oversight of mergers and acquisitions, securities, regulatory and governance practice groups. +Ms. Ibrahim also served as General Counsel and Chief Compliance Officer for WellDynamics, a Halliburton joint venture company. Ms. Ibrahim earned a B.S. in Business Management and +Finance from Virginia Tech and a J.D. from Texas Southern University. +• The Board has concluded that Ms. Ibrahim is qualified to serve as a Director because, among other things, she is an attorney who brings +to the Board a strong legal background and expertise in corporate governance, as well as more than 20 years of management experience in the oil and gas services industry. +6 +Table of Contents +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2019—CLASS III +Name: +Barton R. Brookman, Director, President and Chief Executive Officer +Age: +55 +Committees: +None +• Mr. Brookman, the Company's President and Chief Executive Officer ("CEO"), was appointed to the Board in January 2015, simultaneous with +his appointment as the Company's CEO. Mr. Brookman originally joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position +of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, +Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his +service at Patina as Vice President of Operations. Mr. Brookman holds a B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +• The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due, among +other things, to his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the +industry. +Name: +Mark E. Ellis, Director +Age: +61 +Committees: +Compensation +Midstream +• Mr. Ellis joined the Board in September 2017. He currently serves as a director and as the President and Chief Executive Officer of Linn +Energy, Inc. ("Linn"), positions he has held since February 2017. From January 2010 until February 2017, Mr. Ellis was the President and Chief Executive Officer of Linn +Energy LLC. Linn is the reorganized successor to Linn Energy, LLC, which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas in May 2016. From 2012 to +February 2017, Mr. Ellis also served as Chairman of Linn Energy LLC's board of directors. Prior to joining Linn in 2006, Mr. Ellis served in varying roles of increasing +responsibility for Burlington Resources and ConocoPhillips. He holds a B.S. in Petroleum Engineering from Texas A&M University. +• The Board has concluded that Mr. Ellis is qualified to serve as a Director because, among other things, his service as the chief +executive officer and director of another public energy company provides extensive oil and gas industry executive management experience, as well as knowledge of current developments and best practices +in the industry. +Name: +Larry F. Mazza, Director +Age: +57 +Committees: +Compensation +• Mr. Mazza, a CPA, joined the Board in 2007. Mr. Mazza is President, Chief Executive Officer and director of MVB Financial Corp +("MVB"), a multi-state financial services company. He has more than 28 years of experience in both large banks and community banks and is one of seven +7 +Table of Contents +members +of the West Virginia Board of Banking and Financial Institutions, which oversees the operation of financial institutions throughout West Virginia and advises the state Commissioner of +Banking. Mr. Mazza is also an entrepreneur and is co-owner of nationally-recognized sports media business Football Talk, LLC, a pro football website and content provider for NBC +SportsTalk. He also serves on the board of directors of a private financial technology startup, Billgo, headquartered in Fort Collins, Colorado. Prior to joining MVB in 2005, Mr. Mazza was +Senior Vice President & Retail Banking Manager for BB&T Bank's West Virginia North region. Mr. Mazza was employed by BB&T and its predecessors from 1986 to 2005. Prior thereto, +Mr. Mazza was President of Empire National Bank, and later served as Regional President of One Valley Bank. Mr. Mazza also previously worked for KPMG (or its predecessors) as a CPA with +a focus on auditing. He holds a B.S. in Business Administration from West Virginia University. +• The Board has concluded that Mr. Mazza is qualified to serve as a Director because, among other things, he is a CPA, a CEO, and has +extensive leadership and banking experience. Mr. Mazza also provides an important link to community and employee stakeholders, demonstrating a continuing commitment to our workforce located in +Bridgeport, West Virginia. +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2020—CLASS I +Name: +David C. Parke, Director +Age: +51 +Committees: +Audit +Compensation (Chair) +Nominating and Governance +• Mr. Parke, who joined the Board in 2003, has served as a Managing Director of EVOLUTION Life Science Partners since October 2014. From +June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was Managing +Director in the investment banking group of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, +he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. +and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance +departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. He holds a B.S. in Finance from Lehigh University and an M.B.A. +from the Wharton School at the University of Pennsylvania. +• The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment +banking and strategic advisory experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide +guidance on capital markets and acquisition matters. +8 +Table of Contents +Name: +Jeffrey C. Swoveland, Director (Non-Executive Chairman) +Age: +63 +Committees: +Audit +Nominating and Governance +• Mr. Swoveland, a National Association of Corporate Directors Board Leadership Fellow, joined the Board in 1991 and was elected +Non-Executive Chairman of the Board in June 2011. From 2006 until January 2014, Mr. Swoveland was first Chief Operating Officer and later President and Chief Executive Officer of ReGear Life +Sciences, Inc. (previously named Coventina Healthcare Enterprises), which develops and markets medical device products. From 2000 until 2007, Mr. Swoveland served as Chief Financial +Officer of Body Media, Inc., a life-science company. Prior thereto, from 1994 to September 2000, Mr. Swoveland held various positions including Vice President of Finance, Treasurer and +interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas company. Mr. Swoveland also has worked as a geologist and exploratory geophysicist for both +major and independent oil and gas companies. Mr. Swoveland served as a member of the Board of Directors of Linn from 2006 to 2017. He holds a B.S. in Geology and Geophysics from the University +of Missouri/Rolla and an M.S. in Finance and Policy from Carnegie Mellon University. +• The Board has concluded that Mr. Swoveland is qualified to serve as a Director because, among other things, he brings to the Board +extensive corporate management, accounting and finance experience, and oil and gas industry expertise. Additionally, his prior service as a director of another public energy company allows him to +provide leadership and knowledge of best practices that benefit the Company and his guidance and understanding of management processes of other oil and gas companies benefits the Company as it +continues to grow. +The +election of the Class II Directors will be effected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no +effect on the election of Directors. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE CLASS II NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +9 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of three Directors and operates under a written charter adopted by the Board. Each member of the +Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this +Proxy Statement under "Standing Committees of the Board" and are more fully described in its charter, which can be viewed on the Company's website at www.pdce.com under "Corporate Governance." +Management +is responsible for the Company's internal controls and preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The +Company's independent registered public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the +Public Company Accounting Oversight Board (United States) ("PCAOB") and issuing a report thereon. The Audit Committee's responsibilities include monitoring and overseeing these processes. +The +Audit Committee held eight meetings during 2017. In addition, the Audit Committee has authorized Audit Committee member Anthony J. Crisafio to serve as a sub-committee of the Audit +Committee to review and approve SEC periodic financial filings and other actions of the partnerships for which the Company serves as managing general partner (collectively, the "Partnerships"). The +sub-committee met five times during 2017 to review such partnership filings and PDC's Annual Report on Form 11-K for its 401(k) and Profit Sharing Plan. +The +Audit Committee reviewed and discussed the Company's audited consolidated financial statements for the year ended December 31, 2017 (the "Audited Financial Statements") with +the Company's management and PwC, the Company's independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by Statement of Auditing +Standards No. 61 (Codification of Statements of Auditing Standards AU § 380) as adopted by the PCAOB in Rule 3200T, as amended. The Audit Committee has received the +written disclosures and the letter from PwC required by PCAOB Rule 3526 and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC +such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based +on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company's Annual +Report on Form 10-K for the fiscal year ended December 31, 2017. +Anthony J. Crisafio, Chair +David C. Parke +Jeffrey C. Swoveland +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +10 +Table of Contents +PROPOSAL NO. 2—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 2 on the Proxy Card) +The Audit Committee has appointed PwC as the Company's independent registered public accounting firm for the fiscal year ending +December 31, 2018, and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its +selection. A representative of PwC is expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate +questions. +Principal Accountant Fees and Services +2017 +2016 +Audit Fees (1) +$ +2,261,000 +$ +2,420,000 +Audit-Related Fees (2) +7,575 +26,513 +Tax Fees (3) +84,000 +24,854 +All Other Fees (4) +— +— +Total Fees +$ +2,352,575 +$ +2,471,367 +(1) Audit +Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company's annual consolidated +financial statements and the report on management's assessment of internal controls over financial reporting and the effectiveness of the Company's internal controls over financial reporting, +including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public +accounting firm in connection with statutory and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our securities offerings. (2) Audit-Related +Fees consist of the aggregate fees billed for assurance and related services that are related to the performance of the audit or review of the +Company's annual consolidated financial statements and are not reported under "Audit Fees." Fees billed primarily include our proportionate share of amounts billed to the Company-sponsored +partnerships for the audits of their annual financial statements. Total amounts billed to the Company-sponsored partnerships in 2017 and 2016 were $20,000 and $70,000, respectively. (3) Tax +Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its +proportionately consolidated entities. (4) Other +fees consist of aggregate fees billed for products and services other than services reported above. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be +subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit +services to be provided by the Company's independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible +non-audit services to be performed by the independent accountant may also be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which +are to be performed by the independent accountant and +11 +Table of Contents +are +not eligible for annual pre-approval must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by +the independent accountant will be reported to the Audit Committee after the services are fully performed. All of the services described in "Principal Accountant Fees and Services" were approved by +the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company's +website at www.pdce.com under "Corporate Governance." +The +proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the +Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Brokers will have discretionary authority to vote on this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY +A CONTRARY VOTE. +12 +Table of Contents +PROPOSAL NO. 3—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION +OF THE COMPANY'S NAMED EXECUTIVE OFFICERS +(Proposal 3 on the Proxy Card) +The stockholders of the Company are entitled to cast a non-binding advisory vote at the Annual Meeting on the compensation of the Company's +Named Executive Officers (as defined below). While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of +the vote in connection with their ongoing evaluation of the Company's executive compensation program. In 2017, based on the stockholder votes at the 2017 Annual Meeting of Stockholders and engagement +with some of the Company's largest stockholders, the Company determined to hold a "say-on-pay" vote annually, consistent with the majority of votes cast in favor of an annual advisory vote. The next +non-binding advisory vote regarding such frequency will be held at the 2023 Annual Meeting of Stockholders, in accordance with SEC rules. +As +described more fully under "Compensation Discussion and Analysis" below, the Company's executive compensation program is designed to attract, motivate and retain individuals with the +skills required to formulate and drive the Company's strategic direction and achieve the annual and long-term performance necessary to create stockholder value. The program also seeks to align +executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The +Company's practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer's compensation at risk demonstrates its +pay-for-performance philosophy. In 2017 approximately 80% of the target compensation for our Named Executive Officers, other than the CEO, was in the form of variable compensation which was "at risk" +(i.e., incentive cash compensation, performance-based equity, stock appreciation rights and restricted stock units). For the Company's CEO, this amount was 85% in 2017. +Each +of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three year period and performance share units subject +to a three year performance period, to provide a stake in the Company's long-term success. The Company also has demanding stock ownership guidelines applicable to its Named Executive Officers. The +Company believes that this "tone at the top" guides the Company's other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company. +The +Compensation Committee considers the results of the non-binding "say-on-pay" vote of our stockholders in making prospective compensation decisions. At our 2017 annual meeting of +stockholders, over 96% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Accordingly, the Compensation Committee concluded that our executive +compensation programs generally meet the expectations of our stockholders. We did not make any material changes to our executive compensation programs in 2017. +In +light of the foregoing, the Company believes that the compensation of the Named Executive Officers for 2017 was appropriate and reasonable, and that its compensation programs and +practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, +that the Company's stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, +including the "Compensation Discussion and Analysis," compensation tables and narrative disclosure in this Proxy Statement for the Company's 2018 Annual Meeting. +This +advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled +to vote on +13 +Table of Contents +this +proposal. Abstentions will be counted as votes against this proposal. Broker non-votes will not affect the outcome of this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS +STOCKHOLDERS SPECIFY A CONTRARY VOTE. +PROPOSAL NO. 4—APPROVE THE 2018 EQUITY INCENTIVE PLAN +(Proposal 4 on the Proxy Card) +On March 30, 2018, the Board approved a new omnibus equity incentive plan entitled the PDC Energy, Inc. 2018 Equity Incentive Plan +(the "2018 Plan"), to be effective upon stockholder approval at the Annual Meeting. The Board also recommended that the Company's stockholders approve and adopt the 2018 Plan at the Annual Meeting. +The +key features of the 2018 Plan include the following: +• A reserve of 1,800,000 shares of our common stock that may be issued pursuant to awards under the 2018 Plan; +• A term that expires on March 29, 2028; +• Permitted awards include, but are not limited to, options, stock appreciation rights (sometimes referred to as "SARs"), restricted stock, +restricted stock units (sometimes referred to as "RSUs"), performance stock units (sometimes referred to as "PSUs"), and other stock-based awards; +• No direct or indirect repricing of options or stock appreciation rights without stockholder approval; +• Stringent share recycling provisions that prohibit recycling of shares used as consideration for tax withholding or as consideration for option +exercises, along with full counting of all shares subject to stock-settled stock appreciation rights; +• A minimum one year cliff vesting schedule on all awards types under the 2018 Plan (applicable to at least 95% of the shares authorized for +issuance); +• Dividends and dividend equivalents on unvested awards are accrued and paid only if related awards become vested; and +• No excise-tax gross-ups on equity awards. +Reasons for Adopting the 2018 Plan +The Compensation Committee and the Board believe that we must continue to offer a competitive equity incentive program in order to successfully +attract, retain and motivate the best employees, directors, and consultants, without whom we cannot execute on our business goals or deliver value to our stockholders. Our Amended and Restated 2010 +Long-Term Equity Compensation Plan, which was most recently approved by stockholders in 2013 (as the same has been amended and restated from time to time, the "2010 Plan"), is the only equity +incentive plan that we currently maintain, and it will remain outstanding and the Company may use the 2010 Plan to grant awards regardless of whether the stockholders approve the 2018 Plan. However, +the share reserve of the 2010 Plan is nearly depleted. As of April 2, 2018, there were only 320,791 shares available for grant under the 2010 Plan. Accordingly, and based on historic grant +patterns, we believe the remaining shares available for issuance under the 2010 Plan are insufficient, and that we must increase the number of shares available for issuance under +14 +Table of Contents +our +equity incentive plans to address our future equity compensation needs for a meaningful period of time. We believe strongly that adoption of the 2018 Plan will accomplish this objective. +If +the stockholders approve the 2018 Plan, the number of shares of common stock reserved for issuance under the Company's equity incentive plans will be increased by 1,800,000 shares, as +follows (share counts are as of April 2, 2018): +Remaining shares available for issuance pursuant to new awards under the existing 2010 plan +320,791 +Shares available for issuance under the 2018 Plan ++ +1,800,000 +Total shares available for issuance pursuant to new awards under the Company's equity plans += +2,120,791 +Outstanding Awards under 2010 Plan +As of April 2, 2018, there were 298,220 stock options/SARs outstanding under the Company's equity compensation plans with a weighted +average exercise price of $47.39 and weighted average remaining term of 6.2 years. In addition, as of April 2, 2018, there were 770,910 full-value awards outstanding under the Company's +equity compensation plans. Other than the foregoing, no other awards under the Company's equity compensation plans were outstanding or available for grant as of April 2, 2018. +Description of the 2018 Plan +The following summary of material terms of the 2018 Plan does not purport to be complete and is subject to and qualified in its entirety by the +actual terms of the 2018 Plan. A copy of the 2018 Plan is provided as Appendix A to this Proxy Statement. +Purpose of the 2018 Plan +The purpose of the 2018 Plan is to promote the success of the Company and the interests of its stockholders by providing an additional means for +the Company to attract, motivate, retain and reward directors, officers, employees and other eligible persons (including certain consultants and advisors). +The +Board or one or more committees consisting of independent directors appointed by the Board will administer the 2018 Plan. The Board will delegate general administrative authority for +the 2018 Plan to the Compensation Committee, which is comprised of directors who qualify as independent under rules promulgated by the SEC and NASDAQ. Except where prohibited by applicable law, a +committee may delegate some or all of its authority with respect to the 2018 Plan to another committee of directors or to one or more officers of the Company. For purposes of Rule 16b-3 of the +Exchange Act, the rules of NASDAQ and for grants to non-employee directors, the 2018 Plan must be administered by a committee consisting solely of two or more independent directors. The appropriate +acting body, be it the Board, a committee within its delegated authority, or an officer within his or her delegated authority, is referred to in this section as the Administrator. +The +Administrator has broad authority under the 2018 Plan with respect to award grants including, without limitation, the authority: +• To select participants and determine the type(s) of award(s) that they are to receive; +• To determine the number of shares that are to be subject to awards and the terms and conditions of awards, including the price (if any) to be +paid for the shares or the award; +• To cancel, modify, or waive the Company's rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, +subject to any required consents, and subject to the repricing prohibition described below; +15 +Table of Contents +• To accelerate or extend the vesting or exercisability or extend the term of any or all outstanding awards subject to any required consents; +• Subject to the other provisions of the 2018 Plan, to make certain adjustments to outstanding awards and authorize the conversion, succession or +substitution of awards; and +• To allow the purchase price of awards or shares of the Company's common stock to be paid in the form of cash, check, or electronic funds +transfer, by the delivery of already-owned shares of the Company's common stock or by a reduction of the number of shares deliverable pursuant to the awards, by services rendered by the recipient of +the awards, by notice of third party payment or by cashless exercise, on such terms as the Administrator may authorize, or any other form permitted by law. +Eligibility +Persons eligible to receive awards under the 2018 Plan include officers and employees of the Company or any of its subsidiaries, non-employee +directors of the Company, and certain individual consultants who render bona fide services to the Company or any of its subsidiaries (other than services in connection with the offering or sale of +securities or as a market maker or promoter of securities of the Company). As of the date of this Proxy Statement, there are approximately 337 employees, including officers, of the Company and its +subsidiaries and seven non-employee Directors of the Company and its subsidiaries who would potentially be eligible to receive awards under the 2018 Plan. +Authorized Shares +There are 1,800,000 shares of Company common stock authorized for issuance pursuant to awards under the 2018 Plan. The 2018 Plan generally +provides that shares issued in connection with awards that are granted by or become obligations of the Company through the assumption of awards (or in substitution for awards) in connection with an +acquisition of another company will not count against the shares available for issuance under the 2018 Plan, except as may be required by the Administrator or applicable law or stock exchange rules. +Shares +that are subject to or underlie awards which expire or for any reason are canceled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered +under the 2018 Plan are available for reissuance under the 2018 Plan. However, the 2018 Plan prohibits liberal share recycling. Accordingly, shares tendered or withheld to satisfy the exercise price +of options or tax withholding obligations, and shares covering the portion of exercised stock-settled SARs (regardless of the number of shares actually delivered), count against the share limit. +Awards Under the 2018 Plan +Because awards under the 2018 Plan are granted in the discretion of the Board or a committee of the Board, the type, number, recipients and +other terms of future awards cannot be determined at this time. +No Repricing +In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that may be approved by shareholders) will +any adjustment be made to a stock option or stock appreciation right award under the 2018 Plan (by amendment, cancellation and regrant, exchange for other awards or cash or other means) that would +constitute a repricing of the per share exercise or base price of the award. +16 +Table of Contents +Minimum Vesting Schedule +The 2018 Plan requires a minimum one year cliff vesting schedule for all equity award types under the 2018 Plan. This minimum vesting schedule +will apply to at least 95% of the shares authorized for grant under the 2018 Plan. +Dividends and Dividend Equivalents +Accrued dividends or dividend equivalent amounts shall not be paid unless and until the awards to which they relate become vested. +Types of Awards +The 2018 Plan authorizes stock options, SARs, restricted stock, RSUs, PSUs and other forms of awards that may be granted or denominated in the +Company's common stock or units of the Company's common stock, as well as cash bonus awards. The 2018 Plan provides flexibility to offer competitive incentives and to tailor benefits to specific needs +and circumstances. Awards may, in certain cases, be paid or settled in cash. +Stock Options +A stock option is a right to purchase shares of the Company's common stock at a future date at a specified price per share (the "exercise +price"). The per share exercise price of an option generally may not be less than the fair market value of a share of the Company's common stock +on the date of grant. On April 2, 2018, the last sale price of the Company's common stock as reported on NASDAQ was $46.61 per share. The maximum term of an option is ten years from the date of +grant. An option may be either an incentive stock option or a nonqualified stock option. Incentive stock options are taxed differently than nonqualified stock options and are subject to more +restrictive terms under the Internal Revenue Code of 1986, as amended (the "Code") and the 2018 Plan. Incentive stock options may be granted only to employees of the Company or a subsidiary. +Stock Appreciation Rights +A stock appreciation right is the right to receive payment of an amount equal to the excess of the fair market value of shares of the Company's +common stock on the date of exercise of the stock appreciation right over the base price of the stock appreciation right. The base price is established by the Administrator at the time of grant of the +stock appreciation right and generally cannot be less than the fair market value of a share of the Company's common stock on the date of grant. Stock appreciation rights may be granted in connection +with other awards or independently. The maximum term of a stock appreciation right is ten years from the date of grant. +Restricted Stock +Shares of restricted stock are shares of the Company's common stock that are subject to certain restrictions on sale, pledge, or other transfer +by the recipient during a particular period of time (the "restricted period"). Subject to the restrictions provided in the applicable award agreement and the 2018 Plan, a participant receiving +restricted stock may have all of the rights of a shareholder as to such shares, including the right to vote and the right to receive dividends; provided, however, that dividends on unvested shares +shall be accrued and shall be paid only if the restricted stock to which they relate become vested. +17 +Table of Contents +Restricted Stock Units +A restricted stock unit represents the right to receive one share of the Company's common stock on a specific future vesting or payment date. +Subject to the restrictions provided in the applicable award agreement and the 2018 Plan, a participant receiving RSUs has no rights as a shareholder until the shares of common stock are issued to the +participant. RSUs may be granted with dividend equivalent rights. RSUs may be settled in cash if so provided in the applicable award agreement. +Performance Stock Units +A performance stock unit ("PSU") is a performance-based award that entitles the recipient to receive shares of the Company's common stock based +on attainment of one or more performance goals. Each PSU shall designate a target number of shares covered by the award, with the actual number of PSUs earned (if any) based on a formula set forth in +the award agreement related to the attainment of one or more performance goals. Subject to the restrictions provided in the applicable award agreement and the 2018 Plan, a participant receiving PSUs +has no rights as a shareholder until the shares of common stock are issued to the participant. PSUs may be granted with dividend equivalent rights. PSUs may be settled in cash if so provided in the +applicable award agreement. +Cash Awards +The Administrator, in its sole discretion, may grant cash awards, including without limitation discretionary awards, awards based on objective +or subjective performance criteria, and awards subject to other vesting criteria. +Other Awards +The other types of awards that may be granted under the 2018 Plan include, without limitation, stock bonuses, dividend equivalents, and similar +rights to purchase or acquire shares of the Company's common stock. +Change of Control +Unless otherwise provided in an applicable award agreement, upon a change of control (as defined in the 2018 Plan), the Administrator shall have +full discretion to take whatever +actions it deems necessary or appropriate, including but not limited to the following actions: (1) provide for full or partial accelerated vesting of any award or portion thereof, either +immediately prior to the change of control or on such terms and conditions following the change of control (such as a termination without cause) as the Administrator determines in its sole and +absolute discretion; (2) provide for the assumption of such awards (or portions thereof) or the substitution of such awards (or portions thereof) with similar awards of the surviving or +acquiring Company; (3) provide for the cash-out and cancellation of any award (or portion thereof); and (4) take any other actions as the Administrator deems necessary or advisable in +connection with such change of control transaction. If the surviving or acquiring company does not assume the outstanding awards (or portions thereof) or substitute similar stock awards for those +outstanding under the 2018 Plan as of the change of control, then the vesting and exercisability (if applicable) of all awards (or portions thereof) shall be accelerated in full immediately prior to +such change of control, and such outstanding awards (or portions thereof) shall terminate and/or be payable upon the occurrence of the change of control. The Administrator may take different actions +with respect to different participants under the 2018 Plan, different awards under the 2018 Plan, and different portions of awards granted under the 2018 Plan. +18 +Table of Contents +Transferability of Awards +Awards under the 2018 Plan generally are not transferable by the recipient other than by will or the laws of descent and distribution, or +pursuant to domestic relations orders, and with respect to awards with exercise features, are generally exercisable during the recipient's lifetime only by the recipient. Any amounts payable or shares +issuable pursuant to an award generally will be paid only to the recipient or the recipient's beneficiary or representative. The Administrator has discretion, however, to establish written conditions +and procedures for the transfer of awards to other persons or entities, as long as such transfers comply with applicable federal and state securities laws and provided that any such transfers are not +for consideration. +Adjustments +As is customary in plans of this nature, the share limit and the number and kind of shares available under the 2018 Plan and any outstanding +awards, as well as the exercise or purchase prices of awards, are subject to adjustment in the event of certain reorganizations, mergers, +combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property +to the shareholders. +No Limit on Other Authority +The 2018 Plan does not limit the authority of the Board or any committee to grant awards or authorize any other compensation, with or without +reference to the Company's common stock, under any other plan or authority. +Non-Competition and Clawback Policy +By accepting awards and as a condition to the exercise of awards and the enjoyment of any benefits of the 2018 Plan, participants agree to be +bound by and subject to certain restrictive covenants and may forfeit their awards upon breach of such restrictive covenants. Awards are subject to any clawback policy adopted by the Company from time +to time. +Awards to Directors +The 2018 Plan is the exclusive vehicle for awards of cash and equity compensation to be paid or provided to the Company's non-employee +directors. Non-employee directors are eligible to receive all forms of awards to the extent permissible under the 2018 Plan. Cash awards to non-employee directors may take any form determined by the +Administrator in its sole and absolute discretion, including, but not limited to, retainers, committee fees, chairperson fees, per meeting fees, and special fees for committee service. Cash awards +paid to any non-employee director may not exceed $400,000 in any fiscal year. Equity awards to non-employee directors may take any form determined by the Administrator in its sole and absolute +discretion. Equity awards granted to any non-employee director may not have a grant date fair value in excess of $400,000 in any fiscal year. +Termination of, or Changes to, the 2018 Plan +The Administrator may amend or terminate the 2018 Plan at any time and in any manner. Shareholder approval for an amendment will be required +only to the extent then required by applicable law or any applicable stock exchange rules or as required under Sections 162, 409A, 422 or 424 of the Code to preserve the intended tax +consequences of the 2018 Plan. For example, shareholder approval is required for any proposed amendment to increase the maximum number of shares that may be delivered with respect to awards granted +under the 2018 Plan. Adjustments as a result of stock splits or similar events will not, however, be considered amendments requiring shareholder approval. Unless terminated earlier by the Board, the +authority to grant new awards under the 2018 Plan will terminate +19 +Table of Contents +ten +years after the date on which the 2018 Plan was approved by the Board. Outstanding awards generally will continue following the expiration or termination of the 2018 Plan. Generally speaking, +outstanding awards may be amended by the Administrator (except for a repricing), but the consent of the award holder is required if the amendment (or any plan amendment) materially and adversely +affects the holder. +Certain Federal Tax Consequences +The following summary of the federal income tax consequences of awards under the 2018 Plan is based upon federal income tax laws in effect on +the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss state, local or non-U.S. tax consequences. The tax consequences of individual awards may vary +depending upon the particular circumstances applicable to any individual participant. +Nonqualified Stock Options +The grant of a nonqualified stock option under the 2018 Plan will not result in any federal income tax consequences to the participant or to the +Company. Upon exercise of a nonqualified stock option, the participant will recognize ordinary compensation income equal to the excess of the fair market value of the shares of common stock at the +time of exercise over the option exercise price. If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an +income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the +participant's subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss, depending on the sales proceeds received and whether the shares are held for more +than one year following exercise. The Company does not receive a tax deduction for any subsequent capital gain. +Incentive Stock Options +The grant of an incentive stock option (or "ISO") under the 2018 Plan will not result in any federal income tax consequences to the participant +or to the Company. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at +the time of exercise. In the event of a disposition of stock acquired upon exercise of an ISO, the tax consequences depend upon how long the participant has held the shares. If the participant does +not dispose of the shares within two years after the ISO was granted, nor within one year after the ISO was exercised, the participant will recognize a long-term capital gain (or loss) equal to the +difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances. +If +the participant fails to satisfy either of the foregoing holding periods (referred to as a "disqualifying disposition"), he or she will recognize ordinary compensation income in the +year of the disposition. The amount of ordinary compensation income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or +(ii) the difference between the fair market value of the stock at the time of exercise and the exercise price. Such amount is not subject to withholding for federal income and employment tax +purposes, even if the participant is an employee of the Company. Any gain in excess of the amount taxed as ordinary income will generally be treated as a short-term capital gain. The Company, in the +year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary compensation income recognized by the participant, subject to possible limitations imposed by the +Code, including Section 162(m) thereof. +The +"spread" under an ISO (i.e., the difference between the fair market value of the shares at exercise and the exercise price) is classified as an item of adjustment in the year +of exercise for +20 +Table of Contents +purposes +of the alternative minimum tax. If a participant's alternative minimum tax liability exceeds such participant's regular income tax liability, the participant will owe the alternative minimum +tax liability. +Restricted Stock +Restricted stock is generally taxable to the participant as ordinary compensation income on the date that the restrictions lapse +(i.e. the date that the stock vests), in an amount equal to the excess of the fair market value of the shares on such date over the amount paid for such stock (if any). If the participant is an +employee, this income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by +the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant's subsequent disposition of the shares will be +treated as long-term or short-term capital gain or loss depending on the sales price and how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction +for any subsequent gain. +Participants +receiving restricted stock awards may make an election under Section 83(b) of the Code (a "Section 83(b) Election") to recognize as ordinary compensation +income in the year that such restricted stock is granted in an amount equal to the excess of the fair market value on the date of the issuance of the stock over the amount paid for such stock. If the +participant is an employee, this income is subject to withholding for federal income and employment tax purposes. If such an election is made, the recipient recognizes no further amounts of +compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long-term or short-term capital gain or loss to the recipient. However, if the stock is +later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Section 83(b) Election. The Section 83(b) Election must be made within 30 days +from the time the restricted stock is issued. The Company is entitled to a deduction equal to the amount of income taken into account as a result of the Section 83(b) Election, subject to +possible limitations imposed by the Code, including Section 162(m) thereof. +To +the extent dividends are paid while the restrictions on the stock are in effect, any such dividends will be taxable to the participant as ordinary income (and will be treated as +additional wages for federal +income and employment tax withholding purposes, if the recipient is an employee) and will be deductible by the Company (subject to possible limitations imposed by the Code, including +Section 162(m) thereof), unless the participant has made a Section 83(b) Election, in which case the dividends will generally be taxed at dividend rates and will not be deductible by the +Company. +Other Awards +Other awards (such as RSUs and PSUs) are generally treated as ordinary compensation income as and when common stock or cash are paid to the +participant upon vesting or settlement of such awards. If the participant is an employee, this income is subject to withholding for income and employment tax purposes. The Company is generally +entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient, subject to possible limitations imposed by the Code, including Section 162(m) thereof. +Section 162(m) of the Internal Revenue Code +Under Code Section 162(m), no deduction is allowed in any taxable year of the Company for compensation in excess of $1 million +paid to the Company's "covered employees." A "covered employee" is any individual who has served at any time after December 31, 2016 as the Company's chief executive officer, chief financial +officer, or other executive officer whose compensation has been reported in a Company proxy statement, regardless of whether any such individual is still employed by the Company. +21 +Table of Contents +Section 409A of the Internal Revenue Code +Section 409A of the Code provides certain requirements for the deferral and payment of deferred compensation arrangements. In the event +that any award under the 2018 Plan is deemed to be a deferred compensation arrangement, and if such arrangement does not comply with Section 409A of the Code, the recipient of such award will +recognize ordinary income once such award is vested, as opposed to at the time or times set forth above. In addition, the amount taxable will be subject to an additional 20% federal income tax along +with other potential taxes and penalties. It is intended, although not guaranteed, that all awards issued under the 2018 Plan will either be exempt from or compliant with the requirements of +Section 409A of the Code. +Interested Parties +Because approval of the 2018 Plan will increase the number of shares available for issuance to the directors and executive officers of the +Company, each of those persons has an interest in and may benefit from the approval of the 2018 Plan. +Vote Required for Approval +Approval of the 2018 Plan will require the affirmative vote of a majority of the shares present or represented at the Annual Meeting. +Abstentions will be counted as votes against this matter, and broker non-votes will have no effect on the vote on this matter. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPANY'S 2018 EQUITY INCENTIVE PLAN. +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2018 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the matters set +forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed +form of proxy to vote in accordance with their discretion on such matters pursuant to such proxy. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding beneficial ownership of the Company's common stock as of April 2, 2018, by +(1) each person known by the Company to own beneficially more than five percent of the outstanding shares of common stock; (2) each Director of the Company; (3) each executive +officer; and (4) all Directors and Named Executive Officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as +beneficially owned, subject to community property laws where applicable. As of April 2, 2018, 66,087,319 shares of common stock of the Company were outstanding. Except as otherwise indicated, +22 +Table of Contents +the +address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage of +Shares +Beneficially +Owned +BlackRock, Inc. +55 East 52nd Street +New York, NY 10022 +8,643,984 +(1) +13.1 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +6,053,474 +(2) +9.2 +% +Causeway Capital Management LLC +11111 Santa Monica Boulevard 15th Floor +Los Angeles, CA 90025 +4,777,877 +(3) +7.2 +% +FMR, LLC +245 Summer Street +Boston, MA 02210 +4,381,267 +(4) +6.6 +% +Dimensional Fund Advisors LP +6300 Bee Cave Road Building One +Austin, TX 78746 +4,280,455 +(5) +6.5 +% +Barton R. Brookman, Jr. +241,956 +(6) +* +Lance A. Lauck +136,374 +(7) +* +Scott J. Reasoner +71,008 +(8) +* +Daniel W. Amidon +107,363 +(9) +* +R. Scott Meyers +8,093 +(10) +* +Jeffrey C. Swoveland +19,018 +(11) +* +David C. Parke +11,440 +(12) +* +Anthony J. Crisafio +16,892 +(13) +* +Larry F. Mazza +24,864 +(14) +* +Randy S. Nickerson +807 +(15) +* +Mark E. Ellis +— +(16) +* +Christina M. Ibrahim +— +(17) +* +David W. Honeyfield +24,608 +(18) +* +All directors and executive officers as a group (12 persons) +637,815 +(19) +1.0 +% +* Represents +less than 1% of the outstanding shares of common stock. (1) As +reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 23, 2018, BlackRock, Inc. holds sole voting power as to +8,510,695 shares and sole dispositive power as to 8,643,984 shares. (2) As +reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 9, 2018, The Vanguard Group is an investment advisor in accordance +with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 71,306 shares, sole dispositive power as to 5,980,011 shares and shared dispositive power as to 73,463 shares. (3) As +reported on a Schedule 13G/A filed with the SEC by Causeway Capital Management LLC on February 14, 2018, Causeway Capital +Management LLC is a parent holding company in accordance with SEC Rule 13d-1(b)1(ii)(G) and holds sole voting power as to 2,163,029 shares and sole dispositive power as to 4,777,877 +shares. +23 +Table of Contents +(4) As +reported on a Schedule 13G/A filed with the SEC by FMR LLC on February 13, 2018, FMR LLC is a parent holding company in accordance +with SEC Rule 13d-1(b)1(ii)(G) and holds sole voting power as to 343,008 shares and sole dispositive power as to 4,381,267 shares. (5) As +reported on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 9, 2018, Dimensional Fund Advisors, LP is +a parent holding company in accordance with SEC Rule 13d-1(b)1(ii)(G) and holds sole voting power as to 4,189,436 shares and sole dispositive power as to 4,280,455 shares. (6) Excludes +76,357 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 103,537 shares subject to SARs exercisable within +60 days of April 2, 2018. (7) Excludes +28,242 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 62,330 shares subject to SARs exercisable within +60 days of April 2, 2018. (8) Excludes +25,105 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 16,783 shares subject to SARs exercisable within +60 days of April 2, 2018. (9) Excludes +16,498 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 57,250 shares subject to SARs exercisable within +60 days of April 2, 2018. (10) Excludes +16,985 RSUs subject to vesting greater than 60 days after April 2, 2018. (11) Excludes +6,016 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 3,580 common shares deferred pursuant to the Non-Employee +Director Deferred Compensation Plan. (12) Excludes +4,813 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 2,312 common shares deferred pursuant to the Non-Employee +Director Deferred Compensation Plan. (13) Excludes +4,813 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 425 common shares purchased pursuant to the Non-Employee +Director Deferred Compensation Plan. (14) Excludes +4,813 RSUs subject to vesting greater than 60 days after April 2, 2018. (15) Excludes +4,364 RSUs subject to vesting greater than 60 days after April 2, 2018. (16) Excludes +3,902 RSUs subject to vesting greater than 60 days after April 2, 2018. (17) Excludes +2,748 RSUs subject to vesting greater than 60 days after April 2, 2018. (18) The +shares reported are based on the Company's knowledge and were determined in accordance with the latest Form 4 filed by the Company on +Mr. Honeyfield's behalf, dated December 18, 2017. Transactions in Company stock by Mr. Honeyfield since that date, if any, are not reflected in this number. Includes 7,962 shares +subject to SARs exercisable within 60 days of April 2, 2018. (19) Excludes +194,656 RSUs subject to vesting greater than 60 days after April 2, 2018; includes 6,317 common shares deferred pursuant to the Non-Employee +Director Deferred Compensation Plan and includes 247,862 SARs exercisable within 60 days of April 2, 2018. +Each +SAR referenced in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value +on the date of initial grant, which ranged from $24.44 to $74.57 for the SARs in the table, payable in shares only. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company's executive officers and Directors, and persons who own more than 10% of a +registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the common stock +are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the +reporting requirements of Section 16(a) of the Exchange Act. +Based +solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable transactions were reported, the Company believes +that, during the fiscal year ended December 31, 2017, the Company's executive officers and Directors and owners of more than 10% of the Company's common stock timely filed all reports they were +required to file under Section 16(a) of the Exchange Act. +24 +Table of Contents +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board's policies on +a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +• Director selection, qualification and responsibilities; +• The holding and frequency of executive sessions of independent directors, Board self-evaluation and senior executive performance reviews; +• Board committee structure and function; +• Succession planning; and +• Governance matters, standard of business conduct and Board committee responsibilities. +The +Corporate Governance Guidelines were most recently amended on September 30, 2017. +Uncontested Elections Policy +The Corporate Governance Guidelines include an Uncontested Elections Policy (the "Policy"). Under the Policy, any nominee for Director in an +uncontested election who receives a greater number of "withhold" votes than "for" votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will +promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and +addressing the apparent underlying causes of the "withhold" votes in a different way. +In +making this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders' withholding +of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director's contributions to the Company, +whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is +in the best interests of the Company and its stockholders. In considering the N&G Committee's recommendation, the Board will take into account the factors considered by the N&G Committee and such +additional information and factors as the Board believes to be relevant. +Other Corporate Governance Documents +The Company's website includes the Corporate Governance Guidelines and the following additional governance documents: +Director +Nomination Procedures +Director +Stock Ownership Guidelines +Insider +Trading Policy +Shareholder +Communication Policy +Audit +Committee Charter +Compensation +Committee Charter +Midstream +Committee Charter +25 +Table of Contents +Nominating +and Governance Committee Charter +Non-Executive +Chairman Charter +Code +of Business Conduct and Ethics +Waivers +of Potential Conflicts of Interest, as applicable +Board of Directors +The Company's Bylaws provide that the number of members of the Board shall be designated from time to time by a resolution of the Board, +provided that pursuant to the Company's Certificate of Incorporation (the "Charter") the number of directors on the Board shall in no event be fewer than three or more than nine. As of the date of +this Proxy Statement, the designated number of Directors is eight. Under the Charter, the Board is divided into three separate classes of Directors which are required to be as nearly equal in number +as practicable. At each annual meeting of stockholders, one class of Directors whose term is expiring may be elected for a new term of three years. The classes are staggered so that the term of one +class expires each year. +There +is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person +pursuant to which the person was selected as an officer or Director of the Company. +Director Independence +In affirmatively determining whether a Director is "independent," the Board analyzes and reviews NASDAQ listing standards, which set forth +certain circumstances under which a director may not be considered independent. The current President and CEO of the Company, Mr. Brookman, is not independent under such standards. Audit +Committee and Compensation Committee members are subject to additional, more stringent independence requirements. +The +Board has reviewed the business and charitable relationships between the Company and each non-employee Director ("Non-Employee Director") to determine compliance with the NASDAQ +listing standards and to evaluate whether there are any other facts or circumstances that might impair a +Non-Employee Director's independence. The Board has affirmatively determined that each of the Non-Employee Directors (i.e., Messrs. Crisafio, Ellis, Mazza, Nickerson, Parke and Swoveland +and Ms. Ibrahim, and former directors Mr. Casabona and Ms. Wakim) were independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter +requirements at all times while serving as a Non-Employee Director. +Board Meetings and Attendance +The Board has a standing Audit Committee, Compensation Committee, Midstream Committee and N&G Committee. Actions taken by these committees are +reported to the Board at its next meeting. During 2017, each Director other than Ms. Ibrahim, whose Board service commenced on January 1, 2018, attended at least 75% of all meetings of +the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of +the Directors (other than Mr. Ellis and Ms. Ibrahim, who were not directors at that time) attended the 2017 annual meeting of stockholders held on May 30, 2018. +26 +Table of Contents +The +following table identifies the members of each committee of the Board, the chair of each committee, and the number of meetings held in 2017. Ms. Ibrahim's appointment to the +Board was approved on December 20, 2017, but was effective as of January 1, 2018. +2017 BOARD AND COMMITTEE MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Midstream +Committee (1) +Barton R. Brookman +X +Anthony J. Crisafio +X +X +(2) +X +(3) +X +Mark E. Ellis +X +(4) +X +(5) +X +Larry F. Mazza +X +X +(6) +X +X +(7) +Randy S. Nickerson +X +(8) +X +(9) +X +(10) +David C. Parke +X +X +(11) +X +X +Jeffrey C. Swoveland (12) +X +X +X +(13) +X +(14) +Joseph E. Casabona (15) +X +Kimberly Luff Wakim (16) +X +X +X +X +Number of Meetings in 2017 +8 +8 +(17) +8 +6 +2 +(1) The +Midstream Committee was formed on, and each of its members have served since, September 30, 2017. (2) Mr. Crisafio +served as a member of the Audit Committee for all of 2017, and served as its Chair since May 30, 2017. (3) Mr. Crisafio +served as a member of the Compensation Committee until September 30, 2017. (4) Mr. Ellis +became a director of the Company on August 27, 2017. (5) Mr. Ellis +served as a member of the Compensation Committee since September 30, 2017. (6) Mr. Mazza +served as a member of the Audit Committee until September 30, 2017. (7) Mr. Mazza +served as Chair of the N&G Committee until September 30, 2017 at which time the role transitioned to Mr. Nickerson. (8) Mr. Nickerson +became a director of the Company on March 4, 2017. (9) Mr. Nickerson +served as a member of the N&G Committee since May 30, 2017, and served as its Chair since September 30, 2017. (10) Mr. Nickerson +has served as Chair of the Midstream Committee since its formation. (11) Mr. Parke +served as a member of the Audit Committee since September 30, 2017. (12) Mr. Swoveland +serves as Non-Executive Chairman. (13) Mr. Swoveland +served as a member of the Compensation Committee until September 30, 2017. (14) Mr. Swoveland +served as a member of the N&G Committee since September 30, 2017. (15) Mr. Casabona +ceased to serve as a director of the Company following the 2017 annual meeting of stockholders. (16) Ms. Wakim +passed away on April 28, 2017. (17) A +sub-committee of the Audit Committee (the "Audit Sub-Committee") held five additional meetings in 2017 related to, among other matters, SEC filings on +Form 10-K for our affiliated Partnerships. Mr. Casabona served as the sole member of this sub-committee until May 30, 2017, at which time Mr. Crisafio became the sole +member. +27 +Table of Contents +The Non-Employee Directors generally meet in "executive session" in connection with each regularly scheduled Board meeting—i.e., without +Mr. Brookman, the Company's President and CEO, or other members of management present. Mr. Swoveland chairs these sessions; however, the other Non-Employee Directors may, in the event of +his absence, select another Director to preside over the executive session. +STANDING COMMITTEES OF THE BOARD +Audit Committee +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), +Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee +Charter, which was most recently amended and restated on May 30, 2017 and is posted on the Company's website at www.pdce.com under "Corporate Governance." The Board assesses the adequacy of the +Audit Committee Charter on an annual basis and revises it as necessary. The Board has determined that all members of the Audit Committee qualify as "financial experts" as defined by SEC regulations. +The Audit Committee's primary purpose is to assist the Board in monitoring the integrity of the Company's financial reporting process, systems of internal controls, financial statements, and +compliance with legal and regulatory requirements. Additionally, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditors engaged by the +Company for the purpose of preparing or issuing an audit report or related work. In performing its responsibilities, the Audit Committee: +• Monitors the integrity of the Company's financial reporting process and systems of internal controls regarding finance, accounting and legal +compliance; +• Monitors the independence of the independent registered public accounting firm; and +• Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Compensation Committee +The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing +Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 19, 2013 and is posted on the Company's +website at www.pdce.com under "Corporate Governance." In performing its responsibilities, the Compensation Committee: +• Oversees the development of a compensation strategy for the Company's Named Executive Officers; +• Evaluates the performance of and establishes the compensation of the CEO; +• Reviews and approves the elements of compensation for other senior executive officers of the Company; +• Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company +severance and change of control plans; +• Reviews the Non-Employee Directors' compensation and recommends to the Board any changes in such compensation; +• Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves +awards to those officers; +28 +Table of Contents +• Recommends to the Board equity-based incentive plans necessary to implement the Company's compensation strategy, approves equity grants under +the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +• Reviews and approves Company contributions to Company-sponsored retirement plans. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring +disclosure by the Company under Item 404 of Regulation S-K. During 2017, none of our executive officers served as director or member of the compensation committee (or other committee +serving an equivalent function) or any other entity whose executive officers served on our Compensation Committee or the Board. +Nominating and Governance Committee +The Board has determined that all members of the N&G Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The +Board has adopted a Nominating and Governance Committee Charter, which was most recently amended and restated on June 4, 2015 and is posted on the Company's website at www.pdce.com under +"Corporate Governance." In performing its responsibilities, the N&G Committee: +• Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the +next annual meeting of stockholders or to fill any vacancies; +• Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +• Leads the Board in its annual self-assessment of the Board's and its committees' performance and the Directors' contributions; and +• Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, +and Chair of, each committee, as well as the Non-Executive Chair position. +Midstream Committee +The Board has determined that all members of the Midstream Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). +The Board adopted a Midstream Committee Charter on September 30, 2017, which is posted on the Company's website at www.pdce.com under "Corporate Governance." In performing its responsibilities, +the Midstream Committee evaluates, analyzes, and makes recommendations to the Board regarding the Company's ownership, operation, development, and potential acquisition and disposition of midstream +assets. +Board Leadership Structure +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current +leadership structure, under which Mr. Brookman currently serves as President and CEO and Mr. Swoveland serves as Non-Executive Chairman of the Board, is the appropriate structure for our +Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that as Directors continue to have increasing oversight +responsibilities, it is beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on +29 +Table of Contents +leading +the Company. We believe our CEO and Chairman have an excellent working relationship which, given the separation of their positions, provides strong Board leadership while positioning our CEO +as the leader of the Company in front of our employees and stockholders. The Board reconsiders this structure at least annually. +DIRECTOR COMPENSATION +Non-Employee Directors' compensation is reviewed annually by the Compensation Committee and is approved by the Board. We compensate Directors on +an annual basis with a combination of cash and stock-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors' interests with those of our stockholders. +In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. No compensation +is paid to our CEO for his service on the Board. +In +2017, the Compensation Committee used its independent compensation consultant to review executive compensation and to conduct an annual review of the total compensation of our +Non-Employee Directors (see "Role of the Compensation Consultant" in the Compensation Discussion and Analysis section of this Proxy Statement). The consultant evaluated board and committee retainer +fees, potential meeting fees and stock-based long-term incentives using, as the competitive benchmark, total compensation paid to the directors of the energy companies which comprise the Company's +peer group used to determine 2017 executive compensation. Based on this review, no changes were made to our Non-Employee Directors' compensation. +Below +is a summary of the compensation paid to our Non-Employee Directors for service in 2017. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +Each Non-Employee Director (other than Ms. Ibrahim, whose service on the Board did not commence until January 2018) received an annual +cash retainer of $75,000 for service on the Board and for attendance at Board meetings, which amount was prorated for a partial year of service, as applicable. The Non-Executive Chairman received an +additional cash retainer of $100,000. +30 +Table of Contents +Annual Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on each committee and for attendance at committee meetings. The +Non-Employee Directors are not paid based on the number of Board or committee meetings they attend. The chair of each committee receives an additional annual retainer for his or her services as chair. +The following table shows the committee and chair retainers: +COMMITTEE RETAINERS +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$15,000 +$20,000 +Compensation +12,000 +15,000 +Midstream Committee +10,000 +10,000 +Nominating and Governance +6,000 +10,000 +Audit Sub-Committee (1) +5,000 +— +(1) Mr. Casabona +received $2,500 in fees for his service on the Audit Sub-Committee until May 30, 2017. Mr. Crisafio received $2,500 in fees for his +service on the Audit Sub-Committee from May 30, 2017 through the end of the year. +Equity Compensation +In January 2017, the Non-Employee Directors that were serving at that time were awarded RSUs for their service on the Board. The Non-Executive +Chairman was granted RSUs targeted to be the equivalent of $175,000 and the remaining Non-Employee Directors each received RSUs targeted to be the equivalent of $140,000. Mr. Nickerson and +Mr. Ellis, who became Directors later in the year, were granted RSUs in an amount that was prorated for their length of service during 2017. The RSUs vest in three equal annual installments +beginning January 17, 2018, other than those granted to Mr. Nickerson and Mr. Ellis, which vest in three equal annual installments beginning March 8, 2018 and +September 14, 2018, respectively. All RSUs were granted under the 2010 Plan. +Deferred Compensation +Each Non-Employee Director has historically had the option to defer all or a portion of his or her annual cash compensation and all or a portion +of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the "Deferred Comp Plan"). All compensation that is deferred pursuant to the Deferred Comp Plan is +credited with hypothetical earnings and losses as if invested in common stock of the Company. As of December 31, 2017, four Directors have phantom stock balances resulting from prior deferrals +of deferred cash and/or equity compensation. On December 6, 2017, the Compensation Committee approved an amendment to the Deferred Comp Plan which prohibits future deferral elections, effective +as of December 31, 2017. The phantom stock of the Directors that have existing balances will continue to be credited with earnings and losses in accordance with the Deferred Comp Plan until +such Directors separate from the Company. +Director Stock Ownership Requirements and Prohibition on Certain Transactions +Each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash +retainer. Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp +Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2017, all of the +31 +Table of Contents +Directors +met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Ellis, both of whom were appointed to the Board in 2017, and +Ms. Ibrahim, whose Board service commenced on January 1, 2018. The Director Stock Ownership Guidelines can be reviewed on the Company's website at www.pdce.com under "Corporate +Governance." +The +Company's Insider Trading Policy expressly prohibits Directors from short-term trading (purchasing and selling Company securities within a six-month period), short sales of Company +securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts +or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +Compensation paid to the Non-Employee Directors for 2017 was as follows: +2017 DIRECTOR COMPENSATION +Name +Fees +Earned +or Paid +in Cash (1) +($) +Stock +Awards (2) +($) +Total +($) +Anthony J. Crisafio +$126,375 +$137,955 +$264,330 +Mark E. Ellis (3) +30,500 +50,303 +80,803 +Larry F. Mazza +110,250 +137,955 +248,205 +Randy S. Nickerson (4) +73,000 +151,898 +224,898 +David C. Parke +114,929 +137,955 +252,884 +Jeffrey C. Swoveland (5) +200,500 +172,480 +372,980 +Kimberly Luff Wakim (6) +50,821 +137,955 +188,776 +Joseph E. Casabona (7) +60,500 +137,955 +198,455 +(1) Includes +annual Board retainer, regular committee and committee chair retainers, Audit Sub-committee fees, and the retainer for the Non-Executive Chairman of the +Board. (2) The +per-share price used for determining the number of RSUs awarded was calculated using the average of the 15-day closing prices ending ten days prior to the grant +date. The lower amounts reported in the table reflect the grant date fair value as computed in accordance with FASB ASC Topic 718 and variation in stock prices. (3) Represents +compensation earned for a partial year of service beginning on August 27, 2017. (4) Represents +compensation earned for a partial year of service beginning on March 4, 2017. (5) Compensation +includes cash and stock awards for his service as Non-Executive Chairman. (6) Represents +compensation earned through partial year of service ending on April 28, 2017. (7) Represents +compensation earned through partial year of service ending on May 30, 2017. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will use to evaluate nominees for election to +the Board. The Director Nomination Procedures can be viewed on the Company's website. The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge +(industry-specific and general), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on the particular candidate. +Additional +factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and +perspectives on the Board. The Director nomination process also includes consideration of the diversity +32 +Table of Contents +provided +by each candidate, and diversity is considered as part of the overall assessment of the Board's functioning and needs. One or more of these factors may be given more weight in a particular +case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The +N&G Committee identifies Director candidates primarily through recommendations made by the Non-Employee Directors. These recommendations are developed based on the Non-Employee +Directors' knowledge and experience in a variety of fields and on research conducted by the Company +at the N&G Committee's direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the +source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate +potential Director nominees, but did not do so in 2017. +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +Stockholder Recommendations +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other +sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company's headquarters or by email to +board@pdce.com. All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +• Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination +Procedures; +• An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +• Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +• An indication of the willingness of the proposed nominee to serve if nominated and elected. +Stockholder Nominations +Stockholders may nominate candidates for election to the Board. The Company's Bylaws require that stockholders who wish to submit nominations +for election to the Board at a meeting of stockholders follow certain procedures. See "Stockholder Nominations and Proposals—Advance Notice Procedures under the Company's Bylaws" for a +description of these procedures. +THE BOARD'S ROLE IN RISK MANAGEMENT +In the normal course of its business, the Company is exposed to a variety of risks. The Company operates a risk management program which +includes an enterprise risk management program designed to strengthen the consistency of risk consideration in making business decisions. The Board understands that it is not possible or desirable to +eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company's objectives. +33 +Table of Contents +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company's key strategic goals. While the +entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management process +and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company's financial statements. The Compensation Committee considers +risks related to the structure and size of the Company's compensation plans, as set out below. We believe that our Board leadership structure supports its risk oversight function. Among other things, +there is open and continuous communication between our management and our Directors. +Compensation Risk Assessment +We do not believe that the Company's executive or non-executive compensation structure is reasonably likely to have a material adverse effect on +the Company. Risk-mitigating features of our executive and non-executive compensation structure include: a balance of short-term and long-term programs to ensure focus on both elements of Company +performance; limitations on awards payable to any individual under our bonus programs, along with Compensation Committee discretion to decrease bonus payouts in the event that it believes excessive +risk was taken; "clawback" provisions are applicable to all Named Executive Officers through the terms of their employment agreements or pursuant to the Company's Clawback Policy, as applicable; stock +ownership requirements are in place for our Named Executive Officers and Non-Employee Directors; and an Insider Trading Policy that prohibits Directors and senior employees from transacting in Company +shares without first obtaining pre-clearance from the Company's General Counsel, even during open trading windows. +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee at the Company's +corporate headquarters or by emailing the Board at board@pdce.com with "Board Communication" or the appropriate Board committee indicated in the subject +line. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the "Code of Conduct") that applies to all Directors, officers, employees, agents, +consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company's principal executive officer, principal financial officer and principal accounting +officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct can be viewed on the Company's website at www.pdce.com under "Corporate Governance." In the event the +Board approves an amendment to or a waiver of any provisions of the Code of Conduct, the +Company will disclose the information on its website. +TRANSACTIONS WITH RELATED PARTIES +Related Transactions +During 2017, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding +$120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company's voting securities, or any member of the +immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +34 +Table of Contents +Policies and Procedures With Respect to Transactions with Related Parties +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential +conflicts of interest. The related-party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to +own more than five percent of the Company's voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the +Company's Directors or executive officers have a substantial interest. +Under +our related-party transaction policy, a related-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would +require disclosure in the Company's filings with the SEC as a transaction with a related party. The related party must disclose to +the Audit Committee any potential related-party transactions and must disclose all material facts with respect to such transaction and relationship. All related-party transactions so disclosed will be +reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include +factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company's business and operations. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the Company's SEC +filings are available at http://www.sec.gov and through a link from the Company's website at www.pdce.com . These documents may also be viewed at the SEC's +public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please +call the SEC at 1-800-SEC-0330 for further information on the public reference room. +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth +below. +BARTON +R. BROOKMAN, 55, see "Continuing Directors with Term Expiring in 2019—Class III" for biographical information concerning Mr. Brookman. +LANCE +A. LAUCK, 55, was appointed Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC's business development, acquisitions +and divestitures, strategic planning, corporate reserves and midstream and marketing. Mr. Lauck joined PDC in August 2009 as Senior Vice President Business Development with the added +responsibility of leading PDC's strategic planning efforts. Previously, he served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from +2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being +promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck +worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +R. +SCOTT MEYERS, 43, the Company's Chief Financial Officer, was appointed Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, +35 +Table of Contents +Mr. Meyers +served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, and PricewaterhouseCoopers LLP. +Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania. +DANIEL +W. AMIDON, 57, the Company's Senior Vice President, General Counsel and Secretary, was appointed General Counsel and Secretary in July 2007 and Senior Vice President in 2012. Prior to joining +the Company, Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation beginning in July 2004, where he served in several positions including General Counsel and Secretary. Prior +thereto, Mr. Amidon was employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of increasing responsibility, including General Counsel and Secretary. +Mr. Amidon practiced with the Pittsburgh, Pennsylvania law firm of Buchanan Ingersoll PC from 1986 through 1992. Mr. Amidon graduated from the University of Virginia, with honors, +majoring in economics. He received his J.D. from the Dickinson School of Law (now Penn State Law). +SCOTT +J. REASONER, 57, is the Company's Chief Operating Officer, a position to which he was appointed in January 2017. Mr. Reasoner joined the Company in April 2008 as Vice President of Western +Operations. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble +Energy Inc. where he was responsible for the Mid-Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for Patina Oil and Gas Company as Production Manager and later +as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines +with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer. +With +the exception of Messrs. Reasoner and Meyers, each of the above was an executive officer of the Company in September 2013, when each of twelve partnerships for which the +Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. With the exception of Mr. Meyers, each of the above was an +executive officer of the Company in September 2016, when two additional partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal +bankruptcy court. +CEO PAY RATIO +Recently adopted rules under the Dodd-Frank Act require certain U.S. public companies to disclose the ratio of the CEO's annual total +compensation to the median annual total compensation of all employees (not including the CEO) for a completed fiscal year. The Company identified the median employee based on estimated 2017 +compensation reportable on Form W-2 for all employees (other than the CEO) on December 31, 2017. For 2017, the CEO's total annual compensation was $5,826,483 and the median employee's +total annual compensation was $133,211, resulting in a pay ratio of 44:1. +Compensation +data used to calculate the ratio is set forth below: +Name +Salary +($) +Bonus +($) +Stock +Awards +($) +SARs +($) +All Other +Compensation(2) +($) +Total +($) +Median Employee +$77,499 +$11,000 +$9,540 +(1) +— +$35,172 +$133,211 +CEO +825,000 +990,000 +3,011,051 +921,522 +78,910 +5,826,483 +(1) Represents +the grant date fair value of RSUs, as computed in accordance with FASB ASC Topic 718. +36 +Table of Contents +(2) Includes +matching contributions to the Company's 401(k) and Profit Sharing Plan, perquisites less than $10,000 and other non-discriminatory benefits not reported in +the "Summary Compensation Table" set forth in this Proxy Statement. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and +Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +David C. Parke, Chair +Mark E. Ellis +Larry F. Mazza +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +The Compensation Committee (referred to in this section as the "Committee") believes that executives should be paid based on the performance of +the Company. This Compensation Discussion and Analysis ("CD&A") provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2017, as +well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2017 compensation of our President and Chief Executive Officer ("CEO"), our Chief Financial +Officer ("CFO"), and our three other most highly compensated officers (collectively, the "Named Executive Officers"), namely: +OFFICER +TITLE +Barton R. Brookman +President and Chief Executive Officer +David W. Honeyfield (1) +Former Senior Vice President—Chief Financial Officer +Lance A. Lauck +Executive Vice President—Corporate Development and Strategy +Scott J. Reasoner +Senior Vice President—Chief Operating Officer +Daniel W. Amidon +Senior Vice President—General Counsel and Secretary +(1) In +January 2018, Mr. Honeyfield resigned as Senior Vice President—Chief Financial Officer. For a description of the amounts paid in connection +with his separation, see "Potential Payments upon Termination or Change of Control—Honeyfield Separation Agreement." Mr. R. Scott Meyers has served as our Senior Vice President and +Chief Financial Officer since Mr. Honeyfield's separation. +2017 Business Highlights +In 2017, the Company focused primarily on the successful integration of our acquisition of approximately 62,500 net acres in Reeves and +Culberson Counties, Texas (the "Delaware Basin"), the ongoing execution of our capital program, and enhanced performance in the Wattenberg Field. Our technical capabilities within two premier U.S. +onshore basins enabled us to provide exceptional returns. Moreover, we continued to focus on our capital discipline and maintaining a strong financial position. Through the continued success of our +extended-reach lateral drilling program, we were able to increase our proved reserves 33% to over 450 million barrels of oil equivalent, increasing oil production and +37 +Table of Contents +efficiently +growing our overall production by more than 40% to 31.8 million barrels of oil equivalent. Key highlights of our achievements in 2017 include: +Delaware Basin Highlights: +• Created a new Delaware Basin team, focused on integrating and developing the Delaware Basin assets, all while maintaining the Company's strong +culture; +• In the Company's first year of operations in the Delaware Basin, we turned in line 18 wells with initial results largely exceeding our +expectations, while also reducing our drill times by nearly 40%; and +• Further defined approximately 450 future drilling locations, or more than 15 years of inventory at our current pace. +Wattenberg Field Highlights: +• Year-over-year Company-wide production growth of 44% including growing our overall oil production by more than 48% as shown in the chart below, +despite high line pressures in Wattenberg Field significantly restricting our production in the field; +• Continued technical advancements and efficiencies in the Wattenberg Field resulting in a year-over-year reduction in lease operating costs of +eight percent per barrel of oil equivalent ("Boe"); +Business Development Highlights: +• Successfully executed two large-scale acreage exchanges and one acquisition that added inventory and high economic value drilling locations +with tremendous upside, allowing us to take advantage of our capital and operational efficiencies, including through the use of more extended-reach lateral wells with increased working interests, +reduced surface impacts, improved margins and incremental value created through consolidated acreage positions; +• In addition to our successful efforts in the Kersey area, and our further consolidation resulting from the aforementioned acreage trades and +acquisition, we successfully formed our Plains and Prairie areas. When combined, these three acreage positions offer a drilling inventory of approximately 1,500 highly-economic projects, or more than +10 years of inventory at our current pace; and +• Agreed to extend and increase our dedication under a Wattenberg pipeline commitment, resulting in proceeds of ~$24 million while further +strengthening our commitment to reduce truck traffic by delivering more oil via pipe. +Financial Highlights: +• Maintained a strong financial position strengthening our balance sheet, including: +• Reduced Debt-to-Adjusted EBITDAX* to 1.9 at year-end 2017, from 2.1 at year-end 2016; +• Increased adjusted cash flow* from operating activities year-over-year by 25% as shown in the chart below; +* Adjusted +EBITDAX and adjusted cash flow are non-GAAP financial measures. See "Non-GAAP Financial Measures" on Appendix B for a reconciliation to their most +directly comparable GAAP measures. +38 +Table of Contents +• Completed an offering of $600 million aggregate principal amount of 5.75% Senior Notes in a private placement to qualified +institutional buyers; and +• Achieved reaffirmation by our bank group of the borrowing base under our revolving credit facility at $1 billion despite +challenging commodity prices. +• The strong operational performance for the year was achieved despite several challenges including the impact of high line pressures in the +Wattenberg Field and initial execution challenges in the Delaware Basin in the early part of the year; and +• Successfully grew our operational capabilities on a cost-effective basis through key hires and transfers of existing talent, while focusing on +integrating PDC's current culture into the new team following the acquisition of approximately 62,500 acres in the Delaware Basin Transactions. +Oil Production (MMBbls) +Adj. Cash Flow From Operations ($MM) +For +additional discussion of our 2017 results, see "Annual Cash Incentives—2017 Performance Results." +2017 Compensation Highlights +We made the following key compensation decisions for 2017 related to our Named Executive Officers: +• Selected a new benchmarking peer group reflective of PDC's size and complexity following the Delaware Basin Transactions (see "Compensation +Process—Making Executive Compensation Decisions—Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay"); +• Adjusted target total compensation to be more competitive with peers (see "2017 Compensation Decisions"); +• Awarded short-term cash bonuses at 130% of target to recognize the Company's achievements in 2017 (see "2017 Performance Results"); +• Awarded long-term equity incentives in January 2017 in the form of PSUs, SARs, and RSUs (see "Long Term Incentives"); and +• Shares awarded for previously granted PSUs relating to the 3-year performance period ending December 31, 2017 paid out at 200% of +target. This is the third year in a row that we have ranked first in TSR relative to the Company's peers (see "2015—2017 Performance Share Units Results"), even though the peer group had +been enhanced each year as the Company grew. +2018 Compensation +• Beginning with the 2018 equity grants, the Committee changed the weighting of our long-term equity incentives to 50% RSUs and 50% PSUs (see +"Long Term Incentives"); and +• 2018 performance metrics are substantially similar to 2017 performance metrics (see "2017 Performance Metrics"). +39 +Table of Contents +2017 Say on Pay Vote +At our 2017 annual meeting of stockholders, the overwhelming majority of our stockholders voted to approve our executive compensation program, +with over 96% of votes cast for approval. Based on these voting results, the feedback we received during the voting process, and the success of the Company in the last year, we did not make any +significant changes to our executive compensation program in 2017. +Key Features of our Executive Compensation Program +Compensation Best Practices +We believe our executive compensation program is competitive, is aligned with current governance trends, and contains stockholder-friendly +features as outlined below: +Our Executive Compensation Practices +(What We Do) +✓ +Pay for Performance —Our Named Executive Officers' total compensation is heavily weighted toward performance-based pay. Our annual incentive program is based on performance against key +operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ +Executive Ownership Guidelines —We have stock ownership guidelines for our executives and directors that are consistent with what we believe to be corporate governance best +practices. +✓ +External Benchmarking —We assess competitors' compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation +decisions. +✓ +Double-Trigger Change-of-Control Severance Benefits —In the event of a change of control, our severance plan and grandfathered employment contracts provide for cash severance benefits +only if the executive is actually or constructively terminated within two years following the change of control event. +✓ +Clawback Policy —We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial +reporting requirements under securities laws. +✓ +Compensation Risk Assessment —There is an appropriate balance between long-term and short-term focus in our compensation programs and the Committee has the ability to apply discretion +to ensure risk mitigation occurs in management decision-making. +✓ +Independent Compensation Consultant —We have engaged an independent executive compensation advisor who reports directly to the Committee. +✓ +Independent Compensation Committee —Our Committee is comprised solely of independent directors. +40 +Table of Contents +Executive Compensation Practices We Have Not Implemented +(What We Don't Do) +X +No Golden Parachute Excise Tax Gross-Ups —We do not provide gross-up payments to reimburse our executives for any tax obligations that would be incurred upon a change of control of the +Company. +X +No New Employment Contracts and/or Excessive Severance Benefits —We no longer provide employment contracts to new executives (Messrs. Lauck and Amidon have grandfathered contracts). +Severance benefits under both our severance plan and employment agreements are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or other +payments. +X +No Excessive Perquisites —We provide only modest perquisites that are consistent with peer companies in our industry. +X +No Repricing —We do not permit repricing of underwater stock options or SARs without stockholder approval. +X +Prohibited Transactions —Hedging transactions, short selling, short-term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long-term +business objectives of the Company are strictly prohibited for all officers and directors of the Company under our Insider Trading Policy. +Compensation Objectives and Philosophy +The principal tenets of our compensation philosophy are as follows: +• Our executive compensation programs should be competitive with our peers to attract, retain and reward effective +leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. +We determine individual total compensation targets within this framework to provide compensation that correlates with the Company's performance relative to peers. Generally, we target total +compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +• Our executive compensation programs should be designed to support a performance-based +culture. The majority of each Named Executive Officer's compensation is at risk and is based on a combination of attainment of short-term goals in support of our +long-term strategy, long-term stock performance relative to our peers, and actual total shareholder return. Our programs require a commitment to performance because total compensation is not +guaranteed. Therefore, our programs reward above-target compensation when performance is warranted and below-target compensation when performance does not meet expectations. +• Our executive compensation programs should be designed to align our executives' interests with those of our +stockholders. A substantial portion of our Named Executive Officers' compensation is provided in the form of long-term equity incentives that tie executive pay to +stock price performance. In addition, we require each of our Named Executive Officers to meet our stock ownership guidelines. +• Our executive compensation programs should encourage appropriate risk +management. We believe that effective leadership in the oil and gas business requires taking prudent business risks while avoiding excessive +risk-taking. To encourage this balance, we have structured our compensation programs to include three-year vesting schedules on all equity awards, and to structure annual +41 +Table of Contents +cash +incentive awards using a combination of short-term financial and operational objectives. We also mitigate risk by allowing the Committee to exercise discretion in determining bonus payments +rather than relying solely on a formula. We regularly review our compensation programs to ensure that our Named Executive Officers are not encouraged to take inappropriate or excessive risks. +2017 Compensation Mix +Our pay-for-performance philosophy is demonstrated by the proportion of our Named Executive Officers' compensation that is variable or "at risk" +based on our performance mix to the overall compensation package awarded to our Named Executive Officers. The charts below show the targeted fixed and variable or "at-risk" components awarded in +January 2017 to our Named Executive Officers as a percentage of their total direct compensation. These charts are not a substitute for the "Summary Compensation Table," which includes amounts +supplemental to target total direct compensation. For 2017, Mr. Brookman's target compensation was 85% variable or "at-risk" and linked with Company performance. For the remaining Named +Executive Officers approximately 80% of their target compensation target was variable or "at-risk" and linked with Company performance. +2017 TARGET COMPENSATION +42 +Table of Contents +Components of the Company's Compensation Program +The table below highlights each element of our compensation program and the primary role of each element in achieving our compensation +objectives: +COMPENSATION ELEMENTS +ROLE IN TOTAL COMPENSATION +Base Salary +• +Provide a minimum, fixed +level of cash compensation upon which our executives can rely. +Annual Incentives +• +Reward annual Company +performance; +✓ Cash Bonus +• +Align participants' +compensation with short-term financial and operational objectives specific to each calendar year; +• +Motivate participants to +meet or exceed internal and external performance expectations; and +• +Recognize individual +contributions to the organization's overall results. +Long-Term Incentives +✓ Restricted Stock Units (RSUs) +✓ Performance Share Units (PSUs) +✓ Stock Appreciation Rights (SARs) +• +Reward long-term +performance directly aligned with stockholders' interests; +• +Provide a strong +performance-based equity component; +• +Recognize and reward +share performance relative to industry peers; +• +Align compensation +with sustained long-term value creation; +• +Help executives to +acquire a meaningful and sustained ownership stake; and +• +Foster executive +retention by vesting awards over multiple years. +Benefits and Perquisites +✓ Health and Welfare +✓ Retirement +✓ Perquisites +• +Help attract and retain +executive talent by offering a comprehensive employee benefits package comparable to all other Company employees; +• +Provide financial +security by allowing executives to save for retirement through the Company's 401(k) and profit sharing plan; and +• +Provide modest +perquisites to executives including a car allowance for business and personal use, athletic/non-golf club dues, and annual physicals, the value of which is consistent with those offered by our peer companies. +Termination Benefits +✓ Executive Severance Plan +✓ Employment Contracts +• +Attract and retain +executives in a competitive and changing industry; and +• +Ensure executives act +in the best interest of stockholders at all times, including during times of heightened uncertainty. +43 +Table of Contents +Executives and Directors Are Required to Own Significant Stock +We have established stock ownership guidelines for Named Executive Officers that are reviewed annually when compensation decisions are made. In +satisfying the stock ownership guidelines, Named Executive Officers are expected to: +• Comply with the ownership guidelines within five years of becoming a Named Executive Officer; and +• Retain the net shares acquired through the vesting of RSUs, the exercise of SARs, and the settlement of PSUs if the Named Executive Officer has +not satisfied the required ownership level. +As +of December 31, 2017, all of our Named Executive Officers (other than Mr. Honeyfield who joined the Company in December 2016 and was in the five-year attainment period) +exceeded the minimum stock ownership requirements as set forth below. +2017 STOCK OWNERSHIP REQUIREMENT +Name/Year of Executive Status +Stock +Ownership +Guidelines +Number of +Shares +Required To +Own (1) +Number of +Qualifying +Shares Owned +at Year End +Barton R. Brookman (2008) +5x Base Salary +88,610 +171,851 +David W. Honeyfield (2016) +3x Base Salary +N/A +N/A +Lance A. Lauck (2009) +4x Base Salary +35,229 +96,152 +Scott J. Reasoner (2015) +3x Base Salary +25,777 +63,582 +Daniel W. Amidon (2007) +3x Base Salary +22,555 +64,693 +(1) Using +average of daily closing prices in December 2017, which was $46.55. +Qualifying +holdings used to determine compliance with the minimum ownership requirements include stock owned directly, shares held in the Company's 401(k) and Profit Sharing Plan and +unvested time-based RSUs. SARs and PSUs are not included. Stock ownership requirements applicable to our Non-Employee Directors are described under "Director Compensation—Director Stock +Ownership Requirements." +Compensation Process—Making Executive Compensation Decisions +Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive +Levels of Pay +On an annual basis, the Committee reviews the composition of the peer group of companies used in establishing target compensation for the Named +Executive Officers for the coming +year. In determining the peer group for the year, the Committee considers whether changes to the peer group are warranted based upon changes in the size and/or operations of either the Company and/or +the current or potential peer companies, including the following: +• Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including +market capitalization, enterprise value, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current and potential peer company; and +• Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status). +44 +Table of Contents +Once +identified, the Committee typically utilizes this peer group for the following: +• Compensation Benchmarking—to determine competitive base salaries, bonus targets and target total direct compensation; +• Total Shareholder Return—to measure total shareholder return under the Company's PSU awards; and +• Director Compensation—to determine outside directors compensation. +Peer +group compensation practices are determined using a combination of compensation data disclosed in the peers' proxy statements and survey data for the peer group from Meridian +Compensation Partners LLC's "North America Oil and Gas Exploration and Production Survey." Due to the effect of the Delaware Basin Transactions, +the peer group for determining both compensation benchmarking and TSR for 2017 was changed to include larger companies in the industry (see "2017 Compensation Decisions"). The table below shows the +peer group for 2016 and 2017. +For +2018, the Committee removed Gulfport Energy Corp. and added SRC Energy Inc. +Determining Target Total Direct Compensation +We typically establish target total direct compensation for our Named Executive Officers in the first quarter of the year by determining base +salaries, and annual and long-term incentive compensation targets. In doing so, we consider the following: +• Our compensation objectives and philosophy; +• Each Named Executive Officer's scope of responsibility, expertise and tenure; +• The CEO's assessment of the individual's performance and recommendation regarding the compensation of the other Named Executive Officers; and +• Market data for target total direct compensation (base salary, bonus targets and long-term incentives) from the peer group. +Our +view is that an executive's target compensation should reflect the current market value for that position provided the executive has performed well in the prior year. We may adjust +the mix of cash and long-term incentives, but we generally target the median of the market in total direct compensation taking into account the other factors listed above. +45 +Table of Contents +Annual and Long-Term Incentive Programs +Annually, we review and approve program design, including performance metrics and target payout, and awards under the annual and long-term +incentive programs. These discussions, which usually begin with recommendations from management and involve deliberation among the Committee, management and the Consultant (defined below), usually +span numerous meetings before a design is approved. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total +outstanding shares). For performance-based equity awards, we certify at the end of the performance period the level at which the performance measures were satisfied and approve the number of related +shares to be issued, if any, to each Named Executive Officer. +Assessing the Effectiveness of Our Compensation Programs +Annually, we review summaries of each Named Executive Officer's compensation history, as well as all compensation payable upon each Named +Executive Officer's termination of employment, including upon a change of control of the Company. We also do a "look-back" of realized pay relative to our peers to assess whether our programs as +designed are truly paying for performance. The Committee uses these tools to determine whether changes to our program are needed. +Role of the Compensation Consultant +The Committee has engaged an independent compensation consultant (the "Consultant") to help ensure that executive compensation programs are +competitive and consistent with the Company's compensation philosophy and policies. Willis Towers Watson PLC served as the Consultant through May 2017 and was Consultant to the Committee when +compensation decisions were made for 2017. At the end of May 2017, the Committee retained Meridian Compensation Partners to serve as the new Consultant. +In +retaining the Consultant, the Committee considered the following: +• The Consultant's reputation supporting compensation committees and familiarity with our executive compensation program design; +• Experience of the Consultant in the energy exploration and production industry; +• Range of compensation services offered by the Consultant; and +• Independence of the Consultant, considering the independence factors outlined by the SEC. +The +Committee determines the scope of the Consultant's engagement, which includes: +• Providing input into peer group identification and assessment; +• Providing benchmarking on executive and outside director compensation for the Committee to use in its decision-making process; +• Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual +compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites); +• Reviewing and providing feedback on the compensation-related disclosures in our proxy statement; and +• Informing us about recent trends, best practices, and other developments affecting executive compensation. +46 +Table of Contents +The +Consultant's interactions with the Committee and management include the following: +• The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive Officer; +• The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit +information from, the Consultant; +• The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +• The Consultant attends Committee meetings as requested. +The +Committee annually reviews the engagement of the Consultant and as a part of that process reviews a summary of all services provided by the Consultant and related costs. Except as +set forth above, in 2017, neither Consultant performed any material services for the Company, had any business or personal relationships with the Committee members or executive officers of the +Company, or owned any stock of the Company. Each firm that served as Consultant during 2017 maintained policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee +determined that each firm that served as Consultant in 2017 was not subject to any conflicts of interest. +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in determining the compensation levels of our Named Executive Officers, which +includes: +• Recommending quantitative and qualitative performance measures under our annual incentive program; +• Assessing the performance of the other Named Executive Officers; and +• Recommending base salaries, annual incentive targets and long-term incentive awards for the forthcoming year, and annual incentive awards for +the prior year. +At +the Committee's request, the Company's CEO and other Named Executive Officers may also play a role in determining the following: +• Quantitative and qualitative performance measures under our annual incentive program; +• Proposed peer group companies; +• Design changes to our compensation and benefits programs; and +• Assessment of the Company's performance for the year with respect to achievement of performance measures under the annual incentive program. +The +Committee determines each element of the CEO's compensation with input from the Consultant. The Committee also determines each element of compensation for the other Named Executive +Officers with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation. +Management +also retains an individual as a consultant in our compensation process and to coordinate the preparation of certain materials for Committee meetings. This individual is +retained by and reports to management, whereas the Consultant reports to the Committee. +47 +Table of Contents +2017 Compensation Decisions +Base Salary +Several factors were considered in determining base salary adjustments for 2017, including the new 2017 peer group used for benchmarking +compensation decisions, the fact that the Committee no longer considered Mr. Brookman new to his position as CEO, and Mr. Reasoner being named Chief Operating Officer effective +January 1, 2017. Based on the foregoing, as well as factors considered by the Committee in its assessment of executive compensation, in January 2017 we approved adjustments in base salary for +each of the Named Executive Officers as follows: +NAMED EXECUTIVE OFFICER +2016 +2017 +Barton R. Brookman +$750,000 +$825,000 +David W. Honeyfield +400,000 +400,000 +Lance A. Lauck +365,000 +410,000 +Scott J. Reasoner +340,000 +400,000 +Daniel W. Amidon +328,000 +350,000 +Annual Cash Incentive Targets +The Committee approves a target annual cash incentive award for each Named Executive Officer. These target cash incentives are expressed as a +percentage of base salary. Actual cash bonus awards can range from 0-200% of these targets based on the achievement of Company and individual goals. In January 2017, based upon a review and analysis +of peer compensation data for the new 2017 peer group, we set the target annual cash incentive award as a percent of base salary for each Named Executive Officer as follows: +Target Annual Cash Incentive as % of Base Salary +NAMED EXECUTIVE OFFICER +2016 +2017 +Barton R. Brookman +100 +% +100 +% +David W. Honeyfield +N/A +85 +% +Lance A. Lauck +85 +% +90 +% +Scott J. Reasoner +80 +% +85 +% +Daniel W. Amidon +80 +% +80 +% +Annual Incentive Program +Bonuses under the Company's annual incentive program are primarily based on the achievement of specific operational and financial metrics +established in the first quarter of the year. However, to provide us the flexibility to adjust for and react to events that occur throughout the year, we prefer not to rely solely on a formulaic +approach based on pre-established thresholds that result in +automatic payouts. Rather, the Committee retains discretion to adjust actual awards given circumstances at the time of the determination. +48 +Table of Contents +Throughout +the year, the Committee reviews the Company's progress toward meeting the performance metrics for the year. Following the end of the fiscal year, the Committee determines +annual incentive payments as follows: +• An overall corporate performance rating is determined for the annual quantitative operational and financial metrics; +• Individual awards are determined by multiplying the overall corporate performance rating by the individual's annual incentive target and +multiplying the result by the individual's base salary. Individual awards may be adjusted downward or upward at the Committee's discretion based on individual performance. Such individual adjustments +are anticipated to have a maximum range of +/–20%. +2017 Performance Metrics +In early 2017, we established specific targets for each of the following operational and financial metrics based on our 2017 operating plans. +These metrics are used to ensure we are balancing operational objectives with capital discipline. Most of the performance metrics used in 2017 were similar to the metrics used in 2016, but the +Committee elected to eliminate Liquidity as a financial metric while retaining the ability to consider it as a discretionary metric, and to add Capital Efficiency as a financial metric. See the +specific targets under "2017 Performance Results." +OPERATIONAL METRICS +Production (Boe) +Three phase net production for the year. +Production, Exploration and G&A Expense per Boe +The sum of total production, exploration, and corporate general and administrative expense ("G&A") divided by net barrels of oil equivalent for the year. +FINANCIAL METRICS* +Adjusted Cash Flow From Operations per Share +Net cash from operations plus/minus change in assets and liabilities per share divided by our weighted average number of shares outstanding during the year. +Debt to Adjusted EBITDAX +Total year-end long-term debt (the sum of the Company's $200 million principal amount 1.125% convertible notes due 2021, the $600 million principal amount 5.75% senior notes due 2026, and the $400 million +principal amount 6.125% senior notes due 2024 and the balance outstanding under our revolving credit facility) divided by adjusted EBITDAX. +Capital Efficiency +One year finding and development costs determined by dividing total operated drilling and completions capital expenditures by our estimated expected ultimate recovery ("EUR") on wells turned-in-line for the year. +* Adjusted +cash flow from operations per share and adjusted EBITDAX are each non-GAAP financial measures. See "Non-GAAP Financial Measures" on Appendix B for a +reconciliation to their most directly comparable GAAP measures. +At +the time it established the above quantitative metrics, the Committee determined that it would consider the following three discretionary factors at year-end when assessing the +Company's 2017 performance: environmental, health and safety performance for the year; reserve replacement; and +liquidity. It was anticipated that these factors would, if warranted, only be used to adjust annual incentive awards downward with respect to the target percentage. The Committee expressly reserved +49 +Table of Contents +the +right to exercise its discretion to adjust the Named Executive Officers' annual incentive awards for unexpected business events such as acquisitions/dispositions, capital markets transactions, +legal settlements, or other performance factors the Committee deems important at year-end. We believe that the Named Executive Officers are compensated for stock price performance through the +Company's long-term equity incentive program and not through their annual bonus; however, the Committee may also consider relative stock price performance in determining the annual corporate +performance. +2017 Performance Results +Upon completion of fiscal year 2017, the Committee reviewed the Company's performance relative to the quantitative operational and financial +measures described above. Results for 2017 were as follows: +Threshold +Target +Maximum +Actual +Results +Adjusted +Results +Performance +OPERATIONAL METRICS +Production (Million Boe) +30.0 +32.0 +33.0 +31.8 +31.8 +Within Range +Production, Exploration and G&A Expense per Boe ($ per Boe) +$ +9.44 +$ +8.99 +$ +8.54 +$ +11.03 +$ +9.32 +(1)(2) +Within Range +FINANCIAL METRICS +Adjusted Cash Flow from Operations per Share ($ per weighted average diluted share)* +$ +8.38 +$ +8.82 +$ +9.26 +$ +8.84 +$ +8.96 +Within Range +Debt to Adjusted EBITDAX* +1.8 +1.7 +1.6 +1.9 +1.7 +(3) +Within Range +Capital Efficiency +$ +7.55 +$ +6.55 +$ +5.55 +$ +6.80 +$ +6.80 +(1) +Within Range +(1) Production, +Exploration and G&A Expense per BOE excludes approximately $41 million of cost associated with two Culberson County, Texas dry holes. Capital +efficiency includes approximately $28 million of drilling and completion costs associated with those same dry holes. (2) Excludes +transportation, gathering and processing costs that were budgeted in realized price deductions and the effect of the consent decree that we entered into +with the U.S. Department of Justice and the State of Colorado relating to our emissions in Weld County, Colorado. (3) Excludes +our $600 million senior note offering and the provision for uncollectible note receivable. * Adjusted +cash flow from operations per share and adjusted EBITDAX are each non-GAAP financial measures. See "Non-GAAP Financial Measures" on Appendix B for a +reconciliation to their most directly comparable GAAP measures. +The +Committee considered each of the performance metrics in light of certain factors that impacted the results: +• Production: results met our target despite the impact of high line pressure issues in the Wattenberg Field and execution challenges in the +Delaware Basin in the early part of the year. The Committee estimates that without the Wattenberg Field midstream issues, the Company would have been at the high end of production targets for the +year. The Company has made significant progress in addressing the Delaware Basin challenges with better than anticipated results in the latter half of 2017. +• Production, Exploration and G&A Expense per Boe: adjusted results were within the target range. We increased our workforce by 30%, largely as a +result of the Delaware Basin Transactions, which resulted in additional payroll costs and professional services expenses. In addition, well and labor costs in the Delaware Basin were approximately 20% +higher than anticipated; +50 +Table of Contents +• Adjusted Cash Flow per Share: adjusted results were within the target range (see "Non-GAAP Financial Measures" on Appendix B); +• Debt to Adjusted EBITDAX: adjusted results met our target and represented a reduction from year-end 2016 (see "Non-GAAP Financial Measures" on +Appendix B); +• Capital Efficiency: adjusted results were within the target range. Finding and development costs for the Wattenberg Field were below budget for +the year but this was offset by the finding and development costs for the Delaware Basin being above budget due to some of the challenges the Company faced in the early part of 2017; and +• The Committee also reviewed the Company's environmental, health and safety performance, reserve replacement and year-end liquidity. Our +environmental, health and safety department had an excellent year, reserve replacement for the year was approximately 450%, and year-end liquidity was approximately $900 million. The Committee +made no downward adjustments for these metrics. +Besides +the quantitative and qualitative metrics above, the Committee also considered the following in determining the Company's performance for the +year: +• The Company successfully executed three significant Wattenberg Field transactions in 2017, which included one acquisition and two large-scale +acreage exchanges, which added significant value through acreage consolidation. These transactions collectively allow us to better leverage our drilling and completions technology to achieve increased +production and other operational synergies in future years; +• Continued increased drilling efficiencies, including further drill time improvements and production type curve enhancements, which resulted in +2017 internal rates of return exceeding 100% at the well head in the Wattenberg Field. These improvements contributed to the year-over-year Company production growth of approximately 44% over 2016; +• Despite early operational challenges, successfully integrating the Delaware Basin Transactions provided significant upside potential for 2018; +• Leadership shown in working with DCP Midstream to address the line pressure issues for future years; +• Successfully raised $600 million in an offering of 5.75% Senior Notes, increased liquidity by raising the revolving credit facility +borrowing base to $1 billion and reduced debt to adjusted EBITDAX from 2.1 at year-end 2016 to 1.9 at year-end 2017; and +• Successfully grew our operational capabilities on a cost-effective basis following the Delaware Basin Transactions. +As +a result of the above, we awarded 130% of bonus target percentage with respect to the Corporate Performance Rating for 2017, with one exception noted below. The Committee generally +felt that management achieved these results as a team, and therefore no individual performance adjustments were made to the awards, with the exception of Mr. Brookman and Mr. Reasoner. +After discussion, and with Mr. Brookman's agreement, the above bonus percentage for Messrs. Brookman and Reasoner was reduced by 10% to reflect their ultimate accountability for material +weaknesses in our internal controls over certain land administrative records (as more fully described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, +2017, filed with the SEC on February 27, 2018). +51 +Table of Contents +Actual +cash bonus amounts paid for 2017 performance were as follows: +NAMED EXECUTIVE OFFICER +2017 ANNUAL +BONUS +Barton R. Brookman +$ +990,000 +David W. Honeyfield +(1) +Lance A. Lauck +$ +480,000 +Scott J. Reasoner +$ +408,000 +Daniel W. Amidon +$ +364,000 +(1) Mr. Honeyfield +was not eligible for an annual incentive bonus for 2017 because of his separation on January 3, 2018, but received a negotiated amount +upon separation (see "Potential Payments Upon Termination or Change of Control—Honeyfield Separation Agreement"). +Long-Term Incentives +To ensure that long-term incentives are aligned with the interests of our stockholders and our pay-for-performance philosophy, we generally +grant equity awards to the Named Executive Officers each year. In 2017, the grants consisted of RSUs (50%), PSUs (25%) and SARs (25%). In 2018, the Committee elected to change the mix of awards to +eliminate SARs and to give equal weight to RSUs (50%) and PSUs (50%), which we believe more closely aligns with market practices. In addition, the Committee incorporated a balanced absolute TSR +modifier into the PSUs to replace the absolute TSR tie that was inherent in the SARs grants. The following charts show the current mix of awards for 2017 and the award mix for 2018, as well as the +purpose and design feature of each type of equity compensation. +LONG-TERM INCENTIVE MIX +52 +Table of Contents +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +Restricted Stock Units (RSUs) +To align the executive's compensation directly with the Company's stock price, encourage +retention and increase stock ownership in the Company +Awards vest annually over three years; and +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the +vesting date. For a description of what happens under other termination scenarios, see "Impact of Termination and Change of Control on Long-Term Incentive Plans." +Performance Share Units (PSUs) +To align the executive's compensation with PDC's TSR relative to a group of our peers in the industry. +The value of PSUs is dependent on both stock price performance and our relative TSR performance over a three-year period. +PSUs are denominated in units of Company stock with payout in shares of stock based on the Company's relative TSR over the specified performance period, as ranked among the comparably-measured TSR of the Company's peer companies; +For 2017, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group (See "Compensation Process—Making Executive Compensation +Decisions—Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay"); +The 2017 PSUs measure the performance period from +January 1, 2017 through December 31, 2019, with payouts as follows: +COMPANY TSR RANKING +AMONG PEERS +PAYOUT LEVELS +AS % OF AWARD +90th Percentile +200% +75th Percentile +150% +Median +100% +25th Percentile +50% +Below 25th Percentile +0% +• +If performance falls +between the percentiles, payout levels are interpolated; +• +If the Company has a +negative TSR for the performance period, the maximum award is 100%, regardless of relative TSR performance; +• +To provide for a +consistent number of peers throughout the performance period, the award agreement defines how a peer that is either acquired, merged, delisted, enters bankruptcy, etc. is treated in determining their TSR performance ranking; and +PSUs are forfeited if the executive voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under "Potential Payments upon Termination or +Change of Control—Impact of Termination and Change of Control on Long-Term Incentive Plans." +Stock Appreciation Rights (SARs) +To align the executive's compensation directly with the Company's stock +price, as the stock price must increase for any value to be realized by the executive. +Awards vest annually over three years; +Awards expire no later than ten years after grant date if not exercised earlier or forfeited; +The strike price for SARs is equal to the NASDAQ closing price of Company stock on the date of the grant; +SARs are +settled in shares of common stock of the Company; and +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause +prior to the vesting date. For a description of what happens under other termination scenarios, see "Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Incentive Plans." +53 +Table of Contents +2017 Equity Awards +We typically determine the dollar value of the long-term incentives we want to deliver to the executive to place total target compensation at +the market level for that position. While we consider long-term incentives as primarily forward-looking, we may consider the Company's and the Named Executive Officers' performance in the prior year +in determining the size of the awards. For 2017, the Committee adjusted long-term incentive values to further align the value of the long-term incentives with the market competitive range. The table +below shows the grants and corresponding value awarded to each Named Executive Officer in January 2017. +2017 LONG-TERM INCENTIVE GRANTS +Name +Target Value +($) +RSUs +(#) +PSUs +(#) +SARs +(#) +Barton R. Brookman +$ +3,750,000 +24,766 +12,383 +23,886 +David W. Honeyfield +1,250,000 +7,893 +(1) +4,128 +7,962 +Lance A. Lauck +1,350,000 +8,916 +4,458 +8,599 +Scott J. Reasoner +1,250,000 +8,256 +4,128 +7,962 +Daniel W. Amidon +900,000 +5,944 +2,972 +5,733 +(1) Mr. Honeyfield +received his 2017 grant of 7,893 RSUs upon his hire in December 2016. Mr. Honeyfield received his 2017 award of SARs and PSUs coincident +with the grants to the other Named Executive officers in January 2017. +The +award value shown above differs from the accounting value reported in the Summary Compensation Table. In determining the number of shares awarded in January, we used the 15-day +average closing stock price ending 10 days prior to the date of grant. The grant date accounting value is based solely on the stock price on the date of grant, and is reflected in the Summary +Compensation Table and 2017 Grants of Plan-Based Awards table. +2015 - 2017 Performance Share Unit Results +In 2015, we granted PSUs covering the three-year period from January 1, 2015 through December 31, 2017. Based on the Company's +first place ranking over this three-year period, we paid 200% of the target award to Messrs. Brookman, Lauck, Reasoner and Amidon as shown in the "Options Exercised and Stock Vested" table. The +chart below shows the peer group used for the +54 +Table of Contents +January 1, +2015 to December 31, 2017 grants, their TSR performance and relative rankings at the end of the period. +Ranking +Company +3-Year TSR +1 +PDC Energy +24 +% +2 +Laredo Petroleum Holdings, Inc. +11 +% +3 +SRC Energy, Inc. +(25 +)% +4 +Carrizo Oil and Gas Inc. +(46 +)% +5 +Bill Barrett Corp. +(50 +)% +6 +Gulfport Energy Corp. +(69 +)% +7 +Comstock Resources Inc. +(77 +)% +8 +Rex Energy Corp. +(97 +)% +9 +Bonanza Creek Energy, Inc. +N/A +(1) +10 +EXCO Resources, Inc. +N/A +(1) +11 +Magnum Hunter Resources Corp. +N/A +(1) +12 +Penn Virginia Corp. +N/A +(1) +13 +Stone Energy Corp. +N/A +(1) +14 +Ultra Petroleum Corp. +N/A +(1) +Rosetta Resources Inc. +(2) +(1) The +following companies were delisted and/or entered Chapter 11 bankruptcy during the three-year performance period but remained in the peer group and were +ranked together in last place for purposes of calculating TSR performance: Bonanza Creek Energy, Inc., EXCO Resources, Inc., Magnum Hunter Resources Corp., Penn Virginia Corporation, +Stone Energy Corp. and Ultra Petroleum Corp. +(2) Rosetta +Resources, Inc. was acquired by Noble Energy Inc. in May 2015 and was excluded from the TSR performance rankings for the 2015-2017 PSU awards. +Special Equity Grant +From time to time, we may approve special grants which typically take the form of RSUs, although other types of awards may be made when +appropriate. The Delaware Basin Transactions represented the culmination of a multi-year effort to identify, evaluate, negotiate, and close on a significant transaction. As a result, in February 2017, +we issued a special equity award to the Named Executive Officers not only for their efforts and the market's positive response in bringing the Company's strategic plan to expand into a new basin to +fruition but also to ensure the executives were financially tied to the successful integration and leveraging of the acquisition over the next several years. The following awards consisting of RSUs +with three-year vesting were awarded to the Named Executive Officers: +NAME +VALUE AWARDED +($) +RSUs AWARDED +(#) +Barton R. Brookman +$ +850,000 +11,228 +Lance A. Lauck +350,000 +4,623 +Scott J. Reasoner +175,000 +2,312 +Daniel W. Amidon +75,000 +991 +55 +Table of Contents +Agreements with Named Executive Officers +Severance Plan and Employment Agreements with Named Executive Officers +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an +existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer's departure. Severance provisions give us the flexibility to make decisions regarding +organizational issues with pre-established severance terms in place. In the event that the Company faces an actual or potential change of control, severance benefits encourage executive officers to +remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change of control of the Company help to align +the interests of the executive officers with the interests of the Company's stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need +to avoid excessive benefits to executives. We consider these protections to be an important part of an executive's compensation and consistent with competitive practices in the oil and gas industry. +The +Executive Severance Compensation Plan (the "Severance Plan") generally provides these benefits to the Named Executive Officers. At the time the Severance Plan was adopted, we +grandfathered the existing employment agreements in effect. Mr. Brookman agreed to terminate his grandfathered employment agreement in January 2015 in connection with his promotion to CEO. As +of December 31, 2017, only Messrs. Amidon and Lauck have existing grandfathered agreements. For a description of these programs, see "Potential Payments Upon Termination or Change of +Control." +Separation of Employment of Mr. Honeyfield +On January 3, 2018, Mr. Honeyfield separated from the Company and entered into a General Release of Claims (the "Release") with +the Company effective February 5, 2018. See "Potential Payments Upon Termination or Change of Control—Honeyfield Separation Agreement" below for a description of the Release and the +amounts payable thereunder. +Other Policies and Considerations +Tax and Accounting Considerations +With respect to compensation paid under the Company's plans, arrangements and agreements, we consider the impact of the applicable tax laws and +accounting rules, including but not limited to Section 162(m), Section 409A, Section 280G and Section 4999 of the Code. Currently, our compensation is intended to comply +with the Code as follows: +• None of our severance arrangements or agreements provide for a gross-up for excise tax under Code Section 280G and Section 4999; +• All of our programs are intended to be either exempt from or to comply with Code Section 409A; and +• Historically, our intent has been to qualify compensation paid to our top executives as performance-based compensation under Code +Section 162(m) where practicable. While our 2017 and prior SARs and PSUs were intended to meet the performance-based exception to the $1 million per year Code Section 162(m) +executive compensation deduction limitation, our RSUs and annual bonus plan were not. Under the new tax law, enacted on December 22, 2017, there is no longer a performance-based exception to the +$1 million annual deductible compensation limitation of Code Section 162(m). Accordingly, our PSUs and SARs granted after 2017 will be included with cash compensation and RSUs in +determining the amount, if any, of non-deductible executive compensation in excess of $1 million per year. PSUs and SARs that were granted prior +56 +Table of Contents +to +2018 may still qualify for the performance-based exception of Code Section 162(m) under a transition rule in the new tax law, although there is no assurance that they will do so. +Clawback Policy +The Named Executive Officers are currently either covered under our clawback policy or have a clawback provision in their grandfathered +employment contracts. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all or a portion of his annual bonus, as described below, if the +Company is required to restate its financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are +equal to the difference between the bonus paid to the executive for the affected year(s) and the bonus that would have been paid to the executive had the financial results been properly reported. +These clawback requirements are in addition to any clawback requirements contained in applicable statutes or regulations and are subject to revision based on the SEC clawback rules under +Section 954 of the Dodd-Frank Act, when finalized. +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options/ +SARs (3) +($) +All Other +Compensation (4) +($) +Total +Compensation +($) +Barton R. Brookman +2017 +$ +825,000 +$ +990,000 +$ +3,011,050 +$ +921,522 +$ +61,268 +$ +5,808,840 +President and Chief +2016 +750,000 +1,238,000 +3,247,924 +782,811 +59,266 +6,078,001 +Executive Officer +2015 +625,000 +940,000 +1,848,065 +585,880 +54,150 +4,053,095 +David W. Honeyfield +2017 +400,000 +— +388,115 +307,174 +49,060 +1,144,349 +Former SVP and CFO (5) +2016 +15,385 +333,333 +1,453,110 +— +— +1,801,828 +Lance A. Lauck +2017 +410,000 +480,000 +1,084,007 +331,749 +51,761 +2,357,517 +Executive Vice President, +2016 +365,000 +512,000 +1,294,303 +308,557 +54,205 +2,534,065 +Corp. Dev. and Strategy +2015 +347,000 +443,000 +847,014 +268,542 +54,676 +1,960,232 +Scott J. Reasoner +2017 +400,000 +408,000 +1,003,765 +307,174 +54,069 +2,173,008 +Senior Vice President, +2016 +340,000 +449,000 +968,496 +257,144 +56,789 +2,071,429 +Chief Operating Officer +2015 +304,000 +365,000 +539,012 +170,884 +53,372 +1,432,268 +Daniel W. Amidon +2017 +350,000 +364,000 +722,672 +221,179 +55,015 +1,712,866 +Senior Vice President, +2016 +328,000 +433,000 +802,606 +234,282 +57,343 +1,855,231 +General Counsel and Secretary +2015 +315,000 +378,000 +803,289 +207,498 +54,673 +1,758,460 +(1) Represents +the amounts paid under the Company's annual incentive bonus plan and special payments as described below. The 2017 annual incentive awards are described +in "2017 Compensation Decisions—Annual Cash Incentives." (2) Represents +the grant date fair value of stock-based compensation awards, which include the following: +(a) Time-based +RSUs. RSUs awarded as a bonus in recognition of efforts related to the Delaware Basin Transactions are reflected for fiscal year 2016 because they were +earned in 2016 and are reflected for such year; however, such RSUs are included in the "2017 Grants of Plan-Based Awards" table because they were actually awarded in 2017; and (b) PSUs. +The +2017 grants are described in "2017 Compensation Decisions—Long-Term Incentives" and detailed in the "2017 Grants of Plan-Based Awards" table. In accordance with SEC rules, the amounts +reported in the above table reflect the aggregate grant date fair value of the stock awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to +performance conditions. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company's financial statements, as set +forth in Note 14 to the financial statements included in the Annual Report on +57 +Table of Contents +Form 10-K +filed with the SEC on February 27, 2018. If instead we assume that the maximum level of performance conditions will be achieved for the PSUs, the value of the awards at the +grant date for Messrs. Brookman, Honeyfield, Lauck, Reasoner and Amidon are $1,846,801, $615,650, $664,866, $615,650 and $443,224 respectively. +(3) Represents +the grant date fair value of SARs granted in each year. The 2017 grants are described in "2017 Compensation Decisions—Long-Term Incentives" +and detailed in the "2017 Grants of Plan-Based Awards" table. In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the SAR awards +calculated in accordance with FASB ASC Topic 718 disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to +calculate the grant date fair value of SAR awards for purposes of the Company's financial statements, as set forth in Note 15 to the financial statements included in the Annual Report on +Form 10-K filed with the SEC on February 27, 2018. (4) Amounts +shown in this column for 2017 are detailed below in "2017 All Other Compensation." (5) Mr. Honeyfield +was hired on December 19, 2016. His 2016 compensation reflects the following: +a. actual +base salary paid for 2016; b. a +sign-on award at time of hire to replace foregone compensation from his previous employer of $333,333 cash and 10,739 RSUs ($837,535 of amount reported); and c. 7,893 +RSUs ($615,575 of amount reported) which represents the RSU portion of his 2017 long-term incentive award (described under "Long Term +Incentives—2017 Equity Grant"). +2017 ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annal Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Total +All Other +Compensation +($) +Barton R. Brookman +2017 +$ +24,000 +$ +8,100 +$ +29,168 +$ +61,268 +David W. Honeyfield +2017 +24,000 +8,100 +16,960 +49,060 +Lance A. Lauck +2017 +24,000 +8,100 +19,661 +51,761 +Scott J. Reasoner +2017 +24,000 +8,100 +21,969 +54,069 +Daniel W. Amidon +2017 +24,000 +8,100 +22,915 +55,015 +(1) Represents +the Company's annual matching contribution to the Company's 401(k) and Profit Sharing Plan. (2) Represents +the Company's annual profit sharing contribution to the Company's 401(k) and Profit Sharing Plan. (3) Represents +total value of perquisites provided by the Company. Perquisites include monthly automobile allowances, health club and non-health club related dues, group +term life insurance premiums, and annual physicals. +58 +Table of Contents +2017 GRANTS OF PLAN-BASED AWARDS +All Other +Stock +Awards +Number of +Shares of +Stock +(#) +All Other +Option +Awards: +Securities +Underlying +Options +(#) +Grant Date +Fair Value +of Stock +and +Option +Awards +($) +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +Estimated Future Payouts Under Equity Incentive Plan Awards +Exercise +or Base +Price of +Option +Awards +($) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Barton R. Brookman +1/1/2017 +— +$ +825,000 +$ +1,650,000 +— +— +— +— +— +— +— +1/17/2017 +— +— +— +6,192 +12,383 +24,766 +— +— +— +1,164,250 +(2) +1/17/2017 +— +— +— +— +— +— +— +23,886 +74.57 +921,522 +(3) +1/17/2017 +— +— +— +— +— +— +24,766 +— +— +1,846,801 +(4) +2/22/2017 +— +— +— +— +— +— +11,228 +— +— +803,027 +(5) +David W. Honeyfield +1/1/2017 +— +340,000 +680,000 +— +— +— +— +— +— +— +1/17/2017 +— +— +— +2,064 +4,128 +8,256 +— +— +— +388,115 +(2) +1/17/2017 +— +— +— +— +— +— +— +7,962 +74.57 +307,174 +(3) +Lance A. Lauck +1/1/2017 +— +369,000 +738,000 +— +— +— +— +— +— +— +1/17/2017 +— +— +— +2,229 +4,458 +8,916 +— +— +— +419,141 +(2) +1/17/2017 +— +— +— +— +— +— +— +8,599 +74.57 +331,749 +(3) +1/17/2017 +— +— +— +— +— +— +8,916 +— +— +664,866 +(4) +2/22/2017 +— +— +— +— +— +— +4,623 +— +— +330,637 +(5) +Scott J. Reasoner +1/1/2017 +— +340,000 +680,000 +— +— +— +— +— +— +— +1/17/2017 +— +— +— +2,064 +4,128 +8,256 +— +— +— +388,115 +(2) +1/17/2017 +— +— +— +— +— +— +— +7,962 +74.57 +307,174 +(3) +1/17/2017 +— +— +— +— +— +— +8,256 +— +— +615,650 +(4) +2/22/2017 +— +— +— +— +— +— +2,312 +— +— +165,354 +(5) +Daniel W. Amidon +1/1/2017 +— +280,000 +560,000 +— +— +— +— +— +— +— +1/17/2017 +— +— +— +1,486 +2,972 +5,944 +— +— +— +279,427 +(2) +1/17/2017 +— +— +— +— +— +— +— +5,733 +74.57 +221,179 +(3) +1/17/2017 +— +— +— +— +— +— +5,944 +— +— +443,244 +(4) +2/22/2017 +— +— +— +— +— +— +991 +— +— +70,876 +(5) +(1) Represents +target and maximum cash awards payable under the Company's annual incentive plan. (2) Represents +annual PSU awards under the 2010 Plan. Grant date fair value is computed by multiplying the number of PSUs awarded by the grant date fair value as +computed utilizing the Monte Carlo pricing model, which was $94.02 per share. (3) Represents +annual SARs awarded under the 2010 Plan. Grant date fair value for SARs is computed by multiplying the number of SARs awarded by the grant date fair value +as computed utilizing the Black-Scholes pricing model, which was $38.58 per SAR. (4) Represents +annual time-based RSU awards under the 2010 Plan. Grant date fair value for RSUs is computed by multiplying the number of shares awarded by the closing +price of the Company's common stock, as reported on the NASDAQ Global Select Market on the date of grant of January 17, 2017, which was $74.57. (5) Represents +time-based RSUs awarded as a bonus under the 2010 Plan in recognition of efforts related to the Delaware Basin Transactions. These RSUs are reflected in +the "Summary Compensation Table" set forth in this Proxy Statement for 2016 because they were earned in 2016; however, they are included in this table because they were actually awarded in 2017. Grant +date fair value for RSUs is computed by multiplying the number of shares awarded by the closing price of the Company's common stock, as reported on the NASDAQ Global Select Market on the date of grant +of February 22, 2017, which was $71.52. +59 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2017 FISCAL YEAR-END +Options/SAR Awards +Equity Incentive Plan Awards: +Number of Securities +Underlying Unexercised +Options/SARs Held at +December 31, 2017 +Number +of Shares +of Stock +That +Have Not +Vested (2) +(#) +Market +Value of +Unearned +Shares That +Have Not +Vested (3) +($) +Market Value +of Shares of +Stock That +Have Not +Vested (3) +($) +Number of +Unearned +Shares of +Stock That +Not Vested (4) +(#) +Option/SAR +Exercise +Price (1) +($) +Option/SAR +Expiration +Date +Date +Name +Exercisable +(#) +Unexercisable +(#) +Barton R. Brookman +— +— +— +47,910 +$ +2,469,281 +24,391 +$ +1,257,112 +8,295 +— +$ +24.44 +4/19/2020 +— +— +— +— +5,104 +— +43.95 +3/11/2021 +— +— +— +— +9,766 +— +30.19 +1/16/2022 +— +— +— +— +12,620 +— +37.18 +1/15/2023 +— +— +— +— +13,790 +— +49.57 +1/15/2024 +— +— +— +— +17,762 +8,881 +(5) +39.63 +1/13/2025 +— +— +— +— +19,357 +9,679 +(6) +51.63 +1/10/2026 +— +— +— +— +7,962 +15,924 +(7) +74.57 +1/16/2027 +— +— +— +— +David W. +— +— +— +12,422 +640,230 +4,128 +212,757 +Honeyfield (8) +2,654 +5,308 +(7) +74.57 +07/03/2018 +— +— +— +— +Lance A. Lauck +— +— +— +19,160 +987,506 +9,191 +473,704 +7,319 +— +24.44 +4/19/2020 +— +— +— +— +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +10,096 +— +49.57 +1/15/2024 +— +— +— +— +8,141 +4,071 +(5) +39.63 +1/13/2025 +— +— +— +— +7,630 +3,815 +(6) +51.63 +1/10/2026 +— +— +— +— +2,866 +5,733 +(7) +74.57 +1/16/2027 +— +— +— +— +Scott J. Reasoner +— +— +— +14,074 +725,374 +8,073 +416,082 +5,180 +2,591 +(5) +39.63 +1/13/2025 +— +— +— +— +6,358 +3,180 +(6) +51.63 +1/10/2026 +— +— +— +— +2,654 +5,308 +(7) +74.57 +1/16/2027 +— +— +— +— +Daniel W. Amidon +— +— +— +12,792 +659,300 +6,566 +338,412 +7,807 +— +24.44 +4/19/2020 +— +— +— +— +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +10,096 +— +49.57 +1/15/2024 +— +— +— +— +6,290 +3,146 +(5) +39.63 +1/13/2025 +— +— +— +— +5,793 +2,897 +(6) +51.63 +1/10/2026 +— +— +— +— +1,911 +3,822 +(7) +74.57 +1/16/2027 +— +— +— +— +(1) The +exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will +be determined on the date of exercise. (2) The +RSUs of Messrs. Brookman, Lauck, Reasoner, and Amidon vest as set forth in the below table. +Number of RSUs that Vest on: +January 13, +2018 +February 22, +2018 +December 28, +2018 +January 11, +2019 +February 22, +2019 +January 17, +2020 +February 22, +2020 +Total +Barton R. Brookman +10,010 +3,742 +8,255 +10,161 +3,743 +8,256 +3,743 +47,910 +Lance A. Lauck +4,588 +1,541 +2,972 +4,005 +1,541 +2,972 +1,541 +19,160 +Scott J. Reasoner +2,920 +770 +2,752 +3,338 +771 +2,752 +771 +14,074 +Daniel W. Amidon +4,797 +330 +1,981 +3,041 +330 +1,982 +331 +12,792 +The +RSUs of Mr. Honeyfield vest in two equal installments on December 18, 2018 and December 19, 2019. +(3) The +market value of these RSUs is based on the closing price of the Company's common stock of $51.54, as reported on the NASDAQ Global Select Market on +December 31, 2017. (4) PSUs +granted in 2016 and 2017 are contingent upon the achievement of certain specified stock performance goals. PSUs granted in 2016 have a 3-year performance period +ending December 31, 2018. PSUs granted in 2017 have a 3-year performance period ending December 31, 2019. For a description of the PSUs in 2017, see "Long Term Incentives." (5) Represent +SARs that vest on January 13, 2018. (6) Represent +SARs that vest on January 11, 2019. (7) Represent +SARs that vest in two equal annual installments on December 28, 2018 and January 17, 2020. (8) In +January 2018, Mr. Honeyfield resigned as Senior Vice President—Chief Financial Officer. For a description of the treatment of his outstanding +equity awards in connection with his resignation, see "Potential Payments upon Termination or Change of Control—Honeyfield Separation Agreement." +60 +Table of Contents +2017 OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares +Acquired on +Exercise +(#) +Value +Realized on +Exercise +($) +Number of +Shares +Acquired on +Vesting (1) +(#) +Value +Realized on +Vesting (2) +($) +Barton R. Brookman +— +— +46,813 +$ +2,542,855 +David Honeyfield +— +— +6,210 +282,803 +Lance A. Lauck +— +— +21,476 +1,198,187 +Scott J. Reasoner +— +— +15,216 +814,076 +Daniel W. Amidon +— +— +17,131 +973,112 +(1) The +number of shares includes RSUs and PSUs that vested in 2017. (2) The +table below shows the number and value of RSUs and PSUs included in these columns. The value of the RSUs and PSUs that vested in 2017 is determined by +multiplying the number of units vested by the market value of PDC stock on the vesting date. The PSUs that vested in 2017 covered the three year period January 1, 2015 through +December 31, 2017. Based on the Company's TSR performance during this three year period, the Company ranked first among its peers, resulting in 200% of the target award payout of the Named +Executive Officers above (see "2015—2017 Performance Share Results" for more information). +Name +RSUs +(#) +RSUs Value +($) +PSUs +(#) +PSUs Value +($) +Barton R. Brookman +23,867 +$ +1,360,218 +22,946 +$ +1,182,637 +David W. Honeyfield +6,210 +282,803 +— +— +Lance A. Lauck +10,960 +656,192 +10,516 +541,995 +Scott J. Reasoner +8,524 +469,170 +6,692 +344,906 +Daniel W. Amidon +9,005 +554,298 +8,126 +418,814 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company may be obligated to pay benefits to Messrs. Brookman, Honeyfield and Reasoner (and any future Named Executive Officers) under +the Severance Plan and, with respect to Messrs. Lauck and Amidon, under their "grandfathered" employment agreements. The primary purpose of the Severance Plan and the severance provisions of +the employment agreements are to provide severance benefits in the event of the termination of the Named Executive Officer by the Company without "just cause" or termination by the Named Executive +Officer for "good reason," either prior to or following a change of control of the Company. Upon a change of control, the Severance Plan and individual employment agreements provide benefits only in +the event that an executive is terminated by the acquiring company "without cause" or by the executive for "good reason" (i.e., they are "double-trigger" in nature). The Severance Plan provides +a benefit offset so that cash benefits paid upon severance would be reduced by any other severance benefits that the executive could be entitled to receive under another Company plan. The +grandfathered employment agreements provide benefits similar to those provided under the Severance Plan, but vary in the amounts of cash benefit provided to Messrs. Lauck and Amidon. +61 +Table of Contents +The +severance benefits an executive would receive under the Severance Plan and the grandfathered employment agreements under various termination scenarios are summarized below: +TERMINATION WITHOUT +CAUSE OR FOR GOOD +REASON +TERMINATION DUE TO +CHANGE OF CONTROL +CONTROLLING PLAN +OR AGREEMENT +Barton R. Brookman +2 times sum of base salary and target bonus +3 times sum of base salary and target bonus plus a pro-rata target bonus for the year of termination +Severance Plan +David W. Honeyfield +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +Lance A. Lauck +2 times sum of base salary and highest bonus of last two years +3 times sum of base salary and highest bonus of last two years +Grandfathered Employment Agreement +Scott J. Reasoner +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +Daniel W. Amidon +3 times sum of base salary and highest bonus of last two years +3 times sum of base salary and highest bonus of last two years +Grandfathered Employment Agreement +In +addition to the above, the Named Executive Officer would be eligible for continuation of health benefits for up to 18 months. As a condition of receiving severance benefits +under the Severance Plan and under the terms of the grandfathered employment agreements, each Named Executive Officer is subject to a non-disclosure covenant and a non-compete covenant pursuant to +which the Named Executive Officer is prohibited for a period of one year following his termination from engaging in any competing business in any county in which the Company is doing business or any +adjacent county. In addition, the Named Executive Officer is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in +the enforcement of these provisions, prior to a change of control of the Company, the Severance Plan provides for payment of the severance benefits over 12 months. +The +grandfathered employment agreements contain a clawback provision and the executives covered under the Severance Plan are covered under the Company's clawback policy (see "Other +Policies and Considerations—Clawback Policy"). The grandfathered employment agreements automatically extend for 12 months on December 31 of each year prior to the last year +of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 automatic extension date. +62 +Table of Contents +Impact of Termination and Change of Control on Long-Term Incentive Plans +The following table outlines the effect on outstanding unvested LTI awards under various termination scenarios and upon a change of control of +the Company based on the terms of the 2010 Plan and related grant agreements and the executive employment agreements: +TERMINATION SCENARIO/CHANGE OF CONTROL +RESTRICTED +STOCK/SARs/OPTIONS +PERFORMANCE SHARE UNITS +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change of Control +Vests +Executives with Grandfathered Employment Agreements: +Forfeited +Executives in Severance Plan: +2016 and 2017 grants: Portion to be earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +Earned pro-rata based on performance through either date of death or end of performance period. +Disability +Vests +Earned pro-rata based on performance at end of performance period. +Occurrence of a Change of Control +Vests +If less than 50% of the performance period has elapsed, earns 100% of PSUs. If 50% or more of the performance period has elapsed, earns greater of actual performance through change of control or 100% of PSUs. +Change of Control Excise Tax Provision +The Company currently provides no income tax gross-up or excise tax gross-up pursuant to taxes that may be imposed on "excess parachute +payments" within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and the grandfathered employment agreements provide that if it is determined that any +payment or distribution by the Company to or for the executive's benefit would constitute an "excess parachute payment," the Company will either (1) pay the total amount to the executive and he +would be responsible for the 20% excise tax; or (2) reduce the executive's payments such that the executive receives no "excess parachute payments," whichever amount would give the executive +the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes the +cost to the Company would be minimal as a percentage of the entire value of the change of control transaction. +63 +Table of Contents +Honeyfield Separation Agreement +On January 3, 2018, Mr. Honeyfield's employment with the Company terminated. Pursuant to the Release, and in consideration of, +among other things, a general release of claims against the Company, Mr. Honeyfield is entitled to receive, among other things, a cash payment equal to $157,066.90 on the first day of each +month beginning March 1, 2018 and ending December 1, 2018. In addition, all unvested RSUs and SARs held by Mr. Honeyfield prior to his separation immediately vested. +Under +the terms of the Release, Mr. Honeyfield continues to be bound by certain restrictive covenants. This description does not purport to be complete and is qualified by the +Release, which is filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on February 9, 2018. +Termination Benefits Table +The tables below and the discussion that follows show compensation payable to each Named Executive Officer upon various termination scenarios +both before and after a change of control of the Company (defined in the tables as "COC"). The amounts shown assume that termination occurred on December 31, 2017, that the closing price per +share on such date was $51.54, and, in the event of termination due to change of control, the executive's benefit is not reduced as a result of Section 280G or Section 4999 of the Code +(as described above). The actual amounts to be paid can only be determined at the time of such executive's separation from the Company. +64 +Table of Contents +Barton R. Brookman +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +$ +3,300,000 +(1) +$ +4,950,000 +(2) +— +— +Pro-rata Bonus +— +— +— +825,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +— +2,469,281 +(4) +2,469,281 +(4) +2,469,281 +(4) +2,469,281 +(4) +SARs +— +— +105,773 +(4) +105,773 +(4) +105,773 +(4) +105,773 +(4) +PSUs +— +— +— +(5) +1,257,112 +(6) +151,641 +(7) +151,641 +(8) +Benefits +Earned Profit Sharing +8,100 +8,100 +8,100 +8,100 +8,100 +8,100 +Health Benefits Continuation +— +— +26,381 +(9) +26,381 +(9) +— +— +Total +$ +8,100 +$ +8,100 +$ +5,909,535 +$ +9,641,647 +$ +2,734,795 +$ +2,734,795 +(1) Cash +severance is equal to 2 times the sum of his base salary and target bonus. (2) Cash +severance is equal to 3 times the sum of his base salary and target bonus. (3) Bonus +amounts for 2017 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Brookman is entitled to a pro-rata +target bonus under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on target bonus for 2017 which was adjusted and approved in February 2018 based on the Company's +actual performance. (4) RSUs +and SARs vest and become exercisable upon termination, change of control, disability or death. (5) The +Committee has the discretion to award from 0% to 100% of the target shares, adjusted for Company performance at the end of the performance period. Since no +amount is guaranteed, no value is included for the PSUs. (6) The +value shown for PSUs upon a COC assumes (a) for 2017 PSUs, the target number of units (100%) awarded would be earned since less than half the performance +period has occurred and (b) for 2016 PSUs, the target number of units (100%) would be earned since amount is based on the lesser of 100% or actual Company performance for the period (0% as of +December 31, 2017). (7) The +value shown for PSUs upon death assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through date of death would be +earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through date of death would be earned (0% as of +December 31, 2017). (8) The +value shown for PSUs upon disability assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through the end of the +period would be earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through the end of the period would be +earned (0% as of December 31, 2017). (9) Cost +of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Brookman and any covered dependents for an 18-month period. +65 +Table of Contents +David W. Honeyfield +Termination by Company +Without Cause or by Exec +for Good Reason +Element of Compensation +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +$ +1,110,000 +(1) +$ +1,850,000 +(2) +— +— +Bonus +— +— +— +340,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +— +640,230 +(4) +640,230 +(4) +640,230 +(4) +640,230 +(4) +SARs +— +— +— +— +— +— +PSUs +— +— +— +(5) +212,757 +(6) +50,551 +(7) +50,551 +(8) +Benefits +Earned Profit Sharing +8,100 +8,100 +8,100 +8,100 +8,100 +8,100 +Health Benefits Continuation +— +— +36,202 +(9) +36,202 +(9) +— +— +Total +$ +8,100 +$ +8,100 +$ +1,794,532 +$ +3,087,289 +$ +698,881 +$ +698,881 +(1) Cash +severance is equal to 1.5 times the sum of his base salary and target bonus. (2) Cash +severance is equal to 2.5 times the sum of his base salary and target bonus. (3) Bonus +amounts for 2017 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Honeyfield is entitled to a pro-rata +target bonus under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on target bonus for 2017. (4) RSUs +and SARs vest and become exercisable upon termination, change of control, disability or death. (5) The +Committee has the discretion to award from 0% to 100% of the target shares, adjusted for Company performance at the end of the performance period. Since no +amount is guaranteed, no value is included for the PSUs. (6) The +value shown for PSUs upon a COC assumes for 2017 PSUs, the target number of units (100%) awarded would be earned since less than half the performance period has +occurred. (7) The +value shown for PSUs upon death assumes for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through date of death would be earned (72% +as of December 31, 2017). (8) The +value shown for PSUs upon disability assumes for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through the end of the period would be +earned (72% as of December 31, 2017). (9) Cost +of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Honeyfield and any covered dependents for an 18-month period. +66 +Table of Contents +Lance A. Lauck +Voluntary +Termination +Termination by Company +Without Cause or by Exec +for Good Reason +Termination +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +$1,844,000 +(1) +$2,766,000 +(2) +— +— +Salary Continuation +— +— +— +— +205,000 +(3) +307,500 +(4) +Pro-rata Bonus +— +369,000 +(5) +— +— +— +— +Acceleration of Unvested Equity +RSUs +— +— +987,506 +(6) +987,506 +(6) +987,506 +(6) +987,506 +(6) +SARs +— +— +48,486 +(6) +48,486 +(6) +48,486 +(6) +48,486 +(6) +PSUs +— +— +— +(7) +473,704 +(8) +54,592 +(9) +54,592 +(10) +Benefits +Earned Profit Sharing +8,100 +8,100 +8,100 +8,100 +8,100 +8,100 +Health Benefits Continuation +— +— +36,202 +(11) +36,202 +(11) +— +— +Total +$8,100 +$377,100 +$2,924,294 +$4,319,998 +$1,303,684 +$1,406,184 +(1) Cash +severance equal to 2 times the sum of his base salary and highest bonus paid in last two years (2016 bonus paid in March 2017). (2) Cash +severance equal to 3 times the sum of his base salary and highest bonus paid in the last two years (2016 bonus paid in March 2017). (3) In +the event of death, Mr. Lauck would receive a lump sum payment equal to six months base salary. (4) In +the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, Mr. Lauck would receive an +additional lump sum payment equal to six months' base salary. (5) Bonus +amounts for 2017 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Lauck is entitled to a pro-rata bonus +under the terms of his Agreement. As a result, the pro-rata bonus shown is based on the target bonus for 2017, which was adjusted and approved in February 2018 based on the Company's actual +performance. (6) RSUs +and SARs vest and become exercisable upon termination, change of control, disability or death. (7) PSUs +awarded in 2016 and 2017 would be forfeited. (8) The +value shown for PSUs upon a COC assumes (a) for 2017 PSUs, the target number of units (100%) awarded would be earned since less than half the performance +period has occurred and (b) for 2016 PSUs, the target number of units (100%) would be earned since amount is based on the lesser of 100% or actual Company performance for the period (0% as of +December 31, 2017). (9) The +value shown for PSUs upon death assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through date of death would be +earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through date of death would be earned (0% as of +December 31, 2017).. (10) The +value shown for PSUs upon disability assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through the end of the +period would be earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through the end of the period would be +earned (0% as of December 31, 2017). (11) Cost +of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Lauck and any covered dependents for an 18-month period. +67 +Table of Contents +Scott J. Reasoner +Voluntary +Termination +Termination by Company +Without Cause or by Exec +for Good Reason +Termination +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +$1,110,000 +(1) +$1,850,000 +(2) +— +— +Pro-rata Bonus +— +— +— +340,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +— +725,374 +(4) +725,374 +(4) +725,374 +(4) +725,374 +(4) +SARs +— +— +30,859 +(4) +30,859 +(4) +30,859 +(4) +30,859 +(4) +PSUs +— +— +— +(5) +416,082 +(6) +50,551 +(7) +50,551 +(8) +Benefits +Earned Profit Sharing +8,100 +8,100 +8,100 +8,100 +8,100 +8,100 +Health Benefits Continuation +— +— +36,202 +(9) +36,202 +(9) +— +— +Total +$8,100 +$8,100 +$1,910,535 +$3,406,617 +$814,884 +$814,884 +(1) Cash +severance is equal to 1.5 times the sum of his base salary and target bonus. (2) Cash +severance is equal to 2.5 times the sum of his base salary and target bonus. (3) Bonus +amounts for 2017 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Reasoner is entitled to a pro-rata +target bonus under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on the target bonus for 2017, which was adjusted and approved in February 2017 based on the Company's +actual performance. (4) RSUs +and SARs vest and become exercisable upon termination, change of control, disability or death. (5) The +Committee has the discretion to award from 0% to 100% of the target shares, adjusted for Company performance at the end of the performance period. Since no +amount is guaranteed, no value is included for the PSUs. (6) The +value shown for PSUs upon a COC assumes (a) for 2017 PSUs, the target number of units (100%) awarded would be earned since less than half the performance +period has occurred and (b) for 2016 PSUs, the target number of units (100%) would be earned since amount is based on the lesser of 100% or actual Company performance for the period (0% as of +December 31, 2017). (7) The +value shown for PSUs upon death assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through date of death would be +earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through date of death would be earned (0% as of +December 31, 2017). (8) The +value shown for PSUs upon disability assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through the end of the +period would be earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through the end of the period would be +earned (0% as of December 31, 2017). (9) Cost +of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Reasoner and any covered dependents for an 18-month period. +68 +Table of Contents +Daniel W. Amidon +Voluntary +Termination +Termination by Company +Without Cause or by Exec +for Good Reason +Termination +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +$2,349,000 +(1) +$2,349,000 +(1) +— +— +Salary Continuation +— +— +— +— +175,000 +(2) +262,500 +(3) +Pro-rata Bonus +280,000 +(4) +— +— +— +280,000 +(4) +280,000 +(4) +Acceleration of Unvested Equity +RSUs +— +— +659,300 +(5) +659,300 +(5) +659,300 +(5) +659,300 +(5) +SARs +— +37,469 +(5) +37,469 +(5) +37,469 +(5) +37,469 +(5) +PSUs +— +— +— +(6) +338,412 +(7) +36,395 +(8) +36,395 +(9) +Benefits +Earned Profit Sharing +8,100 +8,100 +8,100 +8,100 +8,100 +8,100 +Health Benefits Continuation +— +— +26,381 +(10) +26,381 +(10) +— +— +Total +$288,100 +$8,100 +$3,080,250 +$3,418,662 +$1,196,264 +$1,021,264 +(1) Cash +severance equal to 3 times the sum of his base salary and highest bonus paid or payable in last two years (2016 bonus awarded in February 2018 since 2017 bonus +not determined) as of December 31, 2017. (2) In +the event of death, Mr. Amidon would receive a lump sum payment equal to six months base salary. (3) In +the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, Mr. Amidon would receive an +additional lump sum payment equal to six months' base salary. (4) Bonus +amounts for 2017 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Amidon is entitled to a pro-rata bonus +under the terms of his agreement (in the case of a "voluntary termination", only if he terminates after March 31). As a result, the pro-rata bonus shown is based on the target bonus for 2017, +which was adjusted and approved in March 2018 based on the Company's actual performance. (5) RSUs +and SARs vest and become exercisable upon termination, change of control, disability or death. (6) PSUs +awarded in 2016 and 2017 are forfeited. (7) The +value shown for PSUs upon a COC assumes (a) for 2017 PSUs, the target number of units (100%) awarded would be earned since less than half the performance +period has occurred and (b) for 2016 PSUs, the target number of units (100%) would be earned since amount is based on the lesser of 100% or actual Company performance for the period (0% as of +December 31, 2017). (8) The +value shown for PSUs upon death assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through date of death would be +earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through date of death would be earned (0% as of +December 31, 2017). (9) The +value shown for PSUs upon disability assumes (a) for 2017 PSUs, one-third of the target PSUs adjusted for Company performance through the end of the +period would be earned (72% as of December 31, 2017) and (b) for 2016 PSUs, two-thirds of the target 2016 PSUs adjusted for Company performance through the end of the period would be +earned (0% as of December 31, 2017). (10) Cost +of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Amidon and any covered dependents for an 18-month period. +69 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for +issuance as of December 31, 2017: +Plan Category +Number of Securities to +be Issued Upon +Exercise +of Outstanding Options +and Rights +(1) (#) +Weighted-Average +Exercise Price of +Outstanding Options +and Rights +($) +Securities Remaining +Available for Future +Issuance Under Equity +Compensation Plans +(2) (#) +Equity compensation plans approved by security holders +350,569 +$47.39 +689,206 +Equity compensation plans not approved by security holders +— +— +— +Total +350,569 +$47.39 +689,206 +(1) Includes +52,349 shares of common stock to be issued based upon continuous employment and the maximum achievement of certain performance goals over a specified period +of time as described in "Outstanding Equity Awards at 2017 Fiscal Year-End." These shares have been excluded from the weighted average exercise price calculation. (2) The +number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding options, +SARs and restricted shares subject to time vesting and certain market-based performance goals over a specified period of time. +STOCKHOLDER NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2019 Annual Meeting +Any proposal that a stockholder wishes to include in the Company's proxy statement for the 2019 annual meeting of stockholders must be received +by the Company at its +principal office on or prior to December 20, 2018, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate +Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice Procedures Under the Company's Bylaws +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2019 annual meeting of stockholders, but +does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company's Bylaws, which provides that no business may +be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a +stockholder entitled to vote who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the +address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting. In the case of the 2019 annual meeting, the +notice must be delivered between March 1, 2019 and March 11, 2019. However, the Bylaws also provide that if the meeting is held more than 30 days before the anniversary of the +prior year's annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day +70 +Table of Contents +following +the day on which public announcement of the date of the annual meeting is first made by the Company. +Pursuant +to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above after March 5, 2019 that is intended to be +presented at the 2019 annual meeting of stockholders without inclusion in the proxy statement for the meeting, the proxies designated by the Board will have discretionary authority to vote on such +proposal. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual +reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as +"householding," is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding +our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue +until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual report and proxy statement in the future, we will promptly deliver a +separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the attention of the +Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should +contact your bank, broker or other nominee record holder. +By +Order of the Board of Directors, +Barton +R. Brookman +President and Chief Executive Officer +Dated: +April 19, 2018 +THE +COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON +WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY +FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, +COLORADO, 80203. +71 +Table of Contents +APPENDIX A +PDC ENERGY, INC. +2018 EQUITY INCENTIVE PLAN +Adopted by the Board on March 30, 2018 +Approved by the Company's stockholders on [ · ] +1. ESTABLISHMENT AND PURPOSE OF PLAN +PDC +Energy, Inc., a Delaware corporation (the " Company "), hereby establishes the PDC Energy, Inc. 2018 Equity Incentive Plan +(the " Plan ") as set forth in this document. The purpose of the Plan is to promote the success of the Company and to increase stockholder value by +providing an additional means to attract, motivate, retain and reward selected employees, non-employee directors, and other eligible persons through the grant of equity and cash Awards that align the +interests of Plan Participants with the interests of the Company's stockholders. +2. DEFINITIONS +2.1 Defined Terms . Whenever used in the Plan, the following +capitalized terms shall have the meanings set forth below: +(a) " Administrator " shall mean the Board or one or more committees appointed by the Board (or appointed by another committee +within that committee's delegated authority) to administer all or certain aspects of this Plan, as set forth in Section 3 hereof. +(b) " Affiliate " shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the +Exchange Act. +(c) " Award " shall mean a grant under the Plan of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock +Unit, Performance Stock Unit, cash Award, or Other Stock-Based Award. +(d) " Award Agreement " shall mean a written or electronic Award agreement evidencing the grant of an Award under the Plan and +containing the terms and conditions of such Award, as determined by the Administrator. +(e) " Board " shall mean the board of directors of the Company. +(f) " Cause " shall have the meaning set forth in the applicable Award Agreement, or if not defined therein, shall, in the case +of an employee, have the meaning assigned to such term in any individual employment agreement between the Company or its Subsidiaries and the Participant, or if none, in the Company severance plan (if +any) covering the Participant. +(g) " Change in Control " shall mean the first day that any one or more of the following conditions shall have been satisfied: +1. the +"beneficial ownership" of securities as defined in Rule 13d-3 under the Exchange Act representing more than thirty-three percent (33%) of the combined voting +power of the Company is acquired by any "person" as defined in Section 3(a)(9) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee +benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company); or +2. the +consummation of the transactions contemplated by a definitive agreement to merge or consolidate the Company with or into another corporation or to sell or otherwise +dispose of all or substantially all of its assets, unless the stockholders of the Company +A-1 +Table of Contents +immediately +prior to such transaction own, directly or indirectly, at least 50% of the voting power of the resulting or purchasing entity in such transaction in substantially the same proportions as +their ownership of the Company immediately prior to such transaction; or +3. The +approval by the stockholders of a plan of liquidation; or +4. during +any period of three consecutive years, individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a +majority thereof (unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least a majority of the directors then still in +office who were directors at the beginning of such period or whose election or nomination was previously so approved). +(h) " Code " shall mean the Internal Revenue Code of 1986, as amended. +(i) " Common Stock " shall mean the common stock of the Company, par value $0.001 per share, and such other securities or +property as may become the subject of Awards under this Plan pursuant to an adjustment made under Section 8.1. +(j) " Company " shall mean PDC Energy, Inc., a Delaware corporation. +(k) " Disability " shall mean the Participant (i) is unable to engage in any substantial gainful activity by reason of +any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or +(ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than +twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company. +(l) " Effective Date " shall mean the date on which this Plan is approved by the stockholders of the Company. +(m) " Eligible Person " shall have the meaning set forth in Section 5 hereof. +(n) " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended. +(o) " Fair Market Value " shall mean (i) the closing sales price per share of Common Stock on the U.S. national +securities exchange or over-the-counter market on which the Common Stock is principally traded on the date on which Fair Market Value is being determined or (ii) if the shares of Common Stock +are not then listed on any national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as reasonably determined by the +Administrator in good faith and, to the extent necessary, in accordance with the requirements of Section 409A of the Code. +(p) " Incentive Stock Option " or " ISO " shall mean an incentive stock option +within the meaning of Section 422 of the Code" +(q) " Non-Qualified Stock Option " or " NSO " means an Option other than an +Incentive Stock Option. +(r) " Option " shall mean a compensatory stock option granted pursuant to Section 6.1.1. +(s) " Other-Stock Based Award " shall mean a stock-based Award issued pursuant to Section 6.1.7. +(t) " Participant " shall mean any Eligible Person that has been issued an Award under the Plan. +A-2 +Table of Contents +(u) " Performance Stock Unit " or " PSU " shall mean a performance stock unit +Award issued pursuant to Section 6.1.5. +(v) " Plan " shall have the meaning set forth in Section 1 hereof. +(w) " Restricted Stock " shall mean shares of forfeitable Common Stock issued pursuant to Section 6.1.3. +(x) " Restricted Stock Unit " or " RSU " shall mean a restricted stock unit +issued pursuant to Section 6.1.4. +(y) " Section 409A " shall mean section 409A of the Code and related Treasury regulations and pronouncements. +(z) " Securities Act " shall mean the Securities Act of 1933, as amended. +(aa) " Share Limit " shall have the meaning set forth in Section 4.2. +(bb) " Stock Appreciation Right " or " SAR " shall mean a stock appreciation +right granted pursuant to Section 6.1.2. +(cc) " Subsidiary " shall mean any corporation or other entity controlled by the Company directly or indirectly though one or +more intermediaries. +2.2 Construction . Except where otherwise indicated by the +context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. +3. PLAN ADMINISTRATION +3.1 Plan Administrator . This Plan shall be administered by and +all Awards under this Plan shall be authorized by the Administrator. Any committee appointed by the Board to act as the Administrator shall be comprised solely of one or more directors or such other +number of directors as may be required under applicable law. A committee may delegate some or all of its authority to another committee so constituted. The Board or a committee comprised solely of +directors may also delegate, to the extent permitted by applicable law, to one or more officers of the Company, its powers under this Plan (a) to determine the Eligible Persons who will receive +grants of Awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such Awards. The Board may delegate different levels of authority +to different committees with administrative and grant authority under this Plan. Unless otherwise provided in the bylaws of the Company or the applicable charter of any Administrator: (a) a +majority of the members of the acting Administrator shall constitute a quorum, and (b) the affirmative vote of a majority of the members present assuming the presence of a quorum or the +unanimous written consent of the members of the Administrator shall constitute due authorization of an action by the acting Administrator. +Award +grants, and transactions in or involving Awards, intended to be exempt under Rule 16b-3 under the Exchange Act, must be duly and timely authorized by the Board or a +committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b-3 promulgated under the Exchange Act). To the extent required by any applicable +stock exchange, this Plan shall be administered by a committee composed entirely of independent directors (as defined by the rules of the applicable stock exchange). Awards granted to non-employee +directors shall not be subject to the discretion of any officer or employee of the Company and shall be administered exclusively by the Board or a committee consisting solely of independent directors. +3.2 Powers of the Administrator . Subject to the express +provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of Awards and the administration of this Plan (in +the case of a committee or delegation +A-3 +Table of Contents +to +one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to: +(a) determine +eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive Awards under this Plan; +(b) grant +Awards to Eligible Persons, determine the price at which securities will be offered or Awarded and the number of securities to be offered or Awarded to any of such +persons, determine the other specific terms and conditions of such Awards consistent with the express limits of this Plan, establish the installments (if any) in which such Awards shall become +exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable +performance targets, and establish the events of termination or reversion of such Awards; +(c) approve +the forms of Award agreements (which need not be identical either as to type of Award or among Participants); +(d) construe +and interpret this Plan and any Award Agreements defining the rights and obligations of the Company, its Subsidiaries, and Participants under this Plan, further +define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards granted under this Plan; +(e) cancel, +modify, or waive the Company's rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards, subject to any required +consent under Section 10.5.5; +(f) accelerate +or extend the vesting or exercisability or extend the term of any or all such outstanding Awards (in the case of Options or Stock Appreciation Rights, within +the maximum ten-year term of such Awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or +other events of a personal nature) subject to any required consent under Section 10.5.5; +(g) adjust +the number of shares of Common Stock subject to any Award, adjust the price of any or all outstanding Awards or otherwise change previously imposed terms and +conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to compliance with applicable stock exchange requirements, Sections 4 and 10.5.5, and provided +that in no case (except due to an adjustment contemplated by Section 8) shall the terms of any outstanding Awards be amended (by amendment, cancellation and regrant, or other means) to reduce +the per share exercise or base price of any outstanding Option or Stock Appreciation Right or other Award granted under this Plan, or be exchanged for cash, other Awards or Option or Stock +Appreciation Rights with an exercise price that is less than the per share exercise price of the original Option or Stock Appreciation Rights, without stockholder approval, and further provided that +any adjustment or change in terms made pursuant to this Section 3.2(g) shall be made in a manner that, in the good faith determination of the Administrator will not likely result in the +imposition of additional taxes or interest under Section 409A of the Code; +(h) determine +the date of grant of an Award, which may be a designated date after but not before the date of the Administrator's action (unless otherwise designated by the +Administrator, the date of grant of an Award shall be the date upon which the Administrator took the action granting an Award); +(i) determine +whether, and the extent to which, adjustments are required pursuant to Section 8 hereof and authorize the termination, conversion, substitution, +acceleration or succession of Awards upon the occurrence of an event of the type described in Section 8; +A-4 +Table of Contents +(j) acquire +or settle rights under Awards in cash, stock of equivalent value, or other consideration, subject to the provision of the Plan; and +(k) determine +the Fair Market Value of the Common Stock or Awards under this Plan from time to time and/or the manner in which such value will be determined. +3.3 Binding Determinations. Any action taken by, or inaction of, +the Company, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or +body and shall be conclusive and binding upon all persons. Neither the Board, the Administrator, nor any Board committee, nor any member thereof or person acting at the direction thereof, shall be +liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any Award made under this Plan), and all such persons shall be entitled +to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, legal fees) arising or resulting therefrom to the fullest extent +permitted by law. The foregoing right of indemnification shall be in addition to any right of indemnification set forth in the Company's certificate of incorporation and bylaws, as the same may be +amended from time to time, or under any directors and officers liability insurance coverage or written indemnification agreement with the Company that may be in effect from time to time. +3.4 Reliance on Experts. In making any determination or in +taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including professional advisors to the Company. The Administrator shall not be +liable for any such action or determination taken or made or omitted in good faith based upon such advice. +3.5 Delegation of Non-Discretionary Functions. In addition to +the ability to delegate certain grant authority to officers of the Company as set forth in Section 3.1, the Administrator may also delegate ministerial, non-discretionary functions to +individuals who are officers or employees of the Company or any of its Subsidiaries or to third parties. +4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMIT +4.1 Shares Available. Subject to the provisions of +Section 8.1, the capital stock available for issuance under this Plan shall be shares of the Company's authorized but unissued Common Stock or previously issued Common Stock that has been +reacquired by the Company. +4.2 Share Limit. The maximum number of shares of Common Stock +that may be delivered pursuant to Awards granted to Eligible Persons under this Plan (the " Share Limit ") may not exceed 1,800,000 shares of Common +Stock. The foregoing Share Limit is subject to adjustment as contemplated by Section 8.1 and Section 10.9. +4.3 Awards Settled in Cash, Reissue of Awards and Shares. The +Administrator may adopt reasonable counting procedures to ensure appropriate counting and to avoid double counting (as, for example, in the case of tandem or substitute Awards) as it may deem +necessary or desirable in its sole discretion. Shares shall be counted against those reserved to the extent such shares have been delivered and are no longer subject to a substantial risk of +forfeiture. Accordingly, to the extent that an Award under the Plan, in whole or in part, is canceled, expired, forfeited, settled in cash, or otherwise terminated without delivery of shares to the +Participant, the shares retained by or returned to the Company will not be deemed to have been delivered under the Plan and will be deemed to remain or to become available under this Plan. +Notwithstanding the foregoing, shares that are withheld from such an Award or separately surrendered by the Participant in payment of the exercise price or taxes relating to such an Award, and the +total number of shares subject to the exercised portion of a stock-settled SAR (regardless of the actual lesser of number shares delivered to the Participant), shall be deemed to have been issued +hereunder and shall reduce the number of shares remaining available for issuance under the Plan. +A-5 +Table of Contents +4.4 Reservation of Shares; No Fractional Shares. The Company +shall at all times reserve a number of shares of Common Stock sufficient to cover the Company's obligations and contingent obligations to deliver shares with respect to Awards then outstanding under +this Plan (exclusive of any dividend equivalent obligations to the extent the Company has the right to settle such rights in cash). No fractional shares shall be delivered under this Plan. The +Administrator may pay cash in lieu of any fractional shares in settlements of Awards under this Plan. +5. ELIGIBILITY +5.1 Eligible Persons . The Administrator (as such term is defined +in Section 3.1) may grant Awards under this Plan only to those persons that the Administrator determines to be Eligible Persons. An " Eligible +Person " is any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its Subsidiaries; (b) a non-employee director +of the Company or one of its Subsidiaries; or (c) an individual consultant who renders bona fide services (other than services in connection with the offering or sale of securities of the +Company or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Company or one of its Subsidiaries) to the Company or one of its Subsidiaries +and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under +clause (c) above may participate in this Plan only if such participation would not adversely affect either the Company's eligibility to use Form S-8 to register under the Securities Act, +the offering and sale of shares issuable under this Plan by the Company, or the Company's compliance with any other applicable laws. +5.2 Participation . The Administrator shall, in its sole and +absolute discretion, select from among the Eligible Employees those individuals who shall receive Awards and become Participants under the Plan. There is no right of any Eligible Person to receive an +Award under the Plan, and the Administrator has absolute discretion to treat Eligible Employees differently from one another under the Plan. Receipt of an Award by a Participant shall not create the +right to receive future Awards under the Plan, but a Participant who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Administrator shall so determine. +6. AWARDS +6.1 Type and Form of Awards. The Administrator shall determine +the type or types of Award(s) to be made to each selected Eligible Person. Awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in +replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company or one of its Subsidiaries. The types of Awards that may be +granted under this Plan are: +6.1.1 Stock Options. An Option is the grant of a right to +purchase a specified number of shares of Common Stock during a specified period at a fixed exercise price as determined by the Administrator. +(a) General Option Provisions. Options may only be granted to Eligible Persons for whom the Company would be +deemed to be an "eligible issuer of service recipient stock," as defined in Treasury Regulation 1.409A-1(b)(5)(iii)(E). An Option may be intended to be an Incentive Stock Option or a +Nonqualified Stock Option. The Award agreement for an Option will indicate if the Option is intended as an ISO; otherwise it will be deemed to be a Nonqualified Stock Option. The maximum term of each +Option (ISO or NSO) shall be ten (10) years. The per share exercise price for each Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of +grant of the Option. Each Option shall become exercisable at such times and under such conditions and shall be subject to such other terms as may be determined by the Administrator in its discretion. +When an +A-6 +Table of Contents +Option +is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.5. +(b) Additional Rules Applicable to ISOs. Notwithstanding the general option rules set forth in +subsection (a), above, the following rules shall apply to options intended to qualify as ISOs. ISOs may only be granted to employees of the Company or one of its subsidiaries (for this purpose, +the term "subsidiary" is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes +of stock of each subsidiary in the chain beginning with the Company and ending with the subsidiary in question). To the extent that the aggregate Fair Market Value (determined at the time of grant of +the applicable option) of stock with respect to which ISOs first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to ISOs under +this Plan and stock subject to ISOs under all other plans of the Company or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of +Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options. In reducing the number of options treated as ISOs to meet the +$100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in +the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an ISO. There shall be imposed in any Award +agreement relating to ISOs such other terms and conditions as from time to time are required in order that the option be an "incentive stock option" as that term is defined in Section 422 of +the Code. No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing +more than 10% of the total combined voting power of all classes of stock of the Company, unless the exercise price of such option is at least 110% of the Fair Market Value of the stock subject to the +option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. +6.1.2 Stock Appreciation Rights. A Stock Appreciation Right or +"SAR" is an Award that entitles the Participant to receive, upon exercise of the SAR, a payment in cash and/or Common Stock equal to (or having a Fair Market Value equal to) the product of +(x) number of SARs being exercised multiplied by (y) the excess of (i) the Fair Market Value of a share of Common Stock on the date the SAR is exercised, over (ii) the +"base price" applicable to the SAR. SARs may only be granted to Eligible +Persons for whom the Company would be deemed to be an "eligible issuer of service recipient stock," as defined in Treasury Regulation 1.409A-1(b)(5)(iii)(E). The base price of the SAR shall be +determined by the Administrator but shall be not less than the Fair Market Value of the Company's Common Stock on the date of grant. The maximum term of a SAR shall be ten (10) years. SARs +shall become exercisable at such times and under such conditions and shall be subject to such other terms as may be determined by the Administrator in its discretion. +6.1.3 Restricted Stock . +(a) General Restricted Stock Provisions. Restricted Stock is Common Stock subject to such restrictions on +transferability, risk of forfeiture and other restrictions, if any, as the Administrator may impose, which restrictions may lapse separately or in combination at such times, under such circumstances +(including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Administrator may determine at the date of grant or thereafter. +Except to the extent restricted under the terms of this Plan and the applicable Award Agreement relating to the Restricted Stock, a Participant granted Restricted Stock shall have all of the rights of +a stockholder of the +A-7 +Table of Contents +Company, +including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to the provisions of Section 6.1.3(c), below). +(b) Certificates for Shares. Shares of Restricted Stock granted under this Plan may be evidenced in such manner +as the Administrator shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Administrator may require that such certificates bear an +appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant +deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock. The Administrator may require that shares of Restricted Stock are held in escrow until all restrictions +lapse. +(c) Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, any cash dividends paid +on shares of Restricted Stock and any stock distributed in connection with a stock split or stock dividend, and any other property distributed as a dividend, shall be subject to restrictions and a +risk of forfeiture to the same extent as the Restricted Stock with respect to which such dividend or distribution was made. In addition, and subject to applicable law, the Administrator may require or +permit a Participant to elect that any cash dividends paid on Restricted Stock be automatically reinvested in +additional shares of Restricted Stock or applied to the purchase of additional Awards under this Plan, subject to the same vesting schedule as the Restricted Stock to which the dividend relates. +6.1.4 Restricted Stock Units . +(a) Grant of Restricted Stock Units. A restricted stock unit, or "RSU", represents the right to receive from the +Company on the respective scheduled vesting or payment date for such RSU, one share of Common Stock or, if specified in the applicable Award agreement, the Fair Market Value of one share of Common +Stock paid in cash. The vesting or payment of an Award of RSUs may be subject to the attainment of specified performance goals or targets, forfeitability provisions and such other terms and conditions +as the Administrator may determine, subject to the provisions of this Plan. +(b) Dividend Equivalent Accounts. If (and only if) required by the applicable Award Agreement, prior to the +expiration of the applicable vesting period of an RSU, the Administrator shall pay dividend equivalent rights with respect to RSUs, in which case the Company shall establish an account for the +Participant and reflect in that account any securities, cash or other property comprising any dividend or property distribution with respect to the shares of Common Stock underlying each RSU. Each +amount or other property credited to any such account shall be subject to the same vesting conditions as the RSU to which it relates. In addition, subject to applicable law, the Administrator may +require or permit a Participant to elect that any such dividend equivalent amounts credited to the Participant's account be automatically deemed reinvested in additional RSUs or applied to the +purchase of additional Awards under the Plan, subject to the same vesting schedule as the RSUs to which the dividend equivalent amounts relate. The Participant shall be paid the amounts or other +property credited to such account at the same time as payment of the RSU. +(c) Rights as a Stockholder. Subject to the restrictions imposed under the terms and conditions of this Plan and +the applicable Award Agreement, each Participant receiving RSUs shall have no rights as a stockholder of the Company with respect to such RSUs until such time as shares of Common Stock are issued to +the Participant. In the event an RSU is settled in cash, the Participant receiving RSUs shall never receive stockholder rights with respect to such Award. No shares of Common Stock shall be issued at +the time a RSU is granted, and the Company will not be required to set aside a fund for the payment of any such Award. +A-8 +Table of Contents +6.1.5 Performance Stock Units. +(a) Grant of Performance Stock Units. A Performance Stock Unit, or "PSU," is a performance-based Award that +entitles the Participant to receive shares of Common Stock or, if specified in the Award Agreement, the Fair Market Value of such shares of Common Stock paid in cash, based on the attainment of one or +more performance goals. Each Award of PSUs shall designate a target number of PSUs covered by the Award, with the actual number of shares of Common Stock earned (if any) to be based on a formula set +forth in the Award Agreement related to the attainment of one or more performance goals set forth in the Award Agreement. +(b) Dividend Equivalent Accounts. If (and only if) required by the applicable Award Agreement, the Administrator +shall pay dividend equivalent rights with respect to PSUs, in which case the Participant shall be entitled to a cash payment with respect to each PSU earned and payable in an amount based on the +ordinary cash dividends that would have been payable to Participant had Participant been the owner of a number of actual shares of Common Stock equal to the number of PSUs earned, from the date of +grant of the PSU Award through the date the PSU is paid. If so determined by the Administrator and set forth in the applicable Award Agreement, such cash amount may be credited with earnings or losses +as if deemed reinvested in Company Common Stock or as if used to purchase additional Awards under the Plan. The amount payable shall be made in a single lump sum on the date on which payment is made +in respect of the related PSUs. +(c) Rights as a Stockholder. Subject to the restrictions imposed under the terms and conditions of this Plan and +the applicable Award Agreement, each Participant receiving PSUs shall have no rights as a stockholder of the Company with respect to such PSUs until such time as shares of Common Stock are issued to +the Participant. In the event a PSU is settled in cash, the Participant receiving PSUs shall never receive stockholder rights with respect to such Award. No shares of Common Stock shall be issued at +the time a PSU is granted, and the Company will not be required to set aside a fund for the payment of any such Award. +6.1.6 Cash Awards . The Administrator +may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant cash bonuses (including without limitation, discretionary Awards, Awards +based on objective or subjective performance criteria, Awards subject to other vesting criteria or Awards granted consistent with Section 5.2 below). Cash Awards shall be Awarded in such amount +and at such times during the term of the Plan as the Administrator shall determine. +6.1.7 Other Awards. The other types of Awards that may be +granted under this Plan include: (a) stock bonuses, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common +Stock (subject to compliance with applicable laws), upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination +thereof; or (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon. +6.2 Award Agreements. Each Award (other than cash Awards +described in Section 6.1.6) shall be evidenced by a written or electronic Award Agreement in the form approved by the Administrator and, if required by the Administrator, executed or accepted +by the recipient of the Award. The Administrator +may authorize any officer of the Company (other than the particular Award recipient) to execute any or all Award Agreements on behalf of the Company (electronically or otherwise). The Award agreement +shall set forth the material terms and conditions of the Award as established by the Administrator consistent with the express limitations of this Plan. +A-9 +Table of Contents +6.3 Deferrals and Settlements. Except as +otherwise set forth herein, payment of Awards may be in the form of cash, Common Stock, other Awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may +impose. The Administrator may also require or permit Participants to elect to defer the issuance of shares of Common Stock or the settlement of Awards in cash under such rules and procedures as it may +establish under this Plan. The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or +crediting of dividend equivalents where the deferred amounts are denominated in shares. All mandatory or elective deferrals of the issuance of shares of Common Stock or the settlement of cash Awards +shall be structured in a manner that is intended to comply with the requirements of Section 409A of the Code. +6.4 Consideration for Common Stock or Awards. The purchase price +for any Award granted under this Plan or the Common Stock to be delivered pursuant to an Award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator and +subject to compliance with applicable laws, including, without limitation, one or a combination of the following methods: +services +rendered by the recipient of such Award; +cash, +check payable to the order of the Company, or electronic funds transfer; +notice +and third-party payment in such manner as may be authorized by the Administrator; +the +delivery of previously owned shares of Common Stock that are fully vested and unencumbered; +by +a reduction in the number of shares otherwise deliverable pursuant to the Award; or +subject +to such procedures as the Administrator may adopt, pursuant to a "cashless exercise" with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase +or exercise of Awards. +In +the event that the Administrator allows a Participant to exercise an Award by delivering shares of Common Stock previously owned by such Participant and unless otherwise expressly +provided by the Administrator, any shares delivered which were initially acquired by the Participant from the Company (upon exercise of an Option or otherwise) must have been owned by the Participant +at least six months as of the date of delivery (or such other period as may be required by the Administrator in order to avoid adverse accounting treatment). Shares of Common Stock used to satisfy the +exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. The Company will not be obligated to deliver any shares unless and until it receives full payment of the +exercise or purchase price therefor and any related withholding obligations under Section 9.1 and any other conditions to exercise or purchase, as established from time to time by the +Administrator, have been satisfied. Unless otherwise expressly provided in the applicable Award Agreement, the Administrator may at any time eliminate or limit a Participant's ability to pay the +purchase or exercise price of any Award by any method other than cash payment to the Company. +6.5 Minimum Vesting Schedule. Except as provided below, all +Awards granted under the Plan shall have a minimum one year cliff vesting schedule meaning that no portion of any Award may be scheduled to vest prior to one year after the date of grant of such +Award. Notwithstanding the foregoing, up to five percent (5%) of the total number of shares of Common Stock authorized by the Board and the stockholders for issuance under the Plan may be granted +pursuant to Awards not subject to the minimum vesting schedule described above. The Administrator may adopt reasonable counting procedures to determine whether the five percent (5%) limit in the +preceding sentence has been attained. The Administrator may also apply reasonable rules and rounding conventions to determine whether an Award complies with the above-referenced minimum vesting +schedule. +A-10 +Table of Contents +6.6 Transfer Restrictions. +6.6.1 Limitations on Exercise and Transfer. Unless otherwise +expressly provided in (or pursuant to) this Section 6.6, by applicable law and by the Award agreement, as the same may be amended, (a) all Awards are non-transferable and shall not be +subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) Awards shall be exercised only by the Participant; and (c) amounts +payable or shares issuable pursuant to any Award shall be delivered only to (or for the account of) the Participant. +6.6.2 Exceptions. The Administrator may permit Awards to be +exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in +its sole discretion, establish in writing (provided that any such transfers of ISOs shall be limited to the extent permitted under the federal tax laws governing ISOs). Any permitted transfer shall be +subject to compliance with applicable federal and state securities laws. +6.6.3 Further Exceptions to Limits on Transfer. The exercise and +transfer restrictions in Section 6.6.1 shall not apply to: +(a) transfers +to the Company, +(b) the +designation of a beneficiary to receive benefits in the event of the Participant's death or, if the Participant has died, transfers to or exercise by the +Participant's beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution, +(c) subject +to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by +the Administrator, +(d) subject +to any applicable limitations on ISOs, if the Participant has suffered a Disability, permitted transfers or exercises on behalf of the Participant by his or her +legal representative, or +(e) the +authorization by the Administrator of "cashless exercise" procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the +exercise of Awards consistent with applicable laws and the express authorization of the Administrator. +6.7 International Awards. One or more Awards may be granted to +Eligible Persons who provide services to the Company or one of its Subsidiaries outside of the United States. Any Awards granted to such persons may, if deemed necessary or advisable by the +Administrator, be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator. +6.8 Dividend and Dividend Equivalents. Notwithstanding anything +to the contrary herein, in no event may accrued dividends or dividend equivalents with respect to any Award issued under the Plan be paid prior to the vesting of such Award. +7. EFFECT OF TERMINATION OF SERVICE ON AWARDS +7.1 Termination of Employment. +7.1.1 Administrator Determination. The Administrator shall +establish the effect of a termination of employment or service on the rights and benefits under each Award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of +termination and type of Award. If the Participant is not an employee of the Company or one of its Subsidiaries and provides other services to the Company or one of its Subsidiaries, the Administrator +shall be the +A-11 +Table of Contents +sole +judge for purposes of this Plan (unless a contract or the Award agreement otherwise provides) of whether the Participant continues to render services to the Company or one of its Subsidiaries and +the date, if any, upon which such services shall be deemed to have terminated. +7.1.2 Stock Options and SARs. For Awards of Options or SARs, +unless the Award agreement provides otherwise, the exercise period of such Options or SARs shall expire: (1) three months after the last day that the Participant is employed by or provides +services to the Company or a Subsidiary ( provided however , that in the event of the Participant's death during this period, those persons entitled to +exercise the Option or SAR pursuant to the laws of descent and distribution shall have one year following the date of death within which to exercise such option or SAR); (2) in the case of a +Participant whose termination of employment is due to death or Disability (as defined in the applicable Award agreement), 12 months after the last day that the Participant is employed by or +provides services to the Company or a Subsidiary; and (3) immediately upon a Participant's termination for Cause. The Administrator will, in its absolute discretion, determine the effect of all +matters and questions relating to a termination of employment, including, but not by way of limitation, the question of whether a leave of absence constitutes a termination of employment and whether a +Participant's termination is for Cause. +7.1.3 Other Awards. For all other Awards issued under the Plan, +unless the Award agreement provides otherwise, the portion of such Awards that are unvested at the time that a Participant's employment or service is terminated shall be forfeited and reacquired by +the Company; provided however, the Administrator may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, +that such forfeiture requirement shall be waived in whole or in part. +7.2 Events Not Deemed Terminations of Service. Unless the +express policy of the Company or one of its Subsidiaries, or the Administrator, otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, +(b) military leave, or (c) any other paid leave of absence authorized by the Company or one of its Subsidiaries, or the Administrator; provided that unless reemployment upon the expiration of +such leave is guaranteed by contract or law, such leave is for a period of not more than +3 months. In the case of any employee of the Company or one of its Subsidiaries on an approved leave of absence, continued vesting of the Award while on leave from the employ of the Company or +one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires. In no event shall an Award be +exercised after the expiration of the term set forth in the Award agreement. +7.3 Effect of Change of Subsidiary Status. For purposes of this +Plan and any Award, if an entity ceases to be a Subsidiary of the Company, a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of +such Subsidiary who does not continue as an Eligible Person in respect of the Company or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to +the change in status. +8. ADJUSTMENTS; ACCELERATION +8.1 Adjustments. Upon or in contemplation of (a) any +reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split, (b) any merger, arrangement, combination, consolidation, or +other reorganization, (c) any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock (whether in the form of securities or property), or +(d) any exchange of Common Stock or other securities of the Company, or any similar, +unusual or extraordinary corporate transaction in respect of the Common Stock, the Administrator shall in such manner, to such extent and at such time as it deems appropriate and equitable in the +circumstances (but subject to compliance with applicable laws and stock exchange requirements) proportionately adjust any or all of (1) the number and type of shares of Common Stock (or other +securities) that thereafter may be made the subject of Awards (including the Share Limit), (2) the +A-12 +Table of Contents +number, +amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding Awards, (3) the grant, purchase, or exercise price (which term includes the +base price of any SAR or similar right) of any or all outstanding Awards, and (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding Awards. Any +adjustment made pursuant to this Section 8.1 shall be made in a manner that, in the good faith determination of the Administrator, will not likely result in the imposition of additional taxes +or interest under Section 409A of the Code. With respect to any Award of an ISO, the Administrator may make such an adjustment that causes the option to cease to qualify as an ISO without the +consent of the affected Participant. +8.2 Change in Control. Unless otherwise provided in an +applicable Award Agreement, in the event of a Change in Control, the Administrator shall have full discretion to take whatever actions it deems necessary or appropriate with respect to outstanding +Awards, including, but not limited to: (i) to provide for full or partial accelerated vesting of any Award or portion thereof, either immediately prior to such Change in Control or on such +terms and conditions following the Change in Control (such as a termination without cause) as the Administrator determines in its sole and absolute discretion, (ii) to provide for the +assumption of such Awards (or portions thereof) or the substitution of such Awards (or portions thereof) with similar awards of the surviving or acquiring company, in a manner designed to comply with +Section 409A of the Code, (iii) to provide for the cash out and cancellation of any Award (or portion thereof) immediately prior to such Change in Control, which cash out may (in a +manner designed to comply with Code Section 409A) be subject to any escrow, earn-out or other contingent or deferred payment arrangement that is contemplated by such Change in Control, and +(iv) take any other actions as the Administrator deems necessary or advisable in connection with such Change in Control transaction; provided, however, that in the event the surviving or +acquiring company does not assume the outstanding Awards (or portions thereof) or substitute similar stock awards for those outstanding under the Plan as of the Change in Control, then (i) the +vesting and exercisability (if applicable) of all Awards (or portions thereof) shall be accelerated in full immediately prior to such Change in Control, and (ii) such outstanding Awards (or +portions thereof) shall terminate and/or be payable upon the occurrence of the Change in Control. The Administrator may take different actions with respect to different Participants under the Plan, +different Awards under the Plan, and different portions of Awards granted under the Plan. +9. TAX PROVISIONS +9.1 Tax Withholding. Upon any exercise, vesting, or payment of +any Award, the Company or one of its Subsidiaries shall have the right at its option to: +(a) require +the Participant (or the Participant's personal representative or beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of +any taxes which the Company or one of its Subsidiaries may be required to withhold with respect to such Award event or payment; or +(b) deduct +from any amount otherwise payable in cash to the Participant (or the Participant's personal representative or beneficiary, as the case may be) the minimum amount +of any taxes which the Company or one of its Subsidiaries may be required to withhold with respect to such cash payment. +In +any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Administrator may in its sole discretion (subject to +Section 10.1) grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may +establish, to have the Company reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their Fair Market Value or at +the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the applicable withholding +A-13 +Table of Contents +obligation +on exercise, vesting or payment, not in excess of the maximum statutory rates in the Participant's applicable jurisdictions. +9.2 Requirement of Notification of Code Section 83(b) +Election . If any Participant shall make an election under Code Section 83(b) (to include in gross income in the year of transfer the amounts specified in +Code Section 83(b)) or under a similar provisions of the laws of a jurisdiction outside the United States, such Participant shall notify the Company of such election within ten (10) days +after filing notice of the election with the Internal Revenue Service or other government authority, in addition to any filing and notification required pursuant to regulations issued under Code +Section 83(b) or other applicable provision. +9.3 Requirement of Notification of Disqualifying +Disposition . If any Participant shall make any disposition of shares of stock delivered pursuant to the exercise of an ISO under the +circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days +thereof. +10. OTHER PROVISIONS +10.1 Compliance with Laws. This Plan, the granting and vesting +of Awards under this Plan, the offer, issuance and delivery of shares of Common Stock, the payment of money under this Plan or under Awards are subject to compliance with all applicable federal and +state laws, rules and regulations and to such approvals by any applicable stock exchange listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary +or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the Company or one of its Subsidiaries, provide such assurances and representations to +the Company or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements. +10.2 Future Awards/Other Rights. No person shall have any claim +or rights to be granted an Award (or additional Awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary. +10.3 No Employment/Service Contract. Nothing contained in this +Plan (or in any other documents under this Plan or in any Award) shall confer upon any Eligible Person or other Participant any right to continue in the employ or other service of the Company or one +of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employee's status as an employee at will, nor shall interfere in any way with the right of the +Company or one of its Subsidiaries to change a person's compensation or other benefits, or to terminate his or her employment or other service, with or without cause. Nothing in this +Section 10.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an Award agreement. +10.4 Plan Not Funded. Awards payable under this Plan shall be +payable in shares of Common Stock or from the general assets of the Company, and no special or separate reserve, fund or deposit shall be made to assure payment of such Awards. No Participant, +beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Company or +one of its Subsidiaries by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to +the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or one of its Subsidiaries and any Participant, beneficiary or +other person. To the extent that a Participant, beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any +unsecured general creditor of the Company. +A-14 +Table of Contents +10.5 Effective Date, Termination and Suspension, Amendments. +10.5.1 Effective Date and Termination. This Plan was approved by +the Board and shall become effective upon approval by the stockholders at the Company's next Annual Meeting (the " Effective Date "). Unless earlier +terminated by the Board, this Plan shall terminate at the close of business ten years after the date on which it was approved by the Board. After the termination of this Plan either upon such stated +expiration date or its earlier termination by the Board, no additional Awards may be granted under this Plan, but previously granted Awards (and the authority of the Administrator with respect +thereto, including the authority to amend such Awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan. +10.5.2 Board Authorization. The Board may, at any time, +terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any period that the Board suspends this Plan. +10.5.3 Stockholder Approval. To the extent then required by +applicable law or any applicable stock exchange or required to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, this Plan and any amendment to this +Plan shall be subject to approval by the stockholders of the Company. +10.5.4 Amendments to Awards. Without limiting any other express +authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on Awards to Participants +that the Administrator in the prior exercise of its discretion has imposed, without the consent of a Participant, and (subject to the requirements of Sections 3.2 and 10.5.5) may make other +changes to the terms and conditions of Awards. Any amendment or other action that would constitute a repricing of an Award is subject to the limitations set forth in Section 3.2(g). +10.5.5 Limitations on Amendments to Plan and Awards. No +amendment, suspension or termination of this Plan or change of or affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the +Participant any rights or benefits of the Participant or obligations of the Company under any Award granted under this Plan. Changes, settlements and other actions contemplated by Section 8 +shall not be deemed to constitute changes or amendments for purposes of this Section 10.5.5. +10.6 Privileges of Stock Ownership. Except as otherwise +expressly authorized by the Administrator or this Plan, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of +record by the Participant. Except as expressly provided herein, no adjustment will be made for dividends or other rights as a stockholder of the Company for which a record date is prior to such date +of delivery. +10.7 Governing Law; Construction; Severability. +10.7.1 Choice of Law. This Plan, the Awards, all documents +evidencing Awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of Delaware. +10.7.2 Severability. If a court of competent jurisdiction holds +any provision of this Plan invalid and unenforceable, the remaining provisions of this Plan shall continue in effect and the Plan shall be construed and enforced without regard to the illegal or +invalid provision. +10.7.3 Plan Construction. +(a) Rule 16b-3. It is the intent of the Company that the Awards and transactions permitted by Awards be +interpreted in a manner that, in the case of Participants who are or may be subject +A-15 +Table of Contents +to +Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the Award, for exemption from matching liability under Rule 16b-3 promulgated under +the Exchange Act. Notwithstanding the foregoing, the Company shall have no liability to any Participant for Section 16 consequences of Awards or events under Awards if an Award or event does +not so qualify. +(b) Compliance with Section 409A of the Code. The Board intends that, except as may be otherwise +determined by the Administrator, any Awards under the Plan will be either exempt from or satisfy the requirements of Section 409A to avoid the imposition of any taxes, including additional +income or penalty taxes, thereunder. If the Administrator determines that an Award, Award agreement, acceleration, adjustment to the terms of an Award, payment, distribution, deferral election, +transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a Participant's Award to become subject to Section 409A, unless the +Administrator expressly determines otherwise, such Award, Award agreement, payment, acceleration, adjustment, distribution, deferral election, transaction or other action or arrangement shall not be +undertaken and the related provisions of the Plan and/or Award agreement will be deemed modified or, if necessary, rescinded in order to comply with the requirements of Section 409A to the +extent determined by the Administrator without the consent of or notice to the Participant. Notwithstanding the foregoing, neither the +Company nor the Administrator shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under Section 409A and neither the Company +nor the Administrator will have any liability to any Participant for such tax or penalty. +(c) No Guarantee of Favorable Tax Treatment. Although the Company intends that Awards under the Plan will be +exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under +Section 409A of the Code or any other provision of federal, state, local or foreign law. The Company shall not be liable to any Participant for any tax, interest or penalties the Participant +might owe as a result of the grant, holding, vesting, exercise or payment of any Award under the Plan. +10.8 Captions. Captions and headings are given to the sections +and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or +any provision thereof. +10.9 Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other +Corporation. Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee stock options, stock appreciation right, +restricted stock or other stock-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Company or one of its Subsidiaries, in connection with a +distribution, arrangement, business combination, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company or one of its Subsidiaries, +directly or indirectly, of all or a substantial part of the stock or assets of the employing entity. The Awards so granted need not comply with other specific terms of this Plan, provided the Awards +reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security. +Any shares that are delivered and any Awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding Awards +previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Company or one of +its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance +under this Plan, except as may otherwise be provided by the Administrator at the +A-16 +Table of Contents +time +of such assumption or substitution or as may be required to comply with the requirements of any applicable stock exchange. +10.10 Non-Exclusivity of Plan. Nothing in this Plan shall limit +or be deemed to limit the authority of the Board or the Administrator to grant Awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or +authority. +10.11 No Corporate Action Restriction. The existence of this +Plan, the Award agreements and the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Company to make or authorize: +(a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Company or any Subsidiary, (b) any merger, arrangement, business +combination, amalgamation, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of +or affecting the capital stock (or the rights thereof) of the Company or any Subsidiary, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of +all or any part of the assets or business of the Company or any Subsidiary, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any +other person shall have any claim under any Award or Award Agreement against any member of the Board or the Administrator, or the Company or any employees, officers or agents of the Company or any +Subsidiary, as a result of any such action. +10.12 Other Company Benefit and Compensation Programs. Payments +and other benefits received by a Participant under an Award made pursuant to this Plan shall not be deemed a part of a Participant's compensation for purposes of the determination of benefits under +any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing or +except as otherwise specifically set forth in the terms and conditions of such other employee welfare or benefit plan or arrangement. Awards under this Plan may be made in addition to, in combination +with, as alternatives to or in payment of grants, Awards or commitments under any other plans or arrangements of the Company or its Subsidiaries. +10.13 Restrictive Covenants and Clawback Policy. +10.13.1 Restrictive Covenants . Anything contained in the Plan to +the contrary notwithstanding, unless restrictive covenants protecting the Company are set forth in an employment or other agreement by and between the Company and the Participant or in any applicable +severance or similar plan sponsored by the Company, with respect to any Participant who is an employee, if the employment of any Participant shall terminate, for any reason other than death, while any +Award to such Participant is outstanding hereunder, and such Participant has not yet received the shares covered by such Award or otherwise received the full benefit of such Award, such Participant, +if otherwise entitled thereto, shall receive such shares or benefit only if, during the entire period from the date of such Participant's termination to the date of such receipt, such Participant +shall have earned such Award by: (i) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to, and otherwise +cooperate with the Company or any Subsidiary or Affiliate thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the +employ of the Company or of any Subsidiary or Affiliate thereof; and (ii) refraining from engaging in any activity within any county or parish, or adjacent to any county or parish, in which the +Company owns any oil and gas interests that is directly or indirectly in competition with any gas, exploration and production activities, including oil and gas leasing or drilling +activities of the Company or any Subsidiary or Affiliate thereof for a period of one (1) year following his or her termination of employment. +A-17 +Table of Contents +10.13.2 Breach of Restrictive Covenants . In the event of a +Participant's nonfulfillment of any condition set forth in Section 10.13.1 hereof, such Participant's rights under any Award shall be forfeited and canceled forthwith and such forfeiture and +cancellation shall be the Company's sole remedy; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of, or subsequent to termination of +employment) be waived by the Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any Subsidiary or +Affiliate thereof by reason of the nonfulfillment of such condition. +10.13.3 Awards Subject to Clawback . Awards under the Plan shall +be subject to any clawback policy adopted by the Company from time to time. +11. DIRECTOR COMPENSATION PROVISIONS +11.1 Plan Exclusive Vehicle for Non-Employee Director Cash and Equity +Compensation. All cash and equity compensation paid or provided to the Company's non-employee directors shall be awarded under the terms and conditions of this +Plan. +11.2 Non-Employee Director Compensation. Non-employee directors +may be Awarded any of the types of Awards described in Section 6 above for which they are eligible under the terms and conditions of Section 6, above. +11.2.1 Cash Awards . Cash Awards (as described in +Section 6.1.6) may take any form determined by the Administrator in its sole and absolute discretion, including, but not limited to, retainers, committee fees, chairperson fees, per meeting +fees, and special fees for committee service. In no event shall cash Awards paid to any non-employee director exceed $400,000 in any fiscal year. +11.2.2 Equity Awards. Equity Awards (described in +Sections 6.1.1, 6.1.2, 6.1.3, 6.1.4 and 6.1.5) may take any form determined by the Administrator in its sole and absolute discretion, provided, however, that in no event shall Awards granted to +an non-employee director in any fiscal year have a grant date fair value in excess of $400,000. +As +adopted by the Board of Directors of PDC Energy, Inc. on March 30, 2018. +A-18 +Table of Contents +APPENDIX B +Non-GAAP Financial Measures +The following three tables provide reconciliations of debt, adjusted cash flows from operations per share, and adjusted EBITDAX to their most +comparable U.S. GAAP measures (in millions, except per share data): +ADJUSTED CASH FLOWS FROM OPERATIONS +Twelve Months +Ended +December 31, +2017 +2016 +Adjusted cash flows from operations: +Net cash from operating activities +$ +588.6 +$ +486.3 +Changes in assets and liabilities +(6.5 +) +(19.5 +) +Adjusted cash flows from operations +$ +582.1 +$ +466.8 +Adjusted cash flows from operations, per share +$ +8.84 +$ +9.52 +ADJUSTED EBITDAX +Twelve Months +Ended +December 31, +2017 +2016 +Net loss to adjusted EBITDAX: +Net loss +$ +(127.5 +) +$ +(245.9 +) +Loss on commodity derivative instruments +3.9 +125.7 +Net settlements on commodity derivative instruments +13.3 +208.1 +Non-cash stock-based compensation +19.4 +19.5 +Interest expense, net +76.4 +61.0 +Income tax benefit +(211.9 +) +(147.2 +) +Impairment of properties and equipment +285.9 +10.0 +Impairment of goodwill +75.1 +— +Exploration, geologic, and geophysical expense +47.3 +4.7 +Depreciation, depletion, and amortization +469.1 +416.9 +Accretion of asset retirement obligations +6.4 +7.0 +Loss on extinguishment of debt +24.7 +— +Adjusted EBITDAX +$ +682.1 +$ +459.8 +Twelve Months +Ended +December 31, +2017 +2016 +Cash from operating activities to adjusted EBITDAX: +Net cash from operating activities +$ +588.6 +$ +486.3 +Interest expense, net +76.4 +61.0 +Amortization of debt discount and issuance costs +(12.9 +) +(16.2 +) +Gain on sale of properties and equipment +0.7 +— +Exploration, geologic, and geophysical expense +47.3 +4.7 +Exploratory dry hole expense +(41.3 +) +— +Other +29.8 +(56.5 +) +Changes in assets and liabilities +(6.5 +) +(19.5 +) +Adjusted EBITDAX +$ +682.1 +$ +459.8 +B-1 +VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on 05/29/2018. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. PDC ENERGY, INC. 1775 SHERMAN STREET SUITE 3000 DENVER,C 80203 VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on 05/29/2018. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. For Withhold For All Except To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the AllAll The Board of Directors recommends you vote FOR the following: nominee(s) on the line below. 0 0 0 1. To elect the three nominees named in the accompanying Proxy Statement as Class II Directors of the Company, each for a term of three years; Nominees 01 Anthony J. Crisafio 02 Christina M. Ibrahim 03 Randy S. Nickerson The Board of Directors recommends you vote FOR proposals 2, 3 and 4. For 0 0 0 Against 0 0 0 Abstain 0 0 0 2 To ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2018; To approve, on an advisory basis, the compensation of the Company's named executive officers; and 3 4. To approve the Company's 2018 Equity Incentive Plan. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 0000378380_1 R1.0.1.17 +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com PDC ENERGY, INC. Annual Meeting of Shareholders May 30, 2018 9:15 AM MDT This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) R. Scott Meyers and Daniel W. Amidon, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of PDC ENERGY, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of shareholder(s) to be held at 9:15 AM, MDT on May 30, 2018, at 1775 Sherman Street, Denver, Colorado 80203, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side 0000378380_2 R1.0.1.17 \ No newline at end of file diff --git a/raw/proxies/0000077877/0001047469-18-002965/proxy_rpt.txt b/raw/proxies/0000077877/0001047469-18-002965/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d8d39f95424ab921dcdb4f9fcf8ac023f787a212 --- /dev/null +++ b/raw/proxies/0000077877/0001047469-18-002965/proxy_rpt.txt @@ -0,0 +1,19 @@ +TRANSACTIONS WITH RELATED PARTIES +Related Transactions +During 2017, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding +$120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company's voting securities, or any member of the +immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +34 +Table of Contents +Policies and Procedures With Respect to Transactions with Related Parties +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential +conflicts of interest. The related-party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to +own more than five percent of the Company's voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the +Company's Directors or executive officers have a substantial interest. +Under +our related-party transaction policy, a related-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would +require disclosure in the Company's filings with the SEC as a transaction with a related party. The related party must disclose to +the Audit Committee any potential related-party transactions and must disclose all material facts with respect to such transaction and relationship. All related-party transactions so disclosed will be +reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include +factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, +whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company's business and operations. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-15-138129/proxy.txt b/raw/proxies/0000077877/0001193125-15-138129/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2d27426737294c92676ccae7ce9da997ae48fc8c --- /dev/null +++ b/raw/proxies/0000077877/0001193125-15-138129/proxy.txt @@ -0,0 +1,5037 @@ +DEF 14A +1 +d901266ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by +a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Under Rule 14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount +on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 20, 2015 +Dear +Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2015 Annual Meeting of Stockholders of PDC +Energy, Inc. to be held on June 4, 2015, at 11:30 a.m. Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203. +The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement provide information concerning the matters to be +considered at the meeting. +We hope you will join us at the Annual Meeting. Whether or not you plan to attend personally, +it is important that your shares be represented at the Annual Meeting. We value your opinion and encourage you to participate in the Annual Meeting by voting your proxy. You may vote your shares by using the telephone or Internet voting options +described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting +even if you cannot attend in person. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +PDC ENERGY, INC. +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +THURSDAY, JUNE 4, 2015 +To the +Stockholders of PDC Energy, Inc.: +The 2015 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) +will be held on June 4, 2015, at 11:30 a.m. Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes: +• +To elect the three nominees named in the accompanying Proxy Statement as Class II Directors of the Company, each for a term of three years; +• +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year +ending December 31, 2015; +• +To approve, on an advisory basis, the compensation of the Company’s named executive officers; +• +To approve a change in the Company’s state of incorporation from the State of Nevada to the State of Delaware, pursuant to a plan of +conversion; and +• +To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on April 8, 2015, as the record date for +determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of +the Company’s common stock entitled to vote is required to constitute a quorum. +Please vote by using the +telephone or Internet voting options described in the accompanying Notice of Internet Availability of Proxy Materials or, if the attached Proxy Statement and a proxy card were mailed to you, please sign, date and return the proxy card in the +enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +April 20, 2015 +Table of Contents +PDC ENERGY, INC. +PROXY +STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To Be Held on +June 4, 2015 at +The Denver Financial Center +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the +“Company,” “we,” “us” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) to be held on June 4, 2015, at 11:30 a.m. Mountain Time and at any and all +adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders. On or about April 20, 2015 we began mailing notices containing instructions for +accessing this Proxy Statement and our annual report online, and we began mailing proxy materials to stockholders who had previously requested delivery of the materials in paper form. For information on how to vote your shares, see the instructions +included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT +NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 4, 2015 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2015 Annual Meeting of Stockholders, and the 2014 +Annual Report to Stockholders, which includes the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, are available at www.envisionreports.com/PDCE . +Table of Contents +T ABLE OF CONTENTS +INFORMATION ABOUT VOTING AND THE MEETING +1 +Who May Vote +1 +How Proxies Work +1 +Voting 401(k) and Profit Sharing Plan Shares +1 +Revoking a Proxy +1 +Quorum +2 +Votes Needed +2 +Attending in Person +2 +Conduct of the Meeting +3 +Solicitation of Proxies +3 +Appraisal Rights +3 +Contact Information +3 +PROPOSALS REQUIRING STOCKHOLDER VOTE +4 +PROPOSAL NO. 1 — ELECT THREE CLASS II DIRECTORS +4 +Name, Principal Occupation for Past Five Years and Other Directorships +5 +REPORT OF THE AUDIT COMMITTEE +9 +PROPOSAL NO. 2 — RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +10 +PROPOSAL NO. 3 — APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +12 +PROPOSAL NO. 4 — APPROVE A CHANGE IN THE COMPANY’S STATE OF INCORPORATION FROM THE STATE OF NEVADA TO THE +STATE OF DELAWARE, PURSUANT TO A PLAN OF CONVERSION +13 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2015 ANNUAL MEETING +26 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +26 +CORPORATE GOVERNANCE +29 +STANDING COMMITTEES OF THE BOARD +31 +DIRECTOR COMPENSATION +33 +DIRECTOR QUALIFICATIONS AND SELECTION +35 +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +36 +THE BOARD’S ROLE IN RISK MANAGEMENT +37 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +38 +CODE OF BUSINESS CONDUCT AND ETHICS +38 +TRANSACTIONS WITH RELATED PERSONS +38 +ADDITIONAL INFORMATION +39 +NAMED EXECUTIVE OFFICERS +39 +COMPENSATION COMMITTEE REPORT +40 +COMPENSATION DISCUSSION AND ANALYSIS +40 +SUMMARY COMPENSATION TABLE +57 +2014 ALL OTHER COMPENSATION +58 +2014 GRANTS OF PLAN-BASED AWARDS +59 +OUTSTANDING EQUITY AWARDS AT 2014 FISCAL YEAR-END +60 +2014 OPTION EXERCISES AND STOCK VESTED +61 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +63 +EQUITY COMPENSATION PLAN INFORMATION +69 +STOCKHOLDER NOMINATIONS AND PROPOSALS +69 +HOUSEHOLDING INFORMATION +70 +APPENDIX A — Plan of Conversion +A-1 +APPENDIX B — Articles of Conversion +B-1 +APPENDIX C — Delaware Certificate of Conversion +C-1 +APPENDIX D — Delaware Certificate of Incorporation +D-1 +APPENDIX E — Delaware Bylaws +E-1 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of April 8, 2015, may vote at the +Annual Meeting. The outstanding voting securities of the Company as of April 8, 2015 consisted of 40,056,334 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the meeting. +How Proxies Work +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your +shares at the meeting in the manner you direct. We will vote your shares as you specify. You may vote for or withhold your vote from one or more Class II Director nominees. You may also vote for or against the other proposals, or abstain from +voting. If your shares are held in your name, you can vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy but do not specify how to vote, your shares will be voted +(1) in favor of approval of all three of the Class II Director nominees named in this Proxy Statement; (2) in favor of the ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent +registered public accounting firm for the fiscal year ending December 31, 2015; (3) to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers (as defined herein); and (4) to approve a change of +the Company’s state of incorporation from the State of Nevada to the State of Delaware, pursuant to a plan of conversion. If any other business properly comes before the stockholders for a vote at the meeting, yours shares will be voted in +accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, +you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals +that are considered “routine” matters under applicable rules. Without your instruction, the nominee may vote only on the ratification of the appointment of PwC as our independent registered public accounting firm for 2015. A nominee’s +inability to vote because it lacks discretionary authority to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes may be different for the various proposals to be voted upon at the Annual Meeting. For a +description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +Voting 401(k) and Profit +Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing Plan and have shares of PDC +common stock credited to your plan account as of the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not +be counted if your proxy card is not received by May 29, 2015. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +You may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the inspector of the election that you wish to revoke your proxy, and voting in person at the meeting. Merely +attending the meeting will not result in revocation of your proxy. +1 +Table of Contents +If you hold your shares through a broker, bank or other nominee, you must follow +their instructions to revoke your voting instructions or otherwise vote at the meeting. +Quorum +In order to carry on the business of the meeting, there must be a quorum. This means that at least a majority of the +outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count +for quorum purposes. +Votes Needed +The following table presents the voting requirements for electing the three Class II Director nominees and approving the other +proposals presented in this Proxy Statement. Under the “Uncontested Elections Policy” contained in Section 3(e) of our Corporate Governance Guidelines, which may be viewed on our website at www.pdce.com , any nominee who +receives a greater number of “withhold” votes than “for” votes is required to submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee. For more information about our Uncontested +Elections Policy, see “Corporate Governance — Uncontested Elections Policy” below. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Elect three Class II +Directors. +The three nominees who receive the greatest number of votes will be elected Directors for the three-year term ending in 2018. There is no +cumulative voting for Directors. Abstentions and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Ratify the +appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2015. +A majority of votes cast is required for ratification. Abstentions and broker non-votes will not be counted as votes cast or shares voting on +Proposal No. 2 and will have no effect on the vote. +Proposal No. 3 +Approve, on an +advisory basis, the compensation of the Company’s Named Executive Officers (as defined herein). +A majority of votes cast is required for approval. Abstentions and broker non-votes will not be counted as votes cast or shares voting on +Proposal No. 3 and will have no effect on the vote. +Proposal No. 4 +Approve a +change in the Company’s state of incorporation from the State of Nevada to the State of Delaware, pursuant to a plan of conversion. +The affirmative vote of a majority of outstanding shares of common stock is required for approval. Abstentions and broker non-votes will be +counted as votes against Proposal No. 4. +Attending in Person +Only stockholders or their proxy holders and PDC guests may attend the Annual Meeting. For safety and security reasons, no +cameras, audio or video recording equipment, large bags, briefcases, packages or other items deemed unnecessary in PDC’s discretion will be permitted in the meeting. In addition, each stockholder and PDC guest may be asked to present valid, +government-issued picture identification, such as a driver’s license, before being admitted to the meeting. +If your +shares are held in the name of your broker, bank, or other nominee, you must bring to the meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on April 8, 2015, the record date for receiving +notice of, attending and voting at the Annual Meeting. +2 +Table of Contents +Conduct of the Meeting +The Chairman has broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes +establishing rules for stockholders who wish to speak at the meeting. The Chairman may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the extent of discussion on each item of business. In light of the +need to conclude the meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak on an item of business will be able to do so. The Chairman may also rely on applicable law regarding disruptions or +disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all stockholders. +Solicitation of +Proxies +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage +firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet Availability of Proxy Materials to the beneficial owners of the Company’s common stock. In addition +to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. The Company has +entered into an agreement with Morrow & Co., LLC, 470 West Avenue, 3rd Floor, Stamford, CT 06902, as its proxy solicitor and anticipates paying approximately $8,500 for such services. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Nevada or our By-Laws provide a right of our +stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit +PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +3 +Table of Contents +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1 — ELECT THREE CLASS II DIRECTORS +(Proposal 1 on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the Company’s By-Laws, the Board consists of eight members +(“Directors”) divided into three classes. Directors are usually elected for three-year terms. The terms for members of each class end in successive years. +The Board has nominated three continuing Class II Directors, Anthony J. Crisafio, Kimberly Luff Wakim and Barton R. Brookman, +whose terms expire in 2015 at the Annual Meeting, to stand for re-election to the Board for a three-year term expiring in 2018. Mr. Crisafio joined the Board in 2006 and currently serves on the Compensation Committee and the Audit Committee. +Ms. Wakim joined the Board in 2003 and currently serves as a member of the Audit Committee, the Compensation Committee, which she chairs, and the Nominating and Governance Committee. Mr. Brookman joined the Board on January 1, 2015 +and currently serves as the Company’s President and Chief Executive Officer. +The appointed proxies will vote your +shares in accordance with your instructions and for the election of the three Class II Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become +unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a +candidate for Director or for a greater number of persons than the number of Director nominees named. +Board of Directors +As of March 30, 2015, the composition of the Board and the term of each Director was as follows: +NOMINEES +FIRST ELECTED +DIRECTOR +EXPIRATION OF +CURRENT TERM +CLASS II: +Anthony J. Crisafio +2006 +2015 +Kimberly Luff Wakim +2003 +2015 +Barton R. Brookman +2015 +2015 +CLASS III: +Larry F. Mazza +2007 +2016 +James M. Trimble +2009 +2016 +CLASS I: +Joseph E. Casabona +2007 +2017 +David C. Parke +2003 +2017 +Jeffrey C. Swoveland +1991 +2017 +4 +Table of Contents +Name, Principal Occupation for Past Five Years and Other +Directorships +NOMINEES FOR TERM EXPIRING IN 2018 — CLASS II +Name: +Anthony J. Crisafio, Director +Age: +62 +Committees: +Audit +Compensation +• +Mr. Crisafio, a Certified Public Accountant (“CPA”), was first elected to the Board in 2006. Mr. Crisafio has served as an +independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of industries. He previously served as the part-time contract Chief Financial Officer of Empire Energy USA, LLC, a domestic +oil and gas company. Mr. Crisafio also previously served as the Interim Chief Financial Officer for the MDS Associated Companies, a domestic oil and gas company, from November 2013 to August 2014. Mr. Crisafio served as Chief Operating +Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until 1993. From 1975 until 1989, he was employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several +Securities and Exchange Commission (“SEC”) registered client engagements and gained significant experience with oil and gas industry clients and mergers and acquisitions. Mr. Crisafio also serves as an Advisory Board member for a +number of privately held companies. +• +The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other things, he is a CPA and brings to the Board +more than 30 years of financial accounting and management expertise, with demonstrated business management and accounting experience. +Name: +Kimberly Luff Wakim, Director +Age: +57 +Committees: +Audit +Compensation (Chair) +Nominating and Governance +• +Ms. Wakim, an attorney and CPA, was first elected to the Board in 2003. Ms. Wakim is a Partner with the law firm Clark Hill, PLC +(formerly Thorp, Reed & Armstrong LLP), where she is the co-chair of the Corporate Restructuring and Bankruptcy Practice group. She has practiced law with the firm since 1990. Ms. Wakim was previously an auditor with Main Hurdman (now +KPMG) and was Assistant Controller for PDC from 1982 to 1985. She has been a member of the American Institute of Certified Public Accountants and the West Virginia Society of Certified Public Accounts for more than 20 years. +• +The Board has concluded that Ms. Wakim is qualified to serve as a Director because, among other things, she is an attorney and CPA, and brings +to the Board a combination of a strong legal background and expertise in accounting oversight. Ms. Wakim received a BSBA from West Virginia University and a J.D. from the West Virginia College of Law. +Name: +Barton R. Brookman, Director, President and Chief Executive Officer +Age: +52 +Committees: +None +• +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board on January 1, 2015, +simultaneous with his appointment as the Company’s CEO. Mr. Brookman originally joined the Company in July 2005 as Senior Vice President-Exploration and Production; he was appointed to the position of Executive Vice President and Chief +Operating +5 +Table of Contents +Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its +predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +• +The Board has concluded that in addition to his status of CEO of the Company, Mr. Brookman is qualified to serve as a Director due, among +other things, to his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. Mr. Brookman holds a B.S. in +Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2016 — CLASS III +Name: +Larry F. Mazza, Director +Age: +54 +Committees: +Audit +Compensation +Nominating and Governance (Chair) +• +Mr. Mazza, a CPA, was first elected to the Board in 2007. Mr. Mazza is President and Chief Executive Officer of MVB Financial Corp +(“MVB”), a financial services company. He has more than 27 years of experience in both large banks and small community banks and is one of seven members of the West Virginia Board of Banking and Financial Institutions, which oversees the +operation of financial institutions throughout West Virginia and advises the state Commissioner of Banking. Mr. Mazza is also an entrepreneur and is co-owner of nationally-recognized sports media business Football Talk, LLC, a pro football +website and content provider for NBC SportsTalk. Prior to joining MVB in 2005, Mr. Mazza was Senior Vice President & Retail Banking Manager for BB&T Bank’s West Virginia North region. Mr. Mazza was employed by BB&T +and its predecessors from 1986 to 2005. Prior thereto, Mr. Mazza was President of Empire National Bank, and later served as Regional President of One Valley Bank. Mr. Mazza also previously worked for KPMG (or its predecessors) as a CPA +with a focus on auditing. +• +The Board has concluded that Mr. Mazza is qualified to serve as a Director because, among other things, he is a CPA, a CEO, and has extensive +leadership and banking experience. Mr. Mazza also provides an important link to community and employee stakeholders, demonstrating a continuing commitment to our workforce located in Bridgeport, West Virginia. Mr. Mazza graduated from West +Virginia University with a degree in Business Administration. +Name: +James M. Trimble, Director +Age: +66 +Committees: +None +• +Mr. Trimble, a Registered Professional Engineer (“RPE”), was first elected to the Board in 2009. Mr. Trimble served as the CEO +and President of the Company from June 2011 through June 2014, and continued to serve as the Company’s CEO through December of 2014 until the appointment of Mr. Brookman to the position of CEO on January 1, 2015. From 2005 until +November 2010, Mr. Trimble served as Managing Director of Grand Gulf Energy, Limited (ASX: GGE) (“Grand Gulf”), and as President and CEO of Grand Gulf’s U.S. subsidiary, Grand Gulf Energy Company LLC, a domestic oil and gas +exploration and development company. From 2000 through 2004, Mr. Trimble was CEO of Elysium Energy and then TexCal Energy LLC, both privately held oil and gas companies. Prior thereto, he was Senior Vice President of Exploration and Production +for +6 +Table of Contents +Cabot Oil and Gas (NYSE: COG). From November 2002 until May 2006, he also served as a director of Blue Dolphin Energy (NASDAQ: BDCO), an independent oil and gas company. Mr. Trimble +currently serves on the Board of Directors of Callon Petroleum Company (NYSE: CPE) and as a member of the Advisory Board of Directors of High Peak Energy, a private fund focused in the oil and gas industry. Mr. Trimble was an officer of the +Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. +• +The Board has concluded that Mr. Trimble is qualified to serve as a Director because, among other things, of his intimate knowledge of the +Company having served as its past President and CEO, the fact that he is an RPE who brings many years of broad oil and gas industry executive management experience to the Board, and his knowledge of current developments and best practices in the +industry. +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2017 — CLASS I +Name: +Joseph E. Casabona, Director +Age: +71 +Committees: +Audit +(Chair) +Nominating and Governance +• +Mr. Casabona, a CPA, was first elected to the Board in 2007. Mr. Casabona served as CEO of Paramax Resources Ltd., a junior public +Canadian oil and gas company, from 2008 until the beginning of 2011. Mr. Casabona also served as Executive Vice President and as a member of the Board of Directors of Denver-based Energy Corporation of America (“ECA”), a domestic oil +and gas company, from 1985 until his retirement in May 2007. Mr. Casabona’s major responsibilities with ECA included strategic and executive oversight of all matters affecting ECA. From 1968 until 1985, Mr. Casabona was employed at +KPMG or its predecessors, with various titles including audit partner, where he primarily served public clients in the oil and gas industry. +• +The Board has concluded that Mr. Casabona is qualified to serve as a Director because, among other things, he is a CPA and brings to the Board +extensive first-hand experience in all aspects of the oil and gas industry, including natural gas exploration, development, acquisitions, operations and strategic planning, as well as experience in the Company’s primary areas of operations. +Mr. Casabona holds a BSBA from the University of Pittsburgh and a Master of Science-Mineral Economics from the Colorado School of Mines. +Name: +David C. +Parke, Director +Age: +48 +Committees: +Compensation +Nominating & +Governance +• +Mr. Parke, who was first elected to the Board in 2003, has served as a Managing Director EVOLUTION of Life Science Partners since October +2014. From June 2011 until October, he was a Managing Director in the investment banking group of Burrill Securities LLC. From 2006 until June 2011, he was Managing Director in the investment banking group of Boenning & Scattergood, Inc., a +regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was +Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance departments of +Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. +7 +Table of Contents +• +The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking +experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. +Name: +Jeffrey +C. Swoveland, Director (Non-Executive Chairman) +Age: +60 +Committees: +Audit +Compensation +• +Mr. Swoveland was first elected to the Board in 1991 and was elected Non-Executive Chairman of the Board in June 2011. From 2006 until January +2014, Mr. Swoveland was first Chief Operating Officer and later President and Chief Executive Officer of ReGear Life Sciences, Inc. (previously named Coventina Healthcare Enterprises), which develops and markets medical device products. From +2000 until 2007, Mr. Swoveland served as Chief Financial Officer of Body Media, Inc., a life-science company. Prior thereto, from 1994 to September 2000, Mr. Swoveland held various positions including Vice President of Finance, Treasurer +and interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas company. Mr. Swoveland also has worked as a geologist and exploratory geophysicist for both major and independent oil and gas companies. +Mr. Swoveland serves as a member of the Board of Directors of Linn Energy, LLC (NASDAQ: LINE), a public independent oil and natural gas company. +• +The Board has concluded that Mr. Swoveland is qualified to serve as a Director because, among other things, he brings to the Board extensive +corporate management, accounting and finance experience, and oil and gas industry expertise. Additionally, his service as a director of another public energy company provides leadership and knowledge of best practices that benefit the Company and +his guidance and understanding of management processes of larger oil and gas companies benefits the Company as it continues to grow. +The election of the Class II Directors will be effected by an affirmative vote of a plurality of the outstanding common shares. +Abstentions and broker non-votes will have no effect on the election of Directors. +THE BOARD OF DIRECTORS UNANIMOUSLY +RECOMMENDS A VOTE “FOR” EACH OF THE CLASS II NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +8 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of five Directors and operates under a written charter adopted by the Board. +Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing +Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in +accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with +the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee met nine times during 2014. In addition, the Audit Committee has authorized Audit Committee member +Joseph E. Casabona to serve as a sub-committee of the Audit Committee to review and approve SEC periodic financial filings and other actions of the partnerships for which the Company serves as managing general partner. The sub-committee met +four times during 2014 to review such partnership filings. +The Audit Committee reviewed and discussed the Company’s +audited consolidated financial statements for the year ended December 31, 2014 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The +Audit Committee also discussed with PwC the matters required to be discussed by Statement of Auditing Standards No. 61 (Codification of Statements of Auditing Standards AU § 380) as adopted by the PCAOB in Rule 3200T, as amended. The Audit +Committee has received the written disclosures and the letter from PwC required by PCAOB Rule 3526 and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and +received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and +discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014. +Joseph E. Casabona, Chair +Anthony J. Crisafio +Larry F. Mazza +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +9 +Table of Contents +PROPOSAL NO. 2 — RATIFY THE APPOINTMENT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 2 on the Proxy Card) +The Audit Committee has appointed PwC as the Company’s independent registered public accounting firm for the fiscal year +ending December 31, 2015 and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is +expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +PRINCIPAL ACCOUNTANT FEES AND SERVICES +2014 +2013 +Audit Fees (1) +$ +1,667,500 +$ +1,800,000 +Audit-Related Fees (2) +101,628 +117,111 +Tax Fees (3) +93,448 +64,134 +Total Fees +$ +1,862,576 +$ +1,981,245 +(1) +Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s +annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the +consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, +including fees related to comfort letters and consents issued in conjunction with our debt and equity offerings. +(2) +Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the +audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” Fees billed primarily include our proportionate share of amounts billed to the Company-sponsored partnerships for the +audits of their annual financial statements. Total amounts billed to the Company-sponsored partnerships in 2014 and 2013 were $265,000 and $309,000, respectively. +(3) +Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company +and its proportionately consolidated entities. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public +accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the +Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also +be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are not eligible for annual pre-approval to be conducted by the independent accountant must be pre-approved individually by +the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All of the services +described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which +can be viewed on the Company’s website under “Corporate Governance.” +10 +Table of Contents +This proposal will be approved if it receives the affirmative vote of a majority +of shares of common stock of the Company cast at the Annual Meeting and entitled to vote on this proposal. Broker non-votes and abstentions will not affect the outcome of this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD +WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +11 +Table of Contents +PROPOSAL NO. 3 — APPROVE, ON AN ADVISORY BASIS, THE +COMPENSATION +OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 3 on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory non-binding vote at the Annual Meeting on the compensation of +the Company’s Named Executive Officers (as defined below). While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and will take into consideration the outcome of the vote in connection +with their ongoing evaluation of the Company’s compensation program. In 2011, based on the stockholder vote at the 2011 Annual Meeting of Stockholders and engagement with some of the Company’s largest stockholders, the Company determined +to hold a “say-on-pay” vote annually, consistent with the majority of votes cast in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held no later than the Company’s 2017 Annual +Meeting of Stockholders, in accordance with SEC rules. +As described more fully under “Compensation Discussion and +Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and +long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term +incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each +Named Executive Officer’s compensation at risk demonstrates its pay-for-performance philosophy. Approximately 82% of the target 2014 compensation for our Named Executive Officers other than the CEO was in the form of variable compensation which +was “at risk” (i.e., incentive cash compensation, performance-based equity, stock appreciation rights (“SARs”) and restricted stock). For the Company’s CEO, this figure was 89%. +Each of the Named Executive Officers has been granted significant equity to provide him a stake in the Company’s +long-term success. The Company also has significant stock ownership guidelines applicable to its senior executives. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to +obtain and maintain meaningful ownership stakes in the Company. +The Compensation Committee considers the results of the +non-binding “say-on-pay” vote of our stockholders concerning the compensation of our Named Executive Officers. At our 2014 annual meeting of stockholders, an overwhelming majority (94%) of the votes cast approved the compensation of +our Named Executive Officers. Accordingly, the Compensation Committee concluded that our executive compensation programs generally meet the expectations of our stockholders. We did not make any material changes to our executive compensation programs +in 2014. +In light of the above, the Company believes that the compensation of its Named Executive Officers for 2014 was +appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named +Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2015 Annual +Meeting of Stockholders. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares +of common stock of the Company cast at the Annual Meeting and entitled to vote on this proposal. Broker non-votes and abstentions will not affect the outcome of this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. +PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +12 +Table of Contents +PROPOSAL NO. 4 — APPROVE A CHANGE IN THE COMPANY’S STATE +OF INCORPORATION FROM THE STATE OF NEVADA TO THE STATE OF DELAWARE, PURSUANT TO A PLAN OF CONVERSION +(Proposal 4 on the Proxy Card) +The Board of Directors has approved and recommends that the stockholders approve a proposal to change the Company’s state +of incorporation from the State of Nevada to the State of Delaware, pursuant to a plan of conversion (the “Reincorporation”). If our stockholders approve the Reincorporation, we will effect it by converting the corporation as provided in +the Delaware General Corporation Law (the “DGCL”) and the Nevada Revised Statutes (the “NRS”). For the purposes of this Proposal No. 4, we sometimes refer to the Company as “PDC-Nevada” prior to the Reincorporation +and “PDC-Delaware” after the Reincorporation. +Summary +The principal effects of the Reincorporation will be that: +• +The affairs of the Company will cease to be governed by Nevada corporation laws and will become subject to Delaware corporation laws. +• +The resulting Delaware corporation, PDC-Delaware, will be the same entity as the Company as currently incorporated in Nevada, PDC-Nevada, and will +continue with all of the rights, privileges and powers of PDC-Nevada, will possess all of the properties of PDC-Nevada, will continue with all of the debts, liabilities and obligations of PDC-Nevada and will continue with the same officers and +directors of PDC-Nevada immediately prior to the Reincorporation, as more fully described below. +• +When the Reincorporation becomes effective, each outstanding share of PDC-Nevada capital stock will be an outstanding share of a like class of +capital stock of PDC-Delaware, and each outstanding option or right to acquire shares of PDC-Nevada common stock will be an option or right to acquire, on the same terms, shares of common stock of PDC-Delaware. +General Information +The +Company will effect the Reincorporation by entering into a plan of conversion, a draft copy of which is attached hereto as Appendix A. Approval of the Reincorporation will constitute approval of the plan of conversion. At the effective time of the +Reincorporation, which would occur only if a majority of the voting power of the Company’s shares vote in favor of the Reincorporation, the Company would file with the Nevada Secretary of State articles of conversion, a draft copy of which is +attached as Appendix B, and would also file with the Delaware Secretary of State a certificate of conversion, a draft copy of which is attached as Appendix C, and a certificate of incorporation that would govern the Company as a Delaware +corporation, which is referred to here as the Delaware certificate of incorporation, a draft copy of which is attached as Appendix D. In addition, the Board will adopt bylaws for the resulting Delaware corporation, which are referred to herein as +the Delaware bylaws, a draft copy of which is attached as Appendix E. Approval of the Reincorporation will constitute approval of the Delaware certificate of incorporation and the Delaware bylaws. +Although it will be governed by the Delaware certificate of incorporation, the Delaware bylaws and the DGCL, PDC-Delaware will +be the same entity as PDC-Nevada immediately prior to the Reincorporation: PDC-Delaware will continue with all of the rights, privileges and powers of PDC-Nevada, it will possess all of the properties of PDC-Nevada, it will continue with all of the +debts, liabilities and obligations of PDC-Nevada and it will continue with the same officers and directors as PDC-Nevada immediately prior to the Reincorporation. PDC-Delaware will have the same capitalization as PDC-Nevada, with 150 million +shares of common stock and 50 million shares of preferred stock authorized for issuance. +After the Reincorporation, +the Company will continue to be a publicly-held company and the shares of the Company’s common stock will continue to be traded, without interruption, on NASDAQ under the same symbol (PDCE). The Company will continue to file periodic reports +and other documents with the SEC and provide to its +13 +Table of Contents +stockholders the same type of information that it has previously filed and provided. Stockholders who own shares of the Company’s common stock that are freely tradable prior to the +Reincorporation will continue to have freely tradable shares, and stockholders holding restricted shares of the Company’s common stock will continue to hold their shares subject to the same restrictions on transfer to which their shares are +presently subject. In summary, the Reincorporation will not change the respective positions under federal securities laws of the Company or its stockholders. +Reasons for the Reincorporation +Delaware is a nationally recognized leader in adopting and implementing comprehensive and flexible corporate laws. The DGCL is +frequently revised and updated to accommodate changing legal and business needs and is more comprehensive, widely used and interpreted than other state corporate laws, including the NRS. +In addition, Delaware has established a specialized court, the Court of Chancery, that has exclusive jurisdiction over matters +relating to the DGCL. In the Court of Chancery, corporate cases are heard by judges, without juries, who have many years of experience with corporate issues. Traditionally, this has meant that the Delaware courts are able in most cases to process +corporate litigation relatively quickly and effectively. +Delaware courts have developed considerable expertise in dealing +with corporate legal issues, including many issues that no Nevada court has considered. Because the judicial system is based largely on legal precedents, the abundance of Delaware case law should serve to enhance the relative clarity and +predictability of many areas of corporate law, which should offer added advantages to the Company by allowing the Board and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences +of those decisions and actions. +Reincorporation from Nevada to Delaware may also make it easier to attract future +candidates willing to serve on the Board, because many such candidates are already familiar with Delaware corporate law, including provisions relating to director indemnification, from their past business experience. +Changes as a Result of Reincorporation +If the Reincorporation proposal is approved and implemented, it will effect a change in the legal domicile of the Company and +other changes of a legal nature, the most significant of which are described in “Comparison of Stockholders’ Rights Before and After the Reincorporation.” The Reincorporation is not expected to affect any of the Company’s +material contracts with any third parties and the Company’s rights and obligations under such material contractual arrangements will continue as rights and obligations of the Company as a Delaware corporation. The Reincorporation will not +result in any change in the Company’s headquarters or facilities, business, jobs, management, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation), or officers and +directors. +Mechanism for Reincorporation into Delaware +The process for reincorporating the Company from Nevada to Delaware calls for the articles of conversion to be filed with the +Nevada Secretary of State and for the Delaware certificate of incorporation and a certificate of conversion to be filed with the Delaware Secretary of State at approximately the time desired for the Reincorporation to take effect. +The Plan of Conversion +The Reincorporation will be effected pursuant to the plan of conversion to be entered into by the Company. The plan of +conversion provides that the Company will convert into a Delaware corporation, with all of the assets, rights, privileges and powers of PDC-Nevada, and all property owned by PDC-Nevada, all debts due to PDC-Nevada, as well as all other causes of +action belonging to PDC-Nevada immediately prior to the conversion, remaining vested in PDC-Delaware following the conversion. PDC-Delaware will remain as the same entity following the conversion. The directors and officers of PDC-Nevada immediately +prior to the conversion will be the directors and officers of PDC-Delaware. +14 +Table of Contents +At the effective time of the Reincorporation, each then-outstanding share of +PDC-Nevada common stock will automatically be converted into one share of common stock of the resulting Delaware corporation. Existing stockholders of the Company will not be required to exchange existing stock certificates for new stock +certificates. Following the effective time of the Reincorporation, any pre-Reincorporation shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-Reincorporation shares. +Stockholders of the Company should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so. +Pursuant to the Reincorporation, PDC-Delaware will assume all of PDC-Nevada’s obligations related to convertible equity +securities and other rights to purchase PDC-Nevada common stock. PDC-Nevada’s outstanding convertible securities consist of options to purchase PDC-Nevada common stock granted under the Company’s incentive plans and its 3.25% convertible +senior notes due 2016. Each outstanding option to purchase shares of PDC-Nevada common stock will be converted into an option to purchase the same number of shares of PDC-Delaware common stock on the same terms and conditions as in effect +immediately prior to the Reincorporation. In addition, each other outstanding share-based award under our incentive plans will become an equivalent award based on the shares of PDC-Delaware. Also, the Company’s stockholder’s rights +agreement with Transfer Online, Inc., entered into in September 2007, will remain in effect following the Reincorporation. +Effect of Vote for the +Reincorporation +A vote in favor of the Reincorporation proposal is a vote to approve the plan of conversion and +therefore the Reincorporation. A vote in favor of the Reincorporation proposal is also effectively a vote in favor of the Delaware certificate of incorporation and the Delaware bylaws. +Effective Time +If the +Reincorporation proposal is approved, the Reincorporation will become effective upon the filing of, and at the date and time specified in (as applicable), the articles of conversion filed with the Secretary of State of Nevada and the certificate of +conversion and the Delaware certificate of incorporation filed with the Secretary of State of Delaware, in each case upon acceptance thereof by the Nevada Secretary of State and the Delaware Secretary of State. If the Reincorporation proposal is +approved, it is anticipated that the Board will cause the Reincorporation to be effected as soon as reasonably practicable. However, the Reincorporation may be delayed by the Board or the plan of conversion may be terminated and abandoned by action +of the Board at any time prior to the effective time of the Reincorporation, whether before or after the approval by the Company’s stockholders, if the Board determines for any reason that the consummation of the Reincorporation should be +delayed or would be inadvisable or not in the best interests of the Company and its stockholders, as the case may be. +Effect of Not Obtaining the +Required Vote for Approval +If the Reincorporation proposal fails to obtain the requisite vote for approval, the +Reincorporation will not be consummated and the Company will continue to be incorporated in Nevada and be subject to the Company’s existing articles of incorporation and bylaws. +Comparison of Stockholders’ Rights Before and After the Reincorporation +Because of differences between the NRS and the DGCL, as well as differences between the Company’s governing documents +before and after the Reincorporation, the Reincorporation will effect certain changes in the rights of the Company’s stockholders. Summarized below are relevant provisions of the NRS and DGCL, along with the material differences between the +rights of the stockholders of the Company before and after the Reincorporation that will result from the differences between the NRS and the DGCL and between PDC-Nevada’s articles of incorporation and bylaws and PDC-Delaware’s certificate +of incorporation and bylaws. The summary below is not an exhaustive list of all differences or a complete description of the differences described, and is qualified in its entirety by reference to the NRS, the DGCL, PDC-Nevada’s articles of +incorporation and bylaws and PDC-Delaware’s certificate of incorporation and bylaws. +15 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +ELECTIONS; VOTING; PROCEDURAL MATTERS +Number of Directors +Nevada law provides that a corporation must have at least one director and may provide in its articles of incorporation or in its bylaws for a fixed number of directors or a variable number, and for the manner in which the number of +directors may be increased or decreased. +Delaware law provides that a corporation must have at least one director and that the number of directors shall be fixed by or in the manner provided in the bylaws unless the certificate of incorporation fixes the number of +directors. +The articles of incorporation of PDC-Nevada provide that it will have no fewer than three, and no more than nine, directors. +The certificate of incorporation of PDC-Delaware will be the same in this respect as the articles of incorporation of PDC-Nevada — i.e., PDC-Delaware will have no fewer than three, and no more than nine, directors. +Classified Board of Directors +Nevada law permits corporations to classify their boards of directors. At least one-fourth of the total number of directors of a Nevada corporation must be elected annually. +Delaware law permits any Delaware corporation to classify its board of directors into as many as three classes divided as equally as possible with staggered terms of office. +Under PDC-Nevada’s bylaws, the Company has a classified Board with three classes. +Under the certificate of incorporation of PDC-Delaware, the Company will continue to have a classified Board with three classes. +Removal of Directors +Under Nevada law, any one or all of the directors of a corporation may be removed by the holders of not less than two-thirds of the voting power of a corporation’s issued and outstanding stock. Nevada does not distinguish +between removal of directors with or without cause. +Under Delaware law, directors of a corporation with a classified board may generally be removed only for cause, by the holders of a majority of shares then entitled to vote in an election of directors. PDC-Delaware’s +certificate of incorporation will not change this statutory rule. +Board Action by Written Consent +Nevada law provides that, unless the articles of incorporation or bylaws provide otherwise, any action required or permitted to be taken at a meeting of the board of directors or of a committee thereof may be taken without a meeting +if, before or after the action, a written consent thereto is signed by all the members of the board or committee. +Delaware law provides that, unless the certificate of incorporation or bylaws provide otherwise, any action required or permitted to be taken at a meeting of the board of directors or of any committee thereof may be taken without a +meeting if all members of the board or committee consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or +committee. +PDC-Nevada’s articles and bylaws do not change this statutory rule. +PDC-Delaware’s certificate of incorporation and bylaws will not change this statutory rule. +16 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +Interested Party Transactions +Under Nevada law, a contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, firm or association in which one or more of its directors or +officers are directors or officers, or have a financial interest, is not void or voidable solely for that reason, or solely because of such relationship or interest, or solely because the interested director or officer was present, participates or +votes at the meeting of the board or committee that authorizes the contract or transaction, if (i) the director’s or officer’s interest in the contract or transaction is known to the board of directors or stockholders and the transaction +is approved or ratified by the board or stockholders in good faith, (ii) the fact of the common interest is not known to the director(s) or officer(s) at the time the transaction is brought before the board, or (iii) the contract or transaction is +fair to the corporation at the time it is authorized or approved. +Under Delaware law, a contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, partnership, association, or other organization in which one or +more of its directors or officers are directors or officers, or have a financial interest, is not void or voidable solely because of such relationship or interest, or solely because the director or officer is present at or participates or votes at +the meeting of the board or committee that authorizes the contract or transaction, if one or more of the following is true: (i) the material facts of the contract or transaction and the director’s or officer’s relationship or interest are +disclosed to or known by the board or committee, and the board or the committee in good faith authorizes the contract or transaction by an affirmative vote of the majority of the disinterested directors, (ii) the material facts of the contract or +transaction and the director’s or officer’s relationship or interest are disclosed to or known by the stockholders entitled to vote on the matter and they specifically approve in good faith the contract or transaction; or (iii) the +contract or transaction is fair to the corporation as of the time it was authorized, approved or ratified. +Special Meetings of Stockholders +Nevada law provides that unless otherwise set forth in a corporation’s articles of incorporation or bylaws, the entire board of directors, any two directors, or the president of the corporation may call a special meeting of the +stockholders. +Delaware law permits special meetings of stockholders to be called by the board of directors or by any other person authorized in the certificate of incorporation or bylaws to call a special stockholders’ meeting. +PDC-Nevada’s bylaws provide that special meetings of the stockholders may be called by the president, the chairman of the Board, the Board, or by holders of 10% of the Company’s outstanding common stock. +PDC-Delaware’s bylaws will be consistent with PDC-Nevada’s bylaws on this subject — i.e., they will provide that special meetings of the stockholders may be called by the president, the chairman of the Board, the +Board, or by holders of 10% of the Company’s outstanding common stock. +Failure to Hold an Annual Meeting +Nevada law provides that if a corporation fails to elect directors within 18 months after the last election, a Nevada district +Delaware law provides that if a corporation fails to hold an annual meeting for the election of directors within 30 days +17 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +court may order an election upon the petition of one or more stockholders holding at least 15% of the corporation’s voting power. +of the date designated for the annual meeting, or within 13 months of the most recent annual meeting, a director or stockholder of the corporation may apply to the Court of Chancery of the State of Delaware to order an annual +meeting for the election of directors. +Vacancies +All vacancies on the board of directors of a Nevada corporation may be filled by a majority of the remaining directors, though less than a quorum, unless the articles of incorporation provide otherwise. +All vacancies on the board of directors of a Delaware corporation may be filled by a majority of the remaining directors, though less than a quorum, unless the certificate of incorporation provides otherwise. +PDC-Nevada’s articles of incorporation do not change this statutory rule. PDC-Nevada’s bylaws provide that stockholders will fill vacancies created by the removal of directors. +PDC-Delaware’s certificate of incorporation and bylaws will provide that any vacancies may be filled by a majority of the remaining directors. +Stockholder Voting Provisions — Quorum and General Matters +Under Nevada law, a majority of the voting power of a corporation’s shares generally constitutes a quorum for the transaction of business at a meeting of stockholders. Generally, action by the stockholders on a matter other +than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless otherwise provided in Nevada law or the articles of incorporation or bylaws of the +corporation. Directors are generally elected by a plurality of the votes cast at the meeting. +Under Delaware law, a majority of the shares entitled to vote, present in person or represented by proxy, generally constitutes a quorum at a meeting of stockholders. Generally, in all matters other than the election of directors, +the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the matter constitutes the act of the stockholders. Directors are generally elected by a plurality of the votes of the +shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. +PDC-Nevada’s articles and bylaws do not change these statutory rules except as noted under “— Amendments to the Bylaws.” However, PDC-Nevada has adopted an Uncontested Elections Policy pursuant to which any +nominee for director who receives a greater number of “withhold” votes than “for” votes is required to submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee. +PDC-Delaware’s certificate of incorporation and bylaws will not change these statutory rules. The Company’s Uncontested Elections Policy will continue in effect, so any nominee for director who receives a greater number of +“withhold” votes than “for” votes will be required to submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee. +Stockholder Voting Provisions — Mergers and Similar Transactions +Subject to certain exceptions, Nevada requires authorization by a majority of the outstanding shares entitled to vote, as well as approval by the board of directors, with respect to the terms of a merger, a sale of +Subject to certain exceptions, Delaware requires authorization by a majority of the outstanding shares entitled to vote, as well as approval by the board of directors, with respect to the terms of a merger, a sale +of +18 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +substantially all of the assets of the corporation or certain similar transactions. +substantially all of the assets of the corporation or certain similar transactions. +PDC-Nevada’s articles of incorporation and bylaws do not change these statutory rules. +PDC-Delaware’s certificate of incorporation and bylaws will not change these statutory rules. +Stockholder Action by Written Consent +Nevada law provides that, unless the articles of incorporation or bylaws provide otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding +stock having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting consent to the action in writing. +Delaware law provides that, unless the certificate of incorporation provides otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding stock +having at least the minimum number of votes that would be necessary to authorize such action at a meeting provide written consent. +PDC-Nevada’s articles of incorporation and bylaws do not change this statutory rule. +PDC-Delaware’s certificate of incorporation will not change this statutory rule, meaning that stockholder action by written consent will continue to be permitted. +Advance Notice of Stockholder Proposals +Nevada law permits a corporation to include in its bylaws provisions requiring advance notice of shareholder proposals. +Delaware law permits a corporation to include in its bylaws provisions requiring advance notice of shareholder proposals. +PDC-Nevada’s bylaws provide that a stockholder seeking to make nominations for directorships or to introduce other business at a meeting of the stockholders must provide advance notice of such proposed action. The notice must +generally be given 80 days in advance of the meeting date or, if applicable, the anniversary of the prior year’s annual meeting. +PDC-Delaware’s bylaws will include requirements for advance notice of stockholder-proposed business at stockholder meetings that are generally the same as those set forth in the bylaws of PDC-Nevada. +Amendments to the Articles of Incorporation or Certificate of Incorporation +Nevada law requires the adoption of a resolution by the board of directors followed by the affirmative vote of the majority of voting power of the corporation to approve any amendment to the articles of incorporation unless a +greater percentage vote is required by the articles of incorporation. +Delaware law requires the adoption of a resolution by the board of directors followed by the affirmative vote of the majority of voting power of the corporation to approve any amendment to the certificate of incorporation unless a +greater percentage vote is required by the certificate of incorporation. +PDC-Nevada’s articles of incorporation do not change this statutory rule. +PDC-Delaware’s certificate of incorporation will not change this statutory rule. +Amendments to the Bylaws +Nevada law provides that, unless otherwise prohibited by any bylaws adopted by the stockholders, the board of +Delaware law provides that the power to adopt, amend, or repeal the bylaws shall be vested in the stockholders entitled to +19 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +directors may amend any bylaw, including any bylaw adopted by the stockholders. The articles of incorporation may grant the authority to adopt, amend or repeal bylaws exclusively to the directors. +vote, provided that the certificate of incorporation may confer such power on the board of directors, although the power vested in the stockholders is not divested or limited where the board of directors also has such +power. +PDC-Nevada’s articles of incorporation do not confer exclusive authority to the Board to amend the bylaws. PDC-Nevada’s bylaws may be amended by the vote of a majority of the outstanding shares entitled to vote. +PDC-Delaware’s certificate of incorporation will authorize the board of directors to amend the bylaws. PDC-Delaware’s bylaws may be amended by the vote of stockholders holding a majority of the outstanding shares entitled +to vote. +Exclusive Forum Provision +An “exclusive forum” provision of a company’s governing documents provides that claims relating to alleged breaches of fiduciary duties and similar matters may be brought only in the courts of the state of +incorporation. Nevada law does not expressly address the permissibility of an exclusive forum provision in the governing documents of a corporation. +Recent case law in Delaware has upheld the adoption and use of exclusive forum provisions. PDC-Delaware’s certificate of incorporation will include an exclusive forum provision. +CERTAIN ANTITAKEOVER STATUTES +Control Share Acquisitions +Nevada’s “Acquisition of Controlling Interest” statute applies to Nevada corporations that do business in the State of Nevada directly or through an affiliate and which have 200 or more stockholders of record (at +least 100 of which have record addresses in Nevada), unless the articles of incorporation or bylaws specifically provide otherwise. If applicable, this statute generally provides that any person acquiring certain statutorily defined +“control” percentages (20%, 33.3% or a majority) of a corporation’s outstanding shares in the secondary market is not entitled to vote those “control shares” unless a majority of the other stockholders elects to restore such +voting rights in whole or in part. We currently do not conduct business in the State of Nevada or have 100 record stockholders resident in Nevada, and therefore this statute does not apply to us. However, it could apply to us in the future if we +remain incorporated in Nevada. +Delaware law has no provision comparable to Nevada’s Acquisition of Controlling Interest statute. +20 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +Consideration of Non-Stockholder Interests +The NRS expressly authorizes directors, when taking action on behalf of a corporation, to consider the interests of constituencies other than shareholders, including employees, suppliers, creditors, customers and the community and +society as a whole. +Delaware case law limits the ability of a board of directors to consider the interests of non-stockholders when taking action on behalf of the corporation in some circumstances. This aspect of Delaware law could limit the discretion +of the board of directors in responding to unsolicited takeover proposals or similar events in some circumstances. +Combination with Interested Stockholders +Nevada’s “Combinations with Interested Stockholders” statute generally provides that a corporation may not engage in certain types of business combination transactions with an “interested stockholder” for +two years after the person becomes an interested stockholder, or longer if certain requirements are not satisfied, unless (i) before becoming an interested stockholder, the board approved either the combination or the transaction in which the +stockholder became “interested” or (ii) on or subsequent to the date the person became an interested stockholder, the business combination is authorized by the board of directors and a supermajority of the stockholders other than the +interested stockholder. An “interested stockholder” is generally, (i) a person owning 10% or more of the corporation’s outstanding voting stock or (ii) an affiliate or associate of the corporation who held at least 10% of the stock at +any point in the prior two years. +The DGCL contains a “Business Combinations with Interested Stockholders” provision that is generally similar to the Nevada Combinations with Interested Stockholders statute, with the principal differences being that (i) +the threshold for becoming an “interested stockholder” in Delaware is 15% rather than 10% and (ii) the duration of the moratorium on business combinations with an interested stockholder is three years rather than two, but is not subject to +possible extension as it is in Nevada. +INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES; LIMITATION ON PERSONAL LIABILITY +Indemnification +A Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, +except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or +agent of another corporation, partnership, joint venture, +Through, among other means, a majority vote of disinterested directors, a corporation may indemnify any director, officer, employee or agent who was or is a party or is threatened to be made a party to any threatened, pending or +completed action, suit or proceeding (other than an action by or in the right of the corporation), by reason of service in that capacity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and +reasonably incurred by such person in +21 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding, if he is not +liable under the codification of the business judgment rule set forth in NRS 78.138 or acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal +action or proceeding, had no reasonable cause to believe his conduct was unlawful. However, with respect to actions by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such +person shall have been adjudged to be liable to the corporation unless and only to the extent a court determines that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity. A director or officer who is +successful, on the merits or otherwise, in defense of any proceeding subject to the Nevada corporate statutes’ indemnification provisions must be indemnified by the corporation for reasonable expenses incurred in connection therewith, including +attorneys’ fees. +connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or +proceeding, had no reasonable cause to believe his conduct was unlawful. However, with respect to actions by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall +have been adjudged to be liable to the corporation unless and only to the extent a court determines upon application that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity. A director or officer who +is successful, on the merits or otherwise, in defense of any proceeding subject to the DGCL’s indemnification provisions must be indemnified by the corporation for reasonable expenses incurred in connection therewith, including attorneys’ +fees. +PDC-Nevada’s bylaws, together with indemnification agreements entered into between PDC-Nevada and its directors, generally provide that the Company will indemnify those persons to the fullest extent permitted by the NRS. +PDC-Delaware’s bylaws will provide that the Company shall indemnify its directors and executive officers to the fullest extent permitted by the DGCL. +Advancement of Expenses +Under Nevada law, the articles of incorporation, bylaws or an agreement made by the corporation may require a corporation to advance expenses incurred by a director or officer relating to an action, suit or proceeding as to which +indemnification may be obtained upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. +Delaware law provides that expenses incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition +of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. A Delaware +corporation has the discretion to +22 +Table of Contents +Provision +PDC-Nevada/NRS +PDC-Delaware/DGCL +decide whether or not to advance expenses, unless its certificate of incorporation or bylaws provides for mandatory advancement. +PDC-Nevada’s bylaws, together with indemnification agreements entered into between PDC-Nevada and its directors and executive officers, require PDC-Nevada to advance expenses as permitted by the NRS. +PDC-Delaware’s bylaws will provide that the Company will advance expenses to any executive officer or director as permitted by the DGCL. +Limitation on Personal Liability of Directors +Under the NRS, neither a director nor an officer of a Nevada corporation can generally be held personally liable to the corporation, its stockholders or its creditors for any damages resulting from any act or failure to act in his +or her capacity as officer or director unless he or she committed a breach of fiduciary duty and such breach was accompanied by intentional misconduct, fraud, or a knowing violation of law. +A Delaware corporation is permitted to adopt a provision in its certificate of incorporation limiting or eliminating the liability of a director to a corporation and its stockholders for monetary damages for breach of fiduciary duty +as a director, subject to certain exceptions for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or liability to the corporation based on unlawfully-paid +dividends or improper personal benefits. +PDC-Nevada’s articles of incorporation provide that no director or officer of PDC-Nevada will be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, +subject to certain exceptions for actions involving intentional misconduct, fraud or a knowing violation of law, and matters for which liability cannot be eliminated under applicable law. +PDC-Delaware’s certificate of incorporation will contain a provision eliminating the personal liability of directors for monetary damages to the extent permitted by Delaware law. +DIVIDENDS +Declaration and Payment of Dividends +Under Nevada law, a corporation may make distributions to its stockholders, including by the payment of dividends, unless after giving effect to the distribution, the corporation would not be able to pay its debts as they become due +in the usual course of business or the corporation’s total assets would be less than its total liabilities. +Under Delaware law, a corporation may declare and pay dividends out of “surplus,” as that term is defined in the DGCL, or if no surplus exists, out of net profits for the fiscal year in which the dividend is declared +and/or the preceding fiscal year. +Dissenters’ Rights +Stockholders of the Company will not be entitled to dissenters’ rights in connection with the Reincorporation under the +NRS or otherwise. +23 +Table of Contents +Accounting Treatment of the Reincorporation +The Reincorporation will have no effect on the Company from an accounting perspective because there will be no change in the +entity as a result of the Reincorporation. Accordingly, the historical consolidated financial statements of PDC-Nevada previously reported to the SEC as of and for all periods through the date of this Proxy Statement will remain the consolidated +financial statements of PDC-Delaware. +Regulatory Approval +To the Company’s knowledge, the only required regulatory or governmental approval or filing necessary in connection with +the consummation of the Reincorporation will be the filing of the articles of conversion with the Secretary of State of Nevada and the filing of the certificate of incorporation and the certificate of conversion with the Secretary of State of +Delaware. +Material United States Federal Income Tax Consequences of the Reincorporation +The following discussion summarizes the material United States federal income tax consequences of the Reincorporation that are +expected to apply generally to holders of the Company’s common stock. This summary is based upon current provisions of the Code, existing Treasury Regulations and current administrative rulings and court decisions, all of which are subject to +change and to differing interpretations, possibly with retroactive effect. +This summary only applies to a holder of the +Company’s common stock that is a “U.S. person,” defined to include: +• +a citizen or resident of the United States; +• +a corporation created or organized in or under the laws of the United States, or any political subdivision thereof (including the District of +Columbia); +• +an estate the income of which is subject to United States federal income taxation regardless of its source; +• +a trust if either: +• +a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States +persons have the authority to control all substantial decisions of such trust, or +• +the trust has a valid election in effect to be treated as a United States person for United States federal income tax purposes; and +• +any other person or entity that is treated for United States federal income tax purposes as if it were one of the foregoing. +A holder of the Company’s common stock other than a “U.S. person” as so defined is, for purposes of this +discussion, a “non-U.S. person.” If a partnership holds the Company’s common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a +partnership holding the Company’s common stock, you should consult your tax advisor. +This summary assumes that +holders of the Company’s common stock hold their shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). No attempt has been made to comment on all United States federal income tax +consequences of the Reincorporation that may be relevant to particular holders, including holders: +• +who are subject to special treatment under United States federal income tax rules such as dealers in securities, financial institutions, non-U.S. +persons, mutual funds, regulated investment companies, real estate investment trusts, insurance companies, or tax-exempt entities; +24 +Table of Contents +• +who are subject to the alternative minimum tax provisions of the Code; +• +who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions; +• +who hold their shares as qualified small business stock within the meaning of Section 1202 of the Code; or +• +who hold their shares as part of an integrated investment such as a hedge or as part of a hedging, straddle or other risk reduction strategy. +In addition, the following discussion does not address the tax consequences of the Reincorporation +under state, local and foreign tax laws. Furthermore, the following discussion does not address any of the tax consequences of transactions effectuated before, after or at the same time as the Reincorporation, whether or not they are in connection +with the Reincorporation. +Accordingly, holders of the Company’s common stock are advised and expected to consult +their own tax advisers regarding the federal income tax consequences of the Reincorporation in light of their personal circumstances and the consequences of the Reincorporation under state, local and foreign tax laws. +The Company believes that the Reincorporation of the Company from Nevada to Delaware will constitute a reorganization within +the meaning of Section 368(a)(1)(F) of the Code. Assuming that the Reincorporation will be treated for United States federal income tax purposes as a reorganization within the meaning of Section 368(a)(1)(F) of the Code and subject to the +qualifications and assumptions described in this Proxy Statement: (1) holders of the Company’s common stock will not recognize any gain or loss as a result of the consummation of the Reincorporation, (2) the aggregate tax basis of +shares of the resulting Delaware corporation’s common stock received in the Reincorporation will be equal to the aggregate tax basis of the shares of the Company’s common stock converted therefor, and (3) the holding period of the +shares of the resulting Delaware corporation’s common stock received in the Reincorporation will include the holding period of the shares of the Company’s common stock converted therefor. +THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE +REINCORPORATION AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL OF THE REINCORPORATION’S POTENTIAL TAX EFFECTS. HOLDERS OF THE COMPANY’S COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX +CONSEQUENCES TO THEM OF THE REINCORPORATION AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS. +Approval +Requirements +The affirmative vote of holders of record of not less than a majority of the outstanding shares of common +stock on the record date is required for approval of the proposed change in the Company’s state of incorporation from Nevada to Delaware, pursuant to the Reincorporation. Because the affirmative vote of a majority of our outstanding shares is +required to approve this proposal, broker non-votes and abstentions will have the same effect as votes against this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO CHANGE THE +COMPANY’S STATE OF INCORPORATION FROM NEVADA TO DELAWARE, PURSUANT TO A PLAN OF CONVERSION. +25 +Table of Contents +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2015 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting +other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our By-Laws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy to vote +in accordance with their discretion on such matters pursuant to such proxy. +SECURITY OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of +March 31, 2015, by (1) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors +and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 31, +2015, 39,995,718 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage of +Shares +Beneficially +Owned +BlackRock, Inc. +40 East 52nd Street +New York, NY 10022 +3,146,081 +(1) +8.8 +% +Prudential Financial, Inc. +751 Broad St. +Newark, NJ 07102 +2,977,571 +(2) +8.3 +% +Jennison Associates, LLC +466 Lexington Ave. +New York, NY 10017 +2,897,685 +(2) +8.1 +% +FMR LLC +245 Summer Street +Boston, MA 02210 +2,526,764 +(3) +7.0 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +2,454,819 +(4) +6.8 +% +T. Rowe Price Associates, Inc. +100 East Pratt St. +Baltimore, MD 21202 +1,892,274 +(5) +5.2 +% +Barton R. Brookman, Jr. +116,282 +(6) +* +Gysle R. Shellum +67,351 +(7) +* +Lance A. Lauck +90,373 +(8) +* +Daniel W. Amidon +69,937 +(9) +* +Scott J. Reasoner +35,110 +(10) +* +James M. Trimble +223,555 +(11) +* +Jeffrey C. Swoveland +26,766 +(12) +* +Kimberly Luff Wakim +14,297 +(13) +* +David C. Parke +16,887 +(14) +* +Anthony J. Crisafio +15,534 +(15) +* +Joseph E. Casabona +27,335 +(16) +* +Larry F. Mazza +19,804 +(17) +* +All directors and executive officers as a group (12 persons) +723,231 +(18) +1.8 +% +26 +Table of Contents +* +Represents less than 1% of the outstanding shares of common stock. +(1) +As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 22, 2015. BlackRock, Inc. holds sole voting power as to +3,059,088 shares and sole dispositive power as to 3,146,081 shares. +(2) +As reported on Schedule 13G/A filed with the SEC by Prudential Financial, Inc. (“Prudential”) on February 13, 2015. Prudential holds +sole voting power with respect to 72,065 shares and sole dispositive power with respect to 72,065 shares. Prudential holds shared voting power with respect to 2,828,638 shares and shared dispositive power as to 2,905,506 shares; of these shares, +2,897,685 shares are beneficially owned by Jennison Associates, LLC (“Jennison”), a subsidiary of Prudential. As reported on a Schedule 13G/A filed with the SEC by Jennison on February 10, 2015, Jennison holds sole voting power as to +2,820,817 shares and shared dispositive power as to 2,897,685 shares. +(3) +As reported on a Schedule 13G/A filed with the SEC by FMR LLC on February 13, 2015, FMR LLC is a parent holding company in accordance with SEC +Rule 13d-1(b)(ii)(G) and holds sole voting power as to 198,726 shares and sole dispositive power as to 2,526,764 shares. +(4) +As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 11, 2015, The Vanguard Group is an investment advisor in +accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 50,787 shares, sole dispositive power as to 2,407,032 shares and shared dispositive power as to 47,787 shares. +(5) +As reported on a Schedule 13G/A filed with the SEC by T. Rowe Price Associates, Inc. (“Price Associates”) on February 11, 2015, +Price Associates is an investment adviser registered under the Investment Advisers Act of 1940 and holds sole voting power as to 458,663 shares and sole dispositive power as to 1,892,274 shares. These securities are owned by various individual and +institutional investors for which Price Associates serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, +Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. +(6) +Excludes 45,911 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 36,174 shares subject to SARs +exercisable within 60 days of March 31, 2015. +(7) +Excludes 30,100 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 20,832 shares subject to SARs +exercisable within 60 days of March 31, 2015. +(8) +Excludes 25,713 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 29,525 shares subject to SARs +exercisable within 60 days of March 31, 2015. +(9) +Excludes 26,339 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 30,013 shares subject to SARs +exercisable within 60 days of March 31, 2015. +(10) +Excludes 20,058 restricted shares subject to vesting greater than 60 days after March 31, 2015. +(11) +Excludes 52,663 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 74,605 shares subject to SARs +exercisable within 60 days of March 31, 2015. +(12) +Excludes 4,255 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 2,683 common shares purchased pursuant +to the Non-Employee Director Deferred Compensation Plan. +(13) +Excludes 6,686 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 5,635 common shares purchased pursuant +to the Non-Employee Director Deferred Compensation Plan. +(14) +Excludes 5,593 restricted shares subject to vesting greater than 60 days after April 20, 2015; includes 571 common shares purchased pursuant +to the Non-Employee Director Deferred Compensation Plan. +(15) +Excludes 5,033 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 1,275 common shares purchased pursuant +to the Non-Employee Director Deferred Compensation Plan. +(16) +Excludes 3,379 restricted shares subject to vesting greater than 60 days after March 31, 2015. +(17) +Excludes 3,379 restricted shares subject to vesting greater than 60 days after March 31, 2015. +(18) +Excludes 229,109 restricted shares subject to vesting greater than 60 days after March 31, 2015; includes 10,164 common shares purchased +pursuant to the Non-Employee Director Deferred Compensation Plan and 191,149 SARs exercisable within 60 days of March 31, 2015. +27 +Table of Contents +Each SAR referenced in the footnotes above entitles the executive officer to +receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $24.44 to $49.57, payable in shares only. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s officers +and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, Directors and holders of more than 10% of the common stock +are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange +Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting +persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2014, the Company’s officers and Directors and owners of more than 10% of the Company’s common stock timely +filed all reports they were required to file under Section 16(a) of the Exchange Act, with the exception of one Form 4 reporting a single transaction which was inadvertently filed late by us on behalf of Mr. Parke. +28 +Table of Contents +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the +Board’s policies on a number of corporate governance issues. The Corporate Governance Guidelines were most recently amended on June 5, 2014. +Uncontested Elections Policy +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any +nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee +(“N&G Committee”). The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered +resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making +this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the +length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing +documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and our stockholders. In considering the N&G Committee’s recommendation, the Board will take into +account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant. +Other +Corporate Governance Documents +The Company’s website includes the Corporate Governance Guidelines and the +following additional governance documents: +Director Nomination Procedures +Director Stock Ownership Guidelines +Insider Trading Policy +Shareholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Non-Executive Chairman Charter +Code of Business Conduct and Ethics +Waivers of Potential Conflicts of Interest +Board of Directors +The +Company’s By-Laws provide that the number of members of the Board shall be designated from time to time by a resolution of the Board. Currently, the designated number of Directors is eight. Under the By-Laws, the Board is divided into three +separate classes of Directors which are required to be as nearly equal in number as practicable. At each annual meeting of stockholders, one class of Directors whose term has expired may be elected to a new term of three years. The classes are +staggered so that the term of one class expires each year. +There is no family relationship between any Director or +executive officer or the Company. There are no arrangements or understandings between any Director or officer and any other person pursuant to which the person was selected as an officer or Director of the Company. +29 +Table of Contents +Director Independence +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews the NASDAQ listing +standards, which set forth certain circumstances under which a director is not considered independent. Current CEO and President of the Company, Mr. Brookman is not independent under such standards, and former CEO and President of the Company, +Mr. Trimble is also not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent NASDAQ and Exchange Act independence requirements. +The Board has reviewed the business and charitable relationships between the Company and each non-employee Director +(“Non-Employee Director”) to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s independence. The Board has +affirmatively determined that each of the Non-Employee Directors other than Mr. Trimble (i.e., Messrs. Casabona, Crisafio, Mazza, Parke and Swoveland, and Ms. Wakim) is independent under NASDAQ Listing Rule 5605, the Exchange Act and our +Board committee charter requirements. +Board Meetings and Attendance +The Board has a standing Audit Committee, Compensation Committee and N&G Committee. Actions taken by these committees are +reported to the Board at its next meeting. During 2014, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly +encouraged, but not required, to attend the annual meeting of stockholders. All of the Directors attended the 2014 annual meeting of stockholders held on June 5, 2014. +The following table identifies the members of each committee of the Board, the chair of each committee, and the number of +meetings held in 2014. +2014 BOARD AND COMMITTEE +MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Barton R. Brookman (1) +x +Joseph E. Casabona +x +x +(2) +x +Anthony J. Crisafio +x +x +x +Larry F. Mazza +x +x +x +x +(2) +David C. Parke +x +x +x +Jeffrey C. +Swoveland (3) +x +x +x +James M. Trimble +x +Kimberly Luff Wakim +x +x +x +(2) +x +Number of Meetings in 2014 +7 +9 +(4) +9 +4 +(1) +Mr. Brookman became the President and CEO on January 1, 2015 and joined the Board of Directors on such date. +(2) +Chair +(3) +Non-Executive Chairman. +(4) +A sub-committee of the Audit Committee held four additional meetings in 2014 related to partnership SEC filings. +30 +Table of Contents +The Non-Employee Directors generally meet in “executive session” in +connection with each regularly scheduled Board meeting without the employee Director (the CEO) present. Mr. Swoveland chairs these sessions; however, the other Non-Employee Directors may, in the event of his absence, select another Director to +preside over the executive session. Beginning in 2015, due to the change in composition of our Board, the Board will also convene meetings of independent Directors in “executive session” at least twice annually, without Mr. Brookman +and Mr. Trimble present. +STANDING COMMITTEES OF THE BOARD +Audit Committee +The +Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant +provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which is posted on the Company’s website. The Board assesses the adequacy of the Audit Committee Charter on an annual basis and revises it as +necessary. The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations. The Audit Committee’s primary purpose is to assist the Board in monitoring the integrity of the +Company’s financial reporting process, systems of internal controls and financial statements, and compliance with legal and regulatory requirements. Additionally, the Audit Committee is directly responsible for the appointment, compensation and +oversight of the independent auditors engaged by the Company for the purpose of preparing or issuing an audit report or related work. In performing its responsibilities, the Audit Committee: +• +Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal +compliance; +• +Monitors the independence of the independent registered public accounting firm; and +• +Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Compensation Committee +The Board has determined that all members of the Compensation Committee are independent of the Company under Rules 5605(a)(2) +and 5605(d)(2) of the NASDAQ listing standards. The Board has adopted a Compensation Committee Charter which is posted on the Company’s website. In performing its responsibilities, the Compensation Committee: +• +Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +• +Evaluates the performance of and establishes the compensation of the CEO; +• +Reviews and approves the elements of compensation for other senior executive officers of the Company; +• +Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance +and change in control plans; +• +Reviews the Directors’ compensation for their Board and committee work and recommends to the Board any changes in such compensation; +• +Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves +awards to those officers; +• +Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves all equity grants +under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +• +Reviews and approves Company contributions to Company-sponsored retirement plans. +31 +Table of Contents +Compensation Committee Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal year 2014. +Nominating and Governance Committee +The Board has determined that all members of the N&G Committee are independent of the Company under Rule 5605(a)(2) of the +NASDAQ listing standards. The Board has adopted a Nominating and Governance Committee Charter which can be viewed on the Company’s website. In performing its responsibilities, the N&G Committee: +• +Assists the Board by identifying individuals qualified to become Board members, recommends nominees for election at the next annual meeting of +stockholders or to fill any vacancies; +• +Recommends to the Board corporate governance guidelines applicable to the Company; +• +Leads the Board in its annual self-assessment of the Board’s performance; and +• +Recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. +Board Leadership Structure +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes +that our current leadership structure, under which Mr. Brookman currently serves as President and CEO and Mr. Swoveland serves as Non-Executive Chairman of the Board, is the optimal structure for our Board at this time. Since June 2011, +the roles of Chairman and CEO have been held by separate individuals. We believe that as directors continue to have increasing oversight responsibilities, it is beneficial to have an independent, separate Chairman who has the responsibility of +leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship which, given the separation of their positions, provides strong Board leadership while positioning our CEO as +the leader of the Company in the eyes of our employees and stockholders. The Board reconsiders this structure at least annually. +As Non-Executive Chairman, Mr. Swoveland generally chairs the meetings of executive sessions of our Non-Employee +Directors. The Non-Executive Chairman, in consultation with the CEO, establishes the agenda for each Board meeting. +32 +Table of Contents +DIRECTOR COMPENSATION +Non-Employee Directors’ compensation is reviewed annually by the Compensation Committee and approved by the Board. We +compensate Directors with a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board and to align Directors with our stockholders. In determining how much to compensate our +Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. No compensation is paid to our CEO for his service on the Board. +In 2014, the Compensation Committee directly engaged Towers Watson & Co. as its compensation consultant to review +executive compensation and to conduct an annual review of the total compensation of our Non-Employee Directors (see “Role of the Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement). +Specifically, Towers Watson & Co. evaluated retainer fees, potential meeting fees and stock-based long-term incentives using, as the competitive benchmark, total compensation paid to the directors of the energy companies which comprise the +Company’s peer group used in determining 2014 executive compensation. +Below is a summary of the compensation paid to +our Non-Employee Directors. No changes were made to our Directors’ compensation for 2014. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +For 2014, the annual cash retainer for service on the Board and for attendance at all Board meetings was $70,000. +The Non-Executive Chairman received an additional cash retainer of $100,000. +Annual Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on each committee on which he or she serves. The Chair +of each Committee receives an additional annual retainer for his or her services as Chair. The following table shows the Committee and Chair retainers in effect for 2014: +COMMITTEE RETAINERS +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$ +15,000 +$ +17,500 +Compensation +10,000 +10,000 +Nominating and Governance +6,000 +7,500 +In addition: +• +A Special Committee consisting of Messrs. Crisafio, Mazza, Parke and Swoveland was created in 2008 to consider the potential repurchase of certain +partnerships for which the Company is the managing general partner (each a “Partnership”). Since the majority of the Partnerships have been repurchased, no compensation was paid to the Special Committee members in 2014. +• +A sub-committee of the Audit Committee, of which Mr. Casabona is the sole member, reviews and approves SEC financial filings for the +Partnerships. Mr. Casabona received a cash retainer of $10,000 for serving in this capacity in 2014. +33 +Table of Contents +Equity Compensation +Each year the Non-Employee Directors are awarded shares of restricted stock for their service on the Board. To more closely +align the timing of Director and executive officer grants, director grants were made in January 2014 at which time the Non-Executive Chairman received the equivalent of $170,000 (3,211 shares) and the remaining Non-Employee Directors each received +the equivalent of $135,000 (2,550 shares) of restricted stock. These shares vest ratably over three years and were granted under the Company’s 2010 Long-Term Equity Compensation Plan, which was approved by stockholders in 2010 (the “2010 +LTI Plan”). +Deferred Compensation +Each Non-Employee Director may choose to defer all or a portion of his or her annual cash compensation and certain shares of +restricted stock by participating in the Non-Employee Director Deferred Compensation Plan. All compensation deferred into this program is credited with hypothetical earnings and losses as if invested in common stock of the Company. Other than +Mr. Swoveland and Ms. Wakim, none of the Non-Employee Directors deferred compensation in 2014. +Director Stock Ownership Requirements +Each Non-Employee Director is required to hold shares of Company stock in an amount equal to at least five times his +or her annual Board retainer. Compliance with ownership requirements is measured annually. Qualifying stock holdings include directly-owned and unvested restricted Company stock as well as stock equivalents held in the Non-Employee Director Deferred +Compensation Plan. Directors are required to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2014, all of the Directors met or exceeded the current requirements under the guidelines. +The Company’s Insider Trading Policy expressly prohibits Non-Employee Directors from purchasing options, puts or +calls or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +Compensation paid to the Non-Employee Directors for fiscal year 2014 was as follows: +2014 DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash (1) +($) +Stock Awards (2) +($) +Total ($) +Joseph E. Casabona (3) +115,500 +126,404 +241,904 +Anthony J. Crisafio +84,565 +126,404 +210,969 +Larry F. Mazza +98,065 +126,404 +224,469 +David C. Parke +86,000 +126,404 +212,404 +Jeffrey C. Swoveland (4) +195,000 +159,169 +354,169 +Kimberly Luff Wakim +111,000 +126,404 +237,404 +(1) +Includes annual Board retainer, regular Committee and Committee Chair retainers, Audit sub-committee retainers, any cash compensation paid for +participation on the Special Committee and retainers for the Non-Executive Chairman of the Board. No per-meeting fees are paid. +(2) +On January 16, 2014, the Company awarded 3,211 shares of restricted stock to the Non-Executive Chairman and 2,550 shares of restricted stock +to each other Non-Employee Director equal to $170,000 and $135,000 of value, respectively, using the average of the 15-day closing prices ending ten days prior to the grant date ($52.95). The amount reported in this table reflects the grant date +fair value as computed in accordance with FASB ASC Topic 718. +34 +Table of Contents +(3) +Mr. Casabona’s cash compensation includes $10,000 for his service on the Audit sub-committee. +(4) +Mr. Swoveland’s cash compensation includes $100,000 for his service as Non-Executive Chairman of the Board. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will use to recommend +nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website. The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge (specifically +within the industry and relevant industries in which the Company operates, as well as his or her overall experience and knowledge), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on +the particular candidate. +Additional factors considered by the N&G Committee include the size and composition of the +Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. Accordingly, one or more of these factors may be given more weight in a particular case at a particular time, although no +single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The N&G Committee identifies Director candidates primarily through recommendations made by the Non-Employee Directors. +These recommendations are developed based on the Non-Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers +recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The +N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2014. +Diversity Consideration +In addition to qualities of intellect, integrity and judgment, the N&G Committee takes into consideration diversity of +background, senior management experience, education and an understanding of some combination of oil and gas marketing, finance, technology, government regulation and public policy. The N&G Committee makes its determination in the context of an +assessment of the perceived needs of the Board at that point in time. The N&G Committee evaluates all Director nominees, including any nominees recommended by stockholders, using these criteria. The Director nomination process specifically +includes disclosure of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. +35 +Table of Contents +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +Stockholder Recommendations +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those +recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company’s headquarters or by email to board@pdce.com . All +recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +• +Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination +Procedures; +• +An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +• +Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +• +An indication of the willingness of the proposed nominee to serve if nominated and elected. +Stockholder Nominations +Stockholders may nominate candidates for election to the Board. The Company’s By-Laws require that stockholders who wish +to submit nominations for election to the Board at an annual meeting of stockholders follow certain procedures. The stockholder must give written notice to the Corporate Secretary at PDC Energy, Inc., 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203 or may email notice to board@pdce.com not later than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. If the date of the annual meeting is more than 30 days before or +more than 60 days after that anniversary date, however, for notice by such stockholder to be timely, it must be received not later than 80 days before the annual meeting, or within 10 days following the Company’s public announcement of the date +of its annual meeting. The stockholder must be a stockholder of record at the time the notice is given. The written notice must set forth (1) as to each nominee, all information relating to that person that is required to be disclosed in +solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the Proxy Statement +as a nominee and to serving as a Director if elected); (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made (a) the name and address of the stockholder, as they appear on the +Company’s books, and of such beneficial owner, and (b) the class and number of shares of the Company’s securities that are beneficially owned by such stockholder and the beneficial owner; and (3) any material interest of such +stockholder and such beneficial owner in such nomination. +36 +Table of Contents +THE BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee the Company’s critical business risks. Risks are considered in every business +decision, including by means of Board oversight of the Company’s internal risk management system. For instance, an assessment of potential risks (financial and otherwise) is included in every acquisition proposal presented to the Board. The +Board realizes, however, that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the +Company’s key strategic goals. While the entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing risk and specifically reviews +risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements, such as counterparty risks and derivative program risks. Similarly, the Compensation Committee considers +risks related to the structure and size of the Company’s compensation plans, as set out below. +We believe that our +Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between our management and our Directors. +Compensation Risk Assessment +We do not believe that the Company’s executive or non-executive compensation structure is reasonably likely to have a +material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +• +A balance of short-term and long-term programs to ensure focus on both elements of Company performance; +• +Caps on awards payable to any individual under our bonus and performance share programs, along with Compensation Committee discretion to decrease +bonus payouts in the event that it believes excessive risk was taken; +• +“Clawback” provisions are applicable to all Named Executive Officers through their employment agreements or pursuant to the +Company’s Clawback Policy, as applicable; +• +Significant stock ownership requirements are in place for our Named Executive Officers and Non-Employee Directors; +• +An Insider Trading Policy that prohibits executive officers from selling Company shares without first obtaining pre-clearance from the +Company’s General Counsel, even during open trading windows; and +• +A hedging policy that does not permit the Company to effect transactions in oil and gas derivatives on a speculative basis. +37 +Table of Contents +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee +at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, +officers, employees, agents, consultants and representatives of the Company, which is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer +are subject to additional specific provisions under the Code of Conduct. The Code of Conduct can be viewed on the Company’s website at www.pdce.com . In the event the Board approves an amendment to or a waiver of any provisions of the +Code of Conduct, the Company will disclose the information on its website. In 2014, the Board approved waivers regarding any potential conflict related to (1) the service of Mr. Swoveland on the Board of Directors of Linn Energy, LLC; and +(2) the Company’s dealings with KeyBanc Capital Markets, KeyBank N.A., or any of its affiliate banks (collectively, “KeyBank”), including, but not limited to, its participation in the Company’s revolving bank loan group, to +the extent that a conflict of interest exists as a result of the employment of Mr. Trimble’s spouse, a senior investment banker at KeyBank. These waivers can be found on the Company’s website. +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2014 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the +immediate family of any of the foregoing persons had or will have a direct or indirect material interest for which disclosure is required under SEC Regulation S-K 404. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties +and potential conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement +involving a related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any +potential related person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to +the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis and the impact of the transaction on the Company’s +business and operations. +38 +Table of Contents +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the +Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . These documents may also be viewed at the SEC’s public reference room located at 100 F Street, +N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. +NAMED EXECUTIVE OFFICERS +The current Named Executive Officers of the Company, their principal occupations for the +past five years and additional information is set forth below. +BARTON R. BROOKMAN, 52. See Proposal No.1 for Mr. +Brookman’s information. +GYSLE R. SHELLUM, 63, was appointed Chief Financial Officer in 2008. Prior to joining the +Company, Mr. Shellum served from September 2004 through September 2008 as Vice President, Finance and Special Projects of Crosstex Energy, L.P. (now EnLink Midstream LLC) in Dallas, Texas. EnLink Midstream (NYSE: ENLK) is a publicly traded +master limited partnership engaged in the gathering, transmission, treating, processing and marketing of natural gas and natural gas liquids. Mr. Shellum holds a B.B.A. in Accounting from the University of Texas, Arlington. +LANCE A. LAUCK, 52, was appointed Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck +has overall responsibilities for PDC’s business development, strategic planning, corporate reserves and midstream & marketing. Mr. Lauck joined PDC in August 2009 as Senior Vice President Business Development with the added +responsibility of leading PDC’s strategic planning efforts. Previously, he served as Vice President — Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked +for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his +service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in +Petroleum Engineering. +DANIEL W. AMIDON, 54, Senior Vice President, General Counsel and Secretary, was appointed General +Counsel and Secretary in July 2007 and Senior Vice President in 2012. Prior to joining the Company, Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation beginning in July 2004, where he served in several positions including General +Counsel and Secretary. Prior thereto, Mr. Amidon was employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of increasing responsibility, including General Counsel and Secretary. Mr. Amidon practiced with the +Pittsburgh, Pennsylvania law firm of Buchanan Ingersoll PC from 1986 through 1992. Mr. Amidon graduated from the University of Virginia, with honors, majoring in economics. He received his J.D. from the Dickinson School of Law (now Penn State +Law). +SCOTT J. REASONER, 53, is the Company’s Senior Vice President of Operations, a position to which he was +appointed in January 2015. Mr. Reasoner joined the Company in April 2008 as Vice President of Western Operations. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served +as a Business Unit Manager with Noble Energy Inc. where he was responsible for the Mid-Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for Patina Oil and Gas Company as Production Manager and later as Vice President +Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner is a graduate of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the +University of Colorado, and is a Registered Professional Engineer. +39 +Table of Contents +With the exception of Mr. Reasoner, each of the above was an officer of the +Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Mr. Reasoner became a named +executive officer effective January 1, 2015. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +Kimberly Luff Wakim, Chair +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +Jeffrey C. Swoveland +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +The +Compensation Committee of the Board of Directors (the “Committee” for this section) believes that executives should be paid based on the performance of the Company. This Compensation Discussion and Analysis (“CD&A”) provides +stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2014, as well as the factors considered by our Committee in making compensation decisions. This CD&A focuses on the +compensation of our Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and our three other most highly compensated officers for 2014 (collectively, the “Named Executive Officers”), namely: +James M. Trimble +Chief Executive Officer (through December 31, 2014) +Gysle R. Shellum +Chief Financial Officer +Barton R. Brookman +President and Chief Operating Officer (CEO effective January 1, 2015) +Lance A. Lauck +Senior Vice President, Corporate Development +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +Leadership Changes +2014 was a successful year of leadership change and transition for our Company. In June 2014, Mr. Trimble announced his +intent to retire as CEO at the end of 2014. Simultaneous with Mr. Trimble’s announcement, the Board named Mr. Brookman as President and Chief Operating Officer (“COO”) and then as President and CEO in January 2015, +succeeding Mr. Trimble. Mr. Trimble is continuing to serve on the Board of Directors following his retirement, a position he held prior to being named President and CEO in June 2011. The Committee believes the transition of the CEO role +proceeded very smoothly with very little impact on ongoing operations and investor confidence. Mr. Trimble’s post-retirement consulting agreement is outlined under “Agreements with Named Executive Officers.” +2014 Business Highlights +The Committee believes that our executive management team has created significant value for our stockholders over the past few +years by developing a more heavily weighted crude oil portfolio relative to its +40 +Table of Contents +natural gas assets. Through the vision and efforts of our executive management team, we have created an asset base that is producing higher margins and rates of return while maintaining a strong +balance sheet. The Committee believes that this transformation combined with PDC’s operational improvements allowed the Company to stand out among its peer companies over the last several years, especially during the recent downturn in +commodity prices. The following are key highlights of our achievements in 2014: +• +Achieved outstanding operational performance for the year including: +• +Year-over-year production growth of 50% from the Company’s Wattenburg Field and Utica Shale assets; +• +Annual reserve replacement of 357% with a three-year average of 650%; and +• +Technical operations improvements enhancing returns in 2014 and beyond. +• +Continued to build a strong financial and liquidity position through the following: +• +Sold Marcellus assets in October at an excellent price in light of the subsequent drop in gas prices, allowing the Company to pay down debt and +achieve higher margins on continuing operations; +• +Secured industry leading oil and gas hedges for 2015 and 2016 prior to the downturn in oil prices; +• +Achieved 48% growth in cash flow from operating activities year-over-year; and +• +Increased our borrowing base for the bank line from $450MM to $700MM. +• +Reached satisfactory settlement agreements on several litigation matters regarding its legacy partnerships, permitting management to focus on more +strategic matters. +In addition, although the stock price was down for the year due to the drop in +commodity prices, PDC generated stock price performance well above the median of its peers on both a one- and three-year basis through December 31, 2014 as shown below: +TOTAL SHAREHOLDER RETURN (“TSR”) +1 Year Return +3 Year Return +Company +TSR +Rank +TSR +Rank +PetroQuest Energy, Inc. +(9)% +1 +(44)% +7 +Carrizo Oil & Gas, Inc. +(11)% +2 +41% +1 +Gulfport Energy Corporation +(31)% +3 +34% +2 +PDC Energy +(32)% +4 +6% +4 +Penn Virginia Corporation +(45)% +5 +7% +3 +Magnum Hunter Resources Corporation +(50)% +6 +(28)% +5 +EXCO Resources, Inc. +(50)% +7 +(72)% +13 +Stone Energy Corporation +(52)% +8 +(38)% +6 +Rosetta Resources, Inc. +(55)% +9 +(52)% +8 +Comstock Resources, Inc. +(60)% +10 +(56)% +10 +Bill Barrett Corporation +(63)% +11 +(72)% +12 +Laredo Petroleum, Inc. +(65)% +12 +(53)% +9 +Swift Energy Company +(70)% +13 +(87)% +14 +Goodrich Petroleum Corporation +(75)% +14 +(69)% +11 +Resolute Energy Corporation +(85)% +15 +(89)% +8 +Quicksilver Resources Inc. +(90)% +16 +(96)% +16 +41 +Table of Contents +The peer group shown is the same peer group as used to determine compensation for +2014 as shown under the section heading “Compensation Process — Making Executive Compensation Decisions.” TSR is determined using an average stock price for the 20 trading days prior to the beginning of the period and the 20 days +ending with the last day of the period plus dividends for the period. The 1-year table is based on January 1, 2014 through December 31, 2014 and the 3-year table is based on January 1, 2012 through December 31, 2014. +2014 Compensation Highlights +Our key compensation decisions for 2014 related to our Named Executive Officers included: +• +Approved compensation adjustments relating to our leadership transition, which resulted in the compensation of our new CEO being comparatively less +than that of our departing CEO, Mr. Trimble; +• +Approved moderate increases to base salaries and adjustments in annual incentive bonus targets for the Named Executive Officers; +• +Due to the current commodity price environment, the Company awarded bonuses at target levels for 2014 despite the Company’s above-target +performance with respect to its bonus metrics (see “2014 Performance Results”); +• +Awarded the same number of shares of restricted stock, SARs and performance shares in January 2014 as were granted in 2013 to recognize the Named +Executive Officers for their leadership in the Company’s successful strategic direction change in 2012 and 2013, and the resulting overall Company performance and stock appreciation in 2013. This resulted in an above-market median equity grants +in 2014 (see “2014 Performance Results”); and +• +The performance shares which covered the 3-year performance period ending December 31, 2014, paid out at 167% of target. This represents top +quartile total shareholder return (“TSR”) performance relative to the Company’s peers for that three year period (see “2014 Option Exercises and Stock Vested” table). +2014 Say on Pay Vote +At our 2014 annual meeting of stockholders, the vast majority of our stockholders voted to approve our executive compensation +program, with over 94% approval among votes cast. Based on these voting results, the feedback we received during the voting process, the success of the Company in the last year and our discussions with stockholders, we did not make any significant +changes to our executive compensation program for 2015. +42 +Table of Contents +Key Features of our Executive Compensation Program +We believe our executive compensation program is competitive and reflects an alignment with current governance trends and +stockholder-friendly features as outlined below: +Our Executive Compensation Practices +(What We Do) +ü +P ay for Performance — Our Named Executive Officers’ total compensation is heavily weighted toward performance-based pay. Our annual +incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative shareholder return performance. +ü +Executive Ownership Guidelines — We have stock ownership guidelines for our executives and directors that are consistent with corporate +governance best practices. +ü +External Benchmarking — We use competitive compensation data based on an appropriate group of peers and other relevant survey data prior to +making any compensation decisions. +ü +Double-Trigger Change-of-Control Severance Benefits — Upon a change of control of the Company, our current severance plan and grandfathered +employment contracts only provide for cash severance benefits if the executive is actually or constructively terminated within two years following a change of control event. +ü +Clawback Policy — We have clawbacks in place in the event of a restatement of all or a portion of our financial statements due to material +noncompliance with financial reporting requirements under securities laws. +ü +Compensation Risk Assessment — There is an appropriate balance between long-term and short-term focus in our compensation programs and the +Committee has the ability to apply discretion to mitigate risk in management decision making. +ü +Independent Compensation Consultant — We have engaged an independent executive compensation advisor who reports directly to the +Committee. +ü +Independent Compensation Committee — Our Committee is comprised solely of independent +directors. +Executive Compensation Practices We Have Not Implemented +(What We Don’t Do) +X +No Golden Parachute Excise Tax Gross-Ups — We do not provide tax gross-ups on any tax obligations of the executive upon a change of control of +the Company. +X +No New Employment Contracts and/or Excessive Severance Benefits — We no longer provide employment contracts to new executives (although Messrs. +Shellum, Lauck and Amidon have grandfathered contracts). Severance benefits under both our severance plan and employment agreements are reasonable and there are no liberal change of control definitions or excessive severance benefits or other +payments. +X +No Excessive Perquisites — We provide only modest perquisites that are consistent with industry norms. +X +No Repricing — Our 2010 LTI Plan does not permit repricing of underwater stock options or SARs without shareholder approval. +X +No Hedging or Pledging of PDC Stock — These practices are strictly prohibited for all officers, directors and employees of the +Company. +43 +Table of Contents +Compensation Objectives and Philosophy +The principal tenets of our compensation philosophy are as follows: +Our executive compensation programs should be competitive with our peers to attract, retain and reward effective +leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. Our Committee determines individual total compensation targets within this +framework to provide compensation that correlates with the Company’s relative performance to peers. Generally, the Committee establishes target total compensation around the median level for similar positions at comparable companies (unless +specific circumstances warrant otherwise). +Our executive compensation programs should be designed to support a +performance-based culture. The majority of each executive’s compensation is therefore at risk and based on a combination of attainment of short-term goals in support of our Company’s long-term strategy, long-term stock performance +relative to our peers, and actual total shareholder return for PDC shareholders. Our programs are structured to require a commitment to performance because total compensation at the market is not guaranteed. Therefore, our programs are designed to +reward above-target compensation when performance is warranted and below-target compensation when performance does not meet expectations. +Our executive compensation programs should be designed to align our executives’ interests with those of our +stockholders. A substantial portion of our compensation is provided in the form of long-term equity incentives that tie executive pay to stock. In addition, we require each of our Named Executive Officers to meet stock ownership guidelines. +Our executive compensation programs should encourage appropriate risk management. The Committee believes +that effective leadership in the oil and gas business requires taking prudent business risks while discouraging excessive risk-taking. To encourage this balance, the Committee has structured our compensation programs to include extended three-year +vesting schedules on all equity awards, and to structure annual incentive awards using a combination of short-term financial and operational objectives. The Committee also exercises discretion in determining bonus payments rather than relying solely +on a formula to mitigate risk. The Committee regularly reviews our compensation programs to ensure that our executives are not encouraged to take inappropriate or excessive risks. +2014 Compensation Mix +Our pay for performance philosophy is demonstrated in our compensation mix. The charts below show the fixed and +“at-risk” or variable components as awarded in January 2014 for the Named Executive Officers as a percentage of their total direct compensation. These charts are not a substitute for the “Summary Compensation Table,” which +includes amounts supplemental to total direct compensation, and they do not include any changes in cash compensation related to the promotion of Mr. Brookman to President and COO in June 2014. For 2014, 89% of Mr. Trimble’s +compensation was variable or “at-risk” and linked with Company performance. For the remaining Named Executive Officers, approximately 82% of their compensation was variable or “at-risk” and linked with Company performance. +44 +Table of Contents +2014 TARGET COMPENSATION +RS = Restricted Stock (time-based) +SAR = Stock Appreciation Rights +PS = Performance Shares +Components of the Company’s Compensation Program +The table below highlights each element of our compensation program and the primary role of each element in achieving our +compensation objectives: +COMPENSATION ELEMENTS +ROLE IN TOTAL COMPENSATION +Annual Incentives +• Reward annual Company performance; +• Align +participants’ compensation with short-term financial and operational objectives specific to each calendar year; +• Motivate participants to meet or exceed internal and external performance expectations; +and +• Recognize +individual contributions to the organization’s overall results. +Long-Term Incentives +ü Restricted Stock/Units +ü Performance Shares/Units +ü Stock Appreciation Rights +(SARs) +• Reward long-term performance directly aligned with shareholders’ interests; +• Provide a strong +performance-based equity component; +• Recognize and reward share performance relative to industry peers through performance +shares/units based on relative total shareholder return (“TSR”); +• Align compensation with sustained long-term value creation; +• Allow executives to +acquire a meaningful and sustained ownership stake; and +• Foster executive retention by vesting awards over multiple years. +Benefits and Perquisites +ü Health and Welfare +ü Retirement +ü Perquisites +• Help attract and retain executive talent by offering a comprehensive employee benefits +package comparable to all other Company employees; +• Provide financial security by allowing executive to save for retirement through the +Company’s 401k and profit sharing plan; and +• Provide modest perquisites to executives including a car allowance for business and +personal use and athletic/non-golf club dues, consistent with those offered by our peer companies. +Termination Benefits +ü Executive Severance Plan +ü Employment Contracts +• Attract and retain executives in a competitive and changing industry; and +• Ensure executives +act in the best interest of shareholders in times of heightened uncertainty. +45 +Table of Contents +Executives and Directors Are Required to Own Stock +The Committee has established stock ownership guidelines for executive officers and outside directors, which are reviewed +annually when compensation decisions are made. In satisfying the stock ownership guidelines, Named Executive Officers are expected to: +• +Comply with the ownership guidelines within five years of the executive’s appointment as a Named Executive Officer; and +• +Retain the net shares acquired through the exercise of stock options, SARs, or the vesting of restricted stock or performance shares if the Named +Executive Officer has not satisfied the required ownership level. +As of December 31, 2014, all of +the Named Executive Officers exceeded the minimum stock ownership requirements as set forth below. +2014 STOCK OWNERSHIP REQUIREMENT +Name/Year of Executive Status +Stock Ownership +Guidelines +Number of +Shares +Required +To Own (1) +Number of +Qualifying +Shares +Owned (2) +James M. Trimble (2011) +5x Base Salary +96,533 +192,665 +Gysle R. Shellum (2008) +3x Base Salary +29,776 +61,391 +Barton R. Brookman (2008) (2) +5x Base Salary +67,981 +93,955 +Lance A. Lauck (2009) +3x Base Salary +27,328 +71,154 +Daniel W. Amidon (2007) +3x Base Salary +25,697 +50,231 +(1) +Using average of daily closing prices in December of 2014, which was $36.78. +(2) +This ownership guideline reflects Mr. Brookman’s position as President and CEO. +Qualifying holdings include stock owned directly, shares held in the Company’s 401(k) and Profit Sharing Plan and +unvested time-based restricted stock as of December 31, 2014. Not included are stock options, SARs and performance-based awards. Stock ownership requirements applicable to our Non-Employee Directors are described under “Director +Compensation — Stock Ownership Requirements.” +Compensation Process — Making Executive Compensation Decisions +Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay +Each fall, the Committee reviews the composition of the peer group of companies used in establishing target compensation for +the Named Executive Officers for the coming year. In determining the peer group for the year, the Committee considers the following: +• +Size, scope and nature of business operations, ownership structure, prior financial performance and current financial scope, including market +capitalization, enterprise value, revenue, EBITDA, capital expenditures and assets for each current and potential peer company; +• +Whether changes to the peer group are warranted based upon changes in size and/or operations of either the Company and/or the current or potential +peer companies; and +• +Other factors that may render a current peer company no longer comparable. +46 +Table of Contents +The 2014 peer group below was selected in September 2013 for the Committee’s +analysis and determination of 2014 compensation. +PEER COMPANY +PEER +COMPANY +FOR 2013 +FISCAL +YEAR +PEER +COMPANY +FOR 2014 +FISCAL +YEAR +Berry Petroleum Company (1) +x +x +Bill Barrett Corporation +x +x +Carrizo Oil & Gas, Inc. +x +x +Comstock Resources, Inc. +x +x +EXCO Resources, Inc. +x +x +Forest Oil Corporation (2) +x +x +Goodrich Petroleum Corporation +x +x +Gulfport Energy Corporation +x +Laredo Petroleum, Inc. +x +x +Magnum Hunter Resources Corporation +x +x +Penn Virginia Corporation +x +x +PetroQuest Energy, Inc. +x +x +Quicksilver Resources Inc. +x +x +Resolute Energy Corporation +x +x +Rosetta Resources, Inc. +x +x +Stone Energy Corporation +x +x +Swift Energy Company +x +x +(1) +Berry Petroleum Company was acquired by Linn Energy, LLC in December 2013. +(2) +Forest Oil Corporation merged with Sabine Oil and Gas Corporation in December 2014. +The Committee also uses several proprietary benchmarking surveys from a broader sample of comparably-sized oil and gas +companies for additional market perspective, including Effective Compensation, Incorporated’s “Oil and Gas Exploration and Production Industry Survey,” Meridian Compensation Partners LLC’s “North America Oil and +Gas Exploration and Production Survey” and survey data compiled by the Committee’s compensation consultant (described below). The Committee uses both the peer and survey benchmarking data to establish competitive base salaries, bonus +targets and target total direct compensation. The Committee also uses either the same or a similar peer group in measuring stock performance under the Company’s performance-based long-term incentive awards (see “Terms of 2014 Equity Award +Performance Shares” as described below). +Determining Target Total Direct Compensation +The Committee typically establishes target total direct compensation in the first quarter of each year for our Named Executive +Officers by establishing base salaries and setting annual and long-term incentive compensation targets. When appropriate, the Committee also approves special awards and modifies perquisites. In doing so, the Committee considers the following: +• +Market data for target total direct compensation (base salary, bonus targets and long-term incentives) for the peer group, based on disclosure in +peer company proxies, and other applicable industry survey data; +• +Individual performance and areas of responsibility relative to the market data; +• +Compensation relative to that of other executive officers of the Company; and +• +The CEO’s recommendations with respect to the compensation of each of the other Named Executive Officers. +47 +Table of Contents +The Committee’s view is that an executive’s target compensation should +reflect the current market value for that position provided the executive has performed well in the prior year. The Committee may adjust the mix of cash and long term incentives, but generally target total direct compensation is the market median +for that position taking into account the other factors listed above. In 2014, the Committee did, however, target the CEO’s compensation above the median due to his extensive experience, the Committee’s expectations of him during his +tenure and his success in meeting those expectations. +Annual and Long-Term Incentive Programs +The Committee annually reviews and approves program design, including performance metrics and target payout, and awards under the annual and +long-term incentive programs. These discussions, which usually begin with recommendations from management and involve deliberation among the Committee, management and the Committee’s compensation consultant, usually span numerous meetings +before a design is approved. With respect to equity programs, the Committee also considers the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares). For performance-based equity awards, the +Committee certifies at the end of the performance period the level at which the performance measures were satisfied and approves the amount of incentive award payable to each Named Executive Officer. +Historical Compensation Review +The Committee annually reviews “tally sheets” or summaries of each Named Executive Officer’s compensation +history, as well as all compensation payable upon his or her termination of employment and upon a change in control of the Company. These summaries, some of which are included in this Proxy Statement, include the following: +• +Three-year (or longer) history of base salary, annual incentive targets and awards, long-term incentive grants, payouts and perquisites; +• +Realized gains for the current year and potential gains on unexercised or unvested awards; and +• +The value of compensation and other severance benefits due to the Named Executive Officer under various termination scenarios, both before and +after a change in control of the Company. +In addition to reviewing the Company’s historical +compensation and comparing current compensation to that of its peers, the Committee annually reviews both realizable and earned pay over the past three years relative to the Company’s peers to help determine whether the Company’s +compensation program is compensating for performance as designed. The Committee looks at pay-for-performance based on the performance measures used by Institutional Shareholder Services (“ISS”) and Glass Lewis (although ISS and Glass Lewis +use a different peer group) as well as a group of performance measures relevant to the oil and gas industry. Those measures include production growth, revenue growth, operating cash flow growth, EBITDA/interest expense and total stockholder return. +The Committee considers the results of this analysis in making adjustments to the compensation program each year. +Role of the Compensation +Consultant +The Committee currently engages Towers Watson & Co as its compensation consultant (the +“Consultant”) to help ensure that our executive compensation programs are competitive and consistent with our compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +• +The Consultant’s historical performance in supporting the Committee and its familiarity with our executive compensation programs; +• +Experience of the Consultant in our sector; +• +Range of compensation services offered by the Consultant; and +• +Independence of the Consultant, considering the independence factors outlined by the SEC. +48 +Table of Contents +The Committee determines the scope of the Consultant’s engagement, which includes: +• +Providing input into peer group identification and assessment; +• +Providing benchmarking on executive and outside director compensation for the Committee to use in its decision-making process; +• +Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual +compensation actions, and other aspects of compensation (e.g., employment agreements, perquisites, etc.); +• +Reviewing and providing feedback on the compensation-related disclosures in our Proxy Statement; and +• +Informing the Committee about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +• +The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive Officer; +• +The Committee may request information or advice directly from the Consultant and may direct the Company to provide or solicit information from the +Consultant; +• +The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +• +The Consultant attends meetings of the Committee as requested. +The Committee reviews the engagement of the Consultant on an annual basis and as a part of that process reviews a summary of +all services provided by the Consultant and related costs. Except as set forth above, in 2014, the Consultant did not perform any other material services for the Company, did not have any business or personal relationships with the Committee members +or executive officers of the Company, did not own any stock of the Company and maintained policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the engagement of the Consultant in 2014 did +not create any conflicts of interest. +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in the Committee’s establishment of compensation levels for our other Named Executive +Officers on an annual basis. Important aspects of his role in the process are: +• +Assessing his own performance and the performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures under our annual incentive program; +• +Providing feedback on proposed peer group companies; +• +Recommending base salary levels, annual incentive targets, actual annual incentive awards and long-term incentive awards for the other Named +Executive Officers; and +• +Providing his assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual +incentive program. +Management also retains an individual as a consultant in our compensation process to +coordinate the preparation of certain materials for Committee meetings. This individual is retained by and reports to management, whereas the Consultant reports to the Committee. +49 +Table of Contents +At the Committee’s request, our Named Executive Officers may also assess the +design of or make recommendations related to our compensation and benefit programs. The Committee, with input from the Consultant, determines each element of the CEO’s compensation. With input from the Consultant and the CEO, the Committee +determines each element of compensation for the other Named Executive Officers. The CEO is not present during voting or deliberations concerning his own compensation. +2014 Compensation Decisions +Base Salary +Based on a review of the market data provided by the Consultant and outside survey data, we adjusted our Named +Executive Officers’ base salaries effective January 1, 2014 as follows: +NAMED EXECUTIVE OFFICER +2013 Base Salary +2014 Base Salary +James M. Trimble +$ +680,000 +$ +710,000 +Gysle R. Shellum +$ +350,000 +$ +365,000 +Barton R. Brookman* +$ +350,000 +$ +420,000 +Lance A. Lauck +$ +320,000 +$ +335,000 +Daniel W. Amidon +$ +300,000 +$ +315,000 +* +Mr. Brookman’s base salary was further increased from $420,000 to $500,000 in June 2014 to reflect his promotion to President and his +additional related duties. +In January 2015, in response to the decline in commodity prices, the +Committee froze base salaries on all of the Named Executive Officers with the exception of Mr. Brookman, who was promoted to CEO, and Mr. Lauck who was promoted to Executive Vice President. Mr. Brookman’s current annual base +salary is $625,000 and Mr. Lauck’s is $347,000. +Annual Cash Incentives +Each year, we approve a target annual cash incentive award for each Named Executive Officer. These target awards are expressed +as a percentage of base salary. Awards can range up to 200% of these targets based on the achievement of Company and individual goals. In January 2014, we set the target annual cash incentive award for the Named Executive Officers as follows: +NAMED EXECUTIVE OFFICER +TARGET ANNUAL CASH +INCENTIVE AS % OF BASE +SALARY +James M. Trimble +100 +% +Gysle R. Shellum +80 +% +Barton R. Brookman +90 +% +Lance A. Lauck +80 +% +Daniel W. Amidon +80 +% +No changes were made to bonus targets in 2015 with the exception of Mr. Lauck who was +increased to 85% coincident with his promotion to Executive Vice President, and Mr. Brookman who was increased to 100% coincident with his promotion to President and CEO. +Annual Incentive Program +Bonuses under the Company’s annual incentive program are primarily based on specific operational and financial metrics +established at the beginning of the year. However, the Committee also considers individual performance, stock price performance and other material items that occur throughout the year. To provide the Committee the flexibility to adjust for and react +to economic events such as dramatic changes in commodity +50 +Table of Contents +prices or volatile capital markets, we prefer not to rely solely on a formulaic approach based on pre-established thresholds that result in automatic payouts. Rather, the Committee always retains +discretion to adjust actual awards as it views appropriate given circumstances at the time of the award. +Throughout the +year, the Committee reviews the Company’s progress toward meeting the performance metrics for the year. Following the end of the fiscal year, the Committee determines annual incentive payments as follows: +• +An overall corporate performance rating is determined for the annual quantitative operational and financial metrics; 50% is based on operational +metrics and 50% is based on financial metrics; +• +The Committee may apply discretion in the final determination of the corporate performance rating (e.g., business conditions, stock price +performance, etc.); and +• +Individual awards are determined by multiplying the overall corporate performance rating by the individual’s annual incentive target and +multiplying the result by the individual’s base salary. The Committee may adjust individual awards downward or upward at the Committee’s discretion based on specific individual performance. Such adjustments are anticipated to have a +maximum range of +/-20%. +2014 Performance Metrics +In early 2014, we established specific targets for each of the following operational and financial metrics based on our 2014 +public financial guidance. See the specific targets under “2014 Performance Results.” +OPERATIONAL METRICS (50%)* +Production (Boe) +Actual production volume for the year. +Production, Exploration and G&A Expense per Boe +The sum of total production, exploration, general and +administrative expense and corporate general and administrative expense (G&A) divided by Bbl (mcf equivalent for gas and oil). +Reserve Replacement Ratio (three-year average) +The sum of 2012, 2013, and 2014 extensions and discoveries, +revisions in previous estimates and purchase of reserves, divided by the sum of 2012, 2013 and 2014 production. +FINANCIAL METRICS (50%)* +Adjusted Cash Flow per Share +Net income plus/minus change in operating assets and +liabilities per share. +Capital Efficiency (three-year) +Adjusted EBITDAX divided by production, divided by three +years’ average finding and development cost per unit. +* +Adjusted EBITDAX is calculated by taking our EBITDA minus exploration expenses. EBITDA and Adjusted Cash Flow are calculated as shown in our +quarterly investor relations material posted on our website at http://investor.pdce.com/presentations.cfm. The Company’s website materials are not incorporated by reference into this Proxy Statement. +The Committee also reviews stock price performance relative to the Company’s peers as part of the bonus process. Stock +price performance is not one of the annual metrics under the Annual Incentive Program since the Committee feels that the Named Executive Officers are compensated for this metric through the performance share program under the 2010 LTI Plan. However, +the Committee may consider relative stock price performance in determining the annual award level. +51 +Table of Contents +2014 Performance Results +Upon completion of the fiscal year, the Committee reviewed the Company’s performance relative to the quantitative +operational and financial measures described above. Results for 2014 were as follows: +CORPORATE PERFORMANCE METRIC +TARGET +ACTUAL +RESULTS +ADJUSTED +RESULTS +PERFORMANCE +Operational Metrics (50%) +Production (MMboe) +9.7 +9.3 +10.40 +(1) +Above Target +Production, Exploration and G&A Expense per Boe +$ +16.56 +$ +21.56 +$ +16.40 +(2)(3) +Above Target +Reserve Replacement Ratio (three-year average) +600 +% +690 +% +690 +% +Above Target +Financial Metrics (50%) +Adjusted Cash Flow per Share +$ +7.87 +$ +6.99 +$ +8.11 +(2)(4) +Above Target +Capital Efficiency (three-year) +300 +% +390 +% +350 +% (2)(5) +Above Target +(1) +Production volumes include 9 months of production from PDC Mountaineer, which was divested in October 2014. +(2) +Costs exclude approximately $40.3MM accrual for legacy partnership litigation fees and bankruptcy. +(3) +Includes 9 months of production and cost from PDC Mountaineer, which was divested in October 2014. +(4) +Determined utilizing 35.78 MM shares outstanding. +(5) +Capital Efficiency does not reflect the approximately $76.5MM gain on sale of PDC Mountaineer in October 2014. +There were two non-budgeted events in 2014 that resulted in adjustments by the Committee to the target metrics: +• +Marcellus assets (PDC Mountaineer) were sold in October 2014, affecting production volumes and costs for the year; and +• +Settled litigation around the sale and bankruptcy of 24 legacy partnerships. +These events are taken into account in calculating the Company’s Adjusted Results. In evaluating performance, the +Committee considered the following factors which impacted each corporate performance metric: +• +Production: Adjusted Results were above target due to better than expected well performance and initial well production timing along with increased +non-operated volumes; +• +Production, Exploration and G&A Expense per BOE: Adjusted Results were better than target because we were able to maintain our current cost +structure while growing our production; +• +Reserve Replacement Ratio (three-year average): Adjusted Results on a three-year basis were better than expected due to increased well density and +enhanced type curve adjustments; +• +Adjusted Cash Flow per Share: Adjusted Results were above target due to favorable production volumes slightly offset by higher G&A and +production taxes; and +• +Capital Efficiency (three-year): Three-year average was above target due to favorable finding and development costs and EBITDAX. +In evaluating the Company’s overall 2014 performance, the Committee considered the following accomplishments: +• +Company exceeded the operational and financial targets for the year based on the Adjusted Results; +• +50% production growth from the Wattenburg and Utica assets and the key technical improvements and related per well returns; +52 +Table of Contents +• +Marcellus asset sale, good timing (gas prices at that time compared to current gas prices) and asset price, positive liquidity impact and strategic +focusing of Company; +• +Strength of the balance sheet during the oil price decline; +• +Company’s top-tier hedging program, particularly for hedges entered into in 2014, related to 2016 production; +• +Settlement of litigation related to 24 legacy partnerships on satisfactory terms; and +• +Seamless CEO transition. +As a result of its consideration of the metrics and the Company’s other accomplishments, the Committee would typically +have awarded an above-target award for the year. However, due to the economic climate as a result of the uncertainty around oil and gas prices and at the recommendation of management, the Committee determined that an overall corporate performance +rating of 100% should be applied to each Named Executive Officer’s annual incentive award target. As the Committee felt that management achieved these results as a team, no individual performance adjustments were made to the awards. Actual +bonus amounts paid for 2014 performance are as follows: +NAMED EXECUTIVE OFFICER +2014 ANNUAL +BONUS +James M. Trimble +$ +710,000 +Gysle R. Shellum +$ +292,000 +Barton R. Brookman +$ +450,000 +Lance A. Lauck +$ +268,000 +Daniel W. Amidon +$ +252,000 +Long-Term Incentives +In 2014, to ensure that long-term incentives are aligned with the interests of our stockholders and our pay-for-performance +philosophy, the Committee granted the following combination of equity awards to the Named Executive Officers under the 2010 LTI Plan: +• +50% restricted shares that align the executive’s compensation directly with the Company’s stock price, encourage retention and increase +stock ownership in the Company; +• +25% SARs that align the executive’s compensation directly with the Company’s stock price as the stock price must increase for any value +to be realized by the executive; and +• +25% performance shares that align the executive’s compensation with PDC’s TSR relative to a group of our peers in the industry. The value +of performance shares is dependent on both stock price performance and our relative TSR performance over a three-year period. +Equity awards are typically made in the first quarter of the year. The Committee typically determines the dollar value of the +long-term incentives it wants to deliver to the executive to place total target compensation at the market level determined by the Committee. While the Committee considers long-term incentives as primarily forward-looking, the Committee may consider +the Company’s and Named Executive Officers’ performance in the prior year in determining the size of the awards. Once the target amount is determined, the Committee typically uses an average of the closing share price of the 15 trading +days ending ten days prior to the grant date to determine the number of shares to be granted. +In January 2014, the +Committee elected to deviate from the above practice of establishing a target dollar amount and awarded the same number of shares to each individual as was granted in 2013. The Committee determined that this one-time change in practice was +appropriate to recognize the leadership team for their execution of the Company’s strategic direction change in 2012 and 2013 and the resulting impact on the Company’s overall performance and stock price through the end of 2013. This +resulted in above market equity +53 +Table of Contents +grants in 2014. In January 2015, the Committee returned to its normal practice of establishing a target grant level based on the market, which generally resulted in lower value grants being made +in 2015 (with the exception of Mr. Brookman who was promoted to CEO). +The table below shows the number of shares and +corresponding accounting value granted to each Named Executive Officer in January 2014: +2014 LONG-TERM INCENTIVE GRANTS +NAME +RESTRICTED +STOCK +SARs +PERFORMANCE +SHARES +VALUE +James M. Trimble +49,284 +41,646 +19,880 +$ +4,821,298 +Gysle R. Shellum +14,935 +12,620 +6,025 +$ +1,461,065 +Barton R. Brookman +16,352 +13,790 +6,606 +$ +1,599,400 +Lance A. Lauck +11,948 +10,096 +4,820 +$ +1,168,851 +Daniel W. Amidon +11,948 +10,096 +4,820 +$ +1,168,851 +Grant date accounting values for the 2014 grants are reflected in the “Summary +Compensation Table” and “Grants of Plan-Based Awards.” +Terms of the 2014 Equity Awards +Performance Shares +Performance shares are denominated in units of PDC stock and payout in shares of Company stock based on the Company’s +relative TSR over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer group. The Committee believes that the peer group designated for measuring relative stock price performance may be different +from the peer group the Company is competing with for executive talent. However, the Committee generally uses the same companies whenever possible. In January 2014, the peer group selected by the Committee for measuring relative TSR is identical to +the compensation benchmarking group for 2014 with the exception of Berry Petroleum, which was acquired in December 2013. During 2014, Forest Oil completed a merger with Sabine Oil and Gas and therefore will be removed when the final determination is +made at the end of the performance period. +The 2014 performance shares measure the performance period from January 1, 2014 through +December 31, 2016, with payouts as follows: +COMPANY TSR RANKING AMONG PEERS +PAYOUT LEVELS +AS % OF AWARD +Top +200 +% +75th Percentile +150 +% +Median +100 +% +25th Percentile +50 +% +Below 25th Percentile +0 +% +• +If performance falls between the percentiles, payout levels are interpolated. +• +If the Company has negative TSR for the performance period, the maximum award is limited to 100%, regardless of relative performance. +• +Performance share units are forfeited if the executive voluntarily terminates or is terminated for cause prior to the vesting date. Payout under +other termination scenarios is described under “Impact of Termination and Change of Control on Long Term Incentive Plans.” +There were no significant changes in the performance share program from 2013 to 2014. +54 +Table of Contents +Restricted Stock +Restricted Stock awards, including the 2014 grants, typically have the following terms: +• +Awards vest ratably over three years to encourage retention; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. For a +description of what happens under other termination scenarios, see “Impact of Termination and Change of Control on Long Term Incentive Plans.” +Stock Appreciation Rights or SARs +SAR +awards, including the 2014 grants, have the following terms: +• +Awards vest ratably over three years to encourage retention; +• +Awards expire no later than ten years after grant date if not exercised earlier or forfeited; +• +The strike price for SARs is the price at which the executive can purchase a share of common stock of the Company and is equal to the NASDAQ +closing price of Company stock on the date of the grant; +• +SARs are settled in shares of common stock of the Company; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. For a +description of what happens under other termination scenarios, see “Impact of Termination and Change of Control on Long Term Incentive Plans.” +2015 Equity Grants +In +January 2015, the Committee returned to its normal practice of establishing a target grant level based on the market, which generally resulted in comparatively lower value grants being made in 2015. +Special Equity Grants +From time to time, the Committee approves special grants which typically take the form of restricted stock, although other +types of awards may be made when appropriate. Special grants are typically considered: +• +In connection with promotion where more stock exposure is desired; +• +To recognize extraordinary achievement; +• +When the survey data demonstrates a significant deviation from market total direct compensation for the comparator group; +• +When the Committee determines that special retention measures are necessary for a particular executive; or +• +As part of a new hire package for an executive. +No special grants were awarded in 2014. As part of the 2015 equity grants, Mr. Amidon received an incrementally higher +grant due to his superior performance in 2014, including his role in both critical litigation management and certain aspects of the Company’s risk management program. +Agreements with Named Executive Officers +Severance Plan and Employment Agreements with Named Executive Officers +The Committee believes that severance protection plays a valuable role in attracting, motivating and retaining highly talented +executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer’s departure. Severance provisions give the Company the flexibility to make decisions regarding +organizational issues with agreed-upon severance terms. In the event that the Company faces a change in control, severance benefits encourage executive officers to remain with the +55 +Table of Contents +Company during an important time when prospects for continued employment are often uncertain, and provide a measure of financial security to the executive officer. The Committee believes that the +severance amounts that may be paid upon a change in control of the Company ensure that the interests of the executive officers will be materially consistent with the interests of the Company’s stockholders and strike a proper balance between +the hiring, motivating and retention effects described above, without providing excessive benefits to executives. The Committee considers these protections to be an important part of an executive’s compensation and consistent with competitive +practices in the oil and gas industry. +The Company has adopted the PDC Energy Executive Severance and Compensation Plan +(the “Severance Plan”) to cover the CEO and any future senior executive officers of the Company. The Company grandfathered the existing employment agreements in effect with Messrs. Amidon, Shellum and Lauck. For a description of these +programs, see “Potential Payments Upon Termination or Change in Control.” +James M. Trimble Consulting Agreement +Mr. Trimble has been instrumental in the restructuring of PDC and its assets and in developing a successor CEO. In +recognition of Mr. Trimble’s accomplishments over his tenure as President and CEO and to ensure the successful transition of the CEO role, the Committee elected to retain Mr. Trimble as a consultant in 2015 following his retirement +pursuant to a Consulting Agreement entered into on June 18, 2014. Please see “Potential Payments Upon Termination or Change in Control — Trimble Retirement Compensation” below, for a description of Mr. Trimble’s +Consulting Agreement and the amounts payable thereunder. +Other Policies and Considerations +Tax and Accounting Considerations +The Committee considers the impact of the applicable tax and accounting laws with respect to compensation paid under the +Company’s plans, arrangements and agreements, including but not limited to Section 162(m), Section 409A, Section 280G and Section 4999 of the Internal Revenue Code (the “Code”). Currently, our compensation is +intended to comply with the Code as follows: +• +None of our severance arrangements or agreements provide for gross-ups for excise tax under Code Section 280G and Section 4999; +• +All of our programs are intended to be either exempt from or comply with Code Section 409A; and +• +Our intent is to qualify compensation paid to our top executives as performance-based compensation under Code Section 162(m) where +practicable. While currently our SARs and performance shares granted under the 2010 Equity Plan are intended to meet the requirements of Code Section 162(m), our restricted shares and annual bonus plan are not. However, the Committee maintains +the discretion to approve compensation that may not qualify for the compensation deduction under Code Section 162(m) if, in light of all applicable circumstances, the Committee believes that it would be in its best interests to pay such +compensation. +Clawback Policy +The Named Executive Officers are currently covered under either a clawback policy or have a clawback provision in their +grandfathered employment contracts. Currently, the clawback policy and provision are identical and require the executive to reimburse all or a portion of his annual bonus if the Company must restate all or a portion of its financial statements due +to material noncompliance by the Company with any financial reporting requirement under securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected years and the bonus that would have been +paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in statutes or regulations and are subject to revision based on the eventual SEC clawback +guidance under Section 954 of the Dodd-Frank Act. +56 +Table of Contents +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary ($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options /SAR +Awards (3) +($) +All Other +Compensation (4) +($) +Total +Compensation +($) +James M. Trimble +2014 +710,000 +710,000 +3,573,583 +1,247,714 +57,673 +6,298,970 +CEO and President +2013 +680,000 +920,000 +2,807,294 +914,546 +56,184 +5,378,024 +2012 +650,000 +815,000 +1,700,880 +580,408 +54,444 +3,800,732 +Gysle R. Shellum +2014 +365,000 +292,000 +1,082,970 +378,095 +55,470 +2,173,535 +CFO +2013 +350,000 +355,000 +850,749 +277,135 +52,710 +1,885,594 +2012 +325,000 +305,000 +503,983 +171,979 +50,573 +1,356,535 +Barton R. Brookman +2014 +466,667 +450,000 +1,186,252 +413,148 +60,053 +2,576,120 +Executive Vice President and Chief Operating Officer (5) +2013 +378,300 +416,000 +850,749 +277,135 +56,693 +1,978,877 +2012 +325,000 +305,000 +503,983 +171,979 +50,218 +1,356,180 +Lance A. Lauck +2014 +335,000 +268,000 +866,376 +302,476 +50,159 +1,822,011 +Senior Vice President +2013 +320,000 +324,000 +680,600 +221,708 +51,012 +1,597,320 +Corporate Development +2012 +300,000 +282,000 +409,486 +139,735 +48,146 +1,179,367 +Daniel W. Amidon +2014 +315,000 +252,000 +866,376 +302,476 +59,921 +1,795,773 +Senior Vice President +2013 +300,000 +304,000 +680,600 +221,708 +53,414 +1,559,722 +General Counsel and Secretary +2012 +285,000 +250,000 +409,486 +139,735 +50,384 +1,134,605 +(1) +Represents the amounts paid under the Company’s annual incentive bonus plan. The 2014 awards are described in “Annual Cash Incentives +— 2014 Performance Results.” +(2) +Represents the grant date fair value of stock-based compensation awards, which include the following: +(a) +Time-based restricted stock awards; and +(b) +Performance-based stock awards. +The 2014 grants are detailed in the “2014 Grants of Plan-Based Awards” table. Terms of the awards and descriptions of +the performance-based awards can be found in “Terms of 2014 Equity Awards.” In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the stock awards, calculated in accordance +with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the +Company’s financial statements, as set forth in Note 12 to Form 10-K filed with the SEC on February 19, 2015. +(3) +Represents the grant date fair value of SARs granted in each year. The 2014 grants are detailed in the “2014 Grants of Plan-Based Awards” +table. Additional information can be found in “Compensation Discussion and Analysis — 2014 Compensation Decisions” In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of +the SAR awards calculated in accordance with FASB ASC Topic 718 disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of +SAR awards for purposes of the Company’s financial statements, as set forth in Note 12 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 19, 2015. +(4) +Amounts shown in this column for 2014 are detailed below in “2014 All Other Compensation.” +(5) +Mr. Brookman’s base salary for 2014 reflects an increase in his base salary in June 2014 upon his promotion to include the additional +duties as President. Mr. Brookman’s base salary for 2013 reflects an increase in his base salary in June 2013 upon his promotion to Executive Vice President and Chief Operating Officer. +57 +Table of Contents +2014 ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annual Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Tax +Gross-Up (4) +($) +Total +All Other +Compensation +($) +James M. Trimble +2014 +23,000 +8,420 +25,604 +649 +57,673 +Gysle R. Shellum +2014 +23,000 +8,420 +22,089 +1,961 +55,470 +Barton R. Brookman +2014 +23,000 +8,420 +26,559 +2,074 +60,053 +Lance A. Lauck +2014 +23,000 +8,420 +17,898 +841 +50,159 +Daniel W. Amidon +2014 +23,000 +8,420 +24,800 +3,701 +59,921 +(1) +Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) +Represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) +Represents total value of perquisites provided by the Company. No individual perquisite exceeded $25,000. Types of perquisites included are +primarily monthly automobile allowances, health club dues and spouse or family travel. +(4) +Includes Board-approved “tax gross-up” for any spouse or family member travel that was requested by the Company and approved by the +Board. +58 +Table of Contents +2014 GRANTS OF PLAN-BASED AWARDS +All Other +Stock +Awards: +Number of +Shares +of Stock (3) +All +Other +Option +Awards: +Number of +Securities +Underlying +Options (4) +Exercise +or Base +Price of +Option +Awards +Grant Date +Fair Value of +Stock and +Option +Awards +Estimated Future Payouts Under +Non-Equity Incentive Plan +Awards (1) +Estimated Future Payouts +Under Equity Incentive Plan +Awards (2) +Threshold +Target +Maximum +Threshold +Target +Maximum +Name +Grant Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +James M. Trimble +1/1/2014 +— +710,000 +1,420,000 +— +— +— +— +— +— +— +1/16/2014 +— +— +— +9,940 +19,880 +39,760 +— +— +— +1,130,576 +(7) +1/16/2014 +— +— +— +— +— +— +— +41,646 +49.57 +1,247,714 +(5)(8) +1/16/2014 +— +— +— +— +— +— +49,284 +— +— +2,443,008 +(5)(6) +Gysle R. Shellum +1/1/2014 +— +292,000 +584,000 +— +— +— +— +— +— +— +1/16/2014 +— +— +— +3,013 +6,025 +12,050 +— +— +— +342,642 +(7) +1/16/2014 +— +— +— +— +— +— +— +12,620 +49.57 +378,095 +(5)(8) +1/16/2014 +— +— +— +— +— +— +14,935 +— +— +740,328 +(5)(6) +Barton R. Brookman +6/1/2014 +— +450,000 +900,000 +— +— +— +— +— +— +— +1/16/2014 +— +— +— +3,303 +6,606 +13,212 +— +— +— +375,683 +(7) +1/16/2014 +— +— +— +— +— +— +— +13,790 +49.57 +413,148 +(5)(8) +1/16/2014 +— +— +— +— +— +— +16,352 +— +— +810,569 +(5)(6) +Lance A. Lauck +1/1/2014 +— +268,000 +536,000 +— +— +— +— +— +— +— +1/16/2014 +— +— +— +2,410 +4,820 +9,640 +— +— +— +274,113 +(7) +1/16/2014 +— +— +— +— +— +— +— +10,096 +49.57 +302,476 +(5)(8) +1/16/2014 +— +— +— +— +— +— +11,948 +— +— +592,262 +(5)(6) +Daniel W. Amidon +1/1/2014 +— +252,000 +504,000 +— +— +— +— +— +— +— +1/16/2014 +— +— +— +2,410 +4,820 +9,640 +— +— +— +274,113 +(7) +1/16/2014 +— +— +— +— +— +— +— +10,096 +49.57 +302,476 +(5)(8) +1/16/2014 +— +— +— +— +— +— +11,948 +— +— +592,262 +(5)(6) +(1) +Represents target and maximum cash awards payable under the Company’s annual incentive plan. For a description of the 2014 awards, see +“Annual Incentive Program.” Mr. Brookman’s target bonus incentive was $378,000 effective January 1, 2014 and increased to $450,000 with his promotion June 1, 2014 to President and COO. This column reflects his target +and maximum award after his promotion. +(2) +Represents performance share unit awards under the 2010 LTI Plan. For a description of the awards see “Terms of the 2014 Equity Awards — +Performance Shares.” +(3) +Represents annual time-based restricted stock unit awards under the 2010 LTI Plan. For a description of the 2014 awards, see “Terms of the 2014 +Equity Awards — Restricted Stock.” +(4) +Represents SARs awarded under the Company’s 2010 LTI Plan. For a description of the 2014 awards, see “Terms of the 2014 Equity Awards +— Stock appreciation Rights or SARs.” +(5) +These grants vest ratably over three years. +(6) +Grant date fair value for restricted stock units is computed by multiplying the number of shares awarded by the closing price of the Company’s +common stock, as reported on the NASDAQ Global Select Market on the date of grant. The closing price was $49.57 on January 16, 2014. +(7) +Grant date fair value is computed by multiplying the number of performance shares units awarded by the grant date fair value as computed utilizing +the Monte Carlo pricing model, which was $56.87 per share. +(8) +Grant date fair value for SARs is computed by multiplying the number of SARs awarded by the grant date fair value as computed utilizing the +Black-Scholes pricing model, which was $29.96 per SAR. +59 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2014 FISCAL YEAR-END +Options/SARs Awards +Stock Awards +Option/ +SAR +Expiration +Date +Number +of Shares +of Stock +That Have +Not +Vested (3) +(#) +Market +Value +of Shares of +Stock That +Have Not +Vested (4) +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares That +Have +Not +Vested (5) +(#) +Equity +Incentive +Plan Awards: +Market +Value +of Unearned +Shares That +Have Not +Vested (4) +($) +Number of Securities +Underlying Unexercised +Options/SARs Held at +December 31, 2014 +Option/ +SAR +Exercise +Price +($) +Name +Exercisable (1) +(#) +Unexercisable (2) +(#) +James M. Trimble +21,972 +10,987 +30.19 +1/16/2022 +78,551 +3,241,800 +39,760 +1,640,895 +13,882 +27,764 +37.18 +1/16/2023 +— +— +— +— +13,882 +27,764 +49.57 +1/16/2024 +— +— +— +— +Gysle R. Shellum +1,702 +— +43.95 +3/12/2021 +26,519 +1,094,439 +12,050 +497,303 +3,255 +3,256 +30.19 +1/16/2022 +— +— +— +— +4,206 +8,414 +37.18 +1/16/2023 +— +— +— +— +4,206 +8,414 +49.57 +1/16/2024 +— +— +— +— +Barton R. Brookman +8,295 +— +24.44 +4/19/2020 +24,664 +1,017,883 +12,631 +521,281 +5,104 +— +43.95 +3/12/2021 +— +— +— +— +6,510 +3,256 +30.19 +1/16/2022 +— +— +— +— +4,206 +8,414 +37.18 +1/16/2023 +— +— +— +— +4,596 +9,194 +49.57 +1/16/2024 +— +— +— +— +Lance A. Lauck +7,319 +— +24.44 +4/19/2020 +19,023 +785,079 +9,640 +397,843 +4,176 +— +43.95 +3/12/2021 +— +— +— +— +5,290 +2,645 +30.19 +1/16/2022 +— +— +— +— +3,365 +6,731 +37.18 +1/16/2023 +— +— +— +— +3,365 +6,731 +49.57 +1/16/2024 +— +— +— +— +Daniel W. Amidon +7,807 +— +24.44 +4/19/2020 +19,023 +785,079 +9,640 +397,843 +4,176 +— +43.95 +3/12/2021 +— +— +— +— +5,290 +2,645 +30.19 +1/16/2022 +— +— +— +— +3,365 +6,731 +37.18 +1/16/2023 +— +— +— +— +3,365 +6,731 +49.57 +1/16/2024 +— +— +— +— +(1) +SARs exercisable as of December 31, 2014. +(2) +SARs granted in 2012, 2013 and 2014 vest ratably over three years. The exercise price related to the SARs does not represent capital payable to the +Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(3) +The restricted stock in this column vests as follows: +Shares Vesting Per Year +2015 +2016 +2017 +Total +James M. Trimble +45,695 +16,428 +16,428 +78,551 +Gysle R. Shellum +15,161 +6,379 +4,979 +26,519 +Barton R. Brookman +14,234 +4,979 +5,451 +24,664 +Lance A. Lauck +11,057 +3,983 +3,983 +19,023 +Daniel W. Amidon +11,057 +3,983 +3,983 +19,023 +(4) +The market value of these shares is based on the closing price of the Company’s common stock of $41.27, as reported on NASDAQ Global Select +Market on December 31, 2014. +(5) +Performance shares granted in 2013 and 2014 to be issued contingent upon the achievement of certain specified stock performance goals. The +performance share grant in 2013 covers the three-year period +60 +Table of Contents +January 1, 2013 through December 31, 2015. The provisions of the 2013 grant are identical to those of the 2014 grant except for the peer group used to measure relative TSR over the +performance period. The 16 companies used in the 2013 grant as peers were: Berry Petroleum Company, Bill Barrett Corporation, Carrizo Oil & Gas, Inc., Comstock Resources, Inc., EXCO Resources, Inc., Forest Oil Corporation, Goodrich +Petroleum Corporation, Laredo Petroleum, Inc., Magnum Hunter Resources Corp., Penn Virginia Corporation, PetroQuest Energy, Inc., Quicksilver Resources Inc., Resolute Energy Corporation, Rosetta Resources, Inc., Stone Energy Corporation, and Swift +Energy Company. For a description of the performance share grants in 2014, see “Terms of the 2014 Equity Grants — Performance Shares.” +2014 OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value +Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting (1) +(#) +Value +Realized +on Vesting (2) +($) +James M. Trimble +— +— +79,794 +3,968,055 +Gysle R. Shellum +— +— +21,478 +1,020,248 +Barton R. Brookman +— +— +20,550 +956,511 +Lance A. Lauck +— +— +16,201 +756,411 +Daniel W. Amidon +— +— +16,201 +756,411 +(1) +Number of shares includes restricted stock and performance shares vesting in 2014 (as described below) and are reflected in the chart below. +Name +Restricted +Performance +Total +James M. Trimble +65,069 +14,725 +79,794 +Gysle R. Shellum +17,115 +4,363 +21,478 +Barton R. Brookman +16,187 +4,363 +20,550 +Lance A. Lauck +12,656 +3,545 +16,201 +Daniel W. Amidon +12,656 +3,545 +16,201 +(2) +Value of the restricted shares and performance shares that vested in 2014 is determined by multiplying the number of shares vesting by the market +value of the shares on the vesting date. The 2012 performance shares were issued on January 13, 2015 at a price of $39.63 per share. +61 +Table of Contents +(3) +The performance share grant in 2012 covered the three-year period January 1, 2012 through December 31, 2014. Based on the Company’s +excellent TSR performance over this three-year period, the Company ranked third among the peers, resulting in 167% of the target award payout to each Named Executive Officer. The provisions of the 2012 grant are identical to those of the 2014 grant +(see “Terms of the 2014 Equity Grants — Performance Shares”) except for the peer group used to measure relative TSR. There were originally 15 peer companies, of which three were no longer publicly traded at the end of the performance +period under their current ticker symbol. The chart below shows the peer companies, their TSR performance and relative rankings at the end of the period. +Ranking +Company +3-Year TSR +1 +Carrizo Oil & Gas, Inc. +41% +2 +Penn Virginia Corporation +7% +3 +PDC Energy, Inc. +6% +4 +Stone Energy Corporation +(38)% +5 +PetroQuest Energy, Inc. +(44)% +6 +Rosetta Resources, Inc. +(52)% +7 +Comstock Resources, Inc. +(56)% +8 +Goodrich Petroleum Corporation +(69)% +9 +Bill Barrett Corporation +(72)% +10 +EXCO Resources, Inc. +(72)% +11 +Swift Energy Company +(87)% +12 +Resolute Energy Corporation +(89)% +13 +Quicksilver Resources Inc. +(96)% +* +Venoco, Inc. +NA +* +Berry Petroleum Company +NA +* +Forest Oil Corporation +NA +* +Venoco, Inc. went private in October 2012; Berry Petroleum Company was acquired by Linn Energy in December 2013 and Forest Oil Corporation merged +with Sabine Oil and Gas and ceased trading under the Forest ticker symbol. +62 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +In 2012, the Company adopted the Severance Plan for the benefit of Mr. Trimble and future senior executives of the +Company but grandfathered the employment agreements in effect with Messrs. Shellum, Brookman, Lauck and Amidon. As of December 31, 2014, each of these individuals remained covered under their grandfathered employment agreements. +Mr. Trimble remained covered under the Severance Plan until the execution of his Consulting Agreement on June 18, 2014. For a description of the Consulting Agreement and the benefits provided thereunder upon Mr. Trimble’s +resignation as CEO on December 31, 2014 and subsequent retirement from the Company, please see “Trimble Retirement Compensation,” below. +The primary purpose of the Severance Plan and similar provisions of the employment agreements is to provide severance benefits +in the event of the termination of the Named Executive Officer by the Company without “just cause” or termination by the Named Executive Officer for “good reason,” either prior to or following a change in control of the Company. +Upon a change in control, the Severance Plan and individual employment agreements provide benefits only in the event that an executive is terminated by the acquiring company “without cause” or by the executive for “good reason” +(i.e., they are “double-trigger” in nature). +The severance benefits an executive would receive under the +Severance Plan under various termination scenarios are as follows: +• +Termination by the Company without “just cause” or termination by the executive for “good reason”: +• +Tier One executive receives two times the sum of his or her base salary and target bonus for the year; +• +Tier Two executives would receive one and one-half times the sum of his or her base salary and target bonus for the year; and +• +Continuation of health benefits for up to 18 months. +• +Termination related to a change in control of the Company: +• +Tier One executives would receive three times the sum of his or her base salary and target bonus for the year; +• +Tier Two executives would receive two and one-half times the sum of his or her base salary and target bonus for the year; +• +Executive would receive a pro-rata bonus at the target amount for the year at the time of termination; and +• +Continuation of health benefits for up to 18 months. +The Severance Plan provides a benefit “offset” so that cash benefits paid upon severance would be reduced by any +other severance benefits that the executive is entitled to receive under a Company (or successor company) plan. The following table summarizes the cash payout under certain termination scenarios for each Named Executive Officer (other than +Mr. Trimble) as of December 31, 2014: +TERMINATION WITHOUT +CAUSE OR FOR GOOD +REASON +TERMINATION DUE TO +CHANGE IN CONTROL +CONTROLLING PLAN +OR AGREEMENT +Gysle R. Shellum +2x base plus bonus* +3x base plus bonus* +Employment +Agreement +Barton R. Brookman +2x base plus bonus* +(2x base plus target bonus beginning 2015) +3x base plus bonus* +(3x base plus target bonus plus pro-rata bonus for the year of termination beginning 2015) +Employment Agreement (Severance Plan beginning 2015) +Lance A. Lauck +2x base plus bonus* +3x base plus bonus* +Employment Agreement +Daniel W. Amidon +3x base plus bonus* +3x base plus bonus* +Employment Agreement +* +Highest bonus of last two years +63 +Table of Contents +The “Potential Payments Upon Termination or Change in Control” table +outlines any additional benefits that may be paid in the event of any termination, including termination for cause, death or disability, under either the Severance Plan or the individual’s employment agreement. +As a condition of receiving severance benefits under the Severance Plan and under the terms of the grandfathered employment +agreements, there is a non-disclosure covenant and the executive officer is prohibited for a period of one year following his termination from engaging in any competing business within any county or in any adjacent county in which the Company is +doing business. In addition, the executive is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a change in +control of the Company, the Severance Plan pays the severance benefits over 12 months. +The grandfathered employment +agreements contain a clawback provision, while the executives covered under the Severance Plan are covered under the Company’s clawback policy (see “Clawback Policy”). The grandfathered employment agreements automatically extend for +12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal. However, each executive officer with an employment agreement serves at the +discretion of the Board, as the agreements allow for termination at any time with 30 days’ written notice. +Impact of Termination and Change in +Control on Long-Term Incentive Plans +Under the terms of the 2010 LTI Plan and related grant agreements and +employment agreements, all unvested restricted stock, stock options and SARs vest upon death, disability or change in control. The following table outlines the effect on outstanding unvested LTI awards under various termination scenarios and upon a +change in control of the Company based on the terms of the 2010 LTI Plan and related grant agreements and the executive employment agreements: +TERMINATION SCENARIO/ +CHANGE IN CONTROL +RESTRICTED +STOCK/SARs/ +OPTIONS +PERFORMANCE SHARES +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without +Cause or Executive for Good Reason Prior to Change in Control +Vests +Executives with Grandfathered Employment Agreements: +Forfeited +Executives in Severance Plan: +2013 and 2014 grants : Forfeited +2015 grants : Portion to be earned at end of performance period determined at time of termination at the sole discretion of the +Committee. +Death +Vests +Earned pro-rata based on performance through either date of death or end of performance +period. +Disability +Vests +Earned pro-rata based on +performance at end of performance period. +Occurrence of a Change in Control +Vests +If less than 50% of the performance period has elapsed, +earns 100% of performance shares. If 50% or more of the performance period has elapsed, earns greater of actual performance through change in control or 100% of performance shares. +64 +Table of Contents +Change in Control Excise Tax Provision +The Company currently provides no income tax gross-up or excise tax gross-up pursuant to taxes that may be imposed on +“excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and the grandfathered employment agreements provide that if it is determined that any payment or distribution by the +Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce +the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction +for such excess parachute payments under alternative (1) above, the Committee believes the cost to the Company would be minimal as a percentage of the entire value of the change of control transaction. +Trimble Retirement Compensation +As discussed above, Mr. Trimble resigned as CEO effective December 31, 2014 and retired from the Company effective +January 19, 2015. Following his retirement Mr. Trimble will continue on the Board of Directors, a role he was in when he agreed to serve as CEO in June 2011, and will begin to earn non-employee director compensation upon his retirement +from the Company. Pursuant to the terms of his Consulting Agreement, he will also perform certain consulting services for the Company in 2015, and is eligible to earn consulting fees of $350,000 per calendar quarter ($1,500,000 in the aggregate for +calendar year 2015) plus reimbursement for any expenses associated with providing such services, along with continuation of health benefits (or substantially similar benefits) for him and his spouse for up to 18 months, at an estimated cost to the +Company of approximately $1,250 per month. +In addition, per the terms of his 2013 and 2014 agreements under the 2010 LTI +Plan, service on the Board is considered “continuous service.” As a result, Mr. Trimble’s restricted stock and SARs will continue to vest under their normal vesting schedule while he remains on the Board. His unvested performance +shares will be earned at the end of the performance period based on company performance for the performance period. In the event Mr. Trimble is terminated by the Board or is not re-elected to the Board at the time of his election, any unvested +restricted shares and SARs would vest upon such termination in service, and his performance shares would not be earned until the end of the applicable performance period based on actual performance for the performance period. +As part of his retirement arrangement, Mr. Trimble executed a release agreement with the Company and is subject to a +two-year non-compete and non-solicitation covenant. +Termination Benefits Table +The table below and the discussion that follows show the maximum compensation payable to each Named Executive Officer (other +than Mr. Trimble) upon death, permanent disability, change in control of the Company or other termination under the Severance Plan, each Named Executive Officer’s employment agreement and/or the equity compensation plans. The amounts shown +assume that termination occurred on December 31, 2014, that the closing price per share on such date was $41.27, and, in the event of termination due to change in control, the executive’s benefit is not reduced as a result of +Section 280G and Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. +65 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +By Company Without Cause +or By Executive for Good Reason +Name/Element of Compensation +Voluntary +by +Executive +Prior to +Change in +Control +Following +Change in +Control (1) +For +Cause +Death +Disability +Gysle R. Shellum +Cash Compensation +Earned but unpaid compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,314,000 +1,971,000 +273,750 +182,500 +273,750 +Acceleration of unvested equity +Restricted Stock (4) +— +1,094,439 +1,094,439 +— +1,094,439 +1,094,439 +SARs (5) +— +70,490 +70,490 +— +70,490 +70,490 +Performance Shares (6) +— +— +673,857 +— +366,942 +366,942 +Earned Profit Sharing / Deferred Compensation (7) +8,420 +8,420 +8,420 +8,420 +8,420 +8,420 +Health Benefit — Continuation (8) +— +31,734 +31,734 +— +— +— +Total +$ +8,420 +$ +2,519,083 +$ +3,849,940 +$ +282,170 +$ +1,722,791 +$ +1,814,041 +Barton R. Brookman +Cash Compensation +Earned but unpaid compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,832,000 +2,748,000 +450,000 +250,000 +375,000 +Acceleration of unvested equity +Restricted Stock (4) +— +1,017,883 +1,017,883 +— +1,017,883 +1,017,883 +SARs (5) +— +70,490 +70,490 +— +70,490 +70,490 +Performance Shares (6) +— +— +697,834 +— +374,855 +374,855 +Earned Profit Sharing / Deferred Compensation (7) +8,420 +8,420 +8,420 +8,420 +8,420 +8,420 +Health Benefit — Continuation (8) +— +31,734 +31,734 +— +— +— +Total +$ +8,420 +$ +2,960,527 +$ +4,574,361 +$ +458,420 +$ +1,721,648 +$ +1,846,648 +Lance A. Lauck +Cash Compensation +Earned but unpaid compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +— +1,318,000 +1,977,000 +251,250 +167,500 +251,250 +Acceleration of unvested equity +Restricted Stock (4) +— +785,079 +785,079 +— +785,079 +785,079 +SARs (5) +— +56,836 +56,836 +— +56,836 +56,836 +Performance Shares (6) +— +— +539,069 +— +293,543 +293,543 +Earned Profit Sharing / Deferred Compensation (7) +8,420 +8,420 +8,420 +8,420 +8,420 +8,420 +Health Benefit — Continuation (8) +— +31,734 +31,734 +— +— +— +Total +$ +8,420 +$ +2,200,069 +$ +3,398,138 +$ +259,670 +$ +1,311,378 +$ +1,395,128 +Daniel W. Amidon +Cash Compensation +Earned but unpaid compensation (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Severance / Salary Continuation (3) +236,250 +1,857,000 +1,857,000 +— +393,750 +472,500 +Acceleration of unvested equity +Restricted Stock (4) +— +785,079 +785,079 +— +785,079 +785,079 +SARs (5) +— +56,836 +56,836 +— +56,836 +56,836 +Performance Shares (6) +— +— +539,069 +— +293,543 +293,543 +Earned Profit Sharing / Deferred Compensation (7) +8,420 +8,420 +8,420 +8,420 +8,420 +8,420 +Health Benefit — Continuation (8) +— +23,116 +23,116 +— +— +— +Total +$ +244,670 +$ +2,730,451 +$ +3,269,520 +$ +8,420 +$ +1,537,628 +$ +1,616,378 +(1) +A benefit is only payable if, within two years following a change in control, the executive is terminated by the Company or its successor +“without cause” or the executive terminates for “good reason” (“double trigger”) as defined in either his employment agreement or the Severance Plan, whichever is applicable. The Company currently provides for no tax +gross-ups with respect to “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. +66 +Table of Contents +(2) +There are no amounts shown for “earned but unpaid compensation” for 2014. However, the Committee in its sole discretion could award a +bonus for 2014 performance. This amount is not known on December 31 since it is typically not determined until the following February. The cash bonus amounts paid in 2015 for 2014 performance are reflected in the “Summary Compensation +Table” as 2014 compensation. +(3) +In determining severance amounts for each Named Executive Officer, the following factors were considered: +(a) +The amount of severance upon termination “By Company Without Cause or By Executive for Good Reason” for Messrs. Shellum, Brookman, Lauck +and Amidon is determined using the 2013 bonus paid, pursuant to their respective employment agreements. (Mr. Amidon receives the greater of his 2013 bonus paid in 2014 or his 2014 bonus earned but not yet paid; however, as of December 31, this +amount had not yet been determined); +(b) +The amount of severance shown for Messrs. Shellum, Brookman and Lauck upon termination for “cause” and for Mr. Amidon upon voluntary +termination is a pro-rata bonus for the year pursuant to their respective employment agreements. For purposes of this table, the pro-rata bonus was assumed to be the target bonus, since the 2014 bonus had not yet been determined. Upon termination, +the Committee would determine bonuses based on the Company’s actual performance; +(c) +Under the terms of their respective employment agreements, Messrs. Shellum, Brookman, Lauck and Amidon would receive up to 13 weeks’ salary +continuation in the event of short-term disability and a lump sum payment equal to six months’ base salary upon qualifying for long-term disability. Mr. Amidon would also receive a pro-rata bonus for the year, if he terminates after +March 31 of the year, which is included in the severance amount shown. For purposes of this table, the bonus was assumed to be the target bonus amount for 2014, since the 2014 bonus had not yet been determined. The Committee would determine +each executive’s bonus based upon the Company’s actual performance; and +(d) +In the event of death, Messrs. Shellum, Brookman, Lauck and Amidon would receive a lump sum cash payment equal to six months’ base salary +pursuant to their respective employment agreements. In addition, Messrs. Trimble and Amidon would be entitled to receive a pro-rata bonus for the year which is included in the severance shown. For purposes of this table, the bonus was assumed to be +the target bonus since the 2014 bonus had not yet been determined. Upon death, the Committee would determine bonuses based on the Company’s actual performance. +(4) +The 2010 LTI Plan or the specific award letter agreements and the grandfathered employment agreements provide for full accelerated vesting of all +restricted stock units upon a change in control of the Company, death or disability. In addition, all unvested shares of restricted stock would vest upon all termination events except voluntary termination and termination for “cause.” +Board of Director service is “continued service” for outstanding awards under the Plan. For the unvested shares of restricted stock subject to accelerated vesting, see “Outstanding Equity Awards at 2014 Fiscal Year-End.” +(5) +The 2010 LTI Plan or the specific award letter agreements and the grandfathered employment agreements provide for full accelerated vesting of all +SARs upon a change in control of the Company, death or disability. In addition, all unvested SARs would vest upon all termination events except voluntary termination and termination for “cause.” The value of the SARs shown is calculated +using the closing price of the Company’s shares on December 31, 2014, less the exercise price of the SARs determined on the grant date. For the unvested SARs that would have accelerated vesting, see “Outstanding Equity Awards at 2014 +Fiscal Year-End.” +(6) +For purposes of this illustration, based on performance through December 31, 2014, the percentage of target earned for the 2013 performance +share units is 171% and the percentage of target earned for the 2014 performance shares is 100%. The 2012 performance shares were earned as of December 31, 2014 and are included in the “2014 Options Exercises and Shares Vested” table. +Using these target earned percentages, the performance shares would vest as follows: +(a) +Performance shares would be forfeited except in the case of disability, death or a change in control of the Company; +(b) +In the case of disability, in accordance with the performance share agreements, one-third of the 2014 and two-thirds of the 2013 performance shares +would be earned. Although payment would not occur until the end of the performance period, for purposes of this illustration, the price is assumed to be the price on December 31, 2014. The value shown is determined by using the target number of +share units awarded times the percentage of target earned as of December 31, 2014 (as shown above) times the pro-rata amount earned for the performance period (based upon completed months of the performance period divided by total months of the +performance period) times the stock price on December 31, 2014; +(c) +In the case of death, in accordance with the performance share agreements, one-third of the 2014 and two-thirds of the 2013 performance share would +be earned. Assuming death had occurred on December 31, 2014, which is during the first two years of the performance period, the amount earned would be based upon the performance results through December 31, 2014. The value shown is +determined by using the target number of share units awarded times the percentage of target earned as of December 31, 2014 (as shown above) times the pro-rata amount earned for the performance period (based upon completed months of the +performance period divided by total months of the performance period) times the stock price on December 31, 2014; and +67 +Table of Contents +(d) +In the event of a change in control of the Company, the value shown is determined by using the target number of share units awarded times the +percentage of target earned as of December 31, 2014 (as shown above) times the stock price on December 31, 2014, except as follows per the terms of the 2010 LTI Plan agreements: +i. +The percentage of target earned for the 2014 performance shares is 100%, since 50% of the performance period had not expired; and +ii. +The percentage of target earned for the 2013 performance shares is based upon the Company’s performance through December 31, 2014 (as +shown above) since performance exceeded 100%. +(7) +Amount for each executive includes a profit sharing contribution of $8,420 for 2014 that was remitted to each executive’s 401(k) account in +March 2015. +(8) +Amount represents the Company-subsidized COBRA premium cost to continue health, vision and dental coverage to the executive and any covered +dependents for an 18-month period. +68 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are +authorized for issuance as of December 31, 2014: +Plan Category +Number of +Securities to be +Issued Upon Exercise of +Outstanding Options +and +Rights (1) +(#) +Weighted-Average +Exercise Price of +Outstanding Options +and +Rights +($) +Number of +Securities Remaining +Available +for +Future Issuance +Under Equity +Compensation Plans (2) +(#) +Equity compensation plans approved by +security holders +366,255 +38.85 +1,401,953 +Equity compensation plans not approved by security holders +— +— +— +Total +366,255 +38.85 +1,401,953 +(1) +Includes 83,721 shares of common stock to be issued based upon continuous employment and the maximum achievement of certain performance goals over +a specified period of time as described in “Outstanding Equity Awards at 2014 Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) +The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of +outstanding options, SARs and restricted shares subject to time vesting and certain market-based performance goals over a specified period of time. +STOCKHOLDER NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2016 Annual Meeting +Any proposal that a stockholder wishes to include in the Company’s Proxy Statement for the 2016 annual meeting of +stockholders must be received by the Company at its principal office on or prior to December 22, 2015, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice +Procedures Under the Company’s By-Laws +Any proposal or nomination for Director that a stockholder wishes to +propose for consideration at the 2016 annual meeting of stockholders, but does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.14(b) of the Company’s By-Laws, which +provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote +who has delivered advance notice to the Company. The notice must contain certain information specified in the By-Laws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the +first anniversary of the preceding year’s annual meeting. In the case of the 2016 annual meeting, the deadline for the notice would be March 16, 2016. However, the By-Laws also provide that if the meeting is held more than 30 days before +the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by +the Company. +69 +Table of Contents +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any +stockholder proposal at the address listed above after March 9, 2016 that is intended to be presented at the 2016 annual meeting of stockholders without inclusion in the Proxy Statement for the meeting, the proxies designated by the Board will +have discretionary authority to vote on such proposal. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements +and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended +to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your +broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual +report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the attention of the Corporate +Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: +April 20, 2015 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON +STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE +SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO, 80203. +70 +Table of Contents +APPENDIX A +PLAN OF CONVERSION +THIS PLAN OF CONVERSION (this “ Plan ”) is adopted this +[ — ]th day of [ — ], 2015, by PDC Energy, Inc., a Nevada corporation (“ PDC Nevada ”), for the purpose of converting PDC Nevada into +a Delaware corporation to be known as PDC Energy, Inc. (the “ Resulting Entity ”), in accordance with the provisions of the Nevada Revised Statutes and the Delaware General Corporation Law (the “ Conversion ”). +RECITALS +WHEREAS, the board of directors and shareholders of PDC Nevada have approved the Conversion; and +WHEREAS, in order to effect the Conversion, PDC Nevada has adopted this Plan for the purpose of setting forth the manner and +terms on which PDC Nevada will continue its existence under the laws of the State of Delaware, including, without limitation, the method for effecting the Conversion and the manner and basis for converting PDC Nevada’s outstanding shares of +stock into outstanding shares of stock of the Resulting Entity. +NOW, THEREFORE, BE IT KNOWN, that: +1. Conversion . The name of the converting entity is PDC Energy, Inc. At the Effective Time (as defined below), PDC +Nevada shall be converted into a Delaware corporation under the name PDC Energy, Inc. +2. Effective Time . Provided +that this Plan has not been terminated or deferred pursuant to Section 14 hereof, or unless another date and time is specified, the Conversion of PDC Nevada into the Resulting Entity shall be effective (the “ Effective +Time ”) upon: (a) the filing of a duly executed Articles of Conversion with the Secretary of State of the State of Nevada; and (b) the filing with the Secretary of State of the State of Delaware of (i) a duly executed +Certificate of Conversion and (ii) a duly executed Certificate of Incorporation of the Resulting Entity in the form specified below. +3. Effect of Conversion . At the Effective Time, PDC Nevada shall continue its existence in the organizational form of +the Resulting Entity. At the Effective Time, the Resulting Entity shall be formed as a corporation existing under the laws of the State of Delaware. Following the Conversion, the Resulting Entity shall, for all purposes of the laws of the State of +Delaware and Nevada, be deemed to be the same entity as PDC Nevada. At the Effective Time, all of the rights, privileges and powers of PDC Nevada, and all property, real, personal and mixed, and all debts due to PDC Nevada, as well as all other +things and causes of action belonging to PDC Nevada, shall remain vested in the Resulting Entity and shall be the property of the Resulting Entity and the title to any real property vested by deed or otherwise in PDC Nevada shall not revert or be in +any way impaired; but all rights of creditors and all liens upon any property of PDC Nevada shall be preserved unimpaired, and all debts, liabilities and duties of PDC Nevada shall remain attached to the Resulting Entity, and may be enforced against +it to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by it in its capacity as a Delaware corporation. The rights, privileges, powers and interests in property of PDC Nevada, as well as the debts, +liabilities and duties of PDC Nevada, shall not be deemed, as a consequence of the conversion, to have been transferred to the Resulting Entity for any purpose of the laws of the State of Delaware. The Conversion shall not be deemed to affect any +obligations or liabilities of PDC Nevada incurred prior to the Effective Time or the personal liability of any person incurred prior thereto. PDC Nevada shall not be required to wind up its affairs or pay its liabilities and distribute its assets, +and the Conversion shall not be deemed to constitute a dissolution of PDC Nevada and shall constitute a continuation of the existence of PDC Nevada in the form of a Delaware corporation. +A-1 +Table of Contents +4. Governance and Other Matters Related to the Resulting Entity . +a. Certificate of Incorporation . At the Effective Time, the Certificate of Incorporation of the +Resulting Entity shall be as set forth in Exhibit A attached hereto (the “ Certificate of Incorporation ”) and shall be filed with the Secretary of State of the State of Delaware. +b. Bylaws . At the Effective Time, the Bylaws of the Resulting Entity shall be as set forth in Exhibit +B attached hereto (the “ Bylaws ”), and shall be adopted as such by the board of directors of the Resulting Entity. Thereafter, the Bylaws may be amended by the board of directors or the stockholders of the Resulting Entity as +provided in the Bylaws and the Certificate of Incorporation, as applicable. +c. Directors and +Officers . At the Effective Time, all directors and officers of PDC Nevada immediately prior to the Effective Time shall become directors and officers of the Resulting Entity, respectively, until the expiration of their respective terms of office +and until their successors have been duly elected and have qualified, or until their earlier death, resignation or removal. After the Effective Time, the Resulting Entity and its board of directors shall take any necessary actions to cause each of +such individuals to be appointed or to confirm such appointments. +5. Effect of the Conversion on the Capital Stock of +PDC Nevada . At the Effective Time, each one (1) outstanding share of PDC Nevada shall, without any action of the part of the holder thereof, be converted into a like class of one (1) validly issued, fully paid, and nonassessable share +of the Resulting Entity. Following the Effective Time, all shares of PDC Nevada stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of PDC Nevada stock immediately prior to +the Effective Time shall cease to have any rights with respect thereto. +6. Effect of Conversion on Other +Rights . At the Effective Time, each right to acquire shares of the capital stock of PDC Nevada outstanding immediately prior to the Effective Time shall convert into an equivalent right to acquire, upon the same terms and conditions as were +in effect immediately prior to the Effective Time, the same number of shares of the capital stock of the Resulting Entity. +7. Stock Certificates . From and after the Effective Time, all of the outstanding certificates that prior to that time +represented shares of PDC Nevada capital stock shall be deemed for all purposes to evidence ownership of and to represent the shares of the Resulting Entity capital stock into which the shares represented by such certificates have been converted as +provided herein. The registered owner on the books and records of the Resulting Entity or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise +accounted for to the Resulting Entity or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of the Resulting Entity evidenced by such +outstanding certificate as provided above. +8. Tax Matters . PDC Nevada intends for the Conversion to constitute a +tax-free reorganization qualifying under Section 368(a)(1)(F) of the Internal Revenue Code of 1986. This Plan constitutes a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g). +9. Employee Benefit and Compensation Plans . At the Effective Time, each employee benefit plan, incentive compensation +plan, stock purchase plan, stock option agreement and other similar plans and agreements to which PDC Nevada is then a party shall be automatically assumed by, and continue to be the plan of, the Resulting Entity, without further action by PDC +Nevada or the Resulting Entity or any other party thereto. To the extent any employee benefit plan, incentive compensation plan, stock option agreement or other similar plan provides for the issuance or purchase of, or otherwise relates to, shares +of PDC Nevada’s capital stock, after the Effective Time, such plan or agreement shall be deemed to provide for the issuance or purchase of, or otherwise relate to, shares of the Resulting Entity’s capital stock. +10. Filings, Licenses, Permits, Titled Property, Etc . As necessary, following the Effective Time, the Resulting Entity +shall apply for new qualifications to conduct business (including as a foreign corporation), licenses, permits and similar authorizations on its behalf and in its own name in connection with the Conversion +A-2 +Table of Contents +and to reflect the fact that it is a corporation duly formed and validly existing under the laws of the State of Delaware. As required or appropriate, following the Effective Time, all real, +personal or intangible property of PDC Nevada which was titled or registered in the name of PDC Nevada shall be re-titled or re-registered, as applicable, in the name of the Resulting Entity by appropriate filings or notices to the appropriate +parties (including, without limitation, any applicable governmental agencies). +11. Further Assurances . If, at any +time after the Effective Time, the Resulting Entity shall determine or be advised that any deeds, bills of sale, assignments, agreements, documents or assurances or any other acts or things are necessary, desirable or proper, consistent with the +terms of this Plan, to vest, perfect or confirm, of record or otherwise, in the Resulting Entity its right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of PDC +Nevada, or to otherwise carry out the purposes of this Plan, the Resulting Entity and its proper officers and directors (or their designees), are hereby authorized to execute and deliver, in the name and on behalf of PDC Nevada, all such deeds, +bills of sale, assignments, agreements, documents and assurances and do, in the name and on behalf of PDC Nevada, all such other acts and things necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Resulting Entity its +right, title or interest in, to or under any of the rights, privileges, immunities, powers, purposes, franchises, properties or assets of PDC Nevada, or to otherwise carry out the purposes of this Plan and the Conversion. +12. Implementation and Interpretation; Termination and Amendment . This Plan shall be implemented and interpreted, prior +to the Effective Time, by the board of directors of PDC Nevada and, upon the Effective Time, by the board of directors of the Resulting Entity, (a) each of which shall have full power and authority to delegate and assign any matters covered +hereunder to any other party(ies), including, without limitation, any officers of PDC Nevada or the Resulting Entity, as the case may be, and (b) the interpretations and decisions of which shall be final, binding, and conclusive on all parties. +13. Amendment . This Plan may be amended or modified by the board of directors of PDC Nevada at any time prior to +the Effective Time, provided that such an amendment shall not alter or change (a) the amount or kind of shares or other securities to be received hereunder by the shareholders of PDC Nevada, (b) any term of the Certificate of Incorporation +or the Bylaws, other than changes permitted to be made without stockholder approval by the Delaware General Corporation Law, or (c) any of the terms and conditions of this Plan if such alteration or change would adversely affect the holders of +any class or series of the stock of PDC Nevada. +14. Termination or Deferral . At any time before the Effective +Time, (a) this Plan may be terminated and the Conversion may be abandoned by action of the board of directors of PDC Nevada, notwithstanding the approval of this Plan by the shareholders of PDC Nevada, or (b) the consummation of the +Conversion may be deferred for a reasonable period of time if, in the opinion of the board of directors of PDC Nevada, such action would be in the best interest of PDC Nevada and its shareholders. In the event of termination of this Plan, this Plan +shall become void and of no effect and there shall be no liability on the part of PDC Nevada, its board of directors or shareholders with respect thereto. +15. Third Party Beneficiaries . This Plan shall not confer any rights or remedies upon any person or entity other than +as expressly provided herein. +16. Severability . Whenever possible, each provision of this Plan will be interpreted +in such manner as to be effective and valid under applicable law, but if any provision of this Plan is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, +without invalidating the remainder of this Plan. +[ Remainder of Page Intentionally Blank; Signature Page Follows ] +A-3 +Table of Contents +IN WITNESS WHEREOF, PDC Nevada has caused this Plan to be executed by its duly +authorized representative as of the date first written above. +PDC ENERGY, INC., +a Nevada corporation +By: +Name: +Barton R. Brookman, Jr. +Title: +President and Chief Executive Officer +PDC ENERGY, INC., +a Delaware corporation +By: +Name: +Barton R. Brookman, Jr. +Title: +President and Chief Executive Officer +A-4 +Table of Contents +Exhibit A +Certificate of Incorporation +See attached. +A-5 +Table of Contents +Exhibit B +Bylaws +See attached. +A-6 +Table of Contents +APPENDIX B +BARBARA K. CEGAVSKE +Secretary of State +202 North Carson Street +Carson City, Nevada 89701-4201 +(775) 684-5708 +Website: www.nvsos.gov +Articles of Conversion +(PURSUANT TO NRS 92A.205) +Page 1 +USE BLACK INK ONLY — DO NOT HIGHLIGHT +ABOVE SPACE IS FOR OFFICE USE ONLY +PLEASE NOTE: The charter document for the resulting entity must be submitted/filed +simultaneously with the articles of conversion. +Articles of Conversion +(Pursuant to NRS 92A.205) +1. +Name and jurisdiction of organization of constituent entity and resulting entity: +PDC Energy, Inc. +Name of constituent entity +Nevada +corporation +Jurisdiction +Entity type * +and, +PDC Energy, Inc. +Name of resulting entity +Delaware +corporation +Jurisdiction +Entity type * +2. +A plan of conversion has been adopted by the constituent entity in compliance with the law of the jurisdiction governing the constituent entity. +3. +Location of plan of conversion: (check one) +¨ +The entire plan of conversion is attached to these articles. +x +The complete executed plan of conversion is on file at the registered office or principal place of business of the resulting entity. +¨ +The complete executed plan of conversion for the resulting domestic limited partnership is on file at the records office +required by NRS 88.330. +* +corporation, limited partnership, limited-liability limited partnership, limited-liability company or business trust. +This form must be accompanied by appropriate fees. +Nevada Secretary of State 92A Conversion Page 1 +Revised: 1-5-15 +B-1 +Table of Contents +BARBARA K. CEGAVSKE +Secretary of State +202 North Carson Street +Carson City, Nevada 89701-4201 +(775) 684-5708 +Website: www.nvsos.gov +Articles of Conversion +(PURSUANT TO NRS 92A.205) +Page 2 +USE BLACK INK ONLY — DO NOT HIGHLIGHT +ABOVE SPACE IS FOR OFFICE USE ONLY +4. +Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the resulting entity in the conversion): +Attn: +Andrew Fiske +c/o: +PDC Energy, Inc. +1775 Sherman Street, +Suite 3000 +Denver, CO 80203 +5. +Effective date and time of filing: (optional) (must not be later than 90 days after the certificate is filed) +Date: +Time: +6. +Signatures — must be signed by: +1. +If constituent entity is a Nevada entity: an officer of each Nevada corporation; all general partners of each Nevada limited partnership or +limited-liability limited partnership; a manager of each Nevada limited-liability company with managers or one member if there are no managers; a trustee of each Nevada business trust; a managing partner of a Nevada limited-liability partnership +(a.k.a. general partnership governed by NRS chapter 87). +2. +If constituent entity is a foreign entity: must be signed by the constituent entity in the manner provided by the law governing it. +PDC Energy, Inc. +Name of constituent entity +X +SVP Gen. Counsel +& Secretary +Signature +Title +Date +* +Pursuant to NRS 92A.205(4) if the conversion takes effect on a later date specified in the articles of conversion pursuant to NRS 92A.240, the +constituent document filed with the Secretary of State pursuant to paragraph (b) subsection 1 must state the name and the jurisdiction of the constituent entity and that the existence of the resulting entity does not begin until the later date. +This statement must be included within the resulting entity’s articles. +FILING FEE: $350.00 +IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected. +This form must be accompanied by appropriate fees. +Nevada Secretary of State 92A Conversion Page 2 +Revised: 1-5-15 +B-2 +Table of Contents +APPENDIX C +STATE OF DELAWARE CERTIFICATE OF CONVERSION +FROM A NON-DELAWARE CORPORATION TO A DELAWARE CORPORATION +PURSUANT TO SECTION 265 OF THE DELAWARE GENERAL CORPORATION LAW +1.) +The jurisdiction where the Non-Delaware Corporation first formed is +Nevada. +. +2.) +The jurisdiction immediately prior to filing this Certificate is +Nevada +. +3.) +The date the Non-Delaware Corporation first formed is +March 25, 1955 +. +4.) +The name of the Non-Delaware Corporation immediately prior to filing this +Certificate is +PDC Energy, Inc. +. +5.) +The name of the Corporation as set forth in the Certificate of Incorporation is +PDC Energy, Inc. +. +IN WITNESS WHEREOF, the undersigned being duly authorized to sign on behalf of the converting Non-Delaware +Corporation have executed this Certificate on the day of +, A.D. . +By: +Name: +Print or Type +Title: +Print or Type +C-1 +Table of Contents +APPENDIX D +CERTIFICATE OF INCORPORATION +OF +PDC ENERGY, INC. +PDC Energy, Inc. (the “ Corporation ”), a corporation organized and existing under the General +Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “ DGCL ”), hereby certifies as follows: +FIRST: The name of the Corporation is PDC Energy, Inc. +SECOND: The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, +Delaware 19808 in New Castle County, Delaware. The name of its registered agent at such address is Corporation Service Company. +THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or +activity for which corporations may be organized under the DGCL as it currently exists or may hereafter be amended. +FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is 200,000,000 shares of stock, +classified as (i) 50,000,000 shares of preferred stock, par value $0.01 per share (“ Preferred Stock ”), and (ii) 150,000,000 shares of common stock, par value $0.01 per share (“ Common Stock ”). +The designations and the powers, preferences, rights, qualifications, limitations and restrictions of Preferred Stock and +Common Stock are as follows: +1. +Provisions Relating to Preferred Stock. +(a) Preferred Stock may be issued from time to time in one or more classes or series, the shares of each series to have such +designations and powers, preferences and rights, and qualifications, limitations and restrictions thereof, as are stated and expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of +Directors of the Corporation (the “ Board ”) as hereafter prescribed (a “ Preferred Stock Designation ”). +(b) Authority is hereby expressly granted to and vested in the Board to authorize the issuance of Preferred Stock from time to +time in one or more classes or series, and with respect to each series of Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted by the Board providing for the issuance thereof the designation and the powers, +preferences, rights, qualifications, limitations and restrictions relating to each series of Preferred Stock, including, but not limited to, the following: +(i) whether or not the series is to have voting rights, full, special or limited, or is to be without voting rights, and +whether or not such series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock; +(ii) the number of shares to constitute the series and the designations thereof; +(iii) the preferences, and relative, participating, optional or other special rights, if any, and the qualifications, +limitations or restrictions thereof, if any, with respect to any series; +(iv) whether or not the shares of any series +shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities or other +property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption; +D-1 +Table of Contents +(v) whether or not the shares of a series shall be subject to the operation of +retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the +operation thereof; +(vi) the dividend rate, whether dividends are payable in cash, stock of the Corporation or other +property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be +cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate; +(vii) the +preferences, if any, and the amounts thereof which the holders of any series thereof shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the +Corporation; +(viii) whether or not the shares of any series, at the option of the Corporation or the holder thereof or +upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities or other property of the +Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and +(ix) such other powers, preferences, rights, qualifications, limitations and restrictions with respect to any series as may +to the Board seem advisable. +(c) The shares of each series of Preferred Stock may vary from the shares of any other +series thereof in any or all of the foregoing respects. +2. +Provisions Relating to Common Stock. +(a) Common Stock shall be subject to the express terms of Preferred Stock and any series thereof. Except as may otherwise be +provided in this Certificate of Incorporation, in a Preferred Stock Designation or by applicable law, the holders of shares of Common Stock shall be entitled to one vote for each such share upon all questions presented to the stockholders, the +holders of shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and the holders of Preferred Stock shall not be entitled to vote at or receive notice of any meeting of stockholders. +Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law on all matters put to a vote of the stockholders of +the Corporation. +(b) Notwithstanding the foregoing, except as otherwise required by applicable law, holders of Common +Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding +series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate +of designations relating to any series of Preferred Stock) or pursuant to the DGCL. +(c) Subject to the prior rights and +preferences, if any, applicable to shares of Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive ratably in proportion to the number of shares of Common Stock held by them such dividends and +distributions (payable in cash, stock or otherwise), if any, as may be declared thereon by the Board at any time and from time to time out of any funds of the Corporation legally available therefor. +D-2 +Table of Contents +(d) In the event of any voluntary or involuntary liquidation, dissolution or +winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive +all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. A liquidation, dissolution or winding-up of the Corporation, as such terms are +used in this paragraph (d), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a +part of the assets of the Corporation. +(e) The number of authorized shares of Common Stock or Preferred Stock may be +increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of stock of the Corporation entitled to vote thereon irrespective of +the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of either Common Stock or Preferred Stock voting separately as a class shall be required therefor. +FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board. The directors, +other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly +equal in number as is reasonably possible, with the initial term of office of one class, the members of which shall be designated as the Class III Directors , to expire at the 2016 annual meeting, the initial term of office of the second class +to expire at the 2017 annual meeting (the “ Class I Directors ”), and the initial term of office of the third class to expire at the 2018 annual meeting (the “ Class II Directors ”), with each director to hold office +until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third +succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. The Board is authorized to assign members of the Board already in office to +Class I, Class II or Class III at the time such classification becomes effective. Subject to the rights of the holders of any series of Preferred Stock, any newly created directorship that results from an increase in the number of directors or any +vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause may be filled by the affirmative vote of a majority of the total number of directors then in office, even +if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his predecessor. No decrease in the number of +authorized directors constituting the Board shall shorten the term of any incumbent director. +The number of directors on +the Board shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board but shall in no event be fewer than three (3) or more than nine (9), subject to the rights of the holders of any series of +Preferred Stock to elect directors under specified circumstances, if any. Unless and except to the extent that the bylaws of the Corporation so provide, the election of directors need not be by written ballot. +SIXTH: Any action required or permitted to be taken at any annual meeting or special meeting of the stockholders of the +Corporation may be taken without a meeting and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, is or are signed by the holders of outstanding stock having not less than the minimum number of +votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. +SEVENTH: Special meetings of stockholders of the Corporation may be called by the Chief Executive Officer, the Chairman of the +Board, the Board pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies, or, to the extent so provided in the bylaws of the Corporation, holders of not less than 10% +in voting power of the then-outstanding shares of stock entitled to vote in an election of directors. +D-3 +Table of Contents +EIGHTH: In furtherance of, and not in limitation of, the powers conferred by the +laws of the State of Delaware, the Board is expressly authorized to adopt, amend or repeal the bylaws of the Corporation without any action on the part of the stockholders of the Corporation; provided, however , that the provisions of this +Article Eighth notwithstanding, the bylaws of the Corporation shall not be adopted, altered, amended or repealed by the stockholders of the Corporation except by the vote of holders of not less than 50% in voting power of the then-outstanding shares +of stock entitled to vote thereon, voting together as a single class. No bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board that was valid at the time it was taken. +NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach +of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as it now exists. In addition to the circumstances in which a director of the Corporation is not personally +liable as set forth in the preceding sentence, a director of the Corporation shall not be liable to the fullest extent permitted by any amendment to the DGCL hereafter enacted that further limits the liability of a director. +Any amendment, repeal or modification of this Article Ninth shall be prospective only and shall not affect any limitation on +liability of a director for acts or omissions occurring prior to the date of such amendment, repeal or modification. +TENTH: The Corporation shall have the right, subject to any express provisions or restrictions contained in this Certificate +of Incorporation or bylaws of the Corporation, from time to time, to amend this Certificate of Incorporation or any provision hereof in any manner now or hereafter provided by applicable law, and all rights and powers of any kind conferred upon a +director or stockholder of the Corporation by this Certificate of Incorporation or any amendment hereof are subject to such right of the Corporation. +ELEVENTH: Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum +for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or +the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or this Certificate of Incorporation +or the bylaws of the Corporation (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs +doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). +[Remainder of Page Intentionally Left Blank] +D-4 +Table of Contents +IN WITNESS WHEREOF, the undersigned has executed this Certificate of +Incorporation as of this [ ] day of [ ], 2015. +PDC ENERGY, INC. +By: +Name: +Title: +D-5 +Table of Contents +APPENDIX E +BYLAWS +OF +PDC ENERGY, INC. +Incorporated under the Laws of the State of Delaware +ARTICLE I +OFFICES AND RECORDS +SECTION 1.1. Registered Office . The registered office of PDC Energy, Inc. (the “ Corporation ”) in the +State of Delaware shall be located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808 in New Castle County, Delaware. The name of its registered agent at such address is Corporation Service Company. The registered office and registered +agent of the Corporation may be changed from time to time by the board of directors of the Corporation (the “ Board ”) in the manner provided by applicable law. +SECTION 1.2. Other Offices . The Corporation may have such other offices, either within or without the State of +Delaware, as the Board may designate or as the business of the Corporation may from time to time require. +SECTION 1.3. +Books and Records . The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board. +ARTICLE II +STOCKHOLDERS +SECTION 2.1. Annual Meeting . If required by applicable law, an annual meeting of the stockholders of the +Corporation shall be held at such date, time and place, if any, either within or without the State of Delaware, and time as may be fixed by resolution of the Board. +SECTION 2.2. Special Meeting . Special meetings of stockholders of the Corporation may be called only by the Chief +Executive Officer, the Chairman of the Board, the Board pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies, or by the Secretary of the Corporation at the request +of the holders of record of not less than ten percent (10%) of the outstanding shares of common stock, par value $.01 per share, of the Corporation. +SECTION 2.3. Record Date . +(A) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any +adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by applicable law, +not be more than 60 nor less than ten days before the date of such +E-1 +Table of Contents +meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes +such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a +meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination +of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to +vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in +accordance herewith at the adjourned meeting. +(B) In order that the Corporation may determine the stockholders entitled +to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action (other than as provided +in Section 2.3(C)), the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than 60 days prior to such action. If no such +record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. +(C) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a +meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten days after the date upon which the resolution +fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The +Board shall promptly, but in all events within ten days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board pursuant to the first sentence of this +Section 2.3(C)). If no record date has been fixed by the Board pursuant to the first sentence of this Section 2.3(C) or otherwise within ten days of the date on which such a request is received, the record date for determining stockholders +entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken +is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are +recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders +entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action. +SECTION 2.4. Stockholder List . The officer who has charge of the stock ledger shall prepare and make, at least ten days +before every meeting of stockholders, a complete list of stockholders entitled to vote at any meeting of stockholders (provided, however , if the record date for determining the stockholders entitled to vote is less than ten days before +the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in +the name of such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either on a reasonably +accessible electronic network (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. The stock list +shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the +E-2 +Table of Contents +list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list +shall be provided with the notice of the meeting. Except as otherwise provided by applicable law, the stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled by this section to examine the list required by +this section or to vote in person or by proxy at any meeting of the stockholders. +SECTION 2.5. Place of Meeting . +The Board, the Chairman of the Board or the Chief Executive Officer, as the case may be, may designate the place of meeting for any annual or special meeting of the stockholders. If no designation is so made, the place of meeting shall be the +principal executive offices of the Corporation. The Board, acting in its sole discretion, may establish guidelines and procedures in accordance with applicable provisions of the Delaware General Corporation Law (the “ DGCL ”) and any +other applicable law for the participation by stockholders and proxyholders in a meeting of stockholders by means of remote communications, and may determine that any meeting of stockholders will not be held at any place but will be held solely by +means of remote communication. Stockholders and proxyholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of stockholders shall be deemed present in person and entitled to vote at a meeting of +stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication. +SECTION 2.6. Notice of Meeting . Written notice, stating the place, if any, day and hour of the meeting and the purpose +or purposes for which the meeting is called, shall be given not less than ten days nor more than 60 days before the date of the meeting, in a manner pursuant to Section 7.7 hereof, to each stockholder of record entitled to vote at such +meeting as of the record date for determining the stockholders entitled to notice of the meeting. The notice shall specify (i) the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the +record date for stockholders entitled to notice of the meeting), (ii) the place, if any, date and time of such meeting, (iii) the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in +person and vote at such meeting, (iv) in the case of a special meeting, the purpose or purposes for which such meeting is called and (v) such other information as may be required by applicable law or as may be deemed appropriate by the +Board, the Chairman of the Board or the Chief Executive Officer or the Secretary of the Corporation. If the stockholder list referred to in Section 2.4 of these Bylaws is made accessible on an electronic network, the notice of meeting +must indicate how the stockholder list can be accessed. If the meeting of stockholders is to be held solely by means of electronic communications, the notice of meeting must provide the information required to access such stockholder list during the +meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. The +Corporation may provide stockholders with notice of a meeting by electronic transmission provided such stockholders have consented to receiving electronic notice in accordance with the DGCL. Such further notice shall be given as may be required by +applicable law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are +present, or if notice is waived by those not present in accordance with Section 7.4 of these Bylaws. +SECTION +2.7. Quorum and Adjournment of Meetings . +(A) Except as otherwise provided by applicable law or by the Certificate +of Incorporation of the Corporation (the “ Certificate of Incorporation ”), the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote at the meeting (the “ Voting Stock ”), +represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class +or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a +quorum. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. +E-3 +Table of Contents +(B) Any meeting of stockholders, annual or special, may adjourn from time to time +to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment +is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting, the Corporation may transact any business that might have been +transacted at the original meeting. +SECTION 2.8. Proxies . At all meetings of stockholders, a stockholder may vote +by proxy executed in writing (or in such other manner prescribed by the DGCL) by the stockholder or by his duly authorized attorney-in-fact. Any copy, facsimile transmission or other reliable reproduction of the writing or transmission created +pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or +other reproduction shall be a complete reproduction of the entire original writing or transmission. No proxy may be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. +Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it is irrevocable and applicable law makes it irrevocable. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and +voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary of the Corporation. +SECTION 2.9. Notice of Stockholder Business and Nominations . +(A) Annual Meetings of Stockholders . +(1) Nominations of persons for election to the Board and the proposal of other business to be considered by the +stockholders at an annual meeting of stockholders may be made only (a) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board or any committee thereof or (c) by any +stockholder of the Corporation who (i) was a stockholder of record at the time of giving of notice provided for in these Bylaws and at the time of the annual meeting, (ii) is entitled to vote at the meeting and (iii) complies with the +notice procedures set forth in these Bylaws as to such business or nomination; Section 2.9(A)(1)(c) of these Bylaws shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters properly +brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and included in the Corporation’s notice of meeting) before an annual meeting of the stockholders. +(2) For any nominations or any other business to be properly brought before an annual meeting by a stockholder +pursuant to Section 2.9(A)(1)(c) of these Bylaws, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action under +the DGCL. To be timely, a stockholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the 90 th day and not later than the close of business on the 80 th day prior to the first anniversary of the preceding year’s annual meeting; +provided , however , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the +close of business on the 90 th day prior to the date of such annual meeting and not later than the close of business on the later of the 80 th +day prior to such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10 th day following the +day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a +stockholder’s notice as described above. To be in proper form, a stockholder’s notice (whether given pursuant to this Section 2.9(A)(2) or Section 2.9(B) ) to the Secretary of the Corporation must: +(a) set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the +nomination or proposal is made (i) the name and address of such stockholder, as they appear +E-4 +Table of Contents +on the Corporation’s books, and of such beneficial owner, if any, (ii) (A) the class or series and number of shares of the Corporation that are, directly or indirectly, owned +beneficially and of record by such stockholder and such beneficial owner, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at +a price related to any class or series of shares or other securities of the Corporation or with a value derived in whole or in part from the value of any class or series of shares or other securities of the Corporation, whether or not such +instrument or right shall be subject to settlement in the underlying class or series of stock or other securities of the Corporation or otherwise (a “ Derivative Instrument ”), directly or indirectly owned beneficially by such +stockholder or beneficial owner and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares or other securities of the Corporation, (C) a description of any proxy, +contract, arrangement, understanding or relationship pursuant to which such stockholder or beneficial owner has a right to vote any shares of any security of the Corporation, (D) any short interest in any security of the Corporation (for +purposes of these Bylaws a person shall be deemed to have a “short interest” in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or +share in any profit derived from any decrease in the value of the subject security) held by such stockholder or beneficial owner, (E) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder or beneficial +owner that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments or short interests held, directly or indirectly, by a general or limited +partnership in which such stockholder or beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (G) any performance-related fees (other than an asset-based fee) that such +stockholder or beneficial owner is entitled to based on any increase or decrease in the value of securities of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by +members of such stockholder’s or beneficial owner’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than ten days after the record date for +the meeting to disclose such ownership as of the record date), (iii) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be +made in connection with solicitations of proxies for, as applicable, the proposal or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, +(iv) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to bring such nomination or other business before the +meeting, and (v) a representation as to whether such stockholder or any such beneficial owner intends or is part of a group that intends to (x) deliver a proxy statement or form of proxy to holders of at least the percentage of the voting +power of the Corporation’s outstanding stock required to approve or adopt the proposal or to elect each such nominee or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The information required +under clauses (a)(i) and (ii) of the preceding sentence of this Section 2.9(A)(2) shall be supplemented by such stockholder and any such beneficial owner not later than ten days after the record date for notice of the meeting to +disclose such information as of such record date; +(b) if the notice relates to any business other than a +nomination of a director or directors that the stockholder proposes to bring before the meeting, set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting +and any material interest of such stockholder and beneficial owner, if any, in such business and (ii) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person +or persons (including their names) in connection with the proposal of such business by such stockholder; +(c) set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection +to the Board (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for +E-5 +Table of Contents +election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to +being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past +three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and +his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if +the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and +the nominee were a director or executive officer of such registrant; and +(d) with respect to each nominee +for election or reelection to the Board, include a completed and signed questionnaire, representation and agreement required by Section 2.9(C)(5) of these Bylaws. The Corporation may require any proposed nominee to furnish such other +information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of +the independence, or lack thereof, of such nominee. +(3) Notwithstanding anything in the second sentence of +Section 2.9(A)(2) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement by the Corporation naming all of the nominees for director or +specifying the size of the increased Board at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by these Bylaws shall also be considered timely, but only with respect to +nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on +which such public announcement is first made by the Corporation. +(B) Special Meetings of Stockholders . +Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting +pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to a notice of meeting (a) by or at the +direction of the Board or any committee thereof or (b) provided , that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (i) is a stockholder of record at the time of +giving of notice provided for in these Bylaws and at the time of the special meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in these Bylaws. In the event a special meeting of +stockholders is called for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of +meeting, if the stockholder’s notice required by Section 2.9(A)(2) of these Bylaws with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by +Section 2.9(C)(5) of these Bylaws) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the +90 th day prior to such special meeting and not later than the close of business on the later of the 80 th day prior to such special meeting or, +if the first public announcement of the date of such special meeting is less than 100 days prior to the date of such special meeting, the 10 th day following the day on which public announcement is +first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period for +the giving of a stockholder’s notice as described above. +E-6 +Table of Contents +(C) General . +(1) Only such persons who are nominated in accordance with the procedures set forth in these Bylaws shall be +eligible to serve as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. Except as otherwise provided by +applicable law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case +may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall be disregarded. +(2) For purposes of these Bylaws, “ public announcement ” shall mean disclosure in a press +release issued by the Corporation using its ordinary course distribution methods or any other methods reasonably designed to provide broad, non-exclusionary distribution of the information to the public, including by disclosure in a document +publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder. +(3) Notwithstanding the foregoing provisions of these Bylaws, a stockholder shall also comply with all +applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws; provided , however , that any references in these Bylaws to the Exchange Act or the rules +promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 2.9(A)(1)(c) or Section 2.9(B) of these +Bylaws. Nothing in these Bylaws shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of +any series of preferred stock of the Corporation (“ Preferred Stock ”) if and to the extent provided for under applicable law, the Certificate of Incorporation or these Bylaws. +(4) The Corporation may require any proposed stockholder nominee for director to furnish such other information +as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation and to serve on standing committees of the Board. Unless otherwise required by law, if the stockholder (or a qualified +representative of the stockholder) making a nomination or proposal under this Section 2.9 does not appear at a meeting of stockholders to present such nomination or proposal, the nomination shall be disregarded and the proposed business +shall not be transacted, as the case may be, notwithstanding that proxies in favor thereof may have been received by the Corporation. For purposes of this Section 2.9 , to be considered a qualified representative of the stockholder, a +person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the +meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. +(5) To be eligible to be a nominee for election or reelection as a director of the Corporation, if requested by +the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.9 of these Bylaws) to the Secretary of the Corporation at the principal executive offices of the Corporation a +written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written +request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (a) is not and will not become a party to (i) any agreement, arrangement or understanding with, and has not +given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “ Voting Commitment ”) that has not been disclosed to the +Corporation or (ii) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (b) is not and +will not become a party to any agreement, arrangement or understanding with +E-7 +Table of Contents +any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has +not been disclosed therein, and (c) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will +comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. +SECTION 2.10. Conduct of Business . The date and time of the opening and the closing of the polls for each matter upon +which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem +appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or +adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether +adopted by the Board or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining +order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the +presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding +person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly +brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless +and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. +SECTION 2.11. Procedure for the Election of Directors; Required Vote . Subject to the rights of the holders of any series +of Preferred Stock to elect directors under specified circumstances, at any meeting at which directors are to be elected, so long as a quorum is present, the directors shall be elected by a plurality of the votes validly cast in such election. +Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited. Except as otherwise provided by applicable law, the rules and regulations of any stock exchange applicable to the +Corporation, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors and certain non-binding advisory votes described below, the affirmative vote of a majority of the shares present in person or +represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. In non-binding advisory matters with more than two possible vote choices, the affirmative vote of a plurality of the shares present in +person or represented by proxy at the meeting and entitled to vote on the matter shall be the recommendation of the stockholders. +SECTION 2.12. Treasury Stock . The Corporation shall not vote, directly or indirectly, shares of its own stock owned by +it or any other corporation, if a majority of shares entitled to vote in the election of directors of such corporation is held, directly or indirectly, by the Corporation, and such shares will not be counted for quorum purposes; provided, +however , that the foregoing shall not limit the right of the Corporation or such other corporation to vote stock of the Corporation held in a fiduciary capacity. +SECTION 2.13. Inspectors of Elections; Opening and Closing the Polls . At any meeting at which a vote is taken by +ballots, the Board by resolution may, and when required by applicable law, shall, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as +officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to +E-8 +Table of Contents +replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders and the appointment of an inspector is required by +applicable law, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict +impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by applicable law. +ARTICLE III BOARD OF DIRECTORS +SECTION 3.1. General Powers . The business and affairs of the Corporation shall be managed by or under the direction of +the Board elected in accordance with these Bylaws. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not +by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. The directors shall act only as a Board, and the individual directors shall have no power as such. +SECTION 3.2. Number, Tenure and Qualifications . Subject to the rights of the holders of any series of Preferred Stock +to elect directors under specified circumstances and the terms of the Certificate of Incorporation, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board then in office. The +election and term of directors shall be as set forth in the Certificate of Incorporation. +SECTION 3.3. Regular +Meetings . Subject to Section 3.5 , regular meetings of the Board shall be held on such dates, and at such times and places, as are determined from time to time by resolution of the Board. +SECTION 3.4. Special Meetings . Special meetings of the Board shall be called at the request of the Chairman of the +Board, the Chief Executive Officer or a majority of the Board then in office. The person or persons authorized to call special meetings of the Board may fix the place, if any, and time of the meetings. Any business may be conducted at a special +meeting of the Board. +SECTION 3.5. Notice . Notice of any meeting of directors shall be given to each director at +his business or residence in writing by hand delivery, first-class or overnight mail, courier service or facsimile or electronic transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered +when deposited in the United States mails so addressed, with postage thereon prepaid, at least five days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to +the overnight mail or courier service company at least 24 hours before such meeting. If by facsimile or electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least 24 hours before such meeting. +If by telephone or by hand delivery, the notice shall be given at least 24 hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in +the notice of such meeting. +SECTION 3.6. Action by Consent of Board . Any action required or permitted to be taken +at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, including by electronic transmission, and the writing or writings or +electronic transmissions are filed with the minutes of proceedings of the Board or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the +Secretary of State of the State of Delaware. +SECTION 3.7. Conference Telephone Meetings . Members of the Board or +any committee thereof may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such +participation in a meeting shall constitute presence in person at such meeting, except where such person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not +lawfully called or convened. +E-9 +Table of Contents +SECTION 3.8. Quorum . Subject to Section 3.9 , a whole number of +directors equal to at least a majority of the Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of the directors present may adjourn the meeting +from time to time without further notice unless (i) the date, time and place, if any, of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 3.5 of these +Bylaws shall be given to each director, or (ii) the meeting is adjourned for more than 24 hours, in which case the notice referred to in clause (i) shall be given to those directors not present at the announcement of the date, time and +place of the adjourned meeting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. +SECTION 3.9. Vacancies . Subject to applicable law and the rights of holders of any series of Preferred Stock, any newly +created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause may be filled by the +affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold +office for the remaining term of his predecessor. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. +SECTION 3.10. Records . The Board shall cause to be kept a record containing the minutes of the proceedings of the +meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. +SECTION 3.11. Compensation . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board +shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. The Corporation will cause each non-employee director serving on the Board to be reimbursed for all reasonable out-of-pocket costs and expenses +incurred by him or her in connection with such service. +SECTION 3.12. Regulations . To the extent consistent with +applicable law, the Certificate of Incorporation and these Bylaws, the Board may adopt such rules and regulations for the conduct of meetings of the Board and for the management of the affairs and business of the Corporation as the Board may deem +appropriate. +ARTICLE IV COMMITTEES +SECTION 4.1. Designation; Powers . The Board may designate one or more committees, each committee to consist of one or +more of the directors of the Corporation. Any such committee, to the extent permitted by applicable law and to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the +management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. +SECTION 4.2. Procedure; Meetings; Quorum . Any committee designated pursuant to Section 4.1 shall choose its +own chairman by a majority vote of the members of the committee then in attendance in the event the chairman has not been selected by the Board, shall keep regular minutes of its proceedings and report the same to the Board when requested, and shall +meet at such times and at such place or places as may be provided by the charter of such committee or by resolution of such committee or resolution of the Board. At every meeting of any such committee, the presence of a majority of all the members +thereof shall constitute a quorum and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. The Board shall adopt a charter for each committee for which a charter is required by +applicable laws, regulations or stock exchange rules, may adopt a charter for any other committee, and may adopt other rules and regulations for the governance of any committee not inconsistent with the provisions of these Bylaws or any such +charter, and each committee may adopt its own rules and regulations of governance, to the extent not inconsistent with these Bylaws or any charter or other rules and regulations adopted by the Board. +E-10 +Table of Contents +SECTION 4.3. Substitution of Members . The Board may designate one or more +directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not +disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of the absent or disqualified member. +ARTICLE V OFFICERS +SECTION 5.1. Officers . The officers of the Corporation shall be a Chief Executive Officer, a Secretary, a Treasurer and +such other officers as the Board from time to time may deem proper. The Chairman of the Board shall be chosen from among the directors and may be an officer of the Corporation if the Board so directs. All officers elected by the Board shall each +have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V . Such officers shall also have such powers and duties as from time to time may be conferred by the Board +or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chief Executive Officer may appoint, such other officers (including one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers) and +such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be +prescribed by the Board or such committee thereof or by the Chief Executive Officer, as the case may be. +SECTION 5.2. +Election and Term of Office . The officers of the Corporation shall be elected or appointed from time to time by the Board. Each officer shall hold office until his successor shall have been duly elected or appointed and shall have qualified +or until his death or until he shall resign, but any officer may be removed from office at any time by the affirmative vote of a majority of the Board or, except in the case of an officer or agent elected by the Board, by the Chief Executive +Officer. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. +SECTION +5.3. Chief Executive Officer . The Chief Executive Officer shall act in a general executive capacity and shall have general supervision, direction, and control of the business and the officers of the Corporation. The Chief Executive Officer +shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of the Board. Unless otherwise directed by the Board, the Chief Executive Officer +shall preside at all meetings of stockholders. The Chief Executive Officer shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and all other documents and instruments in +connection with the business of the Corporation. +SECTION 5.4. President . The President, if any, shall have such +powers and shall perform such duties as shall be assigned to him by the Board. Unless otherwise determined by the Board, the offices of Chief Executive Officer and the President shall be held by the same person. +SECTION 5.5. Vice Presidents . Each Vice President (which may include Executive Vice Presidents and Senior Vice +Presidents), if any, shall have such powers and shall perform such duties as shall be assigned to him by the Board. +SECTION 5.6. Chief Financial Officer . The Chief Financial Officer shall keep and maintain, or cause to be kept and +maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and +shares. +SECTION 5.7. Treasurer . The Treasurer shall exercise general supervision over the receipt, custody and +disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such +E-11 +Table of Contents +banks as may be authorized by the Board, or in such banks as may be designated as depositaries in the manner provided by resolution of the Board. He shall have such further powers and duties and +shall be subject to such directions as may be granted or imposed upon him from time to time by the Board, the Chief Executive Officer or the Chief Financial Officer. +SECTION 5.8. Secretary . The Secretary shall keep or cause to be kept in one or more books provided for that purpose, +the minutes of all meetings of the Board, the committees of the Board and the stockholders; he shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by applicable law; he shall be custodian of +the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the +seal to all other documents to be executed on behalf of the Corporation under its seal; and he shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and +filed; and in general, he shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the Chief Executive Officer. +SECTION 5.9. Vacancies . A newly created elected office and a vacancy in any elected office because of death, +resignation, or removal may be filled by the Board for the unexpired portion of the term at any meeting of the Board. Any vacancy in an office appointed by the Chief Executive Officer because of death, resignation, or removal may be filled by the +Chief Executive Officer. +SECTION 5.10. Action with Respect to Securities of Other Corporations . Unless otherwise +directed by the Board, the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other +corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers that the Corporation may possess by reason of its ownership of securities in such other corporation. +ARTICLE VI STOCK CERTIFICATES AND TRANSFERS +SECTION 6.1. Stock Certificates and Transfers . The interest of each stockholder of the Corporation shall be evidenced +by certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe or by uncertificated or electronic shares. The shares of the stock of the Corporation shall be entered in the books of +the Corporation as they are issued and shall exhibit the holder’s name and number of shares. Subject to the provisions of the Certificate of Incorporation, the shares of the stock of the Corporation shall be transferred on the books of the +Corporation, which may be maintained by a third-party registrar or transfer agent, by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and +power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require or upon receipt of proper transfer instructions from the registered +holder of uncertificated shares and upon compliance with appropriate procedures for transferring shares in uncertificated form, at which time the Corporation shall issue a new certificate to the person entitled thereto (if the stock is then +represented by certificates), cancel the old certificate and record the transaction upon its books. +Each certificated +share of stock shall be signed, countersigned and registered in such manner as the Board may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer +agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect +as if he were such officer, transfer agent or registrar at the date of issue. +E-12 +Table of Contents +SECTION 6.2. Lost, Stolen or Destroyed Certificates . No certificate for +shares or uncertificated shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the +Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board or any financial officer may in its or his discretion require. +SECTION 6.3. Ownership of Shares . The Corporation shall be entitled to treat the holder of record of any share or +shares of stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have +express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. +SECTION 6.4. +Regulations Regarding Certificates . The Board shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares +of stock of the Corporation. The Corporation may enter into additional agreements with stockholders to restrict the transfer of stock of the Corporation in any manner not prohibited by the DGCL. +ARTICLE VII MISCELLANEOUS PROVISIONS +SECTION 7.1. Fiscal Year . The fiscal year of the Corporation shall begin on the first day of January and end on the +thirty-first day of December of each year. +SECTION 7.2. Dividends . Except as otherwise provided by law or the +Certificate of Incorporation, the Board may from time to time declare, and the Corporation may pay, dividends on its outstanding shares of stock, which dividends may be paid in either cash, property or shares of stock of the Corporation. A member of +the Board, or a member of any committee designated by the Board, shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of +its officers or employees, or committees of the Board, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or +on behalf of the Corporation, as to the value and amount of the assets, liabilities or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared +and paid. +SECTION 7.3. Seal . The corporate seal shall have enscribed thereon the words “Corporate Seal,” +the year of incorporation and around the margin thereof the words “PDC Energy, Inc. — Delaware.” +SECTION +7.4. Waiver of Notice . Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, including by +electronic transmission, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, +any annual or special meeting of the stockholders or the Board or committee thereof need be specified in any waiver of notice of such meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the +person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. +SECTION 7.5. Resignations . Any director or any officer, whether elected or appointed, may resign at any time by giving +written notice, including by electronic transmission, of such resignation to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary, and, subject to any policy adopted by the Board, such resignation shall be deemed to +be effective as of the close of business on the date said notice is received by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary, or at such later time as is specified therein. +E-13 +Table of Contents +SECTION 7.6. Indemnification and Advancement of Expenses . +(A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently +exists or may hereafter be amended, any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or +investigative (a “ proceeding ”) by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was +serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (a +“ Covered Person ”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent, against +all expenses, liability and loss (including, without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by such Covered Person in connection with such +proceeding. +(B) The Corporation shall, to the fullest extent not prohibited by applicable law as it presently exists or +may hereafter be amended, pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition; provided, however, that to the extent required by applicable law, such payment +of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to +be indemnified under this Section 7.6 or otherwise. +(C) The rights to indemnification and advancement of +expenses under this Section 7.6 shall be contract rights and such rights shall continue as to a Covered Person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and +administrators. Notwithstanding the foregoing provisions of this Section 7.6 , except for proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall indemnify and advance expenses to a Covered +Person in connection with a proceeding (or part thereof) initiated by such Covered Person only if such proceeding (or part thereof) was authorized by the Board. +(D) If a claim for indemnification under this Section 7.6 (following the final disposition of such proceeding) is +not paid in full within sixty days after the Corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Section 7.6 is not paid in full within thirty days after the +Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, +the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by applicable law. In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to +the requested indemnification or advancement of expenses under applicable law. +(E) The rights conferred on any Covered +Person by this Section 7.6 shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire under any statute, any provision of the Certificate of Incorporation, these Bylaws, any agreement or vote of +stockholders or disinterested directors or otherwise. +(F) This Section 7.6 shall not limit the right of the +Corporation, to the extent and in the manner permitted by applicable law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action. +SECTION 7.7. Notices . Except as otherwise specifically provided herein or required by applicable law, all notices +required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by +sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner +E-14 +Table of Contents +provided in Section 232 of the DGCL. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his last known address as the same appears on the books +of the Corporation. Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (1) if by facsimile, when directed to a number at which the stockholder has consented to +receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of +such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; (4) if by any other form of electronic transmission, when directed to the stockholder; and (5) if by mail, when deposited in +the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. +SECTION 7.8. Facsimile Signatures . In addition to the provisions for use of facsimile signatures elsewhere specifically +authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board or a committee thereof. +SECTION 7.9. Time Periods . In applying any provision of these Bylaws that require that an act be done or not done a +specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be +included. +SECTION 7.10. Reliance Upon Books, Reports and Records . Each director, each member of any committee +designated by the Board, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to +the Corporation by any of the Corporation’s officers or employees, or committees designated by the Board, or by any other person as to matters reasonably believed to be within such other person’s professional or expert competence and who +has been selected with reasonable care by or on behalf of the Corporation. +SECTION 7.11. Amendment of the Bylaws . +Pursuant to Article Eighth of the Certificate of Incorporation, the Board is expressly authorized to adopt, amend or repeal these Bylaws without any action on the part of the stockholders of the Corporation. +E-15 +Table of Contents +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to +vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 2:00 am Eastern Time +on June 4, 2015. +Vote by Internet +• Go to www.envisionreports.com/PDCE +• Or scan the QR code with your +smartphone +• Follow the steps +outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE +(8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board recommends a vote FOR all nominees and FOR Proposals 2, 3 and 4. +1. Elect Three Class II Directors: +For +Withhold +For +Withhold +For +Withhold ++ +01 - Anthony J. Crisafio +¨ +¨ +02 - Kimberly Luff Wakim +¨ +¨ +03 - Barton R. Brookman +¨ +¨ +For +Against +Abstain +2. Ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the +Company for the year ending December 31, 2015. +¨ +¨ +¨ +3. Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +¨ +¨ +¨ +4. Approve a change in the Company’s state of incorporation from the State of Nevada to the State of Delaware, +pursuant to a plan of conversion. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print new address +below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When signing as attorney, executor, +administrator, trustee, guardian, or custodian, please give full title as such. If a corporation or partnership, please sign full corporate or partnership name, by an authorized officer or an authorized person, respectively. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the +box. +Signature 2 (if needed) — Please keep signature within the box. +/ +/ +021ZKC +Table of Contents +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, +FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy +Solicited by Board of Directors for 2015 Annual Meeting of Stockholders +The undersigned appoints GYSLE R. SHELLUM and DANIEL W. +AMIDON, and either of them, proxies, each with full power to act without the other and with full power of substitution for and in the name of the undersigned at the 2015 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) to +be held on June 4, 2015, at 11:30 a.m. Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters specified herein and on such other +matters as may properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of +Stockholders and Proxy Statement for such meeting to be held on June 4, 2015, and a copy of the Company’s 2014 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED +AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 AND FOR EACH OF PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4. +In their discretion, the appointed proxies are authorized to vote upon such other business as may properly come before the meeting +and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ +BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-15-138129/proxy_rpt.txt b/raw/proxies/0000077877/0001193125-15-138129/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ab0eefd5b730f9bc9226607b3eb7f02f9cbb2669 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-15-138129/proxy_rpt.txt @@ -0,0 +1,18 @@ +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2014 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the +immediate family of any of the foregoing persons had or will have a direct or indirect material interest for which disclosure is required under SEC Regulation S-K 404. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties +and potential conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement +involving a related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any +potential related person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions will be reviewed by the Audit Committee. In determining whether to approve or ratify a +transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction to +the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis and the impact of the transaction on the Company’s +business and operations. +38 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-16-548042/proxy.txt b/raw/proxies/0000077877/0001193125-16-548042/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..80681f18e4e6e4ad04d61cc79cf185cd3730df2c --- /dev/null +++ b/raw/proxies/0000077877/0001193125-16-548042/proxy.txt @@ -0,0 +1,4176 @@ +DEF 14A +1 +d167605ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by +a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Under Rule 14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount +on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 20, 2016 +Dear +Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2016 Annual Meeting of Stockholders of PDC +Energy, Inc. to be held on June 9, 2016, at 1:00 p.m. Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203. +The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement provide information concerning the matters to be +considered at the meeting. +We hope you will join us at the Annual Meeting. Whether or not you plan to attend personally, +it is important that your shares be represented at the Annual Meeting. We value your opinion and encourage you to participate in the Annual Meeting by voting your proxy. You may vote your shares by using the telephone or Internet voting options +described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting +even if you cannot attend in person. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +PDC ENERGY, INC. +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +THURSDAY, JUNE 9, 2016 +To the +Stockholders of PDC Energy, Inc.: +The 2016 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) +will be held on June 9, 2016, at 1:00 p.m. Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes: +• +To elect the two nominees named in the accompanying Proxy Statement as Class III Directors of the Company, +each for a term of three years; +• +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public +accounting firm for the fiscal year ending December 31, 2016; +• +To approve, on an advisory basis, the compensation of the Company’s named executive officers; +• +To transact any other business that may properly come before the meeting and at any and all adjournments or +postponements thereof. +The Board of Directors has fixed the close of business on April 13, 2016, +as the record date for determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the +outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +Please vote +by using the telephone or Internet voting options described in the accompanying Notice of Internet Availability of Proxy Materials or, if the attached Proxy Statement and a proxy card were mailed to you, please sign, date and return the proxy card +in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +April 20, 2016 +Table of Contents +PDC ENERGY, INC. +PROXY +STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on +June 9, 2016 at +The Denver Financial Center +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the +“Company,” “we,” “us” or “our”) for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) to be held on June 9, 2016, at 1:00 p.m. Mountain Time and at any and all +adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders. On or about April 20, 2016, we began mailing notices containing instructions for +accessing this Proxy Statement and our annual report online, and we began mailing proxy materials to stockholders who had previously requested delivery of the materials in paper form. For information on how to vote your shares, see the instructions +included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT +NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 9, 2016 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2016 Annual Meeting of Stockholders, and the 2015 +Annual Report to Stockholders, which includes the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, are available at www.envisionreports.com/PDCE . +Table of Contents +TABLE OF CONTENTS +INFORMATION ABOUT VOTING AND THE MEETING +1 +Who May Vote +1 +How Proxies Work +1 +Voting 401(k) and Profit Sharing Plan Shares +1 +Revoking a Proxy +1 +Quorum +2 +Votes Needed +2 +Attending in Person +2 +Conduct of the Meeting +3 +Solicitation of Proxies +3 +Appraisal Rights +3 +Contact Information +3 +PROPOSALS REQUIRING STOCKHOLDER VOTE +4 +PROPOSAL NO. 1 — ELECTION OF TWO CLASS III DIRECTORS +4 +Name, Principal Occupation for Past Five Years and Other +Directorships +5 +REPORT OF THE AUDIT COMMITTEE +9 +PROPOSAL NO. 2 — RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +10 +PROPOSAL NO. 3 — APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE +COMPANY’S NAMED EXECUTIVE OFFICERS +12 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2016 ANNUAL +MEETING +13 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +13 +CORPORATE GOVERNANCE +16 +STANDING COMMITTEES OF THE BOARD +18 +DIRECTOR COMPENSATION +20 +DIRECTOR QUALIFICATIONS AND SELECTION +22 +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +23 +THE BOARD’S ROLE IN RISK MANAGEMENT +24 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +25 +CODE OF BUSINESS CONDUCT AND ETHICS +25 +TRANSACTIONS WITH RELATED PERSONS +25 +ADDITIONAL INFORMATION +26 +NAMED EXECUTIVE OFFICERS +26 +COMPENSATION COMMITTEE REPORT +27 +COMPENSATION DISCUSSION AND ANALYSIS +27 +SUMMARY COMPENSATION TABLE +45 +2015 ALL OTHER COMPENSATION +47 +2015 GRANTS OF PLAN-BASED AWARDS +48 +OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END +49 +2015 OPTION EXERCISES AND STOCK VESTED +50 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +51 +EQUITY COMPENSATION PLAN INFORMATION +60 +STOCKHOLDER NOMINATIONS AND PROPOSALS +60 +HOUSEHOLDING INFORMATION +61 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of April 13, 2016, may vote at +the Annual Meeting. The outstanding voting securities of the Company as of April 13, 2016 consisted of 46,296,867 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the meeting. +How Proxies Work +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your +shares at the Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for or withhold your vote from one or more Class III Director nominees. You may also vote for or against the other proposals, or abstain +from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing and dating your proxy card and returning it in the enclosed +envelope. If you provide a signed proxy but do not specify how to vote, your shares will be voted (1) in favor of approval of both of the Class III Director nominees named in this Proxy Statement; (2) in favor of the ratification of the +appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016; (3) to approve, on an advisory basis, the compensation of the +Company’s Named Executive Officers (as defined herein). If any other business properly comes before the stockholders for a vote at the meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to +vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable +rules. Without your instruction, the nominee may vote only on the ratification of the appointment of PwC as our independent registered public accounting firm for 2016. A nominee’s inability to vote because it lacks discretionary authority to do +so is commonly referred to as a “broker non-vote.” The effect of broker non-votes may be different for the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non-votes on each proposal, see +“Votes Needed” below. +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan +account as of the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be counted if your proxy card is not +received by June 6, 2016. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +If you are a stockholder of record, you may revoke your proxy before it is voted by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy; or +• +Appearing at the meeting, notifying the inspector of the election that you wish to revoke your proxy, and +voting in person at the meeting. Merely attending the meeting will not result in revocation of your proxy. +1 +Table of Contents +If you hold your shares through a broker, bank or other nominee, you must follow +their instructions to revoke your voting instructions or otherwise vote at the meeting. +Quorum +In order to carry on the business of the meeting, there must be a quorum. This means that at least a majority of the +outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count +for quorum purposes. +Votes Needed +The following table presents the voting requirements for electing the two Class III Director nominees and approving the other +proposals presented in this Proxy Statement. Under the “Uncontested Elections Policy” contained in Section 3(e) of our Corporate Governance Guidelines, which may be viewed on our website at www.pdce.com , any nominee who +receives a greater number of “withhold” votes than “for” votes is required to submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee. For more information about our Uncontested +Elections Policy, see “Corporate Governance — Uncontested Elections Policy” below. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Elect two Class III +Directors. +The two nominees who receive the greatest number of votes will be elected Directors for the three-year term ending in 2019. There is no +cumulative voting for Directors. Abstentions and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Ratify the +appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016. +The affirmative vote of a majority of votes present or represented at the meeting is required for ratification. Abstentions will be counted as +votes against Proposal No. 2. Brokers will have discretionary authority to vote on Proposal No. 2. +Proposal No. 3 +Approve, on an +advisory basis, the compensation of the Company’s Named Executive Officers (as defined herein). +The affirmative vote of a majority of votes present or represented at the meeting is required for approval. Abstentions will be counted as +votes against Proposal No. 3. Broker non-votes will have no effect on the vote on Proposal No. 3. +Attending in Person +Only stockholders or their proxy holders and PDC guests may attend the Annual Meeting. For safety and security reasons, no +cameras, audio or video recording equipment, large bags, briefcases, packages or other items deemed unnecessary in PDC’s discretion will be permitted in the meeting. In addition, each stockholder and PDC guest may be asked to present valid, +government-issued picture identification, such as a driver’s license, before being admitted to the meeting. +If your +shares are held in the name of your broker, bank, or other nominee, you must bring to the meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on April 13, 2016, the record date for receiving +notice of, attending and voting at the Annual Meeting. +2 +Table of Contents +Conduct of the Meeting +The Chairman has broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes +establishing rules for stockholders who wish to speak at the meeting. The Chairman may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the extent of discussion on each item of business. In light of the +need to conclude the meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak on an item of business will be able to do so. The Chairman may also rely on applicable law regarding disruptions or +disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all stockholders. +Solicitation of +Proxies +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage +firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet Availability of Proxy Materials to the beneficial owners of the Company’s common stock. In addition +to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. The Company has +entered into an agreement with Morrow & Co., LLC, 470 West Avenue, 3rd Floor, Stamford, CT 06902, as its proxy solicitor and anticipates paying approximately $8,000 for such services. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our +stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit +PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +3 +Table of Contents +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1 — ELECT TWO CLASS III DIRECTORS +(Proposal 1 on the Proxy Card) +As of the date of this Proxy Statement and as permitted by the Company’s Bylaws, the Board consists of eight members +(“Directors”) divided into three classes. Directors are usually elected for three-year terms. The terms for members of each class end in successive years. +On April 14, 2016, the Board approved certain resolutions pursuant to which Mr. Brookman will be reappointed as a +Class III member of the Board, to be effective immediately prior to the Annual Meeting. Moreover, upon conclusion of the Annual Meeting, the number of Directors shall be designated as seven. The sole purpose of the reclassification is to provide for +a nearly equal apportionment of the Directors, as contemplated by the Company’s Certificate of Incorporation. +The +Board has nominated two continuing Directors, Larry F. Mazza and Barton R. Brookman, to stand for re-election to the Board for a three-year term expiring in 2019. Mr. Mazza, a Class III Director, joined the Board in 2007 and currently serves as +a member of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee, which he chairs. Mr. Brookman, who will be a Class III Director as of the Annual Meeting, joined the Board in 2015 and currently serves as +the Company’s President and Chief Executive Officer. +The appointed proxies will vote your shares in accordance with +your instructions and for the election of the two Class III Director nominees unless you withhold your authority to vote for one or both of them. The Board does not contemplate that any of the Director nominees will become unavailable for any +reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for +Director or for a greater number of persons than the number of Director nominees named. +Board of Directors +As of the Annual Meeting, the composition of the Board and the term of each Director was as follows: +NOMINEES +FIRST ELECTED +DIRECTOR +EXPIRATION OF +CURRENT TERM +CLASS III: +Larry F. Mazza +2007 +2016 +Barton R. Brookman +2015 +2016 +CLASS I: +Joseph E. Casabona +2007 +2017 +David C. Parke +2003 +2017 +Jeffrey C. Swoveland +1991 +2017 +CLASS II: +Anthony J. Crisafio +2006 +2018 +Kimberly Luff Wakim +2003 +2018 +4 +Table of Contents +Name, Principal Occupation for Past Five Years and Other +Directorships +NOMINEES FOR TERM EXPIRING IN 2019 — CLASS III +Name: +Larry F. Mazza, Director +Age: +55 +Committees: +Audit +Compensation +Nominating and +Governance (Chair) +• +Mr. Mazza, a CPA, was first elected to the Board in 2007. Mr. Mazza is President and Chief Executive +Officer of MVB Financial Corp (“MVB”), a financial services company. He has more than 27 years of experience in both large banks and small community banks and is one of seven members of the West Virginia Board of Banking and Financial +Institutions, which oversees the operation of financial institutions throughout West Virginia and advises the state Commissioner of Banking. Mr. Mazza is also an entrepreneur and is co-owner of nationally-recognized sports media business +Football Talk, LLC, a pro football website and content provider for NBC SportsTalk. Prior to joining MVB in 2005, Mr. Mazza was Senior Vice President & Retail Banking Manager for BB&T Bank’s West Virginia North region. +Mr. Mazza was employed by BB&T and its predecessors from 1986 to 2005. Prior thereto, Mr. Mazza was President of Empire National Bank, and later served as Regional President of One Valley Bank. Mr. Mazza also previously worked for +KPMG (or its predecessors) as a CPA with a focus on auditing. +• +The Board has concluded that Mr. Mazza is qualified to serve as a Director because, among other things, +he is a CPA, a CEO, and has extensive leadership and banking experience. Mr. Mazza also provides an important link to community and employee stakeholders, demonstrating a continuing commitment to our workforce located in Bridgeport, West +Virginia. Mr. Mazza graduated from West Virginia University with a degree in Business Administration. +Name: +Barton R. Brookman, Director, President and Chief Executive Officer +Age: +53 +Committees: +None +• +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed +to the Board on January 1, 2015, simultaneous with his appointment as the Company’s CEO. Mr. Brookman originally joined the Company in July 2005 as Senior Vice President-Exploration and Production; he was appointed to the position of +Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its +predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +• +The Board has concluded that in addition to his status of CEO of the Company, Mr. Brookman is qualified +to serve as a Director due, among other things, to his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. +Mr. Brookman holds a B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +5 +Table of Contents +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2017 — CLASS I +Name: +Joseph E. Casabona, Director +Age: +72 +Committees: +Audit +(Chair) +Nominating and Governance +• +Mr. Casabona, a CPA, was first elected to the Board in 2007. Mr. Casabona served as CEO of Paramax +Resources Ltd., a junior public Canadian oil and gas company, from 2008 until the beginning of 2011. Mr. Casabona also served as Executive Vice President and as a member of the Board of Directors of Denver-based Energy Corporation of America +(“ECA”), a domestic oil and gas company, from 1985 until his retirement in May 2007. Mr. Casabona’s major responsibilities with ECA included strategic and executive oversight of all matters affecting ECA. From 1968 until 1985, +Mr. Casabona was employed at KPMG or its predecessors, with various titles including audit partner, where he primarily served public clients in the oil and gas industry. +• +The Board has concluded that Mr. Casabona is qualified to serve as a Director because, among other +things, he is a CPA and brings to the Board extensive first-hand experience in all aspects of the oil and gas industry, including natural gas exploration, development, acquisitions, operations and strategic planning, as well as experience in the +Company’s primary areas of operations. Mr. Casabona holds a BSBA from the University of Pittsburgh and a Master of Science-Mineral Economics from the Colorado School of Mines. +Name: +David C. Parke, Director +Age: +49 +Committees: +Compensation +Nominating & +Governance +• +Mr. Parke, who was first elected to the Board in 2003, has served as a Managing Director of EVOLUTION +Life Science Partners since October 2014. From June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was Managing Director in the +investment banking group of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe +Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania +Merchant Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. +• +The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, +he has extensive investment banking experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition +matters. +Name: +Jeffrey C. Swoveland, Director (Non-Executive Chairman) +Age: +61 +Committees: +Audit +Compensation +• +Mr. Swoveland was first elected to the Board in 1991 and was elected Non-Executive Chairman of the Board +in June 2011. From 2006 until January 2014, Mr. Swoveland was first Chief Operating Officer and later President and Chief Executive Officer of ReGear Life Sciences, Inc. (previously +6 +Table of Contents +named Coventina Healthcare Enterprises), which develops and markets medical device products. From 2000 until 2007, Mr. Swoveland served as Chief Financial Officer of Body Media, Inc., a +life-science company. Prior thereto, from 1994 to September 2000, Mr. Swoveland held various positions including Vice President of Finance, Treasurer and interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas +company. Mr. Swoveland also has worked as a geologist and exploratory geophysicist for both major and independent oil and gas companies. Mr. Swoveland serves as a member of the Board of Directors of Linn Energy, LLC (NASDAQ: LINE), a +public independent oil and natural gas company. +• +The Board has concluded that Mr. Swoveland is qualified to serve as a Director because, among other +things, he brings to the Board extensive corporate management, accounting and finance experience, and oil and gas industry expertise. Additionally, his service as a director of another public energy company provides leadership and knowledge of best +practices that benefit the Company and his guidance and understanding of management processes of larger oil and gas companies benefits the Company as it continues to grow. +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2018 — CLASS II +Name: +Anthony J. Crisafio, Director +Age: +63 +Committees: +Audit +Compensation +• +Mr. Crisafio, a Certified Public Accountant (“CPA”), was first elected to the Board in 2006. +Mr. Crisafio has served as an independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of industries. He previously served as the part-time contract Chief Financial Officer of +Empire Energy USA, LLC, a domestic oil and gas company. Mr. Crisafio also previously served as the Interim Chief Financial Officer for the MDS Associated Companies, a domestic oil and gas company, from November 2013 to August 2014. +Mr. Cristafio is currently the part-time Chief Financial Officer for TruFoodMfg, from November 2015 to present. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 +until 1993. From 1975 until 1989, he was employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several Securities and Exchange Commission (“SEC”) registered client engagements and +gained significant experience with oil and gas industry clients and mergers and acquisitions. Mr. Crisafio also serves as an Advisory Board member for a number of privately held companies. +• +The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other +things, he is a CPA and brings to the Board more than 30 years of financial accounting and management expertise, with demonstrated business management and accounting experience. +Name: +Kimberly Luff Wakim, Director +Age: +58 +Committees: +Audit +Compensation (Chair) +Nominating +and Governance +• +Ms. Wakim, an attorney and Certified Public Accountant (“CPA”), was first elected to the Board +in 2003. Ms. Wakim is a Partner with the law firm Clark Hill, PLC (formerly Thorp, Reed & Armstrong LLP), where she is the co-chair of the Corporate Restructuring and Bankruptcy Practice group. She has practiced law with the firm since +1990. Ms. Wakim was previously an +7 +Table of Contents +auditor with Main Hurdman (now KPMG) and was Assistant Controller for PDC from 1982 to 1985. She has been a member of the American Institute of Certified Public Accountants and the West Virginia +Society of Certified Public Accounts for more than 20 years. +• +The Board has concluded that Ms. Wakim is qualified to serve as a Director because, among other things, +she is an attorney and CPA, and brings to the Board a combination of a strong legal background and expertise in accounting oversight. Ms. Wakim received a BSBA from West Virginia University and a J.D. from the West Virginia College of Law. +The election of the Class III Directors will be effected by an affirmative vote of a plurality of the +outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Directors. +THE +BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE CLASS III NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL NO. 1. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +8 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of five Directors and operates under a written charter adopted by the Board. +Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under +“Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in +accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with +the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee met six times during 2015. In addition, the Audit Committee has authorized Audit Committee member +Joseph E. Casabona to serve as a sub-committee of the Audit Committee to review and approve SEC periodic financial filings and other actions of the partnerships for which the Company serves as managing general partner (collectively, the +“Partnerships”). The sub-committee met five times during 2015 to review such partnership filings. +The Audit +Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2015 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s +independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by Statement of Auditing Standards No. 61 (Codification of Statements of Auditing Standards AU § 380) as +adopted by the PCAOB in Rule 3200T, as amended. The Audit Committee has received the written disclosures and the letter from PwC required by PCAOB Rule 3526 and has discussed with PwC its independence from the Company. The Audit Committee has +discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include +the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. +Joseph E. Casabona, Chair +Anthony J. Crisafio +Larry F. Mazza +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +9 +Table of Contents +PROPOSAL NO. 2 — RATIFY THE APPOINTMENT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 2 on the Proxy Card) +The Audit Committee has appointed PwC as the Company’s independent registered public accounting firm for the fiscal year +ending December 31, 2016 and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is +expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +PRINCIPAL ACCOUNTANT FEES AND SERVICES +2015 +2014 +Audit Fees (1) +$ +2,120,000 +$ +1,667,500 +Audit-Related Fees (2) +110,247 +101,628 +Tax Fees (3) +42,883 +93,448 +All Other Fees (4) +154,585 +— +Total Fees +$ +2,427,715 +$ +1,862,576 +(1) +Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures +performed with regard to the Company’s annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over +financial reporting, including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory +and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our equity offerings. +(2) +Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably +related to the performance of the audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” Fees billed primarily include our proportionate share of amounts billed to the +Company-sponsored partnerships for the audits of their annual financial statements. Total amounts billed to the Company-sponsored partnerships in 2015 and 2014 were $282,300 and $265,000, respectively. +(3) +Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax +advice and tax planning for the Company and its proportionately consolidated entities. +(4) +Other fees consist of aggregate fees billed for product and services other than services reported above. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public +accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the +Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also +be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are not eligible for annual pre-approval to be conducted by the independent accountant must be pre-approved individually by +the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All of the services +described in “Principal Accountant Fees and Services” were approved by +10 +Table of Contents +the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the +Company’s website at www.pdce.com under “Corporate Governance.” +This proposal will be approved if +it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Brokers will have +discretionary authority to vote on this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” +THIS PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +11 +Table of Contents +PROPOSAL NO. 3 — APPROVE, ON AN ADVISORY BASIS, THE +COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 3 on the Proxy Card) +The stockholders of the Company are entitled to cast an advisory non-binding vote at the Annual Meeting on the compensation of +the Company’s Named Executive Officers (as defined below). While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and will take into consideration the outcome of the vote in connection +with their ongoing evaluation of the Company’s compensation program. In 2011, based on the stockholder vote at the 2011 Annual Meeting of Stockholders and engagement with some of the Company’s largest stockholders, the Company determined +to hold a “say-on-pay” vote annually, consistent with the majority of votes cast in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held no later than the Company’s 2017 Annual +Meeting of Stockholders, in accordance with SEC rules. +As described more fully under “Compensation Discussion and +Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and +long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term +incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each +Named Executive Officer’s compensation at risk demonstrates its pay-for-performance philosophy. Approximately 79% of the target 2015 compensation for our Named Executive Officers other than the CEO was in the form of variable compensation which +was “at risk” (i.e., incentive cash compensation, performance-based equity, stock appreciation rights (“SARs”) and restricted stock). For the Company’s CEO, this figure was 83%. +Each of the Named Executive Officers has been granted significant equity to provide him a stake in the Company’s +long-term success. The Company also has significant stock ownership guidelines applicable to its senior executives. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to +obtain and maintain meaningful ownership stakes in the Company. +The Compensation Committee considers the results of the +non-binding “say-on-pay” vote of our stockholders concerning the compensation of our Named Executive Officers. At our 2015 annual meeting of stockholders, an overwhelming majority (98%) of the votes cast approved the compensation of +our Named Executive Officers. Accordingly, the Compensation Committee concluded that our executive compensation programs generally meet the expectations of our stockholders. We did not make any material changes to our executive compensation programs +in 2015. +In light of the above, the Company believes that the compensation of its Named Executive Officers for 2015 was +appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named +Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2016 Annual +Meeting of Stockholders. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares +of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non-votes will not affect the outcome of this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. +PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +12 +Table of Contents +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2016 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting +other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy to vote in +accordance with their discretion on such matters pursuant to such proxy. +SECURITY OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT +AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of +March 31, 2016, by (1) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors +and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 31, +2016, 46,205,100 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage +of Shares +Beneficially +Owned +FMR LLC +245 Summer Street +Boston, MA 02210 +5,124,747 +(1) +11.1 +% +BlackRock, Inc. +55 East 52nd Street +New York, NY 10022 +3,836,895 +(2) +8.4 +% +Dimensional Fund Advisors LP +6300 Bee Cave Road, Building One +Austin, TX 78746 +3,236,419 +(3) +7.1 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +3,074,146 +(4) +6.7 +% +Prudential Financial, Inc. +751 Broad St. +Newark, NJ 07102 +2,428,929 +(5) +5.3 +% +Barton R. Brookman, Jr. +154,062 +(6) +* +Gysle R. Shellum +5,817 +(7) +* +Lance A. Lauck +108,222 +(8) +* +Daniel W. Amidon +94,164 +(9) +* +Scott J. Reasoner +46,803 +(10) +* +James M. Trimble +281,992 +(11) +* +Jeffrey C. Swoveland +22,127 +(12) +* +Kimberly Luff Wakim +15,567 +(13) +* +David C. Parke +16,068 +(14) +* +Anthony J. Crisafio +15,362 +(15) +* +Joseph E. Casabona +28,461 +(16) +* +Larry F. Mazza +20,334 +(17) +* +All directors and executive officers as a group (12 persons) +808,979 +(18) +1.8 +% +13 +Table of Contents +* +Represents less than 1% of the outstanding shares of common stock. +(1) +As reported on a Schedule 13G/A filed with the SEC by FMR LLC on February 12, 2016, FMR LLC is a parent +holding company in accordance with SEC Rule 13d-1(b)(1)(ii)(G) and holds sole voting power as to 689,909 shares and sole dispositive power as to 5,124,747 shares. +(2) +As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 27, 2016, BlackRock, +Inc. holds sole voting power as to 3,740,893 shares and sole dispositive power as to 3,836,895 shares. +(3) +As reported on a Schedule 13G filed with the SEC by Dimensional Fund Advisors, LP on February 9, 2016, +Dimensional Fund Advisors, LP is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 3,183,183 shares and sole dispositive power as to 3,236,419 shares. +(4) +As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 11, 2016, The +Vanguard Group is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 50,807 shares, sole dispositive power as to 3,023,539 shares and shared dispositive power as to 50,607 shares. +(5) +As reported on a Schedule 13G/A filed with the SEC by Prudential Financial, Inc. on January 28, 2016. +Prudential Financial, Inc. holds sole voting power as to 146,607 shares and sole dispositive power as to 146,607 shares. Prudential Financial holds shared voting power as to 2,282,322 shares and shared dispositive power as to 2,282,322 shares. +(6) +Excludes 55,954 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +53,859 shares subject to SARs exercisable within 60 days of March 31, 2016. +(7) +Excludes 14,155 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +4,070 shares subject to SARs exercisable within 60 days of March 31, 2016. +(8) +Excludes 25,174 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +40,326 shares subject to SARs exercisable within 60 days of March 31, 2016. +(9) +Excludes 22,700 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +39,889 shares subject to SARs exercisable within 60 days of March 31, 2016. +(10) +Excludes 18,287 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +2,590 shares subject to SARs exercisable within 60 days of March 31, 2016. +(11) +Excludes 21,173 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +102,369 shares subject to SARs exercisable within 60 days of March 31, 2016. +(12) +Excludes 5,952 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +2,773 common shares purchased pursuant to the Deferred Compensation Plan. +(13) +Excludes 4,745 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +5,296 common shares purchased pursuant to the Deferred Compensation Plan. +(14) +Excludes 4,745 restricted shares subject to vesting more than 60 days after March 31, 2016; includes +787 common shares deferred pursuant to the Deferred Compensation Plan. +(15) +Excludes 4,775 restricted shares and shares deferred pursuant to the Deferred Compensation Plan subject to +vesting more than 60 days after March 31, 2016. +(16) +Excludes 4,745 restricted shares subject to vesting more than 60 days after March 31, 2016. +(17) +Excludes 4,745 restricted shares subject to vesting more than 60 days after March 31, 2016. +(18) +Excludes 187,150 restricted shares and shares deferred pursuant to the Deferred Compensation Plan subject to +vesting more than 60 days after March 31, 2016; includes 8,856 common shares deferred pursuant to the Deferred Compensation Plan and 243,103 SARs exercisable within 60 days of March 31, 2016. +14 +Table of Contents +Each SAR referenced in the footnotes above entitles the executive officer to +receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $24.44 to $49.57, payable in shares only. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s officers +and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the +common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of +Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written +representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2015, the Company’s executive officers and Directors and owners of more than 10% of +the Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act. +15 +Table of Contents +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the +Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +• +Director selection qualification and responsibilities; +• +The holding and frequency of executive sessions of independent directors, Board self evaluation and senior +executive performance reviews; +• +Board committee structure and function; +• +Succession planning; and +• +Governance matters, standard of business conduct and Board committee responsibilities. +The Corporate Governance Guidelines were most recently amended on June 4, 2015. +Uncontested Elections Policy +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any +nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the Nominating and Governance Committee +(“N&G Committee”). The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered +resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making +this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the +length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing +documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into +account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant. +Other +Corporate Governance Documents +The Company’s website includes the Corporate Governance Guidelines and the +following additional governance documents: +Director Nomination Procedures +Director Stock Ownership Guidelines +Insider Trading Policy +Shareholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Non-Executive Chairman Charter +Code of Business Conduct and Ethics +Waivers of Potential Conflicts of Interest +16 +Table of Contents +Board of Directors +The Company’s Bylaws provide that the number of members of the Board shall be designated from time to time by a resolution +of the Board; provided, that, pursuant to the Company’s Certificate of Incorporation (the “Charter”) the number of directors on the Board shall in no event be fewer than three or more than nine. As of the date of this filing, the +designated number of Directors is eight. Under the Charter, the Board is divided into three separate classes of Directors which are required to be as nearly equal in number as practicable. At each annual meeting of stockholders, one class of +Directors whose term has expired may be elected to a new term of three years. The classes are staggered so that the term of one class expires each year. +There is no family relationship between any Director or executive officer of the Company. There are no arrangements or +understandings between any Director or officer and any other person pursuant to which the person was selected as an officer or Director of the Company. +Director Independence +In +affirmatively determining whether a Director is “independent,” the Board analyzes and reviews the NASDAQ listing standards, which set forth certain circumstances under which a director is not considered independent. The current President +and CEO of the Company, Mr. Brookman, is not independent under such standards, and the Company’s former President and CEO, Mr. Trimble, is also not independent under such standards. Audit Committee and Compensation Committee members +are subject to additional, more stringent NASDAQ and Exchange Act independence requirements. +The Board has reviewed the +business and charitable relationships between the Company and each non-employee Director (“Non-Employee Director”) to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances +that might impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors other than Mr. Trimble (i.e., Messrs. Casabona, Crisafio, Mazza, Parke and Swoveland, and +Ms. Wakim) is independent under NASDAQ Listing Rule 5605, the Exchange Act and our Board committee charter requirements. +Board Meetings and +Attendance +The Board has a standing Audit Committee, Compensation Committee and N&G Committee. Actions taken by +these committees are reported to the Board at its next meeting. During 2015, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, +Directors are strongly encouraged, but not required, to attend the annual meeting of stockholders. All of the Directors attended the 2015 annual meeting of stockholders held on June 4, 2015. +17 +Table of Contents +The following table identifies the members of each committee of the Board, the +chair of each committee, and the number of meetings held in 2015. +2015 BOARD AND COMMITTEE +MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Barton R. Brookman +x +Joseph E. Casabona +x +x +(1) +x +Anthony J. Crisafio +x +x +x +Larry F. Mazza +x +x +x +x +(1) +David C. Parke +x +x +x +Jeffrey C. Swoveland (2) +x +x +x +James M. Trimble +x +Kimberly Luff Wakim +x +x +x +(1) +x +Number of Meetings in 2015 +9 +6 +(3) +8 +4 +1. +Chair +2. +Non-Executive Chairman. +3. +A sub-committee of the Audit Committee held five additional meetings in 2015 related to SEC filings for +partnerships for which the Company serves at the managing general partner and related matters. +The +Non-Employee Directors generally meet in “executive session” in connection with each regularly scheduled Board meeting without the employee Director (the CEO) present. Mr. Swoveland chairs these sessions; however, the other +Non-Employee Directors may, in the event of his absence, select another Director to preside over the executive session. Beginning in 2015, due to the change in composition of our Board, the Board began convening meetings of independent Directors in +executive session at least twice annually, without Mr. Brookman or Mr. Trimble present. +STANDING +COMMITTEES OF THE BOARD +Audit Committee +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule +5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter which was most recently amended +on September 18, 2015, and which is posted on the Company’s website at www.pdce.com under Corporate Governance. The Board assesses the adequacy of the Audit Committee Charter on an annual basis and revises it as necessary. The Board +has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations. The Audit Committee’s primary purpose is to assist the Board in monitoring the integrity of the Company’s +financial reporting process, systems of internal controls and financial statements, and compliance with legal and regulatory requirements. Additionally, the Audit Committee is directly responsible for the appointment, compensation and oversight of +the independent auditors engaged by the Company for the purpose of preparing or issuing an audit report or related work. In performing its responsibilities, the Audit Committee: +• +Monitors the integrity of the Company’s financial reporting process and systems of internal controls +regarding finance, accounting and legal compliance; +• +Monitors the independence of the independent registered public accounting firm; and +18 +Table of Contents +• +Provides an avenue for communications among the independent registered public accounting firm, management and +the Board. +Compensation Committee +The Board has determined that all members of the Compensation Committee are independent of the Company under Rules 5605(a)(2) +and 5605(d)(2) of the NASDAQ listing standards. The Board has adopted a Compensation Committee Charter which is posted on the Company’s website at www.pdce.com under Corporate Governance. In performing its responsibilities, the +Compensation Committee: +• +Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +• +Evaluates the performance of and establishes the compensation of the CEO; +• +Reviews and approves the elements of compensation for other senior executive officers of the Company; +• +Negotiates and approves the terms of employment and severance agreements with executive officers of the +Company and approves all Company severance and change in control plans; +• +Reviews the Directors’ compensation for their Board and committee work and recommends to the Board any +changes in such compensation; +• +Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior +executive officers and approves awards to those officers; +• +Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation +strategy, approves all equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +• +Reviews and approves Company contributions to Company-sponsored retirement plans. +Compensation Committee Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal year 2015. +Nominating and Governance Committee +The Board has determined that all members of the N&G Committee are independent of the Company under Rule 5605(a)(2) of the +NASDAQ listing standards. The Board has adopted a Nominating and Governance Committee Charter which was most recently amended and restated on June 4, 2015 and which can be viewed on the Company’s website. In performing its +responsibilities, the N&G Committee: +• +Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending +nominees for election at the next annual meeting of stockholders or to fill any vacancies; +• +Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the +Company; +• +Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the +members’ contributions; and +• +Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board +the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. +19 +Table of Contents +Board Leadership Structure +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes +that our current leadership structure, under which Mr. Brookman currently serves as President and CEO and Mr. Swoveland serves as Non-Executive Chairman of the Board, is the optimal structure for our Board at this time. Since June 2011, +the roles of Chairman and CEO have been held by separate individuals. We believe that as directors continue to have increasing oversight responsibilities, it is beneficial to have an independent, separate Chairman who has the responsibility of +leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship which, given the separation of their positions, provides strong Board leadership while positioning our CEO as +the leader of the Company in front of our employees and stockholders. The Board reconsiders this structure at least annually. +As Non-Executive Chairman, Mr. Swoveland generally chairs the meetings of executive sessions of our Non-Employee +Directors. The Non-Executive Chairman, in consultation with the CEO, establishes the agenda for each Board meeting. +DIRECTOR COMPENSATION +Non-Employee Directors’ compensation is reviewed annually by the Compensation +Committee and is approved by the Board. We compensate Directors with a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board and to align Directors with our stockholders. In +determining how much to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. No compensation is paid to our CEO for his service on the +Board. +In 2015, the Compensation Committee directly engaged Willis Towers Watson PLC (f/k/a Towers Watson & Co.) +(“Towers”) as its compensation consultant to review executive compensation and to conduct an annual review of the total compensation of our Non-Employee Directors (see “Role of the Compensation Consultant” in the Compensation +Discussion and Analysis section of this Proxy Statement). Specifically, Towers evaluated retainer fees, potential meeting fees and stock-based long-term incentives using, as the competitive benchmark, total compensation paid to the directors of the +energy companies which comprise the Company’s peer group used in determining 2015 executive compensation. +Below is a +summary of the compensation paid to our Non-Employee Directors. No changes were made to our Directors’ compensation for 2015 with the exception of a reduction in the fee paid for service on the Sub-Committee of the Audit Committee, as described +below. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +For 2015, the annual cash retainer for service on the Board and for attendance at all Board meetings was $70,000. The +Non-Executive Chairman received an additional cash retainer of $100,000. +20 +Table of Contents +Annual Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on each committee on which he or she serves. The Chair +of each Committee receives an additional annual retainer for his or her services as Chair. The following table shows the Committee and Chair retainers in effect for 2015: +COMMITTEE RETAINERS +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$ +15,000 +$ +17,500 +Compensation +10,000 +10,000 +Nominating and Governance +6,000 +7,500 +In addition: +• +A Special Committee consisting of Messrs. Crisafio, Mazza, Parke and Swoveland was created in 2008 to consider +the potential repurchase of one or more of the partnerships for which the Company is the managing general partner). In 2015, Mr. Swoveland and Mr. Parke received Special Committee fees of $13,500 and $5,700, respectively. +• +A Sub-Committee of the Audit Committee, of which Mr. Casabona was the sole member during 2015, reviews +and approves SEC financial filings for certain partnerships for which the Company is the managing general partner. Mr. Casabona received a cash retainer of $7,000 for serving in this capacity in 2015. +Equity Compensation +In +January 2015, the Non-Employee Directors were awarded restricted stock units for their service on the Board. The Non-Executive Chairman received the equivalent of $170,000 (4,255 units) and the remaining Non-Employee Directors each received the +equivalent of $135,000 (3,379 units) of restricted stock units vest ratably over three years and were granted under the Company’s Amended and Restated 2010 Long-Term Equity Compensation Plan, which was most recently approved by stockholders in +2013, as the same has been amended from time to time, (the “2010 LTI Plan”). +Deferred Compensation +Each Non-Employee Director may choose to defer all or a portion of his or her annual cash compensation and all or a portion of +his or her restricted stock units are awarded each year and/or vest in future years by participating in the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). All compensation deferred into this program is +credited with hypothetical earnings and losses as if invested in common stock of the Company. As of December 31, 2015, four Directors had deferred cash and/or equity compensation in accordance with the Deferred Comp Plan. +Director Stock Ownership Requirements and Prohibition on Hedging +Each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her +annual Board retainer. Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned and unvested restricted Company stock as well as stock equivalents held in the Deferred Comp Plan. Directors are +expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2015, all of the Directors met or exceeded the current expectations under the guidelines. +21 +Table of Contents +The Company’s Insider Trading Policy expressly prohibits Non-Employee +Directors from purchasing options, puts or calls or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +Compensation paid to the Non-Employee Directors for 2015 was as follows: +2015 DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash (1) +($) +Stock Awards (2) +($) +Total ($) +Joseph E. Casabona (3) +115,500 +133,910 +249,410 +Anthony J. Crisafio +95,000 +133,910 +228,910 +Larry F. Mazza +108,500 +133,910 +242,410 +David C. Parke (4) +91,700 +133,910 +225,610 +Jeffrey C. Swoveland (5) +208,500 +168,626 +377,126 +James M. Trimble +70,000 +133,910 +203,910 +Kimberly Luff Wakim +111,000 +133,910 +244,910 +(1) +Includes annual Board retainer, regular Committee and Committee Chair retainers, Audit sub-committee +retainers, any cash compensation paid for participation on the Special Committee and retainers for the Non-Executive Chairman of the Board. No per-meeting fees are paid. +(2) +On January 13, 2015, the Company awarded 4,255 restricted stock units to the Non-Executive Chairman and +3,379 restricted stock units to each other Non-Employee Director equal to $170,000 and $135,000 of value, respectively, using the average of the 15-day closing prices ending ten days prior to the grant date ($39.96). The slightly lower amounts +reported in the table reflect the grant date fair value as computed in accordance with FASB ASC Topic 718. +(3) +Mr. Casabona’s cash compensation includes $7,000 for his service on the Audit Sub-Committee. +(4) +Mr. Parke’s cash compensation includes $5,700 for his services on the Special Committee. +(5) +Mr. Swoveland’s cash compensation includes $100,000 for his service as Non-Executive Chairman of the +Board and $13,500 for his services on the Special Committee. +DIRECTOR QUALIFICATIONS AND +SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will +use to recommend nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website. The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge +(specifically within the industry and relevant industries in which the Company operates, as well as his or her overall experience and knowledge), skills, education, reputation, integrity, professional stature and other factors that may be relevant +depending on the particular candidate. +Additional factors considered by the N&G Committee include the size and +composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. Accordingly, one or more of these factors may be given more weight in a particular case at a particular +time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +22 +Table of Contents +The N&G Committee identifies Director candidates primarily through +recommendations made by the Non-Employee Directors. These recommendations are developed based on the Non-Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G +Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against +the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2015. +Diversity Consideration +In addition to qualities of intellect, integrity and judgment, the N&G Committee takes into consideration diversity of +background, senior management experience, education and an understanding of some combination of oil and gas marketing, finance, technology, government regulation and public policy. The N&G Committee makes its determination in the context of an +assessment of the perceived needs of the Board at that point in time. The N&G Committee evaluates all Director nominees, including any nominees recommended by stockholders, using these criteria. The Director nomination process specifically +includes disclosure of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +Stockholder Recommendations +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those +recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company’s headquarters or by email to board@pdce.com . All +recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +• +Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light +of the Director Nomination Procedures; +• +An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and +SEC guidelines; +• +Information concerning any relationships between the potential nominee and the stockholder recommending the +potential nominee; and +• +An indication of the willingness of the proposed nominee to serve if nominated and elected. +Stockholder Nominations +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to +submit nominations for election to the Board at meeting of stockholders follow certain procedures. The stockholder must give written notice to the Corporate Secretary at PDC Energy, Inc., 1775 Sherman Street, Suite 3000, Denver, Colorado 80203 +or may email notice to board@pdce.com . In the case of an annual meeting, the notice must be provided not later than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. If the date of the +annual meeting is more than 30 days before or more than 60 days after that anniversary date, however, for notice by such stockholder to be timely, it must be received not earlier than 90 days and not later than 80 days before the annual meeting, or, +if the first public announcement of the date of such annual meeting is less than 100 days prior to such annual meeting, within 10 days following the Company’s public announcement of the date of its annual meeting. The stockholder must +23 +Table of Contents +be a stockholder of record at the time the notice is given and at the time of the annual meeting. The written notice must set forth, among other things, (1) as to each nominee, all +information relating to that person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including +such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a Director if elected); (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made +(a) the name and address of the stockholder, as they appear on the Company’s books, and of such beneficial owner, and (b) the class and number of shares of the Company’s securities that are beneficially owned by such stockholder +and the beneficial owner. +THE BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee the Company’s critical business risks. Risks are considered in every business +decision, including by means of Board oversight of the Company’s internal risk management system. For instance, an assessment of potential risks (financial and otherwise) is included in every acquisition proposal presented to the Board. The +Board realizes, however, that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the +Company’s key strategic goals. While the entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review.The Audit Committee is the primary committee overseeing risk and specifically reviews +risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements, such as counterparty risks and derivative program risks. Similarly, the Compensation Committee considers +risks related to the structure and size of the Company’s compensation plans, as set out below. +We believe that our +Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between our management and our Directors. +Compensation Risk Assessment +We do not believe that the Company’s executive or non-executive compensation structure is reasonably likely to have a +material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +• +A balance of short-term and long-term programs to ensure focus on both elements of Company performance; +• +Caps on awards payable to any individual under our bonus programs, along with Compensation Committee +discretion to decrease bonus payouts in the event that it believes excessive risk was taken; +• +“Clawback” provisions are applicable to all Named Executive Officers through their employment +agreements or pursuant to the Company’s Clawback Policy, as applicable; +• +Significant stock ownership requirements are in place for our Named Executive Officers and Non-Employee +Directors; +• +An Insider Trading Policy that prohibits employees and Directors from selling or purchasing Company shares +without first obtaining pre-clearance from the Company’s General Counsel, even during open trading windows; and +• +A hedging policy that does not permit the Company to effect transactions in oil and gas derivatives on a +speculative basis. +24 +Table of Contents +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee +at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, +officers, employees, agents, consultants and representatives of the Company, which is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer +are subject to additional specific provisions under the Code of Conduct. The Code of Conduct can be viewed on the Company’s website at www.pdce.com . In the event the Board approves an amendment to or a waiver of any provisions of the +Code of Conduct, the Company will disclose the information on its website. In 2015, the Board approved waivers regarding any potential conflict related to (1) the service of Mr. Swoveland on the Board of Directors of Linn Energy, LLC; and +(2) the service of Mr. Trimble on the Board of Directors of Callon Petroleum Company. These waivers can be found on the Company’s website. +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2015 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the +immediate family of any of the foregoing persons, had or will have a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties +and potential conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement +involving a related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any +potential related person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or +ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the +transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis and the impact of the transaction on the +Company’s business and operations. +25 +Table of Contents +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the +Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . These documents may also be viewed at the SEC’s public reference room located at 100 F Street, +N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five +years and additional information is set forth below. +BARTON R. BROOKMAN, 53. See Proposal No.1 for biographical +information concerning Mr. Brookman. +GYSLE R. SHELLUM, 64, was appointed Chief Financial Officer in 2008. Prior to joining +the Company, Mr. Shellum served from September 2004 through September 2008 as Vice President, Finance and Special Projects of Crosstex Energy, L.P. (now EnLink Midstream LLC) in Dallas, Texas. EnLink Midstream (NYSE: ENLK) is a publicly traded +master limited partnership engaged in the gathering, transmission, treating, processing and marketing of natural gas and natural gas liquids. Mr. Shellum holds a B.B.A. in Accounting from the University of Texas, Arlington. +LANCE A. LAUCK, 53, was appointed Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck +has overall responsibilities for PDC’s business development, strategic planning, corporate reserves and midstream & marketing. Mr. Lauck joined PDC in August 2009 as Senior Vice President Business Development with the added +responsibility of leading PDC’s strategic planning efforts. Previously, he served as Vice President — Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked +for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his +service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in +Petroleum Engineering. +DANIEL W. AMIDON, 55, Senior Vice President, General Counsel and Secretary, was appointed General +Counsel and Secretary in July 2007 and Senior Vice President in 2012. Prior to joining the Company, Mr. Amidon was employed by Wheeling-Pittsburgh Steel Corporation beginning in July 2004, where he served in several positions including General +Counsel and Secretary. Prior thereto, Mr. Amidon was employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of increasing responsibility, including General Counsel and Secretary. Mr. Amidon practiced with the +Pittsburgh, Pennsylvania law firm of Buchanan Ingersoll PC from 1986 through 1992. Mr. Amidon graduated from the University of Virginia, with honors, majoring in economics. He received his J.D. from the Dickinson School of Law (now Penn State +Law). +SCOTT J. REASONER, 55, is the Company’s Senior Vice President of Operations, a position to which he was +appointed in January 2015. Mr. Reasoner joined the Company in April 2008 as Vice President of Western Operations. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served +as a Business Unit Manager with Noble Energy Inc. where he was responsible for the Mid-Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for Patina Oil and Gas Company as Production Manager and later as Vice President +Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner is a graduate of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the +University of Colorado, and is a Registered Professional Engineer. +26 +Table of Contents +With the exception of Mr. Reasoner, each of the above was an executive +officer of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Mr. Reasoner +became an executive officer effective January 1, 2015. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation +Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +Kimberly Luff Wakim, Chair +Anthony J. Crisafio +Larry F. Mazza +David C. Parke +Jeffrey C. Swoveland +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +The +Compensation Committee of the Board of Directors (referred to in this section as the “Committee”) believes that executives should be paid based on the performance of the Company. This Compensation Discussion and Analysis +(“CD&A”) provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2015, as well as the factors considered by our Committee in making compensation decisions. This +CD&A focuses on the compensation of our Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and our three other most highly compensated officers for 2015 (collectively, the “Named Executive +Officers”), namely: +Barton R. Brookman +President and Chief Executive Officer +Gysle R. Shellum +Chief Financial Officer +Lance A. Lauck +Executive Vice President, Corporate Development and Strategy +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +Scott J. Reasoner +Senior Vice President, Operations +Leadership Changes +Mr. Brookman became CEO effective January 2015. We believe Mr. Brookman has done an excellent job of leading the +Company during the current downturn in commodity prices and that the Company has thrived under his leadership. Coincident with Mr. Brookman’s promotion, Mr. Lauck and Mr. Reasoner were named Executive Vice President, Corporate +Development and Strategy and Senior Vice President, Operations, respectively. In October 2015, Mr. Shellum announced his intention to retire from the Company. In order to encourage a smooth transition of his duties as CFO, the Company and +Mr. Shellum entered into a Retirement Agreement pursuant to which Mr. Shellum agreed to continue as CFO through his retirement date of June 30, 2016 or until such sooner date as a successor CFO was named and the Company notified him +that his transition services were no longer needed. We believe the retirement of Mr. Shellum and transfer of his CFO responsibilities will proceed very smoothly with little impact on ongoing operations and investor confidence. +Mr. Shellum’s Retirement Agreement is outlined below under “Potential Payments Upon Termination or Change in Control — Shellum Retirement Agreement.” +27 +Table of Contents +2015 Business Highlights +As a result of low commodity prices in 2015, it was a difficult year for the industry. Through the strategic efforts of our +executive management team, we developed a top-tier asset base while maintaining a strong balance sheet. We secured industry-leading oil and gas hedges prior to the price decline, which covered much of our production in 2015 and 2016 and had a +significant positive impact on cash flow. We believe that this, combined with PDC’s operational improvements and cost reductions, have allowed the Company to stand out among its peers in 2015, as reflected in our superior relative stock +performance. The following are key highlights of our achievements in 2015: +• +Achieved outstanding operational performance for the year including: +• +Year-over-year production growth of 65%; +• +Technological advancements and efficiencies to operation techniques which enhanced new well production in 2015 +and beyond, as well as achieving significant cost reduction from our vendors; and +• +Year-over-year reduction in operating costs per barrel of oil equivalent (“BOE”) of approximately +30%. +• +Maintained a strong financial and liquidity position despite a sharp fall in oil prices; achievements in 2015 +included the following: +• +Achieved 68% growth in adjusted cash flow from operating activities year-over-year; +• +Finished 2015 with peer leading adjusted debt-to-EBITDAX of 1.4x; +• +Re-affirmed the borrowing base for our bank line of $700MM; and +• +Completed a successful equity offering for net proceeds of $200 million. +In addition, as opposed to most of our peers, our stock price was up for the year making us the top performer on total +shareholder return (TSR) relative to our peers: +* +The peer group shown is the same peer group used for the 2015 performance share grant under the Company’s +long term incentive program. The chart excludes Rosetta Resources Inc. which was acquired by Noble Energy in July 2015, and Magnum Hunter Resources which was delisted in November 2015. TSR is determined using an average stock price for the 20 +trading days prior to the beginning of the period and the 20 days ending with the last day of the period adjusted for dividends for the period. +28 +Table of Contents +2015 Compensation Highlights +Our key compensation decisions for 2015 related to our Named Executive Officers included: +• +In 2015, we negotiated Mr. Brookman’s compensation package related to his promotion to CEO; +• +Mr Brookman’s 2015 base salary and total target compensation were significantly lower than that of the +prior CEO; +• +We limited other base salary and annual incentive bonus target increases solely to those Named Executive +Officers that received promotions related to organizational changes; +• +Continued the practice of awarding 25% of our long term incentive grant as performance shares and 25% as SARs +to incent both relative and absolute stock price growth; +• +Performance shares which covered the 3-year performance period ending December 31, 2015, paid out at 200% +of target. We were the top performer on TSR performance relative to the Company’s peers for that three year period (see “Long Term Incentives — 2013 — 2015 Performance Shares Results”); +• +Based on Company performance in 2015, awarded bonuses at 150% of target (see “2015 Performance +Results”); and +• +Approved the compensation package relating to Mr. Shellum’s upcoming retirement as described under +“Potential Payments Upon Termination or Change in Control — Shellum Retirement Agreement” to facilitate a smooth transition and orderly search for a new CFO. +2015 Say on Pay Vote +At our 2015 annual meeting of stockholders, the vast majority of our stockholders voted to approve our executive compensation +program, with over 98% of votes cast for approval. Based on these voting results, the feedback we received during the voting process, the success of the Company in the last year and our discussions with stockholders, we did not make any significant +changes to our executive compensation program in 2015. +29 +Table of Contents +Key Features of our Executive Compensation Program +Compensation Best Practices +We believe our executive compensation program is competitive and reflects an alignment with current governance trends and +stockholder-friendly features as outlined below: +Our Executive Compensation Practices +(What We Do) +ü +Pay for Performance — Our Named Executive Officers’ total compensation is heavily weighted toward +performance-based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative shareholder return performance. +ü +Executive Ownership Guidelines — We have stock ownership guidelines for our executives and directors that +are consistent with what we believe to be corporate governance best practices. +ü +External Benchmarking — We use competitive compensation data based on an appropriate group of peers and +other relevant survey data prior to making any compensation decisions. +ü +Double-Trigger Change-of-Control Severance Benefits — Upon a change of control of the Company, our current +severance plan and grandfathered employment contracts provide for payment of cash severance benefits only if the executive is actually or constructively terminated within two years following a change of control event. +ü +Clawback Policy — We have clawbacks in place in the event of a restatement of all or a portion of our +financial statements due to material noncompliance with financial reporting requirements under securities laws. +ü +Compensation Risk Assessment — There is an appropriate balance between long-term and short-term focus in our +compensation programs and the Committee has the ability to apply discretion to ensure risk mitigation occurs in management decision making. +ü +Independent Compensation Consultant — We have engaged an independent executive compensation advisor who +reports directly to the Committee. +ü +Independent Compensation Committee — Our Committee is comprised solely of independent +directors. +Executive Compensation Practices We Have Not Implemented +(What We Don’t Do) +X +No Golden Parachute Excise Tax Gross-Ups — We do not provide tax gross-ups on any tax obligations of the +executive upon a change of control of the Company. +X +No New Employment Contracts and/or Excessive Severance Benefits — We no longer provide employment contracts +to new executives (although Messrs. Lauck and Amidon have grandfathered contracts). Severance benefits under both our severance plan and employment agreements are reasonable and there are no liberal change of control definitions or excessive +severance benefits or other payments. +X +No Excessive Perquisites — We provide only modest perquisites that are consistent with industry +norms. +X +No Repricing — Our 2010 LTI Plan does not permit repricing of underwater stock options or SARs without +shareholder approval. +X +No Hedging or Pledging of PDC Stock — These practices are strictly prohibited for all officers, directors +and employees of the Company under our Insider Trading Policy. +30 +Table of Contents +Compensation Objectives and Philosophy +The principal tenets of our compensation philosophy are as follows: +Our executive compensation programs should be competitive with our peers to attract, retain and reward effective +leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to +provide compensation that correlates with the Company’s relative performance to peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant +otherwise. +Our executive compensation programs should be designed to support a performance-based culture. +The majority of each executive’s compensation is therefore at risk and based on a combination of attainment of short-term goals in support of our Company’s long-term strategy, long-term stock performance relative to our peers, and actual +total shareholder return for PDC shareholders. Our programs are structured to require a commitment to performance because total compensation at the market is not guaranteed. Therefore, our programs are designed to reward above-target compensation +when performance is warranted and below-target compensation when performance does not meet expectations. +Our +executive compensation programs should be designed to align our executives’ interests with those of our stockholders. A substantial portion of our compensation is provided in the form of long-term equity incentives that tie executive +pay to stock. In addition, we require each of our Named Executive Officers to meet our stock ownership guidelines. +Our executive compensation programs should encourage appropriate risk management. We believe that effective +leadership in the oil and gas business requires taking prudent business risks while discouraging excessive risk-taking. To encourage this balance, we have structured our compensation programs to include three-year vesting schedules on all equity +awards, and to structure annual incentive awards using a combination of short-term financial and operational objectives. We also exercise discretion in determining bonus payments rather than relying solely on a formula to mitigate risk. We regularly +review our compensation programs to ensure that our executives are not encouraged to take inappropriate or excessive risks. +2015 Compensation +Mix +Our pay-for-performance philosophy is demonstrated in our compensation mix. The charts below show the +fixed and “at-risk” or variable components as awarded in January 2015 for the Named Executive Officers as a percentage of their total direct compensation. These charts are not a substitute for the “Summary Compensation Table,” +which includes amounts supplemental to total direct compensation. For 2015, Mr. Brookman’s target compensation was 83% variable or “at-risk” and linked with Company performance. For the remaining Named Executive Officers, +approximately 79% of their target compensation target was variable or “at-risk” and linked with Company performance. +31 +Table of Contents +2015 TARGET COMPENSATION +RS = Restricted Stock (time-based) +SAR = Stock Appreciation Rights +PS = Performance Shares +Components of the Company’s Compensation Program +The table below highlights each element of our compensation program and the primary role of each element in achieving our +compensation objectives: +COMPENSATION ELEMENTS +ROLE IN TOTAL COMPENSATION +Base Salary +• To provide a minimum, fixed level of cash compensation upon which our executives can +rely. +Annual Incentives +• Reward annual Company performance; +• Align +participants’ compensation with short-term financial and operational objectives specific to each calendar year; +• Motivate participants to meet or exceed internal and external performance expectations; +and +• Recognize +individual contributions to the organization’s overall results. +Long-Term Incentives +ü Restricted Stock/Units +ü Performance Shares/Units +ü Stock Appreciation Rights +(SARs) +• Reward long-term performance directly aligned with shareholders’ interests; +• Provide a strong +performance-based equity component; +• Recognize and reward share performance relative to industry peers through performance +shares/units based on relative total shareholder return (“TSR”); +• Align compensation with sustained long-term value creation; +• Allow executives to +acquire a meaningful and sustained ownership stake; and +• Foster executive retention by vesting awards over multiple years. +Benefits and Perquisites +ü Health and Welfare +ü Retirement +ü Perquisites +• Help attract and retain executive talent by offering a comprehensive employee benefits +package comparable to all other Company employees; +• Provide financial security by allowing executives to save for retirement through the +Company’s 401(k) and profit sharing plan; and +• Provide modest perquisites to executives including a car allowance for business and +personal use and athletic/non-golf club dues, consistent with those offered by our peer companies. +Termination Benefits +ü Executive Severance Plan +ü Employment Contracts +• Attract and retain executives in a competitive and changing industry; and +• Ensure executives +act in the best interest of shareholders in times of heightened uncertainty. +32 +Table of Contents +Executives and Directors Are Required to Own Significant Stock +We have established stock ownership guidelines for executive officers and outside directors, which are reviewed annually when +compensation decisions are made. In satisfying the stock ownership guidelines, Named Executive Officers are expected to: +• +Comply with the ownership guidelines within five years of the executive becoming as a Named Executive Officer; +and +• +Retain the net shares acquired through the exercise of stock options, SARs, or the vesting of restricted stock +or performance shares if the Named Executive Officer has not satisfied the required ownership level. +As +of December 31, 2015, all of the Named Executive Officers exceeded the minimum stock ownership requirements as set forth below. +2015 STOCK OWNERSHIP REQUIREMENT +Name/Year of Executive Status +Stock Ownership +Guidelines +Number of +Shares +Required +To Own (1) +Number of +Qualifying +Shares +Owned at +Year End +Barton R. Brookman (2008) +5x Base Salary +55,790 +119,153 +Gysle R. Shellum (2008) +3x Base Salary +19,549 +26,643 +Lance A. Lauck (2009) +4x Base Salary +24,780 +75,848 +Daniel W. Amidon (2007) +3x Base Salary +16,871 +62,663 +Scott J. Reasoner (2015) +3x Base Salary +16,282 +52,487 +(1) +Using average of daily closing prices in December 2015, which was $56.01. +Qualifying holdings as of December 31, 2015 include stock owned directly, shares held in the Company’s 401(k) and +Profit Sharing Plan and unvested time-based restricted stock and restricted stock units. Not included are stock options, SARs and unvested performance share awards. Stock ownership requirements applicable to our Non-Employee Directors are described +under “Director Compensation — Director Stock Ownership Requirements.” +Compensation Process — Making Executive Compensation +Decisions +Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay +Each fall, we review the composition of the peer group of companies used in establishing target compensation for the Named +Executive Officers for the coming year. In determining the peer group for the year, we consider the following: +• +Size, scope and nature of business operations, ownership structure, prior financial performance and current +financial scope, including market capitalization, enterprise value, revenue, EBITDA, capital expenditures and assets for each current and potential peer company; +• +Whether changes to the peer group are warranted based upon changes in size and/or operations of either the +Company and/or the current or potential peer companies; and +• +Other factors that may render a current peer company no longer comparable (e.g., financial status). +33 +Table of Contents +The 2015 peer group below was selected in September 2014 for determination of +2015 compensation. +PEER COMPANY +PEER +COMPANY +FOR 2014 +FISCAL +YEAR +PEER +COMPANY +FOR 2015 +FISCAL +YEAR +Berry Petroleum Company (1) +x +Bill Barrett Corporation +x +x +Bonanza Creek Energy, Inc. +x +Carrizo Oil & Gas, Inc. +x +x +Comstock Resources, Inc. +x +x +EXCO Resources, Inc. +x +x +Forest Oil Corporation (2) +x +Goodrich Petroleum Corporation +x +x +Gulfport Energy Corporation +x +x +Laredo Petroleum, Inc. +x +x +Magnum Hunter Resources Corporation +x +x +Penn Virginia Corporation +x +x +PetroQuest Energy, Inc. +x +Quicksilver Resources Inc. +x +Resolute Energy Corporation +x +x +Rex Energy Corporation +x +Rosetta Resources, Inc. (3) +x +x +Stone Energy Corporation +x +x +Swift Energy Company +x +x +Ultra Petroleum Corporation +x +(1) +Berry Petroleum Company was acquired by Linn Energy, LLC in December 2013. +(2) +Forest Oil Corporation merged with Sabine Oil and Gas Corporation in December 2014. +(3) +Rosetta Resources, Inc. was acquired by Noble Energy in May 2015. +We also use several proprietary benchmarking surveys from a broader sample of comparably-sized oil and gas companies for +additional market perspective, including Effective Compensation, Incorporated’s “Oil and Gas Exploration and Production Industry Survey,” Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration +and Production Survey” and survey data compiled by the Committee’s compensation consultant (described below). We use both the peer and survey benchmarking data to establish competitive base salaries, bonus targets and target total +direct compensation. We also use either the same or a similar peer group in measuring stock performance under the Company’s performance-based long-term incentive awards (see “Terms of 2015 Equity Award Performance Shares” as described +below). +Determining Target Total Direct Compensation +We typically establish target total direct compensation in the first quarter of each year for our Named Executive Officers by +determining base salaries and annual and long-term incentive compensation targets. When appropriate, we also approve special awards and modify perquisites. In doing so, we consider the following: +• +Market data for target total direct compensation (base salary, bonus targets and long-term incentives) for the +peer group, based on disclosure in peer company proxies, and other applicable industry survey data; +• +Our pay philosophy; +• +Individual performance and areas of responsibility relative to the market data; +• +Compensation relative to that of other executive officers of the Company; and +• +The CEO’s recommendations with respect to the compensation of each of the other Named Executive Officers. +34 +Table of Contents +Our view is that an executive’s target compensation should reflect the +current market value for that position provided the executive has performed well in the prior year. We may adjust the mix of cash and long term incentives, but generally target the median of the market in total direct compensation taking into +account the other factors listed above. In 2015, we targeted below the median for the CEO due to his being new to the position. +Annual and +Long-Term Incentive Programs +Annually we review and approve program design, including performance metrics and +target payout, and awards under the annual and long-term incentive programs. These discussions, which usually begin with recommendations from management and involve deliberation among the Committee, management and the Committee’s compensation +consultant, usually span numerous meetings before a design is approved. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares). For +performance-based equity awards, we certify at the end of the performance period the level at which the performance measures were satisfied and approve the number of related shares to be issued, if any, to each Named Executive Officer. +Historical Compensation Review +Annually we review “tally sheets” or summaries of each Named Executive Officer’s compensation history, as well +as all compensation payable upon his or her termination of employment and upon a change in control of the Company. These summaries, some of which are included in this Proxy Statement, include the following: +• +Three-year (or longer) history of base salary, annual incentive targets and awards, long-term incentive +grants, payouts and perquisites; +• +Realized gains for the current year and potential gains on unexercised or unvested awards; and +• +The value of compensation and other severance benefits due to the Named Executive Officer under various +termination scenarios, both before and after a change in control of the Company. +In addition to +reviewing the Company’s historical compensation and comparing current compensation to that of its peers, annually we review whether our programs are paying for performance based on the performance measures used by Institutional Shareholder +Services (“ISS”) and Glass Lewis (although ISS and Glass Lewis use a different peer group) as well as under a group of performance measures relevant to the oil and gas industry. Those measures include production growth, revenue growth, +operating cash flow growth, EBITDA/interest expense and total stockholder return. We consider the results of this analysis in making adjustments to the compensation program each year. +Role of the Compensation Consultant +The Compensation Committee has engaged Towers as its compensation consultant (the “Consultant”) to help ensure that +executive compensation programs are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Compensation Committee considers the following: +• +The Consultant’s historical performance in supporting the Committee and familiarity with our executive +compensation programs; +• +Experience of the Consultant in our sector; +• +Range of compensation services offered by the Consultant; and +• +Independence of the Consultant, considering the independence factors outlined by the SEC. +35 +Table of Contents +The Compensation Committee determines the scope of the Consultant’s engagement, which +includes: +• +Providing input into peer group identification and assessment; +• +Providing benchmarking on executive and outside director compensation for us to use in our decision-making +process; +• +Providing input into plan design discussions, payout alternatives and performance measures for annual and +long-term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements, perquisites, etc.); +• +Reviewing and providing feedback on the compensation-related disclosures in our Proxy Statement; and +• +Informing us about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +• +The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive +Officer; +• +The Compensation Committee may request information or advice directly from the Consultant and may direct the +Company to provide or solicit information from the Consultant; +• +The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +• +The Consultant attends Committee meetings as requested. +The Compensation Committee annually reviews the engagement of the Consultant and as a part of that process review a summary of +all services provided by the Consultant and related costs. Except as set forth above, in 2015, the Consultant did not perform any material services for the Company, did not have any business or personal relationships with the Committee members or +executive officers of the Company, did not own any stock of the Company and maintained policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the engagement of the Consultant in 2015 did not +create any conflicts of interest. +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in determining the compensation levels for our Named Executive Officers. Important aspects of +his role in the process are: +• +Assessing his own performance and the performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures under our annual incentive program; +• +Recommending and providing feedback on proposed peer group companies; +• +Recommending base salary levels, annual incentive targets, actual annual incentive awards and long-term +incentive awards for the other Named Executive Officers; and +• +Providing his assessment of the Company’s performance for the year with respect to achievement of +performance measures under the annual incentive program. +Management also retains an individual as a +consultant in our compensation process to coordinate the preparation of certain materials for Committee meetings. This individual is retained by and reports to management, whereas the Consultant reports to the Committee. +36 +Table of Contents +At our request, our Named Executive Officers may also assess the design of or +make recommendations related to our compensation and benefit programs. We determine each element of the CEO’s compensation with input from the Consultant. With input from the Consultant and the CEO, we determine each element of compensation for +the other Named Executive Officers. The CEO is not present during voting or deliberations concerning his own compensation. +2015 Compensation Decisions +Base Salary +In response to the decline in commodity prices, all base salaries were frozen except for Named Executive Officers who received +promotions related to organizational changes. Mr. Brookman became CEO; Mr. Lauck was promoted to Executive Vice President and Mr. Reasoner was promoted to an executive officer. The new CEO 2015 base salary and total target +compensation was significantly lower than that of the prior CEO. Base salaries effective January 1, 2015 were as follows: +NAMED EXECUTIVE OFFICER +2014 Base Salary +2015 Base Salary +Barton R. Brookman +$ +420,000 +$ +625,000 +Gysle R. Shellum +$ +365,000 +$ +365,000 +Lance A. Lauck +$ +335,000 +$ +347,000 +Daniel W. Amidon +$ +315,000 +$ +315,000 +Scott J. Reasoner* +$ +286,500 +$ +304,000 +* +Mr. Reasoner was not a Named Executive Officer in 2014. +Annual Cash Incentives +We approve a target annual cash incentive award for each Named Executive Officer. These target bonus awards are expressed as a +percentage of base salary. Actual bonus awards can range from 0-200% of these targets based on the achievement of Company and individual goals. In January 2015, we set the target annual cash incentive award based on each Named Executive +Officer’s position as follows: +NAMED EXECUTIVE OFFICER +TARGET ANNUAL CASH +INCENTIVE AS % OF BASE +SALARY +Barton R. Brookman +100 +% +Gysle R. Shellum +80 +% +Lance A. Lauck +85 +% +Daniel W. Amidon +80 +% +Scott J. Reasoner +80 +% +Annual Incentive Program +Bonuses under the Company’s annual incentive program are primarily based on specific operational and financial metrics +established in the first quarter of the year. However, to provide us the flexibility to adjust for and react to events that occur throughout the year, we prefer not to rely solely on a formulaic approach based on pre-established thresholds that +result in automatic payouts. Rather, we always retain discretion to adjust actual awards as we view appropriate given circumstances at the time of the determination. +Throughout the year, we review the Company’s progress toward meeting the performance metrics for the year. Following the +end of the fiscal year, we determine annual incentive payments as follows: +• +An overall corporate performance rating is determined for the annual quantitative operational and financial +metrics; 50% is based on operational metrics and 50% is based on financial metrics; +37 +Table of Contents +• +We may apply discretion and adjust the results for unexpected business events such as +acquisitions/dispositions, equity issuance, legal settlements, etc.; +• +We may further apply discretion in the final determination of the corporate performance rating to account for +business conditions or other performance factors (e.g. environmental and safety results). Generally, we feel that the Named Executive Officers are compensated for stock price performance through the Company’s long term incentive program and not +through their annual bonus; however, we may also consider relative stock price performance in determining the corporate performance rating; and +• +Individual awards are determined by multiplying the overall corporate performance rating by the +individual’s annual incentive target and multiplying the result by the individual’s base salary. Individual awards may be adjusted downward or upward at the Committee’s discretion based on specific individual performance. Such +individual adjustments are anticipated to have a maximum range of +/-20%. +2015 Performance Metrics +In early 2015, we established specific targets for each of the following operational and financial metrics based on our 2015 +public financial guidance. The performance metrics used in 2015 are the same performance metrics used in 2014 with the exception of the addition of Debt Adjusted EBITDAX which was added to focus managements’ attention on maintaining appropriate +debt levels in the current environment. See the specific targets under “2015 Performance Results.” +OPERATIONAL METRICS (50%)* +Production (Boe) +Actual production +volume for the year. +Production, Exploration and +G&A Expense per Boe +The sum of total +production, exploration, general and administrative expense and corporate general and administrative expense (G&A) divided by barrels of crude oil (and equivalent for natural gas). +Reserve Replacement Ratio +(three-year average) +The sum of 2012, 2013, +and 2014 extensions and discoveries, revisions in previous estimates and purchase of reserves, divided by the sum of 2013, 2014 and 2015 production. +FINANCIAL METRICS (50%)* +Adjusted Cash Flow per +Share +Net income plus/minus +change in operating assets and liabilities per share. +Capital Efficiency +(three-year) +Adjusted EBITDAX +divided by production, divided by three years’ average finding and development cost per unit. +Debt to Adjusted +EBITDAX +Total year-end +long-term debt (Senior Notes + outstanding credit facility) divided by adjusted EBITDAX. +* +EBITDA and Adjusted Cash Flow are calculated as shown in our quarterly investor relations materials posted on +our website at http://investor.pdce.com/presentations.cfm. The Company’s website materials are not incorporated by reference into this Proxy Statement. Adjusted EBITDAX is calculated by taking our EBITDA minus exploration expenses. +38 +Table of Contents +2015 Performance Results +Upon completion of the fiscal year, we reviewed the Company’s performance relative to the quantitative operational and +financial measures described above. Results for 2015 were as follows: +CORPORATE PERFORMANCE +METRIC +TARGET +RANGE +TARGET +ACTUAL +RESULTS +ADJUSTED +RESULTS +PERFORMANCE +Operational Metrics (50%) +Production (One million Boe) +13.5-14.5 +14 +15.4 +N/A +Above Target +Production, Exploration and G&A Expense per Boe +12.86-11.64 +$12.25 +$11.49 +$11.44 +(1) +Above Target +Reserve Replacement Ratio (three-year average) +520%-540 +% +530 +% +520 +% +N/A +Within Range +Financial Metrics (50%) +Adjusted Cash Flow per Share +$9.54-$10.54 +$10.04 +$10.75 +$11.63 +(2) +Above Target +Capital Efficiency (three-year) +250%-270 +% +260 +% +300 +% +N/A +Above Target +Debt to Adjusted EBITDAX +2.2-1.8 +2 +1.4 +1.9 +(3) +Within Range +(1) +Costs exclude approximately $5MM in production costs related to new Saddle Butte and White Cliffs midstream +agreements offset by approximately $4MM in impairment related charges due to accounting reclassification. +(2) +Excludes approximately 4MM shares of common stock issued in March 2015. +(3) +Excludes approximately $200MM used to pay down outstanding balance on Revolving Credit Facility from net +proceeds raised from March 2015 equity issuance. +We considered each of the performance metrics and what factors +impacted the results: +• +Production: Results were well above target primarily due to technological advances and efficiencies and better +than expected line pressures, which resulted in faster drilling and completions and improved well performance. This resulted in year-over-year production growth of approximately 65% over 2014 on continuing operations; +• +Production, Exploration and G&A Expense per Boe: Adjusted Results were better than target because we were +able to maintain and in some instances reduce our current cost structure while growing our production more than expected. The primary achievement was a 30% reduction in year-over-year operating costs per Boe; +• +Reserve Replacement Ratio (three-year average): Results on a three-year basis were within range despite +increased production volumes and a decrease in commodity prices used for SEC reserve calculations of more than 50% from 2014. We placed less emphasis on this metric in 2015 due to the commodity price impact; +• +Adjusted Cash Flow per Share: Adjusted Results were above target due to favorable production volumes assisted +by the Company’s robust hedging program. We achieved approximately 68% growth in Adjusted Cash Flow from Operations over 2014; +• +Capital Efficiency (three-year): Three-year average was above target due to better finding and development +costs resulting primarily from achieving a significant decrease in per well drilling and completion costs throughout the year; and +• +Debt to Adjusted EBITDAX: Adjusted Results were within targeted range indicating the Company effectively +managed its current debt level. The Company finished the year with a peer leading Debt-to EBITDAX ratio of 1.4x. +39 +Table of Contents +Overall, we believe the Company far exceeded the operational and financial +targets for the year based on the Adjusted Results. We ended the year with a very strong balance sheet during a time of low and volatile commodity prices. In addition, although we typically do not consider stock price performance in the bonus plan, +the impact of the above factors was strongly reflected in PDC’s stock performance. PDC ranked number one in overall TSR performance for the year relative to our peer group, constituting a substantial increase for 2015, while returns were +negative for all other 2015 peer group companies. We also considered current commodity price and the need to manage costs. As a result, we determined that an overall corporate performance rating should be limited to 150%. We felt that management +achieved these results as a team, and therefore no individual performance adjustments were made to the awards. Actual bonus amounts paid for 2015 performance were as follows: +NAMED EXECUTIVE OFFICER +2015 ANNUAL +BONUS +Barton R. Brookman +$ +940,000 +Gysle R. Shellum +$ +438,000 +Lance A. Lauck +$ +443,000 +Daniel W. Amidon +$ +378,000 +Scott J. Reasoner +$ +365,000 +For 2016, however, the types of performance metrics have been changed. As a result of ongoing +depressed commodity prices and continued uncertainty in the oil and natural gas industry and in an effort to properly motivate management decisions, for 2016 we eliminated both Reserve Replacement Ratio and Capital Efficiency (which is based on +reserves), while adding Liquidity as a new performance metric. +Long-Term Incentives +2015 Equity Awards +In +2015, to ensure that long-term incentives are aligned with the interests of our stockholders and our pay-for-performance philosophy, we generally granted the following combination of equity awards to the Named Executive Officers under the 2010 LTI +Plan: +• +50% restricted stock units that align the executive’s compensation directly with the Company’s stock +price, encourage retention and increase stock ownership in the Company; +• +25% SARs that align the executive’s compensation directly with the Company’s stock price as the +stock price must increase for any value to be realized by the executive; and +• +25% performance shares that align the executive’s compensation with PDC’s TSR relative to a group of +our peers in the industry. The value of performance shares is dependent on both stock price performance and our relative TSR performance over a three-year period. +We typically determine the dollar value of the long-term incentives we want to deliver to the executive to place total target +compensation at the market level for that position. While we consider long-term incentives as primarily forward-looking, we may consider the Company’s and Named Executive Officers’ performance in the prior year in determining the size of +the awards. +40 +Table of Contents +The table below shows the grants and corresponding value awarded to each Named +Executive Officer in January 2015: +2015 LONG-TERM INCENTIVE GRANTS +NAME +VALUE +RESTRICTED +STOCK UNITS +SARS +PERFORMANCE +SHARES +Barton R. Brookman +$ +2,400,000 +30,030 +26,643 +11,473 +Gysle R. Shellum +$ +1,100,000 +13,764 +12,212 +5,258 +Lance A. Lauck +$ +1,100,000 +13,764 +12,212 +5,258 +Daniel W. Amidon* +$ +1,000,000 +14,390 +9,436 +4,063 +Scott J. +Reasoner +$ +700,000 +8,759 +7,771 +3,346 +* +As part of the 2015 equity grants, Mr. Amidon received $150,000 additional restricted stock unit award +above his target award in recognition of his contributions in 2015, including his role in both critical litigation management and certain aspects of the Company’s risk management program. +The award value shown above differs from the accounting value reported in the Summary Compensation Table. In determining the +number of shares awarded we divide the grant value by the 15-day average closing stock price ending 10 days prior to the date of grant. The grant date accounting value is based solely stock price on the date of grant, and is reflected in the +“Summary Compensation Table” and “Grants of Plan-Based Awards.” +Terms of the 2015 Equity Awards +Performance Shares +Performance shares are denominated in units of PDC stock and payout in shares of Company stock based on the Company’s +relative TSR over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer companies. We believe that the peer group designated for measuring relative stock price performance differs from the peer +group the Company competes with for executive talent. However, we generally use the same companies whenever possible. In January 2015, the peer group selected for measuring relative TSR varied slightly from the compensation benchmarking group for +2015 as a result of the impact of the commodity price environment on the compensation peer group between September 2014 and January 2015. We elected to eliminate Goodrich Petroleum Corporation, Resolute Energy Corporation and Swift Energy Company +from the TSR peer group because their market caps had fallen below $200 million. We replaced these companies with Synergy Resources Corporation. +The 2015 performance shares measure the performance period from January 1, 2015 through December 31, 2017, with +payouts as follows: +COMPANY TSR RANKING AMONG PEERS +PAYOUT LEVELS +AS % OF AWARD +90th Percentile +200 +% +75th Percentile +150 +% +Median +100 +% +25th Percentile +50 +% +Below 25th Percentile +0 +% +We revised the top level for payout to be more consistent with industry. Based on the size of +the peer group, PDC would have to be ranked as one of the top two performing companies to achieve a 200% payout. Other features of the award include: +• +If performance falls between the percentiles, payout levels are interpolated. +• +If the Company has a negative TSR for the performance period, the maximum award is limited to 100%, regardless +of relative performance. +41 +Table of Contents +• +Any company that ceases to be publicly traded as a result of a bankruptcy filing shall remain as a peer, but +will be considered a bottom performer in the peer group. In the previous years, these companies were removed from the peer group. +• +Performance share units are forfeited if the executive voluntarily terminates or is terminated for cause prior +to the vesting date. Payout under other termination scenarios is described under “Impact of Termination and Change of Control on Long Term Incentive Plans.” +Restricted Stock Units +Restricted Stock +units awards, including the 2015 grants, typically have the following terms: +• +Awards vest ratably over three years to encourage retention; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for +cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Impact of Termination and Change of Control on Long Term Incentive Plans.” +Stock Appreciation Rights or SARs +SAR +awards, including the 2015 grants, have the following terms: +• +Awards vest ratably over three years to encourage retention; +• +Awards expire no later than ten years after grant date if not exercised earlier or forfeited; +• +The strike price for SARs is the price at which the executive can purchase a share of common stock of the +Company and is equal to the NASDAQ closing price of Company stock on the date of the grant; +• +SARs are settled in shares of common stock of the Company; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for +cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Impact of Termination and Change of Control on Long Term Incentive Plans.” +2013 — 2015 Performance Share Results +In 2013, we granted performance shares covering the three-year period January 1, 2013 through December 31, 2015. +Based on the Company’s first place ranking over this three-year period, we paid 200% of the target award to each Named Executive Officer as shown in the “Options Exercised and Stock Vested” table (except Mr. Reasoner who was not +a participant in the plan in 2013). The provisions of the 2013 grant are similar +42 +Table of Contents +to those of the 2015 grant described above except for the peer group used to measure relative TSR. The chart below shows the peer companies, their TSR performance and relative rankings at the end +of the period. +Ranking +3-Year TSR +1 +PDC Energy, Inc. +67% +2 +Carrizo Oil & Gas +51% +3 +Laredo Petroleum Holdings, Inc. +(52)% +4 +Bill Barrett Corporation +(76)% +5 +Stone Energy Corporation +(78)% +6 +EXCO Resources, Inc. +(85)% +7 +Comstock Resources, Inc. +(87)% +8 +Resolute Energy Corporation +(90)% +9 +PetroQuest Energy, Inc. +(91)% +10 +Penn Virginia +(92)% +11 +Goodrich Petroleum Corporation +(97)% +* +Berry Petroleum Company +NA +* +Rosetta Resources +NA +* +Forest Oil Corporation +NA +* +Quicksilver Resources +NA +* +Magnum Hunter Resources +NA +* +Swift Energy Company +NA +* +There were originally 16 peer companies: Berry Petroleum was acquired by Linn Energy in December 2013; Rosetta +Resources was acquired by Noble Energy in May 2015; Forest Oil Corporation merged with Sabine Oil and Gas and ceased trading under the Forest ticker symbol in December 2014; Quicksilver Resources was delisted as of January 2015; Magnum Hunter was +delisted in November 2015; and Swift Energy was delisted in December 2015. +Special Equity Grants +From time to time, we may approve special grants which typically take the form of restricted stock units, although other types +of awards may be made when appropriate. Special grants are typically considered: +• +In connection with promotion where more stock exposure is desired; +• +To recognize extraordinary achievement; +• +When the survey data demonstrates a significant deviation from market total direct compensation for the +comparator group; +• +When we determine that special retention measures are necessary for a particular executive; or +• +As part of a new hire package for an executive. +Mr. Amidon received a special grant of restricted stock units as part of his 2015 long term incentive grants in +recognition of his contributions in 2014, as described above. +Agreements with Named Executive Officers +Severance Plan and Employment Agreements with Named Executive Officers +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives +and that having an existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues +with agreed-upon severance terms. In the event that the Company faces a change in control, severance benefits encourage executive officers to remain with the Company during an important time when prospects for continued employment are often +uncertain, and provide a measure of financial +43 +Table of Contents +security to the executive officer. We believe that the severance amounts that may be paid upon a change in control of the Company ensure that the interests of the executive officers will be +materially consistent with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, without providing excessive benefits to executives. We consider these +protections to be an important part of an executive’s compensation and consistent with competitive practices in the oil and gas industry. +The Executive Severance Compensation Plan (the “Severance Plan”) generally provides these benefits to the Named +Executive Officers. At the time the Severance Plan was adopted, we grandfathered the existing employment agreements in effect. Mr. Brookman agreed to terminate his grandfathered employment agreement in January 2015, in connection with his +promotion to CEO. As of December 31, 2015, only Messrs. Amidon and Lauck have existing grandfathered agreements. For a description of these programs, see “Potential Payments Upon Termination or Change in Control.” +Retirement Agreement with Gysle R. Shellum +Mr. Shellum was instrumental in the Company’s growth and played an integral role in helping the Company maintain its +very strong balance sheet. In order to maintain an orderly transition and through the CFO search related to the intended retirement of Mr. Shellum, on October 26, 2015 the Company entered into a Retirement Agreement with Mr. Shellum. +Please see “Potential Payments Upon Termination or Change in Control — Shellum Retirement Agreement” below, for a description of Mr. Shellum’s Retirement Agreement and the amounts payable thereunder. +Other Policies and Considerations +Tax and +Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and +agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 162(m), Section 409A, Section 280G and Section 4999 of the Internal Revenue Code (the “Code”). +Currently, our compensation is intended to comply with the Code as follows: +• +None of our severance arrangements or agreements provide for gross-ups for excise tax under Code +Section 280G and Section 4999; +• +All of our programs are intended to be either exempt from or comply with Code Section 409A; and +• +Our intent is to qualify compensation paid to our top executives as performance-based compensation under Code +Section 162(m) where practicable. While currently our SARs and performance shares are intended to meet the requirements of Code Section 162(m), our restricted shares and annual bonus plan are not. We maintain the discretion to approve +compensation that may not qualify for the compensation deduction under Code Section 162(m) if, in light of all applicable circumstances, we believe that it would be in the Company’s best interests to pay such compensation. +Clawback Policy +The Named Executive Officers are currently covered under either a clawback policy or have a clawback provision in their +grandfathered employment contracts. Currently, the clawback policy and provision are identical and require the executive to reimburse all or a portion of his annual bonus, as described below, if the Company must restate all or a portion of its +financial statements due to material noncompliance by the Company with any financial reporting requirement under securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected years and the +bonus that would have been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in statutes or regulations and are subject to revision based on the +SEC clawback guidance under Section 954 of the Dodd-Frank Act, when finalized. +44 +Table of Contents +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary ($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options /SAR +Awards (3) +($) +All Other +Compensation (4) +($) +Total +Compensation +($) +Barton R. Brookman +2015 +625,000 +940,000 +1,848,065 +585,880 +54,150 +4,053,095 +President and Chief Executive Officer (5) +2014 +466,667 +450,000 +1,186,252 +413,148 +60,053 +2,576,120 +2013 +378,300 +416,000 +850,749 +277,135 +56,693 +1,978,877 +Gysle R. Shellum +2015 +365,000 +438,000 +1,511,686 +(6) +279,615 +(7) +79,277 +2,673,578 +CFO +2014 +365,000 +292,000 +1,082,970 +378,095 +55,470 +2,173,535 +2013 +350,000 +355,000 +850,749 +277,135 +52,710 +1,885,594 +Lance A. Lauck +2015 +347,000 +443,000 +847,014 +268,542 +54,676 +1,960,232 +Executive Vice President +2014 +335,000 +268,000 +866,376 +302,476 +50,159 +1,822,011 +Corporate Development (8) +2013 +320,000 +324,000 +680,600 +221,708 +51,012 +1,597,320 +Daniel W. Amidon +2015 +315,000 +378,000 +803,289 +207,498 +54,673 +1,758,460 +Senior Vice President +2014 +315,000 +252,000 +866,376 +302,476 +59,921 +1,795,773 +General Counsel and Secretary +2013 +300,000 +304,000 +680,600 +221,708 +53,414 +1,559,722 +Scott J. Reasoner +2015 +304,000 +365,000 +539,012 +170,884 +53,372 +1,432,268 +Senior Vice President of Operations (9) +(1) +Represents the amounts paid under the Company’s annual incentive bonus plan. The 2015 awards are +described in “2015 Compensation Decisions — Annual Cash Incentives.” +(2) +Represents the grant date fair value of stock-based compensation awards, which include the following: +(a) +Time-based restricted stock awards; and +(b) +Performance-based stock awards. +The 2015 grants are described in “2015 Compensation Decisions — Long Term Incentives” and detailed in the +“2015 Grants of Plan-Based Awards” table. In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the stock awards, calculated in accordance with FASB ASC Topic 718, disregarding +estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set +forth in Note 12 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 22, 2016. +(3) +Represents the grant date fair value of SARs granted in each year. The 2015 grants are described in “2015 +Compensation Decisions — Long Term Incentives” and detailed in the “2015 Grants of Plan-Based Awards” table. In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the +SAR awards calculated in accordance with FASB ASC Topic 718 disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of SAR +awards for purposes of the Company’s financial statements, as set forth in Note 12 to the financial statements included in the Annual Report on the financial statements included in the Annual Report on Form 10-K filed with the SEC on +February 22, 2016. +(4) +Amounts shown in this column for 2015 are detailed below in “2015 All Other Compensation.” +(5) +Mr. Brookman’s compensation reflects his promotion to President and Chief Executive Officer in +January 2015. +45 +Table of Contents +(6) +Upon execution of Mr. Shellum’s Retirement Agreement, his 2015 stock awards were modified. The +amount shown includes $664,672 of increased value due to accelerated vesting modifications. +(7) +Upon execution of Mr. Shellum’s Retirement Agreement, his 2015 SARs were modified. The amount shown +includes $11,073 of increased value due to the accelerated vesting modifications. +(8) +Mr. Lauck’s compensation reflects his promotion to Executive Vice President in January 2015. +(9) +Mr. Reasoner’s compensation reflects his promotion to Senior Vice President of Operations in January +2015. +46 +Table of Contents +2015 ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annual Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Tax +Gross-Up (4) +($) +Total +All Other +Compensation +($) +Barton R. Brookman +2015 +24,000 +10,915 +19,235 +— +54,150 +Gysle R. Shellum +2015 +24,000 +10,915 +44,362 +— +79,277 +Lance A. Lauck +2015 +24,000 +10,915 +18,375 +1,386 +54,676 +Daniel W. Amidon +2015 +24,000 +10,915 +19,758 +— +54,673 +Scott J. Reasoner +2015 +24,000 +10,915 +18,457 +— +53,372 +(1) +Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing +Plan. +(2) +Represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit +Sharing Plan. +(3) +Represents total value of perquisites provided by the Company. Note that for 2015, the Company paid $25,000 in +personal legal fees related to Mr. Shellum’s Retirement Agreement. No other individual perquisite exceeded $25,000. Types of perquisites included are primarily monthly automobile allowances, health club dues and spouse or family travel. +(4) +Includes Board-approved “tax gross-up” for any spouse or family member travel that was requested by +the Company and approved by the Board. +47 +Table of Contents +2015 GRANTS OF PLAN-BASED AWARDS +All Other +Stock +Awards: +Number of +Shares +of Stock +All Other +Option +Awards: +Number of +Securities +Underlying +Options +Exercise +or Base +Price of +Option +Awards +Grant Date +Fair Value of +Stock and +Option +Awards +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards (1) +Estimated Future Payouts +Under Equity Incentive Plan +Awards (2) +Threshold +Target +Maximum +Threshold +Target +Maximum +Name +Grant Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +1/1/2015 +— +625,000 +1,250,000 +— +— +— +— +— +— +— +1/13/2015 +(2) +— +— +— +5,736 +11,473 +22,946 +— +— +— +657,977 +(5) +1/13/2015 +(3) +— +— +— +— +— +— +— +26,643 +39.63 +585,880 +(6) +1/13/2015 +(4) +— +— +— +— +— +— +30,030 +— +— +1,190,089 +(7) +Gysle R. Shellum +1/1/2015 +— +292,000 +584,000 +— +— +— +— +— +— +— +1/13/2015 +(2) +— +— +— +2,629 +5,258 +10,516 +— +— +— +301,546 +(5) +1/13/2015 +(3) +— +— +— +— +— +— +— +12,212 +39.63 +268,542 +(6) +1/13/2015 +(4) +— +— +— +— +— +— +13,764 +— +— +545,467 +(7) +10/26/2015 +(8) +— +— +— +2,629 +5,258 +10,516 +— +— +— +259,114 +10/26/2015 +(8) +— +— +— +— +— +— +— +8,142 +39.63 +11,073 +10/26/2015 +(8) +— +— +— +— +— +— +9,176 +— +— +160,121 +10/26/2015 +(8) +— +— +— +3,013 +6,025 +12,050 +— +— +— +208,043 +10/26/2015 +(8) +— +— +— +— +— +— +— +4,207 +49.57 +— +10/26/2015 +(8) +— +— +— +— +— +— +4,979 +— +— +37,392 +Lance A. Lauck +1/1/2015 +— +294,950 +589,900 +— +— +— +— +— +— +— +1/13/2015 +(2) +— +— +— +2,629 +5,258 +10,516 +— +— +— +301,546 +(5) +1/13/2015 +(3) +— +— +— +— +— +— +— +12,212 +39.63 +268,542 +(6) +1/13/2015 +(4) +— +— +— +— +— +— +13,764 +— +— +545,467 +(7) +Daniel W. Amidon +1/1/2015 +— +252,000 +504,000 +— +— +— +— +— +— +— +1/13/2015 +(2) +— +— +— +2,031 +4,063 +8,126 +— +— +— +233,013 +(5) +1/13/2015 +(3) +— +— +— +— +— +— +— +9,436 +39.63 +207,498 +(6) +1/13/2015 +(4) +— +— +— +— +— +— +14,390 +— +— +570,276 +(7) +Scott J. Reasoner +1/1/2015 +— +243,200 +486,400 +— +— +— +— +— +— +— +1/13/2015 +(2) +— +— +— +1,673 +3,346 +6,692 +— +— +— +191,893 +(5) +1/13/2015 +(3) +— +— +— +— +— +— +— +7,771 +39.63 +170,884 +(6) +1/13/2015 +(4) +— +— +— +— +— +— +8,759 +— +— +347,119 +(7) +(1) +Represents target and maximum cash awards payable under the Company’s annual incentive plan. For a +description of the 2015 awards, see “2015 Compensation Decisions — Annual Cash Incentives.” +(2) +Represents performance share unit awards under the 2010 LTI Plan. For a description of the awards see +“2015 Compensation Decisions — Long Term Incentives.” +(3) +Represents annual time-based restricted stock unit awards under the 2010 LTI Plan. For a description of the +2015 awards, see “2015 Compensation Decisions — Long Term Incentives.” +(4) +Represents SARs awarded under the Company’s 2010 LTI Plan. For a description of the 2015 awards, see +“2015 Compensation Decisions — Long Term Incentives.” +(5) +Grant date fair value is computed by multiplying the number of performance shares units awarded by the grant +date fair value as computed utilizing the Monte Carlo pricing model, which was $57.35 per share. +(6) +Grant date fair value for SARs is computed by multiplying the number of SARs awarded by the grant date fair +value as computed utilizing the Black-Scholes pricing model, which was $21.99 per SAR. +(7) +Grant date fair value for restricted stock units is computed by multiplying the number of shares awarded by the +closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant which was $39.63. +(8) +Represents incremental fair value associated with vesting modifications made to Mr. Shellum’s 2014 +and 2015 SARs, restricted stock units and awards, and performance shares pursuant to his Retirement Agreement which was entered into on October 26, 2015. +48 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END +Options/SARs Awards +Stock Awards +Option/ +SAR +Expiration +Date +Number +of Shares +of Stock +That Have +Not +Vested (3) +(#) +Market +Value +of Shares of +Stock That +Have Not +Vested (4) +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares That +Have +Not +Vested (5) +(#) +Equity +Incentive +Plan Awards: +Market +Value +of Unearned +Shares That +Have Not +Vested (4) +($) +Number of Securities +Underlying Unexercised +Options/SARs Held at +December 31, 2015 +Option/ +SAR +Exercise +Price +($) +Name +Exercisable (1) +(#) +Unexercisable (2) +(#) +Barton R. Brookman +8,295 +— +24.44 +4/19/2020 +30,450 +1,625,421 +18,079 +965,057 +5,104 +— +43.95 +3/12/2021 +— +— +— +— +9,766 +— +30.19 +1/16/2022 +— +— +— +— +8,413 +4,207 +37.18 +1/16/2023 +— +— +— +— +9,193 +4,597 +49.57 +1/16/2024 +— +— +— +— +8,881 +17,762 +39.63 +1/13/2025 +Gysle R. Shellum (6) +— +4,207 +37.18 +1/16/2023 +20,534 +1,096,105 +11,283 +602,287 +4,207 +4,207 +49.57 +1/16/2024 +— +— +— +— +4,070 +8,142 +39.63 +1/13/2025 +Lance A. Lauck +7,319 +— +24.44 +4/19/2020 +17,142 +915,040 +10,078 +537,964 +4,176 +— +43.95 +3/12/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +6,730 +3,366 +37.18 +1/16/2023 +— +— +— +— +6,730 +3,366 +49.57 +1/16/2024 +— +— +— +— +4,070 +8,142 +39.63 +1/13/2025 +Daniel W. Amidon +7,807 +— +24.44 +4/19/2020 +17,560 +937,353 +8,883 +474,174 +4,176 +— +43.95 +3/12/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +6,730 +3,366 +37.18 +1/16/2023 +— +— +— +— +6,730 +3,366 +49.57 +1/16/2024 +— +— +— +— +3,145 +6,291 +39.63 +1/13/2025 +— +— +— +— +Scott J. Reasoner +2,590 +5,181 +39.63 +1/13/2025 +13,268 +708,246 +3,346 +178,609 +(1) +SARs exercisable as of December 31, 2015. +(2) +SARs granted in 2013, 2014 and 2015 vest ratably over three years. The exercise price related to the SARs does +not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(3) +The restricted stock in this column vests as follows: +Shares Vesting Per Year +2016 +2017 +2018 +Total +Barton R. Brookman +14,989 +5,451 +10,010 +30,450 +Gysle R. Shellum +20,534 +— +— +20,534 +Lance A. Lauck +8,571 +3,983 +4,588 +17,142 +Daniel W. Amidon +8,780 +3,983 +4,797 +17,560 +Scott J. Reasoner +7,914 +2,434 +2,920 +13,268 +(4) +The market value of these shares is based on the closing price of the Company’s common stock of $53.38, +as reported on NASDAQ Global Select Market on December 31, 2015. +49 +Table of Contents +(5) +Performance shares granted in 2014 and 2015 are contingent upon the achievement of certain specified stock +performance goals. For a description of the performance share grants in 2015, see “Terms of the 2015 Equity Grants — Performance Shares.” +(6) +Under the terms of Mr. Shellum’s retirement agreement, his SARs and Restricted stock will vest as of +his retirement date and his performance shares will be earned in full based on the Company’s performance through his retirement date (see “Potential Payments Upon Termination or Change of Control — Shellum Retirement Agreement”). +2015 OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value +Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting (1) +(#) +Value +Realized +on Vesting (2) +($) +Barton R. Brookman +— +— +36,294 +1,842,966 +Gysle R. Shellum +20,832 +472,532 +31,799 +1,596,054 +Lance A. Lauck +— +— +25,285 +1,271,253 +Daniel W. Amidon +— +— +25,493 +1,282,508 +Scott Reasoner +— +— +13,494 +723,530 +(1) +The number of shares shown below includes restricted stock and performance shares vesting in 2015: +Name +Restricted +Performance +Total +Barton R. Brookman +24,244 +12,050 +36,294 +Gysle R. Shellum +19,749 +12,050 +31,799 +Lance A. Lauck +15,645 +9,640 +25,285 +Daniel W. Amidon +15,853 +9,640 +25,493 +Scott J. Reasoner +13,494 +— +13,494 +(2) +The performance shares vesting in 2015 covered the three-year period January 1, 2013 through +December 31, 2015. Based on the Company’s excellent TSR performance over this three-year period, the Company ranked first among its peers, resulting in 200% of the target award payout to the Named Executive Officers above (see “2015 +Compensation Decisions — Long Term Incentives — 2013 — 2015 Performance Share Results” for more information). +(3) +Value of the restricted shares and performance shares that vested in 2015 is determined by multiplying the +number of shares vesting by the market value of the shares on the vesting date. +50 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company has in place both the Severance Plan and “grandfathered” employment agreements for the benefit of its +Named Executive Officers. As of December 31, 2015, only Messrs. Lauck and Amidon remained covered under their grandfathered employment agreements. Mr. Brookman relinquished his employment agreement and became a participant in the Severance +Plan upon his appointment as CEO in January of 2015, Mr. Reasoner became a participant in the Severance Plan upon his promotion to Senior Vice President in January 2015 and Mr. Shellum relinquished his employment agreement on +October 26, 2015 upon announcing his retirement and entering into his Retirement Agreement with the Company. For a description of the Retirement Agreement and the benefits provided thereunder, please see “Shellum Retirement +Agreement,” below. +The primary purpose of the Severance Plan and the employment agreements is to provide severance +benefits in the event of the termination of the Named Executive Officer by the Company without “just cause” or termination by the Named Executive Officer for “good reason,” either prior to or following a change in control of the +Company. Upon a change in control, the Severance Plan and individual employment agreements provide benefits only in the event that an executive is terminated by the acquiring company “without cause” or by the executive for “good +reason” (i.e., they are “double-trigger” in nature). +The severance benefits an executive would receive +under the Severance Plan under various termination scenarios are as follows: +• +Termination by the Company without “just cause” or termination by the executive for “good +reason”: +• +Tier One executive (CEO only) receives two times the sum of his or her base salary and target bonus for the +year; +• +Tier Two executives (all other Named Executive Officers) would receive one and one-half times the sum of his +or her base salary and target bonus for the year; and +• +Continuation of health benefits for up to 18 months. +• +Termination related to a change in control of the Company: +• +Tier One executive (CEO only) would receive three times the sum of his or her base salary and target bonus for +the year; +• +Tier Two executives (all other Named Executive Officers) would receive two and one-half times the sum of his +or her base salary and target bonus for the year; +• +All executives would receive a pro-rata bonus at the target amount for the year of termination; and +• +Continuation of health benefits for up to 18 months. +The Severance Plan provides a benefit “offset” so that cash benefits paid upon severance would be reduced by any +other severance benefits that the executive is entitled to receive under a Company (or successor company) plan. The grandfathered employment agreements provide similar benefits as the Severance Plan above, but vary in the amounts of cash benefit +provided to each covered Named Executive Officer. The following table +51 +Table of Contents +summarizes the cash payout under certain termination scenarios for each Named Executive Officer (other than Mr. Shellum) as of December 31, 2015: +TERMINATION WITHOUT +CAUSE OR FOR GOOD +REASON +TERMINATION DUE TO +CHANGE IN CONTROL +CONTROLLING PLAN +OR AGREEMENT +Barton R. Brookman +2x base plus +target bonus +3x base plus target bonus plus pro-rata +bonus for the year of termination +Severance Plan +Lance A. Lauck +2x base plus bonus* +3x base plus bonus* +Grandfathered Employment Agreement +Daniel W. Amidon +3x base plus bonus* +3x base plus bonus* +Grandfathered Employment +Agreement +Scott J. Reasoner +1.5x base plus target bonus +2.5x base plus target bonus plus pro-rata bonus for year of +termination +Severance +Plan +* +Highest bonus of last two years +As a condition of receiving severance benefits under the Severance Plan and under the terms of the grandfathered employment +agreements, there is a non-disclosure covenant and the executive officer is prohibited for a period of one year following his termination from engaging in any competing business within any county or in any adjacent county in which the Company is +doing business. In addition, the executive is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a change in +control of the Company, the Severance Plan provides for payment of the severance benefits over 12 months. +The +grandfathered employment agreements contain a clawback provision, while the executives covered under the Severance Plan are covered under the Company’s clawback policy (see “Clawback Policy”). The grandfathered employment agreements +automatically extend for 12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 +automatic extension date. +Impact of Termination and Change in Control on Long-Term Incentive Plans +Under the terms of the 2010 LTI Plan and related grant agreements and employment agreements, all unvested restricted stock, +stock options and SARs vest upon death, disability or change in control. The following table outlines the effect on outstanding unvested LTI awards under various termination scenarios and upon a +52 +Table of Contents +change in control of the Company based on the terms of the 2010 LTI Plan and related grant agreements and the executive employment agreements: +TERMINATION SCENARIO/ +CHANGE IN CONTROL +RESTRICTED +STOCK/SARs/ +OPTIONS +PERFORMANCE SHARES +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change in Control +Vests +Executives with Grandfathered Employment Agreements: +Forfeited +Executives in Severance Plan: +2013 and 2014 grants: Forfeited +2015 grants: Portion to be earned at end of performance period determined at time of termination at the sole discretion of the +Committee. +Death +Vests +Earned pro-rata based on performance through either date of +death or end of performance period. +Disability +Vests +Earned pro-rata based on performance at end of performance period. +Occurrence of a Change in +Control +Vests +If less than 50% of the +performance period has elapsed, earns 100% of performance shares. If 50% or more of the performance period has elapsed, earns greater of actual performance through change in control or 100% of performance shares. +Change in Control Excise Tax Provision +The Company currently provides no income tax gross-up or excise tax gross-up pursuant to taxes that may be imposed on +“excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and the grandfathered employment agreements provide that if it is determined that any payment or distribution by the +Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce +the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction +for such excess parachute payments under alternative (1) above, the Committee believes the cost to the Company would be minimal as a percentage of the entire value of the change of control transaction. +Shellum Retirement Agreement +As discussed above, in October 2015 Mr. Shellum announced his intention to retire from the Company, effective +June 30, 2016. Pursuant to Mr. Shellum’s Retirement Agreement with the Company, Mr. Shellum will continue to receive his current base salary through June 30, 2016. The Retirement Agreement provides that he is entitled to a +bonus for 2015, which was calculated and paid in the ordinary course as described above. He is entitled to a pro-rated target bonus for 2016. He is also entitled to a stay bonus of $700,000 if he remains +53 +Table of Contents +employed through June 30, 2016, along with a medical stipend paid following termination of employment for 30 months based on the amount of the then-current COBRA rate. +In addition, as part of the Retirement Agreement Mr. Shellum’s existing equity incentive awards were amended to +provide that: (i) he will receive full vesting of his outstanding SARs and restricted stock/restricted stock units if he remains employed through June 30, 2016 (with SARs vesting on such date being exercisable for 12 months following +termination), and (ii) outstanding performance shares as of such date shall vest and be earned based on performance through June 30, 2016. He agreed that no new equity grants would be received in 2016. +Should Mr. Shellum voluntarily quit or be terminated for cause prior to June 30, 2016, he would forfeit any of the +amounts and vestings set forth above that had not yet been paid or vested. In the event Mr. Shellum is terminated for any other reason prior to June 30, 2016, he would still be entitled to receive the payments and benefits set forth above, +as if his employment continued through June 30, 2016. +As part of the Retirement Agreement, Mr. Shellum is +required to execute a release agreement with the Company upon his termination of employment and will continue to be bound by the non-compete and other restrictive covenants set forth in his Retirement Agreement, as described above. +Termination Benefits Table +The tables below and the discussion that follows show compensation payable to each Named Executive Officer upon various +termination scenarios both before and after a change of control of the Company (“COC”) under Mr. Shellum’s Retirement Agreement, the Severance Plan, the applicable Named Executive Officer’s employment agreement and/or the +equity compensation plans. The amounts shown assume that termination occurred on December 31, 2015, that the closing price per share on such date was $53.38, and, in the event of termination due to COC, the executive’s benefit is not +reduced as a result of Section 280G and Section 49999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. +54 +Table of Contents +Barton R. Brookman +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +2,500,000 +(1) +3,750,000 +(2) +— +— +Pro-rata Bonus +— +— +— +625,000 +(3) +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +1,625,421 +(4) +1,625,421 +(4) +1,625,421 +(4) +1,625,421 +(4) +SARs +— +— +329,895 +(4) +329,895 +(4) +329,895 +(4) +329,895 +(4) +Performance Shares +— +— +(5) +1,317,685 +(6) +878,457 +(7) +878,457 +(8) +Benefits +Earned Profit Sharing (9) +10,915 +10,915 +10,915 +10,915 +10,915 +10,915 +Health Benefits Continuation +— +— +30,366 +(10) +30,366 +(10) +— +— +Total +10,915 +10,915 +4,496,597 +7,689,282 +2,844,688 +2,844,688 +(1) +Cash severance is equal to 2 times the sum of his base salary and target bonus. +(2) +Cash severance is equal to 3 times the sum of his base salary and target bonus. +(3) +Bonus amounts for 2015 are not determined until after December 31 and are subject to forfeiture until +paid. Mr. Brookman is entitled to a pro-rata target bonus under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on target bonus for 2015 which was adjusted and earned in February 2016 based on the Company’s +actual performance. +(4) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or +death. +(5) +For the 2015 performance shares, the Committee has the discretion to award from 0% up to 100% of the target +shares, adjusted for Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the 2015 performance shares. The 2014 performance shares would be forfeited. +(6) +For the 2015 performance shares, the value shown is the target number of shares awarded times 100% since less +than half the performance period has occurred. For the 2014 performance shares, since Company performance exceeded 100%, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%). +(7) +In the case of death, one-third of the 2015 performance shares would be earned based on performance through +date of death and two-thirds of the 2014 performance shares would be earned based on performance at the end of the performance period. The value shown is the target number of shares awarded adjusted for Company performance through December 31, +2015 (200%) times the pro-rata amount earned for the performance period. +(8) +In the case of disability, one-third of the 2015 and two-thirds of the 2014 performance shares would be +earned. Although payment would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%) times the pro-rata amount earned for +the performance period. +(9) +The profit sharing contribution for 2015 that was credited to Mr. Brookman’s 401(k) account in March +2016. +(10) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Brookman +and any covered dependents for an 18-month period. +55 +Table of Contents +Gysle R. Shellum +Element of Compensation +Voluntary +Termination +Termination +for Cause +Retirement +Termination +by Company +Without +Cause or by +Exec for +Good Reason +after COC +Death +Disability +Cash Compensation +Salary Continuation +— +— +182,500 +(1) +182,500 +(1) +182,500 +(1) +182,500 +(1) +2015 Bonus +— +— +292,000 +(2) +292,000 +(2) +292,000 +(2) +292,000 +(2) +Pro-rata 2016 Bonus +— +— +146,000 +(3) +146,000 +(3) +146,000 +(3) +146,000 +(3) +Stay Bonus +— +— +700,000 +(4) +700,000 +(4) +700,000 +(4) +700,000 +(4) +Acceleration of Unvested Equity +Restricted Stock +— +— +1,096,105 +(5) +1,096,105 +(5) +1,096,105 +(5) +1,096,105 +(5) +SARs +— +— +196,135 +(5) +196,135 +(5) +196,135 +(5) +196,135 +(5) +Performance Shares +— +— +1,204,573 +(6) +923,901 +(7) +1,204,573 +(6) +1,204,573 +(6) +Benefits +Earned Profit Sharing (8) +10,915 +10,915 +10,915 +10,915 +10,915 +10,915 +Health Benefits Continuation (9) +— +— +50,610 +50,610 +50,610 +50,610 +Other Benefits (10) +— +— +31,650 +31,650 +31,650 +31,650 +Total +10,915 +10,915 +3,910,488 +3,629,816 +3,910,488 +3,910,488 +(1) +Per the terms of his agreement, he will continue to receive his base salary through his retirement on +June 30, 2016. +(2) +Bonus amounts for 2015 are not determined until after December 31. Mr. Shellum is entitled to a +pro-rata target bonus under the terms of his Retirement Agreement. As a result, the pro-rata bonus shown is based on target bonus for 2015 which was adjusted and earned in February 2016 based on the Company’s actual performance. +(3) +Per the terms of his agreement, he will receive a pro-rata target bonus upon retirement. +(4) +Per the terms of his agreement, he will receive a $700,000 stay bonus upon his retirement. +(5) +Per the terms of his agreement, restricted shares and SARs vest and become exercisable upon retirement, +disability, death or change of control. +(6) +Per the terms of his agreement, the 2014 and 2015 performance shares are earned upon retirement, disability or +death based on Company performance through June 30, 2016. The value shown is the target number of shares awarded adjusted for the Company’s performance through December 31, 2015 (200%). +(7) +For the 2015 performance shares, the value shown is determined by using the target number of shares awarded +times 100% since less than half the performance period has occurred. For the 2014 performance shares, since Company performance exceeded 100%, the value shown is the target number of shares awarded adjusted for Company performance through +December 31, 2015 (200%). +(8) +The profit sharing contribution for 2015 that was credited to Mr. Shellums’ 401(k) account in March +2016. +(9) +Per the terms of his agreement, a lump sum payment equal to Company-subsidized COBRA premium to continue +health, vision and dental coverage to Mr. Shellum and any covered dependents for a 30-month period. +(10) +Per the terms of his agreement, he would receive a pro-rata 2016 automobile allowance of $7,650 and a 2016 +401(k) match of $24,000. +56 +Table of Contents +Lance A. Lauck +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +1,342,000 +(1) +2,013,000 +(2) +— +— +Salary Continuation +— +— +— +— +173,500 +(3) +260,250 +(4) +Pro-rata Bonus +— +294,950 +(5) +— +— +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +915,040 +(6) +915,040 +(6) +915,040 +(6) +915,040 +(6) +SARs +— +— +179,306 +(6) +179,306 +(6) +179,306 +(6) +179,306 +(6) +Performance Shares +— +— +(7) +795,255 +(8) +530,170 +(9) +530,170 +(10) +Benefits +Earned Profit Sharing (11) +10,915 +10,915 +10,915 +10,915 +10,915 +10,915 +Health Benefits Continuation +— +— +30,366 +(12) +30,366 +(12) +30,366 +(12) +30,366 +(12) +Total +10,915 +305,865 +2,477,627 +3,943,882 +1,839,297 +1,926,047 +(1) +Cash severance equal to 2 times the sum of his base salary and highest bonus paid in last two years +(2013 bonus paid in January 2014). +(2) +Cash severance equal to 3 times the sum of his base salary and highest bonus paid in the last two years (2013 +bonus paid in January 2014). +(3) +In the event of death, Mr. Lauck would receive a lump sum payment equal to six months base salary. +(4) +In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term +disability, Mr. Lauck would receive an additional lump sum payment equal to six months’ base. +(5) +Bonus amounts for 2015 are not determined until after December 31 and are subject to forfeiture until +paid. Mr. Lauck is entitled to a pro-rata bonus under the terms of his Agreement. As a result, the pro-rata bonus shown is based on target bonus for 2015 which was adjusted and earned in February 2016 based on the Company’s actual +performance. +(6) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or +death. +(7) +Performance shares awarded in 2014 and 2015 are forfeited. +(8) +For the 2015 performance shares, the value shown is the target number of shares awarded times 100% since less +than half the performance period has occurred. For the 2014 performance shares, since Company performance exceeded 100%, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%). +(9) +In the case of death, one-third of the 2015 award would be earned based on performance through date of death +and two-thirds of the 2014 performance shares would be earned based on performance at the end of the performance period. The value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 +(200%) times the pro-rata amount earned for the performance period. +(10) +In the case of disability, one-third of the 2015 and two-thirds of the 2014 performance shares would be +earned. Although payment would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%) times the pro-rata amount earned for +the performance period. +(11) +The profit sharing contribution for 2015 that was credited to Mr. Lauck’s 401(k) account in March +2016. +(12) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Lauck and +any covered dependents for an 18-month period. +57 +Table of Contents +Daniel W. Amidon +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +1,857,000 +(1) +1,857,000 +(1) +— +— +Salary Continuation +— +— +— +— +157,500 +(3) +236,250 +(4) +Pro-rata Bonus +252,000 +(5) +— +— +— +252,000 +(5) +252,000 +(5) +Acceleration of Unvested Equity +Restricted Stock +— +— +937,353 +(6) +937,353 +(6) +937,353 +(6) +937,353 +(6) +SARs +— +153,855 +(6) +153,855 +(6) +153,855 +(6) +153,855 +(6) +Performance Shares +— +— +(7) +731,466 +(8) +487,644 +(9) +487,644 +(10) +Benefits +Earned Profit Sharing (11) +10,915 +10,915 +10,915 +10,915 +10,915 +10,915 +Health Benefits Continuation +— +— +20,574 +(12) +20,574 +(12) +— +— +Total +262,915 +10,915 +2,979,697 +3,711,163 +1,999,267 +2,078,017 +(1) +Cash severance equal to 3 times the sum of his base salary and highest bonus paid or payable in last two years +(2013 bonus paid in January 2014 since 2015 bonus not yet determined). +(2) +Cash severance equal to 3 times the sum of his base salary and highest bonus paid in the last two years (2013 +bonus paid in January 2014 since 2015 bonus not yet determined). +(3) +In the event of death, Mr. Amidon would receive a lump sum payment equal to six months base salary. +(4) +In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term +disability, Mr. Amidon would receive an additional lump sum payment equal to six months’ base. +(5) +Bonus amounts for 2015 are not determined until after December 31 and are subject to forfeiture until +paid. Mr. Amidon is entitled to a pro-rata bonus under the terms of his Agreement (in the case of Voluntary Termination, only if he terminates after March 31). As a result, the pro-rata bonus shown is based on target bonus for 2015 which +was adjusted and earned in February 2016 based on the Company’s actual performance. +(6) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or +death. +(7) +Performance shares awarded in 2014 and 2015 are forfeited. +(8) +For the 2015 performance shares, the value shown is the target number of shares awarded times 100% since less +than half the performance period has occurred. For the 2014 performance shares, since Company performance exceeded 100%, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%). +(9) +In the case of death, one-third of the 2015 award would be earned based on performance through date of death +and two-thirds of the 2014 performance shares would be earned based on performance at the end of the performance period. The value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 +(200%) times the pro-rata amount earned for the performance period. +(10) +In the case of disability, one-third of the 2015 and two-thirds of the 2014 performance shares would be +earned. Although payment would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%) times the pro-rata amount earned for +the performance period. +(11) +The profit sharing contribution for 2015 that was credited to Mr. Amidon’s 401(k) account in March +2016. +(12) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Amidon and +any covered dependents for an 18-month period. +58 +Table of Contents +Scott J. Reasoner +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +820,800 +(1) +1,368,000 +(2) +— +— +Pro-rata Bonus +— +— +— +243,200 +(3) +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +708,246 +(4) +708,246 +(4) +708,246 +(4) +708,246 +(4) +SARs +— +— +71,239 +(4) +71,239 +(4) +71,239 +(4) +71,239 +(4) +Performance Shares +— +— +(5) +178,609 +(6) +119,073 +(7) +119,073 +(8) +Benefits +Earned Profit Sharing (9) +10,915 +10,915 +10,915 +10,915 +10,915 +10,915 +Health Benefits Continuation +— +— +30,366 +(10) +30,366 +(10) +— +— +Total +10,915 +10,915 +1,641,566 +2,610,575 +909,473 +909,473 +(1) +Cash severance is equal to 1.5 times the sum of his base salary and target bonus. +(2) +Cash severance is equal to 2.5 times the sum of his base salary and target bonus. +(3) +Bonus amounts for 2015 are not determined until after December 31 and are subject to forfeiture until +paid. Mr. Reasoner is entitled to a pro-rata target bonus under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on target bonus for 2015 which was adjusted and earned in February 2016 based on the Company’s +actual performance. +(4) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or +death. +(5) +For the 2015 performance shares, the Committee has the discretion to award from 0% up to 100% of the target +shares, adjusted for Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the 2015 performance shares. +(6) +The value shown is the target number of shares awarded times 100% since less than half the performance period +has occurred. +(7) +In the case of death, one-third of the 2015 performance shares would be earned based on performance through +date of death. The value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%) times the pro-rata amount earned for the performance period. +(8) +In the case of disability, one-third of the 2015 performance shares would be earned. Although payment would +not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2015 (200%) times the pro-rata amount earned for the performance period. +(9) +The profit sharing contribution for 2015 that was credited to Mr. Reasoner’s 401(k) account in March +2016. +(10) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Reasoner +and any covered dependents for an 18-month period. +59 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are +authorized for issuance as of December 31, 2015: +Plan Category +Number of +Securities to be +Issued Upon Exercise of +Outstanding Options +and Rights (1) +(#) +Weighted-Average +Exercise Price of +Outstanding Options +and Rights +($) +Number of +Securities Remaining +Available for +Future Issuance +Under Equity +Compensation Plans (2) +(#) +Equity compensation plans approved by +security holders +401,525 +39.05 +1,101,831 +Equity compensation plans not approved by security holders +— +— +— +Total +401,525 +39.05 +1,101,831 +(1) +Includes 71,549 shares of common stock to be issued based upon continuous employment and the maximum +achievement of certain performance goals over a specified period of time as described in “Outstanding Equity Awards at 2015 Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) +The number of securities remaining available for future issuances has been reduced by the number of securities +to be issued upon exercise of outstanding options, SARs and restricted shares subject to time vesting and certain market-based performance goals over a specified period of time. +STOCKHOLDER NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2017 Annual Meeting +Any proposal that a stockholder wishes to include in the Company’s Proxy Statement for the 2016 annual meeting of +stockholders must be received by the Company at its principal office on or prior to December 19, 2016, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice +Procedures Under the Company’s Bylaws +Any proposal or nomination for Director that a stockholder wishes to +propose for consideration at the 2017 annual meeting of stockholders, but does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which +provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote +who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the +first anniversary of the preceding year’s annual meeting. In the case of the 2017 annual meeting, the notice must be delivered between March 10, 2017 and March 21, 2017. However, the Bylaws also provide that if the meeting is held +more than 30 days before the anniversary of the prior year’s annual +60 +Table of Contents +meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first +made by the Company. +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at +the address listed above after March 4, 2017 that is intended to be presented at the 2017 annual meeting of stockholders without inclusion in the Proxy Statement for the meeting, the proxies designated by the Board will have discretionary +authority to vote on such proposal. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements +and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended +to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your +broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual +report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the +attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other +nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President +and Chief Executive Officer +Dated: April 20, 2016 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON +WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE +COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO, 80203. +61 +Table of Contents +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to +vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 2:00 am Eastern Time +on June 10, 2016. +Vote by Internet +• Go to www.envisionreports.com/PDCE +• Or scan the QR code with your +smartphone +• Follow the steps +outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE +(8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. +x +q IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board recommends a vote FOR all nominees and FOR Proposals 2 and 3. +1. Elect Two Class III Directors: +For +Withhold +For +Withhold ++ +01 - Larry F. Mazza +¨ +¨ +02 - Barton R. Brookman +¨ +¨ +For +Against +Abstain +2. Ratify the appointment of PricewaterhouseCoopers LLP as the independent +registered public accounting firm for the Company for the year ending December 31, 2016. +¨ +¨ +¨ +3. Approve, on an advisory basis, the compensation of the Company’s Named +Executive Officers. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print new address +below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When signing as attorney, executor, +administrator, trustee, guardian, or custodian, please give full title as such. If a corporation or partnership, please sign full corporate or partnership name, by an authorized officer or an authorized person, respectively. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 (if needed) — Please keep signature within the box. +/ +/ +Table of Contents +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, +FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy +Solicited by Board of Directors for 2016 Annual Meeting of Stockholders +The undersigned appoints LANCE A. LAUCK and DANIEL W. AMIDON, +and either of them, proxies, each with full power to act without the other and with full power of substitution for and in the name of the undersigned at the 2016 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) to be held +on June 9, 2016, at 1:00 p.m. Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters specified herein and on such other matters as may +properly come before the meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy +Statement for such meeting to be held on June 9, 2016, and a copy of the Company’s 2015 Annual Report. +THIS PROXY IS SOLICITED ON +BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR +EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 AND FOR EACH OF PROPOSAL 2 AND PROPOSAL 3. +In their discretion, the appointed +proxies are authorized to vote upon such other business as may properly come before the meeting and at any and all adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, SIGN, DATE AND RETURN YOUR PROXY +PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-16-548042/proxy_rpt.txt b/raw/proxies/0000077877/0001193125-16-548042/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4f9a34ec720c56e9c8cc64aab1c1867725dc07a8 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-16-548042/proxy_rpt.txt @@ -0,0 +1,18 @@ +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +From January 1, 2015 to the present, there was no transaction or series of transactions, nor is there any currently +proposed transaction involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the +immediate family of any of the foregoing persons, had or will have a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties +and potential conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement +involving a related person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any +potential related person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or +ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the +transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis and the impact of the transaction on the +Company’s business and operations. +25 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-17-128415/proxy.txt b/raw/proxies/0000077877/0001193125-17-128415/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..619cb49686f38df05921080a7230f1908f4caddf --- /dev/null +++ b/raw/proxies/0000077877/0001193125-17-128415/proxy.txt @@ -0,0 +1,4385 @@ +DEF 14A +1 +d296161ddef14a.htm +DEF 14A +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant ☒ Filed by a Party other than the +Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material Under Rule 14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☑ +No fee required. +☐ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 +(Set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +☐ +Fee paid previously with preliminary materials. +☐ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement no.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 19, 2017 +Dear Stockholder of PDC +Energy, Inc.: +You are cordially invited to attend the 2017 Annual Meeting of PDC Energy, Inc. to be held on May 30, 2017, at 1:00 +p.m. Mountain Time, at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203. +The accompanying Notice of Annual +Meeting and Proxy Statement provide information concerning the matters to be considered at the meeting. +We hope you will join us at the +Annual Meeting. Whether or not you plan to attend personally, it is important that your shares be represented at the Annual Meeting. We value your opinion and encourage you to participate in the Annual Meeting by voting your proxy. +You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it +promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend in person. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +PDC ENERGY, INC. +NOTICE OF +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +TUESDAY, MAY 30, 2017 +To the Stockholders of PDC +Energy, Inc.: +The 2017 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held on May 30, 2017, at 1:00 p.m. +Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes: +• +To elect the two nominees named in the accompanying Proxy Statement as Class I Directors of the Company, each for a term of three years; +• +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017; +• +To approve, on an advisory basis, the compensation of the Company’s named executive officers; +• +To conduct an advisory vote on the frequency (every one, two or three years) of future advisory votes on the compensation of the Company’s named executive officers; and +• +To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board of Directors has fixed the close of business on March 31, 2017, as the record date for determining the stockholders having the +right to receive notice of, to attend, and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock +entitled to vote is required to constitute a quorum. +Please vote by using the telephone or Internet voting options described in the +accompanying Notice of Internet Availability of Proxy Materials or, if the attached Proxy Statement and a proxy card were mailed to you, please sign, date and return the proxy card in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +Daniel W. Amidon +Senior Vice President, General Counsel and Secretary +April 19, 2017 +Table of Contents +PDC ENERGY, INC. +PROXY +STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on +May 30, 2017 at +1:00 p.m. Mountain Time at +The Denver Financial Center +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the +“Company,” “we,” “us” or “our”) for use at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 30, 2017, at 1:00 p.m. Mountain Time and at any and all +adjournments or postponements of the Annual Meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 19, 2017, we began mailing notices containing instructions for +accessing this Proxy Statement and our annual report online, and we began mailing proxy materials to stockholders who had previously requested delivery of the materials in paper form. For information on how to vote your shares, see the +instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING +TO BE HELD ON MAY 30, 2017 +The Notice of Annual Meeting, the Proxy Statement for the 2017 Annual Meeting, and the 2016 Annual Report to Stockholders, which includes +the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, are available at www.envisionreports.com/PDCE . +Table of Contents +TABLE OF CONTENTS +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +1 +How Proxies Work +1 +Voting 401(k) and Profit Sharing Plan Shares +1 +Revoking a Proxy +1 +Quorum +2 +Votes Needed +2 +Attending in Person +3 +Conduct of the Meeting +3 +Solicitation of Proxies +3 +Appraisal Rights +3 +Contact Information +3 +PROPOSALS REQUIRING STOCKHOLDER VOTE +4 +PROPOSAL NO. 1 — ELECT TWO CLASS I DIRECTORS +4 +Name, Principal Occupation for Past Five Years and Other Directorships +4 +REPORT OF THE AUDIT COMMITTEE +8 +PROPOSAL NO. 2 — +RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +9 +PROPOSAL NO. 3 — +APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +11 +PROPOSAL NO. 4 — +APPROVE, ON AN ADVISORY BASIS, THE FREQUENCY OF FUTURE ADVISORY VOTES ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +12 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2017 ANNUAL +MEETING +13 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER +MATTERS +13 +CORPORATE GOVERNANCE +15 +STANDING COMMITTEES OF THE BOARD +17 +DIRECTOR COMPENSATION +19 +DIRECTOR QUALIFICATIONS AND SELECTION +21 +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +22 +THE BOARD’S ROLE IN RISK MANAGEMENT +23 +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +23 +CODE OF BUSINESS CONDUCT AND ETHICS +24 +TRANSACTIONS WITH RELATED PERSONS +24 +ADDITIONAL INFORMATION +24 +EXECUTIVE OFFICERS +25 +COMPENSATION COMMITTEE REPORT +26 +COMPENSATION DISCUSSION AND ANALYSIS +26 +SUMMARY COMPENSATION TABLE +47 +2016 ALL OTHER COMPENSATION +49 +2016 GRANTS OF PLAN-BASED AWARDS +50 +OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END +51 +2016 OPTION EXERCISES AND STOCK VESTED +52 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +53 +EQUITY COMPENSATION PLAN INFORMATION +63 +STOCKHOLDER NOMINATIONS AND PROPOSALS +63 +HOUSEHOLDING INFORMATION +64 +Table of Contents +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of March 31, 2017, may vote at the Annual +Meeting. The outstanding voting securities of the Company as of March 31, 2017, consisted of 65,782,611 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the meeting. +How Proxies Work +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the +Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, one or both of the two Class I Director nominees. You may also vote for or against the other +proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing, and dating your proxy card and +returning it in the enclosed envelope. If you provide a signed proxy but do not specify how to vote, your shares will be voted (1) in favor of approval of both of the Class I Director nominees named in this Proxy Statement; +(2) in favor of the ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017; (3) to approve, on an +advisory basis, the compensation of the Company’s Named Executive Officers (as defined herein); and (4) to approve, on an advisory basis, a proposal that future advisory votes on the compensation of the Company’s Named Executive +Officers be held every year. If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank, or other nominee, you will receive material from that firm asking how you want to vote and +instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable +rules. Without your instruction, the nominee may vote only on the ratification of the appointment of PwC as our independent registered public accounting firm for 2017. A nominee’s inability to vote because it lacks discretionary +authority to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes may be different for each of the various proposals to be voted upon at the Annual +Meeting. For a description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan account as of +the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be counted if your proxy card is not +received by May 24, 2017. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +If you are a stockholder of record, you may revoke your initial proxy vote before it is voted at the Annual Meeting by: +• +Submitting a new signed proxy with a later date; +• +Notifying PDC’s Corporate Secretary in writing before the Annual Meeting that you wish to revoke your proxy; or +• +Appearing at the Annual Meeting, notifying the inspector of the election that you wish to revoke your proxy, and voting in person at the Annual Meeting. Merely attending the Annual Meeting will not result in +revocation of your proxy. +1 +Table of Contents +If you hold your shares through a broker, bank or other nominee, you must follow their +instructions to revoke your voting instructions or to otherwise vote at the Annual Meeting. +Quorum +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding +shares eligible to vote must be represented at the Annual Meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count for quorum purposes. +Votes Needed +The following table presents the voting requirements for electing the two Class I Director nominees, for determining the frequency of +future advisory votes on the compensation of the Company’s Named Executive Officers, and for approving the other proposals presented in this Proxy Statement. Under the “Uncontested Elections Policy” contained in Section 3(e) of +our Corporate Governance Guidelines, which may be viewed on our website at www.pdce.com , any nominee who receives a greater number of “withhold” votes than “for” votes is required to submit to the Board a letter of +resignation for consideration by the Nominating and Governance (“N&G”) Committee. For more information about our Uncontested Elections Policy, see “Corporate Governance — Uncontested Elections Policy” +below. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal +No. 1 +Elect two Class I Directors. +The two Class I Director nominees who receive the greatest number of votes will be elected Class I Directors for a +three-year term ending in 2020. There is no cumulative voting for Directors. Abstentions and broker non-votes will have no effect on the election of +Directors. +Proposal +No. 2 +Ratify the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2017. +The affirmative vote of a majority of votes present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as +votes against Proposal No. 2. Brokers will have discretionary authority to vote on Proposal No. 2. +Proposal +No. 3 +Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +The affirmative vote of a majority of votes present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes +against Proposal No. 3. Broker non-votes will have no effect on the vote on Proposal No. 3. +Proposal +No. 4 +Approve, on an advisory basis, the frequency (every one, two or three years) of future advisory votes on the compensation of the +Company’s Named Executive Officers. +The frequency option that receives the highest number of votes cast is the option that will be deemed approved by the stockholders. Abstentions and +broker non-votes will have no effect on Proposal No. 4. +2 +Table of Contents +Attending in Person +Only stockholders or their proxy holders, and PDC guests, may attend the Annual Meeting. For safety and security reasons, no cameras, +audio or video recording equipment, large bags, briefcases, packages or other items deemed unnecessary in PDC’s discretion will be permitted at the Annual Meeting. In addition, each stockholder, proxy holder, and PDC guest may be asked to +present valid, government-issued picture identification, such as a driver’s license, before being admitted to the Annual Meeting. +If +your shares are held in the name of your broker, bank, or other nominee, you must bring to the Annual Meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on March 31, 2017, the record date +for receiving notice of, attending, and voting at the Annual Meeting. +Conduct of the Meeting +The Chairman and Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This +authority includes establishing rules for stockholders who wish to speak at the Annual Meeting. The Chairman and Chief Executive Officer may also exercise broad discretion in recognizing stockholders who wish to speak and in determining the +extent of discussion on each item of business. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak on an item of business will be able to +do so. The Chairman and the Chief Executive Officer may also rely on applicable law regarding disruptions or disorderly conduct to ensure that the Annual Meeting is conducted in a manner that is fair to all stockholders. +Solicitation of Proxies +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, +nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the Notice of Internet Availability of Proxy Materials to the beneficial owners of the Company’s common stock. In addition to solicitations by +mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. The Company has entered into an +agreement with Morrow Sodali LLC, 470 West Avenue, 3rd Floor, Stamford, CT 06902, as its proxy solicitor and anticipates paying approximately $8,500 for such services. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our +stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, you may write to or call: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also +invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +3 +Table of Contents +PROPOSALS REQUIRING STOCKHOLDER VOTE +PROPOSAL NO. 1 — ELECT TWO CLASS I DIRECTORS +(Proposal 1 on the Proxy Card) +As of the +date of this Proxy Statement and as permitted by the Company’s Bylaws, the Board consists of eight members (“Directors”) divided into three classes. Directors are usually elected for three-year terms. The terms for members +of each class end in successive years. +The Board has nominated two continuing Class I Directors, David C. Parke and Jeffrey C. +Swoveland, to stand for re-election to the Board for three-year terms expiring in 2020. Mr. Parke joined the Board in 2003 and currently serves as a member of +the Compensation Committee, which he chairs, and the N&G Committee. Mr. Swoveland joined the Board in 1991 and currently serves as the Non-Executive Chairman of the Board, as well as a member of +the Audit and Compensation Committees. +The appointed proxies will vote your shares in accordance with your instructions and for the +election of the two Class I Director nominees, unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any +Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director, or for a +greater number of persons than the number of Director nominees named. +Board of Directors +As of the Annual Meeting, the composition of the Board and the term of each Director is expected to be as follows: +NOMINEES +FIRST ELECTED +DIRECTOR +EXPIRATION OF +CURRENT TERM +CLASS I: +David C. Parke +2003 +2017 +Jeffrey C. Swoveland +1991 +2017 +CLASS II: +Anthony J. Crisafio +2006 +2018 +Kimberly Luff Wakim +2003 +2018 +Randy S. Nickerson +2017 +2018 +CLASS III: +Larry F. Mazza +2007 +2019 +Barton R. Brookman +2015 +2019 +Name, Principal Occupation for Past Five Years and Other Directorships +NOMINEES FOR TERM EXPIRING IN 2020 — CLASS I +Name: +David C. Parke, Director +Age: +50 +Committees: +Compensation (Chair) +Nominating & Governance +• +Mr. Parke, who was first elected to the Board in 2003, has served as a Managing Director of EVOLUTION Life +Science Partners since October 2014. From June 2011 until October 2014, he +4 +Table of Contents +was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was Managing Director in the investment banking +group of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & +Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant +Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. +• +The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking and strategic advisory experience, including experience in the oil and gas +area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. +Name: +Jeffrey C. Swoveland, Director (Non-Executive +Chairman) +Age: +62 +Committees: +Audit +Compensation +• +Mr. Swoveland, a National Association of Corporate Directors Board Leadership Fellow, was first elected to the Board in 1991 and was elected Non-Executive Chairman of the +Board in June 2011. From 2006 until January 2014, Mr. Swoveland was first Chief Operating Officer and later President and Chief Executive Officer of ReGear Life Sciences, Inc. (previously named Coventina Healthcare Enterprises), which +develops and markets medical device products. From 2000 until 2007, Mr. Swoveland served as Chief Financial Officer of Body Media, Inc., a life-science company. Prior thereto, from 1994 to September 2000, Mr. Swoveland held +various positions including Vice President of Finance, Treasurer and interim Chief Financial Officer with Equitable Resources, Inc., a diversified natural gas company. Mr. Swoveland also has worked as a geologist and exploratory +geophysicist for both major and independent oil and gas companies. Mr. Swoveland served as a member of the Board of Directors of Linn Energy, LLC (NASDAQ: LINE), a public independent oil and natural gas company, from 2006 to 2017. +• +The Board has concluded that Mr. Swoveland is qualified to serve as a Director because, among other things, he brings to the Board extensive corporate management, accounting and finance experience, and oil and gas +industry expertise. Additionally, his prior service as a director of another public energy company allows him to provide leadership and knowledge of best practices that benefit the Company and his guidance and understanding of management +processes of other oil and gas companies benefits the Company as it continues to grow. +CONTINUING DIRECTORS WITH TERM +EXPIRING IN 2018 — CLASS II +Name: +Anthony J. Crisafio, Director +Age: +64 +Committees: +Audit +Compensation +• +Mr. Crisafio, a Certified Public Accountant (“CPA”) and a National Association of Corporate +Directors Board Leadership Fellow, was first elected to the Board in 2006. Mr. Crisafio has served as an independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of +industries. He has served as the part-time contract Chief Financial Officer for a number of companies in the past five years including Empire Energy, +5 +Table of Contents +LLC, MDS Associated Companies, and TruFoodMfg. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until +1993. From 1975 until 1989, he was employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several Securities and Exchange Commission (“SEC”) registered client engagements and +gained significant experience with oil and gas industry clients and mergers and acquisitions. Mr.Crisafio also serves as an Advisory Board member for a number of privately held companies. +• +The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other things, he is a CPA and brings to the Board more than 30 years of financial accounting and business management +expertise. +Name: +Randy S. Nickerson, Director +Age: +55 +Committees: +None +• +Mr. Nickerson was elected to the Board on March 4, 2017. Mr. Nickerson most recently served as the Executive Vice President, Corporate Strategy of Marathon Petroleum Corporation (“MPC”) +and Executive Vice President and Chief Commercial Officer, MarkWest assets, of the general partner of MPLX LP (“MPLX”). Mr. Nickerson announced his retirement from these positions, effective April 1, 2017, and now serves +MPC and MPLX in a consulting and advisory capacity. Mr. Nickerson joined MPC in 2015, at the time of MPC and MarkWest combination. From 1995 to 2015, Mr. Nickerson worked for MarkWest Energy Partners and its predecessors and +affiliated entities (“MarkWest”) in a series of operational and technical positions of increasing responsibility, culminating with the role of Senior Vice President, Corporate Development and Chief Commercial Officer. Prior to his +time with MarkWest, Mr. Nickerson served as Senior Project Manager and Regional Engineering Manager for Western Gas Resources, Inc., from 1990 to 1995, and for Chevron USA and Meridian Oil Inc. in various process and project engineering +positions from 1984 to 1990. Mr. Nickerson earned a bachelor’s degree in chemical engineering from the Colorado State University. +• +The Board has concluded that Mr. Nickerson is qualified to serve as a Director because, among other things, he has over 30 years of experience in oil and gas operations, with a focus on midstream asset development +and management, a critical element of the Company’s current strategy. +Name: +Kimberly Luff Wakim, Director +Age: +59 +Committees: +Audit +Compensation +Nominating and Governance +• +Ms. Wakim, an attorney and CPA, was first elected to the Board in 2003. Ms. Wakim is a Partner with the law firm Clark Hill, PLC (formerly Thorp, Reed & Armstrong LLP), where she is a member of +the Corporate Restructuring and Bankruptcy Practice group. She has practiced law with the firm since 1990. Ms. Wakim was previously an auditor with Main Hurdman (now KPMG) and was Assistant Controller for PDC from 1982 to +1985. She has been a member of the American Institute of Certified Public Accountants and the West Virginia Society of Certified Public Accountants for more than 20 years. +• +The Board has concluded that Ms. Wakim is qualified to serve as a Director because, among other things, she is an attorney and CPA, and brings to the Board a combination of a strong legal background and expertise +in accounting oversight. Ms. Wakim received a BSBA from West Virginia University and a J.D. from the West Virginia College of Law. +6 +Table of Contents +CONTINUING DIRECTORS WITH TERM EXPIRING IN 2019 — CLASS III +Name: +Barton R. Brookman, Director, President and Chief Executive Officer +Age: +54 +Committees: +None +• +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board on January 1, 2015, simultaneous with his appointment as the Company’s CEO. +Mr. Brookman originally joined the Company in July 2005 as Senior Vice President-Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and +Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of +increasing responsibility, ending his service at Patina as Vice President of Operations. +• +The Board has concluded that in addition to his status of CEO of the Company, Mr. Brookman is qualified to serve as a Director due, among other things, to his many years of oil and gas industry executive management +experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. Mr. Brookman holds a B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance +from the University of Colorado. +Name: +Larry F. Mazza, Director +Age: +56 +Committees: +Audit +Compensation +Nominating and Governance (Chair) +• +Mr. Mazza, a CPA, was first elected to the Board in 2007. Mr. Mazza is President, Chief Executive Officer and Director of MVB Financial Corp (“MVB”), a multi-state financial services +company. He has more than 28 years of experience in both large banks and community banks and is one of seven members of the West Virginia Board of Banking and Financial Institutions, which oversees the operation of financial institutions +throughout West Virginia and advises the state Commissioner of Banking. Mr. Mazza is also an entrepreneur and is co-owner of nationally-recognized sports media business Football Talk, LLC, a pro +football website and content provider for NBC SportsTalk. He also serves on the board of directors of a private financial technology startup, Billgo, headquartered in Fort Collins, Colorado. Prior to joining MVB in 2005, Mr. Mazza +was Senior Vice President & Retail Banking Manager for BB&T Bank’s West Virginia North region. Mr. Mazza was employed by BB&T and its predecessors from 1986 to 2005. Prior thereto, Mr. Mazza was President +of Empire National Bank, and later served as Regional President of One Valley Bank. Mr. Mazza also previously worked for KPMG (or its predecessors) as a CPA with a focus on auditing. +• +The Board has concluded that Mr. Mazza is qualified to serve as a Director because, among other things, he is a CPA, a CEO, and has extensive leadership and banking experience. Mr. Mazza also provides an +important link to community and employee stakeholders, demonstrating a continuing commitment to our workforce located in Bridgeport, West Virginia. Mr. Mazza graduated from West Virginia University with a degree in Business +Administration. +The election of the Class I Directors will be effected by an affirmative vote of a plurality of the +outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Directors. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE CLASS I NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN +THIS PROPOSAL NO. 1. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +7 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of five Directors and operates under a written charter adopted by the Board. Each member +of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing +Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in accordance with +generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the +standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee held five meetings during 2016. In addition, the Audit Committee has authorized Audit Committee member Joseph E. +Casabona to serve as a sub-committee of the Audit Committee to review and approve SEC periodic financial filings and other actions of the partnerships for which the Company serves as managing general partner +(collectively, the “Partnerships”). The sub-committee met six times during 2016 to review such partnership filings and PDC’s Form 11-K. The Audit Committee also authorized Audit +Committee member Anthony J. Crisafio to serve as a sub-committee of the Audit Committee during 2016 to assist the Company with its Chief Financial Officer search. This +sub-committee ceased its activity in December 2016 following the hire of Mr. David Honeyfield as Chief Financial Officer. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, +2016 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed +by Statement of Auditing Standards No. 61 (Codification of Statements of Auditing Standards AU § 380) as adopted by the PCAOB in Rule 3200T, as amended. The Audit Committee has received the written disclosures and the letter from PwC +required by PCAOB Rule 3526 and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed +appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board +include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. +Joseph E. Casabona, Chair +Anthony J. Crisafio +Larry F. Mazza +Jeffrey C. Swoveland +Kimberly Luff Wakim +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +8 +Table of Contents +PROPOSAL NO. 2 — RATIFY THE APPOINTMENT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +(Proposal 2 on the Proxy Card) +The Audit Committee has appointed PwC as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2017 and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is +expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +PRINCIPAL ACCOUNTANT FEES AND SERVICES +2016 +2015 +Audit Fees (1) +$ +2,420,000 +$ +2,120,000 +Audit-Related Fees (2) +26,513 +110,247 +Tax Fees (3) +24,854 +42,883 +All Other Fees (4) +— +154,585 +Total Fees +$ +2,471,367 +$ +2,427,715 +(1) +Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s annual consolidated financial statements and the report on +management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the consolidated financial statements included in our Quarterly +Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including fees related to +comfort letters and consents issued in conjunction with our securities offerings. +(2) +Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s annual consolidated financial +statements and are not reported under “Audit Fees.” Fees billed primarily include our proportionate share of amounts billed to the Company-sponsored partnerships for the audits of their annual financial statements. Total +amounts billed to the Company-sponsored partnerships in 2016 and 2015 were $70,000 and $282,300, respectively. +(3) +Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its proportionately consolidated entities. +(4) +Other fees consist of aggregate fees billed for product and services other than services reported above. +Audit Committee Pre-Approval Policies and Procedures +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be +subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of +all audit services and non-audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also be approved on an annual basis by the +Audit Committee if they are of a recurring nature. Permissible non-audit services which are to be performed by the independent accountant and are not eligible for annual +pre-approval must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services +performed by the independent accountant will be reported to the Audit Committee after the services +9 +Table of Contents +are fully performed. All of the services described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its +pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company’s website at www.pdce.com under +“Corporate Governance.” +The proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a +majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Brokers will have discretionary authority +to vote on this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 2. PROXIES +SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +10 +Table of Contents +PROPOSAL NO. 3 — APPROVE, ON AN ADVISORY BASIS, THE +COMPENSATION +OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +(Proposal 3 on the Proxy Card) +The +stockholders of the Company are entitled to cast an advisory non-binding vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers (as defined below). While this vote +is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and will take into consideration the outcome of the vote in connection with their ongoing evaluation of the +Company’s compensation program. In 2011, based on the stockholder vote at the 2011 Annual Meeting of Stockholders and engagement with some of the Company’s largest stockholders, the Company determined to hold a “say-on-pay” vote annually, consistent with the majority of votes cast in favor of an annual advisory vote. The next +non-binding advisory vote regarding such frequency will be held at the Annual Meeting, in accordance with SEC rules. (See Proposal 4 on the Proxy Card). +As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is +designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long-term performance necessary to create stockholder value. The program +also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s +compensation at risk demonstrates its pay-for-performance philosophy. In 2016, approximately 81 percent of the target compensation for our Named Executive +Officers, other than the CEO, was in the form of variable compensation which was “at risk” (i.e., incentive cash compensation, performance-based equity, stock appreciation rights (“SARs”) and restricted stock units). For +the Company’s CEO, this amount was 85 percent in 2016. +Each of the Named Executive Officers has been granted significant equity +awards, typically subject to ratable vesting over a three year period, to provide a stake in the Company’s long-term success. The Company also has demanding stock ownership guidelines applicable to its Named Executive Officers. The +Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company. +The Compensation Committee considers the results of the non-binding “say-on-pay” vote of our stockholders in making prospective compensation decisions. At our 2016 annual meeting of stockholders, over 98 percent of the votes cast approved, on an advisory +basis, the compensation of our Named Executive Officers. Accordingly, the Compensation Committee concluded that our executive compensation programs generally meet the expectations of our stockholders. We did not make any material changes +to our executive compensation programs in 2016. +In light of the foregoing, the Company believes that the compensation of the Named +Executive Officers for 2016 was appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following +resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named +Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy +Statement for the Company’s 2017 Annual Meeting. +This advisory vote will be approved if it receives the affirmative vote of a +majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker +non-votes will not affect the outcome of this proposal. +THE BOARD OF DIRECTORS UNANIMOUSLY +RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 3. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +11 +Table of Contents +PROPOSAL NO. 4 — FREQUENCY OF ADVISORY VOTE REGARDING EXECUTIVE +COMPENSATION +(Proposal 4 on the Proxy Card) +Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), the stockholders of the Company are entitled to +cast an advisory vote at the Annual Meeting to determine how frequently they should consider and cast an advisory vote to approve the compensation of the Company’s Named Executive Officers. The choices are: every one year, every two +years, every three years, or abstain. +The Company has held an advisory vote to approve the compensation of the Company’s Named +Executive Officers every year for the last six years. The Company, the Compensation Committee, and the Board of Directors believe that holding an advisory vote of Named Executive Officer compensation allows our stockholders to provide direct +input into our executive officer compensation philosophies. Accordingly, the Company, the Compensation Committee and the Board of Directors believe that it is appropriate and in the best interest of the Company and the Company’s +stockholders to cast an advisory vote on executive compensation annually. +The advisory vote on the frequency of future stockholder +advisory votes on the Company’s executive compensation is not binding on the Board; however, the Board and the Compensation Committee will carefully consider the voting results. The Company values the opinions of its stockholders and will +consider the outcome of the vote when making its determination regarding how frequently this advisory vote will be held. Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future +decide to conduct advisory votes on a less frequent basis and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to compensation programs. Abstentions and broker non-votes will not affect the outcome of this proposal. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote for a frequency of ANNUAL +future advisory votes regarding executive compensation. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR A FREQUENCY OF EVERY +ONE YEAR WITH RESPECT TO THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE +WITH THE STOCKHOLDERS’ SPECIFICATIONS. +12 +Table of Contents +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2017 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the +matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy to vote in +accordance with their discretion on such matters pursuant to such proxy. +SECURITY OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding +beneficial ownership of the Company’s common stock as of April 3, 2017, by (1) each person known by the Company to own beneficially more than five percent of the outstanding shares of common stock; (2) each Director of the Company; +(3) each Named Executive Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to +community property laws where applicable. As of April 3, 2017, 65,874,870 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman +Street, Suite 3000, Denver, Colorado 80203. +Name and Address of Beneficial Owner +Number of +Shares +Beneficially +Owned +Percentage +of Shares +Beneficially +Owned +FMR LLC +245 Summer Street +Boston, MA 02210 +7,100,771 +(1) +10.8 +% +BlackRock, Inc. +55 East 52nd Street +New York, NY 10022 +6,447,925 +(2) +9.9 +% +The Vanguard Group +100 Vanguard Blvd. +Malvern, PA 19355 +4,797,569 +(3) +7.3 +% +Barton R. Brookman, Jr. +191,120 +(4) +* +David W. Honeyfield +— +(5) +* +Lance A. Lauck +128,632 +(6) +* +Scott J. Reasoner +55,614 +(7) +* +Daniel W. Amidon +98,515 +(8) +* +R. Scott Meyers +4,903 +(9) +* +Jeffrey C. Swoveland +20,657 +(10) +* +Kimberly Luff Wakim +12,954 +(11) +* +David C. Parke +14,825 +(12) +* +Anthony J. Crisafio +14,318 +(13) +* +Joseph E. Casabona +26,817 +(14) +* +Larry F. Mazza +22,290 +(15) +* +Randy S. Nickerson +— +(16) +* +Gysle R. Shellum +7,560 +(17) +* +All directors and executive officers as a group (14 persons) +598,205 +(18) +* +* +Represents less than 1% of the outstanding shares of common stock. +(1) +As reported on a Schedule 13G/A filed with the SEC by FMR LLC on February 14, 2017, FMR LLC is a parent holding company in accordance with SEC Rule 13d-1(b)1(ii)(G) and holds +sole voting power as to 674,730 shares and sole dispositive power as to 7,100,771 shares. +13 +Table of Contents +(2) +As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 17, 2017, BlackRock, Inc. holds sole voting power as to 6,310,685 shares and sole dispositive power as to 6,447,925 shares. +(3) +As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 10, 2017, The Vanguard Group is an investment advisor in accordance with SEC Rule +13d-1(b)(1)(ii)(E) and holds sole voting power as to 66,573 shares, sole dispositive power as to 4,728,193 shares and shared dispositive power as to 69,376 shares. +(4) +Excludes 66,326 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 77,015 shares subject to SARs exercisable within 60 days of April 3, 2017. +(5) +Excludes 18,632 restricted stock units subject to vesting greater than 60 days after April 3, 2017. +(6) +Excludes 26,137 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 51,578 shares subject to SARs exercisable within 60 days of April 3, 2017. +(7) +Excludes 20,164 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 8,359 shares subject to SARs exercisable within 60 days of April 3, 2017. +(8) +Excludes 17,814 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 49,296 shares subject to SARs exercisable within 60 days of April 3, 2017. +(9) +Excludes 12,713 restricted stock units subject to vesting greater than 60 days after April 3, 2017. +(10) +Excludes 5,809 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 3,247 common shares deferred pursuant to Non-Employee Director +Deferred Compensation Plan. +(11) +Excludes 4,639 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 7,124 common shares deferred pursuant to the Non-Employee Director +Deferred Compensation Plan. +(12) +Excludes 4,639 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 1,697 common shares deferred pursuant to the Non-Employee Director +Deferred Compensation Plan. +(13) +Excludes 4,639 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 425 common shares deferred pursuant to the Non-Employee Director +Deferred Compensation Plan. +(14) +Excludes 4,639 restricted stock units subject to vesting greater than 60 days after April 3, 2017. +(15) +Excludes 4,639 restricted stock units subject to vesting greater than 60 days after April 3, 2017. +(16) +Excludes 2,423 restricted stock units subject to vesting greater than 60 days after April 3, 2017. +(17) +The shares reported are based on the Company’s knowledge and were determined in accordance with the latest Form 4 filed by the Company on Mr. Shellum’s behalf, dated July 5, 2016. Transactions +in Company stock by Mr. Shellum since that date, if any, are not reflected in this number. +(18) +Excludes 193,213 restricted stock units subject to vesting greater than 60 days after April 3, 2017; includes 12,493 common shares deferred pursuant to the Non-Employee +Director Deferred Compensation Plan and 186,248 SARs exercisable within 60 days of April 3, 2017. +Each SAR referenced +in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $24.44 to $51.63, +payable in shares only. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10 percent +of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10 percent of the common stock are required by SEC +rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable +transactions were reported, the Company believes that, during the fiscal year ended December 31, 2016, the Company’s executive officers and Directors and owners of more than 10 percent of the Company’s common stock timely filed +all reports they were required to file under Section 16(a) of the Exchange Act, with the exception of one Form 4 amendment filed on April 5, 2016 that reported the award of restricted stock units to Mr. Scott Meyers (the original Form 4 +filed on April 1, 2016 inadvertently failed to report the award of such restricted stock units). +14 +Table of Contents +CORPORATE GOVERNANCE +Corporate Governance Guidelines +The +Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines +address: +• +Director selection qualification and responsibilities; +• +The holding and frequency of executive sessions of independent directors, Board self-evaluation and senior executive performance reviews; +• +Board committee structure and function; +• +Succession planning; and +• +Governance matters, standard of business conduct and Board committee responsibilities. +The +Corporate Governance Guidelines were most recently amended on June 4, 2015. +Uncontested Elections Policy +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for +Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will +promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the +“withhold” votes in a different way. +In making this recommendation, the N&G Committee will consider all factors deemed +relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has +been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting +the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into account the factors considered by the N&G Committee and such additional +information and factors as the Board believes to be relevant. +Other Corporate Governance Documents +The Company’s website includes the Corporate Governance Guidelines and the following additional governance documents: +Director Nomination Procedures +Director Stock Ownership Guidelines +Insider Trading Policy +Shareholder Communication Policy +Audit Committee Charter +Compensation Committee Charter +Nominating and Governance Committee Charter +Non-Executive Chairman Charter +Code of Business Conduct and Ethics +Waivers of Potential Conflicts of Interest +15 +Table of Contents +Board of Directors +The Company’s Bylaws provide that the number of members of the Board shall be designated from time to time by a resolution of the Board, +provided that pursuant to the Company’s Certificate of Incorporation (the “Charter”) the number of directors on the Board shall in no event be fewer than three or more than nine. As of the date of this Proxy Statement, the +designated number of Directors is eight. Under the Charter, the Board is divided into three separate classes of Directors which are required to be as nearly equal in number as practicable. At each annual meeting of stockholders, one +class of Directors whose term has expired may be elected to a new term of three years. The classes are staggered so that the term of one class expires each year. +There is no family relationship between any Director or executive officer of the Company. There are no arrangements or understandings +between any Director or officer and any other person pursuant to which the person was selected as an officer or Director of the Company. +Director +Independence +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing +standards, which set forth certain circumstances under which a director may not be considered independent. The current President and CEO of the Company, Mr. Brookman, is not independent under such standards. Audit Committee and +Compensation Committee members are subject to additional, more stringent independence requirements. +The Board has reviewed the business +and charitable relationships between the Company and each non-employee Director (“Non-Employee Director”) to determine compliance with the NASDAQ listing +standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors (i.e., Messrs. Casabona, Crisafio, Mazza, Nickerson, Parke and Swoveland, and Ms. Wakim) is independent under NASDAQ Listing Rule 5605, the Exchange Act and our Board committee charter +requirements. +Board Meetings and Attendance +The Board has a standing Audit Committee, Compensation Committee and N&G Committee. Actions taken by these committees are reported to +the Board at its next meeting. During 2016, each Director other than Mr. Nickerson, who joined the Board on March 4, 2017, attended at least 75 percent of all meetings of the Board and committees of which he or she was a +member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors (other than Ms. Wakim, who attended via teleconference, and +Mr. Nickerson, who was not a director at that time) attended the 2016 annual meeting of stockholders held on June 9, 2016. +16 +Table of Contents +The following table identifies the members of each committee of the Board, the chair of each +committee, and the number of meetings held in 2016. +2016 BOARD AND COMMITTEE +MEMBERSHIPS +Director +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and +Governance +Committee +Barton R. Brookman +x +Joseph E. Casabona +x +x +(1) +x +Anthony J. Crisafio +x +x +x +Larry F. Mazza +x +x +x +x +(1) +David C. Parke +x +x +(2) +x +Jeffrey C. Swoveland (3) +x +x +x +James M. Trimble (4) +x +Kimberly Luff Wakim +x +x +x +(2) +x +Number of Meetings in 2016 +10 +(5) +5 +(6) +9 +5 +1. +Served as Chair the entire year. +2. +Ms. Wakim served as Chair of the Compensation Committee from January 1, 2016, through October 14, 2016, at which time the role transitioned to Mr. Parke. +3. +Non-Executive Chairman. +4. +Mr. Trimble ceased to serve as a director of the Company following the 2016 annual meeting of stockholders. +5. +In addition to the ten regular meetings that were held during 2016, there were an additional 10 meeting updates held during 2016, which were primarily related to the Company’s Delaware Basin Transactions (as +defined below). See Compensation Discussion and Analysis — 2016 Business Highlights for a description of the Delaware Basin Transactions. +6. +A sub-committee of the Audit Committee held six additional meetings in 2016 related to SEC filings for partnerships for which the Company serves at the managing general partner +the Company’s Form 11-K, and related matters. +The Non-Employee Directors +generally meet in “executive session” in connection with each regularly scheduled Board meeting — i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. Mr. Swoveland +chairs these sessions; however, the other Non-Employee Directors may, in the event of his absence, select another Director to preside over the executive session. +STANDING COMMITTEES OF THE BOARD +Audit Committee +The Audit Committee is +composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit +Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended on September 18, 2015, and is posted on the Company’s website at www.pdce.com under Corporate Governance. The Board +assesses the adequacy of the Audit Committee Charter on an annual basis and revises it as necessary. The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations. +The Audit Committee’s primary purpose is to assist the Board in monitoring the integrity of the Company’s financial reporting process, systems of internal controls, financial statements, and compliance with legal and regulatory +requirements. +17 +Table of Contents +Additionally, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditors engaged by the Company for the purpose of preparing or +issuing an audit report or related work. In performing its responsibilities, the Audit Committee: +• +Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; +• +Monitors the independence of the independent registered public accounting firm; and +• +Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Compensation Committee +The Board has +determined that all members of the Compensation Committee are independent of the Company under Rules 5605(a) (2) and 5605(d)(2) of the NASDAQ listing standards. The Board has adopted a Compensation Committee Charter, which was most +recently amended and restated in September 2013, and is posted on the Company’s website at www.pdce.com under Corporate Governance. In performing its responsibilities, the Compensation Committee: +• +Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +• +Evaluates the performance of and establishes the compensation of the CEO; +• +Reviews and approves the elements of compensation for other senior executive officers of the Company; +• +Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change in control plans; +• +Reviews the Directors’ compensation and recommends to the Board any changes in such compensation; +• +Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; +• +Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves all equity grants under the plans and administers all equity-based incentive programs of the +Company, which may include specific delegation to management to grant awards to non-executive officers; and +• +Reviews and approves Company contributions to Company-sponsored retirement plans. +Compensation Committee +Interlocks and Insider Participation +There were no Compensation Committee interlocks during fiscal year 2016. +Nominating and Governance Committee +The +Board has determined that all members of the N&G Committee are independent of the Company under Rule 5605(a)(2) of the NASDAQ listing standards. The Board has adopted a Nominating and Governance Committee Charter, which was most recently +amended and restated on June 4, 2015 and can be viewed on the Company’s website at www.pdce.com under Corporate Governance. In performing its responsibilities, the N&G Committee: +• +Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending +nominees for election at the next annual meeting of stockholders or to fill any vacancies; +18 +Table of Contents +• +Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +• +Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the members’ contributions; and +• +Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the +Non-Executive Chair position. +Board Leadership Structure +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our +current leadership structure, under which Mr. Brookman currently serves as President and CEO and Mr. Swoveland serves as Non-Executive Chairman of the Board, is the appropriate structure for our +Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that as Directors continue to have increasing oversight responsibilities, it is beneficial to have an +independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship which, given the separation of their +positions, provides strong Board leadership while positioning our CEO as the leader of the Company in front of our employees and stockholders. The Board reconsiders this structure at least annually. +DIRECTOR COMPENSATION +Non-Employee Directors’ compensation is reviewed annually by the Compensation Committee and is +approved by the Board. We compensate Directors on an annual basis with a combination of cash and stock-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors with our stockholders. In +determining how much to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. No compensation is paid to our CEO for his service on the +Board. +In 2016, the Compensation Committee used its independent compensation consultant to review executive compensation and to conduct +an annual review of the total compensation of our Non-Employee Directors (see “Role of the Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement). +The consultant evaluated board and committee retainer fees, potential meeting fees and stock-based long-term incentives using, as the competition benchmark, total compensation paid to the directors of the energy companies which comprise the +Company’s peer group used to determine 2016 executive compensation. +Below is a summary of the compensation paid to our Non-Employee Directors for service in 2016. All Board and committee retainers are paid in quarterly installments. +Cash Compensation +Annual Board Retainer +Each Non-Employee Director received an annual cash retainer of $75,000 for service on the +Board and for attendance at all Board meetings. The Non-Executive Chairman received an additional cash retainer of $100,000. +Annual Committee Retainers +Each Non-Employee Director receives an annual cash retainer for service on each committee and for attendance at committee meetings on which he or she serves. The Non-Employee +Directors are not paid based on +19 +Table of Contents +the number of meetings they attend. The chair of each committee receives an additional annual retainer for his or her services as chair. The following table shows the committee and +chair retainers: +COMMITTEE RETAINERS +Committee +Committee +Retainer +Additional +Committee +Chair +Retainer +Audit +$ +15,000 +$ +20,000 +Compensation +12,000 +15,000 +Nominating and Governance +6,000 +10,000 +In addition: +• +The Audit Committee has established a sub-committee to review and approve SEC financial filings for certain partnerships for which the Company is the managing general +partner. Mr. Casabona was the sole member of this committee in 2016 and received a cash retainer of $5,500 in this capacity. +• +The Audit Committee established a sub-committee in 2016 to consult with management on the search for a successor Chief Financial Officer. Mr. Crisafio was the sole +member of this committee in 2016 and was paid $41,925 for serving in this capacity. +Equity Compensation +In January 2016, the Non-Employee Directors were awarded restricted stock units for their service on +the Board. The Non-Executive Chairman was granted restricted stock units targeted to be the equivalent of $175,000 (3,115 restricted stock units) and the remaining +Non-Employee Directors each received restricted stock units targeted to be the equivalent of $140,000 (2,492 restricted stock units). The restricted stock units vest ratably over three years and were +granted under the Company’s Amended and Restated 2010 Long-Term Equity Compensation Plan, which was most recently approved by stockholders in 2013 (as the same has been amended from time to time, the “2010 LTI Plan”). +Deferred Compensation +Each Non-Employee Director may choose to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible restricted stock units pursuant to the +Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). All compensation that is deferred pursuant to the Deferred Comp Plan is used to acquire shares of phantom stock, +which shares are credited with hypothetical earnings and losses as if invested in common stock of the Company. As of December 31, 2016, four Directors had deferred cash and/or equity compensation in accordance with the Deferred Comp Plan. +Director Stock Ownership Requirements and Prohibition on Certain Transactions +Each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least +five times his or her annual Board retainer. Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned shares and unvested Company restricted stock units, as well as stock equivalents +held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2016, all of the Directors met or exceeded the ownership +expectations under the guidelines. The Director Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The Company’s Insider Trading Policy expressly prohibits Non-Employee Directors from short-term +trading (purchasing and selling Company securities within a six-month period), short sales of Company securities, +20 +Table of Contents +hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or +pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +Director Compensation +Compensation paid +to the Non-Employee Directors for 2016 was as follows: +2016 DIRECTOR COMPENSATION +Name +Fees Earned or +Paid in Cash (1) +($) +Stock Awards (2) +($) +Total ($) +Joseph E. Casabona (3) +121,500 +128,662 +250,162 +Anthony J. Crisafio (4) +143,925 +128,662 +272,587 +Larry F. Mazza +118,000 +128,662 +246,662 +David C. Parke +93,000 +128,662 +221,662 +Jeffrey C. Swoveland (5) +202,000 +160,828 +362,828 +Kimberly Luff Wakim +(6) +123,000 +128,662 +251,662 +(1) +Includes annual Board retainer, regular committee and committee chair retainers, Audit sub-committee fees, any cash compensation paid for participation on the Special Committee, +and retainers for the Non-Executive Chairman of the Board. No per-meeting fees are paid. +(2) +On January 11, 2016, the Company awarded 3,115 restricted stock units to the Non-Executive Chairman and 2,492 restricted stock units to each other Non-Employee Director equal to $175,000 and $140,000 of value, respectively, using the average of the 15-day closing prices ending ten days prior to the grant date +($56.18). The slightly lower amounts reported in the table reflect the grant date fair value as computed in accordance with FASB ASC Topic 718. +(3) +Mr. Casabona’s cash compensation includes $5,500 for his audit sub-committee services related to the Partnerships. +(4) +Mr. Crisafio’s cash compensation includes $41,925 for his audit sub-committee services to consult with management on the search for a successor Chief Financial Officer. +(5) +Mr. Swoveland’s cash compensation includes $100,000 for his service as Non-Executive Chairman. +(6) +Mr. Nickerson joined the Board in March, 2017, and therefore received no compensation during 2016. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that prescribe the process the N&G Committee will use to recommend nominees for +election to the Board. The Director Nomination Procedures can be viewed on the Company’s website. The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge (specifically +within the industry and relevant industries in which the Company operates, as well as his or her overall experience and knowledge), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on +the particular candidate. +Additional factors considered by the N&G Committee include the size and composition of the Board at the +time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. Accordingly, one or more of these factors may be given more weight in a particular case at a particular time, although no single +factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +21 +Table of Contents +The N&G Committee identifies Director candidates primarily through recommendations made by +the Non-Employee Directors. These recommendations are developed based on the Non-Employee Directors’ knowledge and experience in a variety of fields and on +research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, +regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director +nominees, but did not do so in 2016. +Diversity Consideration +In addition to qualities of intellect, integrity and judgment, the N&G Committee takes into consideration diversity of background, senior +management experience, education and an understanding of some combination of oil and gas marketing, finance, technology, government regulation and public policy. The N&G Committee makes its determination in the context of an assessment of +the perceived needs of the Board at that point in time. The N&G Committee evaluates all Director nominees, including any nominees recommended by stockholders, using these criteria. The Director nomination process specifically +includes disclosure of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. +STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS +Stockholder Recommendations +The N&G +Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G +Committee by writing to the N&G Committee at the Company’s headquarters or by email to board@pdce.com . All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +• +Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination Procedures; +• +An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +• +Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +• +An indication of the willingness of the proposed nominee to serve if nominated and elected. +Stockholder +Nominations +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders +who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. The stockholder must give written notice to the Corporate Secretary at PDC Energy, Inc., 1775 Sherman Street, Suite 3000, Denver, +Colorado 80203 or may email notice to board@pdce.com . In the case of an annual meeting, the notice must be provided not later than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual +meeting. If the date of the annual meeting is more than 30 days before or more than 60 days after that anniversary date, however, for notice by such stockholder to be timely, it must be received not earlier than 90 days and not later than 80 +days before the annual meeting, or, if the first public announcement of the date of such annual meeting is less than 100 days prior to such annual meeting, within 10 days following the Company’s public announcement of the date of its annual +meeting. The stockholder must be a stockholder of record at the time the notice is given and at the time of the annual meeting. The written notice must set forth, among other things, (1) as to each nominee, all information relating +to that +22 +Table of Contents +person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the +Exchange Act (including such person’s written consent to serving as a Director if elected); (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made (a) the name and address of +the stockholder, as they appear on the Company’s books, and of such beneficial owner, and (b) the class and number of shares of the Company’s securities that are beneficially owned by such stockholder and the beneficial owner. +THE BOARD’S ROLE IN RISK MANAGEMENT +The Board seeks to understand and oversee the Company’s critical business risks. Risks are considered in every business decision, +including by means of Board oversight of the Company’s internal risk management system. For instance, an assessment of potential risks (financial and otherwise) is included in every acquisition proposal presented to the Board. The +Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key +strategic goals. While the entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing risk and specifically reviews +risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers risks related to the structure and size of the Company’s +compensation plans, as set out below. +We believe that our Board leadership structure supports its risk oversight function. Among +other things, there is open and continuous communication between our management and our Directors. +Compensation Risk Assessment +We do not believe that the Company’s executive or non-executive compensation structure is +reasonably likely to have a material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +• +A balance of short-term and long-term programs to ensure focus on both elements of Company performance; +• +Limitations on awards payable to any individual under our bonus programs, along with Compensation Committee discretion to decrease bonus payouts in the event that it believes excessive risk was taken; +• +“Clawback” provisions are applicable to all Named Executive Officers through the terms of their employment agreements or pursuant to the Company’s Clawback Policy, as applicable; +• +Stock ownership requirements are in place for our Named Executive Officers and Non-Employee Directors; and +• +An Insider Trading Policy that prohibits employees and Directors from transacting Company shares without first obtaining pre-clearance from the Company’s General Counsel, +even during open trading windows. +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee at the +Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +23 +Table of Contents +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, +agents, consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to +additional specific provisions under the Code of Conduct. The Code of Conduct can be viewed on the Company’s website at www.pdce.com . In the event the Board approves an amendment to or a waiver of any provisions of the Code +of Conduct, the Company will disclose the information on its website. In 2016, the Board approved a waiver regarding any potential conflict related to (1) Mr. Swoveland’s prior service on the Board of Directors of Linn Energy, +LLC; and (2) the service of Mr. Trimble on the Board of Directors of Callon Petroleum Company (during 2016, when Mr. Trimble still served on the Board). Mr. Swoveland’s waiver can be found on the Company’s +website. +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +During 2016, there +was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than +five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential +conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify +a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction +to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the +Company’s business and operations. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the +Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . These documents may also be viewed at the SEC’s public reference room located at 100 F +Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference +room. +24 +Table of Contents +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years, and additional information is set forth +below. +BARTON R. BROOKMAN, 54, see “Continuing Directors with Term Expiring in 2019 — Class III” for biographical +information concerning Mr. Brookman. +LANCE A. LAUCK, 54, was appointed Executive Vice President Corporate Development and Strategy in +January 2015. Mr. Lauck has overall responsibilities for PDC’s business development, acquisitions and divestitures, strategic planning, corporate reserves and midstream and marketing. Mr. Lauck joined PDC in August 2009 as +Senior Vice President Business Development with the added responsibility of leading PDC’s strategic planning efforts. Previously, he served as Vice President — Acquisitions and Business Development for Quantum Resources Management +LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level +positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck +graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +DAVID W. HONEYFIELD, +50, Chief Financial Officer and Senior Vice President, joined PDC in December 2016. Mr. Honeyfield has over 25 years of energy and natural resource related experience, including a background in accounting, finance, midstream and +marketing, operations, treasury, and capital markets. Mr. Honeyfield was most recently Vice President and Chief Financial Officer for Jonah Energy LLC based in Denver, Colorado. His previous experience includes six years at Intrepid +Potash, Inc. most recently as President and Chief Financial Officer. Previously, he served in various leadership roles at SM Energy Company, Cimarex Energy Co., and Arthur Andersen LLP. Mr. Honeyfield currently serves on the Board +of Directors for Children’s Hospital Colorado where he chairs the Finance Committee. He also serves on the Board of the Winter Park Ski Education Foundation, and was former President of the Board for Habitat for Humanity of Metro +Denver. Mr. Honeyfield holds a BA in Economics from the University of Colorado and is a Certified Public Accountant. +DANIEL W. +AMIDON, 56, Senior Vice President, General Counsel and Secretary, was appointed General Counsel and Secretary in July 2007 and Senior Vice President in 2012. Prior to joining the Company, Mr. Amidon was employed by Wheeling-Pittsburgh +Steel Corporation beginning in July 2004, where he served in several positions including General Counsel and Secretary. Prior thereto, Mr. Amidon was employed by J&L Specialty Steel Inc. from 1992 through July 2004 in positions of +increasing responsibility, including General Counsel and Secretary. Mr. Amidon practiced with the Pittsburgh, Pennsylvania law firm of Buchanan Ingersoll PC from 1986 through 1992. Mr. Amidon graduated from the University of +Virginia, with honors, majoring in economics. He received his J.D. from the Dickinson School of Law (now Penn State Law). +SCOTT J. +REASONER, 56, is the Company’s Chief Operating Officer, a position to which he was appointed in January 2017. Mr. Reasoner joined the Company in April 2008 as Vice President of Western Operations. Mr. Reasoner has over 30 +years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble Energy Inc. where he was responsible for the Mid-Continent +team. Prior to his work with Noble Energy, Mr. Reasoner worked for Patina Oil and Gas Company as Production Manager and later as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and +Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer. +With the exception of Messrs. Reasoner and Honeyfield, each of the above was an executive officer of the Company in September 2013, when each +of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. +25 +Table of Contents +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and +Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +David C. Parke, Chair +Anthony J. Crisafio +Larry F. Mazza +Jeffrey C. Swoveland +Kimberly Luff Wakim +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +COMPENSATION DISCUSSION AND ANALYSIS +Executive Summary +The Compensation +Committee (referred to in this section as the “Committee”) believes that executives should be paid based on the performance of the Company. This Compensation Discussion and Analysis (“CD&A”) provides stockholders with +an understanding of our compensation philosophy, objectives, policies and practices in place during 2016, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the compensation of our +Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), our three other most highly compensated officers, and where required, Messrs. Gysle Shellum and Scott Meyers, each of whom served as the Company’s +Principal Financial Officer for a period of time during 2016 (collectively, the “Named Executive Officers”), namely: +Barton R. Brookman +President and Chief Executive Officer +David W. Honeyfield +Senior Vice President — Chief Financial Officer +Lance A. Lauck +Executive Vice President — Corporate Development and Strategy +Scott J. Reasoner +Senior Vice President — Chief Operations Officer +Daniel W. Amidon +Senior Vice President — General Counsel and Secretary +Gysle R. Shellum +Former Senior Vice President — Chief Financial Officer +R. Scott Meyers +Vice President and Chief Accounting Officer/Former Interim Principal Financial Officer +Leadership Changes +In October 2015, Mr. Shellum announced his intention to retire from the Company. In order to encourage a smooth transition of his +duties as CFO, the Company and Mr. Shellum entered into a Retirement Agreement pursuant to which Mr. Shellum agreed to continue as CFO through his retirement date of June 30, 2016. Mr. Honeyfield was hired as the +Company’s CFO and Senior Vice President effective December 19, 2016. During the interim period between Mr. Shellum’s retirement and Mr. Honeyfield’s hire, Mr. Meyers, the Company’s Chief Accounting +Officer, was assigned the duties of Principal Financial Officer. We believe the retirement of Mr. Shellum and transfer of his CFO responsibilities had little impact on ongoing operations or investor confidence. +Mr. Honeyfield’s compensation is described below under “Agreements with Named Executive Officers — Employment Package with Mr. Honeyfield.” Mr. Shellum’s Retirement Agreement is outlined below under +“Potential Payments Upon Termination or Change in Control — Shellum Retirement Agreement.” +2016 Business Highlights +PDC experienced a transformational year in 2016. Despite facing low commodity prices at the beginning of the year, we +developed and expanded our top-tier asset base while maintaining a strong balance sheet and cash on +26 +Table of Contents +hand heading into 2017. We were able to do this, in part, by securing industry-leading oil and gas hedges in 2014 prior to the price decline, which covered much of our production in +2016. This provided a significant positive impact on cash flow for the year. We also made a number of operational improvements and cost reductions during 2016, which further enhanced our 2016 performance. We believe that this +performance permitted the Company to stand out among our peers and allowed us to execute and finance acquisitions of approximately 62,500 net acres in Reeves and Culberson Counties, Texas that closed in December 2016 (the “Delaware Basin +Transactions”). The Delaware Basin Transactions were supported by investors, helping us grow from an enterprise value of $2.7 billion at the beginning of the year to $5.9 billion at +year-end. +Key highlights of our achievements in 2016 include: +• +Achieved outstanding operational performance for the year including: +• +Year-over-year production growth of 44 percent, despite 30 percent decline in year-over-year in capital expenditures; and +• +Continued technical advancements and efficiencies in the Wattenberg Field including our first 2-mile horizontal well. +• +Successfully signed and closed the Delaware Basin Transactions and completed an acreage trade in the Wattenberg basin; +• +Added significant value and drilling flexibility; +• +Added high economic value drilling locations with tremendous upside allowing us to take advantage of our operational efficiencies; and +• +To fund the Delaware Basin Transactions, we successfully raised $1.2 billion in capital markets transactions with favorably priced discounts and interest rates. +• +Maintained a strong financial and liquidity position, including: +• +Completion of a successful equity offering for net proceeds of $295 million in March 2016; +• +16 percent growth in adjusted cash flow from operating activities year-over-year; +• +Net cash flow from operating activities exceeded capital expenditures by $85 million; +• +Hedges generated $208 million of cash flow in 2016; and +• +Bank group re-affirmed the borrowing base under our revolving credit facility at $700 million. +For additional discussion of our 2016 results, see “Annual Cash Incentives — 2016 Performance Results.” +27 +Table of Contents +Stock Price Performance +The results of our performance over the last several years is reflected in our stock price, and stock price performance is relevant in +determining our total shareholder return (“TSR”) which is one of the components of our overall executive compensation consideration. Although one-year TSR is near the average, our stock price +has exceeded most of our peers over the last three years, as shown below. The majority of our peers saw their stock prices fall below December 31, 2014 levels by the end of 2015, resulting in significant +one-year gains in 2016 compared to PDC’s steady year-over-year growth during the industry downturn. +* +The peer group shown is the same peer group used for the 2016 performance share grant under the Company’s long-term incentive program. This does not necessarily reflect the same group we considered our peers +three years ago. TSR is determined using an average stock price for the 20 trading days prior to the beginning of the period and the 20 days ending with the last day of the period adjusted for dividends for the period. Under the 3-year calculation, Parsley Energy’s TSR calculation was based on a twenty day average beginning from its May 23, 2014 initial public offering date. +2016 Compensation Highlights +We made the following key compensation decisions for 2016 related to our Named Executive Officers: +• +Adjusted base salaries and target total compensation upward to be more in line with the Company’s 2016 peer group. In addition, we adjusted the compensation packages of Messrs. Brookman and Reasoner upward to +be closer to the median of the market; +• +Awarded short-term cash bonuses at 165 percent of target to recognize the Company’s operational achievements in 2016, including the Delaware Basin Transactions (see “Annual Cash Incentives — 2016 +Performance Results”); +• +Awarded above-target long-term equity incentives in January 2016 to recognize the Company’s outstanding performance in 2015, and continued the practice of awarding 25 percent of our long-term equity incentive +grant as performance share units and 25 percent as SARs to incent both relative and absolute stock price growth; +• +Performance share units, which were attributable to the 3-year performance period ending December 31, 2016, paid out at 200 percent of target. We ranked first in +TSR performance relative to the Company’s peers for the three-year period ending December 31, 2016 (see “Long-Term Incentives — 2014 — 2016 Performance Shares Results”); and +• +Approved the compensation package relating to Mr. Honeyfield’s employment as CFO (see “Agreements with Named Executive Officers — Employment Package with Mr. Honeyfield”). +2016 Say on Pay Vote +At our 2016 annual meeting of stockholders, the vast majority of our stockholders voted to approve our executive compensation program, with +over 98 percent of votes cast for approval. Based on these voting results, the feedback we received during the voting process, and the success of the Company in the last year, we did not make any significant changes to our executive +compensation program in 2016. +28 +Table of Contents +Key Features of our Executive Compensation Program +Compensation Best Practices +We believe our executive compensation program is competitive, is aligned with current governance trends, and contains stockholder-friendly +features as outlined below: +Our Executive Compensation Practices +(What We Do) +✓ +Pay for Performance — Our Named Executive Officers’ total compensation is heavily weighted toward performance-based pay. Our annual incentive program is based on performance against key operational and +financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ +Executive Ownership Guidelines — We have stock ownership guidelines for our executives and directors that are consistent with what we believe to be corporate governance best practices. +✓ +External Benchmarking - We use competitive compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. +✓ +Double-Trigger Change-of-Control Severance Benefits - Upon a change of control of the Company, our current severance plan and grandfathered +employment contracts provide for cash severance benefits only if the executive is actually or constructively terminated within two years following a change of control event. +✓ +Clawback Policy — We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities +laws. +✓ +Compensation Risk Assessment — There is an appropriate balance between long-term and short-term focus in our compensation programs and the Committee has the ability to apply discretion to ensure risk mitigation occurs +in management decision making. +✓ +Independent Compensation Consultant — We have engaged an independent executive compensation advisor who reports directly to the Committee. +✓ +Independent Compensation Committee — Our Committee is comprised solely of independent directors. +Executive Compensation Practices We Have Not Implemented +(What We Don’t Do) +X +No Golden Parachute Excise Tax Gross-Ups — We do not provide tax gross-ups on any tax obligations of the executive upon a change of +control of the Company. +X +No New Employment Contracts and/or Excessive Severance Benefits — We no longer provide employment contracts to new executives (Messrs. Lauck and Amidon have grandfathered contracts). Severance benefits under +both our severance plan and employment agreements are reasonable and there are no liberal change of control definitions or excessive severance benefits or other payments. +X +No Excessive Perquisites — We provide only modest perquisites that are consistent with industry norms. +X +No Repricing — Our 2010 LTI Plan does not permit repricing of underwater stock options or SARs without stock holder approval. +X +No Hedging or Pledging of PDC Stock — These practices are strictly prohibited for all officers, directors and employees of the Company under our Insider Trading Policy. +29 +Table of Contents +Compensation Objectives and Philosophy +The principal tenets of our compensation philosophy are as follows: +Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. +We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide +compensation that correlates with the Company’s relative performance to peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +Our executive compensation programs should be designed to support a performance-based culture. The majority of each +executive’s compensation is at risk and based on a combination of attainment of short-term goals in support of our Company’s long-term strategy, long-term stock performance relative to our peers, and actual total shareholder return for PDC +stockholders. Our programs are structured to require a commitment to performance because total compensation at the market is not guaranteed. Therefore, our programs are designed to reward above-target compensation when performance is +warranted and below-target compensation when performance does not meet expectations. +Our executive compensation programs should be +designed to align our executives’ interests with those of our stockholders. A substantial portion of our compensation is provided in the form of long-term equity incentives that tie executive pay to stock price performance. +In addition, we require each of our Named Executive Officers to meet our stock ownership guidelines. +Our executive compensation +programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent business risks while discouraging excessive risk-taking. To encourage this balance, +we have structured our compensation programs to include three-year vesting schedules on all equity awards, and to structure annual incentive awards using a combination of short-term financial and operational objectives. We also mitigate risk +by exercising discretion in determining bonus payments rather than relying solely on a formula. We regularly review our compensation programs to ensure that our executives are not encouraged to take inappropriate or excessive risks. +2016 Compensation Mix +Our pay-for-performance philosophy is demonstrated in our compensation mix. The charts below show the fixed and “at-risk” +or variable components as awarded in January 2016 for the Named Executive Officers as a percentage of their total direct compensation. These charts are not a substitute for the “Summary Compensation Table,” which includes amounts +supplemental to total direct compensation. For 2016, Mr. Brookman’s target compensation was 85 percent variable or “at-risk” and linked with Company performance. For the +remaining Named Executive Officers (excluding the three individuals who performed the duties of a principal financial officer during 2016; see “ Leadership Changes ” for a more detailed discussion), approximately 81 percent of +their target compensation target was variable or “at-risk” and linked with Company performance. +2016 TARGET COMPENSATION +RSU = Restricted Stock Units (time-based vesting) +SAR = Stock Appreciation Rights +PSU = Performance Share Units +30 +Table of Contents +Components of the Company’s Compensation Program +The table below highlights each element of our compensation program and the primary role of each element in achieving our compensation +objectives: +COMPENSATION ELEMENTS +ROLE IN TOTAL COMPENSATION +Base Salary +• To provide a minimum, fixed level of cash compensation upon which our executives can +rely. +Annual Incentives +• Reward annual Company performance; +• Align +participants’ compensation with short-term financial and operational objectives specific to each calendar year; +• Motivate participants to meet or exceed internal and external performance expectations; +and +• Recognize +individual contributions to the organization’s overall results. +Long-Term Incentives +✓ Restricted Stock/Units +✓ Performance +Shares/Units +✓ Stock Appreciation Rights (SARs) +• Reward long-term performance directly aligned with stock holders’ interests; +• Provide a strong +performance-based equity component; +• Recognize and reward share performance relative to industry peers through performance +shares/units based on relative TSR; +• Align compensation with sustained long-term value creation; +• Help executives to +acquire a meaningful and sustained ownership stake; and +• Foster executive retention by vesting awards over multiple years. +Benefits and Perquisites +✓ Health and Welfare +✓ Retirement +✓ Perquisites +• Help attract and retain executive talent by offering a comprehensive employee benefits +package comparable to all other Company employees; +• Provide financial security by allowing executives to save for retirement through the +Company’s 401(k) and profit sharing plan; and +• Provide modest perquisites to executives including a car allowance for business and +personal use and athletic/non-golf club dues, consistent with those offered by our peer companies. +Termination Benefits +✓ Executive Severance Plan +✓ Employment +Contracts +• Attract and retain executives in a competitive and changing industry; and +• Ensure executives +act in the best interest of stockholders times of heightened uncertainty. +Executives and Directors Are Required to Own Significant Stock +We have established stock ownership guidelines for executive officers and outside directors, which are reviewed annually when compensation +decisions are made. In satisfying the stock ownership guidelines, Named Executive Officers are expected to: +• +Comply with the ownership guidelines within five years of the executive becoming a Named Executive Officer; and +• +Retain the net shares acquired through the vesting of restricted stock units, the exercise of SARs, and the settlement of performance shares if the Named Executive Officer has not satisfied the required ownership level. +31 +Table of Contents +As of December 31, 2016, all of the Named Executive Officers who are subject to the stock +ownership guidelines exceeded the minimum stock ownership requirements as set forth below. +2016 STOCK OWNERSHIP REQUIREMENT +Name/Year of Executive Status +Stock Ownership +Guidelines +Number of +Shares +Required +To Own (1) +Number of +Qualifying +Shares +Owned at +Year End +Barton R. Brookman (2008) +5x Base Salary +48,824 +146,760 +David W. Honeyfield (2016) +3x Base Salary +15,624 +18,362 +Lance A. Lauck (2009) +4x Base Salary +19,009 +86,369 +Scott J. Reasoner (2015) +3x Base Salary +13,280 +57,985 +Daniel W. Amidon (2007) +3x Base Salary +12,811 +56,869 +(1) +Using average of daily closing prices in December 2016, which was $76.81. +Qualifying holdings used to determine compliance with the minimum ownership requirements include stock owned directly, shares held in the +Company’s 401(k) and Profit Sharing Plan and unvested time-based restricted stock and restricted stock units. Not included are SARs and unvested performance share awards. Stock ownership requirements applicable to our Non-Employee Directors are described under “Director Compensation — Director Stock Ownership Requirements.” +Compensation Process — Making Executive Compensation Decisions +Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay +On an annual basis, we review the composition of the peer group of companies used in establishing target compensation for the Named Executive +Officers for the coming year. In determining the peer group for the year, we consider the following: +• +Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including market capitalization, enterprise value, revenue, “EBITDA” (earnings +before interest, tax, depreciation and amortization), capital expenditures and assets for each current and potential peer company; +• +Whether changes to the peer group are warranted based upon changes in the size and/or operations of either the Company and/or the current or potential peer companies; and +• +Other factors that may render a current peer company no longer comparable (e.g., financial status). +To assist in determining competitive base salaries, bonus targets and target total direct compensation, we review a combination of +compensation data disclosed in the peers’ proxy statements, as well as survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” +In measuring total shareholder return under the Company’s performance-based long-term incentive awards, we typically use either the same +or a similar peer group that was used for compensation benchmarking. As a result of the impact of the commodity price environment on the oil and gas industry between September 2014 and December 2016, the peer groups selected for measuring +relative TSR for 2015 and 2016 varied slightly from the compensation benchmarking group as shown below. In addition, due to the effect of the Delaware Basin Transactions, the peer group for determining both compensation benchmarking and TSR +for 2017 was changed to include larger, similarly sized companies in the industry (see “2017 Compensation Decisions”). +32 +Table of Contents +The table below shows a comparison of the peer groups used for determining compensation +benchmarking and for determining total shareholder return performance under our performance-based long-term incentive awards in 2015 as compared to 2016, as well as the new peer group for both compensation benchmarking and total shareholder return +for 2017. +2015 +2016 +2017 +Peer Company +Compensation +Peers +Performance +Share Peers +Compensation +Peers +Performance +Share Peers +Compensation/ +Performance +Share Peers +Bill Barrett Corporation +x +x +x +x +Bonanza Creek Energy, Inc. (1) +x +x +x +x +Callon Petroleum Company +x +x +Carrizo Oil and Gas Inc. +x +x +x +x +x +Comstock Resources Inc. +x +x +Diamondback Energy, Inc. +x +Energen Corp. +x +x +x +EXCO Resources, Inc. +x +x +Goodrich Petroleum Corp. (1) +x +Gulfport Energy Corp. +x +x +x +x +x +Laredo Petroleum Holdings, Inc. +x +x +x +x +x +Magnum Hunter Resources Corp. (1) +x +x +Matador Resources Company +x +x +x +Newfield Exploration Co. +x +Oasis Petroleum Inc. +x +x +x +Parsley Energy, Inc. +x +x +x +Penn Virginia Corp. (1) +x +x +QEP Resources, Inc +x +Resolute Energy Corp. +x +Rex Energy Corp. +x +x +Rosetta Resources Inc. (2) +x +x +RSP Permian, Inc. +x +SM Energy Company +x +x +x +Stone Energy Corp. (1) +x +x +Swift Energy Co. (1) +x +Synergy Resources Corporation +x +x +x +Ultra Petroleum Corp. (1) +x +x +x +WPX Energy, Inc. +x +x +x +Total +16 +14 +13 +13 +14 +(1) +The following peer companies have entered Chapter 11 bankruptcy since September 2014: Bonanza Creek Energy, Inc. (January 2017), Goodrich Petroleum Corp. (April 2016), Magnum Hunter Resources Corp. (December 2015), Penn +Virginia Corp. (May 2016), Stone Energy Corp. (December 2016), Swift Energy Co. (December 2015) and Ultra Petroleum Corp. (April 2016). +(2) +Rosetta Resources Inc. was acquired by Noble Energy Inc. in May 2015. +33 +Table of Contents +Determining Target Total Direct Compensation +We typically establish target total direct compensation in the first quarter of each year for our Named Executive Officers by determining base +salaries and annual and long-term incentive compensation targets. When appropriate, we also approve special awards and modify perquisites. In doing so, we consider the following: +• +Market data for target total direct compensation (base salary, bonus targets and long-term incentives) for the peer group, based on disclosure in peer company proxies and other applicable industry survey data; +• +Our pay philosophy; +• +Individual performance and areas of responsibility relative to the market data; +• +Compensation relative to that of other executive officers of the Company; and +• +The CEO’s recommendations with respect to the compensation of each of the other Named Executive Officers. +Our view is that an executive’s target compensation should reflect the current market value for that position provided the executive has +performed well in the prior year. We may adjust the mix of cash and long-term incentives, but we generally target the median of the market in total direct compensation taking into account the other factors listed above. +Annual and Long-Term Incentive Programs +Annually we review and approve program design, including performance metrics and target payout, and awards under the annual and long-term +incentive programs. These discussions, which usually begin with recommendations from management and involve deliberation among the Committee, management and the Consultant (defined below), usually span numerous meetings before a design is +approved. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares). For performance-based equity awards, we certify at the end of the +performance period the level at which the performance measures were satisfied and approve the number of related shares to be issued, if any, to each Named Executive Officer. +Historical Compensation Review +Annually we review summaries of each Named Executive Officer’s compensation history, as well as all compensation payable upon his or her +termination of employment and upon a change in control of the Company. These summaries, some of which are included in this Proxy Statement, include the following: +• +Three-year history of base salary, annual incentive targets and awards, long-term incentive grants, payouts and perquisites; +• +Realized gains for the current year and potential gains on unexercised or unvested awards; and +• +The value of compensation and other severance benefits due to the Named Executive Officer under various termination scenarios, both before and after a change in control of the Company. +In addition to reviewing the Company’s historical compensation and comparing current compensation to that of its peers, the Committee +annually reviews our programs against some of the “pay for performance” measures used by Institutional Shareholder Services (“ISS”) and Glass Lewis (although ISS and Glass Lewis use different peer groups), as well as under a +group of performance measures relevant to the oil and gas industry. Those measures include production growth, revenue growth, operating cash flow growth, EBITDA/interest expense and total shareholder return. We consider the results of +this analysis in making adjustments to the compensation program each year. +34 +Table of Contents +Role of the Compensation Consultant +The Committee has engaged Willis Towers Watson PLC as its independent compensation consultant (the “Consultant”) to help ensure that +executive compensation programs are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +• +The Consultant’s historical performance in supporting the Committee and familiarity with our executive compensation programs; +• +Experience of the Consultant in our sector; +• +Range of compensation services offered by the Consultant; and +• +Independence of the Consultant, considering the independence factors outlined by the SEC. +The Committee +determines the scope of the Consultant’s engagement, which includes: +• +Providing input into peer group identification and assessment; +• +Providing benchmarking on executive and outside director compensation for us to use in our decision-making process; +• +Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual compensation actions, and other aspects of compensation (e.g., employment +agreements, perquisites, etc.); +• +Reviewing and providing feedback on the compensation-related disclosures in our Proxy Statement; and +• +Informing us about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +• +The Consultant does not make recommendations on or approve the amount of compensation of any Named Executive Officer; +• +The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant; +• +The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +• +The Consultant attends Committee meetings as requested. +The Committee annually reviews the +engagement of the Consultant and as a part of that process reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, in 2016, the Consultant did not perform any material services for the +Company, did not have any business or personal relationships with the Committee members or executive officers of the Company, did not own any stock of the Company and maintained policies and procedures designed to avoid such conflicts of +interest. Accordingly, the Committee determined that the engagement of the Consultant in 2016 did not create any conflicts of interest. +Role of Management in Determining Executive Compensation +Our CEO plays a significant role in determining the compensation levels for our Named Executive Officers. Important aspects of his role +in the process are: +• +Assessing his own performance and the performance of the other Named Executive Officers; +• +Recommending quantitative and qualitative performance measures under our annual incentive program; +35 +Table of Contents +• +Recommending and providing feedback on proposed peer group companies; +• +Recommending base salary levels, annual incentive targets, actual annual incentive awards and long-term incentive awards for the other Named Executive Officers; and +• +Providing his assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program. +Management also retains an individual as a consultant in our compensation process and to coordinate the preparation of certain materials for +Committee meetings. This individual is retained by and reports to management, whereas the Consultant reports to the Committee. +At +the Committee’s request, the Company’s Named Executive Officers may also assess the design of, or make recommendations related to, our compensation and benefit programs. The Committee determines each element of the CEO’s +compensation with input from the Consultant. The Committee also determines each element of compensation for the other Named Executive Officers with input from the Consultant and the CEO. The CEO is not present during voting or +deliberations concerning his own compensation. +2016 Compensation Decisions +Base Salary +In 2015, the +Committee elected to pay Messrs. Brookman and Reasoner below the median of our peer Companies because they were new to their roles. Throughout 2015, despite depressed commodity prices, the Company continued to grow and outperform the majority +of its peers. In recognition of this fact, and taking into account various other factors considered by the Committee in determining executive compensation, the Committee elected to increase the base salaries of all of the Company’s Named +Executive Officers in 2016. This increase was proportionately greater for Messrs. Brookman and Reasoner in order to bring them closer to the median of the Company’s 2016 peer group. +NAMED EXECUTIVE OFFICER +2015 Base Salary +2016 Base Salary +Barton R. Brookman +$ +625,000 +$ +750,000 +Lance A. Lauck +$ +347,000 +$ +365,000 +David W. Honeyfield (1) +— +$ +400,000 +Scott J. Reasoner +$ +304,000 +$ +340,000 +Daniel W. Amidon +$ +315,000 +$ +328,000 +Gysle R. Shellum (2) +$ +365,000 +$ +365,000 +R. Scott Meyers (3) +$ +260,000 +$ +267,800 +(1) +Mr. Honeyfield, whose 2016 base salary was $400,000, became a Named Executive on December 19, 2016. +(2) +Mr. Shellum’s base salary did not change from 2015 to 2016 due to his impending retirement in June 2016. +(3) +Mr. Meyers’ base salary as Chief Accounting Officer effective February 27, 2016 was $267,800. Prior to that his base salary was $260,000. +36 +Table of Contents +Annual Cash Incentives +The Committee approves a target annual cash incentive award for each Named Executive Officer. These target cash bonus awards are +expressed as a percentage of base salary. Actual cash bonus awards can range from 0-200 percent of these targets based on the achievement of Company and individual goals. In January 2016, we +set the target annual cash incentive award based on each Named Executive Officer’s position as follows: +NAMED EXECUTIVE OFFICER +Target Annual Cash +Incentive as % of Base +Salary +Barton R. Brookman +100 +% +Lance A. Lauck +85 +% +David W. Honeyfield +(1) +Scott J. Reasoner +80 +% +Daniel W. Amidon +80 +% +Gysle R. Shellum +(2) +R. Scott Meyers (3) +45 +% +(1) +Mr. Honeyfield was not eligible for an annual cash incentive in 2016, although he did receive a signing bonus (see “Agreements with Named Executive Officers - Employment Package with Mr. Honeyfield”). +(2) +Mr. Shellum’s target annual cash incentive was 80 percent of base salary. Under the terms of Mr. Shellum’s Retirement Agreement, he received six months of target bonus for his service as +CFO, payable at the time of his retirement. +(3) +Mr. Meyers’ target annual cash incentive reflects his role as Vice President and Chief Accounting Officer. +Annual Incentive Program +Bonuses under +the Company’s annual incentive program are primarily based on the achievement of specific operational and financial metrics established in the first quarter of the year. However, to provide us the flexibility to adjust for and react to +events that occur throughout the year, we prefer not to rely solely on a formulaic approach based on pre-established thresholds that result in automatic payouts. Rather, we retain discretion to adjust +actual awards as we view appropriate given circumstances at the time of the determination. +Throughout the year, we review the +Company’s progress toward meeting the performance metrics for the year. Following the end of the fiscal year, we determine annual incentive payments as follows: +• +An overall corporate performance rating is determined for the annual quantitative operational and financial metrics; 50 percent is based on operational metrics and 50 percent is based on financial metrics; +• +We may apply discretion and adjust the results for unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements, etc.; +• +We may further apply discretion in the final determination of the corporate performance rating to account for business conditions or other performance factors (e.g. environmental and safety results). We believe +that generally the Named Executive Officers are compensated for stock price performance through the Company’s long-term equity incentive program and not through their annual bonus; however, we may also consider relative stock price performance +in determining the corporate performance rating; and +• +Individual awards are determined by multiplying the overall corporate performance rating by the individual’s annual incentive target and multiplying the result by the individual’s base salary. Individual +awards may be adjusted downward or upward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/-20 percent. +37 +Table of Contents +2016 Performance Metrics +In early 2016, we established specific targets for each of the following operational and financial metrics based on our 2016 operating +plans. Most of the performance metrics used in 2016 were similar to the metrics used in 2015 but the Committee elected to make the following changes largely in response to ongoing depressed commodity prices, and continued uncertainty in the +oil and natural gas industry, and in an effort to properly motivate management decisions: (1) elimination of Reserve Replacement Ratio as an operational metric and (2) replacement of Capital Efficiency (which is based on reserves) with +Liquidity as a financial performance metric. See the specific targets under “2016 Performance Results.” +OPERATIONAL METRICS (50%) +Production (Boe) +Actual production volume for the year. +Production, Exploration and G&A Expense per Boe +The sum of total production, exploration, general and administrative expense and corporate general and administrative expense (G&A) +divided by barrels of crude oil (and equivalent for natural gas). +FINANCIAL METRICS (50%)* +Adjusted Cash Flow per Share +Net income plus/minus change in operating assets and liabilities per share divided by number of shares. +Debt to Adjusted EBITDAX +Total year-end long-term debt (the sum of Convertible Notes, Senior Notes and balance +outstanding under our revolving credit facility) divided by adjusted EBITDAX. +Liquidity +Total revolving credit facility, plus cash, less standby letter of credit and outstanding credit facility debt. +* +EBITDA and Adjusted Cash Flow per share are calculated as shown in our quarterly investor relations materials posted on our website at http://investor.pdce.com/presentations.cfm. The Company’s website +materials are not incorporated by reference into this Proxy Statement. Adjusted EBITDAX is calculated by excluding exploration expenses from EBITDA minus exploration expenses. +2016 Performance Results +Upon completion +of fiscal year 2016, the Committee reviewed the Company’s performance relative to the quantitative operational and financial measures described above. Results for 2016 were as follows: +CORPORATE PERFORMANCE +METRIC +Target Range +Target +Actual +Results +Adjusted +Results (1) +Performance +Operational Metrics (50%) +Production (Million Boe) +20.0-22.0 +20.8 +22.2 +22.0 +(2) +High End of Range +Production, Exploration and G&A Expense per Boe ($ per Boe) +$9.98-$9.03 +$9.50 +$10.23 +$9.51 +(3) +Within Range +Financial Metrics (50%) +Adjusted Cash Flow per Share ($ per weighted average diluted share) +$8.54-$9.44 +$8.99 +$9.52 +$10.70 +(4) +Outperformed Target +Debt to Adjusted EBITDAX +1.3-0.9 +1.1 +% +2.1 +% +1.0 +(5) +Within Range +Liquidity ($ in millions) +$650-$800 +$725 +$932 +$864 +(6) +Outperformed Target +(1) +Adjusted Results exclude the impact of the Delaware Basin Transactions. +38 +Table of Contents +(2) +Excludes impact of Delaware Basin Transactions production volumes. +(3) +Adjusted Results deducts approximately $12 million of fees related to Delaware Basin Transactions and approximately $3.5 million related to seismic expense associated with the Delaware Basin +Transactions. It also excludes the provision for uncollectible notes receivable. +(4) +Assumes original shares outstanding (46.04 million common shares) and excludes cash flow, interest expense and transaction costs associated with the Delaware Basin Transactions. +(5) +Excludes incremental debt resulting from the financing of the Delaware Basin Transactions and EBITDAX from the properties acquired in those transactions Basin. +(6) +Excludes incremental cash and cash flow from Delaware Basin Transactions. +The Committee considered each of +the performance metrics and in light of certain factors that impacted the results: +Production: Results exceeded the high end of the range +primarily due to continued technological advances and efficiencies, which contributed to faster drilling and completions and improved well performance in the Wattenberg Field. This resulted in year-over-year production growth of approximately +44 percent over 2015. +Production, Exploration and G&A Expense per Boe: Adjusted Results were slightly better than the high end of +the target range partially due to increased production volumes and partially due to favorable well and labor costs. +Adjusted Cash Flow per +Share: Adjusted Results were better than the targeted range due to a combination of production volume outperformance, improved commodity prices and favorable differentials in the Wattenberg Field. +Debt to Adjusted EBITDAX: Adjusted Results were slightly better than target due to a combination of production volume outperformance and +improved commodity prices. +Liquidity: Adjusted Results exceeded the targeted range due to favorable production volumes and higher +commodity prices along with lower capital expenditures. In addition, the Company was able to maintain a borrowing base of $700 million. +Overall, based on the Actual Results and the Adjusted Results, the Company met or exceeded the operational and financial targets for the +year. In addition to growing our overall Company production by 44 percent and maintaining our financial strength during a time of instability in the industry, we were able to successfully complete and finance the Delaware Basin +Transactions. We ended the year with an enterprise value of $5.9 billion while maintaining a strong balance sheet. In addition, although we typically do not consider stock price performance in the bonus plan, we have continued to +see positive growth in our stock price over the last several years relative to our peers. As a result of the above, we awarded 140 percent of target with respect to the Corporate Performance Rating for 2016, and up to an additional +25 percent of target as a discretionary award in recognition of the execution of the Delaware Basin Transactions. Annual incentive bonuses of up to 165 percent were approved for all employees, including the Named Executive +Officers. We felt that management achieved these results as a team, and therefore no individual performance adjustments were made to the awards, with the exception of Mr. Meyers, as described in the footnotes below. Actual cash +bonus amounts paid for 2016 performance were as follows: +NAMED EXECUTIVE OFFICER +2016 ANNUAL +BONUS +Barton R. Brookman +$ +1,238,000 +Lance A. Lauck +$ +512,000 +David W. Honeyfield +(1) +Scott J. Reasoner +$ +449,000 +Daniel W. Amidon +$ +433,000 +Gysle S. Shellum +(2) +R. Scott Meyers (3) +$ +267,000 +39 +Table of Contents +(1) +Mr. Honeyfield was not eligible for an annual incentive bonus for 2016 because of his December 19, 2016 hire date (see “Agreements with Named Executive Officers — Employment Package with +Mr. Honeyfield”). +(2) +Under the terms of Mr. Shellum’s Retirement Agreement, he received a cash payment in an amount equal to six months of his 2016 target bonus ($146,000) for his service of CFO payable at the time of his +retirement in June 2016. +(3) +Mr. Meyers received $267,000 related to his annual incentive award in part due to his contributions as interim Principal Financial Officer during the period related to the negotiation, financing, and execution of +the Delaware Basin Transactions. In addition, $68,250 was awarded as restricted stock units vesting over a three-year period. +Long-Term Incentives +2016 Equity Awards +To ensure that long-term incentives are aligned with the interests of our stockholders and our pay-for-performance philosophy, we generally grant the following combination of equity awards to the Named Executive Officers under the 2010 LTI Plan: +• +50 percent restricted stock units that align the executive’s compensation directly with the Company’s stock price, encourage retention and increase stock ownership in the Company; +• +25 percent SARs that align the executive’s compensation directly with the Company’s stock price, as the stock price must increase for any value to be realized by the executive; and +• +25 percent performance share units that align the executive’s compensation with PDC’s TSR relative to a group of our peers in the industry. The value of performance shares is dependent on both stock +price performance and our relative TSR performance over a three-year period. +We typically determine the dollar value of the +long-term incentives we want to deliver to the executive to place total target compensation at the market level for that position. While we consider long-term incentives as primarily forward-looking, we may consider the Company’s and the +Named Executive Officers’ performance in the prior year in determining the size of the awards. +Due to the performance of the Company +in 2015 relative to its pre-determined peer group, we awarded above-market awards in January 2016. The table below shows the grants and corresponding value awarded to each Named Executive Officer in +January 2016. +2016 LONG-TERM INCENTIVE GRANTS +NAME +TARGET +VALUE +RESTRICTED +STOCK UNITS +SARs +PERFORMANCE +SHARES +Barton R. Brookman +$ +3,425,000 +30,483 +29,036 +12,008 +David W. Honeyfield (1) +— +— +— +— +Lance A. Lauck +$ +1,350,000 +12,015 +11,445 +4,733 +Scott J. Reasoner +$ +1,125,000 +10,013 +9,538 +3,945 +Daniel W. Amidon +$ +1,025,000 +9,123 +8,690 +3,594 +Gysle R. Shellum (2) +— +— +— +— +R. Scott +Meyers (3) +— +— +— +— +(1) +Mr. Honeyfield was hired in December, 2016. For a description of the awards made coincident with his employment, see “Agreements with Named Executive Officers - Employment Package with +Mr. Honeyfield.” +(2) +No equity award was made to Mr. Shellum in 2016 due to his planned retirement in June, 2016. +(3) +Mr. Meyers received a grant of 5,571 restricted stock units in April, 2016, based on his role as Vice President - Chief Accounting Officer, coincident with the timing of all other employee grants, prior to being +assigned the duties of interim Principal Financial Officer. +40 +Table of Contents +The award value shown above differs from the accounting value reported in the Summary +Compensation Table. In determining the number of shares awarded in January, we used the 15-day average closing stock price ending 10 days prior to the date of grant. The grant date accounting value +is based solely on the stock price on the date of grant, and is reflected in the “Summary Compensation Table” and “Grants of Plan-Based Awards.” +Terms of the 2016 Equity Awards +Performance Shares +Performance shares are denominated in units of Company stock with payout in shares of stock based on the Company’s relative TSR +over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer companies. We acknowledge that the peer group designated for measuring relative stock price performance may differ from the peer +group the Company competes with for executive talent, although we utilize the same companies in establishing the respective peer groups whenever appropriate. For 2016, the peer group selected for measuring relative TSR varied slightly from the +compensation benchmarking peer group. See “Compensation Process — Making Executive Compensation Decisions — Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay” for a list of +the peer companies used to determine relative TSR for purposes of the 2016 performance share unit grants. +The 2016 performance share +units measure the performance period from January 1, 2016 through December 31, 2018, with payouts as follows: +COMPANY TSR RANKING AMONG PEERS +PAYOUT LEVELS +AS % OF AWARD +90th Percentile +200 +% +75th Percentile +150 +% +Median +100 +% +25th Percentile +50 +% +Below 25th Percentile +0 +% +Other features of the award include: +• +If performance falls between the percentiles, payout levels are interpolated. +• +If the Company has a negative TSR for the performance period, the maximum award is 100 percent, regardless of relative TSR performance. +• +To provide for a consistent number of peers throughout the performance period and as a result of the turmoil in the oil and gas industry over the past few years, performance share unit awards provide for the following +relative to the treatment and inclusion of the peer companies: +* +Any peer company that ceases to be publicly traded as a result of a bankruptcy filing shall remain as a peer company and shall be ranked together with any similarly-situated company in last place at the end of the +performance period for purposes of calculating TSR for the performance period. Prior to the 2015 grant, these companies were removed from the peer group. +* +Any peer company that is delisted from a national securities exchange during the performance period as a result of stock price performance, regardless of whether it is later +re-listed, shall remain as a peer company and shall be ranked together with any similarly-situated company in last place at the end of the performance period for purposes of calculating TSR for the performance +period. Prior to the 2016 grant, this situation did not occur. +* +Any peer company that ceases to be publicly traded due to being acquired or merged into another company shall remain as a peer company. The TSR for the period will be the compounded return of such peer’s TSR +through the date of closing of the transaction and the TSR for the SIG Oil Exploration & Production Index (EPX) from the close of the transaction through the end of the performance period. Prior to the 2016 grant, these companies were +removed from the peer group in this category. +41 +Table of Contents +• +Performance share units are forfeited if the executive voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Impact of +Termination and Change of Control on Long-Term Incentive Plans.” +Restricted Stock Units +Restricted Stock Unit awards, including the 2016 grants, typically have the following terms: +• +Awards vest ratably over three years to encourage retention; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see +“Impact of Termination and Change of Control on Long-Term Incentive Plans.” +Stock Appreciation Rights or SARs +SARs awards, including the 2016 grants, have the following terms: +• +Awards vest ratably over three years to encourage retention; +• +Awards expire no later than ten years after grant date if not exercised earlier or forfeited; +• +The strike price for SARs is the price at which the executive can purchase a share of common stock of the Company and is equal to the NASDAQ closing price of Company stock on the date of the grant; +• +SARs are settled in shares of common stock of the Company; and +• +Unvested awards are forfeited by the executive if the executive voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see +“Impact of Termination and Change of Control on Long-Term Incentive Plans.” +2014 — 2016 Performance Share Unit Results +In 2014, we granted performance share units covering the three-year period January 1, 2014 through December 31, 2016. +Based on the Company’s first place ranking over this three-year period, we paid 200 percent of the target award to Messrs. Brookman, Lauck, and Amidon as shown in the “Options Exercised and Stock Vested” table. The +provisions of the 2014 grants are similar to those of the 2016 grants described above, except for the peer group used to measure relative TSR. The chart below shows the peer group used for the January 1, 2014 to December 31, 2016 +grants, their TSR performance and relative rankings at the end of the period. +Ranking +Company +3-Year TSR +1 +PDC Energy +39% +2 +Carrizo Oil and Gas Inc. +(6%) +3 +Resolute Energy Corp. +(14%) +4 +Laredo Petroleum Holdings, Inc. +(46%) +5 +Gulfport Energy Corp. +(58%) +6 +Bill Barrett Corp. +(73%) +7 +Petroquest Energy +(76%) +8 +EXCO Resources, Inc. +(77%) +9 +Comstock Resources Inc. +(87%) +10 +Stone Energy Corporation +(98%) +*1 +Rosetta Resources Inc. +N/A +*2 +Forest Oil Corporation +N/A +*3 +Quicksilver Resources Inc. +N/A +*3 +Magnum Hunter Resources Corp. +N/A +*3 +Swift Energy Co. +N/A +*3 +Penn Virginia Corp. +N/A +*3 +Goodrich Petroleum Corp. +N/A +42 +Table of Contents +There were originally 16 companies in the peer group; however, the following +acquisitions and Chapter 11 bankruptcies occurred between January 2014 and December 2016 to impact the results: +*1 +Rosetta Resources, Inc. was acquired by Noble Energy Inc. in May 2015. +*2 +Forest Oil Corporation merged into Sabine Oil and Gas in December 2014; Sabine Oil and Gas later declared Chapter 11 bankruptcy in July 2015. +*3 +The following five companies entered Chapter 11 bankruptcy during the three-year performance period: Goodrich Petroleum Corp. (April 2016), Magnum Hunter Resources Corp. (December 2015), Quicksilver Resources Inc. +(March 2015), Penn Virginia Corporation (May 2016) and Swift Energy Co. (December 2015). +Special Equity Grants +From time to time, we may approve special grants which typically take the form of restricted stock units, although other types of awards may be +made when appropriate. Special grants are typically considered: +• +In connection with a promotion where more stock exposure is desired; +• +To recognize extraordinary achievement; +• +When survey data demonstrates a significant deviation from market total direct compensation for the comparator group; +• +When we determine that special retention measures are necessary for a particular executive; or +• +As part of a new hire package for an executive. +In 2016, Mr. Honeyfield received a +special equity grant as part of his employment package, as described under “Agreements with Named Executive Officers - Employment Package with Mr. Honeyfield”. Mr. Meyers received a special equity grant as part of his 2016 +bonus award for his contributions as interim Principal Financial Officer during the negotiation, financing and execution of the Delaware Basin Transactions in 2016, as described under “Annual Cash Incentives - 2016 Performance Results.” +2017 Compensation Decisions +Largely +as a result of the Delaware Basin Transactions, the Committee has significantly changed the peer group used for assessing compensation decisions for 2017. For a list of the 2017 peers, see “Compensation Process — Making Executive +Compensation Decisions — Peer Groups and Survey Data Help Establish Target Compensation and Define Competitive Levels of Pay.” Based in part on a review and analysis of peer compensation data for the new peer group, in January 2017, +we approved upward adjustments in target compensation packages for each of the 2017 Named Executive Officers as follows: +NAME +BASE +SALARY +ANNUAL +INCENTIVE +BONUS TARGET +LONG-TERM +INCENTIVE +VALUE (1) +Barton R. Brookman (2) +$ +825,000 +100 +% +$ +3,750,000 +David W. Honeyfield (3) +$ +400,000 +85 +% +$ +1,250,000 +Lance A. Lauck +$ +410,000 +90 +% +$ +1,350,000 +Scott J. Reasoner (4) +$ +400,000 +85 +% +$ +1,250,000 +Daniel W. +Amidon +$ +350,000 +80 +% +$ +900,000 +(1) +Long-Term Incentive Awards were granted 50 percent as restricted stock units, 25 percent as SARs and 25 percent as performance shares units, with terms similar to the 2016 awards. +(2) +Mr. Brookman’s compensation includes an upward adjustment to reflect that he is no longer new to the position of CEO and to bring him closer to the median of PDC’s peers. +43 +Table of Contents +(3) +Mr. Honeyfield received 50 percent of his 2017 long-term incentive value as restricted stock units, 25 percent as SARs and 25 percent as performance share unit grants. He received the +restricted stock units upon his hire in December 2016 and the other awards coincident with grants to the other Named Executive Officers in January 2017 (see “Agreements with Named Executive Officers - Employment Package with +Mr. Honeyfield”). The Committee increased Mr. Honeyfield’s annual incentive bonus target effective January 2017 to be consistent with the adjustment in annual incentive targets of the other Named Executive Officers. +(4) +Mr. Reasoner’s compensation includes an upward adjustment to reflect his new role as Chief Operating Officer. +Acquisition Recognition Award +The +Delaware Basin Transactions were significant for PDC and represented the culmination of the multi-year effort to identify, evalulate, negotiate, and close on the transaction. As a result, in February 2017, we issued a special equity award to +the Named Executive Officers for their efforts in bringing the Company strategic plan to expand into a new basin to fruition through this acquisition and for the positive response from the market. The awards consisted of restricted stock units +with three year vesting to ensure the executives were invested in the successful integration and future leveraging of the Delaware Basin Transactions. Below is a table of the awards issued to the 2017 Named Executive Officers (excluding Mr. +Meyers who was no longer a Named Executive Officer in 2017). +NAME +RESTRICED +STOCK UNITS +AWARDED +Barton R. Brookman +11,228 +Lance A. Lauck +4,623 +Scott J. Reasoner +2,312 +Daniel W. Amidon +991 +Agreements with Named Executive Officers +Severance Plan and Employment Agreements with Named Executive Officers +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having +an existing agreement in place is preferable to negotiating an exit package at the time of a Named Executive Officer’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre-established severance terms in place. In the event that the Company faces an actual or potential change in control, severance benefits encourage executive officers to remain with the Company even though +prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change in control of the Company help to align the interests of the executive officers with the interests of the Company’s +stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s +compensation and consistent with competitive practices in the oil and gas industry. +The Executive Severance Compensation Plan (the +“Severance Plan”) generally provides these benefits to the Named Executive Officers. At the time the Severance Plan was adopted, we grandfathered the existing employment agreements in effect. Mr. Brookman agreed to +terminate his grandfathered employment agreement in January 2015 in connection with his promotion to CEO. As of December 31, 2016, only Messrs. Amidon and Lauck have existing grandfathered agreements and Mr. Meyers is covered under a +separate vice president level plan. For a description of these programs, see “Potential Payments Upon Termination or Change in Control.” +44 +Table of Contents +Employment Package with Mr. Honeyfield +Upon his hire, Mr. Honeyfield received the following compensation: +• +a base salary of $400,000; +• +participation in the Company’s annual incentive program at a target level of 80 percent of his base salary (adjusted to 85 percent in January 2017 to be consistent with other Named Executive Officers, as +described under “2017 Compensation Decisions”); and +• +an annual equity award for 2017 targeted at $1,250,000; the 2017 equity award consisted of: +• +50 percent as restricted stock units granted upon hire; +• +25 percent SARs vesting over a three-year period granted coincident with the January 2017 grants to the other Named Executive Officers; and +• +25 percent as performance share units granted coincident with the January 2017 grants to the other Named Executive Officers (see “2017 Compensation Decisions” for a description of the SAR and performance +share unit awards). +Mr. Honeyfield will also participate in the Severance Plan (see “Potential Payments Upon +Termination or Change in Control”) and will receive other benefits and perquisites commensurate with the executive level, including a vehicle allowance. In addition, he received: +• +a cash bonus of $350,000 that was paid in March 2017 to replace foregone compensation from his previous employer (subject to a 12-month clawback in certain circumstances); and +• +a one-time incentive in the form of a signing bonus upon hire, consisting of $333,333 in cash and 10,739 restricted stock units (accounting value of $837,535) that will vest over +a three-year period. +Retirement Agreement with Gysle R. Shellum +In October 2015, the Company entered into a Retirement Agreement with Mr. Shellum in order to effect an orderly transition during the +Company’s CFO search and through his retirement in June 2016 (see “Potential Payments Upon Termination or Change in Control — Shellum Retirement Agreement” below for a description of Mr. Shellum’s Retirement Agreement +and the amounts payable thereunder). +Other Policies and Considerations +Tax and Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax +laws and accounting rules, including but not limited to Section 162(m), Section 409A, Section 280G and Section 4999 of the Internal Revenue Code (the “Code”). Currently, our compensation is intended to comply with the Code +as follows: +• +None of our severance arrangements or agreements provide for a gross-up for excise tax under Code Section 280G and Section 4999; +• +All of our programs are intended to be either exempt from or comply with Code Section 409A; and +• +Our intent is to qualify compensation paid to our top executives as performance-based compensation under Code Section 162 (m) where practicable. While currently our SARs and performance shares are intended to +meet the requirements of Code Section 162(m), our restricted shares and annual bonus plan are not. We maintain the discretion to approve compensation that may not qualify for the compensation deduction under Code Section 162(m) if, in light of +all applicable circumstances, we believe that it would be in the Company’s best interests to pay such compensation. +45 +Table of Contents +Clawback Policy +The Named Executive Officers are currently either covered under our clawback policy or have a clawback provision in their grandfathered +employment contracts. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all, or a portion, of his annual bonus, as described below, if the Company is required to restate its +financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the +affected year(s) and the bonus that would have been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in applicable statutes or +regulations and are subject to revision based on the SEC clawback rules under Section 954 of the Dodd-Frank Act, when finalized. +46 +Table of Contents +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary ($) +Bonus (1) +($) +Stock +Awards (2) +($) +Options /SAR +Awards (3) +($) +All Other +Compensation (4) +($) +Total +Compensation +($) +Barton R. Brookman +2016 +750,000 +1,238,000 +3,247,924 +782,811 +59,266 +6,078,001 +President and Chief Executive Officer +2015 +625,000 +940,000 +1,848,065 +585,880 +54,150 +4,053,095 +2014 +466,667 +450,000 +1,186,252 +413,148 +60,053 +2,576,120 +David W. Honeyfield +2016 +15,385 +333,333 +(6) +1,453,110 +(6) +— +— +1,801,828 +Senior Vice President, CFO (5) +Lance A. Lauck +2016 +365,000 +512,000 +1,294,303 +308,557 +54,205 +2,534,065 +Executive Vice President +2015 +347,000 +443,000 +847,014 +268,542 +54,676 +1,960,232 +Corporate Development +2014 +335,000 +268,000 +866,376 +302,476 +50,159 +1,822,011 +Scott J. Reasoner +2016 +340,000 +449,000 +968,496 +257,144 +56,789 +2,071,429 +Senior Vice President, COO (7) +2015 +304,000 +365,000 +539,012 +170,884 +53,372 +1,432,268 +Daniel W. Amidon +2016 +328,000 +433,000 +802,606 +234,282 +57,343 +1,855,231 +Senior Vice President +2015 +315,000 +378,000 +803,289 +207,498 +54,673 +1,758,460 +General Counsel and Secretary +2014 +315,000 +252,000 +866,376 +302,476 +59,921 +1,795,773 +Gysle R. Shellum +2016 +182,500 +846,000 +(9) +— +— +35,491 +1,063,991 +Senior Vice President, CFO (8) +2015 +365,000 +438,000 +1,511,686 +279,615 +79,277 +2,673,578 +2014 +365,000 +292,000 +1,082,970 +378,095 +55,470 +2,173,535 +R. Scott Meyers +2016 +266,500 +267,000 +(10) +388,383 +— +42,670 +964,553 +Vice President, CAO +(1) +Represents the amounts paid under the Company’s annual incentive bonus plan and special payments as described below. The 2016 annual incentive awards are described in “2016 Compensation Decisions — +Annual Cash Incentives.” +(2) +Represents the grant date fair value of stock-based compensation awards, which include the following: +(a) +Time-based restricted stock unit awards; +(b) +Time-based restricted stock units awarded in February 2017 as a bonus in recognition of efforts related to the Delaware Basin Transactions during 2016 (see “2017 Compensation Decisions — Acquisition +Recognition Award”). Mr. Honeyfield did not receive additional restricted stock units related to the Delaware Basin Transactions due to his hire date with the Company; and +(c) +Performance-based stock unit awards. +The 2016 grants are described in “2016 Compensation +Decisions — Long-Term Incentives” and detailed in the “2016 Grants of Plan-Based Awards” table. In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the stock +awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of +equity awards for purposes of the Company’s financial statements, as set forth in Note 14 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on +February 28, 2017. +47 +Table of Contents +(3) +Represents the grant date fair value of SARs granted in each year. The 2016 grants are described in “2016 Compensation Decisions — Long-Term Incentives” and detailed in the “2016 Grants of +Plan-Based Awards” table. In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the SAR awards calculated in accordance with FASB ASC Topic 718 disregarding estimated +forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of SAR awards for purposes of the Company’s financial statements, as set forth in +Note 14 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 28, 2017. +(4) +Amounts shown in this column for 2016 are detailed below in “2016 All Other Compensation.” +(5) +Mr. Honeyfield became a Named Executive Officer December 19, 2016. Compensation reflects prorated base salary for 2016. +(6) +As part of Mr. Honeyfield’s compensation package upon hire, he earned a sign-on bonus of $333,333 (which was paid in January 2017) and 10,739 restricted stock units, in +each case to replace foregone compensation from his previous employer. 7,893 restricted stock units were awarded to Mr. Honeyfield upon hire, and represent his 2017 long-term incentive award. Please refer to “Agreements with +Named Executive Officers — Employment Package with Mr. Honeyfield.” +(7) +Mr. Reasoner was promoted from Senior Vice President of Operations to Chief Operating Officer effective January 1, 2017. +(8) +Mr. Shellum’s compensation reflects base salary prorated to his June 30, 2016 retirement date. +(9) +Mr. Shellum’s bonus payments include $146,000 prorated annual target bonus and $700,000 stay bonus pursuant to his Retirement Agreement. See “Potential Payments Upon Termination or Change in Control +— Shellum Retirement Agreement” for a description of the payment. +(10) +Mr. Meyers received a $267,000 bonus award for his annual incentive award in part due his contributions as interim Principal Financial Officer during the period related to the negotiation, financing, and execution +of the Delaware Basin Transactions. In addition, $68,250 was awarded as restricted stock units vesting over a three-year period. +48 +Table of Contents +2016 ALL OTHER COMPENSATION +Name +Year +401(k) +Matching +Contribution (1) +($) +Annual Profit +Sharing +Contribution (2) +($) +Perquisites (3) +($) +Total +All Other +Compensation +($) +Barton R. Brookman +2016 +24,000 +10,600 +24,666 +59,266 +David W. Honeyfield (4) +2016 +— +— +— +— +Lance A. Lauck +2016 +24,000 +10,600 +19,605 +54,205 +Scott J. Reasoner +2016 +24,000 +10,600 +22,189 +56,789 +Daniel W. Amidon +2016 +24,000 +10,600 +22,743 +57,343 +Gysle R Shellum +2016 +24,000 +— +11,491 +35,491 +R. Scott Meyers +2016 +18,000 +10,600 +14,070 +42,670 +(1) +Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) +Represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) +Represents total value of perquisites provided by the Company. Perquisites include monthly automobile allowances, health club dues, Company-provided health physicals, and spouse or family travel. +(4) +David Honeyfield became a Named Executive Officer December 19, 2016. +49 +Table of Contents +2016 GRANTS OF PLAN-BASED AWARDS +All Other +Stock +Awards: +Number of +Shares +of Stock +All Other +Option +Awards: +Number of +Securities +Underlying +Options +Exercise +or Base +Price of +Option +Awards +Grant Date +Fair Value of +Stock and +Option +Awards +Estimated Future Payouts +Under Non-Equity Incentive +Plan +Awards (1) +Estimated Future Payouts +Under Equity Incentive Plan +Awards +Threshold +Target +Maximum +Threshold +Target +Maximum +Name +Grant Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +1/1/2016 +— +750,000 +1,500,000 +— +— +— +— +— +— +— +1/11/2016 +— +— +— +6,004 +12,008 +24,016 +— +— +— +871,060 +(2) +1/11/2016 +— +— +— +— +— +— +— +29,036 +51.63 +782,811 +(3) +1/11/2016 +— +— +— +— +— +— +30,483 +— +— +1,573,837 +(4) +David W. Honeyfield +12/19/2016 +— +— +— +— +— +— +10,739 +— +— +837,535 +(5) +12/19/2016 +— +— +— +— +— +— +7,893 +— +— +615,575 +(5) +Lance A. Lauck +1/1/2016 +— +310,250 +620,500 +— +— +— +— +— +— +— +1/11/2016 +— +— +— +2,367 +4,733 +9,466 +— +— +— +343,332 +(2) +1/11/2016 +— +— +— +— +— +— +— +11,445 +51.63 +308,557 +(3) +1/11/2016 +— +— +— +— +— +— +12,015 +— +— +620,335 +(4) +Scott J. Reasoner +1/1/2016 +— +272,000 +544,000 +— +— +— +— +— +— +— +1/11/2016 +— +— +— +1,973 +3,945 +7,890 +— +— +— +286,170 +(2) +1/11/2016 +— +— +— +— +— +— +— +9,538 +51.63 +257,144 +(3) +1/11/2016 +— +— +— +— +— +— +10,013 +— +— +516,971 +(4) +Daniel W. Amidon +1/1/2016 +— +262,400 +524,800 +— +— +— +— +— +— +— +1/11/2016 +— +— +— +1,797 +3,594 +7,188 +— +— +— +260,709 +(2) +1/11/2016 +— +— +— +— +— +— +— +8,690 +51.63 +234,282 +(3) +1/11/2016 +— +— +— +— +— +— +9,123 +— +— +471,021 +(4) +Gysle R. Shellum +— +— +— +— +— +— +— +— +— +— +— +(6) +R. Scott Meyers +4/1/2016 +— +— +— +— +— +— +5,571 +— +— +332,143 +(7) +(1) +Represents target and maximum cash awards payable under the Company’s annual incentive plan. +(2) +Represents annual performance share unit awards under the 2010 LTI Plan. Grant date fair value is computed by multiplying the number of performance shares units awarded by the grant date fair value as computed +utilizing the Monte Carlo pricing model, which was $72.54 per share. +(3) +Represents annual SARs awarded under the Company’s 2010 LTI Plan. Grant date fair value for SARs is computed by multiplying the number of SARs awarded by the grant date fair value as computed utilizing the +Black-Scholes pricing model, which was $26.96 per SAR. +(4) +Represents annual time-based restricted stock unit awards under the 2010 LTI Plan. Grant date fair value for restricted stock units is computed by multiplying the number of shares awarded by the closing price of +the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of January 11, 2016, which was $51.63. +(5) +Represents time-based restricted stock units awarded under the 2010 LTI Plan. This annual 2017 grant of 7,893 shares that was issued in 2016 and for special new hire award of 10,739 shares. Grant date fair +value for restricted stock units is computed by multiplying the number of shares awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of December 19, 2016, which +was $77.99. For a description of the awards, see “Agreements with Named Executive Officers — Employment Package with Mr. Honeyfield.” +(6) +Gysle Shellum did not receive incentive awards in 2016 due to his scheduled retirement. +(7) +Represents annual time-based restricted stock unit awards under the 2010 LTI Plan. Grant date fair value for restricted stock units is computed by multiplying the number of shares awarded by the closing price of +the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of April 1, 2016, which was $59.62. +50 +Table of Contents +OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END +Options/SARs Awards +Stock Awards +Option/ +SAR +Exercise +Price +($) +Option/ +SAR +Expiration +Date +Number +of Shares +of Stock +That Have +Not +Vested (2) +(#) +Market +Value +of Shares of +Stock That +Have Not +Vested (3) +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares That +Have +Not +Vested (4) +(#) +Equity +Incentive +Plan Awards: +Market +Value +of Unearned +Shares That +Have Not +Vested (3) +($) +Number of Securities +Underlying Unexercised +Options/SARs Held at +December 31, 2016 +Name +Exercisable +(#) +Unexercisable (1) +(#) +Barton R. Brookman +8,295 +— +24.44 +4/19/2020 +35,783 +2,597,130 +23,481 +1,704,251 +5,104 +— +43.95 +3/11/2021 +— +— +— +— +9,766 +— +30.19 +1/16/2022 +— +— +— +— +12,620 +— +37.18 +1/15/2023 +— +— +— +— +9,193 +4,597 +49.57 +1/15/2024 +— +— +— +— +17,762 +8,881 +39.63 +1/13/2025 +— +— +— +— +9,678 +19,358 +51.63 +1/10/2026 +— +— +— +— +David W. Honeyfield +— +— +— +— +18,632 +1,352,311 +— +— +Lance A. Lauck +7,319 +— +24.44 +4/19/2020 +16,581 +1,203,449 +9,991 +725,147 +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +6,730 +3,366 +49.57 +1/15/2024 +— +— +— +— +8,141 +4,071 +39.63 +1/13/2025 +— +— +— +— +3,815 +7,630 +51.63 +1/10/2026 +— +— +— +— +Scott J. Reasoner +5,180 +2,591 +39.63 +1/13/2025 +12,030 +873,137 +7,291 +529,181 +3,179 +6,359 +51.63 +1/10/2026 +Daniel W. Amidon +7,807 +— +24.44 +4/19/2020 +14,862 +1,078,684 +7,657 +555,745 +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +6,730 +3,366 +49.57 +1/15/2024 +— +— +— +— +6,290 +3,146 +39.63 +1/13/2025 +— +— +— +— +2,896 +5,794 +51.63 +1/10/2026 +— +— +— +— +R. Scott Meyers +— +— +— +— +13,129 +952,903 +— +— +(1) +SARs granted from 2013 to 2016 vest ratably over three years. The exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock +appreciation value will be determined on the date of exercise. +51 +Table of Contents +(2) +The restricted stock in this column vests as follows: +Shares Vesting Per Year +2017 +2018 +2019 +Total +Barton R. Brookman +15,612 +10,010 +10,161 +35,783 +David W. Honeyfield +6,210 +6,211 +6,211 +18,632 +Lance A. Lauck +7,988 +4,588 +4,005 +16,581 +Scott J. Reasoner +5,772 +2,920 +3,338 +12,030 +Daniel W. Amidon +7,024 +4,797 +3,041 +14,862 +R. Scott Meyers +5,387 +5,885 +1,857 +13,129 +(3) +The market value of these shares is based on the closing price of the Company’s common stock of $72.58, as reported on NASDAQ Global Select Market on December 31, 2016. +(4) +Performance shares granted in 2015 and 2016 are contingent upon the achievement of certain specified stock performance goals. For a description of the performance share grants in 2016, see “Terms of the 2016 +Equity Grants — Performance Shares.” +2016 OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value +Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting (1) +(#) +Value +Realized +on Vesting (2) +($) +Barton R. Brookman +— +— +38,362 +2,715,043 +Lance A. Lauck +— +— +22,216 +1,548,412 +Scott J. Reasoner +— +— +11,251 +757,348 +Daniel W. Amidon +— +— +21,461 +1,492,033 +Gysle R. Shellum +24,833 +341,480 +43,100 +2,317,800 +R. Scott Meyers +— +— +4,932 +294,046 +(1) +The number of shares shown below includes restricted stock and performance shares that vested in 2016. +(2) +Value of the restricted shares and performance shares that vested in 2016 is determined by multiplying the number of shares vesting by the market value of the shares on the vesting date. +Name +Restricted +Performance (3) +Total +Barton R. Brookman +25,150 +13,212 +38,362 +Lance A. Lauck +12,576 +9,640 +22,216 +Scott J. Reasoner +11,251 +— +11,251 +Daniel W. Amidon +11,821 +9,640 +21,461 +Gysle R. Shellum +20,534 +22,566 +43,100 +R. Scott Meyers +4,932 +— +4,932 +(3) +The performance shares that vested in 2016 covered the three-year period January 1, 2014 through December 31, 2016. Based on the Company’s excellent TSR performance over this three-year period, the +Company ranked first among its peers, resulting in 200 percent of the target award payout to the Named Executive Officers above (see “2016 Compensation Decisions — Long-Term Incentives — 2014 — 2016 Performance Share +Results” for more information). +52 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL +The Company may be obligated to pay certain benefits under the Severance Plan and, with respect to certain Named Executive Officers, +“grandfathered” employment agreements. As of December 31, 2016, only Messrs. Lauck and Amidon remained covered under “grandfathered” employment agreements. Mr. Meyers is covered under a separate +severance plan (described below) and Mr. Shellum relinquished his severance benefits in October 2015 upon announcing his retirement and entering into his Retirement Agreement with the Company (see “Shellum Retirement Agreement” +below). +The primary purpose of the Severance Plan and the severance provisions of the employment agreements is to provide severance +benefits in the event of the termination of the Named Executive Officer by the Company without “just cause” or termination by the Named Executive Officer for “good reason,” either prior to or following a change in control of the +Company. Upon a change in control, the Severance Plan and individual employment agreements provide benefits only in the event that an executive is terminated by the acquiring company “without cause” or by the executive for “good +reason” (i.e., they are “double-trigger” in nature). +The severance benefits an executive would receive under the Severance +Plan under various termination scenarios are as follows: +• +Termination by the Company without “just cause” or termination by the executive for “good reason”: +• +Tier One executive (CEO only) receives two times the sum of his or her base salary and target bonus for the year; +• +Tier Two executives (all other Named Executive Officers) would receive one and one-half times the sum of his or her base salary and target bonus for the year; and +• +Continuation of health benefits for up to 18 months. +• +Termination related to a change in control of the Company: +• +Tier One executive (CEO only) would receive three times the sum of his or her base salary and target bonus for the year; +• +Tier Two executives (all other Named Executive Officers) would receive two and one-half times the sum of his or her base salary and target bonus for the year; +• +All executives would receive a pro-rata bonus at the target amount for the year of termination; and +• +Continuation of health benefits for up to 18 months. +53 +Table of Contents +The Severance Plan provides a benefit “offset” so that cash benefits paid upon +severance would be reduced by any other severance benefits that the executive is entitled to receive under a Company plan. The grandfathered employment agreements provide benefits similar to those provided under the Severance Plan, but vary in +the amounts of cash benefit provided to each covered Named Executive Officer. The following table summarizes the cash payout under certain termination scenarios for each Named Executive Officer (other than Messrs. Shellum) as of +December 31, 2016: +TERMINATION WITHOUT +CAUSE OR FOR GOOD +REASON +TERMINATION DUE TO +CHANGE IN CONTROL +CONTROLLING PLAN +OR +AGREEMENT +Barton R. Brookman +2x base plus target bonus +3x base plus target bonus plus pro-rata bonus for the year of termination +Severance Plan +David W. Honeyfield +1.5 base plus target bonus +2.5 base plus target bonus plus pro-rata bonus for year of termination +Severance Plan +Lance A. Lauck +2x base plus bonus* +3x base plus bonus* +Grandfathered Employment Agreement +Daniel W. Amidon +3x base plus bonus* +3x base plus bonus* +Grandfathered Employment Agreement +Scott J. Reasoner +1.5x base plus target bonus +2.5x base plus target bonus plus pro-rata bonus for year of termination +Severance Plan +R. Scott Meyers +base plus target bonus +VP Change of Control and Severance Plan +* +Highest bonus of last two years +As a condition of receiving severance benefits under the +Severance Plan and under the terms of the grandfathered employment agreements, there is a non-disclosure covenant and a non-compete covenant pursuant to which the +executive officer is prohibited for a period of one year following his termination from engaging in any competing business in any county in which the Company is doing business or any adjacent county. In addition, the executive is prohibited +from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a change in control of the Company, the Severance Plan provides for +payment of the severance benefits over 12 months. +The grandfathered employment agreements contain a clawback provision and the executives +covered under the Severance Plan are covered under the Company’s clawback policy (see “Clawback Policy”). The grandfathered employment agreements automatically extend for 12 months on December 31 of each year prior to the +last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 automatic extension date. +Mr. Meyers participates in a separate severance plan that covers vice president level employees of the Company (the “VP Severance +Plan”). Under the terms of the VP Severance Plan, if Mr. Meyers is terminated by the Company “without Cause,” as defined in the VP Severance Plan, he would be entitled to (i) a cash payment, paid over 12 months, equal +to his base salary, (ii) his target bonus amount, and (iii) up to 12 months of subsidized COBRA under the Company’s health insurance plans. If he is terminated without “cause” or “Good Reason” related to a +“change in control” of the Company, as defined in the plan, he would be entitled to: (i) lump sum cash payment equal to two times his base salary, (ii) a target bonus amount, and (iii) up to 18 months of subsidized COBRA +under the Company’s health insurance plans. As a condition of receiving benefits, Mr. Meyers would be subject to a two year non-solicitation clause. +54 +Table of Contents +Impact of Termination and Change in Control on Long-Term Incentive Plans +Under the terms of the 2010 LTI Plan and related grant agreements and employment agreements, all unvested restricted stock units and SARs vest +upon death, disability or change in control. The following table outlines the effect on outstanding unvested LTI awards under various termination scenarios and upon a change in control of the Company based on the terms of the 2010 LTI Plan and +related grant agreements and the executive employment agreements: +TERMINATION SCENARIO/ +CHANGE IN CONTROL +RESTRICTED +STOCK/SARs/ +OPTIONS +PERFORMANCE SHARE UNITS +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change in Control +Vests +Executives with Grandfathered Employment Agreements: +Forfeited +Executives in Severance Plan: +2015 and 2016 +grants: Portion to be earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +Earned pro-rata based on performance through either date of death or end of performance period. +Disability +Vests +Earned pro-rata based on performance at end of performance +period. +Occurrence of a Change in Control +Vests +If less than 50% of the performance period has elapsed, earns 100% of performance share units. If 50% or more of the performance +period has elapsed, earns greater of actual performance through change in control or 100% of performance share units. +Change in Control Excise Tax Provision +The Company currently provides no income tax gross-up or excise tax +gross-up pursuant to taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and the grandfathered +employment agreements provide that if it is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total +amount to the executive and he would be responsible for the 20 percent excise tax; or (2) reduce the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the +executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes +the cost to the Company would be minimal as a percentage of the entire value of the change of control transaction. +Shellum Retirement Agreement +In October 2015, Mr. Shellum announced his intention to retire from the Company, effective June 30, 2016. Pursuant +to Mr. Shellum’s Retirement Agreement with the Company, Mr. Shellum received the following: (i) his +55 +Table of Contents +then-current base salary through June 30, 2016, (ii) a bonus for 2015 performance paid consistent with other Named Executive Officers, (iii) a +pro-rated target bonus for 2016 in the amount of $146,000 paid at termination, (iv) a stay bonus of $700,000 paid at termination, and (v) a medical stipend paid following termination of employment +for 30 months, based on the amount of the then-current COBRA rate. +In addition, as part of the Retirement Agreement, +Mr. Shellum’s existing equity incentive awards were amended to provide the following: (i) he received full vesting of his outstanding SARs and restricted stock/units (with SARs vesting on his date of termination and being exercisable +for 12 months following termination), and (ii) outstanding performance share units were earned based on performance through June 30, 2016. No new equity grants were made to Mr. Shellum in 2016. +As part of the Retirement Agreement, Mr. Shellum executed a release agreement with the Company upon his termination of employment and he +continues to be bound by the non-competition covenant and other restrictive covenants set forth in his Retirement Agreement. The Retirement Agreement also provides compensation to Mr. Shellum for +time required to assist the Company in certain specific matters. No additional compensation was paid in 2016 for this assistance. +Termination +Benefits Table +The tables below and the discussion that follows show compensation payable to each Named Executive Officer upon +various termination scenarios both before and after a change of control of the Company (“COC”). The amounts shown assume that termination occurred on December 31, 2016, that the closing price per share on such date was $72.58, +and, in the event of termination due to COC, the executive’s benefit is not reduced as a result of Section 280G or Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of +such executive’s separation from the Company. +56 +Table of Contents +Barton R. Brookman +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +3,000,000 +(1) +4,500,000 +(2) +— +— +Pro-rata Bonus +— +— +— +750,000 +(3) +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +2,597,130 +(4) +2,597,130 +(4) +2,597,130 +(4) +2,597,130 +(4) +SARs +— +— +803,956 +(4) +803,956 +(4) +803,956 +(4) +803,956 +(4) +Performance Share Units +— +— +(5) +2,536,961 +(6) +1,400,820 +(7) +1,400,820 +(8) +Benefits +Earned Profit Sharing (9) +10,600 +10,600 +10,600 +10,600 +10,600 +10,600 +Health Benefits Continuation +— +— +36,125 +(10) +36,125 +(10) +— +— +Total +10,600 +10,600 +6,447,811 +11,234,772 +4,812,506 +4,812,506 +(1) +Cash severance is equal to 2 times the sum of his base salary and target bonus. +(2) +Cash severance is equal to 3 times the sum of his base salary and target bonus. +(3) +Bonus amounts for 2016 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Brookman is entitled to a pro-rata target bonus +under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on target bonus for 2016 which was adjusted and earned in March 2017 based on the Company’s actual performance. +(4) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or +death. +(5) +For the 2016 performance share units, the Committee has the discretion to award from 0 percent to 100 percent of the target shares, adjusted for Company performance at the end of the performance period. +Since no amount is guaranteed, no value is included for the 2016 performance share units. The 2015 performance share units would be forfeited. +(6) +For the 2016 performance share units, the value shown is the target number of shares awarded since less than half the performance period has occurred. For the 2015 performance share units, since Company +performance exceeded 100 percent, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent). +(7) +In the case of death, one-third of the 2016 performance share units would be earned based on performance the through date of death and +two-thirds of the 2015 performance share units would be earned based on performance at the end of the performance period. For the 2015 performance share units, the value shown is the target number of +shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the pro-rata amount earned for the performance period. For the 2016 performance share units, the +value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (100 percent) times the pro-rata amount earned for the performance period. +(8) +In the case of disability, one-third of the 2016 and two-thirds of the 2015 performance share units would be earned. Although payment +would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent for the 2015 two year performance period; +100 percent for 2016 one year performance period) times the pro-rata amount earned for the performance period. +(9) +The profit sharing contribution for 2016 that was credited to Mr. Brookman’s 401(k) account in March +2017. +(10) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Brookman and any covered dependents for an 18-month period. +57 +Table of Contents +David W. Honeyfield +Termination by Company +Without Cause or by Exec +for Good Reason +Element of Compensation +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +1,080,000 +(1) +1,800,000 +(2) +— +— +Bonus +— +— +350,000 +(3) +350,000 +(3) +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +1,352,311 +(4) +1,352,311 +(4) +1,352,311 +(4) +1,352,311 +(4) +SARs +— +— +— +— +— +— +Performance Shares +— +— +— +— +— +— +Benefits +Earned Profit Sharing +— +— +— +— +— +— +Health Benefits Continuation +— +— +36,125 +(5) +36,125 +(5) +— +— +Total +— +— +2,818,435 +3,538,435 +1,352,311 +1,352,311 +(1) +Cash severance is equal to 1.5 times the sum of his base salary and target bonus. +(2) +Cash severance is equal to 2.5 times the sum of his base salary and target bonus. +(3) +Upon the hiring of Mr. Honeyfield in December 2016, we agreed to pay him a 2016 bonus, payable in March 2017 to replace forgone compensation from his previous employer. +(4) +Restricted shares vest and become exercisable upon termination, change of control, disability or death. +(5) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Honeyfield and any covered dependents for an 18-month period. +58 +Table of Contents +Lance A. Lauck +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +1,616,000 +(1) +2,424,000 +(2) +— +— +Salary Continuation +— +— +— +— +182,500 +(3) +273,750 +(4) +Pro-rata Bonus +— +310,250 +(5) +— +— +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +1,203,449 +(6) +1,203,449 +(6) +1,203,449 +(6) +1,203,449 +(6) +SARs +— +— +371,440 +(6) +371,440 +(6) +371,440 +(6) +371,440 +(6) +Performance Share Units +— +— +(7) +1,106,772 +(8) +623,355 +(9) +623,355 +(10) +Benefits +Earned Profit Sharing (11) +10,600 +10,600 +10,600 +10,600 +10,600 +10,600 +Health Benefits Continuation +— +— +36,125 +(12) +36,125 +(12) +36,125 +(12) +36,125 +(12) +Total +10,600 +320,850 +3,237,614 +5,152,386 +2,427,469 +2,518,719 +(1) +Cash severance equal to 2 times the sum of his base salary and highest bonus paid in last two years (2015 bonus paid in March 2016). +(2) +Cash severance equal to 3 times the sum of his base salary and highest bonus paid in the last two years (2015 bonus paid in March 2016). +(3) +In the event of death, Mr. Lauck would receive a lump sum payment equal to six months base salary. +(4) +In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, Mr. Lauck would receive an additional lump sum payment equal to six months’ base +salary. +(5) +Bonus amounts for 2016 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Lauck is entitled to a pro-rata bonus under the +terms of his Agreement. As a result, the pro-rata bonus shown is based on the target bonus for 2016, which was adjusted and earned in March 2017 based on the Company’s actual performance. +(6) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or death. +(7) +performance share units awarded in 2015 and 2016 would be forfeited. +(8) +For the 2016 performance share units, the value shown is the target number of shares awarded since less than half the performance period has occurred. For the 2015 performance share units, since Company +performance exceeded 100 percent, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent). +(9) +In the case of death, one-third of the 2016 award would be earned based on performance through the date of death and two-thirds of the 2015 +performance share units would be earned based on performance at the end of the performance period. The value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the pro-rata amount earned for the performance period. +(10) +In the case of disability, one-third of the 2016 and two-thirds of the 2015 performance share units would be earned. Although payment +would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the +pro-rata amount earned for the performance period. +(11) +The profit sharing contribution for 2016 that was credited to Mr. Lauck’s 401(k) account in March 2017. +(12) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Lauck and any covered dependents for an 18-month period. +59 +Table of Contents +Scott J. Reasoner +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +918,000 +(1) +1,530,000 +(2) +— +— +Pro-rata Bonus +— +— +— +272,000 +(3) +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +873,137 +(4) +873,137 +(4) +873,137 +(4) +873,137 +(4) +SARs +— +— +218,595 +(4) +218,595 +(4) +218,595 +(4) +218,595 +(4) +Performance Share Units +— +— +(5) +772,033 +(6) +419,253 +(7) +419,253 +(8) +Benefits +Earned Profit Sharing (9) +10,600 +10,600 +10,600 +10,600 +10,600 +10,600 +Health Benefits Continuation +— +— +36,125 +(10) +36,125 +(10) +— +— +Total +10,600 +10,600 +2,056,457 +3,712,490 +1,521,585 +1,521,585 +(1) +Cash severance is equal to 1.5 times the sum of his base salary and target bonus. +(2) +Cash severance is equal to 2.5 times the sum of his base salary and target bonus. +(3) +Bonus amounts for 2016 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Reasoner is entitled to a pro-rata target bonus +under the terms of the Severance Plan. As a result, the pro-rata bonus shown is based on the target bonus for 2016, which was adjusted and earned in February 2017 based on the Company’s actual +performance. +(4) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or death. +(5) +For the 2016 performance share units, the Committee has the discretion to award from 0 percent to 100 percent of the target shares, adjusted for Company performance at the end of the performance period. +Since no amount is guaranteed, no value is included for the 2016 performance share units. The 2015 performance share units would be forfeited. +(6) +For the 2016 performance share units, the value shown is the target number of shares awarded since less than half the performance period has occurred. For the 2015 performance share units, since Company +performance exceeded 100 percent, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent). +(7) +In the case of death, one-third of the 2016 performance share units would be earned based on performance through the date of death and +two-thirds of the 2015 performance share units would be earned based on performance at the end of the performance period. For the 2015 performance share units, the value shown is the target number of +shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the pro-rata amount earned for the performance period. For the 2016 performance share units, the +value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (100 percent) times the pro-rata amount earned for the performance period. +(8) +In the case of disability, one-third of the 2016 and two-thirds of the 2015 performance share units would be earned. Although payment +would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent for the 2015 two year performance period; +100 percent for 2016 one year performance period) times the pro-rata amount earned for the performance period. +(9) +The profit sharing contribution for 2016 that was credited to Mr. Reasoner’s 401(k) account in March 2017. +(10) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Reasoner and any covered dependents for an 18-month period. +60 +Table of Contents +Daniel W. Amidon +Termination by Company +Without Cause or by Exec +for Good Reason +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +2,118,000 +(1) +2,118,000 +(1) +— +— +Salary Continuation +— +— +— +— +164,000 +(2) +246,000 +(3) +Pro-rata Bonus +262,400 +(4) +— +— +— +262,400 +(4) +262,400 +(4) +Acceleration of Unvested Equity +Restricted Stock +— +— +1,078,684 +(5) +1,078,684 +(5) +1,078,684 +(5) +1,078,684 +(5) +SARs +— +302,497 +(5) +302,497 +(5) +302,497 +(5) +302,497 +(5) +Performance Share Units +— +— +(6) +850,638 +(7) +480,152 +(8) +480,152 +(9) +Benefits +Earned Profit Sharing (10) +10,600 +10,600 +10,600 +10,600 +10,600 +10,600 +Health Benefits Continuation +— +— +26,381 +(11) +26,381 +(11) +26,381 +(11) +26,381 +(11) +Total +273,000 +10,600 +3,536,162 +4,386,800 +2,324,714 +2,406,714 +(1) +Cash severance equal to 3 times the sum of his base salary and highest bonus paid or payable in last two years (2015 bonus paid in March 2016 since 2016 bonus not determined) as of December 31, 2016. +(2) +In the event of death, Mr. Amidon would receive a lump sum payment equal to six months base salary. +(3) +In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, Mr. Amidon would receive an additional lump sum payment equal to six months’ base +salary. +(4) +Bonus amounts for 2016 are not determined until after December 31 and are subject to forfeiture until paid. Mr. Amidon is entitled to a pro-rata bonus under the +terms of his agreement (in the case of a “voluntary termination”, only if he terminates after March 31). As a result, the pro-rata bonus shown is based on the target bonus for 2016, which was +adjusted and earned in March 2017 based on the Company’s actual performance. +(5) +Restricted shares and SARs vest and become exercisable upon termination, change of control, disability or death. +(6) +performance share units awarded in 2015 and 2016 are forfeited. +(7) +For the 2016 performance share units, the value shown is the target number of shares awarded since less than half the performance period has occurred. For the 2015 performance share units, since Company +performance exceeded 100 percent, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent). +(8) +In the case of death, one-third of the 2016 award would be earned based on performance through the date of death and two-thirds of the 2015 +performance share units would be earned based on performance at the end of the performance period. The value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the pro-rata amount earned for the performance period. +(9) +In the case of disability, one-third of the 2016 and two-thirds of the 2015 performance share units would be earned. Although payment +would not occur until the end of the performance period, the value shown is the target number of shares awarded adjusted for Company performance through December 31, 2016 (200 percent) times the +pro-rata amount earned for the performance period. +(10) +The profit sharing contribution for 2016 that was credited to Mr. Amidon’s 401(k) account in March 2017. +(11) +Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to Mr. Amidon and any covered dependents for an 18-month period. +61 +Table of Contents +R. Scott Meyers +Termination by Company +Without Cause or by Exec +for Good Reason +Element of Compensation +Voluntary +Termination +Termination +for Cause +Prior to +COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +— +388,310 +(1) +776,620 +(2) +— +— +Bonus +— +— +— +— +— +— +Acceleration of Unvested Equity +Restricted Stock +— +— +952,903 +(3) +952,903 +(3) +952,903 +(3) +952,903 +(3) +SARs +— +— +— +— +— +— +Performance Share Units +— +— +— +— +— +— +Benefits +Earned Profit Sharing (4) +10,600 +10,600 +10,600 +10,600 +10,600 +10,600 +Health Benefits Continuation +— +— +24,083 +(5) +36,125 +(6) +— +— +Total +10,600 +10,600 +1,375,896 +1,776,248 +963,503 +963,503 +(1) +Cash severance is equal to the sum of his base salary and target bonus. +(2) +Cash severance is equal to 2.0 times the sum of his base salary and target bonus. +(3) +Restricted shares vest and become exercisable upon termination or change of control. +(4) +The profit sharing contribution for 2016 that was credited to Mr. Meyers’ 401(k) account in March 2017. +(5) +Cost of continued coverage of Mr. Meyers and his dependents under the Company’s group health care plans on a subsidized basis for a 12-month period. +(6) +Cost of continued coverage of Mr. Meyers and his dependents under the Company’s group health care plans on a subsidized basis for a 18-month period. +62 +Table of Contents +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for +issuance as of December 31, 2016: +Plan Category +Number of +Securities to be +Issued Upon Exercise of +Outstanding Options +and +Rights (1) +(#) +Weighted-Average +Exercise Price of +Outstanding Options +and Rights +($) +Number of +Securities Remaining +Available +for +Future Issuance +Under Equity +Compensation Plans (2) +(#) +Equity compensation plans approved by +security holders +292,498 +41.36 +839,052 +Equity compensation plans not approved by security holders +— +— +— +Total +292,498 +41.36 +839,052 +(1) +Includes 48,420 shares of common stock to be issued based upon continuous employment and the maximum achievement of certain performance goals over a specified period of time as described in “Outstanding Equity +Awards at 2016 Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) +The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding options, SARs and restricted shares subject to time vesting and +certain market-based performance goals over a specified period of time. +STOCKHOLDER +NOMINATIONS AND PROPOSALS +Stockholder Proposals for 2018 Annual Meeting +Any proposal that a stockholder wishes to include in the Company’s Proxy Statement for the 2018 annual meeting of stockholders must be +received by the Company at its principal office on or prior to December 20, 2017, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, +Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +Advance Notice +Procedures Under the Company’s Bylaws +Any proposal or nomination for Director that a stockholder wishes to propose for +consideration at the 2018 annual meeting of stockholders, but does not seek to include in our Proxy Statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which provides that no +business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has +delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the +first anniversary of the preceding year’s annual meeting. In the case of the 2018 annual meeting, the notice must be delivered between March 1, 2018 and March 11, 2018. However, the Bylaws also provide that if the meeting +is held more than 30 days before the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the +annual meeting is first made by the Company. +63 +Table of Contents +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate +Secretary receives any stockholder proposal at the address listed above after March 3, 2018 that is intended to be presented at the 2018 annual meeting of stockholders without inclusion in the Proxy Statement for the meeting, the proxies +designated by the Board will have discretionary authority to vote on such proposal. +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and +annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is +intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have +received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive +separate copies of our annual report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of +this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should +contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: April 19, 2017 +THE COMPANY WILL +PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE +FISCAL YEAR ENDED DECEMBER 31, 2016, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC +ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO, 80203. +64 +Table of Contents +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to +vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 2:00 a.m. Eastern +Time on May 30, 2017. +Vote by Internet +• Go to www.envisionreports.com/PDCE +• Or scan the QR code with your +smartphone +• Follow the steps +outlined on the secure website +Vote by telephone +• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone +• Follow the instructions provided +by the recorded message +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated +areas. +☒ +q IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE +BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board recommends a vote FOR all nominees and FOR Proposals 2 and 3 and FOR an advisory vote every one year on Named +Executive Officer compensation. +1. Elect Two Class I Directors: +For +Withhold +For +Withhold ++ +01 - David C. Parke +☐ +☐ +02 - Jeffrey C. Swoveland +☐ +☐ +For +Against +Abstain +2. Ratify the appointment of PricewaterhouseCoopers LLP as the independent +registered public accounting firm for the Company for the year ending December 31, 2017. +☐ +☐ +☐ +3. Approve, on an advisory basis, the compensation of the Company’s Named +Executive Officers. +☐ +☐ +☐ +1 Year +2 Years +3 Years +Abstain +4. Approve, on an advisory basis, the frequency of future advisory votes on the +compensation of the Company’s Named Executive Officers. +☐ +☐ +☐ +☐ +B +Non-Voting Items +Change of Address — Please print new address +below. +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign personally. When signing as attorney, +executor, administrator, trustee, guardian, or custodian, please give full title as such. If a corporation or partnership, please sign full corporate or partnership name, by an authorized officer or an authorized person, respectively. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 (if needed) — Please keep signature within the box. +/ +/ +Table of Contents +q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, +FOLD ALONG THE PERFORATION, +DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +Proxy Solicited by Board of +Directors for 2017 Annual Meeting of Stockholders +The undersigned appoints DAVID W. HONEYFIELD and DANIEL W. AMIDON, and either of them, proxies, each +with full power to act without the other and with full power of substitution for and in the name of the undersigned at the 2017 Annual Meeting of Stockholders of PDC Energy, Inc. (the “Company”) to be held on May 30, 2017, at 1:00 +p.m. Mountain Time, and at any adjournment or postponement thereof, to vote all shares of the common stock of the Company held by the undersigned with respect to the matters specified herein and on such other matters as may properly come before the +meeting. +The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement for such meeting to be held on +May 30, 2017, and a copy of the Company’s 2016 Annual Report. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED +PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR EACH OF THE DIRECTORS SPECIFIED IN +PROPOSAL 1 AND FOR EACH OF PROPOSAL 2 AND PROPOSAL 3 AND FOR AN ADVISORY VOTE EVERY ONE YEAR ON NAMED EXECUTIVE OFFICER COMPENSATION. +In their discretion, the appointed proxies are authorized to vote upon such other business as may properly come before the meeting and at any and all +adjournments or postponements thereof. +IMPORTANT INFORMATION IS CONTAINED ON OTHER SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF THIS CARD, SIGN, +DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001193125-17-128415/proxy_rpt.txt b/raw/proxies/0000077877/0001193125-17-128415/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f83e59e5f9c2d2d7ee1c1f024673f6db0142d165 --- /dev/null +++ b/raw/proxies/0000077877/0001193125-17-128415/proxy_rpt.txt @@ -0,0 +1,16 @@ +TRANSACTIONS WITH RELATED PERSONS +Related Transactions +During 2016, there +was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is a participant and/or in which any Director, executive officer, known holder of more than +five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +Policies and Procedures With Respect to Transactions with Related Persons +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential +conflicts of interest. The related party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the +Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors are directors or officers, or have a substantial financial +interest. +Under our related-party transaction policy, a related person transaction is a transaction or arrangement involving a related +person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related person. The related person must disclose to the Audit Committee any potential related +person transactions and must disclose all material facts with respect to such transaction and relationship. All related person transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify +a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related person with the Company, the materiality or significance of the transaction +to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the +Company’s business and operations. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-20-003679/proxy.txt b/raw/proxies/0000077877/0001558370-20-003679/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c2057b687df0437f590cfef46b675d18b3748a12 --- /dev/null +++ b/raw/proxies/0000077877/0001558370-20-003679/proxy.txt @@ -0,0 +1,3922 @@ +DEF 14A +1 +def14a.htm +DEF 14A +pdce_Current_Folio_DEF14A (2020) +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a‑12 +PDC ENERGY, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ +No fee required. +☐ +Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +☐ +Fee paid previously with preliminary materials. +☐ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860‑5800 +April 8 , 2020 +Dear Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2020 Annual Meeting of PDC Energy, Inc. to be held on May 26, 2020, at 8:00 a.m. Mountain Time, at Lincoln Crossing at 1775 Sherman Street, Denver, Colorado 80203 (the “Annual Meeting”). +The accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement. +We hope you will join us at the Annual Meeting. Your vote is extremely important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to attend personally, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend in person . +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +Tuesday, May 26, 2020 +April 8 , 2020 +To the stockholders of PDC Energy, Inc.: +The 2020 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held on May 26, 2020, at 8:00 a.m. Mountain Time at Lincoln Crossing at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes: +· +To approve a proposal to amend the Company’s Certificate of Incorporation to declassify the Board of Directors (the “Board”) and to provide for the immediate annual election of directors (Proposal No. 1); +· +If Proposal No. 1 to declassify the Board is approved, to elect eight directors nominated by the Board, each for a term of one year (Proposal No. 2) ; +· +If Proposal No. 1 to declassify the Board is not approved, to elect the two directors nominated by the Board as Class I directors, each for a term of three years ( Proposal No. 3); +· +To approve, on an advisory basis, the compensation of the Company’s named executive officers ( Proposal No. 4); +· +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 ( Proposal No. 5); +· +To approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan ( Proposal No. 6); and +· +To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board has fixed the close of business on March 31, 2020 as the record date for determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +We intend to hold our annual meeting in person. However, we are sensitive to the public health and travel concerns our stockholders may have and recommendations that public health officials may issue in light of the evolving COVID-19 situation. As a result, we may impose additional procedures or limitations on meeting attendees or may decide to hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting). Because there are certain costs associated with holding a +Table of Contents +virtual-only meeting, we currently plan to address COVID-19 concerns relating to the meeting by having directors and others whose physical presence at the meeting is not essential attend the meeting via teleconference. In addition, (i) stockholders and others may listen to the meeting in real-time by calling (877) 798-9351 and entering code 2783435992 and (ii) stockholders may submit questions they would like to have answered at the meeting by sending those questions to our Corporate Secretary in advance of the meeting at the address set forth in “Information About Voting and the Meeting—Contact Information”. We believe that these procedures will reduce risks relating to COVID-19 and provide many of the benefits of a virtual-only meeting while minimizing associated costs. We will continue to monitor the COVID-19 situation and if changes to our current plan become advisable, we will disclose the updated plan on our proxy website (www.proxyvote.com). We encourage you to check this website prior to the meeting if you plan to attend. +If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you still may attend the Annual Meeting and vote your shares or revoke your prior voting instructions. +Your vote is especially important to us at this Annual Meeting. Regardless of the number of shares of our common stock that you own, your vote will be very important. Thank you for your continued support, interest and investment in the Company . +By Order of the Board of Directors, +Nicole L. Martinet +Senior Vice President, General Counsel and Secretary +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on May 26, 2020 at +8:00 a.m. Mountain Time at +Lincoln Crossing +1775 Sherman Street +Denver, Colorado 80203 +The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 26, 2020, at 8:00 a.m. Mountain Time and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 8 , 2020, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING +TO BE HELD ON MAY 26, 2020 +The Notice of Annual Meeting, the Proxy Statement for the 2020 Annual Meeting, and the 2019 Annual Report, which includes the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2019, are available at www.proxyvote.com. +Table of Contents +TABLE OF CONTENTS +PROXY STATEMENT SUMMARY +1 +PROPOSAL NO. 1—AMEND THE CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS +2 +PROPOSAL NO. 2—ELECTION OF EIGHT DIRECTORS, IF PROPOSAL NO. 1 IS APPROVED +4 +Board of Directors +4 +Name, Principal Occupation for Past Five Years and Other Directorships +5 +STANDING COMMITTEES OF THE BOARD +9 +Board Meetings and Attendance +9 +2019 Board and Committee Memberships +9 +Audit Committee +10 +Nominating and Governance Committee +10 +Compensation Committee +10 +Board Leadership Structure +11 +DIRECTOR COMPENSATION +12 +Cash Compensation +12 +Equity Compensation +13 +Deferred Compensation +13 +2019 DIRECTOR COMPENSATION +13 +Director Stock Ownership Requirements and Prohibition on Certain Transactions +14 +Director Qualifications and Selection +14 +Stockholder Recommendations +14 +Stockholder Nominations +15 +CORPORATE GOVERNANCE +15 +Governance Highlights +15 +Corporate Governance Guidelines +16 +Uncontested Elections Policy +16 +Code Of Business Conduct And Ethics +16 +Family Relationships And Other Arrangements +17 +Director Independence +17 +The Board’s Role In Risk Management +17 +Transactions with Related Parties +17 +Policies and Procedures with Respect to Transactions with Related Parties +18 +Other Corporate Governance Documents +18 +Communication with Directors by Stockholders +18 +Additional Information +18 +PROPOSAL NO. 3—ELECT TWO CLASS I DIRECTORS, IF PROPOSAL NO. 1 IS NOT APPROVED +19 +PROPOSAL NO. 4—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +20 +EXECUTIVE COMPENSATION +21 +Executive Officers +21 +COMPENSATION COMMITTEE REPORT +22 +COMPENSATION DISCUSSION AND ANALYSIS +23 +Executive Summary +24 +Executive Compensation Philosophy +30 +2019 Compensation Program Design and Decisions +31 +2019 CORPORATE METRICS METHODOLOGY +34 +2019 QUANTITATIVE CORPORATE METRICS +35 +Compensation Policies and Practices +42 +Summary Compensation Table +48 +All Other Compensation +49 +Grants of Plan-Based Awards +50 +Outstanding Equity Awards at Fiscal Year-End +51 +Option Exercises and Stock Vested +53 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +54 +Impact of Termination and Change of Control on Long Term Equity-Based Incentive Plans +56 +Change of Control Excise Tax Provision +57 +Estimated Termination and Change in Control Benefits +58 +CEO PAY RATIO +61 +EQUITY COMPENSATION PLAN INFORMATION +61 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +62 +Delinquent Section 16(A) Reports +64 +PROPOSAL NO. 5—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +65 +Audit Committee Pre Approval Policies and Procedures +66 +REPORT OF THE AUDIT COMMITTEE +67 +PROPOSAL NO. 6—APPROVE AN AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN +68 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2020 ANNUAL MEETING +77 +STOCKHOLDER NOMINATIONS AND PROPOSALS +77 +Stockholder Proposals for 2021 Annual Meeting +77 +Advance Notice Procedures Under the Company’s Bylaws +77 +INFORMATION ABOUT VOTING AND THE MEETING +78 +Who May Vote +78 +How Proxies Work +78 +Voting 401(k) and Profit Sharing Plan Shares +79 +Revoking a Proxy +79 +Quorum +79 +Votes Needed +79 +Attending in Person +80 +Conduct of the Meeting +80 +Solicitation of Proxies +81 +Appraisal Rights +81 +Contact Information +81 +HOUSEHOLDING INFORMATION +82 +APPENDIX A Non‑GAAP Financial Measures +83 +APPENDIX B Proposed Amendment to Certificate of Incorporation +85 +APPENDIX C Company’s Certificate of Incorporation, as Amended +87 +APPENDIX D Proposed Amendment to Company’s 2018 Equity Incentive Plan +92 +APPENDIX E Company’s 2018 Equity Incentive Plan, as Amended +93 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROXY STATEMENT SUMMARY +This Proxy Statement Summary highlights information contained elsewhere in this document. Please read the entire Proxy Statement carefully before voting. +Annual Meeting of Stockholders +TIME AND DATE +PLACE +RECORD DATE +8:00 a.m. Mountain Time +on Tuesday, May 26, 2020 +Lincoln Crossing +1775 Sherman Street +Denver, Colorado 80203 +March 31, 2020 +VOTING +Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone or mail, please refer to the instructions on your proxy card in the postage paid envelope provided. +Voting Matters +BOARD +RECOMMENDATION +1 +PROPOSAL 1 Amend the Certificate of Incorporation to Declassify the Board and Provide for the Immediate Annual Election of Directors +To approve a proposal to amend the Company’s Certificate of Incorporation to declassify the Board and to provide for the immediate annual election of directors. +FOR +2 +PROPOSAL 2 Election of Eight Directors, If Proposal No. 1 is Approved +If Proposal No. 1 to declassify the Board is approved, to elect eight directors nominated by the Board, each for a term of one year. +FOR +3 +PROPOSAL 3 Election of Two Class I Directors, If Proposal No. 1 is Not Approved +If Proposal No. 1 to declassify the Board is not approved, to elect the two directors nominated by the Board as Class I directors (David C. Parke and Lynn A. Peterson), each for a term of three years. +FOR +4 +PROPOSAL 4 Approve Executive Officer Compensation +To approve, on an advisory basis, the compensation of the Company’s named executive officers. +FOR +5 +PROPOSAL 5 Ratify the Appointment of PricewaterhouseCoopers LLP +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. +FOR +6 +PROPOSAL 6 Approve an Amendment to the 2018 Equity Incentive Plan +To approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan. +FOR +PDC ENERGY 2020 PROXY 1 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 1—AMEND THE CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS +THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE PROPOSAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND TO PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +After careful consideration, on February 20, 2020, the Board unanimously approved and declared advisable, and resolved to recommend to the Company’s stockholders that they approve an amendment to Article Fifth of the Certificate of Incorporation to provide for the elimination of the classified structure of the Board and for the annual election of directors (the “Declassification Amendment”). Declassifying the Board will allow the Company’s stockholders to vote on the election of the entire Board each year, rather than on a three-year staggered basis as with the current classified board structure. The proposed amendment to the Certificate of Incorporation is attached as Appendix B to this Proxy Statement. A copy of the full Certificate of Incorporation, which incorporates the changes made by the amendment and marks those changes specifically, is provided as Appendix C to this Proxy Statement. +If the Declassification Amendment is approved by the Company’s stockholders, the Certificate of Incorporation will be amended immediately following such approval and during the Annual Meeting to provide for the immediate annual election of all directors and all eight nominees for director will be proposed for election (see Proposal No. 2). If the Company’s stockholders approve the Declassification Amendment, the Board will be declassified during the Annual Meeting and all of the directors will be proposed for re-election at the meeting. As of the date of distribution of this Proxy Statement, the Company’s directors whose terms do not expire at the Annual Meeting have acknowledged and agreed that if the Declassification Amendment is approved, their terms shall end at the 2021 annual meeting of stockholders and they will no longer be Class II or III Directors, as applicable. If the Company’s stockholders do not approve the Declassification Amendment, the Board will remain classified and the Company’s stockholders will instead be asked to elect only those two Class I directors proposed for election (see Proposal No. 3). +In addition, if the Declassification Amendment is approved, the Board intends to adopt conforming amendments to the Company’s Corporate Governance Guidelines. +Current Classified Board Structure +Under Article Fifth of the Certificate of Incorporation, the Board is currently separated into three classes as nearly equal in number as is reasonably possible. Absent the earlier resignation or removal of a director, each year the stockholders are asked to elect the directors comprising one of the classes for a three-year term. The term of the current Class I directors is set to expire at the Annual Meeting. The term of the Class II directors is set to expire in 2021 and the term of the Class III directors is set to expire in 2022. Under the current classified board structure, stockholders may only elect approximately one-third of the Board each year. +Rationale for Declassification +Although the Board believes that the classified board structure has promoted continuity and stability, encouraged a long-term perspective on the part of directors and was beneficial in the event of an unsolicited takeover attempt, the Board recognizes the sentiment of the Company’s stockholders and institutional +2 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +investor groups in favor of the annual election of all directors. In response to input from the Company’s stockholders, the Board considered the various positions for and against a classified board and recognized that an annual election fosters Board accountability, enables the Company’s stockholders to express a view on each director's performance by means of an annual vote and supports the Company's ongoing efforts to maintain “best practices” in corporate governance. Based on the Company's desire to maintain best practices in corporate governance, as well as input received from the Company’s stockholders, the Company is proposing the immediate elimination of its classified board at the Annual Meeting. +Stockholder Approval Required +The approval of this Proposal No. 1 will require the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company. In determining whether this Proposal No. 1 has received the requisite number of affirmative votes, abstentions and broker non-votes will not be counted and will have the same effect as a vote against the proposal. If a stockholder of the Company returns a validly executed proxy, the shares represented by the proxy will be voted on this Proposal No. 1 in the manner specified by the stockholder. If a stockholder of the Company does not specify the manner in which shares represented by a validly executed proxy are to be voted on this matter, such shares will be voted for this Proposal No. 1. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE DECLASSIFICATION AMENDMENT . +PDC ENERGY 2020 PROXY 3 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 2—ELECTION OF EIGHT DIRECTORS , IF PROPOSAL NO. 1 IS APPROVED +IF PROPOSAL NO. 1 IS APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF THE EIGHT DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +If the Company’s stockholders approve the Declassification Amendment described in Proposal No. 1 at the Annual Meeting, the stockholders will be asked to consider eight nominees for election to the Board. Each nominee would serve for a one-year term until the 2021 annual meeting of the stockholders of the Company. If the Company’s stockholders do not approve Proposal No. 1, the current classified board structure will remain in place and this Proposal No. 2 will not be submitted to a vote of the Company’s stockholders at the Annual Meeting, and instead Proposal No. 3 (Election of two Class I Directors) will be submitted in its place. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES . +The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Directors. +BOARD OF DIRECTORS +As of the Annual Meeting, the composition of the Board and the term of each Director is expected to be as follows: +YEAR THE +EXPIRATION OF +DIRECTOR JOINED +THE DIRECTOR’S +DIRECTORS +THE BOARD +CURRENT TERM +CLASS I: +David C. Parke +2003 +2020 +Lynn A. Peterson +2020 +2020 +Jeffrey C. Swoveland* +1991 +2020 +CLASS II: +Anthony J. Crisafio +2006 +2021 +Christina M. Ibrahim +2018 +2021 +Randy S. Nickerson +2017 +2021 +CLASS III: +Barton R. Brookman +2015 +2022 +Mark E. Ellis +2017 +2022 +Paul J. Korus +2020 +2022 +* On February 24, 2020, Mr. Swoveland informed the Company that he will not stand for re-election at the Annual Meeting. Following the Annual Meeting and at the request of the Board, Mr. Swoveland has agreed to serve for a +4 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +limited period of time as a non-voting Director Emeritus of the Company in order to, among other things, assist Mr. Ellis in transitioning the responsibilities of Non-Executive Chairman of the Board. +If Proposal No. 1 is approved at the Annual Meeting, the meeting will recess so that a Certificate of Amendment to amend the Certificate of Incorporation to declassify the Board can be filed with the Secretary of State of the State of Delaware. When that filing becomes effective, each of Messrs. Brookman, Crisafio, Ellis, Korus, Nickerson, Parke and Peterson and Ms. Ibrahim will stand for re-election for one-year terms pursuant to Proposal No. 2. +NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS +BARTON R. BROOKMAN +DIRECTOR, +President and +Chief Executive Officer +Age: 57 +Committees: +None +Background +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +Education +B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +Experience +The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. +ANTHONY J. CRISAFIO +DIRECTOR +Age: 67 +Committees: +Audit (Chair) +Background +Mr. Crisafio, a CPA and a NACD Board Leadership Fellow, joined the Board in 2006. Mr. Crisafio has served as an independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of industries, including the oil and gas industry. Through his consulting practice, he has served as the part-time contract Chief Financial Officer for a number of companies in the past five years, including Empire Energy, LLC, MDS Associated Companies such as MDS Energy Development and TruFoodMfg. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until 1993. From 1975 until 1989, he was employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several SEC registered client engagements and a number of privately held oil and gas engagements, gaining significant experience with the oil and gas industry and mergers and acquisitions. +Education +B.S. from Duquesne University. +Experience +The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other things, he is a CPA and brings to the Board more than 30 years of financial accounting business management expertise in the oil and gas and other industries. +PDC ENERGY 2020 PROXY 5 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +MARK E. ELLIS +DIRECTOR +(Non-Executive Chairman) +Age: 63 +Committees: +None +Background +Mr. Ellis was elected to the Board in 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016. From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN. From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips. +Education +B.S. in Petroleum Engineering from Texas A&M University. +Experience +The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry executive management experience, as well as knowledge of current developments and best practices in the industry. +CHRISTINA M. IBRAHIM +DIRECTOR +Age: 52 +Committees: +Nominating and +Governance (Chair) +Compensation +Background +Ms. Ibrahim joined the Board in January 2018. She currently serves as the Executive Vice President, General Counsel and Chief Compliance Officer of Weatherford International plc (“Weatherford”), a position she has held since May 2015. Weatherford filed for bankruptcy in federal bankruptcy court, Southern District of Texas, in July 2019. Ms. Ibrahim has more than 20 years of experience in the oil and gas services industry. Prior to joining Weatherford in 2015, Ms. Ibrahim held a number of senior leadership positions of increasing responsibility in the legal department of Halliburton Company since January 2010, including, most recently, as Vice President, Chief Commercial Counsel and Corporate Secretary with responsibility for the global procurement, employment and real estate practice groups and oversight of mergers and acquisitions, securities, regulatory and governance practice groups. Ms. Ibrahim also served as General Counsel and Chief Compliance Officer for WellDynamics, a Halliburton joint venture company. +Education +B.S. in Business Management and Finance from Virginia Tech and a J.D. from Texas Southern University. +Experience +The Board has concluded that Ms. Ibrahim is qualified to serve as a Director because, as an attorney, she brings to the Board a strong legal background, executive public company experience and expertise in corporate governance, as well as more than 20 years of leadership experience in the oil and gas services industry. +6 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PAUL J. KORUS +DIRECTOR +Age: 63 +Committees: +Audit +Nominating and +Governance +Background +Mr. Korus joined the Board in January 2020 in connection with the closing of the merger with SRC Energy Inc. (“SRC”). He was a member of the board of directors of SRC from June 2016 until January 2020. Mr. Korus was the Senior Vice President and Chief Financial Officer of Cimarex Energy Co. from September 2002 until his retirement in 2015, and held the same positions with its predecessor, Key Production Company, from 1999 through 2002. Mr. Korus has been a director of Antero Resources Corporation since December of 2018, and became chair of its audit committee in January 2019. He is also a member of Antero’s Nominating and Governance Committee. Mr. Korus was a member of the board of directors and audit committee chairman of Antero Midstream Partners LP from January 2019 until its merger with Antero Midstream GP LP in March 2019. His previous experience also includes approximately five years as an oil and gas research analyst at an investment banking firm. He began his oil and gas career in 1982 with Apache Corporation where he held positions in corporate planning, information technology and investor relations. From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. Mr. Korus is a former CPA. +Education +B.S. in Economics and M.S. in Accounting from the University of North Dakota. +Experience +The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience. He also brings strong financial and accounting expertise based on his experience as former Chief Financial Officer of Cimarex Energy Co. Also, as a former Director of SRC, Mr. Korus provides the Company with critical guidance regarding the SRC integration. +RANDY S. NICKERSON +DIRECTOR +Age: 58 +Committees: +Compensation +Nominating and +Governance +Background +Mr. Nickerson joined the Board in March 2017. From December 2015 to March 2017, Mr. Nickerson served as the Executive Vice President, Corporate Strategy of Marathon Petroleum Corporation and as the Executive Vice President and Chief Commercial Officer of the MarkWest assets of MPLX GP LLC. Prior to joining Marathon Petroleum Corporation, Mr. Nickerson served in various capacities of increasing responsibility for MarkWest Energy Partners, L.P. and its predecessor, including most recently as its Senior Vice President, Corporate Development and Chief Commercial Officer from 2006 until December 2015. Mr. Nickerson has extensive experience in leading the development and operation of midstream infrastructure. +Education +B.S. in Chemical Engineering from Colorado State University. +Experience +The Board has concluded that Mr. Nickerson is qualified to serve as a Director due in part to his over 30 years of experience in oil and gas operations, with a focus on midstream asset development and management, a critical element of the Company’s current strategy. +PDC ENERGY 2020 PROXY 7 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +DAVID C. PARKE +DIRECTOR +Age: 53 +Committees: +Audit +Compensation (Chair) +Nominating and +Governance +Background +Mr. Parke, who joined the Board in 2003, has over 30 years of investment banking experience. He has served as a Managing Director of Gordian Investments LLC since October 2014. He has also been a member of the Life Science Advisory Group of IP Group plc since July 2018. From June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was a Managing Director of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. +Education +B.S. in Finance from Lehigh University and an M.B.A. from the Wharton School at the University of Pennsylvania. +Experience +The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking and strategic advisory experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. +LYNN A. PETERSON +DIRECTOR +Age: 67 +Committees: +Compensation +Background +Mr. Peterson joined the Board in January 2020 in connection with the closing of the merger with SRC. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served Kodiak as a director (2001-2014) and as its President, Chief Executive Officer (2002-2014) and Chairman of the Board (2011-2014) until its acquisition by Whiting Petroleum Corporation in December 2014. Mr. Peterson served as a director of Whiting Petroleum Corporation from December 2014 to June 2015. Mr. Peterson has been a member of the board of directors of Denbury Resources Inc. since May 2017. Mr. Peterson has over 35 years of industry experience. +Education +B.S. in Accounting from Northern Colorado University. +Experience +The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s prior roles of chief executive officer and service as director of other public energy companies provide valuable understanding of management processes and strategy of oil and gas companies. Mr. Peterson’s experience as former Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration. +The eight Director nominees or Class I Directors, as applicable, will be elected by an affirmative vote of a plurality of the outstanding common shares. Broker non‑votes will have no effect on the election of Directors. +8 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +STANDING COMMITTEES OF THE BOARD +BOARD MEETINGS AND ATTENDANCE +The Board has a standing Audit Committee, Compensation Committee and Nominating and Governance Committee. The Midstream Committee was dissolved on May 29, 2019. Actions taken by these committees are reported to the Board at its next meeting. During 2019, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors attended the 2019 annual meeting of stockholders held on May 29, 2019. +The non‑employee Directors (“Non-Employee Directors”) generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Chairman of the Board chairs these sessions; however, the other Non‑Employee Directors may, in the event of his absence, select another Director to preside over the executive session. +The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2019. +2019 BOARD AND COMMITTEE MEMBERSHIPS +DIRECTORS +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and Governance +Committee +Midstream Committee (1) +Barton R. Brookman +Anthony J. Crisafio +Mark E. Ellis (2) +Christina M. Ibrahim +(3) +(4) +Larry F. Mazza (5) +Randy S. Nickerson +(6) +(7) +David C. Parke +Jeffrey C. Swoveland (8) +Number of Meetings Held +13 +14 (9) +7 +5 +3 += Chairperson Member Chairman of the Board +(1) +The Midstream Committee was dissolved on May 29, 2019 following the completion of the sale of our Delaware Basin midstream assets (the “Delaware midstream divestitures”). +(2) +Mr. Ellis was appointed Non-Executive Chairman of the Board on February 20, 2020. +(3) +Ms. Ibrahim became a member of the Compensation Committee on August 17, 2019. +(4) +Ms. Ibrahim replaced Mr. Nickerson as Chairperson of the Nominating and Governance Committee on May 29, 2019. +(5) +Mr. Mazza resigned from the Board on August 16, 2019. +(6) +Mr. Nickerson became a member of the Compensation Committee on August 17, 2019. +PDC ENERGY 2020 PROXY 9 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(7) +Mr. Nickerson served as Chairperson of the Nominating and Governance Committee until May 29, 2019. He continued to serve on the Nominating and Governance Committee after stepping down as Chairperson. +(8) +Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, 2020. On February 24, 2020, Mr. Swoveland informed the Company that he does not intend to stand for re-election at the Annual Meeting. Following the Annual Meeting and at the request of the Board, Mr. Swoveland has agreed to serve for a period of time as a non-voting Director Emeritus of the Company in order to, among other things, assist in transitioning the responsibilities of Non-Executive Chairman of the Board. +(9) +Mr. Crisafio served as the sole member of a sub-committee of the Audit Committee (the “Audit Sub-Committee”), which did not meet in 2019. The Audit Sub-Committee was dissolved in December 2019 in connection with the settlement of certain lawsuits pertaining to partnerships affiliated with the Company. +AUDIT COMMITTEE +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes‑Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on February 20, 2020 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations. +NOMINATING AND GOVERNANCE COMMITTEE +The Board has determined that all members of the Nominating and Governance Committee (the “N&G Committee”) are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted a N&G Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” +COMPENSATION COMMITTEE +The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” +10 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S‑K in 2019. During 2019, none of our executive officers served as a director or member of the Compensation Committee (or other committee serving an equivalent function) or any other entity whose executive officers served on our Compensation Committee or the Board. +AUDIT COMMITTEE +COMPENSATION COMMITTEE +NOMINATING AND GOVERNANCE COMMITTEE +Responsibilities: +⦁ Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; +⦁ Monitors the independence of the independent registered public accounting firm; and +⦁ Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Responsibilities: +⦁ Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +⦁ Evaluates the performance of and establishes the compensation of the CEO; +⦁ Reviews and approves the elements of compensation for other senior executive officers of the Company; +⦁ Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans; +⦁ Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation; +⦁ Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; +⦁ Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +⦁ Reviews and approves Company contributions to Company sponsored retirement plans. +Responsibilities: +⦁ Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies; +⦁ Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +⦁ Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; and +⦁ Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. +BOARD LEADERSHIP STRUCTURE +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Swoveland through February 2020, and Mr. Ellis thereafter, serves as Non‑Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as +PDC ENERGY 2020 PROXY 11 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +the leader of the Company in front of our employees and stockholders. The Board evaluates this divided structure at least annually. +DIRECTOR COMPENSATION +We compensate Directors with a combination of cash and equity‑based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly and are pro-rated for partial years of service in a role. No compensation is paid to our CEO for his service on the Board. +Compensation for our Non‑Employee Directors is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2019, the Compensation Committee recommended maintaining the same compensation amounts and structure as 2018 as set forth below. Furthermore, the Compensation Committee has recommended the same compensation amounts and structure for 2020, with the exception of the Nominating and Governance Chair which it has recommended be increased to $15,000 given the increased focus on corporate governance by investors generally and the resulting increased time commitment by the Nominating and Governance Chair. +CASH COMPENSATION +Annual Board and Committee Retainers +Each Non‑Employee Director receives an annual cash retainer of $100,000 for service on the Board, which covers attendance at all Board and committee meetings. In addition, the following Non-Employee Directors receive an additional cash retainer to compensate them for the extra responsibilities associated with their roles: +Additional +Retainer +Non-Executive Chairman +$ +100,000 +Audit Committee Member +10,000 +Audit Sub-Committee Member (1) +5,000 +(1) The Audit Sub-Committee was dissolved in December 2019 in connection with the settlement of the partnership lawsuits. +Annual Committee Chair Retainers +The chair of each committee receives an additional annual retainer for his or her services as chair. The following table shows the chair retainers: +Committee +Chair +COMMITTEE +Retainer +Audit +$ +20,000 +Compensation +15,000 +Nominating and Governance +10,000 +12 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +EQUITY COMPENSATION +On February 20, 2019, Mr. Swoveland, the Non‑Executive Chairman at that time, was granted an award with an intended value of $175,000 in restricted stock units (“RSUs”) and the remaining Non‑Employee Directors each received an award with an intended value of $140,000 in RSUs for their service on the Board. The RSUs were granted under our 2018 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five‑day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject to continued provision of service on the Board from the grant date through such date). +DEFERRED COMPENSATION +Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and no further amounts have been contributed to the Deferred Comp Plan. All compensation that was previously deferred pursuant to the Deferred Comp Plan will continue to be credited with hypothetical earnings and losses as if invested in common stock of the Company until such amounts are distributed. As of December 31, 2019, three Directors have balances resulting from prior deferrals of cash director fees and/or equity compensation. +Compensation paid to the Non‑Employee Directors for 2019 was as follows: +2019 DIRECTOR COMPENSATION +Fees +Earned +or Paid +Stock +in Cash (1) +Awards (2)(3) +Total +DIRECTORS +($) +($) +($) +Anthony J. Crisafio +$ +135,000 +$ +151,151 +$ +286,151 +Mark E. Ellis +100,000 +151,151 +251,151 +Christina M. Ibrahim +105,879 +151,151 +257,030 +Larry F. Mazza (4) +75,000 +151,151 +226,151 +Randy S. Nickerson +110,000 +151,151 +261,151 +David C. Parke +125,000 +151,151 +276,151 +Jeffrey C. Swoveland (5) +210,000 +188,919 +398,919 +(1) +Includes annual Board retainer, committee and committee chair retainers and the retainer for the Non‑Executive Chairman of the Board. +(2) +Represents RSUs issued to our Non-Employee Directors. The RSU amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amount described above. +(3) +At December 31, 2019, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Mr. Crisafio – 6,299; Mr. Ellis – 6,067; Ms. Ibrahim – 5,682; Mr. Nickerson – 6,490; Mr. Parke – 6,299; Mr. Swoveland – 7,873. +(4) +Mr. Mazza resigned from the Board effective August 16, 2019. In connection with his resignation, the Board approved accelerated vesting of Mr. Mazza’s unvested RSUs as of the date of his resignation. +(5) +Compensation includes cash and stock awards for service as Non‑Executive Chairman during 2019. +PDC ENERGY 2020 PROXY 13 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS +Each Non‑Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($500,000). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly‑owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2019, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Ellis, both of whom were appointed to the Board in 2017 and are still within their compliance grace period, and Ms. Ibrahim, whose Board service commenced on January 1, 2018 and is also within her compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The Company’s Insider Trading Policy expressly prohibits Directors from short‑term trading (purchasing and selling Company securities within a six‑month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that describe the process the N&G Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge (industry‑specific and general), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on the particular candidate. +Additional factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The N&G Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The N&G Committee identifies Director candidates primarily through recommendations made by the Non‑Employee Directors. These recommendations are developed based on the Non‑Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2019. +STOCKHOLDER RECOMMENDATIONS +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the +14 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Company’s headquarters or by email to board@pdce.com . All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +· +Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination Procedures; +· +An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +· +Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +· +An indication of the willingness of the proposed nominee to serve if nominated and elected. +STOCKHOLDER NOMINATIONS +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures. +CORPORATE GOVERNANCE +GOVERNANCE HIGHLIGHTS +We believe that the Board has implemented a sound structure for the governance of the Company, including as a result of the following: +· +Responsiveness to Stockholder Feedback : In 2019 and early 2020, we conducted a comprehensive engagement with our stockholders in order to better understand their views on compensation and corporate governance. In response to stockholder feedback, the Board made material changes to its executive compensation plan and has proposed additional best-practice changes to its corporate governance structure, including a proposal to declassify its Board at the Annual Meeting. +· +Independent Board Leadership : Recently-appointed independent Chairman Mark E. Ellis has decades of executive experience in the oil and gas industry and provides strong leadership and oversight of management. +· +Majority Independent Directors : Eight of our nine Directors are independent, and only independent Directors serve on our Board committees. The Company expects to have eight total Directors following the Annual Meeting, seven of whom are independent. +· +Continuous Board Refreshment : Over half of the Company’s Directors have been added to the Board within the past five years, including two in 2020, demonstrating commitment to continued refreshment. +· +Strong Independent Oversight : The majority of the Company’s Directors have significant operating and other relevant experience in the oil and gas industry. +· +Share Ownership Requirement : Directors are required to hold a minimum number of shares of our common stock with a transition period for new directors. +· +Majority Voting Policy : Except in the case of a contested election, any director who receives more “withhold” votes than votes in favor must tender his or her resignation. +PDC ENERGY 2020 PROXY 15 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +Stockholder-called Special Meetings and Action by Consent : Stockholders that have ten percent combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent. +· +No Poison Pill : We do not have a poison pill. +· +One Vote per Share : The Company does not have any super-voting shares. +CORPORATE GOVERNANCE GUIDELINES +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +· +Director selection, qualification and responsibilities; +· +The holding and frequency of executive sessions of independent directors, Board self‑evaluation and senior executive performance reviews; +· +Board committee structure and function; +· +Succession planning; and +· +Governance matters, standard of business conduct and Board committee responsibilities. +The Corporate Governance Guidelines were most recently amended on September 20, 2019 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +UNCONTESTED ELECTIONS POLICY +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct was most recently updated on September 20, 2019 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” In the event the Board approves an amendment to +16 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website. +FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS +There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement. +DIRECTOR INDEPENDENCE +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements. +The Board has reviewed the business and charitable relationships between the Company and each Non‑Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non‑Employee Director’s independence. The Board has affirmatively determined that each of the Non‑Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non‑Employee Director. +THE BOARD’S ROLE IN RISK MANAGEMENT +In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk‑taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company‑wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management process and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors. +TRANSACTIONS WITH RELATED PARTIES +During 2019, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S‑K. +PDC ENERGY 2020 PROXY 17 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related‑party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest. +Under our related‑party transaction policy, a related‑party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related‑party transactions and must disclose all material facts with respect to such transaction and relationship. All related‑party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations. +OTHER CORPORATE GOVERNANCE DOCUMENTS +The Company’s website includes the following governance documents: + Director Nomination Procedures + Nominating and Governance Committee Charter + Stock Ownership Guidelines + Compensation Committee Charter + Insider Trading Policy + Code of Business Conduct and Ethics + Shareholder Communication Policy + Corporate Governance Guidelines + Audit Committee Charter +COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS +Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +18 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 3—ELECT TWO CLASS I +DIRECTORS, IF PROPOSAL NO. 1 IS NOT APPROVED +IF PROPOSAL NO. 1 IS NOT APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF EACH OF LYNN A. PETERSON AND DAVID C. PARKE AS CLASS I DIRECTORS. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The Company’s stockholders will be asked to vote on this Proposal No. 3 solely in the event that at the Annual Meeting the Company’s stockholders do not approve the Declassification Amendment described in Proposal No. 1. If the Company’s stockholders approve the Declassification Amendment, then the Company will amend its Certificate of Incorporation to eliminate its classified Board by filing the applicable Certificate of Amendment with the Secretary of State of the State of Delaware during the Annual Meeting as described above, and the stockholders will proceed to vote on Proposal No. 2 and not this Proposal No. 3. If, however, the Company’s stockholders do not approve the Declassification Amendment, a vote will be taken on this Proposal No. 3. +If the stockholders do not approve the Declassification Amendment described in Proposal No. 1, Lynn A. Peterson and David C. Parke are nominated for election to serve a three-year term each as a Class I director subject to re-election at the 2023 annual meeting. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE TWO NOMINEES TO SERVE AS CLASS I DIRECTORS. +The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of the two nominees to serve as Class I Directors unless you withhold your authority to vote for one or more of them. The Board does not contemplate that either of the Class I Director nominees will become unavailable for any reason; however, if either of the Class I Director nominees is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate to serve as a Class I Director or for a greater number of persons than the number of Class I Director nominees named if a vote is taken on this Proposal No. 3. The Class I Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Class I Directors . +PDC ENERGY 2020 PROXY 19 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 4 —APPROVE, ON AN ADVISORY BASIS, +THE COMPENSATION OF THE COMPANY’S NAMED +EXECUTIVE OFFICERS +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 4. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The stockholders of the Company are entitled to cast a non‑binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non‑binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say‑on‑pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. The next non‑binding advisory vote regarding such frequency will be held at the 2022 Annual Meeting of Stockholders, in accordance with SEC rules. +As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long‑term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long‑term basis through a combination of base pay, annual incentives and long‑term incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay‑for‑performance philosophy. In 2019, 86% of our CEO’s compensation and 79% of our Named Executive Officers’ compensation was made up of “at-risk” components. +Each of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long‑term success. The Company also has demanding Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company. +The Compensation Committee considers the results of the non-binding “say on pay” vote of our stockholders in making prospective compensation decisions. At our 2019 annual meeting of stockholders, approximately 76% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Based on the 2019 “say-on-pay” results and the discussions we had with approximately 85% of our stockholders as part of the 2019 proxy process and through general discussions with stockholders during the remainder of 2019, the Compensation Committee concluded that we needed to make certain changes to our compensation programs to better align with the expectations of our stockholders. As such, for 2019 we modified our annual incentive program to eliminate the purely discretionary nature of the program in effect for prior years and established an equal-weighting payment structure where 50% of the annual incentive is determined strictly by formula based on quantitative metrics, with the remaining 50% based on qualitative performance metrics. In addition, our 2019 quantitative metrics are designed to more closely align with stockholder values. For 2020, we further modified our compensation programs to (i) increase the portion of our annual incentive program for our NEOs that is determined strictly by formula metrics from 50% to 75%, (ii) adjust our long-term incentive program weighting for our CEO from 50% performance stock units (“PSUs”) +20 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +and 50% time-based RSUs to 60% PSUs and 40% RSUs, and (iii) add an absolute total stockholder return modifier to our 2020 PSU grants for our NEOs. See “2020 Compensation Program Changes.” +In light of the foregoing, the Company believes that the compensation of the Named Executive Officers is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S‑K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2020 Annual Meeting. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non‑votes will not affect the outcome of this proposal. +EXECUTIVE COMPENSATION +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below. +BARTON R. BROOKMAN, 57, joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman on page 5. +LANCE A. LAUCK, 57, joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate risk, reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri‑Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +R. SCOTT MEYERS, 45, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008. Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania. +SCOTT J. REASONER, 59, joined the Company in April 2008 as Vice President of Western Operations and was named Chief Operating Officer in January 2017. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble Energy Inc. from 2005 to 2008, where he was responsible for the Mid‑Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for +PDC ENERGY 2020 PROXY 21 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Patina Oil and Gas Company as Production Manager and later as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer. +NICOLE L. MARTINET, 43, joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011. Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 20 years of professional experience and holds a Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California. +JOHN A. DELAWDER, 59, joined the Company in April 2006 as Director of Human Resources and was appointed Senior Vice President Corporate Administration in January 2019. Prior to that he served in a variety of vice president level human resources positions with the Company, beginning in July 2009. Mr. DeLawder has over 35 years of professional experience. Mr. DeLawder earned a Bachelor of Science in Business Administration with an emphasis in Personnel Management from West Virginia University, and his career includes human resources, operations, facilities management and communications experience in the energy, government contracting, high-tech and manufacturing sectors. +Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman, Lauck and Reasoner were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. DeLawder, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been settled. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +David C. Parke, Chair +Christina M. Ibrahim +Randy S. Nickerson +Lynn A. Peterson +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +22 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +COMPENSATION DISCUSSION AND ANALYSIS +In establishing the Company’s compensation program, the Compensation Committee (referred to in this section as the “Committee”) continuously considers feedback from the Company’s stockholders and strives to adhere to compensation best practices. As such, this Compensation Discussion and Analysis (“CD&A”) illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2019, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2019 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers. The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”: +OFFICER +TITLE +Barton R. Brookman +President and Chief Executive Officer +R. Scott Meyers +Senior Vice President—Chief Financial Officer +Lance A. Lauck +Executive Vice President—Corporate Development and Strategy +Scott J. Reasoner +Senior Vice President—Chief Operating Officer +Nicole L. Martinet +Senior Vice President—General Counsel and Secretary +PDC ENERGY 2020 PROXY 23 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +EXECUTIVE SUMMARY +Results of 2019 Say-On-Pay Vote and Stockholder Engagement +We held our annual advisory vote on our executive compensation program at the 2019 annual stockholder meeting. PDC has historically received strong stockholder support of its executive compensation programs, averaging 95% approval on its “say-on-pay” votes over the prior three years (2016-2018). In 2019, however, we received only 76% support following a contested director election. Consequently, we conducted a comprehensive engagement with approximately 85% of our stockholders to understand their views on compensation and to further understand the drivers behind the lower support we received. Outlined in the table below is a summary of what we heard and how we have responded. +What We Heard +How We Responded +Align annual incentive program with financial returns +25% of our 2020 bonus program includes return on capital and cash flow metrics: Cash Return on Capital Invested (CROCI) and Free Cash Flow Margin +Continue the move towards a more formulaic bonus program and less discretion +Increased the weighting of the formulaic quantitative metrics in 2020 to 75% of the program (from 50% in 2019) +Place greater emphasis on performance-based equity in the long-term incentive program +Increased the weighting of the performance-based equity for the CEO in 2020 from 50% of long-term incentives to 60% +Include additional metric(s) in the long-term incentive program with an increased tie to absolute performance +Added an absolute stock performance multiplier and cap in 2020 +24 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +The Evolution of Our Compensation Program Design is Responsive to Stockholder Concerns as Well as Market and Business Trends +Based on stockholder feedback and our analysis of market and business trends, we have made a number of changes over the years to ensure our compensation program remains responsive to stockholder concerns and market conditions. New quantitative compensation metrics for 2020 are highlighted in blue. +PDC ENERGY 2020 PROXY 25 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Compensation Best Practices +We believe our executive compensation program is aligned with current governance trends, and contains stockholder‑friendly features as outlined below: +Our Practices +(What We Do) +Practices We Have Not Implemented +(What We Don’t Do) +✓ Pay for Performance —Our NEOs’ total compensation is heavily weighted toward performance‑based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ Executive Ownership Guidelines —We have Stock Ownership Guidelines for our executives and directors that are consistent with what we believe to be corporate governance best practices. +✓ External Benchmarking —We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. +✓ Double‑Trigger Change‑of‑Control Severance Benefits —In the event of a change of control, our severance plan and our grandfathered employment contract provide for cash severance benefits only if the executive is actually or constructively terminated without cause following the change of control event. +✓ Clawback Policy —We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws. +✓ Compensation Doesn’t Encourage Excessive Risk —There is an appropriate balance between long‑term and short‑term focus in our compensation programs and the Committee has the ability to apply negative discretion to annual cash incentive payouts to ensure risk mitigation occurs in management decision‑making. +✓ Independent Compensation Consultant —We have engaged an independent executive compensation advisor who reports directly to the Committee. +✓ Independent Compensation Committee —Our Committee is comprised solely of independent directors. +✘ No Golden Parachute Excise Tax Gross‑Ups —We do not provide gross‑up payments to reimburse our executives for any tax obligations that would be incurred upon a change of control of the Company. +✘ No New Employment Contracts and/or Excessive Severance Benefits —We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment agreements are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or similar practices. +✘ No Excessive Perquisites —We provide only modest perquisites that are consistent with peer companies in our industry. +✘ No Repricing —We do not permit repricing of underwater stock options/SARs without stockholder approval. +✘ Prohibited Transactions —Hedging transactions, short selling, short‑term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long‑term business objectives of the Company are strictly prohibited for all officers and directors of the Company under our Insider Trading Policy. +26 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Business Strategy and 2019 Business Highlights +Business Strategy +Our long-term business strategy focuses on being a responsible and respected provider of energy while generating stockholder value through the exploration and development of crude oil and natural gas properties. We leverage technology and innovation to increase operational efficiencies and prioritize health, safety and the environment. We are focused on the growth of our cash flows, production and reserves, primarily through development of our existing leasehold, but also through acquisition and acreage swap opportunities. Our drilling plan is designed to achieve repeatable results and attractive returns on investment in a range of commodity price environments. +2019 Business Highlights +In 2019, the Company focused on the continued development of its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. In addition to an ongoing focus on improving our capital efficiencies through long-lateral drilling and reduced drilling and completion times, the Company’s strategy centered itself around generating free cash flow to improve its balance sheet and returning capital to stockholders through its share repurchase program. The Company believes its strategic combination with SRC, which was announced in August 2019 and consummated in January 2020, further strengthens its ability to successfully achieve and improve upon these strategic initiatives for years to come. Key highlights and achievements in 2019 are illustrated and further described below: +(1) +FCF = free cash flow, a non-GAAP financial measure, defined as net cash from operating activities, before changes to working capital, less oil and gas capital investments. See Appendix A for reconciliation. +Additional highlights include: +Financial Highlights: +· +Successfully reduced year-over-year LOE and G&A per Boe through an intense focus on cost metrics, including reductions in force; +PDC ENERGY 2020 PROXY 27 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +Maintained a strong financial position with $1.3 billion in liquidity at year-end 2019; +· +Increased the borrowing base under our revolving credit facility to $1.6 billion; +· +Generated approximately $860 million in net cash from operating activities despite a decrease in the weighted-average realized sales price of nearly 25% year-over-year; +o +Increased adjusted cash flow from operating activities, a non-GAAP financial measure, to approximately $825 million. See Appendix A for reconciliation. +· +Upon the closing of the merger between the Company and SRC (the “SRC Merger”) in January 2020, the Company received an increase in its borrowing base under its revolving credit facility to $2.1 billion. +Operational Highlights : +· +Recorded outstanding safety performance while exceeding each of the Company’s 2019 Key Performance Indicators (Total Reportable Incident Rate, Preventable Vehicle Accident Rate and Spill Rate); +· +Successfully met or exceeded the Company’s planned operating budget, including total production of 49.4 MMBoe, nearly 1 MMBoe above the Company’s initial expectations in spite of very elevated Wattenberg line pressures through the third quarter of 2019; +· +Reduced per-well costs in each of the Delaware Basin and Wattenberg Field by 5-10% compared to 2018 levels; +· +Improved average drilling times, as measured from spud to rig-release, in the Delaware Basin by approximately 20% compared to 2018. +Strategic Highlights: +· +Entered into a low premium merger agreement with SRC resulting in post-closing increases to the Company’s credit ratings from both Moody’s and S&P; +o +Evaluation, due diligence, negotiation, successful market roll-out and integration planning throughout the second half of 2019; +· +Successfully executed divestitures of the Company’s Delaware Basin midstream assets for $350 million of cash proceeds; +o +Additionally, entered into favorable long-term oil, natural gas and water commercial service agreements; +· +Authorized and implemented a $525 million share repurchase program with an initial target completion date of December 31, 2021, which is anticipated to be slowed given current market conditions; +· +Successfully settled remaining partnership lawsuits. +2019 Key Changes to Executive Compensation and Corporate Governance: +· +Instituted a formulaic approach to the annual cash incentive program based on 50/50 equal-weighting of quantitative and qualitative performance metrics; +o +Added adjusted cash flow per debt-adjusted share and free cash flow margin as quantitative metrics; +o +Removed adjusted cash flow per share and leverage ratio as quantitative metrics; +28 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +Changed long-term incentive program from a single-trigger to double-trigger vesting upon a change in control; +· +Continued board refreshment initiatives; +o +Following the Annual Meeting, five out of seven of the Company’s independent directors will have joined the Company within the last three years; +o +Legacy Board member, Larry Mazza, voluntarily resigned from the Board in August 2019; +o +Added two former SRC board members, Lynn A. Peterson and Paul J. Korus, in conjunction with the SRC Merger closing. +2019 Key Compensation Outcomes +In February 2020, our Compensation Committee evaluated the Company’s 2019 financial, operational and strategic accomplishments in determining the following pay outcomes. These actions were taken prior to severe crude oil market downturn caused by COVID-19 and the Saudi-Russian oil price war. The Committee is continuing to evaluate these developments and the Company’s 2020 Board and executive compensation outcomes (which will be described in next year’s proxy statement) may be further modified given the current environment. +· +2019 annual cash incentive payout was awarded at 104% of target. +· +2017 long-term performance award ranked at the 58th percentile of peers, which would ordinarily correlate to a 120% payout based on PDC’s relative three year TSR performance. This award, however, was reduced to 100% of target due to the negative stock price returns over the three year period. The value realized, based on a 2019 year-end stock price of $26.17, represented 35% of the targeted grant date value. +Pay for Performance +Our executive compensation program is designed to align Company performance with the interests of our stockholders. The majority of our executives’ pay is tied to the short- and long-term performance of the Company and our absolute and relative stock price performance. The following table illustrates the alignment of pay and performance by comparing our CEO’s targeted compensation opportunity awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2019. +PDC ENERGY 2020 PROXY 29 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Methodology +Target Pay +Realizable Pay + Base salary rate as of year-end + Target annual cash incentive based on salary rate + Intended equity award grant values for grants made in each year + Base salary rate for the year + Actual annual cash incentive paid for 2017, 2018 and 2019 performance + Long-term incentive value of grants made in each year as of Dec 31, 2019 and March 31, 2020 stock price ($26.17 and $6.21, respectively) +✓ SARs: In-the-money value +✓ Restricted Stock: number of shares granted x Dec 31, 2019 stock price (assumes all shares, vested/unvested, are held through Dec 31, 2019) +✓ Performance Award: target number of shares x relative TSR ranking factor x Dec 31, 2019 stock price (note: all performance awards have been reduced to target level based on negative stock price returns) +EXECUTIVE COMPENSATION PHILOSOPHY +The principal tenets of our compensation philosophy are as follows: +· +Our executive compensation programs should be designed to align our executives’ interests with those of our stockholders. We continue to evolve our executive compensation programs to address stockholder feedback and adopt best practices. A substantial portion of our NEOs’ compensation is provided in the form of long‑term equity incentives that tie executive pay to stock price performance. In addition, we require each of our NEOs to remain compliant with our Stock Ownership Guidelines. +· +Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +· +Our executive compensation programs should be designed to support a performance‑based culture. The majority of each NEO’s compensation is at-risk and is based on a combination of attainment of short‑term goals in support of our long‑term strategy, long‑term stock performance relative to our peers, and actual total shareholder return. Our programs require a commitment to performance because total compensation is not guaranteed. Therefore, our programs provide above‑target compensation when performance is warranted and below‑target compensation when performance does not meet expectations. +· +Our executive compensation programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include three‑year vesting schedules on all equity awards, and structured annual cash incentive awards using a payout that is comprised 50% of a formulaic determination based on quantitative short‑term financial and operational objectives and 50% based on a review of qualitative strategic objectives, including those related to health, safety and the environment. We regularly review our compensation programs to ensure that our NEOs are not encouraged to take inappropriate or excessive risks. +30 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 COMPENSATION PROGRAM DESIGN AND DECISIONS +Components and Purpose of Executive Compensation Program +Our executive compensation program is comprised of the following primary compensation elements: +2019 COMPENSATION ELEMENTS +2019 ROLE IN TOTAL COMPENSATION +Base Salary + Compensates executives for their level of responsibility, skills, capabilities, experience and leadership. +Annual Cash Incentives +✓ Cash Bonus + Rewards annual performance and aligns participants’ compensation with short‑term financial, operational and strategic objectives specific to each calendar year; + Motivates participants to meet or exceed internal and external performance expectations; and + Recognizes individual contributions to the organization’s overall results. +Long‑Term Equity-Based Incentives +✓ 50% Performance Share Units (PSUs) +✓ 50% Restricted Stock Units (RSUs) + Rewards long‑term performance directly aligned with stockholders’ interests; + Provides a strong performance‑based equity component; + Recognizes and rewards share performance relative to industry peers; + Aligns compensation with sustained long‑term value creation; + Helps executives to acquire a meaningful and sustained ownership stake; and + Fosters executive retention by vesting awards over multiple years. +PDC ENERGY 2020 PROXY 31 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 Compensation Mix +By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2019. Eighty-six percent of our CEO’s compensation and 79% of our NEOs’ (excluding our CEO’s) compensation was made up of variable or “at-risk” components. +The charts above are based on 2019 base salaries, target bonus amounts with respect to 2019 annual cash incentive awards and the target values of the 2019 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance goals and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation. +Base Salaries +In determining base salary adjustments for 2019, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, in February 2019, we approved adjustments in base salary for each of the NEOs, other than Mr. Brookman. The adjustment for Mr. Meyers reflects his recent promotion and the Compensation Committee’s determination to bring his base salary closer to the market median over time, as the number of years in his new role increase. End of year base salaries for our NEOs are as follows: +NAMED EXECUTIVE OFFICER +2018 +2019 +Barton R. Brookman +$ +850,000 +$ +850,000 +R. Scott Meyers (1) +370,000 +425,000 +Lance A. Lauck +435,000 +455,000 +Scott J. Reasoner +425,000 +455,000 +Nicole L. Martinet (2) +N/A +325,000 +(1) Mr. Meyers was promoted to Senior Vice President – CFO effective January 3, 2018. +(2) Ms. Martinet was promoted to Senior Vice President – General Counsel and Secretary effective January 1, 2019. +32 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Annual Incentive Awards +Bonuses under the Company’s 2019 annual incentive program were based 50% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Compensation Committee in the first quarter of the year and 50% based on the Compensation Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2019 Performance Metrics – Quantitative and Qualitative.” +Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%. +Target Bonus Amounts +The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% ‑ 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. In February 2019, based upon its review of peer compensation data, the Committee decided to increase Mr. Brookman’s target annual cash incentive while keeping his annual base salary flat, to increase the portion of his total direct compensation opportunity that is variable and subject to performance. The 2019 target annual cash incentive award levels for each NEO are as follows: +Target Annual +Cash Incentive as +% of Base Salary +NAMED EXECUTIVE OFFICER +2018 +2019 +Barton R. Brookman +100 +% +115 +% +R. Scott Meyers (1) +80 +% +80 +% +Lance A. Lauck +90 +% +90 +% +Scott J. Reasoner +90 +% +90 +% +Nicole L. Martinet (2) +— +70 +% +(1) Mr. Meyers was promoted to Senior Vice President – CFO effective January 3, 2018. +(2) Ms. Martinet was promoted to Senior Vice President – General Counsel and Secretary effective January 1, 2019. +PDC ENERGY 2020 PROXY 33 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 Performance Metrics – Quantitative and Qualitative +In early 2019, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2019 budget and operating plans. These metrics are used to ensure we balance operational objectives with capital discipline. During 2019, we also developed the qualitative corporate goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2019 were as follows: +2019 CORPORATE METRICS METHODOLOGY +The Committee generally reserves the right to adjust the quantitative metrics for certain adjustments pre-approved by the Committee at the time the 2019 quantitative metrics were established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements or similar events, as further described in “2019 Results on Quantitative Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long‑term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year. +34 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 Results on Quantitative Metrics +In early 2020, the Committee reviewed the Company’s 2019 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were achieved at 104% of target, as follows: +2019 QUANTITATIVE CORPORATE METRICS +* Actual performance was modified for certain adjustments approved by the Committee at the time the 2019 quantitative metrics were established, as follows: +· +Adjusted Cash Flow per Debt-Adjusted Share was adjusted to exclude net cash received from our Delaware midstream divestitures, thus increasing debt balance/share count. +· +Free Cash Flow Margin was adjusted by decreasing oil price and revenue to $55/Bbl to promote capital discipline for increased commodity price, offset by positive adjustments for derivative and production taxes impact. +· +Production Volumes were adjusted for the Company’s Delaware Fortuna divestiture in June 2019, as production was included in the Company’s original budget for the full year. +· +LOE and G&A per Boe was adjusted for non-recurring expenses, including SRC Merger costs incurred during 2019, certain non-recurring legal expenses and settlement costs greater than budget, costs associated with our Delaware midstream divestitures and severance costs related to our 2019 reduction in force, offset by insurance proceeds related to the Company’s partnership lawsuit settlements. +PDC ENERGY 2020 PROXY 35 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 Assessment on Qualitative Metrics +Based on its review and measurement of the following 2019 qualitative goals, the Committee determined that the Company achieved 13 of 14 of the strategic priorities as set forth below, demonstrating significant accomplishments during the year. +(1) +“KPI” means key performance indicators. +(2) +The Cornerstone project is a Company-wide personnel reorganization project. +(3) +The Keystone project is an overhaul of the Company’s internal accounting and land systems to create more automated processes. +Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 104% of target. +2019 Bonus Awards +In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2019 performance were as follows: +2019 ANNUAL +NAMED EXECUTIVE OFFICER +BONUS +Barton R. Brookman +$ +1,017,000 +R. Scott Meyers +$ +354,000 +Lance A. Lauck +$ +426,000 +Scott J. Reasoner +$ +426,000 +Nicole L. Martinet +$ +237,000 +Long‑Term Incentive Awards +To align our long‑term incentives with the interests of our stockholders over the long term and with our pay‑for‑performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These +36 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +awards ensure that a meaningful portion of our NEOs’ compensation is at risk based on stock price performance and provides NEOs with significant equity ownership in the Company. In 2019, equity grants were allocated 50% to PSUs and 50% to time-based RSUs. +2019 Award Types and Terms +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +PSUs +Align compensation with the Company’s TSR relative to a group of peers in the industry. +The value of PSUs is dependent on both absolute stock price performance and relative TSR performance over a three‑year period. +PSUs are denominated in units of Company stock with payout in shares of stock (or cash) based on the Company’s relative TSR over the specified performance period, as ranked among the comparably‑measured TSR of the Company’s peer companies. +For 2019, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group. See “Compensation Peer Group.” +The 2019 PSUs measure TSR over the performance period from January 1, 2019 through December 31, 2021, with payouts as follows: +COMPANY TSR RANKING +AMONG PEERS +PAYOUT LEVELS +AS % OF AWARD +90th Percentile +200% +75th Percentile +150% +Median +100% +25th Percentile +50% +Below 25th Percentile +0% + If performance falls between the percentiles, payout levels are interpolated between the next highest and next lowest payout levels; + If the Company has a negative TSR for the performance period, the maximum award is 100%, regardless of relative TSR performance; and + If the Company has an average annualized TSR of 15% or greater for the 3‑year performance period, the minimum award is 50%, regardless of relative TSR performance. +To provide for a consistent number of peers throughout the performance period, the award agreement defines how a peer that is either acquired, merged, delisted, enters bankruptcy, etc. is treated in determining its TSR performance ranking. +PSUs are forfeited if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long‑Term Equity-Based Incentive Plans.” +RSUs +Align compensation directly with the Company’s stock price, encourages retention and increases stock ownership in the Company +Notional units that entitle the holder to receive an equal number of shares of stock upon vesting. Awards vest annually over three years; and unvested awards are forfeited by the NEO if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long‑Term Equity-Based Incentive Plans.” +PDC ENERGY 2020 PROXY 37 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2019 Long-Term Incentive Awards +We typically determine the dollar value of the long‑term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long‑term incentives to be primarily forward‑looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2019, the Committee adjusted long‑term incentive values to further align the value of the long‑term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2019. +Target Value +RSUs +PSUs +NAMED EXECUTIVE OFFICERS +($) +(#) +(#) +Barton R. Brookman +$ +4,400,000 +60,490 +60,490 +R. Scott Meyers +1,450,000 +19,935 +19,935 +Lance A. Lauck +1,700,000 +23,371 +23,371 +Scott J. Reasoner +1,700,000 +23,371 +23,371 +Nicole L. Martinet +600,000 +8,249 +8,249 +The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five‑day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2019 Grants of Plan‑Based Awards table is based on the grant date fair value of the awards on the date of grant. +38 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2017-2019 Performance Share Unit (PSU) Payout +In 2017, we granted PSUs covering the three-year period from January 1, 2017 through December 31, 2019. The Company’s relative TSR for the performance period ranked at the 58th percentile of its peers, which would generally correlate to a payout of 120% of target; however the payout was reduced by the terms of the PSU grant agreement to 100% of target due to the negative absolute stock price performance over the three-year measurement period. See the “Option Exercise and Stock Vested” table below for the actual amounts received by each NEO. Due to the decline in stock price over the three-year period, the value earned at vesting was 35% of the original target value (based on a 2019 year-end stock price of $26.17). The chart below shows the members of the peer group used for the 2017 grant, each company’s TSR performance and their relative rankings at the end of the period. +Preliminary +Company +TSR +Rank +% Rank +Payout % +Adjusted Payout (1) +Diamondback Energy, Inc. +(16%) +1 +100% +Energen Corp. (2) +(17%) +2 +93% +WPX Energy, Inc. +(19%) +3 +86% +Matador Resources Company +(37%) +4 +79% +RSP Permian (3) +(43%) +5 +72% +Parsley Energy, Inc. +(52%) +6 +65% +PDC Energy +(68%) +7 +58% +120% +100% +SM Energy Company +(71%) +8 +50% +NewField Exploration Co. (4) +(71%) +9 +43% +Callon Petroleum +(73%) +10 +36% +QEP Resources, Inc. +(79%) +11 +29% +Carrizo Oil and Gas, Inc. (5) +(81%) +12 +22% +Laredo Petroleum, Inc. +(81%) +13 +15% +Oasis Petroleum, Inc. +(82%) +14 +8% +Gulfport Energy Corp. +(88%) +15 +0% +(1) +If TSR is less than 0%, the maximum payout that can be earned is 100%. +(2) +Energen Corp. was acquired by Diamondback Energy on November 20, 2018. Per the terms of the PSU grant agreement, the Committee used the S&P Oil & Gas Exploration & Production Select Industry Index (“SPSIOP Index”) for purposes of determining Energen’s TSR from and after the date of the transaction through the end of the performance period. +(3) +RSP Permian was acquired by Concho Resources Inc. on July 19, 2018. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining RSP Permian’s TSR from and after the date of the transaction through the end of the performance period. +(4) +NewField Exploration Co. was acquired by Encana Corporation on February 13, 2019. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining NewField’s TSR from and after the date of the transaction through the end of the performance period. +(5) +Carrizo Oil and Gas, Inc. was acquired by Callon Petroleum Company on December 20, 2019. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining Carrizo’s TSR from and after the date of the transaction through the end of the performance period. +PDC ENERGY 2020 PROXY 39 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Other Elements of Compensation +In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry. +Element +Description and Purpose +Health and Welfare Benefits +We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees. +Retirement Benefits (401(k) and Profit Sharing) +We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit Sharing Plan. The Company provides a 10% dollar-for-dollar match up to the IRS limit plus a Profit Sharing contribution that can range from 0% - 5% on an annual basis (up to the IRS limit). Our NEOs participate in our 401(k) and Profit Sharing Plan on the same basis as all other employees up to the IRS allowable limit. +For 2019, the 401(k) Match and Profit Sharing Contribution for each NEO is shown in the Summary Compensation Table. +Perquisites +We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non‑golf club dues, and annual physicals. +For 2019, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table. +Severance and Change of Control Arrangements +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre‑established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry. +For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control.” +40 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +2020 Compensation Program Changes +In a continued effort to adhere to compensation best practices, and based on stockholder feedback, the Company made numerous changes to its 2020 compensation program, as summarized below. However, in light of evolving market conditions particularly resulting from commodity price deterioration and the COVID-19 pandemic, the Committee will continue to evaluate the Company’s 2020 compensation program and may make adjustments as deemed necessary. +Base Salary +For 2020, the Committee held NEO salaries flat except for Ms. Martinet whose base salary was increased to reflect her recent promotion and the Committee’s determination to bring her base salary closer to the market median over time, as the number of years in her new role increase. +NAMED EXECUTIVE OFFICER +2019 +2020 +Barton R. Brookman +$ +850,000 +$ +850,000 +R. Scott Meyers +425,000 +425,000 +Lance A. Lauck +455,000 +455,000 +Scott J. Reasoner +455,000 +455,000 +Nicole Martinet +325,000 +400,000 +Annual Cash Incentive Program +As shown in the graphic below, for 2020, we have increased the formulaic quantitative portion of our annual cash incentive program from 50% of the annual incentive award to 75%. The remaining 25% will be based on achievement of specified qualitative goals and the Committee’s assessment of performance relative to such goals. In addition, to further align the Company’s quantitative metrics with leading industry practices and to continue our focus on incentivizing value creation, for 2020, the Committee added environmental, health and safety and cash return on capital invested metrics, as illustrated below. +PDC ENERGY 2020 PROXY 41 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Long Term Equity-Based Incentive Program +For 2020, the Committee increased the weighting of PSUs for the CEO from 50% to 60%, with long-term equity awards granted in the form of RSUs comprising the remaining 40%. We continued the practice of delivering our long-term equity incentives 50% in PSUs and 50% in RSUs for the other NEOs. In addition, in 2020 the Company adopted an absolute stock price modifier to its PSUs to better align with absolute stockholder performance. In designing the plan, the Committee considered the number of potential outcomes and determined that the formula payout should be adjusted in two cases, as summarized below. +* Absolute Performance Modifier – After reviewing the various potential scenarios possible under this plan, the Committee recommended adjustments in two specific circumstances. Should the Company finish in the top quartile of relative TSR and exceed the 15% annualized TSR threshold, warranting a >250% payout, the actual payment will be capped at 250%. Should the Company finish in the bottom quartile of relative TSR, warranting a 0% payout, but also exceed the 15% annualized TSR threshold, a 50% payout will be made in lieu of the otherwise calculated 0% payout. No changes will be made in any other scenario. +COMPENSATION POLICIES AND PRACTICES +Process for Determining Executive Compensation +Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management +42 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +and the Consultant before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares). +In determining target total direct compensation for our NEOs, we consider the following: +· +Our compensation objectives and philosophy; +· +Each NEO’s scope of responsibility, expertise and tenure; +· +The CEO’s assessment of the individual’s performance and recommendation regarding the compensation of the other NEOs; and +· +Market data for target total direct compensation (base salary, bonus targets and long‑term incentives) from the peer group. +Our view is that an executive’s target compensation should reflect the current market value for that position provided the executive has performed well in the prior year. We may adjust the mix of cash and long‑term incentives, but we generally target around the median of the market in total direct compensation taking into account the factors listed above. +Assessing the Effectiveness of Our Compensation Programs +Annually, we review summaries of each NEO’s compensation history, as well as all compensation payable upon each NEO’s termination of employment, including upon a change of control of the Company. We also do a “look‑back” of realized pay relative to our peers and our share price performance to assess whether our programs as designed are truly paying for performance. The Committee uses these tools in addition to feedback from our stockholders, to determine whether changes to our program are needed. +Compensation Peer Group +In September 2018, the Committee approved the composition of the peer group of companies used for determining 2019 compensation. In selecting the peer group, the Committee considered whether changes to the previous year’s peer group are warranted based upon changes in the size, operations and/or capital structure of either the Company and/or the current or potential peer companies, including the following: +· +Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including market capitalization, enterprise value, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current peer company; +· +Assessment of this same information on potential new peers; and +· +Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status). +Once identified, the Committee typically utilizes this peer group for the following: +· +Compensation Benchmarking—to determine competitive total target direct compensation including base salaries, bonus targets and equity-based grants; +· +Total Shareholder Return—to measure absolute and relative total shareholder return under the Company’s PSU awards; and +· +Director Compensation—to determine outside directors’ compensation. +PDC ENERGY 2020 PROXY 43 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Peer group compensation practices are determined using a combination of compensation data disclosed in the peers’ proxy statements and survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” The Company also uses this same survey as well as other industry surveys for determining compensation practices for the broader industry. The table below shows the peer groups for 2018 and 2019. +2018 Peers +2019 Peers (1) +Callon Petroleum Company +Added +Callon Petroleum Company +Carrizo Oil & Gas Inc. +Centennial Resource Dev +Carrizo Oil & Gas Inc. +Diamondback Energy, Inc. +Cimarex Energy Co. +Centennial Resource Dev +Energen Corporation +Laredo Petroleum Holdings, Inc. +Matador Resources Company +Extraction Oil & Gas, Inc. +Jagged Peak Energy, Inc. +Cimarex Energy Co. +Extraction Oil & Gas, Inc. +Jagged Peak Energy, Inc. +Newfield Exploration Company +Laredo Petroleum Holdings, Inc. +Oasis Petroleum Inc. +Matador Resources Company +Parsley Energy, Inc. +Newfield Exploration Company +QEP Resources, Inc. +Oasis Petroleum Inc. +RSP Permian, Inc. +Removed +Parsley Energy, Inc. +SM Energy Company +Diamondback Energy, Inc. (Large size) +QEP Resources, Inc. +SRC Energy Inc. +Energen Corporation (Acquired) +SM Energy Company +WPX Energy, Inc. +RSP Permian, Inc. (Acquired) +SRC Energy Inc. +WPX Energy, Inc. +(1) +In 2020, the Committee made the following changes to the 2020 peer group in conjunction with its acquisition of SRC: +· +Added: Devon Energy Corporation, Whiting Petroleum Corporation, and Magnolia Oil & Gas Corp. +· +Removed: Carrizo Oil & Gas Inc., Laredo Petroleum Holdings, Inc. and SRC. +Role of Independent Compensation Consultant +The Committee has engaged Meridian Compensation Partners as an independent compensation consultant (the “Consultant”) to help ensure that executive compensation programs are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +· +The Consultant’s reputation supporting compensation committees and familiarity with our executive compensation program design; +· +Experience of the Consultant in the energy exploration and production industry; +· +Range of compensation services offered by the Consultant; and +· +Independence of the Consultant, considering the independence factors outlined by the SEC. +The Committee determines the scope of the Consultant’s engagement, which includes: +· +Providing input into peer group identification and assessment; +· +Providing benchmarking on executive and outside director compensation for the Committee to use in its decision‑making process; +44 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +Providing input into plan design discussions, payout alternatives and performance measures for annual and long‑term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites); +· +Reviewing and providing feedback on the compensation‑related disclosures in our proxy statement; and +· +Informing us about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +· +The Consultant does not make recommendations on or approve the amount of compensation of any NEO; +· +The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant; +· +The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +· +The Consultant attends Committee meetings as requested. +The Committee annually reviews the engagement of the Consultant, and as a part of that process, reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, the Consultant did not perform any material services for the Company. The Consultant did not have any business or personal relationships with Committee members or executive officers of the Company, and did not own any stock of the Company. The Consultant maintains policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the Consultant was not subject to any significant conflicts of interest. +Role of Management +Our CEO plays a significant role in determining the compensation levels of our NEOs, which includes: +· +Recommending quantitative and qualitative performance measures under our annual cash incentive program; +· +Assessing the performance of the other NEOs; and +· +Recommending base salaries, annual incentive targets and long‑term incentive awards for the forthcoming year, and annual incentive awards for the prior year. +At the Committee’s request, the CEO and other NEOs may also play a role in determining the following: +· +Quantitative and qualitative performance measures under our annual incentive program; +· +Proposed peer group companies; +· +Design changes to our compensation and benefits programs; and +· +Assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program. +The Committee determines each element of the CEO’s compensation with input from the Consultant. The Committee also determines each element of compensation for the other NEOs with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation. +PDC ENERGY 2020 PROXY 45 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +For part of 2019, management also retained an individual as a consultant in our compensation process who assisted in the coordination and preparation of certain materials for Committee meetings. This individual was retained by and reported to management, whereas the Consultant reports to the Committee. +Other Policies and Considerations +Tax and Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 409A, Section 280G and Section 4999 of the Code. Currently, none of our severance arrangements or agreements provide for a gross‑up for excise tax under Code Section 280G and Section 4999 and all of our programs are intended to be either exempt from or to comply with Code Section 409A. We note that Section 162(m) of the Code limits the amount of compensation that we may deduct in any year to $1,000,000 per person with respect to our CEO and certain other highly compensated executive officers whose compensation is or has been included in the Company’s proxy statement. We may be permitted to deduct certain historic items of compensation in excess of the $1,000,000 per person annual limit under certain 162(m) grandfathering rules, although such deductibility is not guaranteed, and the focus of our programs is on driving Company performance, irrespective of whether compensation may be non-deductible because of the application of Code Section 162(m). +Clawback Policy +The NEOs are currently either covered under our clawback policy or, in the case of Mr. Lauck, a clawback provision in his grandfathered employment contract. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all or a portion of their annual bonus, as described below, if the Company is required to restate its financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected year(s) and the bonus that would have been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in applicable statutes or regulations and are subject to revision based on the SEC clawback rules under Section 954 of the Dodd‑Frank Act, when finalized. +Stock Ownership +We have established Stock Ownership Guidelines for NEOs that are reviewed annually when compensation decisions are made. In satisfying the Stock Ownership Guidelines, NEOs are expected to: +· +Comply with the ownership guidelines within five years of becoming an NEO; and +· +Retain the net shares acquired through the vesting of RSUs, the exercise of SARs, and the settlement of PSUs if the NEO has not satisfied the required ownership level. +46 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +As of December 31, 2019, all of our NEOs exceeded the minimum stock ownership requirements, except Mr. Meyers and Ms. Martinet, who became NEOs in 2018 and 2019, respectively, and are still within their compliance grace periods, as set forth in the table below. +Number of +Number of +Stock +Shares +Qualifying +Ownership +Required To +Shares Owned +NAME/YEAR OF EXECUTIVE STATUS +Guidelines +Own (1) +at Year End +Barton R. Brookman (2008) +5x Base Salary +173,611 +252,437 +R. Scott Meyers (2018) +3x Base Salary +52,083 +41,196 +Lance A. Lauck (2009) +4x Base Salary +74,346 +109,319 +Scott J. Reasoner (2015) +4x Base Salary +74,346 +92,723 +Nicole L. Martinet (2019) +3x Base Salary +39,828 +15,356 +(1) Using the average daily closing price of the Company’s stock in December 2019, which was $24.48. +Qualifying holdings used to determine compliance with the minimum ownership requirements include stock owned directly, shares held in the Company’s 401(k) and Profit Sharing Plan and unvested time‑based RSUs. PSUs and SARs are not included. Stock ownership requirements applicable to our NEOs are described under our Stock Ownership Guidelines, which can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Risk Management +We perform an annual risk assessment regarding our compensation programs. Based on our most recent assessment, we do not believe the Company’s executive or non‑executive compensation structure is reasonably likely to have a material adverse effect on the Company. Risk‑mitigating features of our executive and non‑executive compensation structure include: a balance of short‑term and long‑term incentive programs to maintain focus on both elements of Company performance; limitations on awards payable to any individual under our incentive programs, along with Compensation Committee discretion to decrease the qualitative portion of annual incentive payouts in the event it believes excessive risk was taken; “clawback” provisions applicable to all NEOs through the terms of their employment agreements or the Company’s Clawback Policy; stock ownership requirements for our NEOs and Non‑Employee Directors; and an Insider Trading Policy that prohibits Directors and senior employees from transacting in Company shares without first obtaining pre‑clearance from the Company’s General Counsel, even during open trading windows. +PDC ENERGY 2020 PROXY 47 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +SUMMARY COMPENSATION TABLE +Non-Equity +Stock +Options/ +Incentive Plan +All Other +Total +Salary +Bonus +Awards (1)(2) +SARs +Compensation +Compensation (3) +Compensation +NAME AND PRINCIPAL POSITION +Year +($) +($) +($) +($) +($) +($) +($) +Barton R. Brookman +2019 +$ +850,000 +$ +— +$ +5,803,410 +$ +— +$ +1,017,000 +$ +59,880 +$ +7,730,290 +President and Chief +2018 +850,000 +978,000 +5,084,135 +— +— +55,688 +6,967,823 +Executive Officer +2017 +825,000 +990,000 +3,011,050 +921,522 +— +61,268 +5,808,840 +R. Scott Meyers (4) +2019 +425,000 +— +1,912,564 +— +354,000 +55,088 +2,746,652 +Senior Vice President, +2018 +370,000 +341,000 +1,182,391 +— +— +76,173 +1,969,564 +Chief Financial Officer +2017 +280,000 +212,000 +253,702 +— +— +40,208 +785,910 +Lance A. Lauck +2019 +455,000 +— +2,242,214 +— +426,000 +55,056 +3,178,270 +Executive Vice President, +2018 +435,000 +451,000 +1,832,621 +— +— +51,306 +2,769,927 +Corp. Dev. and Strategy +2017 +410,000 +480,000 +1,084,007 +331,749 +— +51,761 +2,357,517 +Scott J. Reasoner +2019 +455,000 +— +2,242,214 +— +426,000 +55,696 +3,178,910 +Senior Vice President, +2018 +425,000 +440,000 +1,773,586 +— +— +52,990 +2,691,576 +Chief Operating Officer +2017 +400,000 +408,000 +1,003,765 +307,174 +— +54,069 +2,173,008 +Nicole L. Martinet (5) +2019 +325,000 +— +791,409 +— +237,000 +48,156 +1,401,565 +Senior Vice President, +2018 +— +— +— +— +— +— +— +General Counsel and Secretary +2017 +— +— +— +— +— +— +— +(1) +In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of the stock awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 14 to the financial statements included in the Annual Report on Form 10‑K filed with the SEC on February 26, 2020. The 2019 grants are described in “Long‑Term Equity-Based Incentive Awards” and detailed in the “2019 Grants of Plan‑Based Awards” table. +(2) +2019 PSUs, included in the stock awards total for Messrs. Brookman, Meyers, Lauck, Reasoner and Ms. Martinet are listed at their grant date fair values of $3,428,573, $1,129,916, $1,324,668, $1,324,668, and $467,553, respectively. Assuming the maximum level of achievement of the performance conditions for the 2019 PSUs, the values of the 2019 PSU awards at the grant date for Messrs. Brookman, Meyers, Lauck and Reasoner and Ms. Martinet are $4,749,675, $1,565,296, $1,835,091, $1,835,091 and $647,711 respectively. +(3) +Amounts shown in this column for 2019 are detailed below in the “All Other Compensation” table. +(4) +Mr. Meyers was named CFO on January 3, 2018. Prior to that, he served as Chief Accounting Officer and Interim CFO during a portion of 2016. +(5) +Ms. Martinet was named Senior Vice President, General Counsel and Secretary effective January 1, 2019. Prior to that, she served as Vice President and Associate General Counsel. +48 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +ALL OTHER COMPENSATION +401(k) +Annual Profit +Total +Matching +Sharing +All Other +Contribution (1) +Contribution (2) +Perquisites (3) +Compensation +NAMED EXECUTIVE OFFICER +Year +($) +($) +($) +($) +Barton R. Brookman +2019 +$ +25,000 +$ +8,400 +$ +26,480 +$ +59,880 +R. Scott Meyers +2019 +19,000 +8,400 +27,688 +55,088 +Lance A. Lauck +2019 +25,000 +8,400 +21,656 +55,056 +Scott J. Reasoner +2019 +25,000 +8,400 +22,296 +55,696 +Nicole L. Martinet +2019 +19,000 +8,400 +20,756 +48,156 +(1) +Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) +Represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) +Represents total value of perquisites provided by the Company. Perquisites include automobile allowances, health club and non‑health club related dues, group term life insurance premiums, annual physical cost, and for Mr. Meyers a temporary corporate apartment in 2019. No individual perquisite exceeded $25,000. +PDC ENERGY 2020 PROXY 49 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +GRANTS OF PLAN‑BASED AWARDS +All Other +All Other +Grant Date +Stock +Option +Exercise +Fair Value +Estimated Future Payouts Under +Estimated Future Payouts +Awards +Awards +or Base +of Stock +Non‑Equity Incentive Plan +Under Equity Incentive Plan +Number of +Securities +Price of +and +Awards (1) +Awards +Shares of +Underlying +Option +Option +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Stock +Options +Awards +Awards +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +1/1/2019 +— +$ +977,500 +$ +1,955,000 +— +— +— +— +— +— +— +2/20/2019 +— +— +— +30,245 +60,490 +120,980 +— +— +— +3,428,573 +(2) +2/20/2019 +— +— +— +— +— +— +60,490 +— +— +2,374,837 +(3) +R. Scott Meyers +1/1/2019 +— +340,000 +680,000 +— +— +— +— +— +— +— +2/20/2019 +— +— +— +9,968 +19,935 +39,870 +— +— +— +1,129,916 +(2) +2/20/2019 +— +— +— +— +— +— +19,935 +— +— +782,648 +(3) +Lance A. Lauck +1/1/2019 +— +409,500 +819,000 +— +— +— +— +— +— +— +2/20/2019 +— +— +— +11,686 +23,371 +46,742 +— +— +— +1,324,668 +(2) +2/20/2019 +— +— +— +— +— +— +23,371 +— +— +917,546 +(3) +Scott J. Reasoner +1/1/2019 +— +409,500 +819,000 +— +— +— +— +— +— +— +2/20/2019 +— +— +— +11,686 +23,371 +46,742 +— +— +— +1,324,668 +(2) +2/20/2019 +— +— +— +— +— +— +23,371 +— +— +917,546 +(3) +Nicole L. Martinet +1/1/2019 +— +227,500 +455,000 +— +— +— +— +— +— +— +2/20/2019 +— +— +— +4,125 +8,249 +16,498 +— +— +— +467,553 +(2) +2/20/2019 +— +— +— +— +— +— +8,249 +— +— +323,856 +(3) +(1) +Represents target and maximum cash awards payable under the Company’s annual incentive plan. +(2) +Represents annual PSU awards under the 2010 Amended and Restated Long Term Equity Plan (“2010 Equity Plan”). Grant date fair value is computed by multiplying the target number of PSUs awarded by the grant date fair value as computed utilizing the Monte Carlo pricing model, which was $56.68 per share. +(3) +Represents annual time‑based RSU awards under the 2010 Equity Plan. Grant date fair value for RSUs is computed by multiplying the number of shares awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of February 20, 2019, which was $39.26. +50 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR‑END +Equity Incentive Plan +Awards +Options/SAR Awards +Number +Number of +Market +Number of Securities +of Shares +Market Value +Unearned +Value of +Underlying Unexercised +of Stock +of Shares of +Shares of +Unearned +Options/SARs Held at +Option/SAR +Option/SAR +That +Stock That +Stock That +Shares That +December 31, 2019 +Exercise +Expiration +Have Not +Have Not +Have Not +Have Not +Exercisable +Unexercisable +Price (1) +Vested (2) +Vested (3) +Vested (4) +Vested (3) +Name +(#) +(#) +($) +(Date) +(#) +($) +(#) +($) +Barton R. Brookman +— +— +— +100,622 +$ +2,633,278 +102,689 +$ +2,687,371 +8,295 +— +$ +24.44 +4/19/2020 +— +— +— +— +5,104 +— +43.95 +3/11/2021 +— +— +— +— +9,766 +— +30.19 +1/16/2022 +— +— +— +— +12,620 +— +37.18 +1/15/2023 +— +— +— +— +13,790 +— +49.57 +1/15/2024 +— +— +— +— +26,643 +— +39.63 +1/13/2025 +— +— +— +— +29,036 +— +51.63 +1/10/2026 +— +— +— +— +15,924 +7,962 +(5) +74.57 +1/16/2027 +— +— +— +— +R. Scott Meyers +— +— +— +28,135 +736,293 +29,749 +778,531 +— +— +— +— +— +— +— +— +Lance A. Lauck +— +— +— +38,025 +995,114 +38,582 +1,009,691 +7,319 +— +24.44 +4/19/2020 +— +— +— +— +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +10,096 +— +49.57 +1/15/2024 +— +— +— +— +12,212 +— +39.63 +1/13/2025 +— +— +— +— +11,445 +— +51.63 +1/10/2026 +— +— +— +— +5,732 +2,867 +(5) +74.57 +1/16/2027 +— +— +— +— +Scott J. Reasoner +— +— +— +36,708 +960,648 +38,092 +996,868 +7,771 +— +39.63 +1/13/2025 +— +— +— +— +9,538 +— +51.63 +1/10/2026 +— +— +— +— +5,308 +2,654 +(5) +74.57 +1/16/2027 +— +— +— +— +Nicole L. Martinet +— +— +— +11,276 +295,093 +8,249 +215,876 +(1) +The exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +PDC ENERGY 2020 PROXY 51 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(2) +The RSUs of Messrs. Brookman, Meyers, Lauck, and Reasoner and Ms. Martinet vest as set forth in the following table. +Number of RSUs that Vest on: +1/17/2020 +2/20/2020 +2/21/2020 +2/22/2020 +4/1/2020 +2/20/2021 +2/21/2021 +4/1/2021 +2/20/2022 +Total +Barton R. Brookman +8,256 +20,163 +14,066 +3,743 +— +20,163 +14,067 +— +20,164 +100,622 +R. Scott Meyers +— +6,645 +3,271 +— +1,657 +6,645 +3,272 +— +6,645 +28,135 +Lance A. Lauck +2,972 +7,790 +5,070 +1,541 +— +7,790 +5,071 +— +7,791 +38,025 +Scott J. Reasoner +2,752 +7,790 +4,907 +771 +— +7,790 +4,907 +— +7,791 +36,708 +Nicole L. Martinet +— +2,749 +— +— +1,964 +2,750 +— +1,063 +2,750 +11,276 +(3) +The market value of these RSUs is based on the closing price of the Company’s common stock of $26.17, as reported on the NASDAQ Global Select Market on December 31, 2019. +(4) +PSUs granted in 2018 and 2019 are contingent upon the achievement of certain specified performance goals. PSUs granted in 2018 have a 3‑year performance period ending December 31, 2020. PSUs granted in 2019 have a 3‑year performance period ending December 31, 2021. For a description of the PSUs in 2019, see “2019 Long Term Incentive Awards.” +(5) +Represent SARs that vest on January 17, 2020. +52 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired on +Realized on +Acquired on +Realized on +Exercise +Exercise +Vesting (1) +Vesting (2) +Name +(#) +($) +(#) +($) +Barton R. Brookman +— +— +40,353 +$ +1,356,502 +R. Scott Meyers +— +— +6,785 +273,039 +Lance A. Lauck +— +— +15,074 +507,799 +Scott J. Reasoner +— +— +13,144 +440,363 +Nicole L. Martinet +— +— +2,940 +122,392 +(1) +The number of shares includes RSUs and PSUs that vested in 2019. +(2) +The table below shows the number and value of RSUs and PSUs included in these columns. The value of the RSUs and PSUs that vested in 2019 is determined by multiplying the number of units vested by the market value of PDC stock on the vesting date. The PSUs that vested in 2019 covered the three year period January 1, 2017 through December 31, 2019 and paid out at target. See “2017-2019 Performance Share Unit (PSU) Payout” for more information. +RSUs +RSUs Value +PSUs +PSUs Value +Name +(#) +($) +(#) +($) +Barton R. Brookman +27,970 +$ +1,032,439 +12,383 +$ +324,063 +R. Scott Meyers +6,785 +273,039 +— +— +Lance A. Lauck +10,616 +391,133 +4,458 +116,666 +Scott J. Reasoner +9,016 +332,333 +4,128 +108,030 +Nicole L. Martinet +2,940 +122,392 +— +— +PDC ENERGY 2020 PROXY 53 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +POTENTIAL PAYMENTS UPON TERMINATION OR +CHANGE OF CONTROL +The Company may be obligated to pay benefits to Messrs. Brookman, Meyers and Reasoner and Ms. Martinet (and any future NEOs) under the Executive Severance Compensation Plan dated September 24, 2012 and amended January 13, 2015 (the “Severance Plan”) and, with respect to Mr. Lauck, under his grandfathered employment agreement. The primary purpose of the Severance Plan and the severance provisions of Mr. Lauck’s employment agreement are to provide severance benefits in the event of the termination of the NEO by the Company without “just cause” or termination by the NEO for “good reason,” either prior to or following a change of control of the Company. Upon a change of control, the Severance Plan and Mr. Lauck’s employment agreement provide benefits only in the event that an executive is terminated by the acquiring company “without cause” or by the executive for “good reason” (i.e., they are “double‑trigger” in nature). The Severance Plan provides a benefit offset so that cash benefits paid upon severance would be reduced by any other severance benefits that the executive could be entitled to receive under another Company plan. Mr. Lauck’s grandfathered employment agreement provides benefits similar to those provided under the Severance Plan, but it varies in the amounts of cash benefit provided to Mr. Lauck. +The severance benefits an executive would receive under the Severance Plan and Mr. Lauck’s grandfathered employment agreement under various termination scenarios are summarized below: +TERMINATION WITHOUT CAUSE +OR FOR GOOD REASON +TERMINATION DUE TO CHANGE +OF CONTROL +CONTROLLING PLAN OR +AGREEMENT +Barton R. Brookman +2 times sum of base salary and target bonus +3 times sum of base salary and target bonus plus a pro‑rata target bonus for year of termination +Severance Plan +Scott Meyers +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro‑rata target bonus for year of termination +Severance Plan +Lance A. Lauck +2 times sum of base salary and highest bonus of last two years +3 times sum of base salary and highest bonus of last two years +Grandfathered Employment +Agreement +Scott J. Reasoner +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro‑rata target bonus for year of termination +Severance Plan +Nicole L. Martinet +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro‑rata target bonus for year of termination +Severance Plan +In addition to the above, the NEO would be eligible for continuation of health benefits for up to 18 months. As a condition of receiving severance benefits under the Severance Plan and under the terms of Mr. Lauck’s employment agreement, each NEO is subject to a non‑disclosure covenant and a non‑compete covenant pursuant to which the NEO is prohibited for a period of one year following his or her termination from engaging in any competing business in any county in which the Company is doing business or any adjacent county. In addition, the NEO is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a change of control of the Company, the Severance Plan provides for payment of the severance benefits over +54 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +12 months. Under the terms of Mr. Lauck’s employment agreement, however, he would receive severance benefits within 40 days following a qualifying termination. +Mr. Lauck’s employment agreement contains a clawback provision and the executives covered under the Severance Plan are covered under the Company’s clawback policy. See “Other Policies and Considerations—Clawback Policy”. Mr. Lauck’s employment agreement automatically extends for 12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non‑renewal at least 30 days prior to such December 31 automatic extension date. +PDC ENERGY 2020 PROXY 55 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +IMPACT OF TERMINATION AND CHANGE OF CONTROL ON LONG‑TERM EQUITY-BASED INCENTIVE PLANS +The following table outlines the effect on outstanding unvested long-term incentive awards under various termination scenarios and upon a change of control of the Company based on the terms of the 2010 Equity Plan, 2018 Long Term Equity Plan (the “2018 Equity Plan”) and related grant agreements and Mr. Lauck’s executive employment agreement: +TERMINATION SCENARIO/CHANGE OF +CONTROL (1) +RESTRICTED +STOCK/SARs/OPTIONS +PERFORMANCE SHARE UNITS (2) +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change of Control +Vests +Mr. Lauck: +Forfeited +Executives in Severance Plan: +2018 and 2019 grants: Portion to be potentially earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +2018 and Prior Awards: +Earned pro‑rata based on performance through either date of death or end of performance period. +2019 Awards: +Earned at 100% if death occurs in first two years of performance period. Earned based on actual results if death occurs after first two years of performance period. +Disability +Vests +2018 and Prior Awards: +Earned pro‑rata based on performance at end of performance period. +2019 Awards: +Earned based on performance at end of performance period. +Occurrence of a Change of Control +2018 and Prior Awards: +Vests +2019 Awards: +Double trigger vesting applies. Vesting is contingent on continued employment through original vesting dates, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +2018 and Prior Awards: +If less than 50% of the performance period has elapsed, earns 100% of PSUs. If 50% or more of the performance period has elapsed, earns greater of actual performance through change of control or 100% of PSUs. +2019 Awards: +Double trigger vesting applies. Performance is measured through the date of the change of control to determine the number of PSUs potentially earned. That number of PSUs is then earned at the end of the originally scheduled performance period based on continued employment, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +(1) +Except as noted otherwise, award treatment is the same regardless of when the award was issued. +(2) +Except as noted otherwise, PSU treatment for each scenario listed is the same for those covered by the Severance Plan and Mr. Lauck’s Employment Agreement. +56 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +CHANGE OF CONTROL EXCISE TAX PROVISION +The Company currently provides no income tax gross‑up or excise tax gross‑up for taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and Mr. Lauck’s employment agreement provide that if it is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after‑tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes the cost to the Company would be minimal as a percentage of the entire value of the change of control transaction. +PDC ENERGY 2020 PROXY 57 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +ESTIMATED TERMINATION AND CHANGE IN CONTROL BENEFITS +The tables below and the discussion that follows show compensation payable to each of our NEOs upon various termination scenarios both before and after a change of control of the Company (defined in the tables as “COC”). The amounts shown assume that termination occurred on December 31, 2019, that the closing price per share on such date was $26.17, and, in the event of termination due to change of control, the executive’s benefit is not reduced as a result of Section 280G or Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company . +Barton R. Brookman +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +3,655,000 +(1) +$ +5,482,500 +(2) +— +Pro-rata Bonus +— +— +977,500 +(3) +— +Acceleration of Unvested Equity +RSUs/SARs +— +2,633,278 +2,633,278 +2,633,278 +2,633,278 +PSUs +— +— +(4) +2,687,371 +(5) +2,322,936 +(6) +2,322,936 +(7) +Benefits +Health Benefits Continuation +— +28,599 +(8) +28,599 +(8) +— +Total +$ +— +$ +6,316,877 +$ +11,809,248 +$ +4,956,214 +$ +4,956,214 +R. Scott Meyers +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,147,500 +(1) +$ +1,912,500 +(2) +— +Pro-rata Bonus +— +— +340,000 +(3) +— +Acceleration of Unvested Equity +RSUs/SARs +— +736,293 +736,293 +736,293 +736,293 +PSUs +— +— +(4) +778,531 +(5) +693,777 +(6) +693,777 +(7) +Benefits +Health Benefits Continuation +— +40,943 +(8) +40,943 +(8) +— +— +Total +$ +— +$ +1,924,736 +$ +3,808,267 +$ +1,430,070 +$ +1,430,070 +58 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Lance A. Lauck +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,870,000 +(1) +$ +2,805,000 +(2) +— +— +Salary Continuation +— +— +— +227,500 +(9) +341,250 +(10) +Pro-rata Bonus +409,500 +(3) +— +— +— +— +Acceleration of Unvested Equity +RSUs/SARs +— +995,114 +995,114 +995,114 +995,114 +PSUs +— +— +(11) +1,009,691 +(5) +878,327 +(6) +878,327 +(7) +Benefits +Health Benefits Continuation +— +40,943 +(8) +40,943 +(8) +— +— +Total +$ +409,500 +$ +2,906,057 +$ +4,850,748 +$ +2,100,941 +$ +2,214,691 +Scott J. Reasoner +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,296,750 +(1) +$ +2,161,250 +(2) +— +Pro-rata Bonus +— +— +409,500 +(3) +— +Acceleration of Unvested Equity +RSUs/SARs +— +960,648 +960,648 +960,648 +960,648 +PSUs +— +— +(4) +996,868 +(5) +869,736 +(6) +869,736 +(7) +Benefits +Health Benefits Continuation +— +40,943 +(8) +40,943 +(8) +— +— +Total +$ +— +$ +2,298,341 +$ +4,569,209 +$ +1,830,384 +$ +1,830,384 +PDC ENERGY 2020 PROXY 59 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Nicole L. Martinet +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +828,750 +(1) +$ +1,381,250 +(2) +— +Pro-rata Bonus +— +— +227,500 +(3) +— +Acceleration of Unvested Equity +RSUs/SARs +— +295,093 +295,093 +295,093 +295,093 +PSUs +— +— +(4) +215,876 +(5) +215,876 +(6) +215,876 +(7) +Benefits +Health Benefits Continuation +— +40,943 +(8) +40,943 +(8) +— +— +Total +$ +— +$ +1,164,786 +$ +2,160,662 +$ +510,969 +$ +510,969 +(1) +Cash severance is equal to (a) 2 times the sum of base salary and target bonus for Mr. Brookman, (b) 1.5 times the sum of base salary and target bonus for Messrs. Meyers and Reasoner and Ms. Martinet and (c) 2 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +(2) +Cash severance is equal to (a) 3 times the sum of base salary and target bonus for Mr. Brookman, (b) 2.5 times the sum of base salary and target bonus for Messrs. Meyers and Reasoner and Ms. Martinet and (c) 3 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +(3) +Under the terms of the Severance Plan, Messrs. Brookman, Meyers, Reasoner and Ms. Martinet are entitled to a pro‑rata target bonus if termination is related to a COC. Per the terms of his individual Employment Contract, Mr. Lauck is entitled to a pro-rata bonus if terminated for cause. Bonus amounts for 2019 are not determined until after December 31 and are subject to forfeiture until paid. As a result, the pro‑rata bonus shown is based on target bonus for 2019. +(4) +The Committee has the discretion to allow between 0% to 100% of the target PSUs to remain outstanding and to be earned based on Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the PSUs. +(5) +The value shown for PSUs upon a COC assumes (a) for 2019 PSUs, the target number of units (100%) based on performance through the date of COC and (b) for 2018 PSUs, the target number of units (100%) would be earned since amount is based on the greater of 100% or actual Company performance for the period (100% as of December 31, 2019). +(6) +The value shown for PSUs upon death assumes (a) for 2019 PSUs, the target number of units (100%) and (b) for 2018 PSUs, two‑thirds of the target PSUs adjusted for Company performance through date of death would be paid (100% as of December 31, 2019). +(7) +The value shown for PSUs upon disability payable at end of period assumes (a) for 2019 PSUs, the target PSUs adjusted for Company performance through the end of the period would be earned (assumes 100% as of December 31, 2019) and (b) for 2018 PSUs, two‑thirds of the target PSUs adjusted for Company performance through the end of the period would be earned (assumes 100% as of December 31, 2019). +(8) +Cost of Company‑subsidized COBRA premium to continue health, vision and dental coverage to executive and any covered dependents for an 18‑month period. +(9) +In the event of death, executive would receive a lump sum payment equal to six months base salary. +(10) +In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long‑term disability, executive would receive an additional lump sum payment equal to six months’ base salary. +(11) +PSUs awarded in 2018 and 2019 would be forfeited. +60 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +CEO PAY RATIO +Pursuant to rules promulgated under the Dodd-Frank Act, the Company is required to disclose the ratio of its CEO’s annual total compensation to the Company’s median employee’s annual total compensation. The Company identified the median employee for 2019 based on estimated 2019 compensation reportable on Form W-2 for all employees (other than the CEO) on December 31, 2019. For 2019, the CEO’s total annual compensation was $7,751,080, which amount differs from the amount reported in the Summary Compensation Table because it also includes perquisites with a value of less than $10,000 and certain other non-discriminatory benefits. The median employee’s total annual compensation was $137,371, resulting in a CEO pay ratio of 56:1. +Compensation data used to calculate the ratio is set forth below: +Non-Equity +Incentive Plan +Stock +All Other +Salary +Compensation +Awards (1) +SARs +Compensation (2) +Total +Name +($) +($) +($) +($) +($) +($) +Median Employee +$ +92,500 +$ +13,400 +$ +10,574 +— +$ +20,897 +$ +137,371 +CEO +850,000 +1,017,000 +5,803,410 +— +80,670 +7,751,080 +(1) +Represents the grant date fair value of RSUs, as computed in accordance with FASB ASC Topic 718. +(2) +Includes matching contributions to the Company’s 401(k) and Profit Sharing Plan, perquisites with a value of less than $10,000 and other non‑discriminatory benefits not reported in the “Summary Compensation Table” set forth in this Proxy Statement. +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for issuance as of December 31, 2019: +Number of Securities to +be Issued Upon +Weighted-Average +Securities Remaining +Exercise +Exercise Price of +Available for Future +of Outstanding Options +Outstanding Options +Issuance Under Equity +and Rights +and Rights +Compensation Plans +Plan Category +(1) (#) +($) +(2) (#) +Equity compensation plans approved by security holders +511,400 +$ +46.64 +1,423,137 +Equity compensation plans not approved by security holders +— +— +— +Total +511,400 +$ +46.64 +1,423,137 +(1) +Includes 221,142 shares of common stock to be issued under outstanding PSUs based upon continuous employment and the maximum achievement of certain performance goals over a specified period of time as described in “Outstanding Equity Awards at Fiscal Year‑End.” These shares have been excluded from the weighted average exercise price calculation. +(2) +The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding SARs and pursuant to RSUs subject to time vesting and PSUs subject to certain market‑based performance goals over a specified period of time. +PDC ENERGY 2020 PROXY 61 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of March 31, 2020, by (1) each person known by the Company to own beneficially more than five percent of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 31, 2020, 99,429,744 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Number of +Percentage of +Shares +Shares +Beneficially +Beneficially +Name and Address of Beneficial Owner +Owned +Owned (1) +5% or Greater Owners: +BlackRock, Inc. +9,304,514 +(2) +9.4 +% +55 East 52nd Street +New York, NY 10055 +The Vanguard Group +6,381,893 +(3) +6.4 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Dimensional Fund Advisors LP +5,179,217 +(4) +5.2 +% +6300 Bee Cave Road Building One +Austin, TX 78746 +Named Executive Officers: +Barton R. Brookman, Jr. +313,591 +(5) +* +Lance A. Lauck +158,456 +(6) +* +Scott J. Reasoner +92,484 +(7) +* +R. Scott Meyers +20,287 +(8) +* +Nicole L. Martinet +7,438 +(9) +* +Non-Employee Directors: +Jeffrey C. Swoveland +22,201 +(10) +* +David C. Parke +16,987 +(11) +* +Anthony J. Crisafio +17,789 +(12) +* +Randy S. Nickerson +8,105 +(13) +* +Mark E. Ellis +26,451 +(14) +* +Christina M. Ibrahim +5,682 +(15) +* +Lynn A. Peterson +217,621 +(16) +* +Paul J. Korus +14,536 +(17) +* +All directors and executive officers as a group (14 persons) +927,282 +(18) +* +% +* Represents less than 1% of the outstanding shares of common stock. +62 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(1) +For each holder of stock awards or other securities that are currently vested or exercisable or that vest or become exercisable within 60 days of March 31, 2020, we treat the common stock underlying those securities as owned by that holder and as outstanding shares when we calculate that holder’s percentage ownership of our common stock. We do not treat that common stock as outstanding when we calculate the percentage ownership of any other holder. +(2) +As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on February 4, 2020, BlackRock, Inc. holds sole voting power as to 9,135,992 shares and sole dispositive power as to 9,304,514 shares as of December 31, 2019. The amount reported does not include shares of the Company’s stock that may have been received by BlackRock, Inc. in connection with the closing of the SRC Merger pursuant to which each share of SRC common stock was converted into the right to receive 0.158 shares of the Company’s common stock. BlackRock, Inc. reported on a Schedule 13G/A filed with the SEC on February 4, 2020 that it beneficially owned 39,078,877 shares of SRC common stock as of December 31, 2019. +(3) +As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 12, 2020, The Vanguard Group is an investment advisor in accordance with SEC Rule 13d‑1(b)(1)(ii)(E) and holds sole voting power as to 58,428 shares, shared voting power with respect to 9,265 shares, sole dispositive power as to 6,321,235 shares and shared dispositive power as to 60,658 shares as of December 31, 2019. The amount reported does not include shares of the Company’s stock that may have been received by The Vanguard Group in connection with the closing of the SRC Merger pursuant to which each share of SRC common stock was converted into the right to receive 0.158 shares of the Company’s common stock. The Vanguard Group reported on a Schedule 13G/A filed with the SEC on February 12, 2020 that it beneficially owned 25,988,085 shares of SRC common stock as of December 31, 2019. +(4) +As reported on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 12, 2020, Dimensional Fund Advisors LP is an investment advisor in accordance with SEC Rule 13d‑1(b)(1)(ii)(E) and holds sole voting power as to 5,142,003 shares and sole dispositive power as to 5,179,217 shares as of December 31, 2019. The amount reported does not include shares of the Company’s stock that may have been received by Dimensional Fund Advisors LP in connection with the closing of the SRC Merger pursuant to which each share of SRC common stock was converted into the right to receive 0.158 shares of the Company’s common stock. Dimensional Fund Advisors LP reported on a Schedule 13G/A filed with the SEC on February 12, 2020 that it beneficially owned 19,416,717 shares of SRC common stock as of December 31, 2019. +(5) +Excludes 138,106 RSUs subject to vesting greater than 60 days after March 31, 2020; includes 129,140 shares subject to SARs exercisable within 60 days of March 31, 2020. +(6) +Excludes 61,143 RSUs subject to vesting greater than 60 days after March 1, 2020; includes 71,878 shares subject to SARs exercisable within 60 days of March 31, 2020. +(7) +Excludes 60,979 RSUs subject to vesting greater than 60 days after March 1, 2020; includes 25,271 shares subject to SARs exercisable within 60 days of March 31, 2020. +(8) +Excludes 57,053 RSUs subject to vesting greater than 60 days after March 31, 2020. +(9) +Excludes 31,586 RSUs subject to vesting greater than 60 days after March 31, 2020. +(10) +Excludes 7,514 RSUs subject to vesting greater than 60 days after March 31, 2020; includes 3,580 common shares deferred pursuant to the Non‑Employee Director Deferred Compensation Plan. +(11) +Excludes 7,285 RSUs subject to vesting greater than 60 days after March 31, 2020; includes 2,312 common shares deferred pursuant to the Non‑Employee Director Deferred Compensation Plan. +(12) +Excludes 7,285 RSUs subject to vesting greater than 60 days after March 31, 2020; includes 425 common shares deferred pursuant to the Non‑Employee Director Deferred Compensation Plan. +(13) +Excludes 7,285 RSUs subject to vesting greater than 60 days after March 31, 2020. +(14) +Excludes 9,262 RSUs subject to vesting greater than 60 days after March 31, 2020. +(15) +Excludes 7,285 RSUs subject to vesting greater than 60 days after March 31, 2020. +(16) +Excludes 6,369 RSUs subject to vesting greater than 60 days after March 31, 2020. +(17) +Excludes 6,369 RSUs subject to vesting greater than 60 days after March 31, 2020. +(18) +Excludes 418,229 RSUs subject to vesting greater than 60 days after March 31, 2020; includes 6,317 common shares deferred pursuant to the Non‑Employee Director Deferred Compensation Plan and includes 226,289 SARs exercisable within 60 days of March 31, 2020. +PDC ENERGY 2020 PROXY 63 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Each SAR referenced in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $24.44 to $74.57 for the SARs in the table, payable in shares only. +DELINQUENT SECTION 16(A) REPORTS +Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2019, the Company’s executive officers and Directors and owners of more than 10% of the Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act, with the exception of one Form 4 filed late on November 6, 2019 to report a sale by Mr. Swoveland on June 3, 2019. +64 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 5 —RATIFY THE APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 5. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020, and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +Principal Accountant Fees and Services +2019 +2018 +Audit Fees (1) +$ +2,704,000 +$ +2,268,300 +Tax Fees (2) +62,000 +39,800 +All Other Fees (3) +1,358,000 +437,200 +Total Fees +$ +4,124,000 +$ +2,745,300 +(1) Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10‑Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our securities offerings. +(2) Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its proportionately consolidated entities. +(3) All Other Fees consist of aggregate fees billed for products and services other than services reported above. +PDC ENERGY 2020 PROXY 65 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +AUDIT COMMITTEE PRE‑APPROVAL POLICIES AND PROCEDURES +The Sarbanes‑Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be subject to pre‑approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre‑approval of all audit services and non‑audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre‑approved by the Audit Committee annually. Permissible non‑audit services to be performed by the independent accountant may also be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non‑audit services which are to be performed by the independent accountant and are not eligible for annual pre‑approval must be pre‑approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All of the services described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its pre‑approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. See “Information About Voting and the Meeting—How Proxies Work” for information on the effect of broker non-votes on this matter. +66 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of three Directors and operates under a written charter adopted by the Board. Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee held fourteen meetings during 2019. In addition, the Audit Committee authorized Audit Committee member Anthony J. Crisafio to serve on a sub‑committee of the Audit Committee to, among other things, review and approve SEC periodic financial filings and other actions of the partnerships for which the Company previously served as managing general partner. The sub‑committee did not meet during 2019 and was dissolved in December 2019. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2019 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by the applicable requirements of PCAOB. The Audit Committee has received the written disclosures and the letter from PwC required by the applicable requirements of the PCAOB and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2019. +Anthony J. Crisafio, Chair +Paul J. Korus +David C. Parke +Jeffrey C. Swoveland +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +PDC ENERGY 2020 PROXY 67 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL NO. 6 —APPROVE AN AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN +THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE PROPOSAL TO AMEND THE COMPANY’S 2018 EQUITY INCENTIVE PLAN. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +On March 24, 2020, the Board approved an amendment to the PDC Energy, Inc. 2018 Equity Incentive Plan (the “2018 Plan”) increasing the number of shares issuable under the 2018 Plan from 1,800,000 shares to 7,050,000 shares, subject to and to be effective upon stockholder approval at the Annual Meeting. The Board also recommended that the Company’s stockholders approve the amendment to the 2018 Plan at the Annual Meeting. +The remaining provisions of the 2018 Plan are not affected by this amendment, and the 2018 Plan continues to incorporate the following equity incentive plan best practices: +· +An omnibus plan design, allowing us flexibility to issue options, stock appreciation rights (sometimes referred to as “SARs”), restricted stock, RSUs, PSUs, and other stock-based awards; +· +No direct or indirect repricing of options or stock appreciation rights without stockholder approval; +· +Stringent share recycling provisions that prohibit recycling of shares used as consideration for tax withholding or as consideration for option exercises, along with full counting of all shares subject to stock-settled stock appreciation rights; +· +A minimum one-year cliff vesting schedule on all award types under the 2018 Plan (applicable to at least 95% of the shares authorized for issuance); +· +Dividends and dividend equivalents on unvested awards are accrued and paid only if related awards become vested; and +· +No excise tax gross-ups on equity awards. +Reasons for Amending the 2018 Plan +The Compensation Committee and the Board believe that we must continue to offer a competitive equity incentive program in order to successfully attract, retain and motivate the best employees, directors and consultants, without whom we cannot execute on our business goals or deliver value to our stockholders. However, the current share reserves of our existing equity compensation plans are nearly depleted. As of March 31, 2020, only 485,079 shares remained available for grant under the 2018 Plan, and only 78,011 shares remained available for grant under our Amended and Restated 2010 Long-Term Equity Compensation Plan (the “2010 Plan”). Accordingly, and based on historic grant patterns, we believe the remaining shares available for issuance under the 2010 Plan and the 2018 Plan are insufficient, and without an amendment to the 2018 Plan to add additional shares, the Company will have limited ability to grant incentive equity awards going forward. In such event, our ability to attract and retain the talent necessary to drive our business will likely be negatively impacted. The Board has therefore adopted an amendment to the 2018 Plan, subject to approval by the Company’s stockholders, to increase the number of shares available for issuance under the 2018 Plan so that we may continue to offer a competitive equity incentive program going forward. +68 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +If the 2018 Plan amendment proposal is approved by the Company’s stockholders, the number of shares of common stock reserved for issuance under the Company’s equity incentive plans will be increased by 5,250,000 shares, as follows (share counts are as of March 31, 2020): +Remaining shares available for issuance pursuant to new awards under the existing 2010 plan +78,011 +Shares available for issuance under the 2018 Plan ++ +485,079 +Total shares available for issuance pursuant to new awards under the Company’s equity plans += +563,090 +Outstanding Awards +As of March 31, 2020, there were 226,289 stock options/SARs outstanding under the Company’s equity compensation plans with a weighted average exercise price of $47.72 and a weighted average remaining term of 4.3 years. In addition, as of March 31, 2020, there were 1,577,738 full value awards outstanding under the Company’s equity compensation plans (PSUs calculated at target). Other than the foregoing, no other awards under the Company’s equity compensation plans were outstanding or available for grant as of March 31, 2020. +Description of the Amended 2018 Plan +The following summary of material terms of the amended 2018 Plan does not purport to be complete and is subject to and qualified in its entirety by the actual terms of the amended 2018 Plan. A copy of the amendment to the 2018 Plan is provided as Appendix D to this Proxy Statement. A copy of the full 2018 Plan, which incorporates the changes made by the amendment and marks those changes specifically, is provided as Appendix E to this Proxy Statement. +Purpose of the amended 2018 Plan +The purpose of the amended 2018 Plan is to promote the success of the Company and the interests of its stockholders by providing an additional means for the Company to attract, motivate, retain and reward directors, officers, employees and other eligible persons (including certain consultants and advisors). +The Board or one or more committees consisting of independent directors appointed by the Board will administer the amended 2018 Plan. The Board will delegate general administrative authority for the amended 2018 Plan to the Compensation Committee, which is comprised of directors who qualify as independent under rules promulgated by the SEC and NASDAQ. Except where prohibited by applicable law, a committee may delegate some or all of its authority with respect to the amended 2018 Plan to another committee of directors or to one or more officers of the Company. For purposes of Rule 16b-3 of the Exchange Act, the rules of NASDAQ and for grants to non-employee directors, the amended 2018 Plan must be administered by a committee consisting solely of two or more independent directors. The appropriate acting body, be it the Board, a committee within its delegated authority, or an officer within his or her delegated authority, is referred to in this section as the Administrator. +The Administrator has broad authority under the amended 2018 Plan with respect to award grants including, without limitation, the authority: +· +To select participants and determine the type(s) of award(s) that they are to receive; +· +To determine the number of shares that are to be subject to awards and the terms and conditions of awards, including the price (if any) to be paid for the shares or the award; +· +To cancel, modify, or waive the Company’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consents, and subject to the repricing prohibition described below; +PDC ENERGY 2020 PROXY 69 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +To accelerate or extend the vesting or exercisability or extend the term of any or all outstanding awards subject to any required consents; +· +Subject to the other provisions of the amended 2018 Plan, to make certain adjustments to outstanding awards and authorize the conversion, succession or substitution of awards; and +· +To allow the purchase price of awards or shares of the Company’s common stock to be paid in the form of cash, check, or electronic funds transfer, by the delivery of already-owned shares of the Company’s common stock or by a reduction of the number of shares deliverable pursuant to the awards, by services rendered by the recipient of the awards, by notice of third party payment or by cashless exercise, on such terms as the Administrator may authorize, or any other form permitted by law. +Eligibility +Persons eligible to receive awards under the amended 2018 Plan include officers and employees of the Company or any of its subsidiaries, non-employee directors of the Company, and certain individual consultants who render bona fide services to the Company or any of its subsidiaries (other than services in connection with the offering or sale of securities or as a market maker or promoter of securities of the Company). As of the date of this Proxy Statement, there are approximately 350 employees, including officers, of the Company and its subsidiaries and seven non-employee Directors of the Company and its subsidiaries who would potentially be eligible to receive awards under the amended 2018 Plan. +Authorized Shares +The amended 2018 Plan authorizes the issuance of up to 7,050,000 shares of the Company’s common stock. The amended 2018 Plan generally provides that shares issued in connection with awards that are granted by or become obligations of the Company through the assumption of awards (or in substitution for awards) in connection with an acquisition of another company will not count against the shares available for issuance under the amended 2018 Plan, except as may be required by the Administrator or applicable law or stock exchange rules. +Shares that are subject to or underlie awards which expire or for any reason are canceled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the amended 2018 Plan are available for reissuance under the amended 2018 Plan. However, the amended 2018 Plan prohibits liberal share recycling. Accordingly, shares tendered or withheld to satisfy the exercise price of options or tax withholding obligations, and shares covering the portion of exercised stock-settled SARs (regardless of the number of shares actually delivered), count against the share limit. +Awards Under the Amended 2018 Plan +Because awards under the amended 2018 Plan are granted in the discretion of the Board or a committee of the Board, the type, number, recipients and other terms of future awards cannot be determined at this time. +No Repricing +In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that may be approved by stockholders) will any adjustment be made to a stock option or stock appreciation right award under the amended 2018 Plan (by amendment, cancellation and regrant, exchange for other awards or cash or other means) that would constitute a repricing of the per share exercise or base price of the award. +70 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Minimum Vesting Schedule +The amended 2018 Plan requires a minimum one year cliff vesting schedule for all equity award types under the amended 2018 Plan. This minimum vesting schedule will apply to at least 95% of the shares authorized for grant under the amended 2018 Plan. +Dividends and Dividend Equivalents +Accrued dividends or dividend equivalent amounts shall not be paid unless and until the awards to which they relate become vested. +Types of Awards +The amended 2018 Plan authorizes stock options, SARs, restricted stock, RSUs, PSUs and other forms of awards that may be granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as cash bonus awards. The amended 2018 Plan provides flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Awards may, in certain cases, be paid or settled in cash. +Stock Options +A stock option is a right to purchase shares of the Company’s common stock at a future date at a specified price per share (the “exercise price”). The per share exercise price of an option generally may not be less than the fair market value of a share of the Company’s common stock on the date of grant. On April 2, 2020, the last sale price of the Company’s common stock as reported on NASDAQ was $7.88 per share. The maximum term of an option is ten years from the date of grant. An option may be either an incentive stock option or a nonqualified stock option. Incentive stock options are taxed differently than nonqualified stock options and are subject to more restrictive terms under the Internal Revenue Code of 1986, as amended (the “Code”) and the amended 2018 Plan. Incentive stock options may be granted only to employees of the Company or a subsidiary. +Stock Appreciation Rights +A stock appreciation right is the right to receive payment of an amount equal to the excess of the fair market value of shares of the Company’s common stock on the date of exercise of the stock appreciation right over the base price of the stock appreciation right. The base price is established by the Administrator at the time of grant of the stock appreciation right and generally cannot be less than the fair market value of a share of the Company’s common stock on the date of grant. Stock appreciation rights may be granted in connection with other awards or independently. The maximum term of a stock appreciation right is ten years from the date of grant. +Restricted Stock +Shares of restricted stock are shares of the Company’s common stock that are subject to certain restrictions on sale, pledge, or other transfer by the recipient during a particular period of time (the “restricted period”). Subject to the restrictions provided in the applicable award agreement and the amended 2018 Plan, a participant receiving restricted stock may have all of the rights of a stockholder as to such shares, including the right to vote and the right to receive dividends; provided, however, that dividends on unvested shares shall be accrued and shall be paid only if the restricted stock to which they relate become vested. +Restricted Stock Units +A restricted stock unit represents the right to receive one share of the Company’s common stock on a specific future vesting or payment date. Subject to the restrictions provided in the applicable award agreement and +PDC ENERGY 2020 PROXY 71 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +the amended 2018 Plan, a participant receiving RSUs has no rights as a stockholder until the shares of common stock are issued to the participant. RSUs may be granted with dividend equivalent rights. RSUs may be settled in cash if so provided in the applicable award agreement. +Performance Stock Units +A PSU is a performance-based award that entitles the recipient to receive shares of the Company’s common stock based on attainment of one or more performance goals. Each PSU shall designate a target number of shares covered by the award, with the actual number of PSUs earned (if any) based on a formula set forth in the award agreement related to the attainment of one or more performance goals. Subject to the restrictions provided in the applicable award agreement and the amended 2018 Plan, a participant receiving PSUs has no rights as a stockholder until the shares of common stock are issued to the participant. PSUs may be granted with dividend equivalent rights. PSUs may be settled in cash if so provided in the applicable award agreement. +Cash Awards +The Administrator, in its sole discretion, may grant cash awards, including without limitation discretionary awards, awards based on objective or subjective performance criteria, and awards subject to other vesting criteria. +Other Awards +The other types of awards that may be granted under the amended 2018 Plan include, without limitation, stock bonuses, dividend equivalents, and similar rights to purchase or acquire shares of the Company’s common stock. +Change of Control +Unless otherwise provided in an applicable award agreement, upon a change of control (as defined in the amended 2018 Plan), the Administrator shall have full discretion to take whatever actions it deems necessary or appropriate, including but not limited to the following actions: (1) provide for full or partial accelerated vesting of any award or portion thereof, either immediately prior to the change of control or on such terms and conditions following the change of control (such as a termination without cause) as the Administrator determines in its sole and absolute discretion; (2) provide for the assumption of such awards (or portions thereof) or the substitution of such awards (or portions thereof) with similar awards of the surviving or acquiring Company; (3) provide for the cash-out and cancellation of any award (or portion thereof); and (4) take any other actions as the Administrator deems necessary or advisable in connection with such change of control transaction. If the surviving or acquiring company does not assume the outstanding awards (or portions thereof) or substitute similar stock awards for those outstanding under the amended 2018 Plan as of the change of control, then the vesting and exercisability (if applicable) of all awards (or portions thereof) shall be accelerated in full immediately prior to such change of control, and such outstanding awards (or portions thereof) shall terminate and/or be payable upon the occurrence of the change of control. The Administrator may take different actions with respect to different participants under the amended 2018 Plan, different awards under the amended 2018 Plan, and different portions of awards granted under the amended 2018 Plan. +Transferability of Awards +Awards under the amended 2018 Plan generally are not transferable by the recipient other than by will or the laws of descent and distribution, or pursuant to domestic relations orders, and with respect to awards with exercise features, are generally exercisable during the recipient’s lifetime only by the recipient. Any amounts payable or shares issuable pursuant to an award generally will be paid only to the recipient or the recipient’s beneficiary or representative. The Administrator has discretion, however, to establish written conditions and +72 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +procedures for the transfer of awards to other persons or entities, as long as such transfers comply with applicable federal and state securities laws and provided that any such transfers are not for consideration. +Adjustments +As is customary in plans of this nature, the share limit and the number and kind of shares available under the amended 2018 Plan and any outstanding awards, as well as the exercise or purchase prices of awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders. +No Limit on Other Authority +The amended 2018 Plan does not limit the authority of the Board or any committee to grant awards or authorize any other compensation, with or without reference to the Company’s common stock, under any other plan or authority. +Non-Competition and Clawback Policy +By accepting awards and as a condition to the exercise of awards and the enjoyment of any benefits of the amended 2018 Plan, participants agree to be bound by and subject to certain restrictive covenants and may forfeit their awards upon breach of such restrictive covenants. Awards are subject to any clawback policy adopted by the Company from time to time. +Awards to Directors +The amended 2018 Plan is the exclusive vehicle for awards of cash and equity compensation to be paid or provided to the Company’s non-employee directors. Non-employee directors are eligible to receive all forms of awards to the extent permissible under the amended 2018 Plan. Cash awards to non-employee directors may take any form determined by the Administrator in its sole and absolute discretion, including, but not limited to, retainers, committee fees, chairperson fees, per meeting fees, and special fees for committee service. Cash awards paid to any non-employee director may not exceed $400,000 in any fiscal year. Equity awards to non-employee directors may take any form determined by the Administrator in its sole and absolute discretion. Equity awards granted to any non-employee director may not have a grant date fair value in excess of $400,000 in any fiscal year. +Termination of, or Changes to, the Amended 2018 Plan +The Administrator may amend or terminate the amended 2018 Plan at any time and in any manner. Stockholder approval for an amendment will be required only to the extent then required by applicable law or any applicable stock exchange rules or as required under Sections 162, 409A, 422 or 424 of the Code to preserve the intended tax consequences of the amended 2018 Plan. For example, stockholder approval is required for any proposed amendment to increase the maximum number of shares that may be delivered with respect to awards granted under the amended 2018 Plan. Adjustments as a result of stock splits or similar events will not, however, be considered amendments requiring stockholder approval. Unless terminated earlier by the Board, the authority to grant new awards under the amended 2018 Plan will terminate ten years after the date on which the amended 2018 Plan was approved by the Board. Outstanding awards generally will continue following the expiration or termination of the amended 2018 Plan. Generally speaking, outstanding awards may be amended by the Administrator (except for a repricing), but the consent of the award holder is required if the amendment (or any plan amendment) materially and adversely affects the holder. +PDC ENERGY 2020 PROXY 73 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Certain Federal Tax Consequences +The following summary of the federal income tax consequences of awards under the amended 2018 Plan is based upon federal income tax laws in effect on the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss state, local or non-U.S. tax consequences. The tax consequences of individual awards may vary depending upon the particular circumstances applicable to any individual participant. +Nonqualified Stock Options +The grant of a nonqualified stock option under the amended 2018 Plan will not result in any federal income tax consequences to the participant or to the Company. Upon exercise of a nonqualified stock option, the participant will recognize ordinary compensation income equal to the excess of the fair market value of the shares of common stock at the time of exercise over the option exercise price. If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant’s subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss, depending on the sales proceeds received and whether the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any subsequent capital gain. +Incentive Stock Options +The grant of an incentive stock option (or “ISO”) under the amended 2018 Plan will not result in any federal income tax consequences to the participant or to the Company. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an ISO, the tax consequences depend upon how long the participant has held the shares. If the participant does not dispose of the shares within two years after the ISO was granted, nor within one year after the ISO was exercised, the participant will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances. +If the participant fails to satisfy either of the foregoing holding periods (referred to as a “disqualifying disposition”), he or she will recognize ordinary compensation income in the year of the disposition. The amount of ordinary compensation income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock at the time of exercise and the exercise price. Such amount is not subject to withholding for federal income and employment tax purposes, even if the participant is an employee of the Company. Any gain in excess of the amount taxed as ordinary income will generally be treated as a short-term capital gain. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary compensation income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. +The “spread” under an ISO (i.e., the difference between the fair market value of the shares at exercise and the exercise price) is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If a participant’s alternative minimum tax liability exceeds such participant’s regular income tax liability, the participant will owe the alternative minimum tax liability. +Restricted Stock +Restricted stock is generally taxable to the participant as ordinary compensation income on the date that the restrictions lapse (i.e. the date that the stock vests), in an amount equal to the excess of the fair market value of the shares on such date over the amount paid for such stock (if any). If the participant is an employee, this +74 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant’s subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss depending on the sales price and how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any subsequent gain. +Participants receiving restricted stock awards may make an election under Section 83(b) of the Code (a “Section 83(b) Election”) to recognize as ordinary compensation income in the year that such restricted stock is granted in an amount equal to the excess of the fair market value on the date of the issuance of the stock over the amount paid for such stock. If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes. If such an election is made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long-term or short-term capital gain or loss to the recipient. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Section 83(b) Election. The Section 83(b) Election must be made within 30 days from the time the restricted stock is issued. The Company is entitled to a deduction equal to the amount of income taken into account as a result of the Section 83(b) Election, subject to possible limitations imposed by the Code, including Section 162(m) thereof. +To the extent dividends are paid while the restrictions on the stock are in effect, any such dividends will be taxable to the participant as ordinary income (and will be treated as additional wages for federal income and employment tax withholding purposes, if the recipient is an employee) and will be deductible by the Company (subject to possible limitations imposed by the Code, including Section 162(m) thereof), unless the participant has made a Section 83(b) Election, in which case the dividends will generally be taxed at dividend rates and will not be deductible by the Company. +Other Awards +Other awards (such as RSUs and PSUs) are generally treated as ordinary compensation income as and when common stock or cash are paid to the participant upon vesting or settlement of such awards. If the participant is an employee, this income is subject to withholding for income and employment tax purposes. The Company is generally entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient, subject to possible limitations imposed by the Code, including Section 162(m) thereof. +Section 162(m) of the Internal Revenue Code +Under Code Section 162(m), no deduction is allowed in any taxable year of the Company for compensation in excess of $1 million paid to the Company’s “covered employees.” A “covered employee” is any individual who has served at any time after December 31, 2016 as the Company’s chief executive officer, chief financial officer, or other executive officer whose compensation has been reported in a Company proxy statement, regardless of whether any such individual is still employed by the Company. We may be prohibited under Code Section 162(m) from deducting compensation paid pursuant to the amended 2018 Plan to our “covered employees.” +Section 409A of the Internal Revenue Code +Section 409A of the Code provides certain requirements for the deferral and payment of deferred compensation arrangements. In the event that any award under the amended 2018 Plan is deemed to be a deferred compensation arrangement, and if such arrangement does not comply with Section 409A of the Code, the recipient of such award will recognize ordinary income once such award is vested, as opposed to at the time or times set forth above. In addition, the amount taxable will be subject to an additional 20% federal income tax along with other potential taxes and penalties. It is intended, although not guaranteed, that +PDC ENERGY 2020 PROXY 75 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +all awards issued under the amended 2018 Plan will either be exempt from or compliant with the requirements of Section 409A of the Code. +Interested Parties +Because approval of the 2018 Plan amendment will increase the number of shares available for issuance to the directors and executive officers of the Company, each of those persons has an interest in and may benefit from the approval of the 2018 Plan amendment. +Vote Required for Approval +Approval of the 2018 Plan amendment will require the affirmative vote of a majority of the shares present or represented at the Annual Meeting. Abstentions will be counted as votes against this matter, and broker non-votes will have no effect on the vote on this matter. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT TO THE COMPANY’S 2018 EQUITY INCENTIVE PLAN. +76 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +ALL OTHER BUSINESS THAT MAY COME BEFORE THE +2020 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy card to vote in accordance with their discretion on such matters pursuant to such proxy card. +STOCKHOLDER NOMINATIONS AND PROPOSALS +STOCKHOLDER PROPOSALS FOR 2021 ANNUAL MEETING +Any proposal that a stockholder wishes to include in the Company’s proxy statement for the 2021 annual meeting of stockholders must be received by the Company at its principal office on or prior to December 9 , 2020, and must be submitted in compliance with SEC Rule 14a‑8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +ADVANCE NOTICE PROCEDURES UNDER THE COMPANY’S BYLAWS +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2021 annual meeting of stockholders, but does not seek to include in our proxy statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. In the case of the 2021 annual meeting, the notice must be delivered between February 25, 2021 and March 7, 2021. However, the Bylaws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by the Company. +Pursuant to SEC Rule 14a‑4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above that is not timely under our Bylaws or after February 22, 2021 if the Bylaws deadline does not apply, the proxies designated by the Board will have discretionary authority to vote on such proposal. +PDC ENERGY 2020 PROXY 77 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +INFORMATION ABOUT VOTING AND THE MEETING +Who May Vote +Stockholders of PDC, as recorded in the Company’s stock register on the record date of March 31, 2020, may vote at the Annual Meeting. The outstanding voting securities of the Company as of March 31, 2020 consisted of 99,429,744 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the Annual Meeting. +How Proxies Work +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, any of the Director nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy card but do not specify how to vote, your shares will be voted (1) in favor of amending the Company’s Certificate of Incorporation to declassify the Board and to provide for the immediate annual election of directors; (2) if Proposal No. 1 to declassify the Board is approved, in favor of approval of each of the eight Director nominees named in this Proxy Statement; (3) if Proposal No. 1 to declassify the Board is not approved, in favor of approval of the Class I Director nominees named in this Proxy Statement; (4) to approve, on an advisory basis, the compensation of the Company’s NEOs; (5) in favor of the ratification of the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020; and (6) to approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan. If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable rules. A nominee’s inability to vote on some proposals because it lacks discretionary authority to do so is commonly referred to as a “broker non‑vote.” The effect of broker non‑votes, if any, may be different for each of the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non‑votes on each proposal, see “Votes Needed” below. +Notice and Access +We distribute our proxy materials to certain stockholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On or before April 8, 2020, we mailed a Notice of Internet Availability of Proxy Materials to participating stockholders, containing instructions on how to access the proxy materials on the Internet to vote your shares over the Internet or by telephone. You will not receive a printed copy of the proxy materials unless you request them. If you would like to receive a printed copy of our proxy materials, including a printed proxy card on which you may submit your vote by mail, then you should follow the instructions for obtaining a printed copy of our proxy materials contained in the Notice of Internet Availability of Proxy Materials. +78 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Voting 401(k) and Profit Sharing Plan Shares +If you are a participant in PDC’s 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan account as of the record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be counted if your proxy card is not received by May 20, 2020. You cannot vote such shares at the Annual Meeting or change your vote. +Revoking a Proxy +If you are a stockholder of record, you may revoke your initial proxy vote before it is voted at the Annual Meeting by: +· +Submitting a new signed proxy card with a later date; +· +Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy card; or +· +Appearing at the Annual Meeting, notifying the inspector of the election that you wish to revoke your proxy card, and voting in person at the Annual Meeting. Merely attending the Annual Meeting will not result in the revocation of your proxy card. +If you hold your shares through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the Annual Meeting. +Quorum +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the Annual Meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non‑votes will count for quorum purposes. +Votes Needed +The following table presents the voting requirements for electing the Director nominees and for approving the other proposals presented in this Proxy Statement. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Amend the Certificate of Incorporation to Declassify the Board and Provide for the Immediate Annual Election of Directors. +The affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company. Abstentions and broker non-votes will not be counted and will have the same effect as a vote against Proposal No. 1. +Proposal No. 2 +Election of Eight Directors, If Proposal No. 1 is Approved. +If Proposal No. 1 to declassify the Board is approved, the eight Director nominees who receive the greatest number of votes will be elected Director for a one‑year term ending in 2021. There is no cumulative voting for Directors. “Withhold” votes and broker non‑votes will have no effect on the election of Directors. +PDC ENERGY 2020 PROXY 79 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 3 +Election of Two Class I Directors, If Proposal No. 1 is Not Approved. +If Proposal No. 1 to declassify the Board is not approved, the two Class I Director nominees who receive the greatest number of votes will be elected Director for a three‑year term ending in 2023. There is no cumulative voting for Directors. “Withhold” votes and broker non‑votes will have no effect on the election of Directors. +Proposal No. 4 +Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 4. Broker non‑votes will have no effect on the vote on Proposal No. 4. +Proposal No. 5 +Ratify the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as votes against Proposal No. 5. Broker non-votes will have no effect on the vote on Proposal No. 5. +Proposal No. 6 +Approve an Amendment to the 2018 Equity Incentive Plan +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 6. Broker non-votes will have no effect on the vote on Proposal No. 6. +Attending in Person +Only stockholders or their proxy holders, and PDC guests, may attend the Annual Meeting. For safety and security reasons, no cameras, audio or video recording equipment, large bags, briefcases, packages or other items deemed unnecessary in PDC’s discretion will be permitted at the Annual Meeting. In addition, each stockholder, proxy holder, and PDC guest may be asked to present valid, government‑issued picture identification, such as a driver’s license, before being admitted to the Annual Meeting. +If your shares are held in the name of your broker, bank, or other nominee, you must bring to the Annual Meeting an account statement or letter from the nominee indicating that you beneficially owned the shares on March 31, 2020, the record date for receiving notice of, attending, and voting at the Annual Meeting. +Conduct of the Meeting +The Chairman and the Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes establishing rules for stockholders who wish to speak at the Annual Meeting. The Chairman and the Chief Executive Officer may also exercise broad discretion in recognizing stockholders who wish to speak. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance that every stockholder who wishes to speak will be able to do so. The Chairman and the Chief Executive Officer may also rely on applicable law regarding disruptions or disorderly conduct to ensure that the Annual Meeting is conducted in a manner that is fair to all stockholders. +80 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Solicitation of Proxies +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the proxy materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. +Appraisal Rights +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +Contact Information +If you have questions or need more information about the Annual Meeting, or if you wish to submit a question or question to be asked at the Annual Meeting, you may write to or call: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860‑5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624‑3821. You are also invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +PDC ENERGY 2020 PROXY 81 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: April 8 , 2020 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10‑K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO 80203. +82 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +APPENDIX A +Non-GAAP Financial Measures +The following three tables provide reconciliations of debt, adjusted cash flows from operations per share, and adjusted EBITDAX to their most comparable U.S. GAAP measures (in millions, except per share data): +ADJUSTED CASH FLOWS FROM OPERATIONS +Twelve Months +Ended +December 31, +2019 +2018 +Adjusted cash flows from operations: +Net cash from operating activities +$ +858.2 +$ +889.3 +Changes in assets and liabilities +(32.8) +(80.9) +Adjusted cash flows from operations +$ +825.4 +$ +808.4 +Adjusted cash flows from operations, per share +$ +12.90 +$ +12.19 +Capital expenditure for development of crude oil and natural gas properties +(855.9) +(946.4) +Change in accounts payable related to capital expenditures +68.2 +(36.3) +Free cash flow (deficit) +$ +37.70 +$ +(174.30) +ADJUSTED EBITDAX +Twelve Months +Ended +December 31, +2019 +2018 +Net loss to adjusted EBITDAX: +Net Income (loss) +$ +(56.7) +$ +2.0 +Loss on commodity derivative instruments +162.8 +(145.2) +Net settlements on commodity derivative instruments +(17.6) +(115.5) +Non‑cash stock‑based compensation +23.8 +21.8 +Interest expense, net +71.1 +70.3 +Income tax benefit +(3.3) +5.4 +Impairment of properties and equipment +38.5 +458.4 +Impairment of goodwill +— +— +Exploration, geologic, and geophysical expense +4.1 +6.2 +Depreciation, depletion, and amortization +644.2 +559.8 +Accretion of asset retirement obligations +6.1 +5.1 +Loss on extinguishment of debt +— +— +Gain on sale of properties and equipment +9.7 +0.4 +Adjusted EBITDAX +$ +882.7 +$ +868.7 +PDC ENERGY 2020 PROXY 83 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +Twelve Months +Ended +December 31, +2019 +2018 +Cash from operating activities to adjusted EBITDAX: +Net cash from operating activities +$ +858.2 +$ +889.3 +Interest expense, net +71.1 +70.3 +Amortization of debt discount and issuance costs +(13.6) +(12.8) +Exploration, geologic, and geophysical expense +4.1 +6.2 +Exploratory dry hole expense +— +(0.1) +Other +(4.3) +(3.3) +Changes in assets and liabilities +(32.8) +(80.9) +Adjusted EBITDAX +$ +882.7 +$ +868.7 +84 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +APPENDIX B +CERTIFICATE OF AMENDMENT +OF CERTIFICATE OF INCORPORATION +OF PDC ENERGY, INC. +PDC Energy, Inc. (the “ Corporation ”), organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify: +FIRST : That at a meeting of the Board of Directors (the “ Board ”) of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: +RESOLVED , that the Certificate of Incorporation of the Company be amended by changing the Article thereof numbered FIFTH so that, as amended, said Article shall be and read as follows: +The business and affairs of the Corporation shall be managed by or under the direction of the Board. Other than directors who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, all directors shall be elected annually, and at each annual meeting of stockholders, directors shall be elected for a term of office to expire at the next annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. Subject to the rights of the holders of any series of Preferred Stock, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause may be filled by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his or her predecessor. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. +The number of directors on the Board shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board but shall in no event be fewer than three (3) or more than nine (9), subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, if any. Unless and except to the extent that the bylaws of the Corporation so provide, the election of directors need not be by written ballot. +SECOND : That thereafter, pursuant to the resolution of the Board, an annual meeting of the stockholders of the Corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. +THIRD : That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. +PDC ENERGY 2020 PROXY 85 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +IN WITNESS WHEREOF , the Corporation has caused this certificate to be signed this [__] day of [_____], 2020. +By: +Authorized Officer +Title: +Name: +Print or Type +86 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +APPENDIX C +CERTIFICATE OF INCORPORATION +OF +PDC ENERGY, INC. +As amended by the Board on May 26, 2020 +PDC Energy, Inc. (the “ Corporation ”), a corporation organized and existing under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “ DGCL ”), hereby certifies as follows: +FIRST: The name of the Corporation is PDC Energy, Inc. +SECOND: The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808 in New Castle County, Delaware. The name of its registered agent at such address is Corporation Service Company. +THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL as it currently exists or may hereafter be amended. +FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is 200,000,000 shares of stock, classified as (i) 50,000,000 shares of preferred stock, par value $0.01 per share (“ Preferred Stock ”), and (ii) 150,000,000 shares of common stock, par value $0.01 per share (“ Common Stock ”). +The designations and the powers, preferences, rights, qualifications, limitations and restrictions of Preferred Stock and Common Stock are as follows: +1.   Provisions Relating to Preferred Stock. +(a)   Preferred Stock may be issued from time to time in one or more classes or series, the shares of each series to have such designations and powers, preferences and rights, and qualifications, limitations and restrictions thereof, as are stated and expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation (the “ Board ”) as hereafter prescribed (a “ Preferred Stock Designation ”). +(b)   Authority is hereby expressly granted to and vested in the Board to authorize the issuance of Preferred Stock from time to time in one or more classes or series, and with respect to each series of Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted by the Board providing for the issuance thereof the designation and the powers, preferences, rights, qualifications, limitations and restrictions relating to each series of Preferred Stock, including, but not limited to, the following: +(i)   whether or not the series is to have voting rights, full, special or limited, or is to be without voting rights, and whether or not such series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock; +(ii)   the number of shares to constitute the series and the designations thereof; +(iii)   the preferences, and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to any series; +PDC ENERGY 2020 PROXY 87 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(iv)   whether or not the shares of any series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption; +(v)   whether or not the shares of a series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the operation thereof; +(vi)   the dividend rate, whether dividends are payable in cash, stock of the Corporation or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate; +(vii)   the preferences, if any, and the amounts thereof which the holders of any series thereof shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation; +(viii)   whether or not the shares of any series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and +(ix)   such other powers, preferences, rights, qualifications, limitations and restrictions with respect to any series as may to the Board seem advisable. +(c)   The shares of each series of Preferred Stock may vary from the shares of any other series thereof in any or all of the foregoing respects. +2.   Provisions Relating to Common Stock. +(a)   Common Stock shall be subject to the express terms of Preferred Stock and any series thereof . Except as may otherwise be provided in this Certificate of Incorporation, in a Preferred Stock Designation or by applicable law, the holders of shares of Common Stock shall be entitled to one vote for each such share upon all questions presented to the stockholders, the holders of shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and the holders of Preferred Stock shall not be entitled to vote at or receive notice of any meeting of stockholders. Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law on all matters put to a vote of the stockholders of the Corporation. +(b)   Notwithstanding the foregoing, except as otherwise required by applicable law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL. +88 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(c)   Subject to the prior rights and preferences, if any, applicable to shares of Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive ratably in proportion to the number of shares of Common Stock held by them such dividends and distributions (payable in cash, stock or otherwise), if any, as may be declared thereon by the Board at any time and from time to time out of any funds of the Corporation legally available therefor. +(d)   In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. A liquidation, dissolution or winding-up of the Corporation, as such terms are used in this paragraph (d), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation. +(e)   The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of either Common Stock or Preferred Stock voting separately as a class shall be required therefor. +FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board. The directors, o O ther than directors those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the initial term of office of one class, the members of which shall be designated as the Class III Directors, to expire at the 2016 annual meeting, the initial term of office of the second class to expire at the 2017 annual meeting (the “Class I Directors”), and the initial term of office of the third class to expire at the 2018 annual meeting (the “Class II Directors”), all directors shall be elected annually, and at each annual meeting of stockholders, directors shall be elected for a term of office to expire at the next annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. The Board is authorized to assign members of the Board already in office to Class I, Class II or Class III at the time such classification becomes effective. Subject to the rights of the holders of any series of Preferred Stock, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause may be filled by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his predecessor. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. +The number of directors on the Board shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board but shall in no event be fewer than three (3) or more than nine (9), subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, if any. Unless and except to the extent that the bylaws of the Corporation so provide, the election of directors need not be by written ballot. +SIXTH: Any action required or permitted to be taken at any annual meeting or special meeting of the stockholders of the Corporation may be taken without a meeting and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, is or are signed by the holders of outstanding stock +PDC ENERGY 2020 PROXY 89 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. +SEVENTH: Special meetings of stockholders of the Corporation may be called by the Chief Executive Officer, the Chairman of the Board, the Board pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies, or, to the extent so provided in the bylaws of the Corporation, holders of not less than 10% in voting power of the then-outstanding shares of stock entitled to vote in an election of directors. +EIGHTH: In furtherance of, and not in limitation of, the powers conferred by the laws of the State of Delaware, the Board is expressly authorized to adopt, amend or repeal the bylaws of the Corporation without any action on the part of the stockholders of the Corporation; provided, however, that the provisions of this Article Eighth notwithstanding, the bylaws of the Corporation shall not be adopted, altered, amended or repealed by the stockholders of the Corporation except by the vote of holders of not less than 50% in voting power of the then-outstanding shares of stock entitled to vote thereon, voting together as a single class. No bylaws hereafter made or adopted, nor any repeal of or amendment thereto, shall invalidate any prior act of the Board that was valid at the time it was taken. +NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as it now exists. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the preceding sentence, a director of the Corporation shall not be liable to the fullest extent permitted by any amendment to the DGCL hereafter enacted that further limits the liability of a director. +Any amendment, repeal or modification of this Article Ninth shall be prospective only and shall not affect any limitation on liability of a director for acts or omissions occurring prior to the date of such amendment, repeal or modification. +TENTH: The Corporation shall have the right, subject to any express provisions or restrictions contained in this Certificate of Incorporation or bylaws of the Corporation, from time to time, to amend this Certificate of Incorporation or any provision hereof in any manner now or hereafter provided by applicable law, and all rights and powers of any kind conferred upon a director or stockholder of the Corporation by this Certificate of Incorporation or any amendment hereof are subject to such right of the Corporation. +ELEVENTH: Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or this Certificate of Incorporation or the bylaws of the Corporation (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine, shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). +[Remainder of Page Intentionally Left Blank] +90 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation as of this 5 th day of June, 2015. +PDC ENERGY, INC. +By: +Name: +Daniel W. Amidon +Title: +Incorporator +Address: +1775 Sherman St. Suite 3000 +Denver, CO 80203 +PDC ENERGY 2020 PROXY 91 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +APPENDIX D +PDC ENERGY, INC. +2018 EQUITY INCENTIVE PLAN +Amendment No. 1 +THIS AMENDMENT No. 1 to the PDC Energy, Inc. 2018 Equity Incentive Plan (the “ Plan ”) is adopted as of March 24, 2020. +WHEREAS, the Board of Directors (the “ Board ”) of PDC Energy, Inc. (the “ Company ”) has the general authority to amend the Plan pursuant to Section 10.5 of the Plan; and +WHEREAS, the Board desires to amend the Plan to increase the number of shares of Company common stock available for issuance under the Plan from 1,800,000 to 7,050,000 shares, subject to and effective upon approval of this Amendment No. 1 by the Company’s stockholders. +NOW THEREFORE, the Board hereby amends the Plan as follows: +1.    Increase in Share Reserve . Subject to and effective upon approval of this Amendment No. 1 by the Company’s stockholders, Section 4.2 of the Plan is hereby deleted in its entirety and replaced with the following: +“ 4.2.  Share Limit. The maximum number of shares of Common Stock that may be delivered pursuant to Awards granted to Eligible Persons under the Plan (the “ Share Limit ”) may not exceed 7,050,000 shares of Common Stock. The foregoing Share Limit is subject to adjustment as contemplated by Section 8.1 and Section 10.9.” +2.    Effect on Plan . The Plan shall remain unchanged and in full force and effect except as otherwise set forth in this Amendment No. 1. +IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Amendment No. 1 to the Plan as of the date first indicated above. +PDC ENERGY, INC. +A Delaware corporation +Name: +Title: +Sr. Vice President and General Counsel +92 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +APPENDIX E +PDC ENERGY, INC. +2018 EQUITY INCENTIVE PLAN +Adopted by the Board on March 30, 2018 +Approved by the Company’s stockholders on May 30, 2018 +Conformed Copy Incorporating the Amendment adopted by the Board on March 24, 2020 +1.   ESTABLISHMENT AND PURPOSE OF PLAN +PDC Energy, Inc., a Delaware corporation (the “ Company ”), hereby establishes the PDC Energy, Inc. 2018 Equity Incentive Plan (the “ Plan ”) as set forth in this document. The purpose of the Plan is to promote the success of the Company and to increase stockholder value by providing an additional means to attract, motivate, retain and reward selected employees, non-employee directors, and other eligible persons through the grant of equity and cash Awards that align the interests of Plan Participants with the interests of the Company’s stockholders. +2.   DEFINITIONS +2.1   Defined Terms . Whenever used in the Plan, the following capitalized terms shall have the meanings set forth below: +(a)   “ Administrator ” shall mean the Board or one or more committees appointed by the Board (or appointed by another committee within that committee’s delegated authority) to administer all or certain aspects of this Plan, as set forth in Section 3 hereof. +(b)   “ Affiliate ” shall have the meaning ascribed to such term in Rule 12b‑2 of the General Rules and Regulations of the Exchange Act. +(c)   “ Award ” shall mean a grant under the Plan of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Stock Unit, cash Award, or Other Stock-Based Award. +(d)   “ Award Agreement ” shall mean a written or electronic Award agreement evidencing the grant of an Award under the Plan and containing the terms and conditions of such Award, as determined by the Administrator. +(e)   “ Board ” shall mean the board of directors of the Company. +(f)   “ Cause ” shall have the meaning set forth in the applicable Award Agreement, or if not defined therein, shall, in the case of an employee, have the meaning assigned to such term in any individual employment agreement between the Company or its Subsidiaries and the Participant, or if none, in the Company severance plan (if any) covering the Participant. +(g)   “ Change in Control ” shall mean the first day that any one or more of the following conditions shall have been satisfied: +1.   the “beneficial ownership” of securities as defined in Rule 13d‑3 under the Exchange Act representing more than thirty-three percent (33%) of the combined voting power of the Company is acquired by any “person” as defined in Section 3(a)(9) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or +PDC ENERGY 2020 PROXY 93 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company); or +2.   the consummation of the transactions contemplated by a definitive agreement to merge or consolidate the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, unless the stockholders of the Company immediately prior to such transaction own, directly or indirectly, at least 50% of the voting power of the resulting or purchasing entity in such transaction in substantially the same proportions as their ownership of the Company immediately prior to such transaction; or +3.   the approval by the stockholders of a plan of liquidation; or +4.   during any period of three consecutive years, individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Company’s stockholders, of each new director was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period or whose election or nomination was previously so approved). +(h)   “ Code ” shall mean the Internal Revenue Code of 1986, as amended. +(i)   “ Common Stock ” shall mean the common stock of the Company, par value $0.01 per share, and such other securities or property as may become the subject of Awards under this Plan pursuant to an adjustment made under Section 8.1. +(j)   “ Company ” shall mean PDC Energy, Inc., a Delaware corporation. +(k)   “ Disability ” shall mean the Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company. +(l)   “ Effective Date ” shall mean the date on which this Plan is approved by the stockholders of the Company. +(m)   “ Eligible Person ” shall have the meaning set forth in Section 5 hereof. +(n)   “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended. +(o)   “ Fair Market Value ” shall mean (i) the closing sales price per share of Common Stock on the U.S. national securities exchange or over-the-counter market on which the Common Stock is principally traded on the date on which Fair Market Value is being determined or (ii) if the shares of Common Stock are not then listed on any national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as reasonably determined by the Administrator in good faith and, to the extent necessary, in accordance with the requirements of Section 409A of the Code. +(p)   “ Incentive Stock Option ” or “ ISO ” shall mean an incentive stock option within the meaning of Section 422 of the Code.” +94 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(q)   “ Non-Qualified Stock Option ” or “ NSO ” means an Option other than an Incentive Stock Option. +(r)   “ Option ” shall mean a compensatory stock option granted pursuant to Section 6.1.1. +(s)   “ Other-Stock Based Award ” shall mean a stock-based Award issued pursuant to Section 6.1.7. +(t)   “ Participant ” shall mean any Eligible Person that has been issued an Award under the Plan. +(u)   “ Performance Stock Unit ” or “ PSU ” shall mean a performance stock unit Award issued pursuant to Section 6.1.5. +(v)   “ Plan ” shall have the meaning set forth in Section 1 hereof. +(w)   “ Restricted Stock ” shall mean shares of forfeitable Common Stock issued pursuant to Section 6.1.3. +(x)   “ Restricted Stock Unit ” or “ RSU ” shall mean a restricted stock unit issued pursuant to Section 6.1.4. +(y)   “ Section 409A ” shall mean section 409A of the Code and related Treasury regulations and pronouncements. +(z)   “ Securities Act ” shall mean the Securities Act of 1933, as amended. +(aa)   “ Share Limit ” shall have the meaning set forth in Section 4.2. +(bb)   “ Stock Appreciation Right ” or “ SAR ” shall mean a stock appreciation right granted pursuant to Section 6.1.2. +(cc)   “ Subsidiary ” shall mean any corporation or other entity controlled by the Company directly or indirectly though one or more intermediaries. +2.2   Construction . Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. +3.   PLAN ADMINISTRATION +3.1   Plan Administrator . This Plan shall be administered by and all Awards under this Plan shall be authorized by the Administrator. Any committee appointed by the Board to act as the Administrator shall be comprised solely of one or more directors or such other number of directors as may be required under applicable law. A committee may delegate some or all of its authority to another committee so constituted. The Board or a committee comprised solely of directors may also delegate, to the extent permitted by applicable law, to one or more officers of the Company, its powers under this Plan (a) to determine the Eligible Persons who will receive grants of Awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such Awards. The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan. Unless otherwise provided in the bylaws of the Company or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the affirmative vote of a majority of the +PDC ENERGY 2020 PROXY 95 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute due authorization of an action by the acting Administrator. +Award grants, and transactions in or involving Awards, intended to be exempt under Rule 16b‑3 under the Exchange Act, must be duly and timely authorized by the Board or a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b‑3 promulgated under the Exchange Act). To the extent required by any applicable stock exchange, this Plan shall be administered by a committee composed entirely of independent directors (as defined by the rules of the applicable stock exchange). Awards granted to non-employee directors shall not be subject to the discretion of any officer or employee of the Company and shall be administered exclusively by the Board or a committee consisting solely of independent directors. +3.2   Powers of the Administrator . Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of Awards and the administration of this Plan (in the case of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to: +(a)   determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive Awards under this Plan; +(b)   grant Awards to Eligible Persons, determine the price at which securities will be offered or Awarded and the number of securities to be offered or Awarded to any of such persons, determine the other specific terms and conditions of such Awards consistent with the express limits of this Plan, establish the installments (if any) in which such Awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance targets, and establish the events of termination or reversion of such Awards; +(c)   approve the forms of Award agreements (which need not be identical either as to type of Award or among Participants); +(d)   construe and interpret this Plan and any Award Agreements defining the rights and obligations of the Company, its Subsidiaries, and Participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards granted under this Plan; +(e)   cancel, modify, or waive the Company’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards, subject to any required consent under Section 10.5.5; +(f)   accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding Awards (in the case of Options or Stock Appreciation Rights, within the maximum ten-year term of such Awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature) subject to any required consent under Section 10.5.5; +(g)   adjust the number of shares of Common Stock subject to any Award, adjust the price of any or all outstanding Awards or otherwise change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to compliance with applicable stock exchange requirements, Sections 4 and 10.5.5, and provided that in no case (except due to an adjustment contemplated by Section 8) shall the terms of any outstanding Awards be amended (by amendment, cancellation and regrant, or other means) to reduce the per share exercise or base price of any outstanding Option or Stock Appreciation Right or other Award +96 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +granted under this Plan, or be exchanged for cash, other Awards or Option or Stock Appreciation Rights with an exercise price that is less than the per share exercise price of the original Option or Stock Appreciation Rights, without stockholder approval, and further provided that any adjustment or change in terms made pursuant to this Section 3.2(g) shall be made in a manner that, in the good faith determination of the Administrator will not likely result in the imposition of additional taxes or interest under Section 409A of the Code; +(h)   determine the date of grant of an Award, which may be a designated date after but not before the date of the Administrator’s action (unless otherwise designated by the Administrator, the date of grant of an Award shall be the date upon which the Administrator took the action granting an Award); +(i)   determine whether, and the extent to which, adjustments are required pursuant to Section 8 hereof and authorize the termination, conversion, substitution, acceleration or succession of Awards upon the occurrence of an event of the type described in Section 8; +(j)   acquire or settle rights under Awards in cash, stock of equivalent value, or other consideration, subject to the provision of the Plan; and +(k)   determine the Fair Market Value of the Common Stock or Awards under this Plan from time to time and/or the manner in which such value will be determined. +3.3   Binding Determinations. Any action taken by, or inaction of, the Company, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. Neither the Board, the Administrator, nor any Board committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any Award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, legal fees) arising or resulting therefrom to the fullest extent permitted by law. The foregoing right of indemnification shall be in addition to any right of indemnification set forth in the Company’s certificate of incorporation and bylaws, as the same may be amended from time to time, or under any directors and officers liability insurance coverage or written indemnification agreement with the Company that may be in effect from time to time. +3.4   Reliance on Experts. In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including professional advisors to the Company. The Administrator shall not be liable for any such action or determination taken or made or omitted in good faith based upon such advice. +3.5   Delegation of Non-Discretionary Functions. In addition to the ability to delegate certain grant authority to officers of the Company as set forth in Section 3.1, the Administrator may also delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company or any of its Subsidiaries or to third parties. +4.   SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMIT +4.1   Shares Available. Subject to the provisions of Section 8.1, the capital stock available for issuance under this Plan shall be shares of the Company’s authorized but unissued Common Stock or previously issued Common Stock that has been reacquired by the Company. +4.2   Share Limit. The maximum number of shares of Common Stock that may be delivered pursuant to Awards granted to Eligible Persons under this Plan (the “ Share Limit ”) may not exceed +PDC ENERGY 2020 PROXY 97 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +1,800,000 7,050,000 shares of Common Stock. The foregoing Share Limit is subject to adjustment as contemplated by Section 8.1 and Section 10.9. +4.3   Awards Settled in Cash, Reissue of Awards and Shares. The Administrator may adopt reasonable counting procedures to ensure appropriate counting and to avoid double counting (as, for example, in the case of tandem or substitute Awards) as it may deem necessary or desirable in its sole discretion. Shares shall be counted against those reserved to the extent such shares have been delivered and are no longer subject to a substantial risk of forfeiture. Accordingly, to the extent that an Award under the Plan, in whole or in part, is canceled, expired, forfeited, settled in cash, or otherwise terminated without delivery of shares to the Participant, the shares retained by or returned to the Company will not be deemed to have been delivered under the Plan and will be deemed to remain or to become available under this Plan. Notwithstanding the foregoing, shares that are withheld from such an Award or separately surrendered by the Participant in payment of the exercise price or taxes relating to such an Award, and the total number of shares subject to the exercised portion of a stock-settled SAR (regardless of the actual lesser of number shares delivered to the Participant), shall be deemed to have been issued hereunder and shall reduce the number of shares remaining available for issuance under the Plan. +4.4   Reservation of Shares; No Fractional Shares. The Company shall at all times reserve a number of shares of Common Stock sufficient to cover the Company’s obligations and contingent obligations to deliver shares with respect to Awards then outstanding under this Plan (exclusive of any dividend equivalent obligations to the extent the Company has the right to settle such rights in cash). No fractional shares shall be delivered under this Plan. The Administrator may pay cash in lieu of any fractional shares in settlements of Awards under this Plan. +5.   ELIGIBILITY +5.1   Eligible Persons . The Administrator (as such term is defined in Section 3.1) may grant Awards under this Plan only to those persons that the Administrator determines to be Eligible Persons. An “ Eligible Person ” is any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its Subsidiaries; (b) a non-employee director of the Company or one of its Subsidiaries; or (c) an individual consultant who renders bona fide services (other than services in connection with the offering or sale of securities of the Company or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Company or one of its Subsidiaries) to the Company or one of its Subsidiaries and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under clause (c) above may participate in this Plan only if such participation would not adversely affect either the Company’s eligibility to use Form S‑8 to register under the Securities Act, the offering and sale of shares issuable under this Plan by the Company, or the Company’s compliance with any other applicable laws. +5.2   Participation . The Administrator shall, in its sole and absolute discretion, select from among the Eligible Employees those individuals who shall receive Awards and become Participants under the Plan. There is no right of any Eligible Person to receive an Award under the Plan, and the Administrator has absolute discretion to treat Eligible Employees differently from one another under the Plan. Receipt of an Award by a Participant shall not create the right to receive future Awards under the Plan, but a Participant who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Administrator shall so determine. +98 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +6.   AWARDS +6.1   Type and Form of Awards. The Administrator shall determine the type or types of Award(s) to be made to each selected Eligible Person. Awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company or one of its Subsidiaries. The types of Awards that may be granted under this Plan are: +6.1.1  Stock Options. An Option is the grant of a right to purchase a specified number of shares of Common Stock during a specified period at a fixed exercise price as determined by the Administrator. +(a)    General Option Provisions . Options may only be granted to Eligible Persons for whom the Company would be deemed to be an “eligible issuer of service recipient stock,” as defined in Treasury Regulation 1.409A‑1(b)(5)(iii)(E). An Option may be intended to be an Incentive Stock Option or a Nonqualified Stock Option. The Award agreement for an Option will indicate if the Option is intended as an ISO; otherwise it will be deemed to be a Nonqualified Stock Option. The maximum term of each Option (ISO or NSO) shall be ten (10) years. The per share exercise price for each Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the Option. Each Option shall become exercisable at such times and under such conditions and shall be subject to such other terms as may be determined by the Administrator in its discretion. When an Option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.5. +(b)    Additional Rules Applicable to ISOs. Notwithstanding the general option rules set forth in subsection (a), above, the following rules shall apply to options intended to qualify as ISOs. ISOs may only be granted to employees of the Company or one of its subsidiaries (for this purpose, the term “subsidiary” is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes of stock of each subsidiary in the chain beginning with the Company and ending with the subsidiary in question). To the extent that the aggregate Fair Market Value (determined at the time of grant of the applicable option) of stock with respect to which ISOs first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to ISOs under this Plan and stock subject to ISOs under all other plans of the Company or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options. In reducing the number of options treated as ISOs to meet the $100,000 limit, the most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an ISO. There shall be imposed in any Award agreement relating to ISOs such other terms and conditions as from time to time are required in order that the option be an “incentive stock option” as that term is defined in Section 422 of the Code. No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, unless the exercise price of such option is at least 110% of the Fair Market Value of the stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. +PDC ENERGY 2020 PROXY 99 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +6.1.2  Stock Appreciation Rights. A Stock Appreciation Right or “SAR” is an Award that entitles the Participant to receive, upon exercise of the SAR, a payment in cash and/or Common Stock equal to (or having a Fair Market Value equal to) the product of (x) number of SARs being exercised multiplied by (y) the excess of (i) the Fair Market Value of a share of Common Stock on the date the SAR is exercised, over (ii) the “base price” applicable to the SAR. SARs may only be granted to Eligible Persons for whom the Company would be deemed to be an “eligible issuer of service recipient stock,” as defined in Treasury Regulation 1.409A‑1(b)(5)(iii)(E). The base price of the SAR shall be determined by the Administrator but shall be not less than the Fair Market Value of the Company’s Common Stock on the date of grant. The maximum term of a SAR shall be ten (10) years. SARs shall become exercisable at such times and under such conditions and shall be subject to such other terms as may be determined by the Administrator in its discretion. +6.1.3  Restricted Stock . +(a)    General Restricted Stock Provisions . Restricted Stock is Common Stock subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Administrator may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Administrator may determine at the date of grant or thereafter. Except to the extent restricted under the terms of this Plan and the applicable Award Agreement relating to the Restricted Stock, a Participant granted Restricted Stock shall have all of the rights of a stockholder of the Company, including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to the provisions of Section 6.1.3(c), below). +(b)    Certificates for Shares . Shares of Restricted Stock granted under this Plan may be evidenced in such manner as the Administrator shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Administrator may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock. The Administrator may require that shares of Restricted Stock are held in escrow until all restrictions lapse. +(c)    Dividends and Splits . As a condition to the grant of an Award of Restricted Stock, any cash dividends paid on shares of Restricted Stock and any stock distributed in connection with a stock split or stock dividend, and any other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such dividend or distribution was made. In addition, and subject to applicable law, the Administrator may require or permit a Participant to elect that any cash dividends paid on Restricted Stock be automatically reinvested in additional shares of Restricted Stock or applied to the purchase of additional Awards under this Plan, subject to the same vesting schedule as the Restricted Stock to which the dividend relates. +6.1.4  Restricted Stock Units . +(a)    Grant of Restricted Stock Units . A restricted stock unit, or “RSU”, represents the right to receive from the Company on the respective scheduled vesting or payment date for such RSU, one share of Common Stock or, if specified in the applicable Award agreement, the Fair Market Value of one share of Common Stock paid in cash. The vesting or payment of an Award of RSUs may be subject to the attainment of specified performance goals or targets, forfeitability provisions and such other terms and conditions as the Administrator may determine, subject to the provisions of this Plan. +100 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(b)    Dividend Equivalent Accounts . If (and only if) required by the applicable Award Agreement, prior to the expiration of the applicable vesting period of an RSU, the Administrator shall pay dividend equivalent rights with respect to RSUs, in which case the Company shall establish an account for the Participant and reflect in that account any securities, cash or other property comprising any dividend or property distribution with respect to the shares of Common Stock underlying each RSU. Each amount or other property credited to any such account shall be subject to the same vesting conditions as the RSU to which it relates. In addition, subject to applicable law, the Administrator may require or permit a Participant to elect that any such dividend equivalent amounts credited to the Participant’s account be automatically deemed reinvested in additional RSUs or applied to the purchase of additional Awards under the Plan, subject to the same vesting schedule as the RSUs to which the dividend equivalent amounts relate. The Participant shall rights to be paid the amounts or other property credited to such account at the same time as payment of the RSU. +(c)    Rights as a Stockholder . Subject to the restrictions imposed under the terms and conditions of this Plan and the applicable Award Agreement, each Participant receiving RSUs shall have no rights as a stockholder of the Company with respect to such RSUs until such time as shares of Common Stock are issued to the Participant. In the event an RSU is settled in cash, the Participant receiving RSUs shall never receive stockholder rights with respect to such Award . No shares of Common Stock shall be issued at the time a RSU is granted, and the Company will not be required to set aside a fund for the payment of any such Award. +6.1.5  Performance Stock Units. +(a)    Grant of Performance Stock Units . A Performance Stock Unit, or “PSU,” is a performance-based Award that entitles the Participant to receive shares of Common Stock or, if specified in the Award Agreement, the Fair Market Value of such shares of Common Stock paid in cash, based on the attainment of one or more performance goals. Each Award of PSUs shall designate a target number of PSUs covered by the Award, with the actual number of shares of Common Stock earned (if any) to be based on a formula set forth in the Award Agreement related to the attainment of one or more performance goals set forth in the Award Agreement. +(b)    Dividend Equivalent Accounts . If (and only if) required by the applicable Award Agreement, the Administrator shall pay dividend equivalent rights with respect to PSUs, in which case the Participant shall be entitled to a cash payment with respect to each PSU earned and payable in an amount equal to the ordinary cash dividends that would have been payable to Participant had Participant been the owner of a number of actual shares of Common Stock equal to the number of PSUs earned, from the date of grant of the PSU Award through the date the PSU is paid. If so determined by the Administrator and set forth in the applicable Award Agreement, such cash amount may be credited with earnings or losses as if deemed reinvested in Company Common Stock or as if used to purchase additional Awards under the Plan. The amount payable shall be made in a single lump sum on the date on which payment is made in respect of the related PSUs. +(c)    Rights as a Stockholder . Subject to the restrictions imposed under the terms and conditions of this Plan and the applicable Award Agreement, each Participant receiving PSUs shall have no rights as a stockholder of the Company with respect to such PSUs until such time as shares of Common Stock are issued to the Participant. In the event a PSU is settled in cash, the Participant receiving PSUs shall never receive stockholder rights with respect to such Award . No shares of Common Stock shall be issued at the time a +PDC ENERGY 2020 PROXY 101 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +PSU is granted, and the Company will not be required to set aside a fund for the payment of any such Award. +6.1.6  Cash Awards . The Administrator may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant cash bonuses (including without limitation, discretionary Awards, Awards based on objective or subjective performance criteria, Awards subject to other vesting criteria or Awards granted consistent with Section 5.2 below). Cash Awards shall be Awarded in such amount and at such times during the term of the Plan as the Administrator shall determine. +6.1.7  Other Awards. The other types of Awards that may be granted under this Plan include: (a) stock bonuses, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common Stock (subject to compliance with applicable laws), upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon. +6.2   Award Agreements. Each Award (other than cash Awards described in Section 6.1.6) shall be evidenced by a written or electronic Award Agreement in the form approved by the Administrator and, if required by the Administrator, executed or accepted by the recipient of the Award. The Administrator may authorize any officer of the Company (other than the particular Award recipient) to execute any or all Award Agreements on behalf of the Company (electronically or otherwise). The Award agreement shall set forth the material terms and conditions of the Award as established by the Administrator consistent with the express limitations of this Plan. +6.3   Deferrals and Settlements. Except as otherwise set forth herein, payment of Awards may be in the form of cash, Common Stock, other Awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may impose. The Administrator may also require or permit Participants to elect to defer the issuance of shares of Common Stock or the settlement of Awards in cash under such rules and procedures as it may establish under this Plan. The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares. All mandatory or elective deferrals of the issuance of shares of Common Stock or the settlement of cash Awards shall be structured in a manner that is intended to comply with the requirements of Section 409A of the Code. +6.4   Consideration for Common Stock or Awards. The purchase price for any Award granted under this Plan or the Common Stock to be delivered pursuant to an Award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator and subject to compliance with applicable laws, including, without limitation, one or a combination of the following methods: +· +services rendered by the recipient of such Award; +· +cash, check payable to the order of the Company, or electronic funds transfer; +· +notice and third-party payment in such manner as may be authorized by the Administrator; +· +the delivery of previously owned shares of Common Stock that are fully vested and unencumbered; +· +by a reduction in the number of shares otherwise deliverable pursuant to the Award; or +102 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +· +subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of Awards. +In the event that the Administrator allows a Participant to exercise an Award by delivering shares of Common Stock previously owned by such Participant and unless otherwise expressly provided by the Administrator, any shares delivered which were initially acquired by the Participant from the Company (upon exercise of an Option or otherwise) must have been owned by the Participant at least six months as of the date of delivery (or such other period as may be required by the Administrator in order to avoid adverse accounting treatment). Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. The Company will not be obligated to deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 9.1 and any other conditions to exercise or purchase, as established from time to time by the Administrator, have been satisfied. Unless otherwise expressly provided in the applicable Award Agreement, the Administrator may at any time eliminate or limit a Participant’s ability to pay the purchase or exercise price of any Award by any method other than cash payment to the Company. +6.5   Minimum Vesting Schedule. Except as provided below, all Awards granted under the Plan shall have a minimum one (1) year cliff vesting schedule meaning that no portion of any Award may be scheduled to vest prior to one year after the date of grant of such Award. Notwithstanding the foregoing, up to five percent (5%) of the total number of shares of Common Stock authorized by the Board and the stockholders for issuance under the Plan may be granted pursuant to Awards not subject to the minimum vesting schedule described above. The Administrator may adopt reasonable counting procedures to determine whether the five percent (5%) limit in the preceding sentence has been attained. The Administrator may also apply reasonable rules and rounding conventions to determine whether an Award complies with the above-referenced minimum vesting schedule. +6.6   Transfer Restrictions. +6.6.1  Limitations on Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 6.6, by applicable law and by the Award agreement, as the same may be amended, (a) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) Awards shall be exercised only by the Participant; and (c) amounts payable or shares issuable pursuant to any Award shall be delivered only to (or for the account of) the Participant. +6.6.2  Exceptions. The Administrator may permit Awards to be exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in its sole discretion, establish in writing (provided that any such transfers of ISOs shall be limited to the extent permitted under the federal tax laws governing ISOs). Any permitted transfer shall be subject to compliance with applicable federal and state securities laws. +6.6.3  Further Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 6.6.1 shall not apply to: +(a)    transfers to the Company, +(b)    the designation of a beneficiary to receive benefits in the event of the Participant’s death or, if the Participant has died, transfers to or exercise by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution, +PDC ENERGY 2020 PROXY 103 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +(c)    subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Administrator, +(d)    subject to any applicable limitations on ISOs, if the Participant has suffered a Disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative, or +(e)    the authorization by the Administrator of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Administrator. +6.7   International Awards. One or more Awards may be granted to Eligible Persons who provide services to the Company or one of its Subsidiaries outside of the United States. Any Awards granted to such persons may, if deemed necessary or advisable by the Administrator, be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator. +6.8   Dividend and Dividend Equivalents. Notwithstanding anything to the contrary herein, in no event may accrued dividends or dividend equivalents with respect to any Award issued under the Plan be paid prior to the vesting of such Award. +7.   EFFECT OF TERMINATION OF SERVICE ON AWARDS +7.1   Termination of Employment. +7.1.1   Administrator Determination. The Administrator shall establish the effect of a termination of employment or service on the rights and benefits under each Award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of Award. If the Participant is not an employee of the Company or one of its Subsidiaries and provides other services to the Company or one of its Subsidiaries, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the Award agreement otherwise provides) of whether the Participant continues to render services to the Company or one of its Subsidiaries and the date, if any, upon which such services shall be deemed to have terminated. +7.1.2   Stock Options and SARs. For Awards of Options or SARs, unless the Award agreement provides otherwise, the exercise period of such Options or SARs shall expire: (1) three months after the last day that the Participant is employed by or provides services to the Company or a Subsidiary ( provided however , that in the event of the Participant’s death during this period, those persons entitled to exercise the Option or SAR pursuant to the laws of descent and distribution shall have one year following the date of death within which to exercise such option or SAR); (2) in the case of a Participant whose termination of employment is due to death or Disability (as defined in the applicable Award agreement), 12 months after the last day that the Participant is employed by or provides services to the Company or a Subsidiary; and (3) immediately upon a Participant’s termination for Cause. The Administrator will, in its absolute discretion, determine the effect of all matters and questions relating to a termination of employment, including, but not by way of limitation, the question of whether a leave of absence constitutes a termination of employment and whether a Participant’s termination is for Cause. +7.1.3  Other Awards. For all other Awards issued under the Plan, unless the Award agreement provides otherwise, the portion of such Awards that are unvested at the time that a Participant’s employment or service is terminated shall be forfeited and reacquired by the Company; provided however, the Administrator may provide, by rule or regulation or in any Award agreement, or +104 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +may determine in any individual case, that such forfeiture requirement shall be waived in whole or in part. +7.2   Events Not Deemed Terminations of Service. Unless the express policy of the Company or one of its Subsidiaries, or the Administrator, otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other paid leave of absence authorized by the Company or one of its Subsidiaries, or the Administrator; provided that unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than 3 months. In the case of any employee of the Company or one of its Subsidiaries on an approved leave of absence, continued vesting of the Award while on leave from the employ of the Company or one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term set forth in the Award agreement. +7.3   Effect of Change of Subsidiary Status. For purposes of this Plan and any Award, if an entity ceases to be a Subsidiary of the Company, a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of the Company or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to the change in status. +8.   ADJUSTMENTS; ACCELERATION +8.1    Adjustments . Upon or in contemplation of (a) any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split, (b) any merger, arrangement, combination, consolidation, or other reorganization, (c) any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock (whether in the form of securities or property), or (d) any exchange of Common Stock or other securities of the Company, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock, the Administrator shall in such manner, to such extent and at such time as it deems appropriate and equitable in the circumstances (but subject to compliance with applicable laws and stock exchange requirements) proportionately adjust any or all of (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of Awards (including the Share Limit), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding Awards, (3) the grant, purchase, or exercise price (which term includes the base price of any SAR or similar right) of any or all outstanding Awards, and (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding Awards. Any adjustment made pursuant to this Section 8.1 shall be made in a manner that, in the good faith determination of the Administrator, will not likely result in the imposition of additional taxes or interest under Section 409A of the Code. With respect to any Award of an ISO, the Administrator may make such an adjustment that causes the option to cease to qualify as an ISO without the consent of the affected Participant. +8.2    Change in Control . Unless otherwise provided in an applicable Award Agreement, in the event of a Change in Control, the Administrator shall have full discretion to take whatever actions it deems necessary or appropriate with respect to outstanding Awards, including, but not limited to: (i) to provide for full or partial accelerated vesting of any Award or portion thereof, either immediately prior to such Change in Control or on such terms and conditions following the Change in Control (such as a termination without cause) as the Administrator determines in its sole and absolute discretion, (ii) to provide for the assumption of such Awards (or portions thereof) or the substitution of such Awards (or portions thereof) with similar awards of the surviving or acquiring company, in a manner designed to comply with Section 409A of the Code, (iii) to provide for the cash out and cancellation of any Award (or portion thereof) immediately prior to such Change in Control, which cash out may (in a manner designed to comply with Code Section 409A) be subject to any escrow, earn-out or other contingent or deferred payment arrangement that is contemplated by such Change in Control, and (iv) take any other actions as the Administrator deems necessary or advisable in connection with such Change in Control transaction; provided, however, that in the event the surviving or acquiring company does not assume the outstanding Awards (or portions thereof) or substitute similar stock awards for +PDC ENERGY 2020 PROXY 105 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +those outstanding under the Plan as of the Change in Control, then (i) the vesting and exercisability (if applicable) of all Awards (or portions thereof) shall be accelerated in full immediately prior to such Change in Control, and (ii) such outstanding Awards (or portions thereof) shall terminate and/or be payable upon the occurrence of the Change in Control. The Administrator may take different actions with respect to different Participants under the Plan, different Awards under the Plan, and different portions of Awards granted under the Plan. +9.   TAX PROVISIONS +9.1   Tax Withholding. Upon any exercise, vesting, or payment of any Award, the Company or one of its Subsidiaries shall have the right at its option to: +a.   require the Participant (or the Participant’s personal representative or beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Company or one of its Subsidiaries may be required to withhold with respect to such Award event or payment; or +b.   deduct from any amount otherwise payable in cash to the Participant (or the Participant’s personal representative or beneficiary, as the case may be) the minimum amount of any taxes which the Company or one of its Subsidiaries may be required to withhold with respect to such cash payment. +In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Administrator may in its sole discretion (subject to Section 10.1) grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, to have the Company reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their Fair Market Value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the applicable withholding obligation on exercise, vesting or payment, not in excess of the maximum statutory rates in the Participant’s applicable jurisdictions. +9.2   Requirement of Notification of Code Section 83(b) Election . If any Participant shall make an election under Code Section 83(b) (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provisions of the laws of a jurisdiction outside the United States, such Participant shall notify the Company of such election within ten (10) days after filing notice of the election with the Internal Revenue Service or other government authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision. +9.3   Requirement of Notification of Disqualifying Disposition . If any Participant shall make any disposition of shares of stock delivered pursuant to the exercise of an ISO under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof. +10.   OTHER PROVISIONS +10.1    Compliance with Laws. This Plan, the granting and vesting of Awards under this Plan, the offer, issuance and delivery of shares of Common Stock, the payment of money under this Plan or under Awards are subject to compliance with all applicable federal and state laws, rules and regulations and to such approvals by any applicable stock exchange listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the Company or one of its Subsidiaries, provide such assurances and representations to the Company or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements. +106 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +10.2    Future Awards/Other Rights. No person shall have any claim or rights to be granted an Award (or additional Awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary. +10.3    No Employment/Service Contract. Nothing contained in this Plan (or in any other documents under this Plan or in any Award) shall confer upon any Eligible Person or other Participant any right to continue in the employ or other service of the Company or one of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Company or one of its Subsidiaries to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause. Nothing in this Section 10.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an Award agreement. +10.4    Plan Not Funded. Awards payable under this Plan shall be payable in shares of Common Stock or from the general assets of the Company, and no special or separate reserve, fund or deposit shall be made to assure payment of such Awards. No Participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Company or one of its Subsidiaries by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or one of its Subsidiaries and any Participant, beneficiary or other person. To the extent that a Participant, beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. +10.5    Effective Date, Termination and Suspension, Amendments. +10.5.1  Effective Date and Termination. This Plan was approved by the Board and shall become effective upon approval by the stockholders at the Company’s next Annual Meeting (the “ Effective Date ”). Unless earlier terminated by the Board, this Plan shall terminate at the close of business ten years after the date on which it was approved by the Board. After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional Awards may be granted under this Plan, but previously granted Awards (and the authority of the Administrator with respect thereto, including the authority to amend such Awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan. +10.5.2  Board Authorization. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any period that the Board suspends this Plan. +10.5.3  Stockholder Approval. To the extent then required by applicable law or any applicable stock exchange or required to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, this Plan and any amendment to this Plan shall be subject to approval by the stockholders of the Company. +10.5.4  Amendments to Awards. Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a Participant, and (subject to the requirements of Sections 3.2 and 10.5.5) may make other changes to the terms and conditions of Awards. Any amendment or other action that would constitute a repricing of an Award is subject to the limitations set forth in Section 3.2(g). +PDC ENERGY 2020 PROXY 107 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +10.5.5  Limitations on Amendments to Plan and Awards. No amendment, suspension or termination of this Plan or change of or affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Company under any Award granted under this Plan. Changes, settlements and other actions contemplated by Section 8 shall not be deemed to constitute changes or amendments for purposes of this Section 10.5.5. +10.6    Privileges of Stock Ownership. Except as otherwise expressly authorized by the Administrator or this Plan, a Participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Participant. Except as expressly provided herein, no adjustment will be made for dividends or other rights as a stockholder of the Company for which a record date is prior to such date of delivery. +10.7    Governing Law; Construction; Severability. +10.7.1  Choice of Law. This Plan, the Awards, all documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of Delaware. +10.7.2  Severability. If a court of competent jurisdiction holds any provision of this Plan invalid and unenforceable, the remaining provisions of this Plan shall continue in effect and the Plan shall be construed and enforced without regard to the illegal or invalid provision. +10.7.3  Plan Construction. +(a)   Rule 16b‑3. It is the intent of the Company that the Awards and transactions permitted by Awards be interpreted in a manner that, in the case of Participants who are or may be subject to Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the Award, for exemption from matching liability under Rule 16b‑3 promulgated under the Exchange Act. Notwithstanding the foregoing, the Company shall have no liability to any Participant for Section 16 consequences of Awards or events under Awards if an Award or event does not so qualify. +(b)    Compliance with Section 409A of the Code. The Board intends that, except as may be otherwise determined by the Administrator, any Awards under the Plan will be either exempt from or satisfy the requirements of Section 409A to avoid the imposition of any taxes, including additional income or penalty taxes, thereunder. If the Administrator determines that an Award, Award agreement, acceleration, adjustment to the terms of an Award, payment, distribution, deferral election, transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a Participant’s Award to become subject to Section 409A, unless the Administrator expressly determines otherwise, such Award, Award agreement, payment, acceleration, adjustment, distribution, deferral election, transaction or other action or arrangement shall not be undertaken and the related provisions of the Plan and/or Award agreement will be deemed modified or, if necessary, rescinded in order to comply with the requirements of Section 409A to the extent determined by the Administrator without the consent of or notice to the Participant. Notwithstanding the foregoing, neither the Company nor the Administrator shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under Section 409A and neither the Company nor the Administrator will have any liability to any Participant for such tax or penalty. +(c)    No Guarantee of Favorable Tax Treatment. Although the Company intends that Awards under the Plan will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will +108 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local or foreign law. The Company shall not be liable to any Participant for any tax, interest or penalties the Participant might owe as a result of the grant, holding, vesting, exercise or payment of any Award under the Plan. +10.8    Captions. Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof. +10.9    Stock‑Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation. Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee stock options, stock appreciation right, restricted stock or other stock‑based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Company or one of its Subsidiaries, in connection with a distribution, arrangement, business combination, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Company or one of its Subsidiaries, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity. The Awards so granted need not comply with other specific terms of this Plan, provided the Awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security. Any shares that are delivered and any Awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding Awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Company or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan, except as may otherwise be provided by the Administrator at the time of such assumption or substitution or as may be required to comply with the requirements of any applicable stock exchange. +10.10    Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant Awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority. +10.11    No Corporate Action Restriction. The existence of this Plan, the Award agreements and the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Company to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Company or any Subsidiary, (b) any merger, arrangement, business combination, amalgamation, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the capital stock (or the rights thereof) of the Company or any Subsidiary, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Company or any Subsidiary, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim under any Award or Award Agreement against any member of the Board or the Administrator, or the Company or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. +10.12    Other Company Benefit and Compensation Programs. Payments and other benefits received by a Participant under an Award made pursuant to this Plan shall not be deemed a part of a Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing or except as otherwise specifically set forth in the terms and conditions of such other employee welfare or benefit plan or arrangement. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, Awards or commitments under any other plans or arrangements of the Company or its Subsidiaries. +PDC ENERGY 2020 PROXY 109 +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +10.13   Restrictive Covenants and Clawback Policy. +10.13.1 Restrictive Covenants. Anything contained in the Plan to the contrary notwithstanding, unless restrictive covenants protecting the Company are set forth in an employment or other agreement by and between the Company and the Participant or in any applicable severance or similar plan sponsored by the Company, with respect to any Participant who is an employee, if the employment of any Participant shall terminate, for any reason other than death, while any Award to such Participant is outstanding hereunder, and such Participant has not yet received the shares covered by such Award or otherwise received the full benefit of such Award, such Participant, if otherwise entitled thereto, shall receive such shares or benefit only if, during the entire period from the date of such Participant’s termination to the date of such receipt, such Participant shall have earned such Award by: (i) making himself or herself available, upon request, at reasonable times and upon a reasonable basis, to consult with, supply information to, and otherwise cooperate with the Company or any Subsidiary or Affiliate thereof with respect to any matter that shall have been handled by him or her or under his or her supervision while he or she was in the employ of the Company or of any Subsidiary or Affiliate thereof; and (ii) refraining from engaging in any activity within any county or parish, or adjacent to any county or parish, in which the Company owns any oil and gas interests that is directly or indirectly in competition with any gas, exploration and production activities, including oil and gas leasing or drilling activities of the Company or any Subsidiary or Affiliate thereof for a period of one (1) year following his or her termination of employment. +10.13.2 Breach of Restrictive Covenants. In the event of a Participant’s nonfulfillment of any condition set forth in Section 10.13.1 hereof, such Participant’s rights under any Award shall be forfeited and canceled forthwith and such forfeiture and cancellation shall be the Company’s sole remedy; provided, however, that the nonfulfillment of such condition may at any time (whether before, at the time of, or subsequent to termination of employment) be waived by the Committee upon its determination that in its sole judgment there shall not have been and will not be any substantial adverse effect upon the Company or any Subsidiary or Affiliate thereof by reason of the nonfulfillment of such condition. +10.13.3 Awards Subject to Clawback. Awards under the Plan shall be subject to any clawback policy adopted by the Company from time to time. +11.   DIRECTOR COMPENSATION PROVISIONS +11.1    Plan Exclusive Vehicle for Non-Employee Director Cash and Equity Compensation. All cash and equity compensation paid or provided to the Company’s non-employee directors shall be awarded under the terms and conditions of this Plan. +11.2    Non-Employee Director Compensation. Non-employee directors may be Awarded any of the types of Awards described in Section 6 above for which they are eligible under the terms and conditions of Section 6, above. +11.2.1 Cash Awards. Cash Awards (as described in Section 6.1.6) may take any form determined by the Administrator in its sole and absolute discretion, including, but not limited to, retainers, committee fees, chairperson fees, per meeting fees, and special fees for committee service. In no event shall cash Awards paid to any non-employee director exceed $400,000 in any fiscal year. +110 PDC ENERGY 2020 PROXY +Table of Contents +PDC ENERGY INC. - PROXY STATEMENT +11.2.2 Equity Awards . Equity Awards (described in Sections 6.1.1, 6.1.2, 6.1.3, 6.1.4 and 6.1.5) may take any form determined by the Administrator in its sole and absolute discretion, provided, however, that in no event shall Awards granted to an non-employee director in any fiscal year have a grant date fair value in excess of $400,000. +As adopted by the Board of Directors of PDC Energy, Inc. on March 30, 2018. +PDC ENERGY 2020 PROXY 111 +Table of Contents +VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on May 25, 2020 for shares held directly and by 11:59 P.M. Eastern Time on May 20, 2020 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. PDC ENERGY, INC. C/0 BROADRIDGE CORPORATE ISSUER SOLUTIONS, INC. P O BOX 1342 BRENTWOOD, NY 11717 ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on May 25, 2020 for shares held directly and by 11:59 P.M. Eastern Time on May 20, 2020 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D07914-P37498 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. PDC ENERGY, INC. For Against Abstain The Board of Directors recommends you vote FOR proposals 1 through 6. 1. To approve a proposal to amend the Company's Certificate of Incorporation to declassify the Board of Directors (the "Board") and to provide for the immediate annual election of directors; If Proposal No. 1 to declassify the Board is approved, to elect eight directors nominated by the Board, each for a term of one year; Nominees: ! ! ! 3. If Proposal No. 1 to declassify the Board is not approved, to elect the two directors nominated by the Board as Class I directors, each for a term of three years; Nominees: For Against Abstain 2. ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 3a. David C. Parke ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 2a. Barton R. Brookman 3b. Lynn A. Peterson 4. To approve, on an advisory basis, the compensation of the Company's named executive officers; To ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2020; To approve an amendment to the Company's 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan; and 2b. Anthony J. Crisafio 5. 2c. Mark E. Ellis 2d. Christina M. Ibrahim 6. 2e. Paul J. Korus NOTE: To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. 2f. Randy S. Nickerson 2g. David C. Parke 2h. Lynn A. Peterson Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. D07915-P37498 PDC ENERGY, INC. Annual Meeting of Shareholders May 26, 2020 8:00 AM MDT This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) R. Scott Meyers and Nicole L. Martinet, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) him or her to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of PDC ENERGY, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 8:00 AM, MDT on May 26, 2020, at 1775 Sherman Street, Denver, Colorado 80203, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-20-003679/proxy_rpt.txt b/raw/proxies/0000077877/0001558370-20-003679/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..359aa45bab91037672efd47149f59d0e7d02cdcd --- /dev/null +++ b/raw/proxies/0000077877/0001558370-20-003679/proxy_rpt.txt @@ -0,0 +1,2 @@ +TRANSACTIONS WITH RELATED PARTIES +During 2019, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S‑K. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-21-004271/proxy.txt b/raw/proxies/0000077877/0001558370-21-004271/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2bbbf65a731bc39ad16c2c943a95db83c11944bc --- /dev/null +++ b/raw/proxies/0000077877/0001558370-21-004271/proxy.txt @@ -0,0 +1,3361 @@ +DEF 14A +1 +tmb-20210526xdef14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ +No fee required. +☐ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +☐ +Fee paid previously with preliminary materials. +☐ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 14, 2021 +Dear Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2021 Annual Meeting of PDC Energy, Inc. to be held via virtual web conference at www.virtualshareholdermeeting.com/PDCE2021 on May 26, 2021, at 8:00 a.m. Mountain Time (the “Annual Meeting”). +The accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement. +We hope you will join us at the Annual Meeting online. Your vote is extremely important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to attend virtually, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you are unable to virtually attend. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +Wednesday, May 26, 2021 +April 14, 2021 +To the stockholders of PDC Energy, Inc.: +The 2021 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held via the Internet through a virtual web conference at www.virtualshareholdermeeting.com/PDCE2021 on May 26, 2021, at 8:00 a.m. Mountain Time. You will be able to attend the meeting online by visiting the website above, and submit questions to be answered at the Annual Meeting prior to the meeting. You will also be able to vote your shares electronically at the Annual Meeting. The meeting will be held online only, and will be held for the following purposes: +● To elect seven directors nominated by the Board and identified in the accompanying proxy statement, each for a term of one year (Proposal No. 1) ; +● To approve, on an advisory basis, the compensation of the Company’s named executive officers ( Proposal No. 2); +● To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021 ( Proposal No. 3); and +● To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board has fixed the close of business on March 30, 2021 as the record date for determining the stockholders having the right to receive notice of, to attend virtually and to vote at the Annual Meeting or any adjournment or postponement thereof. A list of these stockholders will be open for examination by any stockholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal executive offices at 1775 Sherman St., Suite 3000, Denver, CO 80203, and electronically during the Annual Meeting at www.virtualshareholdermeeting.com/PDCE2021 when you enter your control number. The presence in person, virtually or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you still may attend the Annual Meeting and vote your shares or revoke your prior voting instructions. +Your vote is especially important to us at this Annual Meeting. Regardless of the number of shares of our common stock that you own, your vote will be very important. Thank you for your continued support, interest and investment in the Company . +By Order of the Board of Directors, +Nicole L. Martinet +Senior Vice President, General Counsel and Secretary +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on May 26, 2021 +The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 26, 2021, at 8:00 a.m. Mountain Time and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 14, 2021, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING +TO BE HELD ON MAY 26, 2021 +The Notice of Annual Meeting, the Proxy Statement for the 2021 Annual Meeting, and the 2020 Annual Report, which is the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, are available at www.proxyvote.com . +Virtual Meeting Admission +Stockholders of record as of March 30, 2021 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2021. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 8:00 a.m. Mountain Time on Wednesday, May 26, 2021. Online check-in will begin at 7:45 a.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Voting +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or in person by participating virtually in the meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend. +Table of Contents +TABLE OF CONTENTS +PROXY STATEMENT SUMMARY +1 +PROPOSAL NO. 1—ELECTION OF SEVEN DIRECTORS +2 +Board of Directors +2 +Name, Principal Occupation for Past Five Years and Other Directorships +3 +DIRECTOR COMPENSATION +7 +Cash Compensation +7 +Equity Compensation +7 +Deferred Compensation +8 +2020 Director Compensation +8 +Director Stock Ownership Requirements and Prohibition on Certain Transactions +9 +Director Qualifications and Selection +9 +STANDING COMMITTEES OF THE BOARD +10 +Board Meetings and Attendance +10 +2020 Board and Committee Memberships +10 +Audit Committee +11 +Nominating and Governance Committee +11 +Compensation Committee +11 +Board Leadership Structure +12 +Stockholder Recommendations +13 +Stockholder Nominations +13 +CORPORATE GOVERNANCE +13 +Governance Highlights +13 +Corporate Governance Guidelines +14 +Uncontested Elections Policy +14 +Code Of Business Conduct And Ethics +15 +Family Relationships And Other Arrangements +15 +Director Independence +15 +The Board’s Role In Risk Management +15 +Transactions with Related Parties +16 +Policies and Procedures with Respect to Transactions with Related Parties +16 +Other Corporate Governance Documents +16 +Communication with the Company by Stockholders +16 +Additional Information +16 +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +17 +EXECUTIVE COMPENSATION +18 +Executive Officers +18 +COMPENSATION COMMITTEE REPORT +19 +COMPENSATION DISCUSSION AND ANALYSIS +20 +Executive Summary +20 +Executive Compensation Philosophy +24 +2020 Compensation Program Design and Decisions +25 +2020 Performance Metrics – Quantitative and Qualitative +29 +Long-Term Incentive Awards +31 +Other Elements of Compensation +35 +2021 Compensation Program and Board Changes +36 +Compensation Policies and Practices +36 +Summary Compensation Table +41 +All Other Compensation +42 +Grants of Plan-Based Awards +43 +Outstanding Equity Awards at Fiscal Year-End +44 +Option Exercises and Stock Vested +45 +Table of Contents +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +46 +Impact of Termination and Change of Control on Long Term Equity-Based Incentive Plans +47 +Change of Control Excise Tax Provision +48 +Reasoner Retirement Agreement +48 +Estimated Termination and Change in Control Benefits +49 +CEO PAY RATIO +52 +EQUITY COMPENSATION PLAN INFORMATION +52 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +53 +Section 16(A) Reports +55 +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +56 +Audit Committee Pre Approval Policies and Procedures +57 +REPORT OF THE AUDIT COMMITTEE +58 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2021 ANNUAL MEETING +59 +STOCKHOLDER NOMINATIONS AND PROPOSALS +59 +Stockholder Proposals for 2022 Annual Meeting +59 +Advance Notice Procedures Under the Company’s Bylaws +59 +INFORMATION ABOUT VOTING AND THE MEETING +60 +Who May Vote +60 +How Proxies Work +60 +Notice and Access +60 +Revoking a Proxy +60 +Quorum +61 +Votes Needed +61 +Attending the Virtual Meeting & Voting +62 +Conduct of the Meeting +62 +Solicitation of Proxies +62 +Appraisal Rights +62 +Contact Information +63 +HOUSEHOLDING INFORMATION +64 +APPENDIX A - NON-GAAP FINANCIAL MEASURES +65 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROXY STATEMENT SUMMARY +This Proxy Statement Summary highlights information contained elsewhere in this document. Please read the entire Proxy Statement carefully before voting. +Annual Meeting of Stockholders +TIME AND DATE +PLACE +RECORD DATE +8:00 a.m. Mountain Time +on Wednesday, May 26, 2021 +Virtually at www.virtualshareholdermeeting.com/PDCE2021 +March 30, 2021 +VOTING +Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone, mail or virtually at the Annual Meeting, please refer to the instructions on your proxy card in the postage paid envelope provided. +Voting Matters +BOARD +RECOMMENDATION +1 +PROPOSAL 1 Election of Seven Directors +Elect seven directors nominated by the Board, each for a term of one year. +FOR +2 +PROPOSAL 2 Approve Executive Officer Compensation +To approve, on an advisory basis, the compensation of the Company’s named executive officers. +FOR +3 +PROPOSAL 3 Ratify the Appointment of PricewaterhouseCoopers LLP +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. +FOR +PDC ENERGY 2021 PROXY +1 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 1—ELECTION OF SEVEN DIRECTORS +THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF THE SEVEN DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +You are asked to consider seven nominees for election to the Board. Each nominee would serve for a one-year term until the 2022 annual meeting of the stockholders of the Company and until his or her successor is duly elected and qualified. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES . +The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. “Withhold votes” and broker non-votes will have no effect on the election of Directors. +BOARD OF DIRECTORS +As of the Annual Meeting, the composition of the Board is expected to be as follows: +YEAR THE +DIRECTOR JOINED +DIRECTORS +THE BOARD +Barton R. Brookman +2015 +Anthony J. Crisafio (1) +2006 +Mark E. Ellis +2017 +Christina M. Ibrahim (2) +2018 +Paul J. Korus +2020 +Randy S. Nickerson (3) +2017 +David C. Parke +2003 +Lynn A. Peterson +2020 +Carlos A. Sabater (4) +— +Diana L. Sands +2021 +Mr. Lillo was appointed to the Senior Management Team in September 2020; his annual cash incentive target was increased to 80% effective September 1, 2020 in connection with his appointment. +(1) +On February 17, 2021, Mr. Crisafio informed the Company that he will not stand for re-election at the Annual Meeting. +(2) +On April 9, 2021, Ms. Ibrahim informed the Company that she will not stand for re-election at the Annual Meeting. +(3) +On February 17, 2021, Mr. Nickerson informed the Company that he will not stand for re-election at the Annual Meeting. +(4) +Mr. Sabater is not currently a member of the Board as of the Annual Meeting. However, on April 13, 2021, Mr. Sabater was nominated by the Board to stand for election at the Annual Meeting, as noted in his biography below. +2 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +All of the Director nominees named hereafter will be standing for election to serve a one-year term. The Board, based on the recommendation of the Nominating and Governance Committee (the “N&G Committee”), has recommended Mr. Brookman, Mr. Ellis, Mr. Korus, Mr. Parke, and Mr. Peterson for re-election and Mr. Sabater and Ms. Sands for election as directors. All of the director nominees are current members of the board, other than Mr. Sabater, who is nominated for election to the Board for the first time. Ms. Sands was appointed to the Board on February 18, 2021 and is also seeking election for the first time. +NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS +BARTON R. BROOKMAN +DIRECTOR +President and +Chief Executive Officer +Age: 58 +Committees: +None +Background +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +Education +B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado. +Experience +The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. +63 +MARK E. ELLIS +DIRECTOR +(Non-Executive Chairman) +Age: 64 +Committees: +Nominating and +Governance (Chair) +Background +Mr. Ellis was elected to the Board in 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016. From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN. From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips. +Education +B.S. in Petroleum Engineering from Texas A&M University. +Experience +The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry executive management experience, as well as knowledge of current developments and best practices in the industry. +PDC ENERGY 2021 PROXY +3 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PAUL J. KORUS +DIRECTOR +Age: 64 +Committees: +Audit +Nominating and +Governance +Background +Mr. Korus joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC Energy Inc. (“SRC”). Mr. Korus was previously the Senior Vice President and Chief Financial Officer of Cimarex Energy Co. from September 2002 until his retirement in 2015, and held the same positions with its predecessor, Key Production Company, from 1999 through 2002. Mr. Korus has been a director of Whiting Petroleum since September 2020 and a director of Antero Resources Corporation (“Antero”) since December 2018, but he informed Antero he will not stand for re-election at Antero’s 2021 annual meeting. He was a member of the board of directors of SRC from June 2016 until January 2020. Mr. Korus was also a director of Antero Midstream Partners LP from January 2019 until its merger with Antero Midstream GP LP in March 2019. His previous experience also includes approximately five years as an oil and gas research analyst at an investment banking firm. He began his oil and gas career in 1982 with Apache Corporation where he held positions in corporate planning, information technology and investor relations. +From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. Mr. Korus is a former CPA. +Education +B.S. in Economics and M.S. in Accounting from the University of North Dakota. +Experience +The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience. He also brings strong financial and accounting expertise based on his experience as a former chief financial officer of a public company. +58 +Compensation +Governance +DAVID C. PARKE +DIRECTOR +Age: 54 +Committees: +Audit +Compensation (Chair) +Nominating and +Governance +Background +Mr. Parke, who joined the Board in 2003, has over 30 years of investment banking experience. He has served as a Managing Director of Gordian Investments LLC since October 2014. He has also been a member of the Life Science Advisory Group of IP Group plc since July 2018. From June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was a Managing Director of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus. +Education +B.S. in Finance from Lehigh University and an M.B.A. from the Wharton School at the University of Pennsylvania. +Experience +The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking and strategic advisory experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters. +4 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +IANA +68 +Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration. [ADD] +LYNN A. PETERSON +DIRECTOR +Age: 68 +Committees: +Compensation +Background +Mr. Peterson joined the Board in January 2020 in connection with the closing of the merger with SRC. Mr. Peterson was appointed President, Chief Executive Officer and director of Whiting Petroleum Corporation (“Whiting”) in September 2020. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served Kodiak as a director (2001-2014) and as its President, Chief Executive Officer (2002-2014) and Chairman of the Board (2011-2014) until its acquisition by Whiting in December 2014. Mr. Peterson has been a member of the board of directors of Denbury Resources Inc. since May 2017. Mr. Peterson has over 35 years of industry experience. +Education +B.S. in Accounting from Northern Colorado University. +Experience +The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s experience as a chief executive officer and service as director of other public energy companies provide valuable understanding of management processes and strategy of oil and gas companies. Mr. Peterson’s experience as former Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration. +CARLOS A. SABATER +DIRECTOR +Age: 62 +Committees: +None +Background +On April 13, 2021, Mr. Sabater was nominated by the Board for election as a director at the Company’s Annual Meeting. Mr. Sabater is a certified public accountant with nearly 40 years of leadership, accounting and financial reporting experience. During his extensive career at Deloitte Touche Tohmatsu Limited (“Deloitte”), Mr. Sabater served in various senior leadership and operational roles, including CEO for both the U.S. and global audit practices. He also served as the managing partner for all of Deloitte’s businesses across 28 countries in North and South America. Mr. Sabater also led various risk, governance, audit, finance, compensation and global committees during his service as an elected board member for the Deloitte firms in the U.S., Mexico, Central and Latin America, the Caribbean and Bermuda. Mr. Sabater has a multi-cultural business background, is fluent in Spanish, was born in Cuba and retired from Deloitte as a Senior Global Partner in 2020. +Education +B.B.A. in Accounting and Finance from Florida International University +Experience +The Board has concluded that Mr. Sabater is qualified to serve as a Director because, among other things, of his extensive leadership, executive and board service and experience in audit, finance, risk and governance matters for public companies. +PDC ENERGY 2021 PROXY +5 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIANA L. SANDS +DIRECTOR +Age: 55 +Committees: +None +Background +Ms. Sands was appointed to the Board in February 2021. She retired in 2020 from the Boeing Company (“Boeing”) as Executive Officer and Senior Vice President, Office of Internal Governance and Administration, a role she held since 2016. Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. +Education +Bachelor of Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +Experience +The Board has concluded that Ms. Sands is qualified to serve as a Director because, among other things, she has extensive executive finance and governance experience in large public companies, allowing her to contribute broad financial, audit and compliance expertise to the Board. +The seven Director nominees will be elected by an affirmative vote of a plurality of the outstanding common shares. Broker non-votes will have no effect on the election of Directors. +6 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIRECTOR COMPENSATION +We compensate Directors with a combination of cash and equity-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly. No compensation is paid to our CEO for his service on the Board. +Compensation for our non-employee Directors (“Non-Employee Directors”) is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2020, the Compensation Committee recommended maintaining the same compensation amounts and structure as 2019, with the exception of the N&G Committee Chair which it recommended be increased from $10,000 to $15,000 given the increased focus on corporate governance by investors generally and the resulting increased time commitment by the N&G Committee Chair. However, Director compensation was temporarily decreased as detailed below following voluntary reductions to cash compensation in response to the precipitous drop in commodity prices and negative impacts to our business during the first quarter of 2020 as a result of the COVID-19 pandemic. +CASH COMPENSATION +Annual Board and Committee Retainers +Subject to the 2020 pay reductions described below, each Non- Employee Director receives an annual cash retainer for service on the Board, which covers attendance at all Board and committee meetings. In addition, Non-Employee Directors receive an additional cash retainer to compensate them for the extra responsibilities associated with their roles. The 2020 Board and committee retainers are reflected in the following table (which does not give effect to the pay reductions described below). +Member +Chair +Retainer +Retainer +Board +$ +100,000 +$ +100,000 +Audit Committee +10,000 +20,000 +Compensation Committee +— +15,000 +Nominating and Governance Committee +— +15,000 +Compensation Actions in Response to COVID-19 +As a result of the COVID-19 pandemic and the precipitous drop in commodity prices that followed, each Non-Employee Director took a voluntary 15% reduction in his or her annual cash retainer and any additional cash retainer beginning on April 1, 2020 and continuing through September 30, 2020. Further, our Non-Executive Chairman did not receive his additional chair retainer beginning on April 1, 2020 through September 30, 2020, resulting in a cumulative 50% reduction in his chair retainer for 2020. +EQUITY COMPENSATION +On February 19, 2020, Mr. Ellis, the Non-Executive Chairman, was granted an award with an intended value of $175,000 in restricted stock units (“RSUs”) and the remaining Non-Employee Directors each received an award with an intended value of $140,000 in RSUs for their service on the Board. The RSUs were granted +PDC ENERGY 2021 PROXY +7 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +under our 2010 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five-day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject, generally, to the director not resigning or being removed for cause prior to the vesting date). +DEFERRED COMPENSATION +Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and no further amounts have been contributed to the Deferred Comp Plan. All compensation that was previously deferred pursuant to the Deferred Comp Plan will continue to be credited with hypothetical earnings and losses as if invested in common stock of the Company until such amounts are distributed. As of December 31, 2020, two Directors and our Director Emeritus had balances resulting from prior deferrals of cash director fees and/or equity compensation. The Board voted to terminate the Deferred Comp Plan on May 26, 2020. In connection with the termination, and in order to liquidate all funds remaining in the Deferred Comp Plan, the Company will make distributions to each of the two Directors and Director Emeritus with outstanding balances on or about June 1, 2021. +Compensation paid to the Non-Employee Directors for 2020 was as follows: +2020 DIRECTOR COMPENSATION +Fees +Earned +or Paid +Stock +in Cash (1) +Awards (2)(3) +Total +Name +($) +($) +($) +Anthony J. Crisafio +$ +120,250 +$ +142,793 +$ +263,043 +Mark E. Ellis +142,500 +178,486 +320,986 +Christina M. Ibrahim +106,376 +142,793 +249,169 +Paul J. Korus +96,209 +142,793 +239,002 +Randy S. Nickerson +92,500 +142,793 +235,293 +David C. Parke +115,626 +142,793 +258,419 +Lynn A. Peterson +88,333 +142,793 +231,126 +Jeffrey C. Swoveland (4) +110,861 +142,793 +253,654 +(1) Includes annual Board retainer, committee and committee chair retainers and the retainer for the Non-Executive Chairman of the Board and the effect of all 2020 voluntary reductions to such retainers noted above. +(2) Represents RSUs granted to our Non-Employee Directors. The RSU amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amount described above. (The amounts do not reflect the actual amounts that may be realized by the Directors.) +(3) At December 31, 2020, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Mr. Crisafio – 7,285; Mr. Ellis – 8,877; Ms. Ibrahim – 7,285; Mr. Korus – 6,369; Mr. Nickerson – 7,285; Mr. Parke – 7,285; Mr. Peterson – 6,369; Mr. Swoveland – 7,514. Additionally, Mr. Peterson holds 66,906 PSUs, which were granted in connection with the SRC merger. +(4) Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, 2020. Following the 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”), in which Mr. Swoveland did not stand for re-election, he became a non-voting Director Emeritus for the Company for a period of one year from the 2020 Annual Meeting. Compensation includes cash and stock awards for service as Non-Executive Chairman and Director Emeritus during 2020. +8 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS +Each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($500,000 for 2020). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2020, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Korus and Ms. Ibrahim, each of whom are still within their respective compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The Company’s Insider Trading Policy expressly prohibits Directors from short-term trading (purchasing and selling Company securities within a six-month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that describe the process the N&G Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The N&G Committee evaluates each candidate based on his or her level and range of experience and knowledge (industry-specific and general), skills, education, reputation, integrity, professional stature and diversity in terms of race, gender and ethnicity, as well as other factors that may be relevant depending on the particular candidate. +Additional factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The N&G Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +Most recently, the N&G Committee identifies potential Director nominees primarily through recommendations made by independent third-party search firms. The N&G Committee also considers recommendations made by Non-Employee Directors, employees, stockholders and others. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. In November 2020, the Board engaged Russell Reynolds Associates to conduct a Director search, which resulted in the appointment of Ms. Sands and nomination of Mr. Sabater. +PDC ENERGY 2021 PROXY +9 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +STANDING COMMITTEES OF THE BOARD +BOARD MEETINGS AND ATTENDANCE +The Board has a standing Audit Committee, Compensation Committee and N&G Committee. Actions taken by these committees are reported to the Board at its next meeting. During 2020, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors, who were directors of the Company at such time, attended the 2020 Annual Meeting by phone held on May 26, 2020. +The Non-Employee Directors generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Non-Executive Chairman of the Board chairs these sessions; however, the other Non-Employee Directors may, in the event of his absence, select another Director to preside over the executive session. +The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2020. +2020 BOARD AND COMMITTEE MEMBERSHIPS +DIRECTORS +Board of +Directors +Audit +Committee +Compensation +Committee +Nominating +and Governance +Committee +Barton R. Brookman +Anthony J. Crisafio (1) +Mark E. Ellis (2) +(3) +(4) +Christina M. Ibrahim (5) +Paul J. Korus (6) +Randy S. Nickerson (7) +David C. Parke +Lynn A. Peterson +(8) +Jeffrey C. Swoveland (9) +(10) +(11) +Number of Meetings Held +13 +10 +5 +7 +Chairperson Member Chairman of the Board +(1) On February 17, 2021, Mr. Crisafio informed the Company that he will not stand for re-election at the Annual Meeting. +(2) On February 20, 2020, Mr. Ellis was appointed Non-Executive Chairman of the Board. +(3) Mr. Ellis was a member of the Compensation Committee until his appointment as Non-Executive Chairman of the Board on February 20, 2020. +(4) On February 17, 2021, Mr. Ellis was appointed as Chairman of the N&G Committee. +10 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(5) On February 2, 2021, Ms. Ibrahim stepped down as Chairman of the N&G Committee, but she remains a member of the N&G Committee; on April 9 , 2021, Ms. Ibrahim informed the Company that she will not stand for re-election at the Annual Meeting . +(6) On February 20, 2020, Mr. Korus was appointed to the N&G and Audit Committees. +(7) On February 2, 2021, Mr. Nickerson was appointed as Interim Chairman of the N&G Committee; on February 17, 2021, Mr. Nickerson informed the Company that he will not stand for re-election at the Annual Meeting. +(8) Mr. Peterson was appointed to the Compensation Committee on February 20, 2020. +(9) Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, 2020 and did not stand for re-election at the 2020 Annual Meeting. At the request of the Board, Mr. Swoveland agreed to serve as a non-voting Director Emeritus of the Company beginning May 26, 2020 in order to, among other things, assist in transitioning the responsibilities of Non-Executive Chairman of the Board. Mr. Swoveland will step down as Director Emeritus on May 25, 2021. +(10) Mr. Swoveland served as a member of the Audit Committee until May 26, 2020. +(11) Mr. Swoveland served as a member of the N&G Committee until February 20, 2020. +AUDIT COMMITTEE +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on February 20, 2020 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by Securities and Exchange Commission (“SEC”) regulations. The Company’s website materials are not incorporated by reference into this Proxy Statement. +NOMINATING AND GOVERNANCE COMMITTEE +The Board has determined that all members of the N&G Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted a N&G Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +COMPENSATION COMMITTEE +The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S-K in 2020. During 2020, none of our executive officers served as a director or member of the Compensation +PDC ENERGY 2021 PROXY +11 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Compensation Committee or the Board. +AUDIT COMMITTEE +COMPENSATION COMMITTEE +NOMINATING AND GOVERNANCE COMMITTEE +Responsibilities: +⦁ Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; +⦁ Monitors the independence of the independent registered public accounting firm; and +⦁ Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Responsibilities: +⦁ Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +⦁ Evaluates the performance of and establishes the compensation of the CEO; +⦁ Reviews and approves the elements of compensation for other senior executive officers of the Company; +⦁ Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans; +⦁ Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation; +⦁ Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; +⦁ Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +⦁ Reviews and approves Company contributions to Company sponsored retirement plans. +Responsibilities: +⦁ Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies; +⦁ Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +⦁ Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; and +⦁ Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. +BOARD LEADERSHIP STRUCTURE +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Swoveland through February 2020, and Mr. Ellis thereafter, serves as Non-Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as the leader of the Company in front of our employees and stockholders. The Board evaluates this separated structure at least annually. +12 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +STOCKHOLDER RECOMMENDATIONS +The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company’s headquarters or by email to board@pdce.com . All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include: +● Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination Procedures; +● An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +● Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +● An indication of the willingness of the proposed nominee to serve if nominated and elected. +STOCKHOLDER NOMINATIONS +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures. +CORPORATE GOVERNANCE +GOVERNANCE HIGHLIGHTS +We believe that the Board has implemented a sound structure for the governance of the Company, including as a result of the following: +● Responsiveness to Stockholder Feedback : In 2019 and early 2020, we conducted a comprehensive engagement with our stockholders in order to better understand their views on compensation and corporate governance. In response to stockholder feedback, the Board made material changes to its 2020 executive compensation plan and amended the Company’s charter to proactively de-stagger the Board to provide for the annual election of Directors. +● Environmental, Social and Governance (“ESG”) Focus : We continue to place an emphasis on furthering our ESG progress and strategy and increasing transparency, including through our first inaugural Sustainability Report in 2020, proactive engagement with our key stakeholders and the development of environmentally-focused targets. +● Independent Board Leadership : Non-Executive Chairman Mark E. Ellis has decades of executive experience in the oil and gas industry and provides strong leadership and oversight of management. +● Majority Independent Directors : Currently, eight of our nine Directors are independent, and only independent Directors serve on our Board committees. The Company expects to have seven total Directors following the Annual Meeting, six of whom are independent. +● Continuous Board Refreshment : Over two-thirds of the Company’s Directors have been added to the Board within the past five years, including two in 2020 and the appointment and nomination of Ms. Sands and Mr. Sabater , respectively, in 2021, demonstrating commitment to continued refreshment. +PDC ENERGY 2021 PROXY +13 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Strong Independent Oversight : The majority of the Company’s Directors have significant operating, financial, strategic and other relevant experience in the oil and gas industry and with public companies. +● Share Ownership Requirement : Directors are required to hold a minimum number of shares of our common stock with a transition period for new directors. +● Majority Voting Policy : Except in the case of a contested election, any director who receives more “withhold” votes than votes in favor must tender his or her resignation. +● Stockholder-called Special Meetings and Action by Consent : Stockholders that have ten percent combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent. +● No Poison Pill : We do not have a poison pill. +● One Vote per Share : The Company does not have any super-voting shares. +CORPORATE GOVERNANCE GUIDELINES +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +● Director selection, qualification and responsibilities; +● The holding and frequency of executive sessions of independent directors, Board self-evaluation and senior executive performance reviews; +● Board committee structure and function; +● Succession planning; and +● Governance matters, standard of business conduct and Board committee responsibilities. +The Corporate Governance Guidelines were most recently amended as of May 26, 2020 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +UNCONTESTED ELECTIONS POLICY +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant. +14 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct is reviewed and acknowledged annually by the Board and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” In the event the Board approves an amendment to or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website. +FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS +There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement. +DIRECTOR INDEPENDENCE +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements. +The Board has reviewed the business and charitable relationships between the Company and each Non-Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non-Employee Director. +THE BOARD’S ROLE IN RISK MANAGEMENT +In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management process and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors. +PDC ENERGY 2021 PROXY +15 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +TRANSACTIONS WITH RELATED PARTIES +During 2020, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related-party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest. +Under our related-party transaction policy, a related-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related-party transactions and must disclose all material facts with respect to such transaction and relationship. All related-party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations. +OTHER CORPORATE GOVERNANCE DOCUMENTS +The Company’s website includes the following governance documents: +● Director Nomination Procedures +● Nominating and Governance Committee Charter +● Stock Ownership Guidelines +● Compensation Committee Charter +● Insider Trading Policy +● Code of Business Conduct and Ethics +● Shareholder Communication Policy +● Corporate Governance Guidelines +● Audit Committee Charter +COMMUNICATION WITH THE COMPANY BY STOCKHOLDERS +The Company values comprehensive engagement with its stockholders. Stockholders may communicate with the Company’s management by writing to the Company’s corporate headquarters or by emailing to IR@pdce.com , or with the Board or a committee of the Board by emailing to board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +16 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 2. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The stockholders of the Company are entitled to cast a non-binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say-on-pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held at the 2023 Annual Meeting of Stockholders, in accordance with SEC rules. +As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay-for-performance philosophy. In 2020, 87% of our CEO’s compensation and 82% of the compensation of our CFO, EVP – Corporate Development and Strategy, and General Counsel was made up of “at-risk” components. +Each of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long-term success. The Company also has demanding Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company. +The Compensation Committee considers the results of the non-binding “say on pay” vote of our stockholders in making prospective compensation decisions. At our 2020 Annual Meeting, over 95% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Notwithstanding the positive support for our compensation program, in response to shareholder feedback received throughout 2019 and early 2020 we further modified the program in 2020 to (i) increase the portion of our annual incentive program for our Named Executive Officers that is determined strictly by formula metrics from 50% to 75%, (ii) adjust the weighting of our long-term incentive program weighting for our CEO from 50% performance stock units (“PSUs”) and 50% time-based RSUs to 60% PSUs and 40% RSUs, and (iii) add an absolute total stockholder return modifier to our 2020 PSU grants. In addition, in response to the precipitous drop in commodity prices and negative impacts to our business during the first quarter of 2020 as a result of the COVID-19 pandemic, the Board instituted a 15% reduction in base salary for our Named Executive Officers beginning May 16, 2020 and continuing through October 3, 2020. +PDC ENERGY 2021 PROXY +17 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +In light of the foregoing, the Company believes that the compensation of the Named Executive Officers is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2021 Annual Meeting. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non-votes will not affect the outcome of this proposal. +EXECUTIVE COMPENSATION +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below. +BARTON R. BROOKMAN, 58, joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman on page 3. +LANCE A. LAUCK, 58, joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +R. SCOTT MEYERS, 46, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008. Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania. +NICOLE L. MARTINET, 44, joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011. Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 22 years of professional experience and holds a +18 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California. +DAVID J. LILLO, 56, was appointed as a member of the Senior Management Team for the Company in September 2020. He was promoted to Senior Vice President, Operations in March 2019 after joining the Company as Vice President, Operations in September 2015. Mr. Lillo has over 32 years of experience in exploration, production, and operations engineering management. Prior to joining the Company, Mr. Lillo was with Bonanza Creek Energy from 2013-2015 serving as Senior Vice President of Production & Operations, after being promoted from VP, Rocky Mountain Asset Management over the Rocky Mountain and Mid-Continent assets. From 2005-2013, Mr. Lillo held numerous positions with Noble Energy, Inc. including Development and Operations Manager, Manager of Major Projects and Infrastructure, and District Manager for the DJ Basin. Prior to that, he was with Patina Oil and Gas Corporation from 1998-2005, serving in positions of increasing responsibility, including Operations Manager and District Production Manager overseeing Wattenberg operations. Prior to 1998, Mr. Lillo held several operational and technical positions for various companies with operations in Kansas, North Dakota, and California. Mr. Lillo holds a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines. +Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman, Lauck and Reasoner were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. Lillo, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been settled. +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +David C. Parke, Chair +Christina M. Ibrahim +Randy S. Nickerson +Lynn A. Peterson +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +PDC ENERGY 2021 PROXY +19 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +COMPENSATION DISCUSSION AND ANALYSIS +During 2020, the COVID-19 pandemic presented unprecedented challenges, including the resulting drop in commodity prices which forced the Company to quickly shift its operational and strategic focus. The Company implemented new health and safety protocols, including adjusting to a full time remote work program for most employees. Despite these challenges, the Company successfully met its 2020 financial, operational and strategic goals as highlighted in more detail throughout this Compensation Discussion and Analysis (“CD&A”). As such, the Compensation Committee (referred to in this section as the “Committee”) decided to appropriately compensate its employees, including our Named Executive Officers, as further described below. +In establishing the Company’s compensation program, the Committee continuously considers feedback from the Company’s stockholders and its compensation consultant and strives to adhere to compensation best practices. As such, this CD&A illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2020, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2020 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers. This CD&A also includes our former Senior Vice President, Chief Operating Officer who would have been among the most highly compensated executive officers had he still been employed by the Company at year end. The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”: +OFFICER +TITLE +Barton R. Brookman +President and Chief Executive Officer +R. Scott Meyers +Senior Vice President—Chief Financial Officer +Lance A. Lauck +Executive Vice President—Corporate Development and Strategy +Nicole L. Martinet +Senior Vice President—General Counsel and Secretary +David J. Lillo (1) +Senior Vice President—Operations +Scott J. Reasoner (2) +Former Senior Vice President—Chief Operating Officer +(1) +Mr. Lillo was appointed to the Senior Management Team in September 2020. +(2) +On August 31, 2020, Mr. Reasoner retired as Senior Vice President—Chief Operating Officer. For a description of the amounts paid in connection with his retirement, see “Potential Payments upon Termination or Change of Control—Reasoner Retirement Agreement.” +EXECUTIVE SUMMARY +Response to COVID-19 Pandemic +In response to the COVID-19 pandemic and precipitous drop in commodity prices, resulting in negative impacts to our business during the first quarter of 2020, the Committee took the following actions: +● Temporarily reduced salaries for over 40% of Company employees, including a 15% reduction in base salaries for NEOs beginning May 16, 2020 and continuing through October 3, 2020; +● Temporarily reduced annual cash retainers for our Non-Employee Directors by 15% beginning April 1, 2020 and continuing through September 30, 2020; +20 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Temporarily eliminated the Non-Executive Chairman’s additional chair retainer beginning April 1, 2020 through September 30, 2020, resulting in a cumulative 50% reduction in his chair retainer for 2020; and +● Made the following changes to our 2020 short-term incentive program: +o Modified the quantitative metrics by removing four metrics previously approved in February 2020 (free cash flow margin, LOE and G&A per BOE, production and capital efficiency) and replacing them with three new metrics that were more appropriate measuring performance in light of the COVID-19 pandemic, our drastic cut in capital spending, lower commodity prices and our overall changed operational plans ( absolute free cash flow, absolute LOE and G&A, and leverage ratio); and +o Reduced the quantitative metric payouts from 100% to 50% for target performance and 200% to 100% for above target performance. +2020 Business Highlights +Despite the numerous challenges in 2020 due to the COVID-19 pandemic, the Company successfully integrated the assets, people and processes of SRC, while continuing to develop its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. The Company generated significant free cash flow in 2020 improving our balance sheet through the reduction of our absolute debt level. The Company also further enhanced its focus on ESG initiatives and commitment to best-in-class environmental and safety practices and consistent stakeholder engagement. +Key highlights and achievements in 2020 are illustrated and further described below: +(1) +Free cash flow, a non-GAAP financial measure, is defined as net cash from operating activities, before changes to working capital, less oil and gas capital investments. See Appendix A for reconciliation. +PDC ENERGY 2021 PROXY +21 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Key Compensation Actions and Outcomes +In 2020, the Committee implemented the following key design changes to our executive compensation program design: +● Utilized a more formulaic approach to the annual cash incentive program based on 75% quantitative metrics and 25% qualitative performance goals; +o added absolute free cash flow, absolute LOE and G&A, and leverage ratio as quantitative metrics; +o removed adjusted cash flow/debt adjusted share, free cash flow margin, capital efficiency and production as quantitative metrics from 2019; +o in response to the COVID-19 pandemic, the Committee reduced payout opportunities from 100% to 50% for target performance and 200% to 100% for above target performance; +● Increased weighting of PSUs for the CEO from 50% to 60%, with long-term equity awards granted in the form of RSUs comprising the remaining 40%; and +● Adopted an absolute stock price modifier and payout cap to PSUs to better align with absolute stockholder performance. +The Committee made the following pay outcome determinations for our NEOs for fiscal year 2020: +● The Committee kept base salaries flat year over year, other than for Ms. Martinet, whose salary was increased to bring it closer to the market median as the number of years in her role increases; and +● The Compensation Committee kept target bonus percentages and long-term incentive amounts flat year over year, other than for Mr. Meyers and Ms. Martinet, who received modest increases in both categories to bring them closer to the market median. +In February 2021, our Compensation Committee evaluated the Company’s 2020 financial, operational and strategic accomplishments in determining the following pay outcomes: +● A 2020 annual cash incentive payout at 96% of target; and +● 2018 PSU awards ranked at the 65th percentile of peers, which would ordinarily correlate to a 138% payout based on PDC’s relative three-year TSR performance. This award, however, was reduced to 100% of target due to the negative stock price returns over the three-year period. The value realized, based on a 2020 year-end stock price of $20.53, represented 40% of the targeted grant date value. +22 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Compensation Best Practices +We believe our executive compensation program is aligned with current governance trends, and contains stockholder-friendly features as outlined below: +Our Practices +(What We Do) +Practices We Have Not Implemented +(What We Don’t Do) +✓ Pay for Performance —Our NEOs’ total compensation is heavily weighted toward performance-based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ Executive Ownership Guidelines —We have Stock Ownership Guidelines for our executives and directors that are consistent with what we believe to be corporate governance best practices. +✓ External Benchmarking —We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. +✓ Double-Trigger Change-of-Control Severance Benefits —In the event of a change of control, our severance plan and our grandfathered employment contract provide for cash severance benefits only if the executive is actually or constructively terminated without cause following the change of control event. +✓ Clawback Policy —We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws. +✓ Compensation Doesn’t Encourage Excessive Risk —There is an appropriate balance between long-term and short-term focus in our compensation programs and the Committee has the ability to apply negative discretion to annual cash incentive payouts to ensure risk mitigation occurs in management decision-making. +✓ Independent Compensation Consultant —We have engaged an independent compensation advisor who reports directly to the Committee. +✓ Independent Compensation Committee —Our Committee is comprised solely of independent directors. +✘ No Golden Parachute Excise Tax Gross-Ups —We do not provide gross-up payments to reimburse our executives for any tax obligations that would be incurred upon a change of control of the Company. +✘ No New Employment Contracts and/or Excessive Severance Benefits —We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment agreement are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or similar practices. +✘ No Excessive Perquisites —We provide only modest perquisites that are consistent with peer companies in our industry. +✘ No Repricing —We do not permit repricing of underwater stock options/SARs without stockholder approval. +✘ Prohibited Transactions —Hedging transactions, short selling, short-term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long-term business objectives of the Company are strictly prohibited for all officers and directors of the Company under our Insider Trading Policy. +PDC ENERGY 2021 PROXY +23 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Responsiveness to Stockholder Interests and Market Environment +At our 2020 Annual Meeting, over 95% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Based on stockholder feedback and our analysis of market and business trends, we have made a number of changes over the years to ensure our compensation program remains responsive to stockholder feedback and evolving market conditions. We also continue to move towards a more formulaic bonus program, eliminating discretion, to establish a methodology strictly tied to achievement of performance metrics. +EXECUTIVE COMPENSATION PHILOSOPHY +The principal tenets of our compensation philosophy are as follows: +● Our executive compensation programs should be designed to align our executives’ interests with those of our stockholders. We continue to evolve our executive compensation programs to meaningfully address stockholder feedback and adopt best practices. A substantial portion of our NEOs’ compensation is provided in the form of long-term equity incentives that tie executive pay to stock price performance. In addition, we require each of our NEOs to remain compliant with our Stock Ownership Guidelines. +● Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +● Our executive compensation programs should be designed to support a performance-based culture. The majority of each NEO’s compensation is at-risk and is based on a combination of attainment of short-term goals in support of our long-term strategy, long-term stock performance relative to our peers, and actual total shareholder return. Our programs require a commitment to performance because total compensation is not guaranteed. Therefore, our programs provide above-target compensation when performance is warranted and below-target compensation when performance does not meet expectations. +24 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Our executive compensation programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include three-year vesting schedules on all equity awards, and structured annual cash incentive awards using a payout that is comprised 75% of a formulaic determination based on quantitative short-term financial and operational objectives and 25% based on a review of qualitative strategic objectives, including those related to health, safety and the environment. We regularly review our compensation programs to ensure that our NEOs are not encouraged to take inappropriate or excessive risks. +2020 COMPENSATION PROGRAM DESIGN AND DECISIONS +Components and Purpose of Executive Compensation Program +Our executive compensation program is comprised of the following primary compensation elements: +2020 COMPENSATION ELEMENTS +2020 ROLE IN TOTAL COMPENSATION +Base Salary +● Compensates executives for their level of responsibility, skills, capabilities, experience and leadership. +Annual Cash Incentives +✓ Cash Bonus – 75% based on quantitative metrics; 25% based on qualitative goals +● Rewards annual performance and aligns participants’ compensation with short-term financial, operational and strategic objectives specific to each calendar year; +● Motivates participants to meet or exceed internal and external performance expectations; and +● Recognizes individual contributions to the organization’s overall results. +Long-Term Equity-Based Incentives +✓ Performance Share Units (PSUs) – +60% for our CEO; 50% for other NEOs +✓ Restricted Stock Units (RSUs) – +40% for our CEO; 50% for other NEOs +● Rewards long-term performance directly aligned with stockholders’ interests; +● Provides a strong performance-based equity component; +● Recognizes and rewards share performance relative to industry peers; +● Aligns compensation with sustained long-term value creation; +● Helps executives to acquire a meaningful and sustained ownership stake; and +● Fosters executive retention by vesting awards over multiple years. +PDC ENERGY 2021 PROXY +25 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Compensation Mix +By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2020. Eighty-seven percent of our CEO’s compensation and 82% of our other NEOs’ (excluding Mr. Lillo and Mr. Reasoner) compensation was made up of variable or “at-risk” components. +The charts above are based on 2020 base salaries, target bonus amounts with respect to 2020 annual cash incentive awards and the target values of the 2020 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance metrics and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. Mr. Lillo is excluded from the Named Executive Officer compensation calculation due to the fact he was promoted to the Company’s Senior Management Team in September 2020 and did not receive PSUs or additional RSUs in connection with his promotion, making it such that his 2020 compensation mix is not reflective of our executive compensation program design. Mr. Reasoner is also excluded from the Named Executive Officer compensation calculation due to his retirement from the Company in September 2020. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation. +Pay for Performance +Our executive compensation program is designed to align Company performance with the interests of our stockholders. The majority of our executives’ pay is tied to the short- and long-term performance of the Company and our absolute and relative stock price performance. The following table illustrates the alignment +26 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +of pay and performance by comparing our CEO’s targeted compensation opportunity awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2020. +Methodology +Target Pay +Realizable Pay +● Base salary rate as of year-end +● Target annual cash incentive based on salary rate +● Intended equity award grant values for grants made in each year +● Base salary rate for the year +● Actual annual cash incentive paid for 2018, 2019 and 2020 performance +● Long-term incentive value of grants made in each year as of Dec 31, 2020 stock price ($20.53) +✓ SARs: In-the-money value +✓ Restricted Stock: number of shares granted x Dec 31, 2020 stock price (assumes all shares, vested/unvested, are held through Dec 31, 2020) +✓ Performance Award: target number of shares x relative TSR ranking factor x Dec 31, 2020 stock price (note: all performance awards have been reduced to target level based on negative stock price returns) +Base Salaries +In determining base salary adjustments for 2020, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, for 2020, the Committee held NEO salaries flat except for Ms. Martinet whose base salary was increased to reflect the Committee’s determination to bring her base salary closer to the market median over time, as the number of years in her role increases. +However, given the severe downturn in commodity prices and anticipated impacts to the Company’s business in the early part of 2020 due to the COVID-19 pandemic, we implemented a salary reduction for a majority of our employees, including our NEOs who took a voluntary 15% reduction to their base salaries from May 16, 2020 through October 3, 2020. End of year base salaries and reduced 2020 base salaries for our NEOs are as follows: +Year End +Reduced +Year End +NAMED EXECUTIVE OFFICER +2019 +2020 +2020 +Barton R. Brookman +$ +850,000 +$ +803,000 +$ +850,000 +R. Scott Meyers +425,000 +401,000 +425,000 +Lance A. Lauck +455,000 +430,000 +455,000 +Nicole L. Martinet +325,000 +378,000 +400,000 +David J. Lillo (1) +— +378,000 +400,000 +PDC ENERGY 2021 PROXY +27 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(1) Mr. Lillo was appointed to the Senior Management Team in September 2020; his base salary increased effective September 1, 2020 in connection with his appointment. +Annual Incentive Awards +Bonuses under the Company’s 2020 annual incentive program were based 75% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Compensation Committee and 25% based on the Compensation Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2020 Performance Metrics – Quantitative and Qualitative.” +Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%. +Target Bonus Amounts +The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% - 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. In February 2020, based upon its review of peer compensation data, the Committee decided to increase the target annual cash incentive for Mr. Meyers and Ms. Martinet to bring their target awards closer to the market median for their respective positions. The 2020 target annual cash incentive award levels for each NEO are as follows: +Target Annual +Cash Incentive as +% of Base Salary +NAMED EXECUTIVE OFFICER +2019 +2020 +Barton R. Brookman +115 +% +115 +% +R. Scott Meyers +80 +% +90 +% +Lance A. Lauck +90 +% +90 +% +Nicole L. Martinet +70 +% +80 +% +David J. Lillo (1) +— +% +80 +% +Scott J. Reasoner +90 +% +90 +% +(1) Mr. Lillo was appointed to the Senior Management Team in September 2020; his annual cash incentive target was increased to 80% effective September 1, 2020 in connection with his appointment. +28 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 PERFORMANCE METRICS – QUANTITATIVE AND QUALITATIVE +In 2020, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2020 budget and operating plans, as revised in response to the COVID-19 pandemic as described below. These metrics are used to ensure we balance operational objectives with capital discipline. During 2020, we also developed the qualitative corporate performance goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2020 were as follows: +2020 Corporate Metrics Methodology +In February 2020, the Committee originally approved the 2020 quantitative metrics to be used in our 2020 short-term incentive program; however, in response to the COVID-19 pandemic, in May 2020, the Committee modified the quantitative metrics by removing four metrics previously approved for 2020 (free cash flow margin, LOE and G&A per BOE, production, and capital efficiency) and replacing them with three new metrics that were more appropriate for measuring performance in light of the COVID-19 pandemic, our drastic cut in capital spending, lower commodity prices, and our overall changed operational plans (absolute free cash flow, absolute LOE and G&A, and leverage ratio). The Committee also reduced short-term incentive payout opportunities for 2020 from 100% to 50% for target performance and 200% to 100% for above target performance. At that time, given the unforeseen impacts on the economy due to the COVID-19 pandemic and the precipitous drop in commodity prices, the Committee also reserved the right to award no bonuses for 2020 even if quantitative and qualitative metrics were achieved. +The Committee generally reserves the right to adjust the quantitative metrics for certain categories of adjustments that are pre-approved by the Committee at the time the 2020 quantitative metrics are established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements or similar events, as further described in “2020 Results on Quantitative Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long-term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year. +PDC ENERGY 2021 PROXY +29 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Results on Quantitative and Qualitative Metrics +2020 Assessment on Quantitative Corporate Metrics +In early 2021, the Committee reviewed the Company’s 2020 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were achieved at well above target level (and in most cases above the maximum level), corresponding to a payout at 96% of target, as follows: +Actual performance was modified for certain categories of adjustments approved by the Committee at the time the 2020 quantitative metrics were established, as follows: +● EHS excludes incidents outside of PDC’s control, such as injuries sustained in no-fault vehicle accidents, bee stings and third-party actions against PDC employees. Targets apply to assets operated for an entire calendar year (and, in 2020, assets acquired in the SRC merger). +● Free Cash Flow, a non-GAAP financial measure, was not adjusted to an assumed base case oil price. Capital investments are the same as reported in year-end results, and exclude corporate capital. See Appendix A for reconciliation. +● LOE and G&A exclude legal-related costs in excess of $2.5 million, deal costs in excess of $5 million, Colorado ballot initiative expenditures in excess of $2 million, the net impact of severance and retirement costs, costs associated with capital market transactions or debt restructuring and variance in actual bonus to be paid versus mid-year forecasts. +● Cash Return on Capital Invested (“CROCI”) excludes acquisition and divestiture activity valued at more than $5 million, including effects on adjusted cash flow and PP&E, valuation changes greater than $5 million for SRC (compared to an estimated $1.7 billion) and the cumulative effect of adjustments to other metrics. +● Leverage ratio excludes A&D activity, capital market transactions and debt restructuring. +30 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Assessment on Qualitative Corporate Metrics +The Committee establishes qualitative metrics tied to the Company’s strategic priorities, which include additional environmental, health and safety goals; building a best-in-class organization through streamlined communications and efficient processes; technological innovations; top-tier performance and financial metrics; maintaining competitive high-value inventory; and delivery of sustainable, peer-competitive results. Based on its review and measurement of the Company’s 2020 qualitative goals, the Committee determined that the Company achieved all of its 2020 qualitative goals, demonstrating significant accomplishments during the year, including the following: +● Met environmental, health and safety training, compliance and reporting milestones; +● Successfully implemented COVID-19 protocols while maintaining operational excellence; +● Shared situational updates and contingency plans through regularly scheduled management communications to employees; +● Further developed and implemented an ESG strategy and execution plan, including finalization of a working team and publication of an inaugural Sustainability Report with 70% alignment with the Sustainability Accounting Standards Board (“SASB”) standards; +● Successfully met technology enterprise resource planning project milestones and integrated SRC data into the Company’s systems in accordance with the approved project plan and timeline; +● Curtailed high-cost production activities in response to the COVID-19 pandemic and the mid-year drop in commodity prices, then quickly returned once conditions improved, achieving maximum financial results; and +● Reduced LOE below revised forecasts through price re-negotiations and optimized runtime of wells. +Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 96% of target. +2020 Bonus Awards +In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2020 performance were as follows: +2020 ANNUAL +NAMED EXECUTIVE OFFICER +BONUS +Barton R. Brookman +$ +938,400 +R. Scott Meyers +$ +367,200 +Lance A. Lauck +$ +393,120 +Nicole L. Martinet +$ +307,200 +David J. Lillo +$ +307,200 +Scott J. Reasoner (1) +$ +263,390 +(1) +Mr. Reasoner received a pro-rated annual cash bonus based on his service through his retirement date of August 31, 2020. +LONG-TERM INCENTIVE AWARDS +To align our long-term incentives with the interests of our stockholders over the long term and with our pay-for-performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These awards ensure that a meaningful portion of our NEOs’ compensation is at risk based on stock price performance and provides NEOs with significant equity ownership in the Company. In 2020, equity grants were allocated 60% to PSUs and 40% to time-based RSUs for our CEO and 50% to PSUs and 50% to time- based RSUs for all other NEOs. In addition, in 2020 the Company adopted an absolute stock price modifier to its PSUs to better align with absolute stock performance. +PDC ENERGY 2021 PROXY +31 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Award Types and Terms +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +PSUs +Align compensation with the Company’s total shareholder return (“TSR”) relative to a group of peers in the industry. +The value of PSUs is dependent on both absolute stock price performance and relative TSR performance over a three-year period. +PSUs are denominated in units of Company stock with payout in shares of stock (or cash) based on the Company’s relative TSR over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer companies. In 2020, the Company added an absolute stock price modifier to better align with absolute stock performance. +For 2020, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group. See “Compensation Peer Group.” +The 2020 PSUs measure TSR over the performance period from January 1, 2020 through December 31, 2022, with payouts as follows: +Should the Company finish in the top quartile of relative TSR and exceed the 15% annualized threshold, warranting a >250% payout, the actual payment will be capped at 250%. Should the Company finish in the bottom quartile of relative TSR, warranting a 0% payout, but also exceed the 15% annualized TSR threshold, a 50% payout will be made in lieu of the otherwise calculated 0% payout. No changes will be made in any other scenario. +To provide for a consistent number of peers throughout the performance period, the award agreement defines how a peer that, among other things, is acquired, merged, delisted, or enters bankruptcy, is treated in determining its TSR performance ranking. +PSUs are generally forfeited if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +RSUs +Align compensation directly with the Company’s stock price, encourages retention and increases stock ownership in the Company +Notional units that entitle the holder to receive an equal number of shares of stock upon vesting. Awards vest annually over three years; and unvested awards are generally forfeited by the NEO if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +32 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Long-Term Incentive Awards +We typically determine the dollar value of the long-term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long-term incentives to be primarily forward-looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2020, the Committee adjusted long-term incentive values for Mr. Meyers and Ms. Martinet to further align the value of the long- term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2020. +Target Value +RSUs +PSUs +Name +($) +(#) +(#) +Barton R. Brookman +$ +4,600,000 +83,712 +125,569 +R. Scott Meyers +1,780,000 +40,491 +40,491 +Lance A. Lauck +1,780,000 +40,491 +40,491 +Nicole L. Martinet +1,100,000 +25,023 +25,023 +David J. Lillo (1) +558,777 +25,422 +— +Scott J. Reasoner +1,780,000 +40,491 +40,491 +(1) Mr. Lillo was appointed to the Senior Management Team in September 2020. Mr. Lillo’s target value and RSUs reflected herein were awarded prior to his promotion; he did not receive additional RSUs or PSUs upon promotion. +The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five-day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2020 Grants of Plan- Based Awards table is based on the grant date fair value of the awards on the date of grant. +PDC ENERGY 2021 PROXY +33 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2018-2020 Performance Share Unit (PSU) Payout +In 2018, we granted PSUs covering the three-year period from January 1, 2018 through December 31, 2020. The Company’s relative TSR for the performance period ranked at the 65th percentile of its peers, which would generally correlate to a payout of 138% of target; however the payout was reduced by the terms of the PSU grant agreement to 100% of target due to the negative absolute stock price performance over the three-year measurement period. See the “Option Exercises and Stock Vested” table below for the actual amounts received by each NEO. Due to the decline in stock price over the three-year period, the value earned at vesting was 40% of the original target value (based on a 2020 year-end stock price of $20.53). The chart below shows the members of the peer group used for the 2018 grant, each company’s TSR performance and their relative rankings at the end of the period. +Company +TSR +Rank +% Rank +Preliminary +Payout % +Adjusted +Payout % (1) +WPX Energy, Inc. +(39%) +1 +100% +200% +Parsley Energy, Inc. +(48%) +2 +93% +200% +Energen Corp. (2) +(50%) +3 +86% +190% +Diamondback Energy, Inc +(57%) +4 +79% +173% +Matador Resources Company +(58%) +5 +72% +155% +PDC Energy, Inc. +(58%) +6 +65% +138% +100% +RSP Permian (3) +(66%) +7 +58% +120% +SRC Energy (4) +(72%) +8 +50% +100% +SM Energy Company +(72%) +9 +43% +86% +NewField Exploration Co. (5) +(74%) +10 +36% +72% +QEP Resources, Inc. +(75%) +11 +29% +58% +Carrizo Oil and Gas, Inc. (6) +(77%) +12 +22% +0% +Callon Petroleum (7) +(88%) +13 +15% +0% +Laredo Petroleum, Inc. (7) +(91%) +14 +8% +0% +Oasis Petroleum, Inc. (8) +(100%) +15 +0% +0% +(1) If PDC’s TSR is less than 0%, the maximum payout that could be earned is 100%. If PDC's TSR is an averaged annualized return of 15% (52.0875% over 3 years), the minimum payout that can be earned is 50%. +(2) Energen Corp. was acquired by Diamondback Energy with a final trading date of 11/30/18. The successor index was used subsequently. +(3) RSP Permian was acquired by Concho Resources with a final trading date of 7/19/18. The successor index was used subsequently. +(4) SRC Energy was acquired by PDC Energy with a final trading date of 1/13/20. The successor index was used subsequently. +(5) Newfield Exploration was acquired by Ovintiv Inc. with a final trading date of 2/13/19. The successor index was used subsequently. +(6) Carrizo Oil and Gas was acquired by Callon Petroleum with a final trading date of 12/20/19. The successor index was used subsequently. +(7) Callon Petroleum underwent a 1 for 10 reverse stock split on 8/4/20. Laredo Petroleum underwent a 1 for 20 reverse stock split on 5/14/20. Year-end average share price for each company reflects a post-split equivalent price. +(8) Oasis Petroleum Inc. filed for chapter 11 on 9/30/20 and force-ranked to last place. +34 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OTHER ELEMENTS OF COMPENSATION +In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry. +Element +Description and Purpose +Health and Welfare Benefits +We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees. +Retirement Benefits (401(k) and Profit Sharing) +We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit Sharing Plan. The Company provides a 10% dollar-for-dollar match up to IRS limits plus a Profit Sharing contribution that can range from 0% - 5% on an annual basis (up to IRS limits). Our NEOs participate in our 401(k) and Profit Sharing Plan on the same basis as all other employees up to the IRS allowable limit. +For 2020, the 401(k) Match and Profit Sharing Contribution for each NEO is shown in the Summary Compensation Table. +Perquisites +We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non-golf club dues, and annual physicals. +For 2020, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table. +Severance and Change of Control Arrangements +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre-established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry. +For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control.” +PDC ENERGY 2021 PROXY +35 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2021 COMPENSATION PROGRAM AND BOARD CHANGES +For 2021, the Company made additional changes to its compensation program and Board composition, including the following: +● To emphasize our commitment to ESG, strong corporate governance and focus on shareholder returns, the Committee added certain qualitative goals to our 2021 short-term incentive program related to emission reduction, increased SASB alignment in our 2020 Sustainability Report, shareholder returns and board refreshment. +● The Company engaged Russell Reynolds Associates to conduct a director search which resulted in the appointment of a new diverse independent Director in February 2021 and the nomination of an additional diverse independent Director for election at this Annual Meeting. Following the Annual Meeting, it is expected that: +o Four out of six of the Company’s independent directors will have joined the Company within the last two years; and +o Average board tenure will be reduced by approximately 33.3% to 4 years following the Annual Meeting. +COMPENSATION POLICIES AND PRACTICES +Process for Determining Executive Compensation +Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management and the Consultant before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares). +In determining target total direct compensation for our NEOs, we consider the following: +● Our compensation objectives and philosophy; +● Each NEO’s scope of responsibility, expertise and tenure; +● The CEO’s assessment of the individual’s performance and recommendation regarding the compensation of the other NEOs; and +● Market data for target total direct compensation (base salary, bonus targets and long-term incentives) from the peer group. +Our view is that an executive’s target compensation should reflect the current market value for that position provided the executive has performed well in the prior year. We may adjust the mix of cash and long-term incentives, but we generally target around the median of the market in total direct compensation taking into account the factors listed above, although it often takes time for newly-promoted executives’ compensation to reach the market median. +Assessing the Effectiveness of Our Compensation Programs +Annually, we review summaries of each NEO’s compensation history, as well as all compensation payable upon each NEO’s termination of employment, including upon a change of control of the Company. We also do a “look-back” of realized pay relative to our peers and our share price performance to assess whether our +36 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +programs as designed are truly paying for performance. The Committee uses these tools in addition to feedback from our stockholders, to determine whether changes to our program are needed. +Compensation Peer Group +In September 2019, the Committee approved the composition of the peer group of companies used for determining 2020 compensation. In selecting the peer group, the Committee considered whether changes to the previous year’s peer group are warranted based upon changes in the size, operations and/or capital structure of either the Company and/or the current or potential peer companies, including the following: +● Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including market capitalization, enterprise value, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current peer company; +● Assessment of this same information on potential new peers; and +● Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status). +Once identified, the Committee typically utilizes this peer group for the following: +● Compensation Benchmarking—to determine competitive total target direct compensation including base salaries, bonus targets and equity-based grants; +● Total Shareholder Return—to measure relative total shareholder return under the Company’s PSU awards; and +● Director Compensation—to determine outside directors’ compensation. +Peer group compensation practices are determined using a combination of compensation data disclosed in the peers’ proxy statements and survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” The Company also uses this same survey as well as other industry surveys for determining compensation practices for the broader industry. The table below shows the peer groups for 2019 and 2020. +2019 Peers +2020 Peers (1) +Callon Petroleum Company +Added +Callon Petroleum Company +Carrizo Oil & Gas Inc. +Centennial Resource Dev. +Centennial Resource Dev. +Devon Energy Corporation +Cimarex Energy Co. +Cimarex Energy Co. +Magnolia Oil & Gas Corp. +Devon Energy Corporation +Extraction Oil & Gas, Inc. +Whiting Petroleum Corporation +Extraction Oil & Gas, Inc. +Jagged Peak Energy, Inc. +Magnolia Oil & Gas Corp. +Laredo Petroleum Holdings, Inc. +Matador Resources Company +Matador Resources Company +Removed +Oasis Petroleum, Inc. +Oasis Petroleum, Inc. +Parsley Energy, Inc. +Parsley Energy, Inc. +Carrizo Oil & Gas Inc. +QEP Resources, Inc. +QEP Resources, Inc. +Jagged Peak Energy, Inc. +SM Energy Company +SM Energy Company +Laredo Petroleum Holdings, Inc. +Whiting Petroleum Corporation +SRC Energy Inc. +SRC Energy Inc. +WPX Energy, Inc. +WPX Energy, Inc. +PDC ENERGY 2021 PROXY +37 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(1) In 2020, the Committee made the following changes to the 2021 peer group: +o Added: Continental Resources, Inc., CNX Resources Corporation, Diamondback Energy, Inc., Ovintiv, Inc., and Range Resources Corporation +o Removed: Callon Petroleum Company, Extraction Oil & Gas, Inc., Oasis Petroleum Inc., Parsley Energy, Inc., QEP Resources, Inc., and WPX Energy, Inc. +Role of Independent Compensation Consultant +The Committee has engaged Meridian Compensation Partners as an independent compensation consultant (the “Consultant”) to help ensure that executive compensation programs are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +● The Consultant’s reputation supporting compensation committees and familiarity with our executive compensation program design; +● Experience of the Consultant in the energy exploration and production industry; +● Range of compensation services offered by the Consultant; and +● Independence of the Consultant, considering the independence factors outlined by the SEC. +The Committee determines the scope of the Consultant’s engagement, which includes: +● Providing input into peer group identification and assessment; +● Providing benchmarking on executive and outside director compensation for the Committee to use in its decision-making process; +● Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites); +● Reviewing and providing feedback on the compensation-related disclosures in our proxy statement; and +● Informing us about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +● The Consultant does not make recommendations on or approve the amount of compensation of any NEO; +● The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant; +● The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +● The Consultant attends Committee meetings as requested. +The Committee annually reviews the engagement of the Consultant, and as a part of that process, reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, the Consultant did not perform any material services for the Company. The Consultant did not have any business or personal relationships with Committee members or executive officers of the Company, and did not own any stock of the Company. The Consultant maintains policies and procedures designed to avoid such conflicts of +38 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +interest. Accordingly, the Committee determined that the Consultant was not subject to any significant conflicts of interest. +Role of Management +Our CEO plays a significant role in determining the compensation levels of our NEOs, which includes: +● Recommending quantitative and qualitative performance measures under our annual cash incentive program; +● Assessing the performance of the other NEOs; and +● Recommending base salaries, annual incentive targets and long-term incentive awards for the forthcoming year, and annual incentive awards for the prior year. +At the Committee’s request, the CEO and other NEOs may also play a role in determining the following: +● Quantitative and qualitative performance measures under our annual incentive program; +● Proposed peer group companies; +● Design changes to our compensation and benefits programs; and +● Assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program. +The Committee determines each element of the CEO’s compensation with input from the Consultant. The Committee also determines each element of compensation for the other NEOs with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation. +Other Policies and Considerations +Tax and Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 409A, Section 280G and Section 4999 of the Code. Currently, none of our severance arrangements or agreements provide for a gross-up for excise tax under Code Section 280G and Section 4999 and all of our programs are intended to be either exempt from or to comply with Code Section 409A. We note that Section 162(m) of the Code limits the amount of compensation that we may deduct in any year to $1,000,000 per person with respect to our CEO and certain other highly compensated executive officers whose compensation is or has been included in the Company’s proxy statement. We may be permitted to deduct certain historic items of compensation in excess of the $1,000,000 per person annual limit under certain 162(m) grandfathering rules, although such deductibility is not guaranteed, and the focus of our programs is on driving Company performance, irrespective of whether compensation may be non-deductible because of the application of Code Section 162(m). +Clawback Policy +The NEOs are currently either covered under our clawback policy or, in the case of Mr. Lauck, a clawback provision in his grandfathered employment contract. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all or a portion of their annual bonus, as described below, if the Company is required to restate its financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected year(s) and the bonus that would have +PDC ENERGY 2021 PROXY +39 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in applicable statutes or regulations and are subject to revision based on the SEC clawback rules under Section 954 of the Dodd-Frank Act, when finalized. +Stock Ownership +We have established Stock Ownership Guidelines for NEOs that are reviewed annually when compensation decisions are made. In satisfying the Stock Ownership Guidelines, NEOs are expected to: +● Comply with the ownership guidelines within five years of becoming a NEO; and +● Retain the net shares acquired through the vesting of RSUs, the exercise of SARs, and the settlement of PSUs if the NEO has not satisfied the required ownership level. +As of December 31, 2020, all of our NEOs exceeded the minimum stock ownership requirements, except Ms. Martinet and Mr. Lillo who became NEOs in 2019 and 2020, respectively, and are still within their compliance grace periods, as set forth in the table below. +Number of +Number of +Stock +Shares +Qualifying +Ownership +Required To +Shares Owned +Name/Year of Executive Status +Guidelines +Own (1) +at Year End +Barton R. Brookman (2008) +5x Base Salary +221,239 +318,807 +R. Scott Meyers (2018) +3x Base Salary +66,372 +76,637 +Lance A. Lauck (2009) +4x Base Salary +94,742 +144,223 +Nicole L. Martinet (2019) +3x Base Salary +62,467 +37,895 +David J. Lillo (2020) +3x Base Salary +62,467 +61,478 +(1) +Using the average daily closing price of the Company’s stock in December 2020, which was $19.21. +Qualifying holdings used to determine compliance with the minimum ownership requirements include stock owned directly and unvested time-based RSUs. PSUs and SARs are not included. Stock ownership requirements applicable to our NEOs are described under our Stock Ownership Guidelines, which can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Risk Management +We perform an annual risk assessment regarding our compensation programs. Based on our most recent assessment, we do not believe the Company’s executive or non-executive compensation structure is reasonably likely to have a material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: a balance of short-term and long-term incentive programs to maintain focus on both elements of Company performance; limitations on awards payable to any individual under our incentive programs, along with Compensation Committee discretion to decrease the qualitative portion of annual incentive payouts in the event it believes excessive risk was taken; “clawback” provisions applicable to all NEOs through the terms of their employment agreements or the Company’s Clawback Policy; stock ownership requirements for our NEOs and Non-Employee Directors; and an Insider Trading Policy that prohibits Directors and senior employees from transacting in Company shares without first obtaining pre-clearance from the Company’s General Counsel, even during open trading windows. +40 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SUMMARY COMPENSATION TABLE +Nonequity +Stock +Options/ +Incentive Plan +All Other +Total +Salary (1) +Bonus +Awards (2)(3) +SARs +Compensation +Compensation (4) +Compensation +Name and Principal Position +Year +($) +($) +($) +($) +($) +($) +($) +Barton R. Brookman +2020 +$ +803,000 +$ +— +$ +6,085,896 +$ +— +$ +938,400 +$ +53,911 +$ +7,881,207 +President and Chief +2019 +850,000 +— +5,803,410 +— +1,017,000 +59,880 +7,730,290 +Executive Officer +2018 +850,000 +978,000 +5,084,135 +— +— +55,688 +6,967,823 +R. Scott Meyers +2020 +401,000 +— +2,265,067 +— +367,200 +40,500 +3,073,767 +Senior Vice President, +2019 +425,000 +— +1,912,564 +— +354,000 +55,088 +2,746,652 +Chief Financial Officer +2018 +370,000 +341,000 +1,182,391 +— +— +76,173 +1,969,564 +Lance A. Lauck +2020 +430,000 +— +2,265,067 +— +393,120 +49,600 +3,137,787 +Executive Vice President, +2019 +455,000 +— +2,242,214 +— +426,000 +55,056 +3,178,270 +Corp. Dev. and Strategy +2018 +435,000 +451,000 +1,832,621 +— +— +51,306 +2,769,927 +Nicole L. Martinet +2020 +378,000 +— +1,399,787 +— +307,200 +44,297 +2,129,284 +Senior Vice President, +2019 +325,000 +— +791,409 +— +237,000 +48,156 +1,401,565 +General Counsel and Secretary +2018 +— +— +— +— +— +— +— +David J. Lillo (5) +2020 +424,000 +— +159,904 +— +307,200 +48,200 +939,304 +Senior Vice President, +2019 +— +— +— +— +— +— +— +Operations +2018 +— +— +— +— +— +— +— +Scott J. Reasoner +2020 +325,500 +— +4,378,035 +(6) +— +263,390 +126,205 +5,093,131 +Senior Vice President, +2019 +455,000 +— +2,242,214 +— +426,000 +55,696 +3,178,910 +Chief Operating Officer +2018 +425,000 +440,000 +1,773,586 +— +— +52,990 +2,691,576 +(1) 2020 salaries reflect the temporary 15% reductions from May 16, 2020 through October 3, 2020 in response to the COVID-19 pandemic. +(2) In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of RSU and PSU awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 13 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 25, 2021. The 2020 grants are described in “Long-Term Equity-Based Incentive Awards” and detailed in the “2020 Grants of Plan-Based Awards” table. +(3) 2020 PSUs included in the stock awards total for Messrs. Brookman, Meyers, Lauck and Reasoner, and Ms. Martinet are listed at their grant date fair values, as computed utilizing the Monte Carlo pricing model, which was $33.52 per share, calculated at target as $4,209,073, $1,357,258, $1,357,258, $1,189,747, and $838,771, respectively. Assuming the maximum level of achievement of the performance conditions for the 2020 PSUs, the values of the 2020 PSU awards at the grant date fair values, as computed utilizing the Monte Carlo pricing model, which was $33.52 per share, for Messrs. Brookman, Meyers, Lauck and Ms. Martinet are calculated as $10,522,682, $3,393,146, $3,393,146 and $2,096,927, respectively. +(4) Amounts shown in this column for 2020 are detailed below in the “All Other Compensation” table. +(5) Mr. Lillo was appointed to the Senior Management Team in September 2020. His 2020 salary includes $45,756 in accrued paid time off paid out in connection with his appointment. His 2020 compensation also includes RSUs granted to him prior to his appointment. He did not receive PSUs in 2020. +(6) All unvested RSUs and PSUs held by Mr. Reasoner immediately prior to his retirement vested as of the effective date of his retirement agreement, with the unvested PSUs vesting at 100% of target. Amounts reported for 2020 therefore include (i) $2,265,066 of expense associated with actual 2020 RSU and PSU grants, plus (ii) $2,112,970 of expense associated with the vesting of unvested RSUs and PSUs upon Mr. Reasoner’s retirement (of which $1,226,068 is expense related to retirement vesting of 2020 RSU and PSU awards and which is in addition to the original $2,265,066 of expense associated with the actual 2020 RSU and PSU grants). All amounts are calculated in accordance with FASB ASC Topic 718. +PDC ENERGY 2021 PROXY +41 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER COMPENSATION +401(k) +Annal Profit +Total +Matching +Sharing +Retirement +All Other +Contribution (1) +Contribution (2) +Perquisites (3) +Benefits (4) +Compensation +Name +Year +($) +($) +($) +($) +($) +Barton R. Brookman +2020 +$ +26,000 +$ +5,700 +$ +22,211 +$ +— +$ +53,911 +R. Scott Meyers +2020 +19,500 +5,700 +15,300 +— +40,500 +Lance A. Lauck +2020 +26,000 +5,700 +17,900 +— +49,600 +Nicole L. Martinet +2020 +19,500 +5,700 +19,097 +— +44,297 +David J. Lillo +2020 +26,000 +5,700 +16,500 +— +48,200 +Scott J. Reasoner +2020 +26,000 +5,700 +12,806 +81,699 +126,205 +(1) Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit Sharing Plan. +(2) Represents the Company’s annual profit sharing contribution to the Company’s 401(k) and Profit Sharing Plan. +(3) Represents total value of perquisites provided by the Company. Perquisites include automobile allowances, health club and non-health club related dues, annual physical cost. No individual perquisite exceeded $25,000. +(4) For Mr. Reasoner, the $81,699 represents the total value of cash payments ($72,042) and COBRA coverage ($9,657) paid in 2020 in connection with Mr. Reasoner’s retirement. +42 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +GRANTS OF PLAN-BASED AWARDS +All Other +All Other +Grant Date +Stock +Option +Exercise +Fair Value +Estimated Future Payouts Under +Estimated Future Payouts +Awards +Awards +or Base +of Stock +Non ‑ Equity Incentive Plan +Under Equity Incentive Plan +Number of +Securities +Price of +and +Awards (1) +Awards +Shares of +Underlying +Option +Option +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Stock +Options +Awards +Awards +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +$ +0 +$ +488,750 +$ +977,500 +— +— +— +— +— +— +— +2/19/2020 +— +— +— +0 +125,569 +313,923 +— +— +— +$ +4,209,073 +(2) +2/19/2020 +— +— +— +— +— +— +83,712 +— +— +1,876,823 +(3) +R. Scott Meyers +0 +191,250 +382,500 +— +— +— +— +— +— +— +2/19/2020 +— +— +— +0 +40,491 +101,228 +— +— +— +1,357,258 +(2) +2/19/2020 +— +— +— +— +— +— +40,491 +— +— +907,808 +(3) +Lance A. Lauck +0 +204,750 +409,500 +— +— +— +— +— +— +— +2/19/2020 +— +— +— +0 +40,491 +101,228 +— +— +— +1,357,258 +(2) +2/19/2020 +— +— +— +— +— +— +40,491 +— +— +907,808 +(3) +Nicole L. Martinet +0 +160,000 +320,000 +— +— +— +— +— +— +— +2/19/2020 +— +— +— +0 +25,023 +62,558 +— +— +— +838,771 +(2) +2/19/2020 +— +— +— +— +— +— +25,023 +— +— +561,016 +(3) +David J. Lillo +0 +160,000 +320,000 +— +— +— +— +— +— +— +4/1/2020 +— +— +— +— +— +— +25,422 +— +— +159,904 +(4) +Scott J. Reasoner +0 +137,183 +274,365 +— +— +— +— +— +— +— +2/19/2020 +— +— +— +0 +40,491 +— +— +— +— +1,357,258 +(2) +2/19/2020 +— +— +— +— +— +— +40,491 +— +— +907,808 +(3) +8/31/2020 +— +— +— +0 +14,721 +— +— +— +— +222,876 +(5) +8/31/2020 +— +— +— +— +— +— +4,907 +— +— +74,292 +(5) +8/31/2020 +— +— +— +0 +23,371 +— +— +— +— +353,837 +(5) +8/31/2020 +— +— +— +— +— +— +15,581 +— +— +235,896 +(5) +8/31/2020 +— +— +— +0 +40,491 +— +— +— +— +613,034 +(5) +8/31/2020 +— +— +— +— +— +— +40,491 +— +— +613,034 +(5) +(1) Represents target and maximum cash awards payable under the Company’s annual incentive plan. In response to the COVID-19 pandemic, in May 2020, the Compensation Committee reduced payout opportunities from 100% to 50% for target performance, and from 200% to 100% for maximum performance. +(2) Represents annual PSU awards under the 2018 Amended and Restated Long Term Equity Plan (“2018 Equity Plan”). Grant date fair value is computed by multiplying the target number of PSUs awarded by the grant date fair value as computed utilizing the Monte Carlo pricing model, which was $33.52 per share. +(3) Represents annual time-based RSU awards under the 2018 Equity Plan. Grant date fair value for RSUs is computed by multiplying the number of RSUs awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of February 19, 2020, which was $22.42. +(4) Represents annual time-based RSU awards under the 2018 Equity Plan. Grant date fair value for RSUs is computed by multiplying the number of RSUs awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of April 1, 2020, which was $6.29. +(5) Represents incremental fair value associated with vesting modifications made to Mr. Reasoner’s 2018, 2019 and 2020 RSUs and PSUs pursuant to his Retirement Agreement which was entered into on August 31, 2020. +PDC ENERGY 2021 PROXY +43 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +Equity Incentive Plan +Awards +Options/SAR Awards +Number +Number of +Market +Number of Securities +of Shares +Market Value +Unearned +Value of +Underlying Unexercised +of Stock +of Shares of +Shares of +Unearned +Options/SARs Held at +Option/SAR +Option/SAR +That +Stock That +Stock That +Shares That +December 31, 2020 +Exercise +Expiration +Have Not +Have Not +Have Not +Have Not +Exercisable +Unexercisable +Price (1) +Date +Vested (2) +Vested (3) +Vested (4) +Vested (3) +Name +(#) +(#) +($) +(Date) +(#) +($) +(#) +($) +Barton R. Brookman +— +— +— +138,106 +$ +2,835,316 +186,059 +$ +3,819,791 +5,104 +— +$ +43.95 +3/11/2021 +— +— +— +— +9,766 +— +30.19 +1/16/2022 +— +— +— +— +12,620 +— +37.18 +1/15/2023 +— +— +— +— +13,790 +— +49.57 +1/15/2024 +— +— +— +— +26,643 +— +39.63 +1/13/2025 +— +— +— +— +29,036 +— +51.63 +1/10/2026 +— +— +— +— +23,886 +— +74.57 +1/16/2027 +— +— +— +— +R. Scott Meyers +— +— +— +57,053 +1,171,298 +60,426 +1,240,546 +Lance A. Lauck +— +— +— +61,143 +1,255,266 +63,862 +1,311,087 +4,176 +— +43.95 +3/11/2021 +— +— +— +— +7,935 +— +30.19 +1/16/2022 +— +— +— +— +10,096 +— +37.18 +1/15/2023 +— +— +— +— +10,096 +— +49.57 +1/15/2024 +— +— +— +— +12,212 +— +39.63 +1/13/2025 +— +— +— +— +11,445 +— +51.63 +1/10/2026 +— +— +— +— +8,599 +— +74.57 +1/16/2027 +— +— +— +— +Nicole L. Martinet +— +— +— +31,586 +648,461 +33,272 +683,074 +David J. Lillo (5) +— +— +— +38,605 +792,561 +— +— +Scott J. Reasoner (6) +7,771 +— +39.63 +2/28/2021 +— +— +— +— +9,538 +51.63 +2/28/2021 +— +— +— +— +7,962 +— +74.57 +2/28/2021 +— +— +— +— +(1) The exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(2) The RSUs of Messrs. Brookman, Meyers, Lauck and Lillo and Ms. Martinet vest as set forth in the following table: +Number of RSUs that Vest on: +2/20/2021 +2/21/2021 +2/25/2021 +4/1/2021 +2/20/2022 +2/25/2022 +4/1/2022 +2/25/2023 +4/1/2023 +Total +Barton R. Brookman +20,163 +14,067 +27,904 +— +20,164 +27,904 +— +27,904 +— +138,106 +R. Scott Meyers +6,645 +3,272 +13,497 +— +6,645 +13,497 +— +13,497 +— +57,053 +Lance A. Lauck +7,790 +5,071 +13,497 +— +7,791 +13,497 +— +13,497 +— +61,143 +Nicole L. Martinet +2,750 +— +8,341 +1,063 +2,750 +8,341 +— +8,341 +— +31,586 +David J. Lillo +— +— +— +16,685 +— +— +13,446 +— +8,474 +38,605 +(3) The market value of these RSUs is based on the closing price of the Company’s common stock of $20.53, as reported on the NASDAQ Global Select Market on December 31, 2020. +(4) PSUs granted in 2019 and 2020 are contingent upon the achievement of certain specified performance goals. PSUs granted in 2019 have a 3-year performance period ending December 31, 2021. PSUs granted in 2020 have a 3-year performance period ending December 31, 2022. For a description of the PSUs granted in 2020, see “Long Term Incentive Awards.” +(5) Mr. Lillo was appointed to the Senior Management Team in September 2020. He did not receive PSUs in 2020. +(6) All unvested RSUs and PSUs held by Mr. Reasoner immediately prior to his retirement vested as of the effective date of his retirement agreement, with the unvested PSUs vesting at 100% of target; only SARs awards remained outstanding as of December 31, 2020. +44 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired on +Realized on +Acquired on +Realized on +Exercise +Exercise +Vesting (1) +Vesting (2) +Name +(#) +($) +(#) +($) +Barton R. Brookman +— +— +88,427 +$ +1,922,858 +R. Scott Meyers +— +— +21,387 +436,182 +Lance A. Lauck +— +— +32,584 +709,173 +Nicole L. Martinet +— +— +4,713 +74,838 +David J. Lillo +— +— +10,509 +66,102 +Scott J. Reasoner (3) +— +— +155,782 +2,245,701 +(1) The number of shares includes RSUs and PSUs that vested in 2020. +(2) The table below shows the number and value of RSUs and PSUs included in these columns. The value of the RSUs and PSUs that vested in 2020 is determined by multiplying the number of units vested by the market value of PDC stock on the vesting date. The PSUs that vested in 2020 covered the three year period January 1, 2018 through December 31, 2020 and paid out at 100% of target. See “2018-2020 Performance Share Unit (PSU) Payout” for more information. +RSUs +RSUs Value +PSUs +PSUs Value +Name +(#) +($) +(#) +($) +Barton R. Brookman +46,228 +$ +1,056,513 +42,199 +$ +866,345 +R. Scott Meyers +11,573 +234,701 +9,814 +201,481 +Lance A. Lauck +17,373 +396,891 +15,211 +312,282 +Nicole L. Martinet +4,713 +74,838 +— +— +David J. Lillo +10,509 +66,102 +— +— +Scott J. Reasoner +77,199 +1,189,938 +78,583 +1,055,763 +(3) Al l unvested RSUs and PSUs held by Mr. Reasoner immediately prior to his retirement vested as of the effective date of his retirement agreement, with the unvested PSUs vesting at 100% of target. +PDC ENERGY 2021 PROXY +45 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +POTENTIAL PAYMENTS UPON TERMINATION OR +CHANGE OF CONTROL +In 2020, Mr. Reasoner voluntarily retired from the Company and received benefits upon his retirement (See “Reasoner Retirement Agreement” below). In addition, the Company may be obligated to pay benefits to Messrs. Brookman, Meyers and Lillo and Ms. Martinet (and any future NEOs) under the Executive Severance Compensation Plan dated September 24, 2012, as amended and restated on June 25, 2020 (the “Severance Plan”) and, with respect to Mr. Lauck, under his grandfathered employment agreement dated April 19, 2010, as amended and restated August 4, 2020 (the “Lauck Employment Agreement”). The primary purpose of the Severance Plan and the severance provisions of the Lauck Employment Agreement are to provide severance benefits in the event of the termination of the NEO by the Company without “just cause” or termination by the NEO for “good reason,” either prior to or following a change of control of the Company. Upon a change of control, the Severance Plan and the Lauck Employment Agreement provide benefits only in the event that an executive is terminated by the acquiring company “without cause” or by the executive for “good reason” (i.e., they are “double-trigger” in nature). The Severance Plan provides a benefit offset so that cash benefits paid upon severance would be reduced by any other severance benefits that the executive could be entitled to receive under another Company plan. The Lauck Employment Agreement provides benefits similar to those provided under the Severance Plan, but it varies in the amounts of cash benefit provided to Mr. Lauck. +The severance benefits an executive would receive under the Severance Plan and the Lauck Employment Agreement under various termination scenarios are summarized below: +TERMINATION WITHOUT CAUSE +OR FOR GOOD REASON +TERMINATION DUE TO CHANGE +OF CONTROL +CONTROLLING PLAN OR +AGREEMENT +Barton R. Brookman +2 times sum of base salary and target bonus +3 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +R. Scott Meyers +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +Lance A. Lauck +2 times sum of base salary and highest bonus of last two years +3 times sum of base salary and highest bonus of last two years +Lauck Employment +Agreement +Nicole L. Martinet +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +David J. Lillo +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +In addition to the above, the NEO would be eligible for continuation of health benefits for up to 36 months. As a condition of receiving severance benefits under the Severance Plan and under the terms of the Lauck Employment Agreement, each NEO is subject to a non-disclosure covenant and a non-compete covenant pursuant to which the NEO is prohibited for a period of one year following his or her termination from engaging in any competing business in any county in which the Company is doing business or any adjacent county. In addition, the NEO is prohibited from soliciting employees from the Company for up to two years +46 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to a change of control of the Company, the Severance Plan provides for payment of the severance benefits over 12 months. Under the terms of the Lauck Employment Agreement, however, Mr. Lauck would receive severance benefits within 40 days following a qualifying termination. +The Lauck Employment Agreement contains a clawback provision and the executives covered under the Severance Plan are covered under the Company’s clawback policy. See “Other Policies and Considerations—Clawback Policy”. The Lauck Employment Agreement automatically extends for 12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 automatic extension date. +IMPACT OF TERMINATION AND CHANGE OF CONTROL ON LONG-TERM EQUITY-BASED INCENTIVE PLANS +The following table outlines the effect on outstanding unvested long-term incentive awards under various termination scenarios and upon a change of control of the Company based on the terms of the 2010 Amended and Restated Long Term Equity Plan (the “2010 Equity Plan”), the 2018 Long Term Equity Plan, as amended (the “2018 Equity Plan”) and related grant agreements and the Lauck Employment Agreement: +TERMINATION SCENARIO/CHANGE OF +CONTROL (1) +RESTRICTED +STOCK/SARs/OPTIONS +PERFORMANCE SHARE UNITS (2) +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change of Control +Vests +Mr. Lauck : +Forfeited +Executives in Severance Plan: +2019 and 2020 grants: Portion to be potentially earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +2019 and 2020 Awards: +Earned at 100% if death occurs in first two years of performance period. Earned based on actual results if death occurs after first two years of performance period. +Disability +Vests +2019 and 2020 Awards: +Earned based on performance at end of performance period. +Occurrence of a Change of Control +2019 and 2020 Awards: +Double trigger vesting applies. Vesting is contingent on continued employment through original vesting dates, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +2019 and 2020 Awards: +Double trigger vesting applies. Performance is measured through the date of the change of control to determine the number of PSUs potentially earned. That number of PSUs is then earned at the end of the originally scheduled performance period based on continued employment, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +(1) Except as noted otherwise, award treatment is the same regardless of when the award was issued. +(2) Except as noted otherwise, PSU treatment for each scenario listed is the same for those covered by the Severance Plan and the Lauck Employment Agreement. +PDC ENERGY 2021 PROXY +47 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CHANGE OF CONTROL EXCISE TAX PROVISION +The Company currently provides no income tax gross-up or excise tax gross-up for taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and Mr. Lauck’s employment agreement provide that if it is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes the provision strikes an appropriate balance between cost to the Company and the provision of promised benefits to the executive. +REASONER RETIREMENT AGREEMENT +Mr. Reasoner retired from the Company on August 31, 2020. In connection with his retirement, and in consideration of his many contributions to the Company during his tenure, including his exceptional leadership, achievement of premier operating results and integration efforts following the merger with SRC, conditional upon his entry into a Retirement Agreement and General Release of Claims (the “Release”), Mr. Reasoner received a cash payment equal to $864,500 representing one times his 2020 base salary and target cash bonus (to be paid over a twelve-month period), a pro-rated annual bonus for 2020 of $263,390 and eighteen months of COBRA health benefits paid by the Company. In addition, all unvested RSUs and PSUs held by Mr. Reasoner immediately prior to his retirement vested as of the effective date of the Release, with the unvested PSUs vesting at 100% of target. +48 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ESTIMATED TERMINATION AND CHANGE IN CONTROL BENEFITS +The tables below and the discussion that follows show compensation payable to each of our NEOs upon various termination scenarios both before and after a change of control of the Company (defined in the tables as “COC”). The amounts shown assume that termination occurred on December 31, 2020, that the closing price per share on such date was $20.53, and, in the event of termination due to change of control, the executive’s benefit is not reduced as a result of Section 280G or Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. +Barton R. Brookman +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +3,655,000 +(1) +$ +5,482,500 +(2) +— +— +Pro-rata Bonus +— +— +977,500 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +2,835,316 +2,835,316 +2,835,316 +2,835,316 +PSUs +— +— +(4) +3,652,226 +(5) +3,819,791 +(6) +3,652,226 +(7) +Benefits +Health Benefits Continuation +— +55,580 +(8) +55,580 +(8) +— +— +Total +$ +— +$ +6,545,896 +$ +13,003,122 +$ +6,655,107 +$ +2,835,316 +R. Scott Meyers +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,211,250 +(1) +$ +2,018,750 +(2) +— +— +Pro-rata Bonus +— +— +382,500 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +1,171,298 +1,171,298 +1,171,298 +1,171,298 +PSUs +— +— +(4) +1,186,513 +(5) +1,240,546 +(6) +1,186,513 +(7) +Benefits +Health Benefits Continuation +— +86,909 +(8) +86,909 +(8) +— +— +Total +$ +— +$ +2,469,457 +$ +4,845,970 +$ +2,411,844 +$ +1,171,298 +PDC ENERGY 2021 PROXY +49 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Lance A. Lauck +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,812,000 +(1) +$ +2,718,000 +(2) +— +— +Salary Continuation +— +— +— +227,500 +(9) +341,250 +(10) +Pro-rata Bonus +409,500 +(3) +— +— +— +— +Acceleration of Unvested Equity +RSUs +— +1,255,266 +1,255,266 +1,255,266 +1,255,266 +PSUs +— +— +(11) +1,257,054 +(5) +1,311,087 +(6) +1,257,054 +(7) +Benefits +Health Benefits Continuation +— +86,909 +(8) +86,909 +(8) +— +— +Total +$ +409,500 +$ +3,154,175 +$ +5,317,229 +$ +2,793,853 +$ +1,596,516 +Nicole L. Martinet +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,080,000 +(1) +$ +1,800,000 +(2) +— +— +Pro-rata Bonus +— +— +320,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +648,461 +648,461 +648,461 +648,461 +PSUs +— +— +(4) +649,682 +(5) +683,074 +(6) +649,682 +(7) +Benefits +Health Benefits Continuation +— +86,909 +(8) +86,909 +(8) +— +— +Total +$ +— +$ +1,815,370 +$ +3,505,052 +$ +1,331,535 +$ +648,461 +David J. Lillo +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,080,000 +(1) +$ +1,800,000 +(2) +— +— +Pro-rata Bonus +— +— +320,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +792,561 +792,561 +792,561 +792,561 +PSUs (12) +— +— +— +— +— +Benefits +Health Benefits Continuation +— +86,909 +(8) +86,909 +(8) +— +— +Total +$ +— +$ +1,959,470 +$ +2,999,470 +$ +792,561 +$ +792,561 +(1) Cash severance is equal to (a) 2 times the sum of base salary and target bonus for Mr. Brookman, (b) 1.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 2 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +50 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(2) Cash severance is equal to (a) 3 times the sum of base salary and target bonus for Mr. Brookman, (b) 2.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 3 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +(3) Under the terms of the Severance Plan, Messrs. Brookman, Meyers, Lillo and Ms. Martinet are entitled to a pro- rata target bonus if termination is related to a COC. Per the terms of the Lauck Employment Agreement, Mr. Lauck is entitled to a pro-rata bonus if terminated for cause. Bonus amounts for 2020 are not determined until after December 31 and are subject to forfeiture until paid. As a result, the pro-rata bonus shown is based on target bonus for 2020. +(4) The Committee has the discretion to allow all or a portion (up to 200%) of the target PSUs to remain outstanding and to be earned based on Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the PSUs. +(5) The value shown for PSUs upon a COC assumes (a) for 2020 PSUs, the number of units earned based on performance through the date of COC is 93.5% of target and (b) for 2019 PSUs, the target number of units (100%) would be earned since amount is based on the greater of 100% or actual Company performance for the period (100% as of December 31, 2020). +(6) The value shown for PSUs upon death reflects the target number of units (100%) for 2019 and 2020 PSUs. +(7) The value shown for PSUs upon disability assumes for 2019 and 2020 PSUs, the number of units earned based on performance through December 31, 2020 is 100% and 93.5% of target, respectively. However, under the respective award agreements, the units earned will be based on actual performance measured at the end of the applicable performance periods. +(8) Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to executive and any covered dependents for a 36-month period. +(9) In the event of death, executive would receive a lump sum payment equal to six months base salary. +(10) In the event of short term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, executive would receive an additional lump sum payment equal to six months’ base salary. +(11) PSUs awarded in 2019 and 2020 would be forfeited. +(12) Mr. Lillo had no PSUs as of December 31, 2020. +PDC ENERGY 2021 PROXY +51 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CEO PAY RATIO +Pursuant to rules promulgated under the Dodd-Frank Act, the Company is required to disclose the ratio of its CEO’s annual total compensation to the Company’s median employee’s annual total compensation. Based on our internal review procedures this year, we do not believe that there have been any changes in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our pay ratio calculation. The median employee identified in 2019 remains employed in substantially the same role and at the same location as last year. Because there have not been any changes to the determination of the median employee that we reasonably believe would significantly affect this year’s pay ratio, applicable SEC rules permit us to use the same median employee identified last year in order to calculate this year’s pay ratio. In 2019, the Company identified the median employee based on estimated 2019 compensation reportable on Form W-2 for all employees (other than the CEO) on December 31, 2019. For 2020, the CEO’s total annual compensation was $7,899,899, which amount differs from the amount reported in the Summary Compensation Table because it also includes perquisites with a value of less than $10,000 and certain other non-discriminatory benefits. The median employee’s total annual compensation was $142,976, resulting in a CEO pay ratio of 55:1. +Compensation data used to calculate the ratio is set forth below: +Stock +All Other +Salary +Bonus +Awards +SARs +Compensation (2) +Total +Name +($) +($) +($) +($) +($) +($) +Median Employee +$ +103,413 +$ +14,806 +$ +4,365 +(1) +— +$ +20,392 +$ +142,976 +CEO +803,000 +938,400 +6,085,896 +— +72,603 +7,899,899 +(1) Represents the grant date fair value of RSUs, as computed in accordance with FASB ASC Topic 718. +(2) Includes matching contributions to the Company’s 401(k) and Profit Sharing Plan, perquisites with a value of less than $10,000 and other non-discriminatory benefits not reported in the “Summary Compensation Table” set forth in this Proxy Statement. +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for issuance as of December 31, 2020: +Number of Securities to +be Issued Upon +Weighted-Average +Securities Remaining +Exercise +Exercise Price of +Available for Future +of Outstanding Options +Outstanding Options +Issuance Under Equity +and Rights +and Rights +Compensation Plans +Plan Category +(1) (#) +($) +(2) (#) +Equity compensation plans approved by security holders +826,011 +$ +49.45 +5,393,991 +Equity compensation plans not approved by security holders +— +— +— +Total +826,011 +$ +49.45 +5,393,991 +(1) Includes 615,336 shares of common stock to be issued under outstanding PSUs based upon continuous employment and the maximum achievement of certain performance goals over a specified period of time as described in “Outstanding Equity Awards at Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding SARs and pursuant to RSUs subject to time vesting and PSUs subject to certain market-based performance goals over a specified period of time. +52 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of March 30, 2021, by (1) each person known by the Company to own beneficially more than five percent of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 30, 2021, 99,373,297 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Number of +Percentage of +Shares +Shares +Beneficially +Beneficially +Name and Address of Beneficial Owner +Owned +Owned (1) +5% or Greater Owners: +BlackRock, Inc. +16,033,228 +(2) +16.1 +% +55 East 52nd Street +New York, NY 10055 +The Vanguard Group +10,254,019 +(3) +10.3 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Dimensional Fund Advisors LP +6,145,895 +(4) +6.2 +% +6300 Bee Cave Road Building One +Austin, TX 78746 +Named Executive Officers: +Barton R. Brookman, Jr. +335,955 +(5) +* +Lance A. Lauck +159,807 +(6) +* +R. Scott Meyers +35,420 +(7) +* +Nicole L. Martinet +10,459 +(8) +* +David J. Lillo +32,152 +(9) +* +Scott J. Reasoner +145,393 +(10) +* +Non-Employee Directors: +Mark E. Ellis +35,713 +(11) +* +Anthony J. Crisafio +4,698 +(12) +* +Christina M. Ibrahim +12,967 +(13) +* +Paul J. Korus +23,405 +(14) +* +Randy S. Nickerson +15,390 +(15) +* +David C. Parke +24,623 +(16) +* +Lynn A. Peterson +223,990 +(17) +* +Jeffrey C. Swoveland +30,350 +(18) +Diana L. Sands +0 +(19) +* +Carlos A. Sabater +0 +* +All directors and executive officers as a group (16 persons) +963,327 +(20) +* +% +* +Represents less than 1% of the outstanding shares of common stock. +PDC ENERGY 2021 PROXY +53 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(1) For each holder of stock awards or other securities that are currently vested or exercisable or that vest or become exercisable within 60 days of March 30, 2021, we treat the common stock underlying those securities as owned by that holder and as outstanding shares when we calculate that holder’s percentage ownership of our common stock. We do not treat that common stock as outstanding when we calculate the percentage ownership of any other holder. +(2) As reported on a Schedule 13G filed with the SEC by BlackRock, Inc. on January 25, 2021, BlackRock, Inc. holds sole voting power as to 15,790,466 shares and sole dispositive power as to 16,033,228 shares as of December 31, 2020. +(3) As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 10, 2021, The Vanguard Group is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds shared voting power with respect to 106,575 shares, sole dispositive power as to 10,065,518 shares and shared dispositive power as to 188,501 shares as of December 31, 2020. +(4) As reported on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 12, 2021, Dimensional Fund Advisors LP is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 6,081,608 shares and sole dispositive power as to 6,145,895 shares as of December 31, 2020. +(5) Excludes 142,677 RSUs subject to vesting greater than 60 days after March 30, 2021; includes 115,741 shares subject to SARs exercisable within 60 days of March 30, 2021. +(6) Excludes 67,428 RSUs subject to vesting greater than 60 days after March 30, 2021; includes 60,383 shares subject to SARs exercisable within 60 days of March 30, 2021. +(7) Excludes 66,903 RSUs subject to vesting greater than 60 days after March 30, 2021. +(8) Excludes 41,608 RSUs subject to vesting greater than 60 days after March 30, 2021. +(9) Excludes 41,435 RSUs subject to vesting greater than 60 days after March 30, 2021. +(10) The shares reported are based on the Company’s knowledge and in accordance with Mr. Reasoner’s disclosure in his signed Officer Questionnaire dated February 8, 2021. +(11) Excludes 7,629 RSUs subject to vesting greater than 60 days after March 30, 2021. +(12) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021; includes 2,049 common shares deferred pursuant to the Non-Employee Director Deferred Compensation Plan. +(13) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021. +(14) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021. +(15) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021. +(16) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021; includes 3,162 common shares deferred pursuant to the Non-Employee Director Deferred Compensation Plan. +(17) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021. +(18) Includes 3,580 common shares deferred pursuant to the Non-Employee Director Deferred Compensation Plan. +(19) Excludes 6,387 RSUs subject to vesting greater than 60 days after March 30, 2021. +(20) Excludes 412,389 RSUs subject to vesting greater than 60 days after March 30, 2021; includes 8,791 common shares deferred pursuant to the Non-Employee Director Deferred Compensation Plan and includes 176,124 SARs exercisable within 60 days of March 30, 2021. +Each SAR referenced in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $30.19 to $74.57 for the SARs in the table, payable in shares only. +54 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SECTION 16(A) REPORTS +Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2020, the Company’s executive officers and Directors and owners of more than 10% of the Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act. +PDC ENERGY 2021 PROXY +55 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 3. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021, and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is expected to attend the meeting and will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions. +Principal Accountant Fees and Services +2020 +2019 +Audit Fees (1) +$ +1,902,600 +$ +2,704,000 +Audit-Related Fees (2) +— +— +Tax Fees (3) +30,000 +62,000 +All Other Fees (4) +3,600 +1,358,000 +Total Fees +$ +1,936,200 +$ +4,124,000 +(1) Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our securities offerings. +(2) Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are related to the performance of the audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” +(3) Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its proportionately consolidated entities. +(4) All Other Fees consist of aggregate fees billed for products and services other than services reported above. +56 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are to be performed by the independent accountant and are not eligible for annual pre-approval must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All of the services described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. See “Information About Voting and the Meeting—How Proxies Work” for information on the effect of broker non-votes on this matter. +PDC ENERGY 2021 PROXY +57 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is comprised of three Directors and operates under a written charter adopted by the Board. Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee held 10 meetings during 2020. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2020 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by the applicable requirements of PCAOB. The Audit Committee has received the written disclosures and the letter from PwC required by the applicable requirements of the PCAOB and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. +Anthony J. Crisafio, Chair +Paul J. Korus +David C. Parke +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +58 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER BUSINESS THAT MAY COME BEFORE THE +2021 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy card to vote in accordance with their discretion on such matters pursuant to such proxy card. +STOCKHOLDER NOMINATIONS AND PROPOSALS +STOCKHOLDER PROPOSALS FOR 2022 ANNUAL MEETING +Any proposal that a stockholder wishes to include in the Company’s proxy statement for the 2022 annual meeting of stockholders must be received by the Company at its principal office on or prior to December 15, 2021, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +ADVANCE NOTICE PROCEDURES UNDER THE COMPANY’S BYLAWS +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2022 annual meeting of stockholders, but does not seek to include in our proxy statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. In the case of the 2022 annual meeting, the notice must be delivered between February 25, 2022 and March 7, 2022. However, the Bylaws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by the Company. +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above that is not timely under our Bylaws or after February 28, 2022 if the Bylaws deadline does not apply, the proxies designated by the Board will have discretionary authority to vote on such proposal. +PDC ENERGY 2021 PROXY +59 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +INFORMATION ABOUT VOTING AND THE MEETING +WHO MAY VOTE +Stockholders of PDC, as recorded in the Company’s stock register on the record date of March 30, 2021, may vote at the Annual Meeting. The outstanding voting securities of the Company as of March 30, 2021 consisted of 99,373,297 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the Annual Meeting. +HOW PROXIES WORK +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, any of the Director nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy card but do not specify how to vote, your shares will be voted (1) in favor of approval of each of the seven Director nominees named in this Proxy Statement; (2) to approve, on an advisory basis, the compensation of the Company’s NEOs; and (3) in favor of the ratification of the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable rules. A nominee’s inability to vote on some proposals because it lacks discretionary authority to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes, if any, may be different for each of the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +N OTICE AND ACCESS +We distribute our proxy materials to certain stockholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On or before April 14, 2021, we mailed a Notice of Internet Availability of Proxy Materials to participating stockholders, containing instructions on how to access the proxy materials on the Internet to vote your shares over the Internet or by telephone. You will not receive a printed copy of the proxy materials unless you request them. If you would like to receive a printed copy of our proxy materials, including a printed proxy card on which you may submit your vote by mail, then you should follow the instructions for obtaining a printed copy of our proxy materials contained in the Notice of Internet Availability of Proxy Materials. +R EVOKING A PROXY +If you are a stockholder of record, you may revoke your initial proxy vote before it is voted at the Annual Meeting by: +● Submitting a new signed proxy card with a later date; +● Notifying PDC’s Corporate Secretary in writing before the meeting that you wish to revoke your proxy card; or +60 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Appearing virtually at the Annual Meeting and voting virtually at the Annual Meeting. Merely attending the Annual Meeting will not result in the revocation of your proxy card. +If you hold your shares through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the Annual Meeting. +Q UORUM +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the Annual Meeting, either by proxy or in person. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count for quorum purposes. +V OTES NEEDED +The following table presents the voting requirements for electing the Director nominees and for approving the other proposals presented in this Proxy Statement. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Election of Seven Directors +The seven Director nominees who receive the greatest number of votes will be elected Director for a one-year term ending in 2022. There is no cumulative voting for Directors. “Withhold” votes and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 2. Broker non-votes will have no effect on the vote on Proposal No. 2. +Proposal No. 3 +Ratify the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as votes against Proposal No. 3. Broker non-votes will have no effect on the vote on Proposal No. 3. +PDC ENERGY 2021 PROXY +61 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ATTENDING THE VIRTUAL MEETING & VOTING +Stockholders of record as of March 30, 2021 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2021. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 8:00 a.m. Mountain Time on Wednesday, May 26, 2021. Online check-in will begin at 7:45 a.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail by voting virtually in the meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend. +CONDUCT OF THE MEETING +The Chairman and the Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes establishing rules for stockholders who wish to speak at the Annual Meeting. The Chairman and the Chief Executive Officer may also exercise broad discretion in recognizing stockholders who wish to speak. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance that every question submitted by a stockholder prior to the Annual Meeting will be answered at the Annual Meeting. +S OLICITATION OF PROXIES +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the proxy materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. +A PPRAISAL RIGHTS +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +62 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +C ONTACT INFORMATION +If you need more information about the Annual Meeting, or if you wish to submit a question to be answered at the Annual Meeting, you may write to or call prior to the meeting: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +PDC ENERGY 2021 PROXY +63 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: April 14, 2021 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO 80203. +64 +PDC ENERGY 2021 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +APPENDIX A +NON-GAAP FINANCIAL MEASURES +The following three tables provide reconciliations of debt, adjusted cash flows from operations per share, and adjusted EBITDAX to their most comparable U.S. GAAP measures (in millions, except per share data): +ADJUSTED CASH FLOWS FROM OPERATIONS +Twelve Months +Ended +December 31, +2020 +2019 +Adjusted free cash flows: +Net cash from operating activities +$ +870.1 +$ +858.2 +Changes in assets and liabilities +51.5 +(32.8) +Capital expenditures for development of crude oil and natural gas properties +(551.0) +(855.9) +Change in accounts payable related to capital expenditures for oil and gas development activities +28.7 +68.2 +Adjusted free cash flow +$ +399.3 +$ +37.7 +Adjusted cash flows from operations: +Net cash from operating activities +$ +870.1 +858.2 +Changes in assets and liabilities +51.5 +(32.8) +Adjusted cash flows from operations +$ +921.6 +$ +825.4 +Adjusted cash flows from operations, per share +$ +9.38 +$ +12.89 +ADJUSTED EBITDAX +Twelve Months +Ended +December 31, +2020 +2019 +Net loss to adjusted EBITDAX: +Net loss +$ +(724.3) +$ +(56.7) +Loss (gain) on commodity derivative instruments +(180.3) +162.8 +Net settlements on commodity derivative instruments +279.3 +(17.6) +Non‑cash stock‑based compensation +22.2 +23.8 +Interest expense, net +88.7 +71.1 +Income tax benefit +(7.9) +(3.3) +Impairment of properties and equipment +882.4 +38.5 +Exploration, geologic, and geophysical expense +1.4 +4.1 +Depreciation, depletion, and amortization +619.7 +644.2 +Accretion of asset retirement obligations +10.1 +6.1 +Loss (gain) on sale of properties and equipment +-0.7 +9.7 +Adjusted EBITDAX +$ +990.6 +$ +882.7 +PDC ENERGY 2021 PROXY +65 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Twelve Months +Ended +December 31, +2020 +2019 +Cash from operating activities to adjusted EBITDAX: +Net cash from operating activities +$ +870.1 +$ +858.2 +Interest expense, net +88.7 +71.1 +Amortization of debt discount and issuance costs +(16.8) +(13.6) +Exploration, geologic, and geophysical expense +1.4 +4.1 +Other +(4.3) +(4.3) +Changes in assets and liabilities +51.5 +(32.8) +Adjusted EBITDAX +$ +990.6 +$ +882.7 +66 +PDC ENERGY 2021 PROXY +Table of Contents +VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on May 25, 2021. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/PDCE2021 PDC ENERGY, INC. C/0 BROADRIDGE CORPORATE ISSUER SOLUTIONS, INC. P O BOX 1342 BRENTWOOD, NY 11717 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on May 25, 2021. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D51233-P51110 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. PDC ENERGY, INC. For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. The Board of Directors recommends you vote FOR proposals 1 through 3. ! ! ! 1. Elect seven directors nominated by the Board, each for a term of one year. Nominees: 01) 02) 03) 04) Barton R. Brookman Mark E. Ellis Paul J. Korus David C. Parke 05) 06) 07) Lynn A. Peterson Carlos A. Sabater Diana L. Sands For Against Abstain ! ! ! ! ! ! 2. To approve, on an advisory basis, the compensation of the Company’s named executive officers. 3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. NOTE: To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. D51234-P51110 PDC ENERGY, INC. Annual Meeting of Stockholders May 26, 2021 8:00 AM MDT This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) R. Scott Meyers and Nicole L. Martinet, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) him or her to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of PDC ENERGY, INC. that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 8:00 AM, MDT on May 26, 2021, at www.virtualshareholdermeeting.com/PDCE2021, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-21-004271/proxy_rpt.txt b/raw/proxies/0000077877/0001558370-21-004271/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f1865e5caa4e0d3476e80b1a0531a92bcd2ff706 --- /dev/null +++ b/raw/proxies/0000077877/0001558370-21-004271/proxy_rpt.txt @@ -0,0 +1,5 @@ +TRANSACTIONS WITH RELATED PARTIES +During 2020, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related-party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest. +Under our related-party transaction policy, a related-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related-party transactions and must disclose all material facts with respect to such transaction and relationship. All related-party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations. \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-22-005394/proxy.txt b/raw/proxies/0000077877/0001558370-22-005394/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..25546424706d91e8d4b4ca5b690360f01e65d81d --- /dev/null +++ b/raw/proxies/0000077877/0001558370-22-005394/proxy.txt @@ -0,0 +1,3221 @@ +DEF 14A +1 +tmb-20220525xdef14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check all boxes that apply): +☒ +No fee required. +☐ +Fee paid previously with preliminary materials. +☐ +Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. +Table of Contents +PDC ENERGY, INC. +1775 Sherman Street, Suite 3000 +Denver, Colorado 80203 +(303) 860-5800 +April 14, 2022 +Dear Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2022 Annual Stockholders’ Meeting of PDC Energy, Inc. to be held via virtual web conference at www.virtualshareholdermeeting.com/PDCE2022 on May 25, 2022, at 1:00 p.m. Mountain Time (the “Annual Meeting”). +The accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement. +We hope you will join us at the Annual Meeting online. Your vote is important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to virtually attend, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you are unable to virtually attend. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +Wednesday, May 25, 2022 +April 14, 2022 +To the stockholders of PDC Energy, Inc.: +The 2022 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held via the Internet through a virtual web conference at www.virtualshareholdermeeting.com/PDCE2022 on May 25, 2022, at 1:00 p.m. Mountain Time. You will be able to attend the Annual Meeting online by visiting the website above, and, prior to the Annual meeting, you may submit questions to be answered at the Annual Meeting. You will also be able to vote your shares electronically at the Annual Meeting. The Annual Meeting will be held online only, and will be held for the following purposes: +● To elect the seven Directors nominated by the Board and identified in the accompanying proxy statement, each for a term of one year (Proposal No. 1) ; +● To approve, on an advisory basis, the compensation of the Company’s named executive officers ( Proposal No. 2); +● To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022 ( Proposal No. 3); and +● To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board has fixed the close of business on March 30, 2022, as the record date for determining the stockholders having the right to receive notice of, to virtually attend and to vote at the Annual Meeting or any adjournment or postponement thereof. A list of these stockholders will be open for examination by any stockholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal executive offices at 1775 Sherman St., Suite 3000, Denver, CO 80203, and electronically during the Annual Meeting at www.virtualshareholdermeeting.com/PDCE2022 when you enter your control number. The presence virtually or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you may attend the Annual Meeting and vote your shares or revoke your prior voting instructions. +Table of Contents +Your vote is important to us at this Annual Meeting. Regardless of the number of shares of our common stock that you own, your vote will be very important. Thank you for your continued support, interest and investment in the Company . +By Order of the Board of Directors, +Nicole L. Martinet +Senior Vice President, General Counsel and Secretary +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on May 25, 2022 +The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 25, 2022, at 1:00 p.m. Mountain Time and at any and all adjournments or postponements of the Annual Meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 14, 2022, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY +OF PROXY MATERIALS FOR THE ANNUAL MEETING +TO BE HELD ON MAY 25, 2022 +The Notice of Annual Meeting, the Proxy Statement for the 2022 Annual Meeting, and the 2021 Annual Report, which is the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, are available at www.proxyvote.com . +Virtual Meeting Admission +Stockholders of record as of March 30, 2022, will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2022. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 1:00 p.m. Mountain Time on Wednesday, May 25, 2022. Online check-in will begin at 12:45 p.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Voting +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or during the virtual Annual Meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the Annual Meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the Annual Meeting should you decide to virtually attend. +Table of Contents +TABLE OF CONTENTS +PROXY STATEMENT SUMMARY +1 +PROPOSAL NO. 1—ELECTION OF SEVEN DIRECTOR NOMINEES +2 +Board Of Directors +2 +Summary of Director Qualifications and Diversity +3 +Name, Principal Occupation for Past Five Years and Other Directorships +4 +DIRECTOR COMPENSATION +9 +Cash Compensation +9 +Equity Compensation +9 +Deferred Compensation +9 +2021 Director Compensation +10 +Director Stock Ownership Requirements and Prohibition on Certain Transactions +10 +Director Qualifications and Selection +11 +STANDING COMMITTEES OF THE BOARD +11 +Board Meetings and Attendance +11 +2021 Board and Committee Memberships +12 +Audit Committee +12 +Environmental, Social, Governance and Nominating Committee +13 +Compensation Committee +13 +Summary Of Committee Responsibilities +14 +Board Leadership Structure +14 +Stockholder Recommendations +15 +Stockholder Nominations +15 +CORPORATE GOVERNANCE +15 +Governance Highlights +15 +Environmental, Social And Governance +16 +Corporate Governance Guidelines +18 +Other Directorships +19 +Uncontested Elections Policy +19 +Code Of Business Conduct And Ethics +19 +Family Relationships And Other Arrangements +20 +Director Independence +20 +The Board’s Role In Risk Management +20 +Transactions with Related Parties +20 +Policies and Procedures with Respect to Transactions with Related Parties +21 +Other Corporate Governance Documents +21 +Communication with the Company by Stockholders +21 +Additional Information +21 +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +22 +2021 “Say-on-Pay” Results And Investor Engagement +22 +Named Executive Officer Compensation Recommendation +23 +EXECUTIVE COMPENSATION +24 +Executive Officers +24 +COMPENSATION COMMITTEE REPORT +27 +COMPENSATION DISCUSSION AND ANALYSIS +28 +Executive Summary +28 +Executive Compensation Philosophy +31 +2021 Compensation Program Design and Decisions +32 +2021 Performance Metrics – Quantitative and Qualitative +37 +Long-Term Incentive Awards +41 +Other Elements of Compensation +44 +2022 Compensation Program and Board Changes +45 +Compensation Policies and Practices +45 +Summary Compensation Table +51 +All Other Compensation +52 +Table of Contents +Grants of Plan-Based Awards +53 +Outstanding Equity Awards at Fiscal Year-End +54 +Option Exercises and Stock Vested +55 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +56 +Impact of Termination and Change of Control on Long Term Equity-Based Incentive Plans +58 +Change of Control Excise Tax Provision +58 +Estimated Termination and Change in Control Benefits +59 +CEO PAY RATIO +62 +EQUITY COMPENSATION PLAN INFORMATION +63 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +64 +Section 16(A) Reports +65 +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +66 +Audit Committee Pre Approval Policies and Procedures +66 +REPORT OF THE AUDIT COMMITTEE +68 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2022 ANNUAL MEETING +69 +STOCKHOLDER NOMINATIONS AND PROPOSALS +70 +Stockholder Proposals for 2023 Annual Meeting +70 +Advance Notice Procedures Under the Company’s Bylaws +70 +INFORMATION ABOUT VOTING AND THE MEETING +71 +Who May Vote +71 +How Proxies Work +71 +Notice and Access +71 +Revoking a Proxy +71 +Quorum +72 +Votes Needed +72 +Attending the Virtual Meeting & Voting +73 +Conduct of the Meeting +73 +Solicitation of Proxies +73 +Appraisal Rights +73 +Contact Information +74 +HOUSEHOLDING INFORMATION +75 +APPENDIX A - NON-GAAP FINANCIAL MEASURES +76 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROXY STATEMENT SUMMARY +This Proxy Statement Summary highlights information contained elsewhere in this document. Please read the entire Proxy Statement carefully before voting. +Annual Meeting of Stockholders +TIME AND DATE +PLACE +RECORD DATE +1:00 p.m. Mountain Time +On Wednesday, May 25, 2022 +Virtually at www.virtualshareholdermeeting.com/PDCE2022 +March 30, 2022 +VOTING +Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone, mail or virtually at the Annual Meeting, please refer to the instructions on your proxy card in the postage paid envelope provided. +Voting Matters +BOARD +RECOMMENDATION +1 +PROPOSAL 1 Election of Seven Directors +Elect seven Directors nominated by the Board, each for a term of one year. +FOR +2 +PROPOSAL 2 Approve Executive Officer Compensation +To approve, on an advisory basis, the compensation of the Company’s named executive officers. +FOR +3 +PROPOSAL 3 Ratify the Appointment of PricewaterhouseCoopers LLP +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. +FOR +PDC ENERGY 2021 PROXY +1 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 1—ELECTION OF Seven DIRECTORS +THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE seven DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +You are asked to consider seven nominees for election to the Board. Each nominee would serve for a one-year term until the 2023 annual meeting of the stockholders of the Company and until his or her successor is duly elected and qualified. +ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES . +The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director nominee is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. “Withhold votes” and broker non-votes will have no effect on the election of Directors. +BOARD OF DIRECTORS +As of the Annual Meeting, the composition of the Board is expected to be as follows: +YEAR THE +DIRECTOR JOINED +DIRECTORS +THE BOARD +Barton R. Brookman +2015 +Pamela R. Butcher +2022 +Mark E. Ellis +2017 +Paul J. Korus +2020 +David C. Parke (1) +2003 +Lynn A. Peterson +2020 +Carlos A. Sabater +2021 +Diana L. Sands +2021 +(1) On March 14, 2022, Mr. Parke informed the Board that he will not stand for re-election at the Annual Meeting. +All of the Director nominees named hereafter will be standing for election to serve a one-year term. The Board, based on the recommendation of the Environmental, Social, Governance and Nominating Committee (the “ESG&N Committee”), has recommended Mr. Brookman, Mr. Ellis, Mr. Korus, Mr. Peterson, Mr. Sabater and Ms. Sands for re-election and Ms. Butcher for election as Director. All of the Director nominees are current members of the Board. Ms. Butcher was appointed to the Board on February 2, 2022, and is seeking election for the first time. +2 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Summary of Director Nominee Qualifications and Diversity +Our Director nominees have a broad diversity of experience and a wide variety of qualifications, skills, and diverse characteristics that strengthen their ability to carry out their oversight role on behalf of our stockholders. The following matrices highlight key skills, qualifications, and diverse characteristics our Director nominees bring to the Board. More details on each Director nominee’s qualifications, skills and expertise are included in the Director nominee biographies on the following pages. +Director Skills Matrix +Director Diversity Matrix +Total Number of Directors +7 +Female +Male +Non-Binary +Did Not Disclose +Part I: Gender Identity +Directors +2 +5 +0 +0 +Part II: Demographic Background +African American or Black +0 +0 +0 +0 +Alaskan Native or Native American +0 +0 +0 +0 +Asian +1 +0 +0 +0 +Hispanic or Latinx +0 +1 +0 +0 +Native Hawaiian or Pacific Islander +0 +0 +0 +0 +White +1 +4 +0 +0 +Two or More Races or Ethnicities +0 +0 +0 +0 +LGBTQ+ +0 +Did Not Disclose Demographic Background +0 +PDC ENERGY 2022 PROXY +3 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS +BARTON R. BROOKMAN +DIRECTOR +President and +Chief Executive Officer +Age: 59 +Committees: +• None +Background +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), joined to the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +Education +B.S. in Petroleum Engineering from the Colorado School of Mines +M.S. in Finance from the University of Colorado +Experience +The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +Pamela R. Butcher +DIRECTOR +Age: 64 +Committees: +• None +Background +Pamela R. Butcher jointed the Board in February of 2022. She serves as an independent director on the Boards of Pilot Chemical Corp. and Trecora Resources, and is a member of the US Bank Regional Advisory Board. She is chair of the Nominating and Governance committee for Trecora and serves on the compensation committees at both Trecora and Pilot. Additionally, she serves in a Special Advisor role for the Chairman of Pilot. She previously served as a director of Gruden Topco Holdings, LP/Quality Distribution, Inc. (a private equity firm). For the previous eleven years she was the CEO and President of Pilot Chemical Corp., delivering significant revenue and profit growth along with five accretive acquisitions. Prior to joining Pilot, she worked 29 years for The Dow Chemical Company (now Dow Inc.) where she held a variety of executive leadership positions including Business Vice President of Specialty Chemicals, Vice President of Corporate Marketing & Sales and Vice President and General Manager of Adhesives and Sealants. She was a distinguished recipient of Dow's Genesis Award for people excellence, which is Dow's highest recognition for people leadership. Previously, she also served on the board of trustees for the Chemical Educational Foundation and on the Boards of the American Cleaning Institute, the Ohio Manufacturers' Association and numerous community organizations. +Education +Bachelor’s in Agronomy from Purdue University +Master of Science from Purdue University +Experience +The Board has concluded that Ms. Butcher is qualified to serve as a Director because of, among other things, her extensive public and private company executive, leadership, and board experience. +63 +4 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +MARK E. ELLIS +DIRECTOR +(Non-Executive Chairman) +Age: 65 +Committees: +• Compensation +• Environmental, Social, Governance and Nominating (Chair) +Background +Mr. Ellis joined the Board in August of 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016. From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN. From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips. +Education +B.S. in Petroleum Engineering from Texas A&M University +Experience +The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry knowledge and executive management experience. +PAUL J. KORUS +DIRECTOR +Age: 65 +Committees: +• Audit (Chair) +• Compensation +• Environmental, Social, Governance and Nominating +Background +Mr. Korus joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC Energy Inc. (“SRC”). Mr. Korus was previously the Senior Vice President and Chief Financial Officer of Cimarex Energy Co. from September 2002 until his retirement in 2015, and held the same positions with its predecessor, Key Production Company, from 1999 through 2002. Mr. Korus has been a director of Whiting Petroleum Corporation (“Whiting”) since September 2020. He was also a member of the board of directors of SRC from June 2016 until January 2020. Mr. Korus was also a director of Antero Midstream Partners LP from January 2019 until its merger with Antero Midstream GP LP in March 2019, and a director of Antero Resources Corporation from December 2018 to June 2021. His previous experience also includes approximately five years as an oil and gas research analyst at an investment banking firm. He began his oil and gas career in 1982 with APA Corporation where he held positions in corporate planning, information technology and investor relations. +From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. Mr. Korus is a former CPA. +Education +B.S. in Economics from the University of North Dakota +M.S. in Accounting from the University of North Dakota +Experience +The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience. He also brings strong financial and accounting expertise based on his experience as a former chief financial officer of a public company. +58 +Compensation +Governance +PDC ENERGY 2022 PROXY +5 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +IANA +68 +Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration. [ADD] +LYNN A. PETERSON (1) +DIRECTOR +Age: 69 +Committees: +• None +Background +Mr. Peterson joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC. Mr. Peterson was appointed President, Chief Executive Officer and director of Whiting in September 2020. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served Kodiak as a director (2001-2014) and as its President, Chief Executive Officer (2002-2014) and Chairman of the Board (2011-2014) until its acquisition by Whiting in December 2014. Mr. Peterson has been a member of the board of directors of Denbury Resources Inc. since May 2017. Mr. Peterson has over 35 years of industry experience. +Education +B.S. in Accounting from University of Northern Colorado +Experience +The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s experience as a chief executive officer and service as director of other public energy companies provide valuable understanding of management processes and strategy of oil and gas companies. +CARLOS A. SABATER +DIRECTOR +Age: 63 +Committees: +• Audit +• Compensation +Background +Mr. Sabater joined the Board in May 2021. He is an accomplished global business executive and certified public accountant with nearly 40 years of leadership, corporate governance, accounting and financial reporting experience. Mr. Sabater also serves on the Board of KBR, Inc., a U.S.-based company operating in the fields of science, technology and engineering. During his extensive career at Deloitte Touche Tohmatsu Limited (“Deloitte”), he served in various senior leadership and operational roles, including CEO for both the U.S. and global audit practices and was the managing partner for all of Deloitte’s businesses across North and South America. Mr. Sabater led various risk, governance, audit, finance, compensation and global committees during his service as an elected board member for the Deloitte firms in the U.S., Mexico, Central and Latin America, the Caribbean and Bermuda. Mr. Sabater was born in Cuba, having immigrated to the U.S. as a child, and is fluent in Spanish. +Education +B.B.A. in Accounting and Finance from Florida International University +Experience +The Board has concluded that Mr. Sabater is qualified to serve as a Director because of, among other things, his extensive leadership, executive and board service and experience in audit, finance, risk and governance matters for public companies. +55 +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +6 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIANA L. SANDS +DIRECTOR +Age: 56 +Committees: +• Audit +• Environmental, Social, Governance and Nominating +Background +Ms. Sands joined the Board in February 2021. She retired in 2020 from the Boeing Company (“Boeing”) as Executive Officer and Senior Vice President, Office of Internal Governance and Administration, a role she held beginning in 2016. Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her nearly 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, she served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Education +Bachelor of Business Administration from University of Michigan +M.B.A. from the Kellogg School of Management at Northwestern University +Experience +The Board has concluded that Ms. Sands is qualified to serve as a Director because, among other things, she has extensive executive finance and governance experience in large public companies, allowing her to contribute broad financial, audit and compliance expertise to the Board. +(1) Mr. Peterson Over-boarding Concerns +At the Company’s 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”), we believe some stockholders voted against Mr. Peterson due to over-boarding concerns regarding his service on other public company boards while also serving as a CEO of a public company. Mr. Peterson currently serves as CEO and a director at Denver-based Whiting Petroleum Corporation (“Whiting”) while also serving as an independent director at PDC and Denbury Resources Inc. (“Denbury”). On March 7, 2022, Whiting and Oasis Petroleum Inc. (“Oasis”) announced the planned merger of the two companies (the “Transaction”), expected to close in the second half of 2022. Upon closing of the Transaction, Mr. Peterson will step down as CEO of Whiting and is expected to serve as Executive Chair of the Board of Directors of the combined company through December 31, 2023, or an earlier date if agreed upon. In this new role, Mr. Peterson will no longer be a full-time employee of Whiting, but instead will provide advice and guidance to the CEO and management team as needed. We believe this anticipated change in Mr. Peterson’s role alleviates the previous over-boarding concerns. +PDC also routinely evaluates any potential conflicts of interests of our Board members, including employment and other directorships, and has determined that no conflicts exist with respect to Mr. Peterson’s positions with Whiting, Oasis and Denbury. He also is (and will be at the closing of the Transaction) in compliance with PDC’s internal over-boarding policy (no more than two public company boards beyond PDC). Mr. Peterson is a highly engaged and committed Board member and actively participates in all PDC Board matters, demonstrating an ability to effectively manage the demands on his time. Equally importantly, Mr. Peterson brings valuable and unique experience to the Board, including: +- Significant experience with Colorado operations and regulations. As former CEO of Wattenberg operator, SRC Energy Inc. (“SRC”), Mr. Peterson has extensive familiarity with the unique and ever-changing regulatory environment in Colorado. One of PDC’s largest initiatives aimed at unlocking stockholder value, our Guanella Comprehensive Area Plan (“CAP”) permit application, is a continuation of a project started by SRC prior to the merger with PDC in early 2020. As a Colorado native and current resident, Mr. Peterson has strong local ties to the community. As a former and +PDC ENERGY 2022 PROXY +7 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +current CEO of a Denver-based company, Mr. Peterson’s experience in the Colorado regulatory and political environments is invaluable. +- Former President and CEO of Denver-based SRC, acquired by PDC in 2020. As a result of the acquisition of SRC, Mr. Peterson owns significant stock in PDC and is aligned with the Company’s long-term strategy. In addition, a number of former SRC employees now work at PDC and Mr. Peterson’s boardroom presence has been – and will continue to be – highly-valued. +- CEO experience within the E&P sector. Since 2020, PDC has refreshed more than 50 percent of its Board, including three new members in the past year alone. Each new member - Diana Sands, Carlos Sabater and Pamela Butcher – offer a unique background and diverse skillset valued in the PDC boardroom. Each also carries executive experience outside the E&P sector. Mr. Peterson serves as a valuable resource in integrating and acclimating PDC’s new Board members to the E&P sector. +- Active and engaged Director. Since joining the Board in 2020, Mr. Peterson has been a dedicated and thoughtful participant at each Board meeting. In 2021, he attended 94% of the Company’s Board and committee meetings. Mr. Peterson is always well prepared for Board meetings and is widely respected by fellow Board members for making informed and meaningful contributions to the decision-making process at these meetings. +For the reasons outlined above, the Board recommends the election of Mr. Peterson for another one-year term. +8 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIRECTOR COMPENSATION +We compensate Directors with a combination of cash and equity-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly. No compensation is paid to our CEO for his service on the Board. +Compensation for our non-employee Directors (“Non-Employee Directors”) is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2021, the Compensation Committee recommended paying a more significant portion of Director compensation in the form of equity and therefore decreased the annual cash retainer from $100,000 to $85,000 and increased the annual equity compensation from $140,000 to $180,000. +CASH COMPENSATION +Annual Board and Committee Retainers +Each Non- Employee Director receives an annual cash retainer for service on the Board, which covers attendance at all Board and committee meetings. In addition, Non-Employee Directors receive an additional cash retainer for service on certain committees or service as committee chairs to compensate them for the extra responsibilities associated with their roles. The 2021 Board and committee retainers are reflected in the following table. +Member +Chair +Retainer +Retainer +($) +($) +Board +$ +85,000 +$ +100,000 +Audit Committee +10,000 +20,000 +Compensation Committee +— +15,000 +ESG&N Committee +— +15,000 +EQUITY COMPENSATION +On February 17, 2021, Mr. Ellis, the Non-Executive Chairman, was granted an equity award with an intended value of $215,000 in restricted stock units (“RSUs”) and the remaining Non-Employee Directors each received an equity award with an intended value of $180,000 in RSUs for their service on the Board. The RSUs were granted under our 2010 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five-day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject, generally, to the Director not resigning or being removed for cause prior to the vesting date). +DEFERRED COMPENSATION +Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and +PDC ENERGY 2022 PROXY +9 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +on May 26, 2020, the Board voted to terminate the Deferred Comp Plan. In connection with the termination, and in order to liquidate all funds remaining in the Deferred Comp Plan, the Company made distributions to Mr. Parke and former Directors Anthony Crisafio and Jeffrey Swoveland, each of whom had an outstanding balance as of June 3, 2021. +Compensation paid to the Non-Employee Directors for 2021 was as follows: +2021 DIRECTOR COMPENSATION +Fees +Earned +or Paid +Stock +in Cash (1) +Awards (2)(3) +Total +Name +($) +($) +($) +Anthony J. Crisafio (4) +$ +55,000 +$ +186,437 +$ +241,437 +Mark E. Ellis +198,292 +222,691 +420,983 +Christina M. Ibrahim (4) +43,833 +186,437 +230,270 +Paul J. Korus +106,978 +186,437 +293,415 +Randy S. Nickerson (4) +42,875 +186,437 +229,312 +David C. Parke (5) +110,000 +186,437 +296,437 +Lynn A. Peterson +85,000 +186,437 +271,437 +Carlos A. Sabater +59,114 +184,338 +243,452 +Diana L. Sands +80,364 +178,836 +259,200 +Jeffrey C. Swoveland (6) +42,500 +— +42,500 +(1) Includes annual Board retainer, committee and committee chair retainers and the retainer for the Non-Executive Chairman of the Board . +(2) Represents RSUs granted to our Non-Employee Directors. The RSU amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amounts described above. +(3) At December 31, 2021, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Mr. Ellis – 7,629; Mr. Korus – 6,387; Mr. Parke – 6,387; Mr. Peterson – 6,387; Mr. Sabater – 4,458; Ms. Sands – 6,387. +(4) Ms. Ibrahim and Messrs. Crisafio and Nickerson did not stand for re-election at the Company’s 2021 Annual Meeting. +(5) On March 14, 2022, Mr. Parke informed the Board that he will not stand for re-election in 2022. +(6) Mr. Swoveland’s cash compensation includes cash for service as a Director Emeritus during 2021 until the 2021 Annual Meeting. +DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS +Under the Company’s Stock Ownership Guidelines, each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($425,000 for 2021). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly-owned shares and unvested RSUs. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2021, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Ms. Sands, Ms. Butcher, and Mr. Sabater, each of whom is still within their respective compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The Company’s Insider Trading Policy expressly prohibits Directors from short-term trading (purchasing and selling Company securities within a six-month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, +10 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that describe the process the ESG&N Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The ESG&N Committee evaluates each candidate based on his or her level and range of experience and knowledge (industry-specific and general), skills, education, reputation, integrity, professional stature and diversity in terms of race, gender and ethnicity, as well as other factors that may be relevant depending on the particular candidate. +Additional factors considered by the ESG&N Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The ESG&N Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The ESG&N Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The ESG&N Committee has historically identified potential Director nominees primarily through recommendations made by independent third-party search firms. The ESG&N Committee also considers recommendations made by Non-Employee Directors, employees, stockholders and others. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. In August 2021, the Board engaged Russell Reynolds Associates to conduct a Director search, which resulted in the appointment of Ms. Butcher. +STANDING COMMITTEES OF THE BOARD +BOARD MEETINGS AND ATTENDANCE +The Board has a standing Audit Committee, Compensation Committee and ESG&N Committee. Actions taken by these committees are reported to the Board at its next meeting. During 2021, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors who were in office at the time of the 2021 Annual Meeting, held on May 26, 2021, attended the meeting by phone. +The Non-Employee Directors generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Non-Executive Chairman of the Board chairs these sessions; however, the other Non-Employee Directors may, in the event of the Non-Executive Chairman's absence, select another Director to preside over the executive session. +The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2021. +PDC ENERGY 2022 PROXY +11 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2021 BOARD AND COMMITTEE MEMBERSHIPS +DIRECTORS +Board of +Directors +Audit +Committee +Compensation +Committee +Environmental, Social, Governance +and Nominating +Committee +Barton R. Brookman +Mark E. Ellis (1) +(2) +Paul J. Korus (3) +David C. Parke (4) +Lynn A. Peterson +(5) +Carlos L. Sabater (6) +Diana A. Sands (7) +Pamela R. Butcher (8) +Number of Meetings Held +10 +9 +6 +10 +Chairman Member Chairman of the Board +(1) On February 17, 2021, Mr. Ellis was appointed as Chairman of the ESG&N Committee. +(2) On May 26, 2021, Mr. Ellis was appointed to the Compensation Committee. +(3) On May 26, 2021, Mr. Korus was appointed as Chairman of the Audit Committee, and as a Member of the Compensation Committee. +(4) On March 14, 2022, Mr. Parke informed the Board that he will not stand for re-election in 2022. +(5) On May 26, 2021, Mr. Peterson stepped down as a member of the Compensation Committee. Mr. Peterson’s resignation was in response to concerns expressed over his service on the Compensation Committee, given his service as Chief Executive Officer and President of SRC prior to the merger between the Company and SRC. As a result, Mr. Peterson currently serves on no key committees. +(6) On May 26, 2021, Mr. Sabater was appointed to the Compensation and Audit Committees. +(7) On May 26, 2021, Ms. Sands was appointed to the ESG&N and Audit Committees. +(8) On February 2, 2022, Ms. Butcher joined the Board. The Board determined not to appoint Ms. Butcher to any Committees at such time. +AUDIT COMMITTEE +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on September 15, 2021, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by Securities and Exchange Commission (“SEC”) regulations. The Company’s website materials are not incorporated by reference into this Proxy Statement. +12 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Environmental, Social, Governance and NOMINATING COMMITTEE +In September 2021, the Board formalized Environmental, Social and Governance (“ESG”) oversight and accountability at the Board level by establishing the Environmental, Social, Governance and Nominating (“ESG&N”) Committee and amending and restating the committee’s charter to, among other things, include oversight of ESG matters. Members of the ESG&N Committee were selected primarily based on their previous Nominations & Governance Committee experience and also based on other relevant sustainability expertise and experience. +The ESG&N Committee receives quarterly updates on the Company’s ESG strategy, goals and initiatives from key internal ESG leadership, including the Company’s ESG executive sponsors – the General Counsel and SVP Operations – and members of PDC’s ESG Steering Committee. Committee members are asked for input and guidance on progress and path forward, leveraging their individual areas of expertise and experience. Prior to the formation of the ESG&N Committee, the full Board received quarterly updates on ESG. +To educate the Board and the ESG&N Committee, PDC has utilized both internal and external sources to take a deeper dive into specific topics and trends. PDC is also continuously seeking educational courses or speakers on ESG for our Board and ESG&N Committee members. +In 2022, the ESG&N Committee will be significantly engaged in the Company’s reporting process, as we focus on the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”). Board oversight through the ESG&N Committee is a critical aspect of TCFD and the ESG&N Committee will play an integral role as we work through scenarios and reporting. See “Environmental, Social and Governance ” for additional information regarding the Company’s ESG strategy and efforts. +The Board has determined that all members of the ESG&N Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted an ESG&N Committee Charter, which was most recently amended and restated on September 15, 2021, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +COMPENSATION COMMITTEE +The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 20, 2019, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee is or has been an officer or employee of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S-K in 2021. During 2021, none of our executive officers served as a Director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Compensation Committee or the Board. +PDC ENERGY 2022 PROXY +13 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Summary of Committee Responsibilities +AUDIT COMMITTEE +COMPENSATION COMMITTEE +Environmental, Social, Governance and NOMINATING COMMITTEE +Responsibilities: +⦁ Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; +⦁ Monitors the independence of the independent registered public accounting firm; +⦁ Monitors and provides oversight with respect to Company enterprise risk and cybersecurity risks, and the Company’s processes, policies, and guidelines established to address such risks; and +⦁ Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Responsibilities: +⦁ Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +⦁ Evaluates the performance of and establishes the compensation of the CEO; +⦁ Reviews and approves the elements of compensation for other senior executive officers of the Company; +⦁ Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans; +⦁ Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation; +⦁ Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; +⦁ Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and +⦁ Reviews and approves Company contributions to Company sponsored retirement plans. +Responsibilities: +⦁ Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies; +⦁ Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +⦁ Oversees and makes recommendations with respect to the adequacy of the Company’s ESG policies and programs, compliance with ESG laws, and progress toward the Company’s achievement of ESG objectives, including diversity, equity, and inclusivity; +⦁ Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; and +⦁ Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position. +BOARD LEADERSHIP STRUCTURE +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Ellis serves as Non-Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as the leader of the Company in front of our employees and stockholders. The Board evaluates this separated structure at least annually. +14 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +STOCKHOLDER RECOMMENDATIONS +The ESG&N Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the ESG&N Committee by writing to the ESG&N Committee at the Company’s headquarters or by email to board@pdce.com . All recommendations will be reviewed by the ESG&N Committee. A submission recommending a nominee should include: +● Sufficient biographical information to allow the ESG&N Committee to evaluate the potential nominee in light of the Director Nomination Procedures, including current employment and other public company directorships that may impact a nominee’s ability to meaningfully participate on PDC’s Board; +● An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +● Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +● An indication of the willingness of the proposed nominee to serve if nominated and elected. +STOCKHOLDER NOMINATIONS +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures. +CORPORATE GOVERNANCE +GOVERNANCE HIGHLIGHTS +We believe that the Board has implemented a sound structure for the governance of the Company, including as a result of the following: +● Responsiveness to Stockholder Feedback : In 2021, we conducted a comprehensive outreach to our stockholders in response to our 2021 say-on-pay vote and also to better understand our stockholders’ views on various governance and other ESG matters, reaching out to nearly 70% of our stockholder base and meeting with approximately 40 percent. In response to stockholder feedback, the Board made a number of changes in 2021 and 2022 related to, among other things, Board refreshment, executive compensation and ESG initiatives. See below discussions on “ESG Focus”; “Continuous Board Refreshment and Diversity”; “Environmental, Social and Governance”; “2021 ‘Say-on-Pay’ Results and Investor Engagement”; “Responsiveness to Stockholder Interests and Market Environment”; and “2022 Compensation Program and Board Changes” for further detail. +● Continuous Board Refreshment and Diversity : Five of the Company’s seven Director nominees have been added to the Board since 2020, including two in 2020, two in 2021, and one in 2022, demonstrating commitment to continued refreshment. Further, three Directors are either female and/or self-identify as underrepresented minorities. +● ESG Focus : We continue to place an emphasis on furthering our ESG progress and strategy and increasing transparency, including through our second annual Sustainability Report in 2021, proactive engagement with our key stakeholders and the development of environmentally-focused targets. In 2021, the Board formalized ESG oversight and accountability at the Board +PDC ENERGY 2022 PROXY +15 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +level by establishing the ESG&N Committee. Additionally, in 2021, we set greenhouse gas (“GHG”) and methane emission intensity reduction targets of more than 50 percent and 60 percent, respectively, by 2025 compared to 2020, to be achieved through deployment of existing technologies in new and retrofitted facilities, as well as enhancements to our data collection and modeling methods . Further, the Company has significantly accelerated its commitment in aligning with the World Bank in achieving zero routine flaring by 2025 as opposed to its prior commitment of 2030. +● Independent Board Leadership : Non-Executive Chairman Mark E. Ellis has decades of executive experience in the oil and gas industry and provides strong leadership and oversight of management. +● Majority Independent Directors : Currently, six of our seven Director nominees are independent, and only independent Directors serve on our Board committees. +● Strong Independent Oversight : The majority of the Company’s Director nominees have significant operating, financial, strategic and other relevant experience in the oil and gas industry and with public companies. +● Share Ownership Requirement : Directors are required to hold a specified number of shares of our common stock with a transition period for new Directors. +● Majority Voting Policy : Except in the case of a contested election, any Director who receives more “withhold” votes than votes in favor must tender his or her resignation. +● Stockholder-called Special Meetings and Action by Consent : Stockholders that have ten percent combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent. +● No Poison Pill : The Company does not have a poison pill. +● One Vote per Share : The Company does not have any super-voting shares. +Environmental, Social and Governance +PDC is committed to a meaningful and measurable ESG strategy and believes there is significant value and opportunity in running our business with an ESG-focused mindset. Our mission to be a cleaner, safer and more socially responsible company begins with a sound strategy, is supported in the boardroom, is overseen by our ESG&N Committee and is applied at every level of our business as illustrated below. +16 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +As examples of ESG matters over which the Board (through the ESG&N Committee) now has oversight authority, in 2021, the Company significantly accelerated ESG strategy and reporting, increasing accountability and transparency. In particular, the Company: +● Conducted a materiality assessment, with the support of an independent, third-party consultant, using Sustainability Accounting Standards Board (“SASB”), Ipieca, TCFD and CDP as guidance in determining our issue areas for interviews and conducting the process. +● Further aligned with SASB and began preliminary disclosure in accordance with TCFD. +● Formalized and chartered an internal ESG Steering Committee, with senior representatives from key ESG focus areas and executive officer sponsors (see graphic above). +● Continued engagement within the Company’s Diversity, Equity and Inclusion (“DE&I”) Committee, including a speaker series and executive and manager training on unconscious bias. +● Added two diverse Board members in 2021, and an additional diverse Board member in 2022, and increased transparency regarding the diversity of our employee base. The Company’s officers (Vice Presidents and up) consist of 27% women and 9% minorities, and the Company’s managers consist of 32% women and 17% minorities, each as of December 31, 2021. +● Nearly doubled the Company’s charitable giving budget, with increased focus on inclusivity and contributing to local charitable efforts. +● Created an internal working group dedicated to emissions reduction, which developed and communicated aggressive goals, including GHG and methane emission intensity reduction targets of more than 50% and 60%, respectively, by 2025 (see graphic below), and acceleration of our timeline for eliminating routine flaring from 2030 to 2025; GHG and methane intensity +PDC ENERGY 2022 PROXY +17 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +reduction are now included as quantitative metrics in our 2022 short-term incentive program (see “2022 Compensation Program and Board Changes” discussion below). +1. +2. +3. +accelerating our previously-outlined +goal of meeting the World Bank ‘Zero +Routine Flaring by 2030’ initiative. +1. +Reduce GHG intensity by 60% from 2020 Emissions by 2025 and 74% by 2030 +2. +Reduce methane emissions intensity by 50% from 2020 emissions by 2025 and 70% by 20030 +3. +Achieve zero routine flaring by 2025, accelerating our previously-outlined goal of meeting the World Bank ‘Zero Routine Flaring by 2030’ initiative. +● On February 28, 2022, PDC announced the planned acquisition of Great Western Petroleum, LLC, a Denver-based DJ Basin operator (the “Great Western Acquisition”), with an expected closing in the second quarter of 2022. P DC expects the Great Western Acquisition to further support or accelerate its existing GHG and methane emission intensity reduction targets of more than 50 percent and 60 percent, respectively, by 2025 compared to 2020 . +Moving forward, the Company will continue its thoughtful but ambitious approach to ESG. The Company is currently engaged in several key initiatives, including: +● Executive and Board engagement in climate-focused scenario planning and strategy in alignment with the recommendations of TCFD. +● Undertaking a gap analysis with Sustainalytics US Inc. to determine additional opportunities for transparency on material ESG issues and greater alignment between the Company’s scores and efforts. +● Leveraging our employee-led DE&I Committee to identify DE&I priorities and initiatives for the organization. +● Continuing our significant charitable and community outreach efforts, including providing additional funds for the Colorado Marshall Fire disaster response and plans to increase our charitable giving budget as a result of the Great Western Acquisition and the war in Ukraine. +● Establishing a regular cadence of ESG-related updates to our investors via our quarterly earnings calls. +PDC’s sustainability efforts are marked by strategic planning, transparency, stakeholder engagement, materiality and – most importantly – steady progress on our material focus areas. +CORPORATE GOVERNANCE GUIDELINES +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +● Director selection, qualification and responsibilities; +18 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● The holding and frequency of executive sessions of independent Directors, Board self-evaluation and senior executive performance reviews; +● Board committee structure and function; +● Succession planning; and +● Governance matters, standard of business conduct and Board committee responsibilities. +The Corporate Governance Guidelines were most recently amended as of May 26, 2020, and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Other Directorships +The Corporate Governance Guidelines also address Directors’ service on other public company boards. Recognizing the substantial time commitment required of public company board directors, the Corporate Governance Guidelines state that Directors are expected to serve on other public company boards only to the extent that such services do not detract from the Directors’ ability to serve on PDC’s Board. In no case may PDC Directors serve on more than two public company boards (in addition to PDC’s Board). The ESG&N Committee reviews and oversees Directors’ service on other public company boards regularly and no less than annually. +All of PDC’s Directors are currently in compliance with the Corporate Governance Guidelines’ other public company board service requirements. Still, certain investors and organizations consider Mr. Peterson’s service as CEO of Whiting while serving on the boards of PDC, Whiting, and Denbury to constitute over-boarding. However, in light of the recently announced Whiting/Oasis Transaction (see footnote (1) to the Director biographies above), we believe Mr. Peterson’s plan to step down as CEO of Whiting and no longer be a full-time employee of Whiting, and instead serve as Executive Chair of the Board of Directors of the combined company, alleviates previous over-boarding concerns. +UNCONTESTED ELECTIONS POLICY +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the ESG&N Committee. The ESG&N Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making this recommendation, the ESG&N Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the ESG&N Committee’s recommendation, the Board will take into account the factors considered by the ESG&N Committee and such additional information and factors as the Board believes to be relevant. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the ESG&N Committee. The Company’s principal executive officer, principal financial officer +PDC ENERGY 2022 PROXY +19 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct is reviewed and acknowledged annually by the Board and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” In the event the Board approves an amendment to or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website. +FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS +There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement. +DIRECTOR INDEPENDENCE +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements. +The Board has reviewed the business and charitable relationships between the Company and each Non-Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non-Employee Director. +THE BOARD’S ROLE IN RISK MANAGEMENT +In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions, for which program the Audit Committee provides oversight. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company-wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management program, including enterprise risk and cybersecurity risks, and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors. +TRANSACTIONS WITH RELATED PARTIES +During 2021, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting +20 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES +The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related-party transaction policy applies to each Director and executive officer of the Company, any Director nominee, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest. +Under our related-party transaction policy, a related-party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related-party transaction and must disclose all material facts with respect to such transaction and relationship. All related-party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations. +OTHER CORPORATE GOVERNANCE DOCUMENTS +The Company’s website includes the following governance documents: +● Director Nomination Procedures +● Code of Business Conduct and Ethics +● Stock Ownership Guidelines +● Compensation Committee Charter +● Insider Trading Policy +● Audit Committee Charter +● Shareholder Communication Policy +● ESG&N Committee Charter +● Corporate Governance Guidelines +COMMUNICATION WITH THE COMPANY BY STOCKHOLDERS +The Company values comprehensive engagement with its stockholders. Stockholders may communicate with the Company’s management by writing to the Company’s corporate headquarters or by emailing to IR@pdce.com , or with the Board or a committee of the Board by emailing to board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +PDC ENERGY 2022 PROXY +21 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 2. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The stockholders of the Company are entitled to cast a non-binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say-on-pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. The next non-binding advisory vote regarding such frequency will be held at the 2023 Annual Meeting of Stockholders, in accordance with SEC rules. +As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay-for-performance philosophy. In 2021, 87% of our CEO’s compensation and 81% of the compensation of our CFO, EVP – Corporate Development and Strategy, SVP General Counsel, Secretary, and SVP Operations was made up of “at-risk” components. +Each of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long-term success. The Company also has Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company. +2021 “Say-on-Pay” Results and Investor Engagement +At our 2021 Annual Meeting, we received approximately 69% support for our “say-on-pay” proposal. We believe that some stockholders voted against the proposal due to concerns regarding severance payments made to our former COO Scott Reasoner in connection with his voluntary retirement in 2020. The Compensation Committee and the full Board took the outcome of this vote seriously and were highly focused on gathering and responding to our stockholders’ feedback regarding our executive compensation programs. Members of our Board and management team conducted comprehensive stockholder outreach in the second half of 2021 and early 2022—in addition to various stockholder discussions held in May 2021 leading up to the 2021 Annual Meeting. Through these stockholder outreach efforts, the Compensation Committee provided the reasons for Mr. Reasoner’s retirement payments, but also aimed to understand our stockholders’ concerns and incorporate feedback regarding cash payments upon retirement and our executive compensation programs generally. +22 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +In total, we contacted stockholders representing nearly 70% of our outstanding common stock and held telephonic or video meetings with stockholders representing approximately 40% of our outstanding common stock. Our engagement team included the Chairman of our Board and the ESG&N Committee, the Chair of our Compensation Committee, members of our ESG&N and Compensation Committees, and representatives of management, including our CEO, CFO, SVP General Counsel and Director of Investor Relations. While the primary focus of engagement was to discuss the retirement payments to Mr. Reasoner and PDC’s plans to address future concerns, we also discussed topics including Board governance, environmental and social issues and PDC’s overall executive compensation framework. +In evaluating potential changes to our executive compensation program, specifically as it relates to executive retirement, the Compensation Committee: +(i) determined the Company will not provide material cash termination payments in the future as a result of voluntary retirement, and +(ii) added language to the Company’s 2022 RSU and PSU award agreements for executive officers to provide for potential vesting or continued vesting post retirement at the Compensation Committee’s sole and absolute discretion, taking into account, among other things, circumstances surrounding the retirement, whether the executive provided sufficient advance notice of their intent to retire, whether the executive located and/or trained a successor for their position and otherwise minimized disruption to the Company’s business, the executive’s length of continuous service from and after the grant date, the executive’s length of total service to the Company, the executive’s job performance, and any other factors the Compensation Committee deems relevant in its sole and absolute discretion. +Named Executive Officer Compensation Recommendation +In light of the Company’s outreach efforts and response to the 2021 say-on-pay vote and based on the Company’s overall sound executive compensation framework, the Company believes that the compensation of the Named Executive Officers, as further described below, is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2022 Annual Meeting. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non-votes will not affect the outcome of this proposal. +PDC ENERGY 2022 PROXY +23 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +EXECUTIVE COMPENSATION +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below. +Chief Executive Officer +59 +None +BARTON R. BROOKMAN +President and +Chief Executive Officer +Age: 59 +Mr. Brookman joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman above. +Lance A. Lauck +Executive Vice President Corporate Development & Strategy +Age: 59 +Mr. Lauck joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +24 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +R. Scott Meyers +Chief Financial Officer +Age: 47 +Mr. Meyers, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and then promoted to Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008. Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania. +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +Nicole L. Martinet +General Counsel, Senior Vice President & Secretary +Age: 45 +Ms. Martinet joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for seven years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011. Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 22 years of professional experience and holds a Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California. +PDC ENERGY 2022 PROXY +25 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +David J. Lillo +Senior Vice President Operations +Age: 57 +Mr. Lillo was appointed as a member of the Senior Management Team for the Company in September 2020. He was promoted to Senior Vice President, Operations in March 2019 after joining the Company as Vice President, Operations in September 2015. Mr. Lillo has over 32 years of experience in exploration, production, and operations engineering management. Prior to joining the Company, Mr. Lillo was with Bonanza Creek Energy from 2013-2015 serving as Senior Vice President of Production & Operations, after being promoted from VP, Rocky Mountain Asset Management over the Rocky Mountain and Mid-Continent assets. From 2005-2013, Mr. Lillo held numerous positions with Noble Energy, Inc. including Development and Operations Manager, Manager of Major Projects and Infrastructure, and District Manager for the DJ Basin. Prior to that, he was with Patina Oil and Gas Corporation from 1998-2005, serving in positions of increasing responsibility, including Operations Manager and District Production Manager overseeing Wattenberg operations. Prior to 1998, Mr. Lillo held several operational and technical positions for various companies with operations in Kansas, North Dakota, and California. Mr. Lillo holds a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines. +Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman and Lauck were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. Lillo, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been dissolved. +26 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +David C. Parke, Chair +Paul J. Korus +Mark E. Ellis +Carlos A. Sabater +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +PDC ENERGY 2022 PROXY +27 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +COMPENSATION DISCUSSION AND ANALYSIS +In establishing the Company’s compensation program, the Compensation Committee (referred to in this section as the “Committee”) continuously considers feedback from the Company’s stockholders and its compensation consultant and strives to adhere to compensation best practices. As such, this Compensation Discussion & Analysis (“CD&A”) illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2021, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2021 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers. The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”: +OFFICER +TITLE +Barton R. Brookman +President and Chief Executive Officer +R. Scott Meyers +Senior Vice President—Chief Financial Officer +Lance A. Lauck +Executive Vice President—Corporate Development and Strategy +Nicole L. Martinet +Senior Vice President—General Counsel and Secretary +David J. Lillo +Senior Vice President—Operations +EXECUTIVE SUMMARY +2021 Business Highlights +Despite the continuing challenges in 2021 due to the COVID-19 pandemic, the Company continued to successfully achieve its operational and strategic goals and to develop its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. The Company also further enhanced its focus on ESG initiatives and commitment to best-in-class environmental and safety practices and consistent stakeholder engagement. In 2021, PDC announced GHG and methane emission intensity reduction targets for each of 2025 and 2030. The Company also continued its board refreshment initiatives with the appointment of two new diverse members. +28 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Other key highlights and achievements in 2021 are further illustrated and described below: +(1) Adjusted Free Cash Flow (FCF), a non-GAAP financial measure, is defined as net cash from operating activities, before changes in working capital, less oil & gas capital investments. See Appendix A for reconciliation. +2021 Key Compensation Actions and Outcomes +The Committee implemented several key design changes to our executive compensation program between 2019 and 2020 in response to stockholder feedback, and therefore maintained a generally consistent compensation framework from 2020 to 2021. +The Committee made the following pay outcome determinations for our NEOs for fiscal year 2021: +● Kept base salaries flat year over year, other than for Mr. Meyers and Ms. Martinet, whose base salaries were modestly increased to reflect the Committee’s determination to continue to bring each of their salaries closer to the market median over time, as the number of years in their roles increases; +● Kept target bonus percentages flat year over year for all NEOs; and +● Provided slight increases to long-term incentive amounts for all NEOs for our February 2021 grants, with an average increase of approximately 6%. +In January and February 2022, the Committee evaluated the Company’s 2021 financial, operational and strategic accomplishments and determined the following pay outcomes: +● A 2021 annual cash incentive payout at 160% of target; and +● 2019 PSU awards ranked at the 86th percentile of peers, which correlated to 190% of the targeted shares earned based on PDC’s relative three-year total shareholder return (“TSR”) performance. The value realized, based on a 2021 year-end stock price of $48.78, represented an increase of 155% from the original targeted grant date value. +PDC ENERGY 2022 PROXY +29 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Compensation Best Practices +We believe our executive compensation program is aligned with current governance trends, and contains stockholder-friendly features as outlined below: +Our Practices +(What We Do) +Practices We Have Not Implemented +(What We Don’t Do) +✓ Pay for Performance —Our NEOs’ total compensation is heavily weighted toward performance-based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ Executive Ownership Guidelines —We have Stock Ownership Guidelines for our executives and Directors that are consistent with what we believe to be corporate governance best practices. +✓ External Benchmarking —We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. +✓ Double-Trigger Change-of-Control Severance Benefits —In the event of a change of control, our severance plan and our grandfathered employment contract provide for cash severance benefits only if the executive is actually or constructively terminated without cause following the change of control event. +✓ Clawback Policy —We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws. +✓ Compensation Doesn’t Encourage Excessive Risk —There is an appropriate balance between long-term and short-term focus in our compensation programs and the Committee has the ability to apply negative discretion to annual cash incentive payouts to ensure risk mitigation occurs in management decision-making. +✓ Independent Compensation Consultant —We have engaged an independent compensation advisor who reports directly to the Committee. +✓ Independent Compensation Committee —Our Committee is comprised solely of independent Directors. +✘ No Golden Parachute Excise Tax Gross-Ups —We do not provide gross-up payments to reimburse our executives for any tax obligations that would be incurred upon a change of control of the Company. +✘ No New Employment Contracts and/or Excessive Severance Benefits —We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment agreement are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or similar practices. +✘ No Excessive Perquisites —We provide only modest perquisites that are consistent with peer companies in our industry. +✘ No Repricing —We do not permit repricing of underwater stock options/SARs without stockholder approval. +✘ Prohibited Transactions —Hedging transactions, short selling, short-term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long-term business objectives of the Company are strictly prohibited for all officers and Directors of the Company under our Insider Trading Policy. +30 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Responsiveness to Stockholder Interests and Market Environment +Over the past several years, based on stockholder feedback and our analysis of market and business trends, we have made a number of changes to our executive compensation program showing responsiveness to stockholder feedback and evolving market conditions. We made significant changes to our program between 2019 and 2020, and therefore maintained a generally consistent compensation framework from 2020 to 2021. +In 2021 and early 2022, members of our Board and management team conducted comprehensive stockholder outreach in response to our 2021 say-on-pay vote. In total, we contacted stockholders representing nearly 70% of our outstanding common stock and held telephonic or video meetings with stockholders representing approximately 40% of our outstanding common stock. Through this outreach effort, we aimed to understand our stockholders’ concerns and incorporate feedback, including with regard to cash payments to our executives upon retirement and our executive compensation programs generally. See “2021 ‘Say-on-Pay’ Results and Investor Engagement” discussion above. +Acquisition of Great Western Petroleum, LLC +On February 28, 2022, PDC announced the planned acquisition of Great Western Petroleum, LLC, a Denver-based DJ Basin operator (the “Great Western Acquisition”), with expectations to close the transaction in the second quarter 2022. The Company anticipates the Great Western Acquisition will be accretive to key financial and operating metrics including adjusted FCF, FCF per share, stockholder returns, oil mix, G&A per Boe and LOE per Boe; be accretive to the Company’s current GHG and methane emission intensities while supporting the Company’s 2025 and 2030 emission intensity reduction goals through deployment of existing technologies in new and retrofitted facilities as well as enhancements to our data collection and modeling methods (see “Environmental, Social and Governance” above); and further enhance the Company’s best-in-class community stewardship programs. +EXECUTIVE COMPENSATION PHILOSOPHY +The principal tenets of our compensation philosophy are as follows: +● Our executive compensation programs should be designed to align our executives’ interests with those of our stockholders. Over the years we have evolved our executive compensation programs to meaningfully address stockholder feedback and adopt best practices. A substantial portion of our NEOs’ compensation is provided in the form of long-term equity incentives that tie executive pay to stock price performance. In addition, we require each of our NEOs to remain compliant with our Stock Ownership Guidelines. +● Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +● Our executive compensation programs should be designed to support a performance-based culture. The majority of each NEO’s compensation is at-risk and is based on a combination of attainment of short-term goals in support of our long-term strategy, long-term stock performance relative to our peers, and actual total stockholder return. Our programs require a commitment to performance because total compensation is not guaranteed. Therefore, our programs provide above-target compensation when performance goals are met and below-target compensation when performance does not meet expectations. +PDC ENERGY 2022 PROXY +31 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Our executive compensation programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include three-year vesting schedules on all equity awards, and structured annual cash incentive awards using a payout that is comprised 75% of a formulaic determination based on quantitative short-term financial and operational objectives and 25% based on a review of qualitative strategic objectives, including those related to health, safety and the environment. We regularly review our compensation programs to ensure that our NEOs are not encouraged to take inappropriate or excessive risks. +2021 COMPENSATION PROGRAM DESIGN AND DECISIONS +Components and Purpose of Executive Compensation Program +Our executive compensation program is comprised of the following primary compensation elements: +2021 COMPENSATION ELEMENTS +2021 ROLE IN TOTAL COMPENSATION +Base Salary +● Compensates executives for their level of responsibility, skills, capabilities, experience and leadership. +Annual Cash Incentives +✓ Cash Bonus – 75% based on quantitative metrics; 25% based on qualitative goals +● Rewards annual performance and aligns participants’ compensation with short-term financial, operational and strategic objectives specific to each calendar year; +● Motivates participants to meet or exceed internal and external performance expectations; and +● Recognizes individual contributions to the organization’s overall results. +Long-Term Equity-Based Incentives +✓ Performance Share Units (PSUs) – +60% for our CEO; 50% for other NEOs +✓ Restricted Stock Units (RSUs) – +40% for our CEO; 50% for other NEOs +● Rewards long-term performance directly aligned with stockholders’ interests; +● Provides a strong performance-based equity component; +● Recognizes and rewards share performance relative to industry peers; +● Aligns compensation with sustained long-term value creation; +● Helps executives to acquire a meaningful and sustained ownership stake; and +● Fosters executive retention by vesting awards over multiple years. +32 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2021 Compensation Mix +By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2021. Eighty-seven percent of our CEO’s compensation and 81% of our other NEOs’ compensation was made up of variable or “at-risk” components. +The charts above are based on 2021 base salaries, target bonus amounts with respect to 2021 annual cash incentive awards and the target values of the 2021 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance metrics, the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation. +Pay for Performance +Our executive compensation program is designed to align Company performance with the interests of our stockholders. The majority of our executives’ pay is tied to the short-term and long-term performance of the Company and our absolute and relative stock price performance. The following table illustrates the alignment +PDC ENERGY 2022 PROXY +33 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +of pay and performance by comparing our CEO’s targeted compensation opportunities awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2021. +Methodology +Target Pay +Realizable Pay +● Base salary rate as of year-end +● Target annual cash incentive based on salary rate +● Intended equity award grant values for grants made in each year +● Base salary rate for the year +● Actual annual cash incentive paid for 2019, 2020 and 2021 performance +● Long-term incentive value of grants made in each year as of Dec 31, 2021 stock price ($48.78) +✓ SARs: In-the-money value +✓ Restricted Stock Units: number of shares granted x Dec 31, 2021 stock price (assumes all shares, vested/unvested, are held through Dec 31, 2021) +✓ Performance Award: target number of shares x relative TSR ranking factor x Dec 31, 2021 stock price +Base Salaries +In determining base salary adjustments for 2021, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, for 2021, the Committee held NEO salaries flat, other than for Mr. Meyers and Ms. Martinet, whose base salaries were modestly increased to reflect the Committee’s determination to continue to bring each of their salaries closer to the market median over time, as the number of years in their roles increases. +34 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Reduced +Year End +Year End +2020 (1) +2020 +2021 +NAMED EXECUTIVE OFFICER +($) +($) +($) +Barton R. Brookman +$ +803,000 +$ +850,000 +$ +850,000 +R. Scott Meyers +401,000 +425,000 +475,000 +Lance A. Lauck +430,000 +455,000 +455,000 +Nicole L. Martinet +378,000 +400,000 +440,000 +David J. Lillo +378,000 +400,000 +400,000 +(1) +In response to the COVID-19 pandemic and precipitous drop in commodity prices during 2020, the Committee temporarily reduced salaries for over 40% of Company employees, including a 15% reduction in base salaries for NEOs beginning May of 2020, and continuing through October of 2020. +Annual Incentive Awards +Bonuses under the Company’s 2021 annual incentive program were based 75% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Committee and 25% based on the Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2021 Performance Metrics – Quantitative and Qualitative.” +Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%. +Target Bonus Amounts +The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% - 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. During 2021, the Committee kept target bonus +PDC ENERGY 2022 PROXY +35 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +percentages flat year over year for all NEOs. The 2021 target annual cash incentive award levels for each NEO are as follows: +Target Annual +Cash Incentive as +% of Base Salary +NAMED EXECUTIVE OFFICER +2020 +2021 +Barton R. Brookman +115 +% +115 +% +R. Scott Meyers +90 +% +90 +% +Lance A. Lauck +90 +% +90 +% +Nicole L. Martinet +80 +% +80 +% +David J. Lillo +80 +% +80 +% +36 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2021 PERFORMANCE METRICS – QUANTITATIVE AND QUALITATIVE +In 2021, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2021 budget and operating plans. These metrics are used as a means to balance operational objectives with capital discipline. During 2021, we also developed the qualitative corporate performance goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2021 were as follows: +2021 Corporate Metrics Methodology +Metric +What it is +Why we use it +Weight +Quantitative Metrics (75% Cumulative Weighting) +15% +Environmental, Health and Safety (“EHS”) +Composite score measuring the performance of Total Recordable Injury Rate (“TRIR”), Preventable Vehicle Accident Rate (“PVAR”) and Spill Rate +Ensures the health and safety of our employees and communities in which we live and operate remains a top priority +15% +Adjusted Free Cash Flow (millions) +Net cash flow from operations (excluding changes in working capital) less oil and gas capital investment +Measures the ability to generate adjusted cash flows from operations in excess of total capital investment +15% +LOE + G&A (millions) +Sum of lease operating and general & administrative expenses +Ensures a focus on cost management +15% +Cash Return on Capital Invested (“CROCI”) +Net cash from operating activities (excluding changes in working capital) plus cash interest expense divided by two-year average gross Properties, Plants and Equipment +Effective measurement of the cash-on-cash return of every dollar invested +15% +Leverage Ratio +Total debt divided by earnings (before interest, taxes, depreciation, amortization and exploration expenses) +Measures the financial strength of a company and ensures a proper focus is on maintaining a strong balance sheet +Qualitative Metrics (25% Cumulative Weighting) +25% +Non-Quantitative Operational and Financial Goals +See 2021 Assessment on Qualitative Corporate Metrics below +Provides the Committee the ability to adjust incentive awards for important business events at year-end +The Committee generally reserves the right to adjust the quantitative metrics for certain categories of adjustments that are pre-approved by the Committee at the time the 2021 quantitative metrics are established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions and legal settlements or similar events, as further described in “2021 Assessment on Quantitative Corporate Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long-term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year. +2021 Assessment on Quantitative Corporate Metrics +In February 2022, the Committee reviewed the Company’s 2021 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were generally achieved +PDC ENERGY 2022 PROXY +37 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +at well above target level (and in most cases above the maximum level), corresponding to an earned outcome of approximately 164% of target, as follows: +Actual performance is modified for certain categories of adjustments approved by the Committee at the time the 2021 quantitative metrics were established, as follows: +● EHS excludes incidents outside of PDC’s control, such as injuries sustained in no-fault vehicle accidents, bee stings and third-party actions against PDC employees. Targets apply to assets operated for an entire calendar year. +● Adjusted Free Cash Flow, a non-GAAP financial measure (see Appendix A for reconciliation), was based on ranges derived from actual SEC reserve pricing for the year, and is adjusted for the cumulative effect of adjustments to other metrics. Capital investments are the same as reported in year-end results, and exclude corporate capital. At the beginning of 2021, the Committee established various Adjusted Free Cash Flow goals based on potential oil price ranges, with increasing Adjusted Free Cash Flow goals as oil prices rose. Ranges were set at a low of $35 or below and a high of $55 or above. Since oil prices for 2021 generally fell above $55, the targets for the highest price band are reflected in the table above. +● LOE and G&A exclude legal-related costs in excess of $2.25 million, deal costs in excess of $5 million, Colorado ballot initiative expenditures in excess of $2.8 million, the net impact of severance and retirement costs, costs associated with capital market transactions or debt restructuring and variance in actual bonus to be paid versus mid-year forecasts. +● CROCI excludes acquisition and divestiture activity valued at more than $5 million, including effects on adjusted cash flow and PP&E and the cumulative effect of adjustments to other metrics. +38 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Leverage ratio excludes A&D activity, capital market transactions and debt restructuring. +2021 Assessment on Qualitative Corporate Metrics +The Committee establishes qualitative metrics tied to the Company’s strategic priorities, which in 2021 included goals in the following four categories: (1) pathways to permits in Colorado; (2) ESG; (3) return of capital initiatives; and (4) technology and automation. +Based on its review and measurement of the Company’s 2021 qualitative goals, the Committee determined the Company achieved or exceeded nearly all of its 2021 qualitative goals, demonstrating significant accomplishments during the year, illustrated as follows (green check mark “minus” indicates substantial achievement of metric; green check mark indicates full achievement of metric; green check mark “plus” indicates exceedance of metric): +2021 Bonus Awards +Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 160% of target . +In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team, and each officer was instrumental in the overall accomplishments of the Company. +PDC ENERGY 2022 PROXY +39 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2021 performance were as follows: +2021 ANNUAL +BONUS +NAMED EXECUTIVE OFFICER +($) +Barton R. Brookman +$ +1,564,000 +R. Scott Meyers +$ +684,000 +Lance A. Lauck +$ +655,200 +Nicole L. Martinet +$ +563,200 +David J. Lillo +$ +512,000 +40 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +LONG-TERM INCENTIVE AWARDS +To align our long-term incentives with the interests of our stockholders over the long term and with our pay-for-performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These awards place a meaningful portion of our NEOs’ compensation at risk based on stock price performance and provide NEOs with significant equity ownership in the Company. As in 2020, 2021 equity grants were allocated 60% to PSUs and 40% to time-based RSUs for our CEO and 50% to PSUs and 50% to time- based RSUs for all other NEOs. In addition, the Company maintained the absolute stock price modifier to its PSUs adopted in 2020 to continue better aligning payouts with absolute stock performance. +2021 Award Types and Terms +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +PSUs +Align compensation with the Company’s TSR relative to a group of peers in the industry. +The value of PSUs is dependent on both absolute stock price performance and relative TSR performance over a three-year period. +PSUs are denominated in units of Company stock with payout in shares of stock (or cash) based on the Company’s relative TSR over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer companies. In 2021, the Company continued using an absolute stock price modifier to better align payouts with absolute stock performance. +For 2021, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group. See “Compensation Peer Group.” +The 2021 PSUs measure TSR over the performance period from January 1, 2021, through December 31, 2023, with payouts as follows: +Should the Company finish in the top quartile of relative TSR and exceed the 15% annualized threshold, warranting a >250% payout, the actual payment will be capped at 250%. Should the Company finish in the bottom quartile of relative TSR, warranting a 0% payout, but also exceed the 15% annualized TSR threshold, a 50% payout will be made in lieu of the otherwise calculated 0% payout. No changes will be made in any other scenario. +To provide for a consistent number of peers throughout the performance period, the award agreement gives the Committee discretion to determine how a peer +PDC ENERGY 2022 PROXY +41 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +that is acquired, merged, delisted, enters bankruptcy, or experiences certain other changes is treated in determining its TSR performance ranking. +PSUs are generally forfeited if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +RSUs +Align compensation directly with the Company’s stock price, encourages retention and increases stock ownership in the Company +Notional units that entitle the holder to receive an equal number of shares of stock upon vesting. Awards vest annually over three years. Unvested awards are generally forfeited by the NEO if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +2021 Long-Term Incentive Awards +We typically determine the dollar value of the long-term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long-term incentives to be primarily forward- looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. The table below shows the grants and corresponding value awarded to each NEO in February 2021. +Target Value +RSUs +PSUs +Name +($) +(#) +(#) +Barton R. Brookman +$ +4,700,000 +66,705 +100,057 +R. Scott Meyers +1,875,000 +33,264 +33,264 +Lance A. Lauck +1,840,000 +32,643 +32,643 +Nicole L. Martinet +1,250,000 +22,176 +22,176 +David J. Lillo +1,100,000 +19,515 +19,515 +The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five-day average closing stock price ending the day prior to the date of grant ($28.18 per share). The accounting value reflected in the Summary Compensation Table and 2021 Grants of Plan- Based Awards table is based on the grant date fair value of the awards on the date of grant. +42 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2019-2021 Performance Share Unit (PSU) Payout +In 2019, we granted PSUs covering the three-year period from January 1, 2019 through December 31, 2021. The Company’s relative TSR for the performance period ranked at the 86th percentile of its peers, generally correlating to a payout of 190% of the targeted number of shares. See the “Option Exercises and Stock Vested” table below for the actual amounts received by each NEO. Due to the increase in stock price over the three-year period, the value earned at vesting represented an increase of 155% over the original target value (based on a 2021 year-end stock price of $48.78). The chart below shows the members of the peer group used for the 2019 grant, each company’s TSR performance and their relative rankings at the end of the period. +Company +TSR +Rank +% Rank +Payout % (1) +Matador Resources Company +108.4% +1 +100% +SM Energy Company +73.2% +2 +93% +PDC Energy, Inc. +59.8% +3 +86% +190% +Parsley Energy, Inc. (2) +38.4% +4 +79% +Cimarex Energy (2) +24.4% +5 +72% +WPX Energy, Inc. (2) +15.7% +6 +65% +SRC Energy (2) +(10.8%) +7 +58% +Jagged Peak Energy (2) +(11.4%) +8 +50% +Laredo Petroleum, Inc. +(20.6%) +9 +43% +QEP Resources, Inc. (2) +(31.2%) +10 +36% +Callon Petroleum +(32.1%) +11 +29% +Carrizo Oil and Gas, Inc. (2) +(36.4%) +12 +22% +Centennial Resources +(51.2%) +13 +15% +Extraction Oil & Gas (3) +(100.0%) +14 +8% +Oasis Petroleum, Inc. (3) +(100.0%) +15 +0% +(1) Payout was determined based on the general formula, which provides for 100% payout if PDC is ranked at the 50th percentile of peers, a 200% payout if PDC is ranked at the 90 th of peers, and an interpolated payout (which was 190% in this case) if PDC’s percentile ranking is between the 50 th and 90 th percentile, which it was for the 2019-2021 performance period. Absolute TSR payout minimums and maximums were not relevant to the payout determination, as PDC had positive absolute TSR for the performance period and the payout under the general formula exceeded the payout under the minimum formula. +(2) Carrizo Oil and Gas, SRC Energy, Jagged Peak Energy, Parsley, WPX, QEP, and Cimarex have been acquired. The remaining TSR for such companies was determined utilizing the XOP Index as the Successor Index. +(3) Extraction Oil & Gas and Oasis Petroleum filed for bankruptcy on June 14, 2020, and September 30, 2020, respectively, resulting in (100.0%) TSR for those peer companies for the performance period. +PDC ENERGY 2022 PROXY +43 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OTHER ELEMENTS OF COMPENSATION +In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry. +Element +Description and Purpose +Health and Welfare Benefits +We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees. +Retirement Benefits (401(k) and Profit Sharing) +We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit-Sharing Plan. The Company provides a dollar-for-dollar match up to 10% of compensation (up to IRS limits) plus a Profit-Sharing contribution that can range from 0% - 5% of compensation on an annual basis (up to IRS limits). Our NEOs participate in our 401(k) and Profit-Sharing Plan on the same basis as all other employees up to the IRS allowable limit. +For 2021, the 401(k) Match and Profit-Sharing Contribution for each NEO is shown in the Summary Compensation Table. +Perquisites +We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non-golf club dues, and annual physicals. +For 2021, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table. +Severance and Change of Control Arrangements +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre-established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon an involuntary termination following a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry. +For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control.” +44 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 COMPENSATION PROGRAM AND BOARD CHANGES +For 2022, the Company made additional changes to its compensation program and Board composition, including the following: +● To further establish our commitment to ESG, the Committee added quantitative metrics to our 2022 short-term incentive program regarding methane and greenhouse gas emissions reductions. +● The Committee added certain qualitative goals to our 2022 short-term incentive program related to reduction in Delaware flaring intensity, ESG processes and controls frameworks, diversity & inclusion initiatives, meeting stockholder return objectives and working collaboratively with the state of Colorado and external stakeholders to obtain continued permit approvals. +● To further tie our short-term incentive program to measurable performance, we changed our weighting of quantitative and qualitative metrics in the short-term incentive program from 75% to 25%, respectively, to 80% to 20%, respectively. +● In February of 2022, we appointed another diverse Director, Pamela R. Butcher, to the Board. +o Five of the Company’s seven Director nominees have been added to the Board since the beginning of 2020, demonstrating our commitment to continued refreshment and resulting in average Board tenure of approximately 2.5 years. +o Three Directors are either female and/or self-identify as underrepresented minorities. +COMPENSATION P oL ICIES AND PRACTICES +Process for Determining Executive Compensation +Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management, and the Consultant (as defined below) before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution, and stock burn rates (based on total outstanding shares). +In determining target total direct compensation for our NEOs, we consider the following: +● Our compensation objectives and philosophy; +● Each NEO’s scope of responsibility, expertise and tenure; +● The CEO’s assessment of the individual’s performance and recommendation regarding the compensation of the other NEOs; and +● Market data for target total direct compensation (base salary, bonus targets and long-term incentives) from the peer group. +Our view is that an executive’s target compensation should reflect the current market value for that position, provided the executive has performed well in the prior year. We may adjust the mix of cash and long-term incentives but we generally target around the median of the market in total direct compensation considering the factors listed above, although it often takes time for newly-promoted executives’ compensation to reach the market median. +PDC ENERGY 2022 PROXY +45 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Assessing the Effectiveness of Our Compensation Programs +Annually, we review summaries of each NEO’s compensation history as well as all compensation payable upon each NEO’s termination of employment, including upon a change of control of the Company. We also do a “look-back” of realized pay relative to our peers and our share price performance to assess whether our programs as designed are truly paying for performance. The Committee uses these tools in addition to feedback from our stockholders, to determine whether changes to our program are needed. +Compensation Peer Group +In December 2020, the Committee approved the composition of the peer group of companies used for determining 2021 compensation. In selecting the peer group, the Committee considered whether changes to the previous year’s peer group were warranted based upon changes in the size, operations and/or capital structure of either the Company and/or the current or potential peer companies, including the following: +● Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including market capitalization, enterprise value, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current peer company; +● Assessment of this same information on potential new peers; and +● Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status). +Once identified, the Committee typically utilizes this peer group for the following: +● Compensation Benchmarking—to determine competitive total target direct compensation including base salaries, bonus targets and equity-based grants; +● Total Shareholder Return—to measure relative total shareholder return under the Company’s PSU awards; and +● Director Compensation—to determine outside Directors’ compensation. +Peer group compensation practices are determined using a combination of compensation data disclosed in the peers’ proxy statements and survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” The Company also uses this same survey as well as other industry surveys for determining compensation practices for the broader industry. The table below shows the peer groups for 2020 and 2021. +46 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020 Peers +2021 Peers +Callon Petroleum Company +Added +Centennial Resource Development +Centennial Resource Development +CNX Resources +Cimarex Energy +Cimarex Energy +Continental Resources +CNX Resources +Devon Energy +Diamondback Energy +Continental Resources +Extraction Oil & Gas +Marathon Oil +Devon Energy +Magnolia Oil & Gas +Ovintiv +Diamondback Energy +Matador Resources Company +Range Resources +Magnolia Oil & Gas +Oasis Petroleum, Inc. +Removed +Marathon Oil +Parsley Energy, Inc. +Callon Petroleum Company +Matador Resources Company +QEP Resources, Inc. +Extraction Oil & Gas +Ovintiv +SM Energy Company +Oasis Petroleum, Inc. +QEP Resources +Whiting Petroleum +Parsley Energy, Inc. +Range Resources +WPX Energy, Inc. +WPX Energy, Inc. +SM Energy Company +Whiting Petroleum +2022 Peer Group Changes : Due to additional M&A, the Committee replaced Devon, Continental and QEP with Callon, Chesapeake and Civitas. Additionally, Cimarex was replaced by Coterra Energy. +Role of Independent Compensation Consultant +The Committee has engaged Meridian Compensation Partners as an independent compensation consultant (the “Consultant”) to help develop and maintain executive compensation programs that are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +● The Consultant’s reputation supporting compensation committees and familiarity with our executive compensation program design; +● Experience of the Consultant in the energy exploration and production industry; +● Range of compensation services offered by the Consultant; and +● Independence of the Consultant, considering the independence factors outlined by the SEC. +The Committee determines the scope of the Consultant’s engagement, which includes: +● Providing input into peer group identification and assessment; +● Providing benchmarking on executive and outside director compensation for the Committee to use in its decision-making process; +● Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites); +● Reviewing and providing feedback on the compensation-related disclosures in our proxy statement; and +● Informing us about recent trends, best practices, and other developments affecting executive compensation. +PDC ENERGY 2022 PROXY +47 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +The Consultant’s interactions with the Committee and management include the following: +● The Consultant does not make recommendations on or approve the amount of compensation of any NEO; +● The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant; +● The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +● The Consultant attends Committee meetings as requested. +The Committee annually reviews the engagement of the Consultant, and as a part of that process, reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, the Consultant did not perform any other material services for the Company. The Consultant did not have any business or personal relationships with Committee members or executive officers of the Company and did not own any stock of the Company. The Consultant maintains policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the Consultant was not subject to any significant conflicts of interest. +Role of Management +Our CEO plays a significant role in determining the compensation levels of our other NEOs, which includes: +● Recommending quantitative and qualitative performance measures under our annual cash incentive program; +● Assessing the performance of the other NEOs; and +● Recommending base salaries, annual incentive targets and long-term incentive awards for the forthcoming year, and annual incentive awards for the prior year. +At the Committee’s request, the CEO and other NEOs may also play a role in determining the following: +● Quantitative and qualitative performance measures under our short-term incentive program; +● Proposed peer group companies; +● Design changes to our compensation and benefits programs; and +● Assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program. +The Committee determines each element of the CEO’s compensation with input from the Consultant. The Committee also determines each element of compensation for the other NEOs with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation. +Tax and Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 409A, Section 280G and Section 4999 of the Code. Currently, none of our severance arrangements or agreements provide for a gross-up for excise tax under Code Section 4999 and all our programs are intended to be either exempt from or to comply with Code Section 409A. We note that Section 162(m) of the Code limits the amount of compensation that we may deduct in any year to $1,000,000 per person with respect to our CEO and certain other highly compensated executive officers whose compensation is or has been included in the +48 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Company’s proxy statement. We may be permitted to deduct certain historic items of compensation to the extent that they exceed the $1,000,000 per person annual limit under certain 162(m) grandfathering rules, although such deductibility is not guaranteed, and the focus of our programs is on driving Company performance, irrespective of whether compensation may be non-deductible because of the application of Code Section 162(m). +Clawback Policy +The NEOs are currently either covered under our clawback policy or, in the case of Mr. Lauck, a clawback provision in his grandfathered employment contract. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all or a portion of their annual bonus, as described below, if the Company is required to restate its financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected year(s) and the bonus that would have been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in applicable statutes or regulations and are subject to revision based on the SEC clawback rules under Section 954 of the Dodd-Frank Act, when finalized. +Stock Ownership +We have established Stock Ownership Guidelines for NEOs that are reviewed annually when compensation decisions are made. In satisfying the Stock Ownership Guidelines, NEOs are expected to: +● Comply with the ownership guidelines within five years of becoming a NEO; and +● Retain the net shares acquired through the vesting of RSUs and PSUs and the exercise of SARs if the NEO has not satisfied the required ownership level. +As of December 31, 2021, all of our NEOs exceeded the minimum stock ownership requirements as set forth in the table below. +Number of +Number of +Stock +Shares +Qualifying +Ownership +Required To +Shares Owned +Name/Year of Executive Status +Guidelines +Own (1) +at Year End +Barton R. Brookman (2008) +5x Base Salary +86,365 +337,482 +R. Scott Meyers (2018) +3x Base Salary +28,958 +98,410 +Lance A. Lauck (2009) +4x Base Salary +36,984 +163,887 +Nicole L. Martinet (2019) +3x Base Salary +26,824 +49,501 +David J. Lillo (2020) +3x Base Salary +24,385 +68,764 +(1) +Using the average daily closing price of the Company’s stock in December 2021, which was $49.21. +Qualifying holdings used to determine compliance with the minimum ownership requirements include stock owned directly and unvested time-based RSUs. PSUs and SARs are not included. Stock ownership requirements applicable to our NEOs are described under our Stock Ownership Guidelines, which can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +PDC ENERGY 2022 PROXY +49 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Risk Management +We perform an annual risk assessment regarding our compensation programs. Based on our most recent assessment, we do not believe the Company’s executive or non-executive compensation structure is reasonably likely to have a material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +● a balance of short-term and long-term incentive programs to maintain focus on both elements of Company performance; +● limitations on awards payable to any individual under our incentive programs, along with Compensation Committee discretion to decrease the qualitative portion of annual incentive payouts in the event it believes excessive risk was taken; +● “clawback” provisions applicable to all NEOs through the terms of their employment agreements or the Company’s Clawback Policy; +● stock ownership requirements for our NEOs and Non-Employee Directors; and +● an Insider Trading Policy that prohibits Directors and senior employees from transacting in Company shares without first obtaining pre-clearance from the Company’s General Counsel, even during open trading windows. +50 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SUMMARY COMPENSATION TABLE +Nonequity +Stock +Options/ +Incentive Plan +All Other +Total +Salary +Bonus (1) +Awards (2)(3) +SARs +Compensation +Compensation (4)(5) +Compensation +Name and Principal Position +Year +($) +($) +($) +($) +($) +($) +($) +Barton R. Brookman +2021 +$ +850,000 +$ +2,000 +$ +7,351,198 +$ +— +$ +1,564,000 +$ +57,040 +$ +9,824,238 +President and Chief +2020 +803,000 +— +6,085,896 +— +938,400 +53,911 +7,881,207 +Executive Officer +2019 +850,000 +— +5,803,410 +— +1,017,000 +59,880 +7,730,290 +R. Scott Meyers +2021 +475,000 +2,000 +2,767,565 +— +684,000 +52,290 +3,980,855 +Senior Vice President, +2020 +401,000 +— +2,265,067 +— +367,200 +40,500 +3,073,767 +Chief Financial Officer +2019 +425,000 +— +1,912,564 +— +354,000 +55,088 +2,746,652 +Lance A. Lauck +2021 +455,000 +2,000 +2,715,898 +— +655,200 +54,850 +3,882,948 +Executive Vice President, +2020 +430,000 +— +2,265,067 +— +393,120 +49,600 +3,137,787 +Corp. Dev. and Strategy +2019 +455,000 +— +2,242,214 +— +426,000 +55,056 +3,178,270 +Nicole L. Martinet +2021 +440,000 +2,000 +1,845,043 +— +563,200 +49,900 +2,900,143 +Senior Vice President, +2020 +378,000 +— +1,399,787 +— +307,200 +44,297 +2,129,284 +General Counsel and Secretary +2019 +325,000 +— +791,409 +— +237,000 +48,156 +1,401,565 +David J. Lillo (6) +2021 +400,000 +2,000 +1,623,648 +— +512,000 +56,250 +2,593,898 +Senior Vice President, +2020 +424,000 +— +159,904 +— +307,200 +48,200 +939,304 +Operations +2019 +— +— +— +— +— +— +— +(1) Each of our executives received a vaccination bonus of $1,000 and an appreciation bonus of $1,000. These special bonuses were of the same amount as given to all Company employees, as applicable. +(2) In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of RSU and PSU awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions and including the right to receive dividend equivalents on all awards. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 14 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 28, 2022. The 2021 grants are described in “Long-Term Equity-Based Incentive Awards” and detailed in the “2021 Grants of Plan-Based Awards” table. +(3) 2021 PSUs included in the stock awards total for Messrs. Brookman, Meyers, Lauck and Lillo, and Ms. Martinet are listed at their grant date fair values, as computed utilizing the Monte Carlo pricing model, which was $54.01 per share, calculated at target as $5,404,079, $1,796,589, $1,763,048, $1,054,005, and $1,197,726, respectively. The value of the 2021 PSUs on the grant date for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet, assuming the maximum level of achievement of the performance conditions and based on the market value of $29.19 per share of our stock on the grant date, was $7,301,660, $2,427,440, $2,382,123, $1,424,107 and $1,618,294, respectively. +(4) Amounts shown in this column for 2021 are detailed below in the “All Other Compensation” table. +(5) During 2021, the Company accrued dividend equivalents of up to $0.86 per share covered by each unvested RSU or PSU. Accrued dividend equivalents are not separately reportable in this column as the grant date fair value of all RSU and PSU awards already includes the right to receive dividend equivalent amounts. +(6) Mr. Lillo was appointed to the Senior Management Team in September 2020. His 2020 salary includes $45,756 in accrued paid time off paid out in connection with his appointment. His 2020 compensation also includes RSUs granted to him prior to his appointment. He did not receive PSUs in 2020. +PDC ENERGY 2022 PROXY +51 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER COMPENSATION +401(k) +Annal Profit +Total +Matching +Sharing +All Other +Contribution (1) +Contribution (2) +Perquisites (3) +Compensation +Name +Year +($) +($) +($) +($) +Barton R. Brookman +2021 +$ +26,000 +$ +11,600 +$ +19,440 +$ +57,040 +R. Scott Meyers +2021 +19,500 +11,600 +21,190 +52,290 +Lance A. Lauck +2021 +26,000 +11,600 +17,250 +54,850 +Nicole L. Martinet +2021 +19,500 +11,600 +18,800 +49,900 +David J. Lillo +2021 +26,000 +11,600 +18,650 +56,250 +(1) Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit-Sharing Plan. +(2) Represents the Company’s annual profit-sharing contribution to the Company’s 401(k) and Profit-Sharing Plan. +(3) Represents total value of perquisites provided by the Company. Perquisites include automobile allowances, health club and non-health club related dues, annual physical cost, and certain spousal travel costs. No individual perquisite exceeded $25,000. +52 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +GRANTS OF PLAN-BASED AWARDS +All Other +All Other +Grant Date +Stock +Option +Exercise +Fair Value +Estimated Future Payouts Under +Estimated Future Payouts +Awards +Awards +or Base +of Stock +Non ‑ Equity Incentive Plan +Under Equity Incentive Plan +Number of +Securities +Price of +and +Awards (1) +Awards +Shares of +Underlying +Option +Option +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Stock +Options +Awards +Awards (2) +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +$ +0 +$ +977,500 +$ +1,955,000 +— +— +— +— +— +— +— +2/17/2021 +— +— +— +0 +100,057 +250,143 +— +— +— +$ +5,404,079 +(3) +2/17/2021 +— +— +— +— +— +— +66,705 +— +— +1,947,119 +(4) +R. Scott Meyers +0 +427,500 +855,000 +— +— +— +— +— +— +— +2/17/2021 +— +— +— +0 +33,264 +83,160 +— +— +— +1,796,589 +(3) +2/17/2021 +— +— +— +— +— +— +33,264 +— +— +970,976 +(4) +Lance A. Lauck +0 +409,500 +819,000 +— +— +— +— +— +— +— +2/17/2021 +— +— +— +0 +32,643 +81,608 +— +— +— +1,763,048 +(3) +2/17/2021 +— +— +— +— +— +— +32,643 +— +— +952,849 +(4) +Nicole L. Martinet +0 +352,000 +704,000 +— +— +— +— +— +— +— +2/17/2021 +— +— +— +0 +22,176 +55,440 +— +— +— +1,197,726 +(3) +2/17/2021 +— +— +— +— +— +— +22,176 +— +— +647,317 +(4) +David J. Lillo +0 +320,000 +640,000 +— +— +— +— +— +— +— +2/17/2021 +— +— +— +0 +19,515 +48,788 +— +— +— +1,054,005 +(3) +2/17/2021 +— +— +— +— +— +— +19,515 +— +— +569,643 +(4) +(1) Represents target and maximum cash awards payable under the Company’s annual incentive plan. +(2) The grant date fair value of each RSU and PSU award includes the right to receive dividend equivalent amounts. +(3) Represents annual PSU awards under the 2018 Amended and Restated Long Term Equity Plan (“2018 Equity Plan”). Grant date fair value is computed by multiplying the target number of PSUs awarded by the grant date fair value as computed utilizing the Monte Carlo pricing model, which was $54.01 per share. +(4) Represents annual time-based RSU awards under the 2018 Equity Plan. Grant date fair value for RSUs is computed by multiplying the number of RSUs awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of February 17, 2021, which was $29.19. +PDC ENERGY 2022 PROXY +53 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +Equity Incentive Plan +Awards +Options/SAR Awards +Number +Number of +Market +Number of Securities +of Shares +Market Value +Unearned +Value of +Underlying Unexercised +of Stock +of Shares of +Shares of +Unearned +Options/SARs Held at +Option/SAR +Option/SAR +That +Stock That +Stock That +Shares That +December 31, 2021 +Exercise +Expiration +Have Not +Have Not +Have Not +Have Not +Exercisable +Unexercisable +Price (1) +Date +Vested (2) +Vested (3) +Vested (4) +Vested (3) +Name +(#) +(#) +($) +(Date) +(#) +($) +(#) +($) +Barton R. Brookman +— +— +— +142,677 +$ +6,959,784 +428,989 +$ +20,926,083 +12,620 +— +37.18 +1/15/2023 +— +— +— +— +13,790 +— +49.57 +1/15/2024 +— +— +— +— +26,643 +— +39.63 +1/13/2025 +— +— +— +— +29,036 +— +51.63 +1/10/2026 +— +— +— +— +23,886 +— +74.57 +1/16/2027 +— +— +— +— +R. Scott Meyers +— +— +— +66,903 +3,263,528 +139,482 +6,803,932 +Lance A. Lauck +— +— +— +67,428 +3,289,138 +138,768 +6,769,103 +10,096 +— +37.18 +1/15/2023 +— +— +— +— +10,096 +— +49.57 +1/15/2024 +— +— +— +— +12,212 +— +39.63 +1/13/2025 +— +— +— +— +11,445 +— +51.63 +1/10/2026 +— +— +— +— +8,599 +— +74.57 +1/16/2027 +— +— +— +— +Nicole L. Martinet +— +— +— +41,608 +2,029,638 +88,061 +4,295,616 +David J. Lillo (5) +— +— +— +41,435 +2,021,199 +22,443 +1,094,770 +(1) The exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(2) The RSUs of Messrs. Brookman, Meyers, Lauck and Lillo and Ms. Martinet vest as set forth in the following table: +Number of RSUs that Vest on: +2/20/2022 +2/25/2022 +4/1/2022 +2/25/2023 +4/1/2023 +2/25/2024 +Total +Barton R. Brookman +20,164 +50,139 +— +50,139 +— +22,235 +142,677 +R. Scott Meyers +6,645 +24,585 +— +24,585 +— +11,088 +66,903 +Lance A. Lauck +7,791 +24,378 +— +24,378 +— +10,881 +67,428 +Nicole L. Martinet +2,750 +15,733 +— +15,733 +— +7,392 +41,608 +David J. Lillo +— +6,505 +13,446 +6,505 +8,474 +6,505 +41,435 +(3) The market value of these RSUs and PSUs is based on the closing price of the Company’s common stock of $48.78, as reported on the NASDAQ Global Select Market on December 31, 2021. +(4) PSUs granted in 2020 and 2021 are contingent upon the achievement of certain specified performance goals. PSUs granted in 2020 have a 3-year performance period ending December 31, 2022 and are reported at a 250% payout based on interim results through December 31, 2021. PSUs granted in 2021 have a 3-year performance period ending December 31, 2023 and are reported at a 115% payout based on interim results through December 31, 2021. Actual payouts cannot be determined until the end of the respective performance period. For a description of the PSUs granted in 2021, see “Long Term Incentive Awards.” +(5) Mr. Lillo was appointed to the Senior Management Team in September 2020. He did not receive PSUs in 2020. +54 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired on +Realized on +Acquired on +Realized on +Exercise +Exercise +Vesting (1) +Vesting (2) +Name +(#) +($) +(#) +($) +Barton R. Brookman +9,766 +$ +120,610 +177,065 +$ +7,587,635 +R. Scott Meyers +— +— +61,291 +2,615,486 +Lance A. Lauck +7,935 +72,605 +70,763 +3,018,386 +Nicole L. Martinet +— +— +27,828 +1,180,403 +David J. Lillo +— +— +16,685 +600,159 +(1) The number of shares includes RSUs and PSUs that vested in 2021. +(2) The table below shows the number and value of RSUs and PSUs included in these columns. The value of the RSUs and PSUs that vested in 2021 is determined by multiplying the number of units vested by the market value of PDC stock on the vesting date. The PSUs that vested in 2021 covered the three-year period January 1, 2019, through December 31, 2021, and paid out at 190% of target. See “2019-2021 Performance Share Unit (PSU) Payout” for more information. +RSUs +RSUs Value +PSUs +PSUs Value +Name +(#) +($) +(#) +($) +Barton R. Brookman +62,134 +$ +1,981,301 +114,931 +$ +5,606,334 +R. Scott Meyers +23,414 +767,846 +37,877 +1,847,640 +Lance A. Lauck +26,358 +852,310 +44,405 +2,166,076 +Nicole L. Martinet +12,154 +415,825 +15,674 +764,578 +David J. Lillo +16,685 +600,159 +— +— +PDC ENERGY 2022 PROXY +55 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +POTENTIAL PAYMENTS UPON TERMINATION OR +CHANGE OF CONTROL +The Company may be obligated to pay benefits to Messrs. Brookman, Meyers and Lillo and Ms. Martinet (and any future NEOs) under the Executive Severance Compensation Plan dated September 24, 2012, as amended and restated on June 25, 2020 (the “Severance Plan”) and, with respect to Mr. Lauck, under his grandfathered employment agreement dated April 19, 2010, as amended and restated August 4, 2020 (the “Lauck Employment Agreement”). The primary purpose of the Severance Plan and the severance provisions of the Lauck Employment Agreement are to provide severance benefits in the event of the termination of the NEO by the Company without “just cause” or termination by the NEO for “good reason,” either prior to or following a change of control of the Company. Upon a change of control, the Severance Plan and the Lauck Employment Agreement provide benefits if an executive is terminated by the acquiring company “without cause” or by the executive for “good reason” (i.e., they are “double-trigger” in nature). The Severance Plan provides a benefit offset so that cash benefits paid upon severance would be reduced by any other severance benefits that the executive could be entitled to receive under another Company plan. The Lauck Employment Agreement provides benefits like those provided under the Severance Plan, but it varies in the amounts of cash benefit provided to Mr. Lauck. +The severance benefits an executive would receive under the Severance Plan and the Lauck Employment Agreement under various termination scenarios are summarized below: +TERMINATION WITHOUT CAUSE +OR FOR GOOD REASON +TERMINATION DUE TO CHANGE +OF CONTROL +CONTROLLING PLAN OR +AGREEMENT +Barton R. Brookman +2 times sum of base salary and target bonus +3 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +R. Scott Meyers +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +Lance A. Lauck +2 times sum of base salary and highest bonus of last two years +3 times sum of base salary and highest bonus of last two years +Lauck Employment +Agreement +Nicole L. Martinet +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +David J. Lillo +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +In addition to the above, the NEO would be eligible for continuation of health benefits for up to 36 months. As a condition of receiving severance benefits under the Severance Plan and under the terms of the Lauck Employment Agreement, each NEO is subject to a non-disclosure covenant and a non-compete covenant pursuant to which the NEO is prohibited for a period of one year following his or her termination from engaging in any competing business in any county in which the Company is doing business or any adjacent county. In addition, the NEO is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to +56 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +a change of control of the Company, the Severance Plan provides for payment of the severance benefits over 12 months. Under the terms of the Lauck Employment Agreement, however, Mr. Lauck would receive severance benefits within 40 days following a qualifying termination. +The Lauck Employment Agreement contains a clawback provision and the executives covered under the Severance Plan are covered under the Company’s clawback policy. See “Other Policies and Considerations—Clawback Policy”. The Lauck Employment Agreement automatically extends for 12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 automatic extension date. +PDC ENERGY 2022 PROXY +57 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +IMPACT OF TERMINATION AND CHANGE OF CONTROL ON LONG-TERM EQUITY-BASED INCENTIVE PLANS +The following table outlines the effect on outstanding unvested long-term incentive awards under various termination scenarios and upon a change of control of the Company based on the terms of the 2010 Amended and Restated Long Term Equity Plan (the “2010 Equity Plan”), the 2018 Long Term Equity Plan, as amended (the “2018 Equity Plan”), related grant agreements and the Lauck Employment Agreement: +TERMINATION SCENARIO/CHANGE OF +CONTROL (1) +RESTRICTED +STOCK/SARs/OPTIONS +PERFORMANCE SHARE UNITS (2) +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change of Control +Vests +Mr. Lauck : +Forfeited +Executives in Severance Plan: +Portion to be potentially earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +Earned at 100% if death occurs in first two years of performance period. Earned based on actual results if death occurs after first two years of performance period. +Disability +Vests +Earned based on performance at end of performance period. +Occurrence of a Change of Control +Double trigger vesting applies. Vesting is contingent on continued employment through original vesting dates, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +Double trigger vesting applies. Performance is measured through the date of the change of control to determine the number of PSUs potentially earned. That number of PSUs is then earned at the end of the originally scheduled performance period based on continued employment, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +(1) Except as noted otherwise, award treatment is the same regardless of when the award was issued. +(2) Except as noted otherwise, PSU treatment for each scenario listed is the same for those covered by the Severance Plan and the Lauck Employment Agreement. +CHANGE OF CONTROL EXCISE TAX PROVISION +The Company currently provides no income tax gross-up or excise tax gross-up for taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and Mr. Lauck’s employment agreement provide that if it is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes the provision strikes an appropriate balance between cost to the Company and the provision of promised benefits to the executive. +58 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ESTIMATED TERMINATION AND CHANGE IN CONTROL BENEFITS +The tables below and the discussion that follows show compensation payable to each of our NEOs upon various termination scenarios both before and after a change of control of the Company (defined in the tables as “COC”). The amounts shown assume that termination occurred on December 31, 2021, that the closing price per share on such date was $48.78, and, in the event of termination due to change of control, the executive’s benefit is not reduced as a result of Section 280G or Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. +Barton R. Brookman +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +3,655,000 +(1) +$ +5,482,500 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +977,500 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +6,959,784 +6,959,784 +6,959,784 +6,959,784 +PSUs +— +— +(4) +20,926,037 +(5) +11,006,036 +(6) +20,926,037 +(7) +Benefits +Health Benefits Continuation +— +56,052 +(8) +56,052 +(8) +— +Total +$ +— +$ +10,670,836 +$ +34,401,873 +$ +17,965,820 +$ +27,885,821 +1) +R. Scott Meyers +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,353,750 +(1) +$ +2,256,250 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +427,500 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +3,263,528 +3,263,528 +3,263,528 +3,263,528 +PSUs +— +— +(4) +6,803,888 +(5) +3,597,769 +(6) +6,803,888 +(7) +Benefits +Health Benefits Continuation +— +87,646 +(8) +87,646 +(8) +— +— +Total +$ +— +$ +4,704,924 +$ +12,838,812 +$ +6,861,297 +$ +10,067,416 +2) +PDC ENERGY 2022 PROXY +59 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Lance A. Lauck +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +2,220,400 +(1) +$ +3,330,600 +(2) +$ +— +$ +— +Salary Continuation +— +— +— +227,500 +(9) +341,250 +(10) +Pro-rata Bonus +409,500 +(3) +— +— +— +— +Acceleration of Unvested Equity +RSUs +— +3,289,138 +3,289,138 +3,289,138 +3,289,138 +PSUs +— +— +(11) +6,769,052 +(5) +3,567,477 +(6) +6,769,052 +(7) +Benefits +Health Benefits Continuation +— +87,646 +(8) +87,646 +(8) +— +— +Total +$ +409,500 +$ +5,597,184 +$ +13,476,436 +$ +7,084,115 +$ +10,399,440 +3) +Nicole L. Martinet +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,188,000 +(1) +$ +1,980,000 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +352,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +2,029,638 +2,029,638 +2,029,638 +2,029,638 +PSUs +— +— +(4) +4,295,562 +(5) +2,302,367 +(6) +4,295,562 +(7) +Benefits +Health Benefits Continuation +— +87,646 +(8) +87,646 +(8) +— +— +Total +$ +— +$ +3,305,284 +$ +8,744,846 +$ +4,332,005 +$ +6,325,200 +David J. Lillo +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,080,000 +(1) +$ +1,800,000 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +320,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs +— +2,021,199 +2,021,199 +2,021,199 +2,021,199 +PSUs (12) +— +— +(4) +1,094,733 +(5) +951,942 +(6) +1,094,733 +(7) +Benefits +Health Benefits Continuation +— +87,646 +(8) +87,646 +(8) +— +— +Total +$ +— +$ +3,188,845 +$ +5,323,578 +$ +2,973,141 +$ +3,115,932 +(1) Cash severance is equal to (a) 2 times the sum of base salary and target bonus for Mr. Brookman, (b) 1.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 2 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +60 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(2) Cash severance is equal to (a) 3 times the sum of base salary and target bonus for Mr. Brookman, (b) 2.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 3 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +(3) Under the terms of the Severance Plan, Messrs. Brookman, Meyers, and Lillo and Ms. Martinet are entitled to a pro- rata target bonus if termination is related to a COC. Per the terms of the Lauck Employment Agreement, Mr. Lauck is entitled to a pro-rata bonus if terminated for cause. Bonus amounts for 2021 are not determined until after December 31 and are subject to forfeiture until paid. As a result, the pro-rata bonus shown is based on target bonus for 2021. +(4) The Committee has the discretion to allow all or a portion (up to 250%) of the target PSUs to remain outstanding and to be earned based on Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the PSUs. +(5) The value shown for PSUs upon a COC assumes (a) for 2020 PSUs, the number of units earned based on performance through the date of COC is 250% of target, and (b) for 2021 PSUs, the number of units earned based on performance through the date of COC is 115% of target. +(6) The value shown for PSUs upon death reflects the target number of units (100%) for 2020 and 2021 PSUs. +(7) The value shown for PSUs upon disability assumes for 2020 and 2021 PSUs, the number of units earned based on performance through December 31, 2021, is 250% and 115% of target, respectively. However, under the respective award agreements, the units earned will be based on actual performance measured at the end of the applicable performance periods. +(8) Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to executive and any covered dependents for a 36-month period. +(9) In the event of death, executive would receive a lump sum payment equal to six months base salary. +(10) In the event of short-term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, executive would receive an additional lump sum payment equal to six months’ base salary. +(11) PSUs awarded in 2020 and 2021 would be forfeited. +(12) Mr. Lillo was appointed to the Senior Management Team in September 2020. He did not receive PSUs in 2020 but did receive PSUs in 2021. +PDC ENERGY 2022 PROXY +61 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CEO PAY RATIO +Pursuant to rules promulgated under the Dodd-Frank Act, the Company is required to disclose the ratio of its CEO’s annual total compensation to the Company’s median employee’s annual total compensation. Based on our internal review procedures this year, we believe the closure of our Bridgeport, West Virginia office resulted in changes to our employee population and/or employee compensation arrangements warranting identification of a new median employee. +We identified the median employee based on estimated 2021 compensation reportable on Form W-2 for all employees (other than the CEO) as of December 31, 2021. For 2021, the CEO’s total annual compensation was $9,842,401, which amount differs from the amount reported in the Summary Compensation Table because it also includes perquisites with a value of less than $10,000 and certain other non-discriminatory benefits. The median employee’s total annual compensation was $149,294, resulting in a CEO pay ratio of 66:1. +Compensation data used to calculate the ratio is set forth below: +Nonequity +Stock +Options/ +Incentive Plan +All Other +Total +Salary +Bonus +Awards +SARs +Compensation +Compensation (2) +Compensation +Name +($) +($) +($) +($) +($) +($) +($) +Median Employee +$ +88,036 +$ +2,000 +$ +16,654 +(1) +$ +— +$ +20,022 +$ +22,582 +$ +149,294 +CEO +850,000 +2,000 +7,351,198 +— +1,564,000 +75,202 +9,842,401 +(1) Represents the grant date fair value of RSUs, as computed in accordance with FASB ASC Topic 718. +(2) Includes perquisites with a value of less than $10,000 and other non-discriminatory benefits not reported in the “Summary Compensation Table” set forth in this Proxy Statement. +62 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for issuance as of December 31, 2021: +Number of Securities to +Securities Remaining +be Issued Upon +Weighted-Average +Available for +Exercise +Exercise Price of +Future Issuance +of Outstanding Options +Outstanding Options +Under Equity +and Rights (1) +and Rights +Compensation Plans (2) +Plan Category +(#) +($) +(#) +Equity compensation plans approved by security holders +817,270 +$ +51.01 +4,492,024 +Equity compensation plans not approved by security holders +— +— +— +Total +817,270 +$ +51.01 +4,492,024 +(1) Includes 658,847 shares of common stock to be issued under outstanding PSUs based upon continuous employment and the maximum achievement of certain performance goals over a specified period as described in “Outstanding Equity Awards at Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding SARs and pursuant to RSUs subject to time vesting and PSUs subject to certain market-based performance goals over a specified period. +PDC ENERGY 2022 PROXY +63 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of March 30, 2022, by (1) each person known by the Company to own beneficially more than five percent of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 30, 2022, 95,794,821 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1775 Sherman Street, Suite 3000, Denver, Colorado 80203. +Number of +Percentage of +Shares +Shares +Beneficially +Beneficially +Owned +Owned (1) +Name and Address of Beneficial Owner +(#) +(%) +5% or Greater Owners: +BlackRock, Inc. +15,193,373 +(2) +15.9 +% +55 East 52nd Street +New York, NY 10055 +The Vanguard Group +10,683,902 +(3) +11.2 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Dimensional Fund Advisors LP +5,728,319 +(4) +6.0 +% +6300 Bee Cave Road Building One +Austin, TX 78746 +Named Executive Officers: +Barton R. Brookman, Jr. +381,605 +(5) +* +Lance A. Lauck +173,667 +(6) +* +R. Scott Meyers +67,758 +(7) +* +Nicole L. Martinet +23,890 +(8) +* +David J. Lillo +41,783 +(9) +* +Non-Employee Directors: +Pamela R. Butcher +0 +(10) +* +Mark E. Ellis +43,342 +* +Paul J. Korus +29,792 +* +David C. Parke +28,726 +* +Lynn A. Peterson +307,499 +* +Diana L. Sands +6,387 +* +Carlos A. Sabater +4,458 +* +All directors and executive officers as a group (13 persons) +1,139,963 +(11) +1.2 +% +* +Represents less than 1% of the outstanding shares of common stock. +(1) For each holder of stock awards or other securities that are currently vested or exercisable or that vest or become exercisable within 60 days of March 30, 2022, we treat the common stock underlying those securities as owned by that holder and as outstanding shares when we calculate that holder’s percentage ownership of our common stock. We do not treat that common stock as outstanding when we calculate the percentage ownership of any other holder. +64 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +(2) As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 27, 2022, BlackRock, Inc. holds sole voting power as to 14,969,333 shares and sole dispositive power as to 15,193,373 shares as of December 31, 2021. +(3) As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 10, 2022, The Vanguard Group is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds shared voting power with respect to 86,132 shares, sole dispositive power as to 10,520,640 shares and shared dispositive power as to 163,262 shares as of December 31, 2021. +(4) As reported on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 8, 2022, Dimensional Fund Advisors LP is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 5,674,059 shares and sole dispositive power as to 5,728,319 shares as of December 31, 2021. +(5) Excludes 104,161 RSUs subject to vesting greater than 60 days after March 30, 2022; includes 79,565 SARs exercisable within 60 days of March 30, 2022. +(6) Excludes 51,110 RSUs subject to vesting greater than 60 days after March 30, 2022; includes 32,256 SARs exercisable within 60 days of March 30, 2022. +(7) Excludes 52,370 RSUs subject to vesting greater than 60 days after March 30, 2022. +(8) Excludes 34,326 RSUs subject to vesting greater than 60 days after March 30, 2022. +(9) Excludes 32,153 RSUs subject to vesting greater than 60 days after March 30, 2022. +(10) Excludes 1,008 RSUs subject to vesting greater than 60 days after March 30, 2022. +(11) Excludes 275,128 RSUs subject to vesting greater than 60 days after March 30, 2022, and includes 111,821 SARs exercisable within 60 days of March 30, 2022. +Each SAR referenced in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $39.63 to $74.57 for the SARs in the table, payable in shares only. +SECTION 16(A) REPORTS +Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2021, the Company’s executive officers and Directors and owners of more than 10% of the Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act. +PDC ENERGY 2022 PROXY +65 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 3. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is expected to attend the virtual meeting. +Principal Accountant Fees and Services +2020 +2021 +Audit Fees (1) +$ +1,902,600 +$ +1,539,000 +Audit-Related Fees (2) +— +— +Tax Fees (3) +30,000 +3,473 +All Other Fees (4) +3,600 +963 +Total Fees +$ +1,936,200 +$ +1,543,436 +(1) Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our securities offerings. +(2) Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are related to the performance of the audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” +(3) Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its proportionately consolidated entities. +(4) All Other Fees consist of aggregate fees billed for products and services other than services reported above. +AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are to be performed by the independent accountant and are not eligible for annual pre-approval must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All the services described in “Principal Accountant Fees and +66 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Services” were approved by the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +The proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. See “Information About Voting and the Meeting—How Proxies Work” for information on the effect of broker non-votes on this matter. +PDC ENERGY 2022 PROXY +67 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is currently comprised of four Directors and operates under a written charter adopted by the Board. Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee held nine meetings during 2021. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2021 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by the applicable requirements of PCAOB. The Audit Committee has received the written disclosures and the letter from PwC required by the applicable requirements of the PCAOB and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. +Paul J. Korus, Chair +David C. Parke +Carlos A. Sabater +Diana L. Sands +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +68 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER BUSINESS THAT MAY COME BEFORE THE +2022 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy card to vote in accordance with their discretion on such matters pursuant to such proxy card. +PDC ENERGY 2022 PROXY +69 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +STOCKHOLDER NOMINATIONS AND PROPOSALS +STOCKHOLDER PROPOSALS FOR 2023 ANNUAL MEETING +Any proposal or nomination for Director that a stockholder wishes to include in the Company’s proxy statement for the 2023 annual meeting of stockholders must be received by the Company at its principal office on or prior to December 15, 2022, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, Colorado, 80203 +ADVANCE NOTICE PROCEDURES UNDER THE COMPANY’S BYLAWS +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2023 annual meeting of stockholders, but does not seek to include in our proxy statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. In the case of the 2023 annual meeting, the notice must be delivered between February 24, 2023, and March 6, 2023. However, the Bylaws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by the Company. +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above that is not timely under our Bylaws or after February 28, 2023, if the Bylaws deadline does not apply, the proxies designated by the Board will have discretionary authority to vote on such proposal. +70 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +INFORMATION ABOUT VOTING AND THE MEETING +WHO MAY VOTE +Stockholders of PDC, as recorded in the Company’s stock register on the record date of March 30, 2022, may vote at the Annual Meeting. The outstanding voting securities of the Company as of March 30, 2022, consisted of 95,794,821 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the Annual Meeting. +HOW PROXIES WORK +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, any of the Director nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy card but do not specify how to vote, your shares will be voted (1) in favor of approval of each of the seven Director nominees named in this Proxy Statement; (2) to approve, on an advisory basis, the compensation of the Company’s NEOs; and (3) in favor of the ratification of the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable rules. A nominee’s inability to vote on some proposals because it lacks discretionary authority to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes, if any, may be different for each of the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +NOTICE AND ACCESS +We distribute our proxy materials to certain stockholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On or before April 14, 2022, we mailed a Notice of Internet Availability of Proxy Materials to participating stockholders, containing instructions on how to access the proxy materials on the Internet to vote your shares over the Internet or by telephone. You will not receive a printed copy of the proxy materials unless you request them. If you would like to receive a printed copy of our proxy materials, including a printed proxy card on which you may submit your vote by mail, then you should follow the instructions for obtaining a printed copy of our proxy materials contained in the Notice of Internet Availability of Proxy Materials. +REVOKING A PROXY +If you are a stockholder of record, you may revoke your initial proxy vote before the Annual Meeting by: +● Submitting a new signed proxy card with a later date; +● Notifying PDC’s Corporate Secretary in writing before the Annual Meeting that you wish to revoke your proxy card; or +PDC ENERGY 2022 PROXY +71 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Appearing virtually at the Annual Meeting and voting virtually at the Annual Meeting. Merely attending the Annual Meeting will not result in the revocation of your proxy card. +If you hold your shares through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the Annual Meeting. +QUORUM +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the Annual Meeting, either by proxy or during the virtual meeting. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count for quorum purposes. +VOTES NEEDED +The following table presents the voting requirements for electing the Director nominees and for approving the other proposals presented in this Proxy Statement. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Election of Seven Director Nominees +The seven Director nominees who receive the greatest number of votes will be elected Director for a one-year term ending in 2023. There is no cumulative voting for Directors. “Withhold” votes and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 2. Broker non-votes will have no effect on the vote on Proposal No. 2. +Proposal No. 3 +Ratify the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as votes against Proposal No. 3. Broker non-votes will have no effect on the vote on Proposal No. 3. +72 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ATTENDING THE VIRTUAL MEETING & VOTING +Stockholders of record as of March 30, 2022, will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2022. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 1:00 p.m. Mountain Time on Wednesday, May 25, 2022. Online check-in will begin at 12:45 p.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or by voting virtually at the meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend. +CONDUCT OF THE MEETING +The Chairman and the Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes establishing rules for answering previously submitted questions prior to the Annual Meeting. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance that every question submitted by a stockholder prior to the Annual Meeting will be answered at the Annual Meeting. +SOLICITATION OF PROXIES +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the proxy materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. +APPRAISAL RIGHTS +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +PDC ENERGY 2022 PROXY +73 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CONTACT INFORMATION +If you need more information about the Annual Meeting, or if you wish to submit a question to be answered at the Annual Meeting, you may write to or call prior to the meeting: +Corporate Secretary +PDC Energy, Inc. +1775 Sherman Street, Suite 3000 +Denver, CO 80203 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +74 +PDC ENERGY 2022 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: April 14, 2022 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC., 1775 SHERMAN STREET, SUITE 3000, DENVER, COLORADO 80203. +PDC ENERGY 2022 PROXY +75 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +APPENDIX A +NON-GAAP FINANCIAL MEASURES +The following table provides reconciliations of adjusted free cash flows and adjusted cash flows from operations (including per share) to their most comparable U.S. GAAP measures (in millions, except per share data): +ADJUSTED Free Cash Flows & +CASH FLOWS FROM OPERATIONS +Twelve Months +Ended +December 31, +2020 +2021 +Adjusted free cash flows: +Net cash from operating activities +$ +870.1 +$ +1,547.8 +Changes in assets and liabilities +51.5 +(15.2) +Capital expenditures for development of crude oil and natural gas properties +(551.0) +(583.1) +Change in accounts payable related to capital expenditures for oil and gas development activities +28.7 +(0.5) +Adjusted free cash flow +$ +399.3 +$ +949.0 +Adjusted cash flows from operations: +Net cash from operating activities +$ +870.1 +$ +1,547.8 +Changes in assets and liabilities +51.5 +(51.5) +Adjusted cash flows from operations +$ +921.6 +$ +1,532.6 +Adjusted cash flows from operations, per share +$ +9.38 +$ +15.55 +76 +PDC ENERGY 2022 PROXY +Table of Contents +VIEW MATERIALS & VOTE w SCAN TO PDC ENERGY, INC. C/O BROADRIDGE CORPORATE ISSUER SOLUTIONS, INC. P O BOX 1342 BRENTWOOD, NY 11717 VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on May 24, 2022. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/PDCE2022 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on May 24, 2022. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D70903-P69102 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. PDC ENERGY, INC. For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. The Board of Directors recommends you vote FOR proposals 1 through 3. ! ! ! 1. Elect seven directors nominated by the Board, each for a term of one year. Nominees: 01) 02) 03) 04) Barton R. Brookman Pamela R. Butcher Mark E. Ellis Paul J. Korus 05) 06) 07) Lynn A. Peterson Carlos A. Sabater Diana L. Sands For Against Abstain ! ! ! ! ! ! 2. To approve, on an advisory basis, the compensation of the Company’s named executive officers. 3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. NOTE: To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +Table of Contents +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. D70904-P69102 PDC ENERGY, INC. Annual Meeting of Stockholders May 25, 2022 1:00 PM MDT This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) R. Scott Meyers and Nicole L. Martinet, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) him or her to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of PDC ENERGY, INC. that the stockholder(s) is/are entitled to vote at the Virtual Annual Meeting of Stockholders to be held at 1:00 PM, MDT on May 25, 2022, at www.virtualshareholdermeeting.com/PDCE2022, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. 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Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a-12 +PDC ENERGY, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check all boxes that apply): +☒ +No fee required. +☐ +Fee paid previously with preliminary materials. +☐ +Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. +Table of Contents +PDC ENERGY, INC. +1099 18 th Street, Suite 1500 +Denver, Colorado 80202 +(303) 860-5800 +April 12, 2023 +Dear Stockholder of PDC Energy, Inc.: +You are cordially invited to attend the 2023 Annual Stockholders’ Meeting of PDC Energy, Inc. to be held via virtual web conference at www.virtualshareholdermeeting.com/PDCE2023 on May 24, 2023, at 1:00 p.m. Mountain Time (the “Annual Meeting”). +The accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement. +We hope you will join us at the Annual Meeting online. Your vote is important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to virtually attend, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you are unable to virtually attend. +Sincerely, +Barton R. Brookman +President and Chief Executive Officer +Table of Contents +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON +Wednesday, May 24, 2023 +April 12, 2023 +To the stockholders of PDC Energy, Inc.: +The 2023 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held via the Internet through a virtual web conference at www.virtualshareholdermeeting.com/PDCE2023 on May 24, 2023, at 1:00 p.m. Mountain Time. You will be able to attend the Annual Meeting online by visiting the website above, and, prior to the Annual meeting, you may submit questions to be answered at the Annual Meeting. You will also be able to vote your shares electronically at the Annual Meeting. The Annual Meeting will be held online only, and will be held for the following purposes: +● To elect the seven Directors nominated by the Board and identified in the accompanying proxy statement, each for a term of one year (Proposal No. 1) ; +● To approve, on an advisory basis, the compensation of the Company’s Named Executive Officers ( Proposal No. 2); +● To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023 ( Proposal No. 3); +● To conduct an advisory vote on the frequency (every one, two or three years) of future advisory votes on the compensation of the Company’s Named Executive Officers (Proposal No. 4); and +● To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +The Board has fixed the close of business on March 29, 2023, as the record date for determining the stockholders having the right to receive notice of, to virtually attend and to vote at the Annual Meeting or any adjournment or postponement thereof. A list of these stockholders will be open for examination by any stockholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal executive offices at 1099 18 th Street, Suite 1500, Denver, CO 80202, and electronically during the Annual Meeting at www.virtualshareholdermeeting.com/PDCE2023 when you enter your control number. The presence virtually or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum. +If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you may attend the Annual Meeting and vote your shares or revoke your prior voting instructions. +Table of Contents +Regardless of the number of shares of our common stock that you own, your vote at this Annual Meeting will be very important. Thank you for your continued support, interest and investment in the Company . +By Order of the Board of Directors, +Nicole L. Martinet +Senior Vice President, General Counsel and Secretary +Table of Contents +PDC ENERGY, INC. +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +To be held on May 24, 2023 +The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 24, 2023, at 1:00 p.m. Mountain Time and at any and all adjournments or postponements of the Annual Meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 12, 2023, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITYOF PROXY MATERIALS +FOR THE ANNUAL MEETING TO BE HELD ON MAY 24, 2023 +The Notice of Annual Meeting, the Proxy Statement for the 2023 Annual Meeting, and the 2022 Annual Report, which is the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, are available at www.proxyvote.com . +Virtual Meeting Admission +Stockholders of record as of March 29, 2023, will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2023. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 1:00 p.m. Mountain Time on Wednesday, May 24, 2023. Online check-in will begin at 12:45 p.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Voting +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or during the virtual Annual Meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the Annual Meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the Annual Meeting should you decide to virtually attend. +Table of Contents +TABLE OF CONTENTS +PROXY STATEMENT SUMMARY +ACRONYMS AND ABBREVIATIONS USED IN THIS PROXY +PROXY STATEMENT SUMMARY +1 +PROPOSAL NO. 1—ELECTION OF SEVEN DIRECTOR NOMINEES +2 +Board Of Directors +2 +Summary of Director Nominee Qualifications and Diversity +3 +Name, Principal Occupation for Past Five Years and Other Directorships +4 +DIRECTOR COMPENSATION +11 +Cash Compensation +11 +Equity Compensation +11 +2022 Director Compensation +12 +Director Stock Ownership Requirements and Prohibition on Certain Transactions +12 +Director Qualifications and Selection +12 +STANDING COMMITTEES OF THE BOARD +13 +Board Meetings and Attendance +13 +2022 Board and Committee Memberships +14 +Audit Committee +14 +Environmental, Social, Governance and Nominating Committee +14 +Compensation Committee +15 +Summary Of Committee Responsibilities +16 +Board Leadership Structure +16 +Stockholder Recommendations +17 +Stockholder Nominations +17 +CORPORATE GOVERNANCE +17 +Governance Highlights +17 +Environmental, Social And Governance +18 +Corporate Governance Guidelines +23 +Other Directorships +24 +Uncontested Elections Policy +24 +Code Of Business Conduct And Ethics +24 +Family Relationships And Other Arrangements +25 +Director Independence +25 +The Board’s Role In Risk Management +25 +Transactions with Related Parties +25 +Policies and Procedures with Respect to Transactions with Related Parties +26 +Insider Trading +26 +Other Corporate Governance Documents +26 +Communication with the Company by Stockholders +26 +Additional Information +26 +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +27 +Investor Outreach and Engagement +27 +Named Executive Officer Compensation Recommendation +28 +EXECUTIVE OFFICERS +29 +COMPENSATION COMMITTEE REPORT +32 +COMPENSATION DISCUSSION AND ANALYSIS +33 +Executive Summary +33 +Executive Compensation Philosophy +36 +2022 Compensation Program Design and Decisions +37 +2022 Performance Metrics – Quantitative and Qualitative +40 +Long-Term Incentive Awards +45 +Other Elements of Compensation +48 +2023 Compensation Program and Board Changes +49 +Table of Contents +Compensation Policies and Practices +49 +Summary Compensation Table +55 +All Other Compensation +56 +Grants of Plan-Based Awards +57 +Outstanding Equity Awards at Fiscal Year-End +58 +Option Exercises and Stock Vested +59 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +60 +Impact of Termination and Change of Control on Long Term Equity-Based Incentive Plans +62 +Change of Control Excise Tax Provision +62 +Estimated Termination and Change of Control Benefits +63 +PAY VERSUS PERFORMANCE +66 +Pay Versus Performance Table +66 +Tabular List of Pay Versus Performance Measures +68 +Description of Relationships Between Compensation Actually Paid and Certain Financial Performance Measures +69 +CEO PAY RATIO +70 +EQUITY COMPENSATION PLAN INFORMATION +71 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +72 +Section 16(A) Reports +74 +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +75 +Audit Committee Pre Approval Policies and Procedures +76 +REPORT OF THE AUDIT COMMITTEE +77 +PROPOSAL NO. 4—ADVISORY VOTE ON FREQUENCY OF ADVISORY SAY-ON-PAY VOTES +78 +ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2023 ANNUAL MEETING +79 +STOCKHOLDER NOMINATIONS AND PROPOSALS +80 +Stockholder Proposals for 2024 Annual Meeting +80 +Advance Notice Procedures Under the Company’s Bylaws +80 +INFORMATION ABOUT VOTING AND THE MEETING +81 +Who May Vote +81 +How Proxies Work +81 +Notice and Access +81 +Revoking a Proxy +81 +Quorum +82 +Votes Needed +82 +Attending the Virtual Meeting & Voting +83 +Conduct of the Meeting +83 +Solicitation of Proxies +83 +Appraisal Rights +83 +Contact Information +84 +HOUSEHOLDING INFORMATION +85 +APPENDIX A - NON-GAAP FINANCIAL MEASURES +86 +Table of Contents +ACRONYMS AND ABBREVIATIONS USED IN THIS PROXY +The following acronyms and abbreviations used in this Proxy Statement have the meanings set forth below: +“ Adjusted FCF ” means adjusted free cash flow for the relevant year. +“ CD&A ” means Compensation Discussion & Analysis +“ CEO CAP ” means compensation actually paid to the Company’s CEO for the relevant year. +“ CEO ” means Chief Executive Officer. +“ CFO ” means Chief Financial Officer. +“ CRED ” means Coloradoans for Responsible Energy Development. +“ CROCI ” means cash return on capital invested. +“ CSR ” means corporate social responsibility. +“ DE&I ” means diversity, equity, and inclusion. +“ DJ Basin ” means the Denver-Julesburg Basin. +“ EHS ” means environmental, health and safety. +“ ESG&N Committee ” meant the Company’s Environmental, Social, Governance and Nominating Committee. +“ ESG ” means environmental, social and governance. +“ FCF ” means adjusted free cash flow. +“ G&A ” means general and administrative expense. +“ GAAP ” means generally accepted accounting principles in the United States. +“ GHG ” means greenhouse gas. +“ LOE ” means lease operating expense. +“ NEOs ” means the Company’s Named Executive Officers. +“ Non-CEO NEO CAP ” means the average compensation actually paid to the Company’s non-CEO NEOs for the relevant year. +“ NYSE ” means the New York Stock Exchange. +“ OGDP ” means oil and gas development plan. +“ OGMP 2.0 ” means Oil and Gas Methane Partnership. +“ P&R ” means plug and reclaim. +“ PAC ” means political action committee. +“ PCAOB ” means the Public Company Accounting Oversight Board (United States). +“ PDC ” means PDC Energy, Inc. +“ PSU ” means performance share unit. +“ PVAR ” means preventable vehicle accident rate. +“ PwC ” means PricewaterhouseCoopers LLP. +“ RSU ” means restricted stock unit. +“ S&P 400 Index ” means Standard & Poor’s Mid-Cap 400 index. +Table of Contents +“ SASB ” means Sustainability Accounting Standards Board. +“ SEC ” means the United States Securities and Exchange Commission. +“ SMT ” means the Company’s Senior Management Team. +“ SVP ” means senior vice president. +“ TCFD ” means Taskforce on Climate-Related Financial Disclosure. +“ TRIR ” means total recordable injury rate. +“ TSR ” means total shareholder return. +“ U.S. ” means the United States of America. +“ VOC ” means volatile organic compounds. +“ XOP ” means State Street Global Advisors’ SDPR Oil & Gas Exploration & Production ETF. +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROXY STATEMENT SUMMARY +This Proxy Statement Summary highlights information contained elsewhere in this document. +Please read the entire Proxy Statement carefully before voting. +Annual Meeting of Stockholders +TIME AND DATE +PLACE +RECORD DATE +1:00 p.m. Mountain Time +On Wednesday, May 24, 2023 +Virtually at www.virtualshareholdermeeting.com/ +PDCE2023 +March 29, 2023 +VOTING +Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone, mail or virtually at the Annual Meeting, please refer to the instructions on your proxy card in the postage paid envelope provided. +Voting Matters +BOARD +RECOMMENDATION +1 +PROPOSAL 1 Election of Seven Directors +Elect seven Directors nominated by the Board, each for a term of one year. +FOR +2 +PROPOSAL 2 Approve Executive Officer Compensation +To approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +FOR +3 +PROPOSAL 3 Ratify the Appointment of PricewaterhouseCoopers LLP +To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023. +FOR +4 +PROPOSAL 4 Approve Frequency of Future Compensation Votes +To approve, on an advisory basis, the frequency (every one, two or three years) of future advisory votes on the compensation of the Company’s Named Executive Officers. +Every One +Year +PDC ENERGY 2023 PROXY +1 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 1—ELECTION OF Seven DIRECTORS +THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE seven DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +You are asked to consider seven nominees for election to the Board. Each nominee would serve for a one-year term until the 2024 annual meeting of the stockholders of the Company and until his or her successor is duly elected and qualified. +The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director nominee is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. “Withhold votes” and broker non-votes will have no effect on the election of Directors. +BOARD OF DIRECTORS +As of the Annual Meeting, the composition of the Board is expected to be as follows: +YEAR THE +DIRECTOR JOINED +DIRECTORS +THE BOARD +Barton R. Brookman +2015 +Pamela R. Butcher +2022 +Mark E. Ellis +2017 +Paul J. Korus +2020 +Lynn A. Peterson +2020 +Carlos A. Sabater +2021 +Diana L. Sands +2021 +All of the Director nominees will be standing for election to serve a one-year term (the Company does not have a staggered Board; all of the Company’s Directors serve one-year terms and stand for election on an annual basis). The Board, based on the recommendation of the Environmental, Social, Governance and Nominating Committee (the “ESG&N Committee”), has recommended Mr. Brookman, Ms. Butcher, Mr. Ellis, Mr. Korus, Mr. Peterson, Mr. Sabater and Ms. Sands for re-election. All of the Director nominees are current members of the Board. +2 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Summary of Director Nominee Qualifications and Diversity +Our Director nominees have a broad diversity of experience and a wide variety of qualifications, skills, and diverse characteristics that strengthen their ability to carry out their oversight role on behalf of our stockholders. The following matrices highlight key skills, qualifications, and diverse characteristics our Director nominees bring to the Board. More details on each Director nominee’s qualifications, skills and expertise are included in the Director nominee biographies on the following pages. +Director Skills Matrix +Director Diversity Matrix +Total Number of Directors +7 +Female +Male +Non-Binary +Did Not Disclose +Part I: Gender Identity +Directors +2 +5 +0 +0 +Part II: Demographic Background +African American or Black +0 +0 +0 +0 +Alaskan Native or Native American +0 +0 +0 +0 +Asian +1 +0 +0 +0 +Hispanic or Latinx +0 +1 +0 +0 +Native Hawaiian or Pacific Islander +0 +0 +0 +0 +White +1 +4 +0 +0 +Two or More Races or Ethnicities +0 +0 +0 +0 +LGBTQ+ +0 +Did Not Disclose Demographic Background +0 +PDC ENERGY 2023 PROXY +3 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS +BARTON R. BROOKMAN +DIRECTOR +President and +Chief Executive Officer +Age: 60 +Committees: +• None +Background +Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), joined the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations. +Education +B.S. in Petroleum Engineering from the Colorado School of Mines +M.S. in Finance from the University of Colorado +Experience +The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry. +Skills +● +Executive Leadership +● +Industry Background (Upstream E&P) +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Climate Skills +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Operations +● +Finance/Capital Markets +● +Government, Legal or Regulatory +● +Human Capital Management/Executive Compensation +● +Commercial Marketing/Midstream +● +Mergers, Divestitures & Acquisitions +● +Reserves +4 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +Pamela R. Butcher +DIRECTOR +Age: 65 +Committees: +• Compensation +• Environmental, Social, Governance and Nominating +Background +Ms. Butcher joined the Board in February of 2022. She serves as an independent director on the Boards of Pilot Chemical Corp. and J.M. Huber Corporation, serving also on J.M. Huber Corporation’s Corporate Governance and Nominating and Compensation Committee and the Human Capital Committees of J.M. Huber Corporation and Pilot Chemical Corp. Ms. Butcher previously served as a director of Trecora Resources from November 2016 until its acquisition by Balmoral Funds, LLC in June 2022, and as a director of Gruden Topco Holdings, LP/Quality Distribution, Inc. From 2010 to 2021, she served as President and COO, then CEO and President, of Pilot Chemical Corp., delivering significant revenue and profit growth along with five accretive acquisitions. Prior to joining Pilot, she worked 29 years for The Dow Chemical Company (now Dow Inc.) where she held a variety of executive leadership positions including Business Vice President of Specialty Chemicals, Vice President of Corporate Marketing and Sales and Vice President and General Manager of Adhesives and Sealants. She was a distinguished recipient of Dow's Genesis Award for people excellence, which is Dow's highest recognition for people leadership. Previously, she also served on the board of trustees for the Chemical Educational Foundation, as a member of the US Bank Advisory Group and on the Boards of the American Cleaning Institute, the Ohio Manufacturers' Association and numerous community organizations. +Education +Bachelor’s in Agronomy from Purdue University +Master of Science from Purdue University +Experience +The Board has concluded that Ms. Butcher is qualified to serve as a Director because of, among other things, her extensive public and private company executive, leadership, and board experience. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Climate Skills +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Operations +● +Finance/Capital Markets +● +Government, Legal or Regulatory +● +Human Capital Management/Executive Compensation +● +Mergers, Divestitures & Acquisitions +● +Technology/Innovation +PDC ENERGY 2023 PROXY +5 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +MARK E. ELLIS +DIRECTOR +(Non-Executive Chairman) +Age: 66 +Committees: +• Compensation +Background +Mr. Ellis joined the Board in August 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016. From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN. From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips. +Education +B.S. in Petroleum Engineering from Texas A&M University +Experience +The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry knowledge and executive management experience. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Industry Background (Upstream E&P) +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Risk Management +● +Operations +● +Finance/Capital Markets +● +Government, Legal or Regulatory +● +Human Capital Management/Executive Compensation +● +Commercial Marketing/Midstream +● +Mergers, Divestitures & Acquisitions +● +Reserves +6 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +PAUL J. KORUS +DIRECTOR +Age: 66 +Committees: +• Audit (Chair) +• Environmental, Social, Governance and Nominating +Background +Mr. Korus joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC Energy Inc. (“SRC”). He has served as a Director of Chord Energy Corporation (“Chord”) since July 2022. Prior to that, Mr. Korus served as a director of Whiting Petroleum Corporation until its merger with Oasis Petroleum, Inc. in July 2022, forming Chord. He also formerly served as a director of Crestwood Equity Partners LP from July to September 2022, a director of SRC from June 2016 until January 2020, a director of Antero Midstream Partners LP from January until March 2019, and a director of Antero Resources Corporation from December 2018 to June 2021. Mr. Korus was previously the Senior Vice President and Chief Financial Officer of Cimarex Energy Co. from September 2002 until his retirement in 2015, and held the same positions with its predecessor, Key Production Company, from 1999 through 2002. His previous experience also includes approximately five years as an oil and gas research analyst at an investment banking firm. He began his oil and gas career in 1982 with APA Corporation where he held positions in corporate planning, information technology and investor relations. Mr. Korus is a former CPA and is a member of the University of North Dakota Accounting Hall of Fame. +From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. He is also a member of UND’s Strategic Planning and Campaign Committees. +Education +B.S. in Economics from the University of North Dakota +M.S. in Accounting from the University of North Dakota +Experience +The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience. He also brings strong financial and accounting expertise based on his experience as a former chief financial officer of a public company. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Industry Background (Upstream E&P) +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Finance/Capital Markets +● +Human Capital Management/Executive Compensation +● +Mergers, Divestitures & Acquisitions +● +Technology/Innovation +PDC ENERGY 2023 PROXY +7 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +LYNN A. PETERSON(1) +DIRECTOR +Age: 70 +Committees: +• None +Background +Mr. Peterson joined the Board in January 2020 in connection with the closing of the Company’s merger with SRC. Mr. Peterson was appointed Executive Chair of Chord in July 2022 upon the closing of the merger between Whiting Petroleum Corporation (“Whiting”) and Oasis Petroleum Inc. Mr. Peterson has been a member of the board of directors of Denbury Resources Inc. since May 2017. +He was Chief Executive Officer of Whiting from October 2020 until July 2022. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served on Kodiak’s board from 2001-2014 and as its President and Chief Executive Officer from 2002-2014. Mr. Peterson has over 40 years of industry experience. +Education +B.S. in Accounting from University of Northern Colorado +Experience +The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s experience as a chief executive officer and service as director of other public energy companies provide valuable understanding of management processes and strategy of oil and gas companies. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Industry Background (Upstream E&P) +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Climate Skills +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Operations +● +Finance/Capital Markets +● +Government, Legal or Regulatory +● +Human Capital Management/Executive Compensation +● +Commercial Marketing/Midstream +● +Mergers, Divestitures & Acquisitions +● +Reserves +(1) Director Overboarding . Mr. Peterson currently serves as Executive Chair of Chord Energy (NASDAQ: CHRD), and also as an outside director on each of the Boards of PDC and Denbury Resources Inc. (NYSE: DEN), for a total of three total public company boards. PDC routinely evaluates any potential conflicts of interests of our Board members, including employment and other directorships, and has determined that no conflicts exist with respect to Mr. Peterson’s positions with PDC, Chord and Denbury. Mr. Peterson is also in compliance with PDC’s internal over-boarding policy (no more than two public company boards beyond PDC). While Mr. Peterson serves as Executive Chair of Chord, he is not involved in the day-to-day aspects of the business, and instead provides a high level oversight role to the CEO and management team as needed. For PDC, Mr. Peterson is a highly engaged and committed Board member and actively participates in all PDC Board matters and brings valuable experience to the Board. +8 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● +● +● +● +● +● +● +● +● +● +● +● +● +CARLOS A. SABATER +DIRECTOR +Age: 64 +Committees: +• Audit +• Compensation (Chair) +Background +Mr. Sabater joined the Board in May 2021. He is an accomplished global business executive and certified public accountant with nearly 40 years of leadership, corporate governance, accounting and financial reporting experience. Mr. Sabater also serves on the boards of KBR, Inc., where he is a member of the Audit Committee and Nominating and Corporate Governance Committee, and Pool Corporation, where he is a member of the Audit and Compensation Committees. During his extensive career at Deloitte Touche Tohmatsu Limited (“Deloitte”), he served in various senior leadership and operational roles, including CEO for both the U.S. and global audit practices and was the managing partner for all of Deloitte’s businesses across North and South America. Mr. Sabater led various risk, governance, audit, finance, compensation and global committees during his service as an elected board member for the Deloitte firms in the U.S., Mexico, Central and Latin America, the Caribbean and Bermuda. Mr. Sabater was born in Cuba, having immigrated to the U.S. as a child, and is fluent in Spanish. +Education +B.B.A. in Accounting and Finance from Florida International University +Experience +The Board has concluded that Mr. Sabater is qualified to serve as a Director because of, among other things, his extensive leadership, executive and board service and experience in audit, finance, risk and governance matters for public companies. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Finance/Capital Markets +● +Human Capital Management/Executive Compensation +● +Mergers, Divestitures & Acquisitions +PDC ENERGY 2023 PROXY +9 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +DIANA L. SANDS +DIRECTOR +Age: 57 +Committees: +• Audit +• Environmental, Social, Governance and Nominating (Chair) +Background +Ms. Sands joined the Board in February 2021. She brings over 30 years of business experience across multiple industries and disciplines. Ms. Sands currently serves on the boards of SP Plus Corporation and VMO Aircraft Leasing. She retired in 2020 from the Boeing Company (“Boeing”) as Executive Officer and Senior Vice President, Office of Internal Governance and Administration, a role she held beginning in 2016. Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her nearly 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, she served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands is dedicated to philanthropic efforts and currently serves on the board of National Philanthropic Trust, and is Chair of Start Early, a non-profit champion for quality early learning. +Education +Bachelor of Business Administration from University of Michigan +M.B.A. from the Kellogg School of Management at Northwestern University +Experience +The Board has concluded that Ms. Sands is qualified to serve as a Director because, among other things, she has extensive executive finance and governance experience in large public companies, allowing her to contribute broad financial, audit and compliance expertise to the Board. +Skills +● +Public Company Director (other than PDC) +● +Executive Leadership +● +Financial Literacy/Accounting +● +Environmental, Social & Governance +● +Diversity, Equity & Inclusion Skills +● +Risk Management +● +Finance/Capital Markets +● +Government, Legal or Regulatory +● +Human Capital Management/Executive Compensation +● +Mergers, Divestitures & Acquisitions +● +Technology/Innovation +10 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DIRECTOR COMPENSATION +We compensate Directors with a combination of cash and equity-based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash retainers are paid quarterly. No compensation is paid to our CEO for his service on the Board. +Compensation for our non-employee Directors (“Non-Employee Directors”) is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on its review for 2022, the Compensation Committee generally recommended minimal changes from the 2021 structure, maintaining the equity and cash compensation amounts for Directors but removing the Audit Committee member retainer fee (previously $10,000). This change fosters consistency across committees, as non-chair members of other committees did not receive a separate retainer fee. +CASH COMPENSATION +Annual Board and Committee Retainers +Each Non- Employee Director receives an annual cash retainer for service on the Board, which covers attendance at all Board and committee meetings. In addition, Non-Employee Directors receive an additional cash retainer for service as committee chairs to compensate them for the extra responsibilities associated with their roles, but no compensation is awarded for serving as a committee member. The 2022 Board and committee cash retainers are reflected in the following table. +Member +Chair +Retainer +Retainer +($) +($) +Board +$ +85,000 +$ +100,000 +Audit Committee +— +20,000 +Compensation Committee +— +15,000 +ESG&N Committee +— +15,000 +EQUITY COMPENSATION +On May 25, 2022, Mr. Ellis, the Non-Executive Chairman, was granted an equity award with an intended value of $215,000 in restricted stock units (“RSUs”) and the remaining Non-Employee Directors other than Ms. Butcher each received an equity award with an intended value of $180,000 in RSUs for their service on the Board. In May 2022, Ms. Butcher received a pro-rata grant with an intended value of $120,000 that, combined with her initial pro-rata grant in February 2022 with an intended value of $60,000, is intended to align her Director equity awards with the other non-Chairman Directors’ equity awards. The RSUs were granted under our 2010 Amended and Restated Long Term Equity Plan (the “2010 Equity Plan”), or the 2018 Long Term Equity Plan, as amended (the “2018 Equity Plan”), as applicable. The actual number of RSUs granted was determined based on the five-day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject, generally, to the Director not resigning or being removed for cause prior to the vesting date). +PDC ENERGY 2023 PROXY +11 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Compensation paid to the Non-Employee Directors for 2022 was as follows: +2022 DIRECTOR COMPENSATION +Fees +Earned +or Paid +Stock +in Cash (1) +Awards (2)(3) +Total +Name +($) +($) +($) +Pamela R. Butcher +$ +77,917 +$ +188,054 +$ +265,971 +Mark E. Ellis +191,016 +225,671 +416,687 +Paul J. Korus +108,984 +188,921 +297,905 +David C. Parke (4) +55,000 +— +55,000 +Lynn A. Peterson +85,000 +188,921 +273,921 +Carlos A. Sabater +98,008 +188,921 +286,929 +Diana L. Sands +98,008 +188,921 +286,929 +(1) Includes annual Board retainer, committee chair retainers and the retainer for the Non-Executive Chairman of the Board . +(2) Represents RSUs granted to our Non-Employee Directors and each RSU award includes the right to receive dividend equivalent amounts. The amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amounts described above. Cash payments made to our Directors in 2022 for dividend equivalent rights that accumulated and vested on the 2021 RSU awards totaled $33,481; additionally, Mr. Peterson received a cash payment of $109,325 for dividend equivalent rights that accumulated and vested on a 2020 PSU award in connection with the SRC merger. +(3) At December 31, 2022, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Ms. Butcher – 2,787; Mr. Ellis – 3,187; Mr. Korus – 2,668; Mr. Peterson – 2,668; Mr. Sabater – 2,668; Ms. Sands – 2,668. +(4) Mr. Parke did not stand for re-election at the Company’s 2022 Annual Meeting. Compensation includes cash for service during 2022 and payment of dividend equivalent rights upon vesting of an RSU award. +DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS +Under the Company’s Stock Ownership Guidelines, each Non-Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($425,000 for 2022). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include shares owned outright and unvested RSUs. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2022, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Ms. Butcher who is still within her five-year compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” +The Company’s Insider Trading Policy expressly prohibits Directors from short-term trading (purchasing and selling Company securities within a six-month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock. +DIRECTOR QUALIFICATIONS AND SELECTION +The Board has adopted Director Nomination Procedures that describe the process the ESG&N Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed +12 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +on the Company’s website at www.pdce.com under “Corporate Governance.” The ESG&N Committee evaluates each candidate based on his or her level and range of experience and knowledge (industry-specific and general), skills, education, reputation, integrity, professional stature and diversity in terms of race, gender and ethnicity, as well as other factors that may be relevant depending on the particular candidate. +Additional factors considered by the ESG&N Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The ESG&N Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The ESG&N Committee has not specified any minimum qualifications that it believes must be met by any particular nominee. +The ESG&N Committee has historically identified potential Director nominees primarily through recommendations made by independent third-party search firms. For example, Ms. Butcher’s 2022 appointment to the Board resulted from the engagement of Russell Reynolds Associates. The ESG&N Committee also considers recommendations made by Non-Employee Directors, employees, stockholders and others. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. +STANDING COMMITTEES OF THE BOARD +BOARD MEETINGS AND ATTENDANCE +The Board has a standing Audit Committee, Compensation Committee and ESG&N Committee. Actions taken by these committees are reported to the Board at its next meeting. During 2022, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors virtually attended the 2022 Annual Meeting held on May 25, 2022. +The Non-Employee Directors generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Non-Executive Chairman of the Board chairs these sessions; however, the other Non-Employee Directors may, in the event of the Non-Executive Chairman's absence, select another Director to preside over the executive session. +The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2022. +PDC ENERGY 2023 PROXY +13 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 BOARD AND COMMITTEE MEMBERSHIPS +DIRECTORS +Board of +Directors +Audit +Committee +Compensation +Committee +Environmental, Social, Governance +and Nominating +Committee +Barton R. Brookman +Pamela R. Butcher (1) +Mark E. Ellis +Paul J. Korus +David Parke (2) +Lynn A. Peterson +Carlos L. Sabater (3) +Diana A. Sands (4) +Number of Meetings Held +11 +9 +7 +6 +Chair +Member +(1) On May 25, 2022, Ms. Butcher was appointed as a Member of the Compensation Committee (replacing Mr. Korus) and ESG&N Committee. +(2) Mr. Parke did not stand for re-election at the Company’s 2022 Annual Meeting. As such, immediately prior to the May 25, 2022, Board Meeting, he stepped down as Chair of the Compensation Committee and from all other Committee assignments. +(3) On May 25, 2022, Mr. Sabater was appointed as Chair of the Compensation Committee. +(4) On May 25, 2022, Ms. Sands was appointed as Chair of the ESG&N Committee. +AUDIT COMMITTEE +The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on September 15, 2021, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by Securities and Exchange Commission (“SEC”) regulations. The Company’s website materials are not incorporated by reference into this Proxy Statement. +Environmental, Social, Governance and NOMINATING COMMITTEE +In September 2021, the Board formalized Environmental, Social and Governance (“ESG”) oversight and accountability at the Board level by establishing the ESG&N Committee and amending and restating the committee’s charter to, among other things, include oversight of ESG matters. Members of the ESG&N +14 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Committee were selected primarily based on their previous Nominations & Governance Committee experience and also based on other relevant sustainability expertise and experience. +The ESG&N Committee receives quarterly updates on the Company’s ESG strategy, reporting, goals and initiatives from key internal ESG leadership, including the Company’s ESG executive sponsors – the General Counsel and SVP Operations – and members of PDC’s ESG Steering Committee. Committee members are asked for input and guidance on progress and path forward, leveraging their individual areas of expertise and experience. The ESG&N Committee is also significantly engaged in the Company’s ESG reporting process. +The Board has determined that all members of the ESG&N Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted an ESG&N Committee Charter, which was most recently amended and restated on September 15, 2021, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +COMPENSATION COMMITTEE +The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on December 7, 2022, and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee is or has been an officer or employee of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S-K in 2022. During 2022, none of our executive officers served as a Director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Compensation Committee or the Board. +PDC ENERGY 2023 PROXY +15 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Summary of Committee Responsibilities +AUDIT COMMITTEE +COMPENSATION COMMITTEE +Environmental, Social, Governance and NOMINATING COMMITTEE +Responsibilities: +⦁ Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; +⦁ Monitors the independence of the independent registered public accounting firm; +⦁ Monitors and provides oversight with respect to Company enterprise risk and cybersecurity risks, and the Company’s processes, policies, and guidelines established to address such risks; and +⦁ Provides an avenue for communications among the independent registered public accounting firm, management and the Board. +Responsibilities: +⦁ Oversees the development of a compensation strategy for the Company’s Named Executive Officers; +⦁ Evaluates the performance of and establishes the compensation of the CEO; +⦁ Reviews and approves the elements of compensation for other senior executive officers of the Company; +⦁ Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans; +⦁ Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation; +⦁ Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers; +⦁ Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; +⦁ Reviews and approves Company contributions to Company sponsored retirement plans; and +⦁ Recommend to the Board approval of creation or revision of any “clawback” policy allowing the Company to recoup compensation paid to employees when the Committee determines it is necessary or appropriate or as required by law or stock exchange rules. +Responsibilities: +⦁ Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies; +⦁ Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company; +⦁ Oversees and makes recommendations with respect to the adequacy of the Company’s ESG policies and programs, compliance with ESG laws, and progress toward the Company’s achievement of ESG objectives, including diversity, equity, and inclusivity; +⦁ Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; +⦁ Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position; and +⦁ Annually reviews succession plans for the Board, CEO and other senior executives, both for ordinary course and contingency planning succession circumstances; recommend to the Board any proposed updates. +BOARD LEADERSHIP STRUCTURE +Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Ellis serves as Non-Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides +16 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +strong Board leadership while positioning our CEO as the leader of the Company in front of our employees and stockholders. The Board evaluates this separated structure at least annually. +STOCKHOLDER RECOMMENDATIONS +The ESG&N Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the ESG&N Committee by writing to the ESG&N Committee at the Company’s headquarters or by email to board@pdce.com . All recommendations will be reviewed by the ESG&N Committee. A submission recommending a nominee should include: +● Sufficient biographical information to allow the ESG&N Committee to evaluate the potential nominee in light of the Director Nomination Procedures, including current employment and other public company directorships that may impact a nominee’s ability to meaningfully participate on PDC’s Board; +● An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines; +● Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and +● An indication of the willingness of the proposed nominee to serve if nominated and elected. +STOCKHOLDER NOMINATIONS +Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures. +CORPORATE GOVERNANCE +GOVERNANCE HIGHLIGHTS +We believe that the Board has implemented a sound structure for the governance of the Company. Elements of this structure include: +● Stockholder Engagement : On an annual basis, we conduct significant outreach to our stockholders to understand their views on various governance and other ESG matters. In 2022, we held in-person, telephonic or video meetings with stockholders representing approximately 50% of our outstanding common stock as of year-end 2022. Through this engagement, we aimed to understand our stockholders’ concerns and incorporate feedback, including perspectives around ESG, shareholder return frameworks, the Colorado regulatory environment, mergers and acquisitions activity and our operations. In response to stockholder feedback, the Board made a number of changes in 2021 and 2022 related to, among other things, Board refreshment, executive compensation and ESG initiatives. See below discussions on “Continuous Board Refreshment and Diversity”; “Environmental, Social and Governance”; “Investor Outreach and Engagement”; “Responsiveness to Stockholder Interests and Market Environment”; and “2023 Compensation Program and Board Changes” for further detail. +● Continuous Board Refreshment and Diversity : Five of the Company’s seven Director nominees have been added to the Board since 2020, including two in 2020, two in 2021, and one +PDC ENERGY 2023 PROXY +17 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +in 2022, demonstrating commitment to continued refreshment. Further, three Directors are either female and/or self-identify as underrepresented minorities. +● ESG Focus : We continue to prioritize our ESG strategic execution and transparency, as highlighted in our third annual Sustainability Report. A comprehensive overview of 2022 sustainability highlights and key 2023 initiatives can be found in the ESG section of this document. +● Independent Board Leadership : Non-Executive Chairman Mark E. Ellis has decades of executive experience in the oil and gas industry and provides strong leadership of the Board and oversight of management. +● Majority Independent Directors : Currently, six of our seven Director nominees are independent, and only independent Directors serve on our Board committees. +● Strong Independent Oversight : The majority of the Company’s Director nominees have significant operating, financial, strategic and other relevant experience in the oil and gas industry or as former executives at public companies. +● Share Ownership Requirement : Directors are required to hold a specified number of shares of our common stock with a transition period for new Directors. +● Majority Voting Policy : Except in the case of a contested election, any Director who receives more “withhold” votes than votes in favor must tender his or her resignation for consideration by the Board. +● Stockholder-called Special Meetings and Action by Consent : Stockholders that have 10% combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent. +● No Poison Pill : The Company does not have a poison pill. +● One Vote per Share : The Company does not have any super-voting shares. +Environmental, Social and Governance +PDC is committed to an effective, accountable and measurable ESG strategy focused on driving a cleaner, safer, and more socially responsible company. Our strategy prioritizes sustainable outcomes that improve our core business, and is overseen by our ESG&N Committee and supported by our full Board. Internally, our ESG Steering Committee is responsible for building and executing our ESG vision, with engagement and approval from our Senior Management Team (“SMT”). As a result of our dedicated strategy and committed Board and SMT, we made significant progress in 2022 in each of the areas of E, S and G, as highlighted below: +Environmental +● Continue to improve our greenhouse gas (“GHG”) and methane intensity, and surpassed our GHG and methane emission intensity reductions goals set last year, achieving approximately 30% and 60% reductions, respectively, compared to our original year over year targets of 15% and 30%, +18 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +respectively. We also surpassed our original methane intensity reduction goal of 50% by 2025, and are now reassessing our longer term goals. +● Demonstrated an overall reduction in gross Scope 1 emissions (MT CO2e) since 2021. Notable year-over-year achievements within our Scope 1 emissions profile include: +o 49% approximate reduction in reported pneumatic emissions from 2021 due to improving data quality, adjusting our calculation methodology, and retrofitting pneumatics to instrument air; +o 84% approximate reduction in emissions associated with well venting for liquids unloading due to operational changes in the DJ Basin; +o 19% reduction of emissions from atmospheric storage tanks due to enhanced facility designs aimed at tank elimination; and +o 37% reduction in emissions from associated venting and flaring due to operational changes in the Delaware Basin, essentially eliminating all routine flaring on a company-wide basis, and surpassing our 2025 zero routine faring goal. +PDC ENERGY 2023 PROXY +19 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Acquired Great Western Petroleum, LLC (“Great Western”), a Denver-based DJ Basin operator, closing the acquisition in May 2022 (the “Great Western Acquisition”), which was accretive to our emission reduction goals. +● Achieved approval of the Guanella Comprehensive Area Plan (“CAP”), a 22 well pad development in Weld County, Colorado, in December 2022 by the Colorado Oil and Gas Conservation Commission. The project is expected to create a net reduction in Volatile Organic Compounds (“VOC”) emissions over ten years through a robust plug and reclaim (“P&R”) program. PDC plans to P&R over 473 locations as part of the Guanella development, resulting in a minimum 58 % reduction in VOC emissions. +● Plugged over 250 older, low-producing wells and decommissioned 98 associated facilities in Colorado in 2022. Sites associated with decommissioned wells and facilities are returned to their original grade and native plant growth through PDC’s land reclamation program. +● Partnered with the Butterfly Pavilion to study how restoration of well sites to native, pollinator-friendly landscapes benefits pollinator populations in Colorado. To date, PDC has begun this important work on two existing Colorado reclamation sites with more expected in the future. +● Continued its commitment to environmental transparency and disclosure through the following: +o Assessed and published our climate-related risk and opportunities by utilizing the Taskforce on Climate-Related Financial Disclosure (“TCFD”), and identified a strategic focus that “PDC should seek to be a climate leader in our industry and geography while learning about and investing in emerging technologies.” +o Responded to the CDP (previously Carbon Disclosure Project) Climate Change Questionnaire, providing detailed information on topics including emissions management, governance, and policy engagement, receiving a first time score of a “C”, which puts PDC ahead of its peers and aligns with the North America regional average. +o In 2022, we joined and achieved a gold standard in the Oil and Gas Methane Partnership (“OGMP 2.0”), a comprehensive measurement-based reporting framework for the oil and gas industry that improves accuracy and transparency of methane emissions reporting in the oil and gas sector. +● To continue our commitment to accuracy in our reported emissions, we improved our process documentation and implemented enhanced reviews and internal controls. In 2022, PDC enlisted the services of an independent third-party to perform an assurance review of our emissions data reported for the 2021 reporting year. The third-party found the 2021 emissions report to be materially accurate. +20 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Social +● Invested approximately $4 million in our communities through charitable donations, community programs, and scholarships, including supporting organizations that assisted those impacted by the Marshall Fire in Colorado and the war in Ukraine, as well as over $80,000 donated to various charities through our employee matching program. +● Over 7,000 volunteer hours were recorded by our employees in 2022, including throughout our keystone volunteer month-long volunteer program, Energizing Our Community Days. +● Established a formal Human Rights policy for all employees, contractors, and business partners that includes express commitments to: +o Honesty, integrity, and respect for our people, environment, and communities; +o Creating a positive impact in the communities where we live and work through engagement with all stakeholders, including employees, stockholders, landowners, and community members; and +o Cultivating a diverse, inclusive, respectful, and safe work environment free from discrimination, harassment, and violence. +● Committed to adopting policies and practices that ensure equitable opportunities for all and building a culture that is welcoming and accessible for our current and future employees. For 2022, we leveraged our employee-led Diversity, Equity, and Inclusion (“DE&I”) Committee to identify DE&I priorities and initiatives for the organization, as well as hired a DE&I consultant to help develop a baseline assessment of where we stand today, define roles and responsibilities, and outline a roadmap for future DE&I efforts. +● Continued to prioritize diversity in our organization, with our Company’s officers (Vice Presidents and up) consisting of 27% women and 9% minorities, and the Company’s managers consisting of 28% women and 18% minorities, each as of December 31, 2022. +● Implemented new benefits policies, including: +o An employee-managed professional development stipend to be used toward employee’s choice of learning and development initiatives in alignment with Company business strategies; and +o A tiered education assistance program designed to encourage attainment of degrees with assistance from PDC with a focus on first-time college degrees. +PDC ENERGY 2023 PROXY +21 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Governance +● The Code of Business Conduct and Ethics was updated to expand language around bribery and corruption and strictly prohibiting seeking, offering, accepting, or paying bribes to obtain or maintain business and/or competitive business advantages. +● Formalized ESG oversight and accountability at the Board level by establishing the ESG&N Committee. We continue to engage and educate our Board members regarding ESG matters, including comprehensive field training in September 2022, with a primary focus on emission reduction projects in the DJ Basin. +● ESG short-term incentive metrics for 2022 were enhanced for all employees, including: +o Adopting quantitative goals in EHS performance for safety, spills, and GHG and methane emissions reductions; and +o Adopting qualitative goals related to ESG including flaring reductions and DE&I initiatives. +● Female Board member, Pamela R. Butcher, joined the Board in 2022 following the addition of two diverse Board members in 2021. +o Five of the Company’s seven Director nominees have been added to the Board since the beginning of 2020, demonstrating our commitment to continued refreshment and resulting in average Board tenure of approximately 3.6 years; and +o Three Director nominees are either female and/or self-identify as underrepresented minorities. +● Increased disclosure and accessibility through additional comprehensive reports developed in 2022, including the TCFD Report, Corporate Social Responsibility (“CSR”) Report, Sustainability Accounting Standards Board (“SASB”) Reporting, Key Metrics & Disclosures, and CDP Climate Change Questionnaire as shown below: +● Established a Political Engagement Policy to guide Company efforts and increase transparency into PDC’s political involvement. The policy: +o Governs the use of corporate funds or assets for public policy and political purposes; +o States that all public policy and political engagement must comply with applicable legal restrictions including federal, state, and local rules and regulations; +o Commits to annual, transparent reporting that discloses the Company’s public policy and political activity information not covered by government reporting requirements, including non-profit contributions; and +o Outlines the standards for PDC’s political action committee (“PAC”). +22 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Ongoing Strategic Development +Moving forward, the Company will continue its thoughtful but ambitious approach to ESG. The Company is currently engaged in several key initiatives, including: +● Climate-focused scenario planning and on-going strategic development in alignment with the recommendations of TCFD, and specifically engaging in an annual update and review that includes the SMT and Board; +● Deploying our first electric fleet for hydraulic fracturing operations in the DJ Basin in the first half of 2023; +● Continuing to enhance our GHG and methane reduction goals, setting approximate 20% and 40% GHG and methane reduction goals for 2023 compared to 2022, as incorporated into our 2023 short term incentive program; +● Reassessing our longer term GHG and methane reduction goals for 2025 and 2030, given the rapid achievement of our methane goal in 2022; +● Enhancing our DE&I focus through engagement of a third party expert to help develop a baseline assessment of where we stand today, define roles and responsibilities, and outline a roadmap for future DE&I efforts; and +● Continuing our significant charitable, scholarship and community outreach efforts, including through a Board approved 2023 budget of $5 million to support organizations that meet PDC’s guiding principles of Education, Equity, Essential and Environment. +PDC’s sustainability efforts are marked by strategic planning, transparency, stakeholder engagement, materiality and – most importantly – steady progress on our material focus areas. +CORPORATE GOVERNANCE GUIDELINES +The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address: +● Director selection, qualification and responsibilities; +● The holding and frequency of executive sessions of independent Directors, Board self-evaluation and senior executive performance reviews; +● Board committee structure and function; +● Succession planning; and +● Governance matters, standard of business conduct and Board committee responsibilities. +The Corporate Governance Guidelines were most recently amended as of May 26, 2020, and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +PDC ENERGY 2023 PROXY +23 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Other Directorships +The Corporate Governance Guidelines also address Directors’ service on other public company boards. Recognizing the substantial time commitment required of public company directors, the Corporate Governance Guidelines state that Directors are expected to serve on other public company boards only to the extent that such services do not detract from the Directors’ ability to serve on PDC’s Board. In no case may PDC Directors serve on more than two public company boards (in addition to PDC’s Board). The ESG&N Committee reviews and oversees Directors’ service on other public company boards regularly and no less than annually. +The Company routinely evaluates its Directors’ service on other boards. All of PDC’s Directors comply with the overboarding policy under our Corporate Governance Guidelines. Still, certain investors and organizations may consider Mr. Peterson’s service as Executive Chair of Chord while serving on the boards of PDC and Denbury to constitute over-boarding. PDC, however, does not view those commitments as overboarding. As Executive Chair of Chord, Mr. Peterson is not involved in the day-to- day aspects of the business, and instead provides a high level oversight role to the CEO and management team as needed. Moreover, Mr. Peterson is a highly engaged and committed Board member and actively participates in all PDC Board matters and brings valuable experience to the Board. +UNCONTESTED ELECTIONS POLICY +The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the ESG&N Committee. The ESG&N Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way. +In making this recommendation, the ESG&N Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director nominee whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the ESG&N Committee’s recommendation, the Board will take into account the factors considered by the ESG&N Committee and such additional information and factors as the Board believes to be relevant. +CODE OF BUSINESS CONDUCT AND ETHICS +The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the ESG&N Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct is acknowledged and reviewed annually by the Board, and was most recently amended and restated on December 7, 2022. It can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +In the event the Board approves an amendment to or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website. +24 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS +There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement. +DIRECTOR INDEPENDENCE +In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements. +The Board has reviewed the business and charitable relationships between the Company and each Non-Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non-Employee Director’s independence. The Board has affirmatively determined that each of the Non-Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non-Employee Director. +THE BOARD’S ROLE IN RISK MANAGEMENT +In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions, for which program the Audit Committee provides oversight. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk-taking is essential in order to achieve the Company’s objectives. +The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company-wide risk oversight and reviews Company-wide risks at least annually, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management program, including enterprise risk and cybersecurity risks, and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. Such reviews are conducted at least annually. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors. +TRANSACTIONS WITH RELATED PARTIES +During 2022, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than 5% of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. +PDC ENERGY 2023 PROXY +25 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES +The Code of Conduct governs the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The Code of Conduct applies to each Director, officer, and employee of the Company. +Conflicts of interest arise when a director, officer, or employee takes actions or has interests that may make it difficult to perform his or her duties for the Company objectively and effectively. Conflicts of interest also arise when a director, officer, or employee, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Company. Under our Code of Conduct, the conflicted director, officer, or employee must disclose to the General Counsel or Chief Financial Officer any potential conflict of interest and must disclose all material facts with respect to such transaction and relationship. All conflicts of interest will be reviewed and addressed appropriately. +The Company routinely reviews conflicts of interest and related party transactions. No conflicts of interest or related-party transactions were reported by any Director under the Code of Conduct in 2022. +Insider Trading +The Company maintains a written Insider Trading Policy, which was most recently amended and restated as of February 16, 2023, and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. The Insider Trading Policy applies to all Directors, officers, employees, contractors, and consultants of the Company, as well as their immediate family members, household members, and controlled entities. Consistent with applicable law, the policy prohibits the unauthorized disclosure of nonpublic information acquired in the workplace and the misuse of material nonpublic information in securities trading. The policy establishes “trading windows” outside of which certain insiders are prohibited (and all other employees are strongly discouraged) from transacting in Company securities. The policy additionally prohibits certain transactions involving Company securities, including short-term trading, short sales, and hedging. +OTHER CORPORATE GOVERNANCE DOCUMENTS +The Company’s website includes the governance documents listed below. The Company’s website materials are not incorporated by reference into this Proxy Statement. +● Director Nomination Procedures +● Compensation Committee Charter +● Stock Ownership Guidelines +● Audit Committee Charter +● Insider Trading Policy +● ESG&N Committee Charter +● Shareholder Communication Policy +● Human Rights Policy +● Corporate Governance Guidelines +● Public Policy and Political Engagement Policy +● Code of Business Conduct and Ethics +COMMUNICATION WITH THE COMPANY BY STOCKHOLDERS +The Company values comprehensive engagement with its stockholders. Stockholders may communicate with the Company’s management by writing to the Company’s corporate headquarters or by emailing to IR@pdce.com , or with the Board or a committee of the Board by emailing to board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line. +ADDITIONAL INFORMATION +The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +26 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 2. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The stockholders of the Company are entitled to cast a non-binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non-binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say-on-pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. This Proxy Statement includes a non-binding advisory vote regarding such frequency (Proposal No. 4), and we will take the results of such vote into account in determining the frequency with which we will hold future “say-on-pay” votes in coming years. +As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long-term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long-term basis through a combination of base pay, annual incentives and long-term incentives. +The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay-for-performance philosophy. In 2022, 87% of our CEO’s compensation and, on average, 81% of the compensation of our other Named Executive Officers was made up of “at-risk” components. +Each of the Named Executive Officers has been granted significant equity awards, including awards subject to ratable annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long-term success. The Company also has Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership in the Company. +Investor Outreach and Engagement +The Compensation Committee considers the results of the non-binding “say on pay” vote of our stockholders in making prospective compensation decisions. At our 2022 Annual Meeting, over 98% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. In 2022, we held in-person, telephonic or video meetings with stockholders representing approximately 50% of our outstanding common stock as of year-end 2022. In response to stockholder feedback throughout the years, the Board made a number of changes in 2021 and 2022 related to, among other things, Board refreshment, executive compensation and enhanced ESG initiatives. +PDC ENERGY 2023 PROXY +27 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Named Executive Officer Recommendation +In light of the foregoing, the Company believes that the compensation of the Named Executive Officers, as further described below, is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution: +RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2023 Annual Meeting. +This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non-votes will not affect the outcome of this proposal. +28 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +EXECUTIVE OFFICERS +The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below. +Chief Executive Officer +59 +None +BARTON R. BROOKMAN +President and +Chief Executive Officer +Age: 60 +Mr. Brookman joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman above. +Lance A. Lauck +Executive Vice President Corporate Development & Strategy +Age: 60 +Mr. Lauck joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, mergers, acquisitions and divestitures, strategic planning, corporate reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri-Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering. +PDC ENERGY 2023 PROXY +29 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +R. Scott Meyers +Executive Vice President & Chief Financial Officer +Age: 48 +Mr. Meyers, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and then promoted to Chief Financial Officer in January 2018. He was promoted to Executive Vice President in February 2023. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008. Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania. +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +Nicole L. Martinet +General Counsel, Senior Vice President & Secretary +Age: 46 +Ms. Martinet joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. She is responsible for corporate and tactical legal initiatives, board governance, legal matters associated with mergers and acquisitions, securities and SEC matters. She also leads PDC’s sustainability and public affairs programs, including our ESG program, politics, community affairs and charitable outreach. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011. Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet serves on the board of Coloradans for Responsible Energy Development (“CRED”). Ms. Martinet has over 22 years of professional experience and holds a Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California. +30 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +55 +Audit +• Environmental, Social, Governance and Nominating +Reporting to Boeing’s CEO and the audit committee, Ms. Sands oversaw a diverse team including corporate audit, ethics and investigations, compliance risk management, security, and internal services. During her 20-year career at Boeing, Ms. Sands served in several financial and governance roles with increasing responsibility, including Director of Corporate Treasury, Vice President Investor Relations, Financial Planning & Analysis, and Corporate Controller. Prior to Boeing, Ms. Sands served in finance roles at General Motors Corporation and Ameritech Communications, Inc., among others. Ms. Sands currently serves on the boards of SP Plus Corporation and National Philanthropic Trust, and is Chair for Start Early, a non-profit champion for quality early learning. +Business Administration from University of Michigan and an M.B.A. from the Kellogg School of Management at Northwestern University. +David J. Lillo +Senior Vice President Operations +Age: 58 +Mr. Lillo was appointed as a member of the Senior Management Team for the Company in September 2020. He was promoted to Senior Vice President, Operations in March 2019 after joining the Company as Vice President, Operations in September 2015. Mr. Lillo has over 32 years of experience in exploration, production, and operations engineering management. Prior to joining the Company, Mr. Lillo held management and leadership roles for Bonanza Creek Energy, Inc., Noble Energy, Inc., and Patina Oil and Gas Corporation. Mr. Lillo is a Board member of both the Colorado Oil and Gas Association and Texas Oil and Gas Association. Mr. Lillo holds a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines. +Sandra E. Jacoby +Senior Vice President Corporate Administration +Age: 41 +Ms. Jacoby was appointed to her current position at the Company in February 2023, where she oversees all facets of the human resources function, corporate administration, and corporate facilities, and plays a key leadership role in the Company’s diversity, equity, and inclusion efforts. Prior to that, she served as the Company’s Vice President of Corporate Administration beginning in May 2020. Prior to joining the Company, Ms. Jacoby served as the Vice President of Human Resources at SRC Energy, Inc. Prior to her time at SRC, she held positions in Facilities, HR Management, and both Public and Investor Relations with Extraction Oil and Gas, and Kodiak Oil and Gas Corp; as well as Sales and Marketing at P2 Energy Solutions, Inc. She holds an M.S. in Global Energy Management from the University of Colorado and a B.S. in Marketing from the University of Wyoming. +Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman and Lauck were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. Lillo, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been dissolved. +PDC ENERGY 2023 PROXY +31 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +COMPENSATION COMMITTEE REPORT +The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement. +Carlos A. Sabater, Chair +Pamela R. Butcher +Mark E. Ellis +COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS +32 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +COMPENSATION DISCUSSION AND ANALYSIS +In establishing the Company’s compensation program, the Compensation Committee (referred to in this section as the “Committee”) continuously considers feedback from the Company’s stockholders and its compensation consultant and strives to adhere to compensation best practices. As such, this Compensation Discussion & Analysis (“CD&A”) illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2022, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2022 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers. The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”: +OFFICER +TITLE +Barton R. Brookman +President and Chief Executive Officer +R. Scott Meyers (1) +Executive Vice President—Chief Financial Officer +Lance A. Lauck +Executive Vice President—Corporate Development and Strategy +Nicole L. Martinet +Senior Vice President—General Counsel and Secretary +David J. Lillo +Senior Vice President—Operations +(1) Mr. Meyers was promoted to Executive Vice President on February 18, 2023. +EXECUTIVE SUMMARY +2022 Business Highlights +Throughout 2022, the Company continued to successfully achieve its operational and strategic goals and to develop its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. In the Wattenberg Field, the Company extended its multi-year permitted runway of highly economic projects through continued Oil and Gas Development Plan (“OGDP”) approval and unanimous approval of the Guanella CAP, which encompasses approximately 33,000 consolidated net acres, 22 locations and 450 wells in Weld County. The Company also successfully acquired and integrated Great Western, solidifying its core Wattenberg position. Finally, the Company continued its outstanding safety/environmental performance through pandemic and extreme weather events, reaching a milestone of over 4 years without a lost time injury in either basin. +The Company also further enhanced its focus on ESG initiatives and commitment to best-in-class environmental and safety practices and consistent stakeholder engagement. +PDC ENERGY 2023 PROXY +33 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Other key highlights and achievements in 2022 are further illustrated and described below: +(1) Adjusted Free Cash Flow (“FCF”), a non-GAAP* financial measure, is defined as net cash from operating activities, before changes in working capital, less oil & gas capital investments. See Appendix A “Non-GAAP Financial Measures” for a reconciliation to GAAP. +*For purposes of this document, “GAAP” refers to U.S. generally accepted accounting principles. +2022 Key Compensation Actions and Outcomes +Our executive compensation program has evolved throughout the years, with numerous changes to both our annual cash incentive program and long term incentive awards. Most recently, in 2022, the Committee added quantitative GHG and methane intensity reduction metrics to our annual cash incentive program. +Additionally, for fiscal year 2022, the Committee made the following pay outcome determinations for our NEOs: +● Made modest base salary increases year over year of approximately 2% to 3%; +● Kept target bonus percentages flat year over year for all NEOs, except for Mr. Brookman whose target percentage increased from 115% to 125%; and +● Provided 2% to 6% increases to long-term incentive amounts for 2022 equity grants for Messrs. Brookman, Lauck and Meyers and Ms. Martinet, and a more significant 15% increase for Mr. Lillo to reflect the Committee’s determination to continue to bring Mr. Lillo’s overall compensation closer to market median over time, as the number of years in his role increases. +In January and February 2023, the Committee evaluated the Company’s 2022 financial, operational and strategic accomplishments and determined the following pay outcomes: +● A 2022 annual cash incentive payout at 93% of target based on achievement of quantitative metrics and qualitative goals as described below; and +● 2020 PSU awards were earned at a 250% payout multiplier pursuant to the terms of the 2020 PSU award agreement, based on the Company’s rank at the 77th percentile of peers on a relative basis, and the Company achieving a greater than 50% annual return on an absolute basis, each measured over the three-year performance period. +34 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Compensation Best Practices +We believe our executive compensation program is aligned with current governance trends, and contains stockholder-friendly features as outlined below: +Our Practices +(What We Do) +Practices We Have Not Implemented +(What We Don’t Do) +✓ Pay for Performance —Our NEOs’ total compensation is heavily weighted toward performance-based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance. +✓ Executive Ownership Guidelines —We have Stock Ownership Guidelines for our executives and Directors that are consistent with what we believe to be corporate governance best practices. +✓ External Benchmarking —We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions. +✓ Double-Trigger Change-of-Control Severance Benefits —In the event of a change of control, our severance plan and our grandfathered employment contract provide for cash severance benefits only if the executive is actually or constructively terminated without cause following the change of control event. +✓ Clawback Policy —We have clawback provisions in place (through the Company’s Clawback Policy or NEOs’ employment agreements, as applicable) in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws. +✓ Compensation Doesn’t Encourage Excessive Risk —There is an appropriate balance between long-term and short-term focus in our compensation programs and the Committee has the ability to apply negative discretion to annual cash incentive payouts to ensure risk mitigation occurs in management decision-making. +✓ Independent Compensation Consultant —We have engaged an independent compensation advisor who reports directly to the Committee. +✓ Independent Compensation Committee —Our Compensation Committee is comprised solely of independent Directors. +✘ No Golden Parachute Excise Tax Gross-Ups —We do not currently provide gross-up payments to reimburse our executives for golden parachute tax obligations that would be incurred upon a change of control of the Company. +✘ No New Employment Contracts and/or Excessive Severance Benefits —We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment agreement are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or similar practices. +✘ No Excessive Perquisites —We provide only modest perquisites that are consistent with peer companies in our industry. +✘ No Repricing —We do not permit repricing of underwater stock options/SARs without stockholder approval. +✘ Prohibited Transactions —Hedging transactions, short selling, short-term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long-term business objectives of the Company are strictly prohibited for all officers and Directors of the Company under our Insider Trading Policy. +PDC ENERGY 2023 PROXY +35 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Responsiveness to Stockholder Interests and Market Environment +Based on stockholder feedback and our analysis of market and business trends, we have made a number of changes to our executive compensation program over the years showing responsiveness to stockholder feedback and evolving market conditions. We made significant changes to our program framework between 2019 and 2020, incorporating significantly more formulaic measures into our program. In 2022, we increased our focus on ESG, adding GHG and methane intensity reduction metrics into our annual incentive program. +In addition, throughout 2022 and into 2023, our management team and Board of Directors, when appropriate, actively engaged with stockholders. In 2022, we held in-person, telephonic or video meetings with stockholders representing approximately 50% of our outstanding common stock as of year-end 2022. Through this engagement, we aimed to understand our stockholders’ concerns and incorporate feedback, including perspectives around ESG, shareholder return frameworks, the Colorado regulatory environment, M&A and operations. Based on this feedback and last year’s say-on-pay vote in which over 98% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers, we believe our stockholders strongly support our current compensation program. +EXECUTIVE COMPENSATION PHILOSOPHY +The principal tenets of our compensation philosophy are as follows: +● Our executive compensation programs should be designed to align our executives’ long-term interests with those of our stockholders. Over the years we have evolved our executive compensation programs to meaningfully address stockholder feedback and adopt best practices. A substantial portion of our NEOs’ compensation is provided in the form of long-term equity incentives that tie executive pay to stock price performance. In addition, we require each of our NEOs to remain compliant with our Stock Ownership Guidelines. +● Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders. We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise. +● Our executive compensation programs should be designed to support a performance-based culture. The majority of each NEO’s compensation is at-risk and is based on a combination of attainment of short-term goals in support of our long-term strategy, long-term stock performance relative to our peers, and actual total stockholder return. Our programs require a commitment to performance because total compensation is not guaranteed. Therefore, our programs provide above-target compensation when performance goals are exceeded and below-target compensation when performance does not meet expectations. +● Our executive compensation programs should encourage appropriate risk management. We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include three-year vesting schedules on all equity awards, and structured annual cash incentive awards using a payout that is comprised 80% of a formulaic determination based on quantitative short-term financial and operational objectives and 20% based on a review of qualitative strategic objectives. We regularly review our compensation programs so that our NEOs are not encouraged to take inappropriate or excessive risks. +36 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 COMPENSATION PROGRAM DESIGN AND DECISIONS +Components and Purpose of Executive Compensation Program +Our executive compensation program is comprised of the following primary compensation elements: +2022 COMPENSATION ELEMENTS +2022 ROLE IN TOTAL COMPENSATION +Base Salary +· Provides a guaranteed level of compensation for executives commensurate with their level of responsibility, skills, capabilities, experience and leadership. +Annual Cash Incentives +✓ Cash Bonus – 80% based on quantitative metrics; 20% based on qualitative goals +● Rewards annual performance and aligns participants’ compensation with short-term financial, operational, environmental and strategic objectives specific to each calendar year; +● Motivates participants to meet or exceed internal and external performance expectations; and +● Recognizes individual contributions to the organization’s overall results. +Long-Term Equity-Based Incentives +✓ Performance Share Units (“PSUs”) – +60% for our CEO; 50% for other NEOs +✓ Restricted Stock Units (“RSUs”) – +40% for our CEO; 50% for other NEOs +● Rewards long-term performance directly aligned with stockholders’ interests; +● Provides a strong performance-based equity component; +● Recognizes and rewards share performance relative to industry peers; +● Aligns compensation with sustained long-term value creation; +● Helps executives to acquire a meaningful and sustained ownership stake; and +● Fosters executive retention by vesting awards over multiple years. +PDC ENERGY 2023 PROXY +37 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Base Salaries +In determining base salary adjustments for 2022, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, for 2022, the Committee made modest base salary increases of 2% to 3% year over year. +Year End +Year End +2021 +2022 +NAMED EXECUTIVE OFFICER +($) +($) +Barton R. Brookman +$ +850,000 +$ +875,000 +R. Scott Meyers +475,000 +490,000 +Lance A. Lauck +455,000 +465,000 +Nicole L. Martinet +440,000 +455,000 +David J. Lillo +400,000 +410,000 +Annual Incentive Awards +Bonuses under the Company’s 2022 annual incentive program were based 80% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Committee and 20% based on the Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2022 Performance Metrics – Quantitative and Qualitative.” +Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%. +Note : For 2022, the Committee made no individual performance adjustments. +Target Bonus Amounts +The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% - 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. During 2022, the Committee kept target bonus +38 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +percentages flat year over year for all NEOs other than for Mr. Brookman, whose target bonus percentage increased from 115% to 125% to better align with competitive market levels. +Target Annual +Cash Incentive as +% of Base Salary +NAMED EXECUTIVE OFFICER +2021 +2022 +Barton R. Brookman +115 +% +125 +% +R. Scott Meyers +90 +% +90 +% +Lance A. Lauck +90 +% +90 +% +Nicole L. Martinet +80 +% +80 +% +David J. Lillo +80 +% +80 +% +2022 Compensation Mix +A significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2022. 87% of our CEO’s compensation and 81% of our other Named Executive Officers’ compensation was made up of variable or “at-risk” components. +The charts above are based on 2022 base salaries, target bonus amounts with respect to 2022 annual cash incentive awards and the target values of the 2022 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance metrics and the value of our stock when the PSUs and RSUs vest. +PDC ENERGY 2023 PROXY +39 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 PERFORMANCE METRICS – QUANTITATIVE AND QUALITATIVE +In 2022, we established specific quantitative targets and weightings for the operational, financial, safety and environmental metrics used for the formulaic portion of the annual cash incentive program based on our 2022 budget and operating plans. These metrics are used as a means to balance operational objectives with capital discipline. We also developed the qualitative corporate performance goals focused on other important strategic objectives. The quantitative performance metrics and qualitative performance goals used in 2022 were as follows: +2022 Corporate Metrics +Metric +What it is +Why we use it +Weight +Quantitative Metrics (80% Cumulative Weighting) +20% +Adjusted Free Cash Flow (millions) +Net cash flow from operations (excluding changes in working capital) less oil and gas capital investment +Measures the ability to generate adjusted cash flows from operations in excess of total capital investment +15% +Lease Operating Expense (“LOE”) and General & Administrative (“G&A”) (millions) +Sum of lease operating and general & administrative expenses +Incentivizes a focus on cost management +15% +Cash Return on Capital Invested (“CROCI”) +Net cash from operating activities (excluding changes in working capital) plus cash interest expense divided by two-year average gross Properties, Plants and Equipment +Effective measurement of the cash-on-cash return of every dollar invested +15% +Methane/GHG Intensity Reduction (ESG) +Year-over-year reductions in methane and GHG intensity (mtCO2e/MBOE) +Measures the company’s progress in reducing methane and GHG intensity to ensure a proper focus is maintained on ESG related emissions reduction efforts +15% +Environmental, Health and Safety (“EHS”) +Composite score measuring the performance of Total Recordable Injury Rate (“TRIR”), Preventable Vehicle Accident Rate (“PVAR”) and Spill Rate +Links compensation to the health and safety of our employees and communities in which we live and operate remains a top priority +Qualitative Metrics (20% Cumulative Weighting) +20% +Non-Quantitative Operational and Financial Goals +See 2022 Assessment on Qualitative Corporate Metrics below +Provides the Committee the ability to measure and reward for important business events at year-end +The Committee generally reserves the right to adjust the quantitative metrics for certain categories of adjustments that are pre-approved by the Committee at the time the 2022 quantitative metrics are established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions and legal settlements or similar events, as further described in “2022 Assessment on Quantitative Corporate Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long-term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year. +40 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 Assessment on Quantitative Corporate Metrics +In February 2023, the Committee reviewed the Company’s 2022 performance relative to the quantitative operational, financial, safety and environmental metrics described above, and determined a 81% calculated achievement percentage as illustrated below: +Actual performance is modified for certain categories of adjustments approved by the Committee at the time the 2022 quantitative metrics were established, as follows: +● EHS excludes incidents outside of PDC’s control, such as injuries sustained in no-fault vehicle accidents, bee stings and third-party actions against PDC employees. Targets generally apply to assets operated for an entire calendar year, though in the case of the Great Western assets the targets apply only post-closing. The Board had discretion to adjust performance levels if Great Western historical reporting has a greater than 20% impact on target metrics, but no adjustments were needed. +● ESG targets generally apply to assets operated for an entire calendar year, though in the case of the Great Western assets the targets apply for the entire year even though the assets were operated for only seven months. The Board had discretion to adjust performance levels if Great Western historical reporting has a greater than 20% impact on target metric, but no adjustments were needed. +● Adjusted Free Cash Flow, a non-GAAP financial measure (see Appendix A “Non-GAAP Financial Measures” for a reconciliation to GAAP), was based on $/Barrel of Oil Equivalent (“BOE”) ranges derived from actual market pricing for NYMEX WTI Oil and NYMEX Natural Gas along with Realized NGL prices for the year and reported in the 2022 Annual Report. Capital investments are the same as reported in year-end results, and exclude corporate capital. At the beginning of 2022, the Committee established various Adjusted Free Cash Flow goals based on potential price ranges per BOE, with increasing Adjusted Free Cash Flow goals as prices rose. Ranges +PDC ENERGY 2023 PROXY +41 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +were set at a low of $47.97/BOE or below and a high of $63.98/BOE or above. Per BOE prices for 2022 were $55.63/BOE, and the targets above reflect the targets for the applicable price band. +● LOE and G&A exclude legal-related costs in excess of $2.25 million, deal costs in excess of $5 million, ballot initiative spending exceeding $6.8 million, the net impact of severance and retirement costs, costs associated with capital market transactions or debt restructuring and variance in actual bonus to be paid versus mid-year forecasts; in 2022, an adjustment was made to reflect an increase bonus accrual for the entire organization above the budgeted amount, which also flowed through Adjusted Free Cash Flow and CROCI. +● CROCI excludes acquisition and divestiture activity valued at more than $5 million, including effects on adjusted cash flow and PP&E and the cumulative effect of adjustments to other metrics; includes an adjustment for the difference in value of actual proved properties acquired from Great Western vs value used in original estimate. +2022 Assessment on Qualitative Corporate Metrics +The Committee establishes qualitative metrics tied to the Company’s strategic priorities, which in 2022 included goals in the following five categories: (1) successful closing of the Great Western Acquisition and integration of assets; (2) pathways to permits in Colorado; (3) ESG; (4) shareholder returns; and (5) technology, innovation and automation. +Based on its review and measurement of the Company’s 2022 qualitative goals, the Committee determined the Company achieved or exceeded all of its 2022 qualitative goals, demonstrating significant accomplishments during the year, illustrated as set forth in the table below (green check mark indicates full achievement of metric; green check mark “plus” indicates exceedance of metric). Overall, the Committee determined that the Company’s achievements warranted a 140% achievement percentage on its qualitative metrics. +[ Qualitative metrics graphic on following page .] +42 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PDC ENERGY 2023 PROXY +43 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2022 Bonus Awards +Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall Payout Percentage under the annual incentive plan of 93% of target as set forth below. +In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team, and each officer was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2022 performance were as follows: +2022 ANNUAL +BONUS +NAMED EXECUTIVE OFFICER +($) +Barton R. Brookman +$ +1,017,188 +R. Scott Meyers +$ +410,130 +Lance A. Lauck +$ +389,205 +Nicole L. Martinet +$ +338,520 +David J. Lillo +$ +305,040 +44 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +LONG-TERM INCENTIVE AWARDS +To align our long-term incentives with the interests of our stockholders and with our pay-for-performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These awards place a meaningful portion of our NEOs’ compensation at risk based on stock price performance and provide NEOs with significant equity ownership in the Company. In 2022, equity grants for our CEO were allocated 60% to PSUs and 40% to time-based RSUs and equity grants for our other NEOs were allocated 50% to PSUs and 50% to time- based RSUs. In addition, the Company maintained the absolute stock price modifier to its PSUs adopted in 2020 to continue better aligning payouts with absolute stock performance. +2022 Award Types and Terms +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +PSUs +Align compensation with the Company’s TSR relative to a group of peers in the industry. +The value of PSUs is dependent on both absolute stock price performance and relative TSR performance over a three-year period. +PSUs are denominated in units of Company stock with payout in shares of stock (or cash) based on the Company’s relative Total Shareholder Return (“TSR”) over the specified performance period, as ranked among the comparably-measured TSR of the Company’s peer companies. In 2022, the Company continued using an absolute stock price modifier to better align payouts with absolute stock performance. +For 2022, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group. See “Compensation Peer Group.” +The 2022 PSUs measure TSR over the performance period from January 1, 2022, through December 31, 2024, with payouts as follows: +Two exceptions could be applied to the formulaic outcome above, and changes to the outcome are made only in the circumstances outlined in these two exceptions. 1) The overall payout is capped at 250% of the targeted shares, regardless of relative and absolute performance. 2) If the company achieves 15% annualized absolute TSR, a floor of 50% of target is applied. For clarity, with respect to the second exception, if the Company’s annualized absolute TSR is less than 15%, there is no floor and the total payout could fall as low as 0%. +To provide for a consistent number of peers throughout the performance period, the award agreement gives the Committee discretion to determine how a peer that is acquired, merged, delisted, enters bankruptcy, or experiences certain other changes is treated in determining its TSR performance ranking. +PDC ENERGY 2023 PROXY +45 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +VEHICLE / PURPOSE +DESIGN FEATURES / TERMS +PSUs are generally forfeited if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Potential Payments Upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +RSUs +Align compensation directly with the Company’s stock price, encourages retention and increases stock ownership in the Company +Notional units that entitle the holder to receive an equal number of shares of stock upon vesting. Awards vest annually over three years. Unvested awards are generally forfeited by the NEO if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Potential Payments Upon Termination or Change of Control—Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +2022 Long-Term Incentive Awards +We typically determine the dollar value of the long-term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long-term incentives to be primarily forward- looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. The table below shows the grants and corresponding value awarded to each NEO in February 2022. +Target Value +RSUs +PSUs +Name +($) +(#) +(#) +Barton R. Brookman +$ +4,700,000 +31,787 +47,680 +R. Scott Meyers +1,975,000 +16,697 +16,697 +Lance A. Lauck +1,875,000 +15,851 +15,851 +Nicole L. Martinet +1,325,000 +11,201 +11,201 +David J. Lillo +1,262,000 +10,669 +10,669 +In determining the number of RSUs and PSUs awarded, we determined the portion of the target value to be allocated to each type of award (60% PSUs and 40% RSUs for the CEO, 50% to each type of award for the other NEOs), and then divided the dollar amount of the target value allocated to each type of award by the five-day average closing stock price ending the day prior to the date of grant ($59.14 per share). The award values shown above differ from the accounting values reported in the Summary Compensation Table. The accounting value reflected in the Summary Compensation Table and 2022 Grants of Plan- Based Awards table is based on the grant date fair value of the awards on the date of grant. +46 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2020-2022 Performance Share Unit (PSU) Payout +In 2020, we granted PSUs covering the three-year period from January 1, 2020 through December 31, 2022. The Company’s relative TSR for the performance period ranked at the 77th percentile of its peers, and on an absolute basis, the Company achieved a greater than 50% annual return over the three-year performance period. The combination of those achievements resulted in a multiplier capped at 250% payout pursuant to the terms of the 2020 PSU award agreement. See the “Option Exercises and Stock Vested” table below for the actual amounts received by each NEO. The chart below shows the members of the peer group used for the 2020 PSU grant, each company’s TSR performance and their relative rankings at the end of the period. +Company +TSR +Rank +% Rank +Payout % (1) +SM Energy Company +259.2% +1 +100% +Matador Resources Company +256.8% +2 +93% +Devon Energy +187.8% +3 +85% +PDC Energy, Inc. +174.0% +4 +77% +250% +Cimarex Energy (2) +148.9% +5 +70% +Permian Resources Corporation +123.9% +6 +62% +Magnolia Oil and Gas Corporation +96.8% +7 +54% +Parsley Energy, Inc.(2) +94.8% +8 +47% +QEP Resources, Inc. (2) +67.7% +9 +39% +WPX Energy, Inc. (2) +66.1% +10 +31% +Callon Petroleum +(18.4%) +11 +24% +Extraction Oil & Gas (3) +(100.0%) +12 +16% +Whiting Petroleum Corporation (3) +(100.0%) +13 +8% +Oasis Petroleum, Inc. (3) +(100.0%) +14 +0% +(1) Payout was determined based on the general formula, which provides for 100% payout if PDC is ranked at the 50th percentile of peers, a 25% payout if PDC is ranked at the 25 th percentile of the peers, a 200% payout if PDC is ranked at the 90 th percentile of the peers, and an interpolated payout if PDC’s percentile ranking is between any of those points. The outcome also includes an absolute TSR modifier if PDC’s annualized TSR is less than 5% or greater than 10% over the three year period. Lastly, the award was subject to a maximum payout cap of 250% of target. +(2) Cimarex, Parsley, QEP and WPX have been acquired. The remaining TSR following their acquisition was determined utilizing the XOP Index as the Successor Index. +(3) Whiting Petroleum, Extraction Oil & Gas and Oasis Petroleum filed for bankruptcy on April 24, 2020, June 14, 2020, and September 30, 2020, respectively, resulting in (100.0%) TSR for those peer companies for the performance period. +PDC ENERGY 2023 PROXY +47 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OTHER ELEMENTS OF COMPENSATION +In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry. +Element +Description and Purpose +Health and Welfare Benefits +We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees. +Retirement Benefits (401(k) and Profit Sharing) +We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit-Sharing Plan. The Company provides a dollar-for-dollar match up to 10% of compensation (up to IRS limits) plus a Profit-Sharing contribution that can range from 0% - 5% of compensation on an annual basis (up to IRS limits). Our NEOs participate in our 401(k) and Profit-Sharing Plan on the same basis as all other employees up to the IRS allowable limit. +For 2022, the 401(k) Match and Profit-Sharing Contribution for each NEO is shown in the Summary Compensation Table. +Perquisites +We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non-golf club dues, and annual physicals. +For 2022, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table. +Severance and Change of Control Arrangements +We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre-established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon an involuntary termination following a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry. +48 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Element +Description and Purpose +For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control” and “Impact of Termination and Change of Control on Long-Term Equity-Based Incentive Plans.” +2023 COMPENSATION PROGRAM AND BOARD CHANGES +For 2023, the Company made additional changes to its compensation program and Board composition, including the following: +● To further establish our commitment to safety, the Committee added contractor TRIR to the EHS quantitative metrics in our 2023 short-term incentive program so that it is now a four part composite score of contractor Total Recordable Incident Rate (“TRIR”), employee TRIR, Preventable Vehicle Accident Rate (“PVAR”) and spill rate. +● In the qualitative goals of our 2023 short-term incentive program, we continued to include critical Company project goals related to ESG, technology and automation, operational innovation, Colorado permitting and shareholder returns. +● We revised the 2023 PSU award framework to increase the required annualized absolute TSR goal to receive the maximum 250% modifier from +15% to +20%. +● Our Board composition continues to reflect increased refreshment and diversity, with Pamela R. Butcher’s appointment to the Board in February 2022 as the latest addition. +o Five of the Company’s seven Director nominees have been added to the Board since the beginning of 2020, demonstrating our commitment to continued refreshment and resulting in average Board tenure of approximately 3.6 years. +o Three Director nominees are either female and/or self-identify as underrepresented minorities. +COMPENSATION P oL ICIES AND PRACTICES +Process for Determining Executive Compensation +Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management, and the Consultant (as defined below) before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution, and stock burn rates (based on total outstanding shares). +In determining target total direct compensation for our NEOs, we consider the following: +● Our compensation objectives and philosophy; +● Each NEO’s scope of responsibility, expertise and tenure; +● The CEO’s assessment of the individual’s performance and the CEO’s recommendation regarding the compensation of the other NEOs; and +● Market data for target total direct compensation (base salary, bonus targets and long-term incentives) from the peer group. +PDC ENERGY 2023 PROXY +49 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Our view is that an executive’s target compensation should reflect the current market value for that position, provided the executive has performed well in the prior year. We may adjust the mix of cash and long-term incentives but we generally target around the median of the market in total direct compensation considering the factors listed above, although it often takes time for newly-promoted executives’ compensation to reach the market median. +Assessing the Effectiveness of Our Compensation Programs +Annually, we review summaries of each NEO’s compensation history as well as all compensation payable upon each NEO’s termination of employment, including upon a change of control of the Company. We also compare NEO pay relative to our peers and our share price performance to assess whether our programs as designed are truly paying for performance. The Committee uses these tools in addition to feedback from our stockholders, to determine whether changes to our program are needed. +Compensation Peer Group +In December 2021, the Committee approved the composition of the peer group of companies used for determining 2022 compensation. In selecting the peer group, the Committee considered whether changes to the previous year’s peer group were warranted based upon changes in the size, operations and/or capital structure of either the Company and/or the current or potential peer companies, including the following: +● Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including enterprise value, market capitalization, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current peer company; +● Assessment of this same information on potential new peers; and +● Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status). +Once identified, the Committee typically utilizes this peer group for the following: +● Compensation Benchmarking—to determine competitive total target direct compensation including base salaries, bonus targets and equity-based grants; +● Total Shareholder Return—to measure relative total shareholder return under the Company’s PSU awards; and +● Director Compensation—to determine outside Directors’ compensation. +Peer group compensation practices are determined using a combination of compensation data disclosed in the peers’ proxy statements and survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” The Company also uses this same survey as well as other industry surveys for determining compensation practices for the broader industry. The table below shows the peer groups for 2021 and 2022. +50 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +2021 Peers +2022 Peers +Centennial Resource Development +Added +Callon Petroleum +Cimarex Energy +Callon Petroleum +Centennial Resources +CNX Resources Corp +Chesapeake Energy +Chesapeake Energy +Continental Resources +Civitas Resources +Civitas Resources +Devon Energy +Coterra Energy +CNX Resources +Diamondback Energy +Coterra Energy +Magnolia Oil and Gas +Diamondback Energy +Marathon Oil +Removed +Magnolia Oil & Gas +Matador Resources +Cimarex Energy +Marathon Oil +Ovintiv +Continental Resources +Matador Resources +QEP Resources +Devon Energy +Ovintiv +Range Resources +QEP Resources +Range Resources +SM Energy +SM Energy Company +Whiting Petroleum +Whiting Petroleum +2023 Peer Group Changes : Due to additional M&A, the Committee replaced Centennial and Whiting with Permian Resources and Chord Energy. The Company also added the S&P 400 Index to the 2023 peer group to help compare the Company’s performance against a broader market measure. +Role of Independent Compensation Consultant +The Committee has engaged Meridian Compensation Partners as an independent compensation consultant (the “Consultant”) to help develop and maintain executive compensation programs that are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following: +● The Consultant’s reputation supporting compensation committees and familiarity with our executive compensation program de sign; +● Experience of the Consultant in the energy exploration and production industry; +● Range of compensation services offered by the Consultant; and +● Independence of the Consultant, considering the independence factors outlined by the SEC. +The Committee determines the scope of the Consultant’s engagement, which includes: +● Providing input into peer group identification and assessment; +● Providing benchmarking on executive and outside director compensation for the Committee to use in its decision-making process; +● Providing input into plan design discussions, payout alternatives and performance measures for annual and long-term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites); +● Reviewing and providing feedback on the compensation-related disclosures in our proxy statement (including, for example, the new pay versus performance disclosures required this year); and +PDC ENERGY 2023 PROXY +51 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Informing us about recent trends, best practices, and other developments affecting executive compensation. +The Consultant’s interactions with the Committee and management include the following: +● The Consultant does not make recommendations on or approve the amount of compensation of any NEO; +● The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant; +● The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and +● The Consultant attends Committee meetings as requested. +The Committee annually reviews the engagement of the Consultant, and as a part of that process, reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, the Consultant did not perform any other material services for the Company. The Consultant did not have any business or personal relationships with Committee members or executive officers of the Company and did not own any stock of the Company. The Consultant maintains policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the Consultant was not subject to any significant conflicts of interest. +Role of Management +As is customary, our CEO plays a significant role in determining the compensation levels of our other NEOs, which includes: +● Recommending quantitative and qualitative performance measures under our annual cash incentive program; +● Assessing the performance of the other NEOs; and +● Recommending base salaries, annual incentive targets and long-term incentive awards for the forthcoming year, and annual incentive awards for the prior year, in each case for the other NEOs. +At the Committee’s request, the CEO and other NEOs may also play a role in determining the following: +● Quantitative and qualitative performance measures under our short-term incentive program; +● Proposed peer group companies; +● Design changes to our compensation and benefits programs; and +● Assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program. +The Committee determines each element of the CEO’s compensation with input from the Consultant. The Committee also determines each element of compensation for the other NEOs with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation. +Tax and Accounting Considerations +With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 409A, +52 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Section 280G and Section 4999 of the Code. Currently, none of our severance arrangements or agreements provide for a gross-up for excise tax under Code Section 4999 and all our programs are intended to be either exempt from or to comply with Code Section 409A. We note that Section 162(m) of the Code limits the amount of compensation that we may deduct in any year to $1,000,000 per person with respect to our CEO and certain other highly compensated executive officers whose compensation is or has been included in the Company’s proxy statement. Although we consider the impact of Code Section 162(m), the focus of our programs is on driving Company performance, irrespective of whether compensation may be non-deductible because of the application of Code Section 162(m). +Clawback Policy +The NEOs are currently either covered under our clawback policy or, in the case of Mr. Lauck, a clawback provision in his grandfathered employment contract. Currently, the clawback policy and contractual provisions are identical and require the executive to reimburse all or a portion of their annual bonus, as described below, if the Company is required to restate its financial statements due to material noncompliance by the Company with any financial reporting requirement under applicable securities laws. The reimbursements are equal to the difference between the bonus paid to the executive for the affected year(s) and the bonus that would have been paid to the executive had the financial results been properly reported. These clawback requirements are in addition to any clawback requirements contained in applicable statutes or regulations. We expect to update our clawback policy in the coming year to comply with new NASDAQ listing requirements to be adopted pursuant to recent SEC clawback rules issued under Section 954 of the Dodd-Frank Act. +Stock Ownership +We have established Stock Ownership Guidelines for NEOs that are reviewed annually when compensation decisions are made. In satisfying the Stock Ownership Guidelines, NEOs are expected to: +● Comply with the ownership guidelines within five years of becoming a NEO; and +● Retain the net shares acquired through the vesting of RSUs and PSUs and the exercise of SARs if the NEO has not satisfied the required ownership level. +As of December 31, 2022, all of our NEOs exceeded the minimum stock ownership requirements as set forth in the table below. +Number of +Number of +Stock +Shares +Qualifying +Ownership +Required To +Shares Owned +Name/Year of Executive Status +Guidelines +Own (1) +at Year End +Barton R. Brookman (2008) +5x Base Salary +67,484 +365,556 +R. Scott Meyers (2018) +3x Base Salary +22,675 +108,994 +Lance A. Lauck (2009) +4x Base Salary +28,690 +138,535 +Nicole L. Martinet (2019) +3x Base Salary +21,055 +44,066 +David J. Lillo (2020) +3x Base Salary +18,973 +57,743 +(1) +Using the average daily closing price of the Company’s stock in December 2022, which was $64.83. +PDC ENERGY 2023 PROXY +53 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Qualifying holdings used to determine compliance with the minimum ownership requirements include stock owned directly and unvested time-based RSUs. PSUs and SARs are not included. Stock ownership requirements applicable to our NEOs are described under our Stock Ownership Guidelines, which can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Risk Management +We perform an annual risk assessment regarding our compensation programs. Based on our most recent assessment, we do not believe the Company’s executive or non-executive compensation structure is reasonably likely to have a material adverse effect on the Company. Risk-mitigating features of our executive and non-executive compensation structure include: +● A balance of short-term and long-term incentive programs to maintain focus on both elements of Company performance; +● Limitations on awards payable to any individual under our incentive programs, along with Compensation Committee discretion to decrease the qualitative portion of annual incentive payouts in the event it believes excessive risk was taken; +● “Clawback” provisions applicable to all NEOs through the terms of their employment agreements or the Company’s Clawback Policy; +● Stock ownership requirements for our NEOs and Non-Employee Directors; and +● An Insider Trading Policy that prohibits Directors and senior employees from transacting in Company shares without first obtaining pre-clearance from the Company’s General Counsel, even during open trading windows. +54 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SUMMARY COMPENSATION TABLE +Nonequity +Stock +Options/ +Incentive Plan +All Other +Total +Salary +Bonus (1) +Awards (2)(3) +SARs +Compensation +Compensation (4)(5) +Compensation +Name and Principal Position +Year +($) +($) +($) +($) +($) +($) +($) +Barton R. Brookman +2022 +$ +875,000 +$ +6,000 +$ +6,987,523 +$ +— +$ +1,017,188 +$ +55,756 +$ +8,941,467 +President and Chief +2021 +850,000 +2,000 +7,351,198 +— +1,564,000 +57,040 +9,824,238 +Executive Officer +2020 +803,000 +— +6,085,896 +— +938,400 +53,911 +7,881,207 +R. Scott Meyers (6) +2022 +490,000 +6,000 +2,770,032 +— +410,130 +47,050 +3,723,212 +Executive Vice President, +2021 +475,000 +2,000 +2,767,565 +— +684,000 +52,290 +3,980,855 +Chief Financial Officer +2020 +401,000 +— +2,265,067 +— +367,200 +40,500 +3,073,767 +Lance A. Lauck +2022 +465,000 +6,000 +2,629,681 +— +389,205 +57,000 +3,546,886 +Executive Vice President, +2021 +455,000 +2,000 +2,715,898 +— +655,200 +54,850 +3,882,948 +Corp. Dev. and Strategy +2020 +430,000 +— +2,265,067 +— +393,120 +49,600 +3,137,787 +Nicole L. Martinet +2022 +455,000 +6,000 +1,858,246 +— +338,520 +51,999 +2,709,765 +Senior Vice President, +2021 +440,000 +2,000 +1,845,043 +— +563,200 +49,900 +2,900,143 +General Counsel and Secretary +2020 +378,000 +— +1,399,787 +— +307,200 +44,297 +2,129,284 +David J. Lillo (7) +2022 +410,000 +6,000 +1,769,987 +— +305,040 +54,305 +2,545,332 +Senior Vice President, +2021 +400,000 +2,000 +1,623,648 +— +512,000 +56,250 +2,593,898 +Operations +2020 +424,000 +— +159,904 +— +307,200 +48,200 +939,304 +(1) In 2022, each of our executives received an appreciation bonus of $6,000. These special bonuses were of the same amount as given to all Company employees, as applicable. +(2) In accordance with SEC rules, the amounts reported in the above table reflect the aggregate grant date fair value of RSU and PSU awards, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures for awards subject to performance conditions and including the right to receive dividend equivalents on all awards. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements, as set forth in Note 14 to the financial statements included in the Annual Report on Form 10-K filed with the SEC on February 22, 2023. The 2022 grants are described in “Long-Term Equity-Based Incentive Awards” and detailed in the “Grants of Plan-Based Awards” table. +(3) 2022 PSUs included in the stock awards total for Messrs. Brookman, Meyers, Lauck and Lillo, and Ms. Martinet are listed at their grant date fair values, as computed utilizing the Monte Carlo pricing model, which was $107.85 per share, calculated at target as $5,142,288, $1,800,771, $1,709,530, $1,150,652, and $1,208,028, respectively. The value of the 2022 PSUs on the grant date for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet, assuming the maximum level of achievement of the performance conditions and based on the market value of $58.05 per share of our stock on the grant date, was $6,919,560, $2,423,152, $2,300,376, $1,548,339 and $1,625,545, respectively. +(4) Amounts shown in this column for 2022 are detailed below in the “All Other Compensation” table. +(5) During 2022, the Company accrued dividend equivalents of up to $1.95 per share covered by each unvested RSU or PSU. Accrued dividend equivalents are not separately reportable in this column as the grant date fair value of all RSU and PSU awards already includes the right to receive dividend equivalent amounts. +(6) Mr. Meyers was promoted to Executive Vice President on February 18, 2023. +(7) Mr. Lillo was appointed to the Senior Management Team in September 2020. His 2020 salary includes $45,756 in accrued paid time off paid out in connection with his appointment. His 2020 compensation also includes RSUs granted to him prior to his appointment. He did not receive PSUs in 2020. +PDC ENERGY 2023 PROXY +55 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER COMPENSATION +401(k) +Annal Profit +Total +Matching +Sharing +All Other +Contribution (1) +Contribution (2) +Perquisites (3) +Compensation +Name +Year +($) +($) +($) +($) +Barton R. Brookman +2022 +$ +27,000 +$ +9,150 +$ +19,606 +$ +55,756 +R. Scott Meyers +2022 +20,500 +9,150 +17,400 +47,050 +Lance A. Lauck +2022 +27,000 +9,150 +20,850 +57,000 +Nicole L. Martinet +2022 +20,500 +9,150 +22,349 +51,999 +David J. Lillo +2022 +27,000 +9,150 +18,155 +54,305 +(1) Represents the Company’s annual matching contribution to the Company’s 401(k) and Profit-Sharing Plan. +(2) Represents the Company’s annual profit-sharing contribution to the Company’s 401(k) and Profit-Sharing Plan. +(3) Represents total value of perquisites provided by the Company. Perquisites include automobile allowances, health club and non-health club related dues, annual physical cost, and certain spousal travel costs. No individual perquisite exceeded $25,000. +56 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +GRANTS OF PLAN-BASED AWARDS +All Other +All Other +Grant Date +Stock +Option +Exercise +Fair Value +Estimated Future Payouts Under +Estimated Future Payouts +Awards +Awards +or Base +of Stock +Non ‑ Equity Incentive Plan +Under Equity Incentive Plan +Number of +Securities +Price of +and +Awards (1) +Awards +Shares of +Underlying +Option +Option +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Stock +Options +Awards +Awards (2) +Name +Date +($) +($) +($) +(#) +(#) +(#) +(#) +(#) +($) +($) +Barton R. Brookman +$ +0 +$ +1,093,750 +$ +2,187,500 +— +— +— +— +— +— +— +2/16/2022 +— +— +— +0 +47,680 +119,200 +— +— +— +$ +5,142,288 +(3) +2/16/2022 +— +— +— +— +— +— +31,787 +— +— +1,845,235 +(4) +R. Scott Meyers +0 +441,000 +882,000 +— +— +— +— +— +— +— +2/16/2022 +— +— +— +0 +16,697 +41,743 +— +— +— +1,800,771 +(3) +2/16/2022 +— +— +— +— +— +— +16,697 +— +— +969,261 +(4) +Lance A. Lauck +0 +418,500 +837,000 +— +— +— +— +— +— +— +2/16/2022 +— +— +— +0 +15,851 +39,628 +— +— +— +1,709,530 +(3) +2/16/2022 +— +— +— +— +— +— +15,851 +— +— +920,151 +(4) +Nicole L. Martinet +0 +364,000 +728,000 +— +— +— +— +— +— +— +2/16/2022 +— +— +— +0 +11,201 +28,003 +— +— +— +1,208,028 +(3) +2/16/2022 +— +— +— +— +— +— +11,201 +— +— +650,218 +(4) +David J. Lillo +0 +328,000 +656,000 +— +— +— +— +— +— +— +2/16/2022 +— +— +— +0 +10,669 +26,673 +— +— +— +1,150,652 +(3) +2/16/2022 +— +— +— +— +— +— +10,669 +— +— +619,335 +(4) +(1) Represents target and maximum cash awards payable under the Company’s annual incentive plan. +(2) The grant date fair value of each RSU and PSU award includes the right to receive dividend equivalent amounts. +(3) Represents annual PSU awards under the 2018 Amended and Restated Long Term Equity Plan (“2018 Equity Plan”). Grant date fair value is computed by multiplying the target number of PSUs awarded by the grant date fair value as computed utilizing the Monte Carlo pricing model, which was $107.85 per share. +(4) Represents annual time-based RSU awards under the 2018 Equity Plan. Grant date fair value for RSUs is computed by multiplying the number of RSUs awarded by the closing price of the Company’s common stock, as reported on the NASDAQ Global Select Market on the date of grant of February 16, 2022, which was $ 58.05 . +PDC ENERGY 2023 PROXY +57 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +Equity Incentive Plan +Awards +Options/SAR Awards +Number +Number of +Market +Number of Securities +of Shares +Market Value +Unearned +Value of +Underlying Unexercised +of Stock +of Shares of +Shares of +Unearned +Options/SARs Held at +Option/SAR +Option/SAR +That +Stock That +Stock That +Shares That +December 31, 2022 +Exercise +Expiration +Have Not +Have Not +Have Not +Have Not +Exercisable +Unexercisable +Price (1) +Date +Vested (2) +Vested (3) +Vested (4) +Vested (3) +Name +(#) +(#) +($) +(Date) +(#) +($) +(#) +($) +Barton R. Brookman +— +— +— +104,161 +$ +6,612,140 +178,575 +$ +11,335,941 +26,643 +— +39.63 +1/13/2025 +— +— +— +— +29,036 +— +51.63 +1/10/2026 +— +— +— +— +23,886 +— +74.57 +1/16/2027 +— +— +— +— +R. Scott Meyers +— +— +— +52,370 +3,324,448 +60,459 +3,837,937 +Lance A. Lauck +— +— +— +51,110 +3,244,463 +58,641 +3,722,531 +11,445 +— +51.63 +1/10/2026 +— +— +— +— +8,599 +— +74.57 +1/16/2027 +— +— +— +— +Nicole L. Martinet +— +— +— +34,326 +2,179,014 +40,396 +2,564,338 +David J. Lillo +— +— +— +32,153 +2,041,072 +36,597 +2,323,178 +(1) The exercise price related to the SARs does not represent capital payable to the Company, but rather represents the base from which the stock appreciation value will be determined on the date of exercise. +(2) Represents RSUs of Messrs. Brookman, Meyers, Lauck and Lillo and Ms. Martinet which vest as set forth in the following table: +Number of RSUs that Vest on: +2/25/2023 +4/1/2023 +2/25/2024 +2/25/2025 +Total +Barton R. Brookman +60,734 +— +32,831 +10,596 +104,161 +R. Scott Meyers +30,150 +— +16,654 +5,566 +52,370 +Lance A. Lauck +29,661 +— +16,165 +5,284 +51,110 +Nicole L. Martinet +19,466 +— +11,126 +3,734 +34,326 +David J. Lillo +10,061 +8,474 +10,061 +3,557 +32,153 +(3) The market value of these RSUs and PSUs is based on the closing price of the Company’s common stock of $63.48, as reported on the NASDAQ Global Select Market on December 30, 2022, which was the last trading day of the year. Although not included in the table above, the total amount of dividend equivalents accumulated on unvested RSUs as of December 31, 2022, for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet was $265,356, $132,800, $129,987, $81,175 and $86,823, respectively. Although not included in the table above, the total amount of dividend equivalents accumulated on unvested PSUs at 100% of target as of December 31, 2022, for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet was $374,136, $126,031, $122,636, $75,642 and $84,157, respectively. +(4) Represents PSUs granted in 2021 and 2022, which are contingent upon the achievement of certain specified performance goals. PSUs granted in 2021 have a 3-year performance period ending December 31, 2023 and are reported at a 117% payout based on interim results through December 31, 2022. PSUs granted in 2022 have a 3-year performance period ending December 31, 2024 and are reported at a 129% payout based on interim results through December 31, 2022. Actual payouts cannot be determined until the end of the respective performance period. For a description of the PSUs granted in 2022, see “Long Term Incentive Awards.” +58 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Number of +Number of +Shares +Value +Shares +Value +Acquired on +Realized on +Acquired on +Realized on +Exercise (1) +Exercise (2) +Vesting (3) +Vesting (4) +Name +(#) +($) +(#) +($) +Barton R. Brookman +26,410 +$ +605,860 +384,226 +$ +23,900,949 +R. Scott Meyers +— +— +132,458 +8,194,082 +Lance A. Lauck +32,404 +973,926 +133,397 +8,245,939 +Nicole L. Martinet +— +— +81,041 +5,019,255 +David J. Lillo +— +— +19,951 +1,387,524 +(1) Represents the gross number of stock appreciation rights exercised in 2022. +(2) The value realized upon exercise is equal to the product of the number of shares acquired upon exercise multiplied by the excess of the fair market value of one share of our common stock on the exercise date less the base amount of the stock appreciation right. +(3) The number of shares includes RSUs and PSUs that vested in 2022. +(4) The table below shows the number and value of RSUs and PSUs included in these columns. The value of the RSUs and PSUs that vested in 2022 is determined by multiplying the number of units vested by the market value of PDC stock on the vesting date. The PSUs that vested in 2022 covered the three-year period January 1, 2020, through December 31, 2022, and paid out at 250% of target. See “2020-2022 Performance Share Unit (PSU) Payout” for more information. Although not included in the table above, the value of dividend equivalents paid on the vested RSUs and PSUs to Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet was $942,584, $311,308, $312,116, $20,519 and $191,683, respectively. +RSUs +RSUs Value +PSUs +PSUs Value +Name +(#) +($) +(#) +($) +Barton R. Brookman +70,303 +$ +3,973,117 +313,923 +$ +19,927,832 +R. Scott Meyers +31,230 +1,768,129 +101,228 +6,425,953 +Lance A. Lauck +32,169 +1,819,986 +101,228 +6,425,953 +Nicole L. Martinet +18,483 +1,048,073 +62,558 +3,971,182 +David J. Lillo +19,951 +1,387,524 +— +— +PDC ENERGY 2023 PROXY +59 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +POTENTIAL PAYMENTS UPON TERMINATION OR +CHANGE OF CONTROL +The Company may be obligated to pay benefits to Messrs. Brookman, Meyers and Lillo and Ms. Martinet (and any future NEOs) under the Executive Severance Compensation Plan dated September 24, 2012, as amended and restated on June 25, 2020 (the “Severance Plan”) and, with respect to Mr. Lauck, under his grandfathered employment agreement dated April 19, 2010, as amended and restated August 4, 2020 (the “Lauck Employment Agreement”). The primary purpose of the Severance Plan and the severance provisions of the Lauck Employment Agreement are to provide severance benefits in the event of the termination of the NEO by the Company without “just cause” or termination by the NEO for “good reason,” either prior to or following a change of control of the Company. Upon a change of control, the Severance Plan and the Lauck Employment Agreement provide benefits if an executive is terminated by the acquiring company “without cause” or by the executive for “good reason” (i.e., they are “double-trigger” in nature). The Severance Plan provides a benefit offset so that cash benefits paid upon severance would be reduced by any other severance benefits that the executive could be entitled to receive under another Company plan. The Lauck Employment Agreement provides benefits like those provided under the Severance Plan, but it varies in the amounts of cash benefit provided to Mr. Lauck. +The severance benefits the NEO would receive under the Severance Plan and the Lauck Employment Agreement under various termination scenarios are summarized below: +TERMINATION WITHOUT CAUSE +OR FOR GOOD REASON +TERMINATION DUE TO CHANGE +OF CONTROL +CONTROLLING PLAN OR +AGREEMENT +Barton R. Brookman +2 times sum of base salary and target bonus +3 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +R. Scott Meyers +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +Lance A. Lauck +2 times sum of highest base salary and highest bonus of last two years +3 times sum of highest base salary and highest bonus of last two years +Lauck Employment +Agreement +Nicole L. Martinet +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +David J. Lillo +1.5 times sum of base salary and target bonus +2.5 times sum of base salary and target bonus plus a pro-rata target bonus for year of termination +Severance Plan +In addition to the above, the NEO would be eligible for continuation of health benefits for up to 36 months. As a condition of receiving severance benefits under the Severance Plan and under the terms of the Lauck Employment Agreement, each NEO is subject to a non-disclosure covenant and a non-compete covenant pursuant to which the NEO is prohibited for a period of one year following his or her termination from engaging in any competing business in any county in which the Company is doing business or any adjacent county. In addition, the NEO is prohibited from soliciting employees from the Company for up to two years (varies by individual agreement) following termination. To aid in the enforcement of these provisions, prior to +60 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +a change of control of the Company, the Severance Plan provides for payment of the severance benefits over 12 months. Under the terms of the Lauck Employment Agreement, however, Mr. Lauck would receive severance benefits within 40 days following a qualifying termination. +The Lauck Employment Agreement contains a clawback provision and the executives covered under the Severance Plan are covered under the Company’s clawback policy. See “Clawback Policy” discussion above. The Lauck Employment Agreement automatically extends for 12 months on December 31 of each year prior to the last year of the employment agreement (or any extensions thereof) unless either party gives notice of non-renewal at least 30 days prior to such December 31 automatic extension date. +PDC ENERGY 2023 PROXY +61 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +IMPACT OF TERMINATION AND CHANGE OF CONTROL ON LONG-TERM EQUITY-BASED INCENTIVE PLANS +The following table outlines the effect on outstanding unvested long-term incentive awards under various termination scenarios and upon a change of control of the Company based on the terms of the 2010 Amended and Restated Long Term Equity Plan (the “2010 Equity Plan”), the 2018 Long Term Equity Plan, as amended (the “2018 Equity Plan”), related grant agreements and the Lauck Employment Agreement: +TERMINATION SCENARIO/CHANGE OF +CONTROL (1)(2) +RESTRICTED +STOCK/SARs/OPTIONS +PERFORMANCE SHARE UNITS (3) +Voluntary Termination +Forfeited +Forfeited +Termination for Cause +Forfeited +Forfeited +Termination by Company Without Cause or Executive for Good Reason Prior to Change of Control +Vests +Mr. Lauck : +Forfeited +Executives in Severance Plan: +Portion to be potentially earned at end of performance period determined at time of termination at the sole discretion of the Committee. +Death +Vests +Earned at 100% if death occurs in first two years of performance period. Earned based on actual results if death occurs after first two years of performance period. +Disability +Vests +Earned based on performance at end of performance period. +Occurrence of a Change of Control +Double trigger vesting applies. Vesting is contingent on continued employment through original vesting dates, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +Double trigger vesting applies. Performance is measured through the date of the change of control to determine the number of PSUs potentially earned. That number of PSUs is then earned at the end of the originally scheduled performance period based on continued employment, subject to accelerated vesting upon death, disability, termination without cause or termination for good reason. +(1) Except as noted otherwise, award treatment is the same regardless of when the award was issued. +(2) The Company’s Award agreements provide for potential vesting upon retirement as determined by the Compensation Committee in its sole and absolute discretion. +(3) Except as noted otherwise, PSU treatment for each scenario listed is the same for those covered by the Severance Plan and the Lauck Employment Agreement. +CHANGE OF CONTROL EXCISE TAX PROVISION +The Company currently provides no income tax gross-up or excise tax gross-up for taxes that may be imposed on “excess parachute payments” within the meaning of Section 280G and Section 4999 of the Code. The Severance Plan and Mr. Lauck’s employment agreement provide that if it is determined that any payment or distribution by the Company to or for the executive’s benefit would constitute an “excess parachute payment,” the Company will either (1) pay the total amount to the executive and he would be responsible for the 20% excise tax; or (2) reduce the executive’s payments such that the executive receives no “excess parachute payments,” whichever amount would give the executive the greater benefit on a net, after-tax basis. Although the Company would be denied a tax deduction for such excess parachute payments under alternative (1) above, the Committee believes the provision strikes an appropriate balance between cost to the Company and the provision of promised benefits to the executive. +62 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ESTIMATED TERMINATION AND CHANGE of CONTROL BENEFITS +The tables below and the discussion that follows show compensation payable to each of our NEOs upon various termination scenarios both before and after a change of control of the Company (defined in the tables as “COC”). The amounts shown assume that termination occurred on December 31, 2022, that the closing price per share on such date was $63.48, and, in the event of termination due to change of control, the executive’s benefit is not reduced as a result of Section 280G or Section 4999 of the Code (as described above). The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. +Barton R. Brookman +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +3,937,500 +(1) +$ +5,906,250 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +1,093,750 +(3) +— +— +Acceleration of Unvested Equity +RSUs (12) +— +6,612,140 +6,612,140 +6,612,140 +6,612,140 +PSUs (13) +— +— +(4) +11,335,941 +(5) +9,378,345 +(6) +11,335,941 +(7) +Benefits +Health Benefits Continuation +— +50,319 +(8) +50,319 +(8) +— +Total +$ +— +$ +10,599,959 +$ +24,998,400 +$ +15,990,485 +$ +17,948,081 +1) +R. Scott Meyers +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,396,500 +(1) +$ +2,327,500 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +441,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs (12) +— +3,324,448 +3,324,448 +3,324,448 +3,324,448 +PSUs (13) +— +— +(4) +3,837,937 +(5) +3,171,524 +(6) +3,837,937 +(7) +Benefits +Health Benefits Continuation +— +87,723 +(8) +87,723 +(8) +— +— +Total +$ +— +$ +4,808,671 +$ +10,018,608 +$ +6,495,972 +$ +7,162,385 +2) +PDC ENERGY 2023 PROXY +63 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Lance A. Lauck +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +2,240,400 +(1) +$ +3,360,600 +(2) +$ +— +$ +— +Salary Continuation +— +— +— +232,500 +(9) +348,750 +(10) +Pro-rata Bonus +418,500 +(3) +— +— +— +— +Acceleration of Unvested Equity +RSUs (12) +— +3,244,463 +3,244,463 +3,244,463 +3,244,463 +PSUs (13) +— +— +(11) +3,722,531 +(5) +3,078,399 +(6) +3,722,531 +(7) +Benefits +Health Benefits Continuation +— +56,101 +(8) +56,101 +(8) +— +— +Total +$ +418,500 +$ +5,540,964 +$ +10,383,695 +$ +6,555,362 +$ +7,315,744 +3) +Nicole L. Martinet +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,228,500 +(1) +$ +2,047,500 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +364,000 +(3) +— +— +Acceleration of Unvested Equity +RSUs (12) +— +2,179,014 +2,179,014 +2,179,014 +2,179,014 +PSUs (13) +— +— +(4) +2,564,338 +(5) +2,118,772 +(6) +2,564,338 +(7) +Benefits +Health Benefits Continuation +— +87,723 +(8) +87,723 +(8) +— +— +Total +$ +— +$ +3,495,237 +$ +7,242,575 +$ +4,297,786 +$ +4,743,352 +David J. Lillo +Termination by Company +Voluntary or +Without Cause or by Exec +Termination +for Good Reason +for Cause +Prior to COC +After COC +Death +Disability +Cash Compensation +Cash Severance +— +$ +1,107,000 +(1) +$ +1,845,000 +(2) +$ +— +$ +— +Pro-rata Bonus +— +— +328,000 +(3) +— +— +Acceleration of Unvested Equity +64 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +RSUs (12) +— +2,041,072 +2,041,072 +2,041,072 +2,041,072 +PSUs (13) +— +— +(4) +2,323,178 +(5) +1,916,080 +(6) +2,323,178 +(7) +Benefits +Health Benefits Continuation +— +87,723 +(8) +87,723 +(8) +— +— +Total +$ +— +$ +3,235,795 +$ +6,624,973 +$ +3,957,152 +$ +4,364,250 +(1) Cash severance is equal to (a) 2 times the sum of base salary and target bonus for Mr. Brookman, (b) 1.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 2 times the sum of base salary and highest bonus paid in last two years for Mr. Lauck. +(2) Cash severance is equal to (a) 3 times the sum of base salary and target bonus for Mr. Brookman, (b) 2.5 times the sum of base salary and target bonus for Messrs. Meyers and Lillo and Ms. Martinet and (c) 3 times the sum of highest base salary and highest bonus paid in last two years for Mr. Lauck. +(3) Under the terms of the Severance Plan, Messrs. Brookman, Meyers, and Lillo and Ms. Martinet are entitled to a pro- rata target bonus if termination is related to a COC. Per the terms of the Lauck Employment Agreement, Mr. Lauck is entitled to a pro-rata bonus if terminated for cause. Bonus amounts for 2022 are not determined until after December 31 and are subject to forfeiture until paid. As a result, the pro-rata bonus shown is based on target bonus for 2022. +(4) The Committee has the discretion to allow all or a portion (up to 250%) of the target PSUs to remain outstanding and to be earned based on Company performance at the end of the performance period. Since no amount is guaranteed, no value is included for the PSUs. +(5) The value shown for PSUs upon a COC assumes (a) for 2021 PSUs, the number of units earned based on interim performance through the date of COC is 117% of target, and (b) for 2022 PSUs, the number of units earned based on interim performance through the date of COC is 129% of target. +(6) The value shown for PSUs upon death reflects the target number of units (100%) for 2021 and 2022 PSUs. +(7) The value shown for PSUs upon disability assumes for 2021 and 2022 PSUs, the number of units earned based on performance through December 31, 2022, is 117% and 129% of target, respectively. However, under the respective award agreements, the units earned will be based on actual performance measured at the end of the applicable performance periods. +(8) Cost of Company-subsidized COBRA premium to continue health, vision and dental coverage to executive and any covered dependents for a 36-month period. +(9) In the event of death, executive would receive a lump sum payment equal to six months base salary. +(10) In the event of short-term disability, base salary would continue for 13 weeks. Upon qualifying for long-term disability, executive would receive an additional lump sum payment equal to six months’ base salary. +(11) PSUs awarded in 2021 and 2022 would be forfeited. +(12) The amounts shown for RSUs do not include the amount of dividend equivalents accumulated on unvested RSUs. As of December 31, 2022, the amounts accumulated for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet was $265,356, $132,800, $129,987, $81,175 and $86,823, respectively. +(13) The amounts shown for PSUs do not include the amount of dividend equivalents accumulated on unvested PSUs at 100% of target as of December 31, 2022, for Messrs. Brookman, Meyers, Lauck, Lillo and Ms. Martinet was $374,136, $126,031, $122,636, $75,642 and $84,157, respectively. +PDC ENERGY 2023 PROXY +65 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PAY VERSUS PERFORMANCE +As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing rules under Item 402(v) of Regulation S-K, we are providing the following pay versus performance disclosure. For additional information concerning our executive compensation programs, please refer to our Compensation Discussion and Analysis above. +Pay Versus Performance Table +Average +Summary +Average +Value of Initial Fixed +Compensation +Compensation +$100 Investment Based On: (4) +Summary +Table Total +Actually Paid +Peer Group +Compensation +Compensation +for Non-CEO +to Non-CEO +Total +Total +Adjusted +Table Total +Actually Paid +Named Executive +Named Executive +Shareholder +Shareholder +Net +Free Cash +Year +for CEO +to CEO (1)(3) +Officers +Officers (2)(3) +Return +Return (5) +Income (6) +Flow (7) +($) +($) +($) +($) +($) +($) +($) +($) Millions +2022 +$ +8,941,467 +$ +18,244,543 +$ +3,131,299 +$ +5,519,722 +$ +254.49 +$ +191.50 +$ +1,778,121,000 +$ +1,420.6 +2021 +9,824,238 +30,461,052 +3,339,461 +8,631,625 +189.92 +120.82 +522,311,000 +949.0 +2020 +7,881,207 +7,574,373 +2,420,501 +2,602,676 +78.45 +64.58 +(724,320,000) +399.3 +(1) The amounts reported in this column reflect “compensation actually paid” (“CAP”) to our CEO, Barton J. Brookman , for fiscal years 2020, 2021, and 2022. Compensation actually paid is determined in accordance with SEC requirements and does not reflect the actual amount of compensation earned by or paid to an executive during a covered year. Compensation actually paid to Mr. Brookman was determined in accordance with SEC rules by adjusting the total compensation reported for Mr. Brookman in the Summary Compensation Table for the indicated fiscal years as shown in the table below. +CEO's Summary Compensation Table Total Reconciliation +2020 +2021 +2022 +Summary Compensation Table total for the CEO +$ +7,881,207 +$ +9,824,238 +$ +8,941,467 +Less Grant Date fair value of stock awards as reported in the Summary Compensation Table for the covered year +( 6,085,896 ) +( 7,351,198 ) +( 6,987,523 ) +Plus Fair value of stock awards granted during the covered fiscal year that are outstanding and unvested as of the end of that covered fiscal year +6,554,270 +12,517,147 +6,697,631 +Plus Change in fair value as of the end of the covered fiscal year of stock awards granted in any prior fiscal year that are outstanding and unvested as of the end of the covered fiscal year +( 444,699 ) +10,604,537 +1,312,039 +Plus Fair value of stock awards that are granted and vest in the covered fiscal year +0 +0 +0 +Plus Change in fair value as of the vesting date of any stock awards granted in a prior fiscal year that vest during the covered fiscal year +( 330,509 ) +4,450,747 +7,177,579 +Less Fair value as of the end of the prior fiscal year of all stock awards forfeited during the covered fiscal year +0 +0 +0 +Plus The dollar value of all dividends or dividend equivalent amounts paid or accrued on awards in the covered fiscal year +0 +415,581 +1,103,351 +Compensation Actually Paid to the CEO +7,574,373 +30,461,052 +18,244,543 +(2) The amounts reported in this column reflect the average compensation actually paid to our non-CEO NEOs for fiscal years 2020, 2021, and 2022. As described above, compensation actually paid to each executive is determined in accordance with SEC requirements and does not reflect the actual amount of compensation earned by or paid to an executive during a covered year. Average compensation actually paid to our non-CEO NEOs was determined in accordance with SEC rules by adjusting the average total compensation reported for the non-CEOs in the Summary Compensation Table for the indicated fiscal years as shown in the table below. The NEOs (other than the CEO) whose compensation is used to calculate amounts in the pay for performance table above for fiscal year 2020 are R. Scott Meyers, Lance A. Lauck, Nicole Martinet, David J. Lillo and Scott Reasoner. The NEOs (other than the CEO) +66 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +whose compensation is used to calculate amounts in the pay for performance table above for fiscal years 2021 and 2022 are R. Scott Meyers, Lance A. Lauck, Nicole Martinet, and David J. Lillo. +Non-CEO NEO's Summary Compensation Table Total Reconciliation +2020 +2021 +2022 +Average of Summary Compensation Table total for non-CEO NEOs +$ +2,420,501 +$ +3,339,461 +$ +3,131,299 +Less Average of grant date fair value of stock awards as reported in the Summary Compensation Table for the covered year +( 1,640,559 ) +( 2,238,038 ) +( 2,256,987 ) +Plus Average of fair value of stock awards granted during the covered fiscal year that are outstanding and unvested as of the end of that covered fiscal year +1,695,112 +3,802,513 +2,198,895 +Plus Average of the change in fair value as of the end of the covered fiscal year of stock awards granted in any prior fiscal year that are outstanding and unvested as of the end of the covered fiscal year +( 109,700 ) +2,560,417 +491,324 +Plus Average of fair value of stock awards that are granted and vest in the covered fiscal year +613,034 +0 +0 +Plus Average of change in fair value as of the vesting date of any stock awards granted in a prior fiscal year that vest during the covered fiscal year +( 375,712 ) +1,053,551 +1,664,159 +Less Average of the fair value as of the end of the prior fiscal year of all stock awards forfeited during the covered fiscal year +0 +0 +0 +Plus The dollar value of all dividends or dividend equivalent amounts paid or accrued on awards in the covered fiscal year +0 +113,721 +291,032 +Average Compensation Actually Paid to the non-CEO NEOs +2,602,676 +8,631,625 +5,519,722 +(3) +There are no assumptions made in the valuation of stock awards that differ from those disclosed as of the grant date of such awards. +(4) +Represents the value as of the end of each relevant calendar year of a hypothetical $100 investment in our common stock on December 31, 2019, assuming the reinvestment of dividends. +(5) +The peer group used for this calculation is the Standard and Poor’s Oil and Gas Exploration and Production ETF (“XOP”), consistent with the stockholder performance graph set forth in our Form 10-K for 2022. +(6) +“Net Income” means the Company’s GAAP net income for the relevant year as reported in our Audited Financial Statements filed on Form 10-K for the fiscal year ended December 31, 2022. +(7) +The SEC rules require that we designate the most important financial measure that we used to link compensation actually paid to our NEOs in 2022 with company performance. For 2022, we have selected “Adjusted Free Cash Flow,” as that measure. Adjusted Free Cash Flow is a non-GAAP financial measure and is defined as net cash from operating activities, before changes in working capital, less oil & gas capital investments. All amounts reflected are in millions of dollars. See Appendix A for a reconciliation to GAAP. +PDC ENERGY 2023 PROXY +67 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Tabular List of Pay Versus Performance measures +The following table contains the most important financial and non-financial performance measures used by the Company to link the compensation actually paid to our NEOs for the most recently completed fiscal year to company performance: +MOST IMPORTANT FINANCIAL and Non-Financial MEASURES USED TO LINK COMPENSATION ACTUALLY PAID TO COMPANY PERFORMANCE +● EHS Scores (comprised of spill rate, TRIR and PVAR metrics) +● CROCI +● ESG Score (comprised of GHG intensity and methane intensity metrics) +● Adjusted FCF +● LOE + G&A Expense +● Absolute TSR +● Relative TSR +68 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +DESCRIPTION OF RELATIONSHIPS BETWEEN COMPENSATION ACTUALLY PAID AND CERTAIN FINANCIAL PERFORMANCE MEASURES +The following charts illustrate, across the years covered in the Pay Versus Performance Table, the relationships between (1) our cumulative TSR and the cumulative TSR for the index peer group reflected in the Pay Versus Performance Table (Adjusted FCF and Net Income) above, and (2) the compensation actually paid to our CEO and non-CEO NEOs and the financial performance measures results set forth in the Pay Versus Performance Table above. +Note: The TSR values shown in the first chart below represent the value as of the end of each relevant calendar year of a hypothetical $100 investment in our common stock on December 31, 2019, assuming the reinvestment of dividends. +All numbers used in the charts above are taken directly from the Pay Versus Performance Table. +PDC ENERGY 2023 PROXY +69 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CEO PAY RATIO +Pursuant to rules promulgated under the Dodd-Frank Act, the Company is required to disclose the ratio of its CEO’s annual total compensation to the Company’s median employee’s annual total compensation. Our internal review determined that the Great Western Acquisition warranted identification of a new median employee. +We identified the median employee based on estimated 2022 compensation reportable on Form W-2 for all employees (other than the CEO) as of December 31, 2022. For 2022, the CEO’s total annual compensation was $8,959,786 which amount differs from the amount reported in the Summary Compensation Table because it also includes perquisites with a value of less than $10,000 and certain other non-discriminatory benefits. The median employee’s total annual compensation was $163,457, resulting in a CEO pay ratio of 55:1. +Compensation data used to calculate the ratio is set forth below: +Nonequity +Stock +Options/ +Incentive Plan +All Other +Total +Salary +Bonus +Awards +SARs +Compensation +Compensation (2) +Compensation +Name +($) +($) +($) +($) +($) +($) +($) +Median Employee +$ +93,969 +$ +12,150 +$ +12,106 +(1) +$ +— +$ +6,000 +$ +39,232 +$ +163,457 +CEO +875,000 +1,017,188 +6,987,523 +— +6,000 +74,075 +8,959,786 +(1) Represents the grant date fair value of RSUs, as computed in accordance with FASB ASC Topic 718. +(2) Includes perquisites with a value of less than $10,000 and other non-discriminatory benefits not reported in the “Summary Compensation Table” set forth in this Proxy Statement. +70 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information related to our equity compensation plans under which our equity securities are authorized for issuance as of December 31, 2022: +Number of Securities to +Securities Remaining +be Issued Upon +Weighted-Average +Available for +Exercise +Exercise Price of +Future Issuance +of Outstanding Options +Outstanding Options +Under Equity +and Rights (1) +and Rights +Compensation Plans (2) +Plan Category +(#) +($) +(#) +Equity compensation plans approved by security holders +99,609 +$ +55.90 +4,085,560 +Equity compensation plans not approved by security holders +— +— +— +Total +99,609 +$ +55.90 +4,085,560 +(1) Includes 464,633 shares of common stock to be issued under outstanding PSUs based upon continuous employment and the maximum achievement of certain performance goals over a specified period as described in “Outstanding Equity Awards at Fiscal Year-End.” These shares have been excluded from the weighted average exercise price calculation. +(2) The number of securities remaining available for future issuances has been reduced by the number of securities to be issued upon exercise of outstanding SARs and pursuant to RSUs subject to time vesting and PSUs subject to certain market-based performance goals over a specified period. +PDC ENERGY 2023 PROXY +71 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of March 29, 2023, by (1) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock; (2) each Director of the Company; (3) each Named Executive Officer; and (4) all Directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. As of March 29, 2023, 87,684,367 shares of common stock of the Company were outstanding. Except as otherwise indicated, the address for each of the named security holders is c/o 1099 18 th Street, Suite 1500, Denver, CO 80202. +Number of +Percentage of +Shares +Shares +Beneficially +Beneficially +Owned +Owned (1) +Name and Address of Beneficial Owner +(#) +(%) +5% or Greater Owners: +The Vanguard Group +9,293,638 +(2) +10.6 +% +100 Vanguard Blvd. +Malvern, PA 19355 +BlackRock, Inc. +8,500,293 +(3) +9.7 +% +55 East 52nd Street +New York, NY 10055 +FMR LLC +5,702,602 +(4) +6.5 +% +245 Summer Street +Boston, MA 02210 +Dimensional Fund Advisors LP +4,654,554 +(5) +5.3 +% +6300 Bee Cave Road, Building One +Austin, TX 78746 +Named Executive Officers: +Barton R. Brookman, Jr. +557,147 +(6) +* +Lance A. Lauck +184,164 +(7) +* +David J. Lillo +39,865 +(8) +* +R. Scott Meyers +127,176 +(9) +* +Nicole L. Martinet +57,755 +(10) +* +Non-Employee Directors: +Pamela R. Butcher +4,787 +* +Mark E. Ellis +46,529 +* +Paul J. Korus +28,460 +* +Lynn A. Peterson +233,167 +* +Diana L. Sands +9,055 +* +Carlos A. Sabater +7,126 +* +All directors and executive officers as a group (12 persons) +1,298,436 +(11) +1.5 +% +* +Represents less than 1% of the outstanding shares of common stock. +(1) For each holder of stock awards or other securities that are currently vested or exercisable or that vest or become exercisable within 60 days of March 29, 2023, we treat the common stock underlying those securities as owned by +72 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +that holder and as outstanding shares when we calculate that holder’s percentage ownership of our common stock. We do not treat that common stock as outstanding when we calculate the percentage ownership of any other holder. +(2) As reported on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 9, 2023, The Vanguard Group is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds shared voting power with respect to 60,384 shares, sole dispositive power as to 9,149,843 shares and shared dispositive power as to 143,795 shares as of December 30, 2022. +(3) As reported on a Schedule 13G/A filed with the SEC by BlackRock, Inc. on January 24, 2023, BlackRock, Inc. holds sole voting power as to 8,285,901 shares and sole dispositive power as to 8,500,293 shares as of December 31, 2022. +(4) As reported on a Schedule 13G filed with the SEC by FMR LLC on February 9, 2023, FMR LLC is parent holding company in accordance with SEC Rule 13d-1(b)(1)(ii)(G) and holds sole voting power as to 5,682,114 shares and sole dispositive power as to 5,702,602 shares as of December 30, 2022. The Schedule 13G indicates that Ms. Abigail Johnson has sole power to dispose or direct the disposition of 5,702,602 shares. Members of the Johnson family, including Ms. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. +(5) As reported on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 10, 2023, Dimensional Fund Advisors LP is an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and holds sole voting power as to 4,608,605 shares and sole dispositive power as to 4,654,554 shares as of December 30, 2022. +(6) Excludes 72,488 RSUs subject to vesting greater than 60 days after March 29, 2023; includes 79,565 SARs exercisable within 60 days of March 29, 2023. +(7) Excludes 35,904 RSUs subject to vesting greater than 60 days after March 29, 2023; includes 20,044 SARs exercisable within 60 days of March 29, 2023. +(8) Excludes 23,986 RSUs subject to vesting greater than 60 days after March 29, 2023. +(9) Excludes 37,734 RSUs subject to vesting greater than 60 days after March 29, 2023. +(10) Excludes 25,077 RSUs subject to vesting greater than 60 days after March 29, 2023. +(11) Excludes 206,538 RSUs subject to vesting greater than 60 days after March 29, 2023, and includes 99,609 SARs exercisable within 60 days of March 29, 2023. +Each SAR referenced in the footnotes above entitles the executive officer to receive the difference between the fair market value of a share of our common stock on the date of exercise and its value on the date of initial grant, which ranged from $39.63 to $74.57 for the SARs in the table, payable in shares only. +PDC ENERGY 2023 PROXY +73 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +SECTION 16(A) REPORTS +Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and holders of more than 10% of the common stock are required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. If requested, the Company assists its executive officers and Directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. +Based solely on a review of the reports furnished to the Company or on written representations from reporting persons that all reportable transactions were reported, the Company believes that, during the fiscal year ended December 31, 2022, the Company’s executive officers and Directors and owners of more than 10% of the Company’s common stock timely filed all reports they were required to file under Section 16(a) of the Exchange Act. +74 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +PROPOSAL NO. 3—RATIFY THE APPOINTMENT OF +INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL NO. 3. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023, and the Company is submitting the appointment of PwC to the stockholders for ratification. If the appointment of PwC is not ratified, the Audit Committee will reconsider its selection. A representative of PwC is expected to attend the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions from stockholders. +Principal Accountant Fees and Services +2022 +2021 +Audit Fees (1) +$ +1,932,000 +$ +1,544,000 +Audit-Related Fees (2) +70,000 +— +Tax Fees (3) +27,500 +3,473 +All Other Fees (4) +963 +963 +Total Fees +$ +2,030,463 +$ +1,548,436 +(1) Audit Fees consist of the aggregate fees billed for professional services rendered for audit procedures performed with regard to the Company’s annual consolidated financial statements and the report on management’s assessment of internal controls over financial reporting and the effectiveness of the Company’s internal controls over financial reporting, including reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including fees related to comfort letters and consents issued in conjunction with our securities offerings. +(2) Audit-Related Fees consist of the aggregate fees billed for assurance and related services that are related to the performance of the audit or review of the Company’s annual consolidated financial statements and are not reported under “Audit Fees.” +(3) Tax Fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning for the Company and its proportionately consolidated entities. +(4) All Other Fees consist of aggregate fees billed for products and services other than services reported above. +PDC ENERGY 2023 PROXY +75 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES +The Sarbanes-Oxley Act of 2002 requires that all services provided to the Company by its independent registered public accounting firm be subject to pre-approval by the Audit Committee or authorized Audit Committee members. The Audit Committee has adopted policies and procedures for pre-approval of all audit services and non-audit services to be provided by the Company’s independent registered public accounting firm. Services necessary to conduct the annual audit must be pre-approved by the Audit Committee annually. Permissible non-audit services to be performed by the independent accountant may also be approved on an annual basis by the Audit Committee if they are of a recurring nature. Permissible non-audit services which are to be performed by the independent accountant and are not eligible for annual pre-approval must be pre-approved individually by the full Audit Committee or by an authorized Audit Committee member. Actual fees incurred for all services performed by the independent accountant will be reported to the Audit Committee after the services are fully performed. All the services described in “Principal Accountant Fees and Services” were approved by the Audit Committee pursuant to its pre-approval policies in effect at the time. The duties of the Audit Committee are described in the Audit Committee Charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +The proposal to ratify the appointment of PwC will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. See “Information About Voting and the Meeting—How Proxies Work” for information on the effect of broker non-votes on this matter. +76 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is currently comprised of three Directors and operates under a written charter adopted by the Board. Each member of the Audit Committee meets the independence requirements of Rule 5605(a)(2) of the NASDAQ listing standards and other applicable standards. The duties of the Audit Committee are summarized in this Proxy Statement under “Standing Committees of the Board” and are more fully described in its charter, which can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The Company’s website materials are not incorporated by reference into this Proxy Statement. +Management is responsible for the Company’s internal controls and preparation of the consolidated financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes. +The Audit Committee held nine meetings during 2022. +The Audit Committee reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2022 (the “Audited Financial Statements”) with the Company’s management and PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed with PwC the matters required to be discussed by the applicable requirements of PCAOB. The Audit Committee has received the written disclosures and the letter from PwC required by the applicable requirements of the PCAOB and has discussed with PwC its independence from the Company. The Audit Committee has discussed with management and PwC such other matters and received such assurances from them as the Audit Committee deemed appropriate. +Based on the foregoing review and discussions and relying thereon, the Audit Committee has recommended that the Board include the Audited Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. +Paul J. Korus, Chair +Carlos A. Sabater +Diana L. Sands +AUDIT COMMITTEE OF THE BOARD OF DIRECTORS +PDC ENERGY 2023 PROXY +77 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +Proposal No. 4—Advisory Vote on Frequency of Advisory Say-on-Pay Votes +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR “EVERY ONE YEAR” with respect to THIS PROPOSAL NO. 4. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. +Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), the stockholders of the Company are entitled to cast an advisory vote at the Annual Meeting to determine how frequently they should consider and cast an advisory vote to approve the compensation of the Company’s Named Executive Officers. The choices are: every one year, every two years, every three years, or abstain. +The Company has held an advisory vote to approve the compensation of the Company’s Named Executive Officers every year for the last six years. The Company, the Compensation Committee, and the Board of Directors believe that holding an advisory vote of Named Executive Officer compensation allows our stockholders to provide direct input into our executive officer compensation philosophies. Accordingly, the Company, the Compensation Committee and the Board of Directors believe that it is appropriate and in the best interest of the Company and the Company’s stockholders to cast an advisory vote on executive compensation annually. +The advisory vote on the frequency of future stockholder advisory votes on the Company’s executive compensation is not binding on the Board; however, the Board and the Compensation Committee will carefully consider the voting results. The Company values the opinions of its stockholders and will consider the outcome of the vote when making its determination regarding how frequently this advisory vote will be held. Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future decide to conduct advisory votes on a less frequent basis and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to compensation programs. Abstentions and broker non-votes will not affect the outcome of this proposal. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote for a frequency of Every One Year for future advisory votes regarding executive compensation. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR A FREQUENCY OF EVERY ONE YEAR WITH RESPECT TO THE FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE. THE PROXIES WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDERS’ SPECIFICATIONS. +78 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ALL OTHER BUSINESS THAT MAY COME BEFORE THE +2023 ANNUAL MEETING +As of the date of this Proxy Statement, the Board is not aware of any matters to be brought before the Annual Meeting other than the matters set forth in this Proxy Statement. However, if other matters properly come before the meeting in accordance with our Bylaws and SEC rules, it is the intention of the proxy holders named in the enclosed form of proxy card to vote in accordance with their discretion on such matters pursuant to such proxy card. +PDC ENERGY 2023 PROXY +79 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +STOCKHOLDER NOMINATIONS AND PROPOSALS +STOCKHOLDER PROPOSALS FOR 2024 ANNUAL MEETING +Any proposal or nomination for Director that a stockholder wishes to include in the Company’s proxy statement for the 2024 annual meeting of stockholders must be received by the Company at its principal office on or prior to December 14, 2023, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to: +Corporate Secretary +PDC Energy, Inc. +1099 18 th Street, Suite 1500 +Denver, CO 80202 +ADVANCE NOTICE PROCEDURES UNDER THE COMPANY’S BYLAWS +Any proposal or nomination for Director that a stockholder wishes to propose for consideration at the 2024 annual meeting of stockholders, but does not seek to include in our proxy statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the Company’s Bylaws, which provides that no business may be brought before an annual meeting of stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered advance notice to the Company. The notice must contain certain information specified in the Bylaws and be delivered to the Corporate Secretary at the address set forth above not less than 80 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting. In the case of the 2024 annual meeting, the notice must be delivered between February 24, 2024, and March 5, 2024. However, the Bylaws also provide that if the meeting is held more than 30 days before the anniversary of the prior year’s annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by the Company. +Pursuant to SEC Rule 14a-4(c)(1), if our Corporate Secretary receives any stockholder proposal at the address listed above that is not timely under our Bylaws or after February 27, 2024, if the Bylaws deadline does not apply, the proxies designated by the Board will have discretionary authority to vote on such proposal. +80 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +INFORMATION ABOUT VOTING AND THE MEETING +WHO MAY VOTE +Stockholders of PDC, as recorded in the Company’s stock register on the record date of March 29, 2023, may vote at the Annual Meeting. The outstanding voting securities of the Company as of March 29, 2023, consisted of 87,684,367 shares of common stock. Each share of common stock is entitled to one vote on each matter considered at the Annual Meeting. +HOW PROXIES WORK +The Board is asking for your proxy. Giving the Board your proxy means that you authorize our representatives to vote your shares at the Annual Meeting in the manner you direct. We will vote your shares as you specify. You may vote for, or withhold your vote from, any of the Director nominees. You may also vote for or against the other proposals, or abstain from voting. If your shares are held in your name with our transfer agent (which is sometimes referred to as being a “stockholder of record”), you can vote by completing, signing and dating your proxy card and returning it in the enclosed envelope. If you provide a signed proxy card but do not specify how to vote, your shares will be voted (1) in favor of approval of each of the seven Director nominees named in this Proxy Statement; (2) to approve, on an advisory basis, the compensation of the Company’s NEOs; (3) in favor of the ratification of the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023; and (4) to approve, on an advisory basis, the frequency of the advisory vote on executive compensation on an annual basis. If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. +If you hold shares through a broker, bank or other nominee, you will receive material from that firm asking how you want to vote and instructing you of the procedures to follow in order for you to vote your shares. If the nominee does not receive voting instructions from you, it may vote only on proposals that are considered “routine” matters under applicable rules. A nominee’s inability to vote on some proposals because it lacks discretionary authority to do so is commonly referred to as a “broker non-vote.” The effect of broker non-votes, if any, may be different for each of the various proposals to be voted upon at the Annual Meeting. For a description of the effect of broker non-votes on each proposal, see “Votes Needed” below. +NOTICE AND ACCESS +We distribute our proxy materials to certain stockholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our distribution costs, while providing a timely and convenient method of accessing the materials and voting. On or before April 12, 2023, we mailed a Notice of Internet Availability of Proxy Materials to participating stockholders, containing instructions on how to access the proxy materials on the Internet to vote your shares over the Internet or by telephone. You will not receive a printed copy of the proxy materials unless you request them. If you would like to receive a printed copy of our proxy materials, including a printed proxy card on which you may submit your vote by mail, then you should follow the instructions for obtaining a printed copy of our proxy materials contained in the Notice Regarding Internet Availability of Proxy Materials. +REVOKING A PROXY +If you are a stockholder of record, you may revoke your initial proxy vote before the Annual Meeting by: +● Submitting a new signed proxy card with a later date; +● Notifying PDC’s Corporate Secretary in writing before the Annual Meeting that you wish to revoke your proxy card; or +PDC ENERGY 2023 PROXY +81 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +● Appearing virtually at the Annual Meeting and voting virtually at the Annual Meeting. Merely attending the Annual Meeting will not result in the revocation of your proxy card. +If you hold your shares through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the Annual Meeting. +QUORUM +In order to carry on the business of the Annual Meeting, there must be a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the Annual Meeting, either by proxy or during the virtual meeting. Treasury shares, which are shares owned by PDC itself, are not voted and do not count for this purpose. Abstentions and broker non-votes will count for quorum purposes. +VOTES NEEDED +The following table presents the voting requirements for electing the Director nominees and for approving the other proposals presented in this Proxy Statement. +PROPOSAL +VOTE REQUIRED TO ELECT OR APPROVE +Proposal No. 1 +Election of Seven Director Nominees. +The seven Director nominees who receive the greatest number of votes will be elected Director for a one-year term ending in 2024. There is no cumulative voting for Directors. “Withhold” votes and broker non-votes will have no effect on the election of Directors. +Proposal No. 2 +Approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for approval. Abstentions will be counted as votes against Proposal No. 2. Broker non-votes will have no effect on the vote on Proposal No. 2. +Proposal No. 3 +Ratify the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. +The affirmative vote of a majority of shares present or represented at the Annual Meeting is required for ratification. Abstentions will be counted as votes against Proposal No. 3. Because this is a "routine" matter, there should be no broker non-votes on Proposal No. 3. +Proposal No. 4 +Approve, on an advisory basis, the frequency (every one, two or three years) of future advisory votes on the compensation of the Company’s Named Executive Officers. +The frequency option that receives the highest number of votes cast is the option that will be deemed approved by the stockholders. Abstentions and broker non-votes will have no effect on Proposal No. 4. +82 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +ATTENDING THE VIRTUAL MEETING & VOTING +Stockholders of record as of March 29, 2023, will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/PDCE2023. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. +The Annual Meeting will begin promptly at 1:00 p.m. Mountain Time on Wednesday, May 24, 2023. Online check-in will begin at 12:45 p.m. Mountain Time, and you should allow approximately 15 minutes for the online check-in procedures. +Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or by voting virtually at the meeting. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend. +CONDUCT OF THE MEETING +The Chairman and the Chief Executive Officer have broad authority to conduct the Annual Meeting in an orderly and timely manner. This authority includes establishing rules for answering previously submitted questions prior to the Annual Meeting. In light of the need to conclude the Annual Meeting within a reasonable period of time, there can be no assurance that every question submitted by a stockholder prior to the Annual Meeting will be answered at the Annual Meeting. +SOLICITATION OF PROXIES +The Company will bear all costs related to the solicitation of proxies. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable and appropriate expenses incurred by them in sending the proxy materials to the beneficial owners of the Company’s common stock. In addition to solicitations by mail, Directors, officers and employees of the Company may solicit proxies by telephone and, to the extent necessary, other electronic communication and personal interviews, without additional compensation. +APPRAISAL RIGHTS +No action is proposed at the Annual Meeting for which the laws of the State of Delaware or our Bylaws provide a right of our stockholders to dissent and obtain appraisal of or payment for such stockholders’ common stock. +PDC ENERGY 2023 PROXY +83 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +CONTACT INFORMATION +If you need more information about the Annual Meeting, or if you wish to submit a question to be answered at the Annual Meeting, you may write to or call prior to the meeting: +Corporate Secretary +PDC Energy, Inc. +1099 18 th Street, Suite 1500 +Denver, CO 80202 +(303) 860-5800 +corpsecretary@pdce.com +For information about shares registered in your name, call PDC at (800) 624-3821. You are also invited to visit PDC’s website at www.pdce.com . The Company’s website materials are not incorporated by reference into this Proxy Statement. +84 +PDC ENERGY 2023 PROXY +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +HOUSEHOLDING INFORMATION +The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our annual report and proxy statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written or oral request to us at our phone number or address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder. +By Order of the Board of Directors, +Barton R. Brookman +President and Chief Executive Officer +Dated: April 12, 2023 +THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON WHO IS A RECORD OR BENEFICIAL HOLDER OF COMMON STOCK OF THE COMPANY, ON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WHICH THE COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES MAY BE OBTAINED FREE OF CHARGE BY WRITING TO INVESTOR RELATIONS, PDC ENERGY, INC ., 1099 18 th Street, Suite 1500, Denver, CO 80202. +PDC ENERGY 2023 PROXY +85 +Table of Contents +PDC ENERGY, INC. - PROXY STATEMENT +APPENDIX A +NON-GAAP FINANCIAL MEASURES +The following table provides reconciliations of adjusted free cash flows and adjusted cash flows from operations (including per share) to their most comparable GAAP measures (in millions, except per share data): +ADJUSTED Free Cash Flows & +CASH FLOWS FROM OPERATIONS +Twelve Months +Ended +December 31, +2020 +2021 +2022 +Adjusted free cash flows: +Net cash from operating activities +$ +870.1 +$ +1,547.8 +$ +2,772.3 +Changes in assets and liabilities +51.5 +(15.2) +(233.9) +Capital expenditures for development of crude oil and natural gas properties +(551.0) +(583.1) +(1,069.5) +Capital expenditures for midstream assets +— +— +(10.1) +Change in accounts payable related to capital expenditures for oil and gas development activities and midstream assets +28.7 +(0.5) +(38.2) +Adjusted free cash flow +$ +399.3 +$ +949.0 +$ +1,420.6 +Adjusted cash flows from operations: +Net cash from operating activities +$ +870.1 +$ +1,547.8 +$ +2,772.3 +Changes in assets and liabilities +51.5 +(15.2) +(233.9) +Adjusted cash flows from operations +$ +921.6 +$ +1,532.6 +$ +2,538.4 +Adjusted cash flows from operations, per share, diluted +$ +9.34 +$ +15.30 +$ +26.39 +86 +PDC ENERGY 2023 PROXY +Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR RECORDS +DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. +V08710-P90099 +! ! ! +For +All +Withhold +All +For All +Except +For Against Abstain +! ! ! +! ! ! +To withhold authority to vote for any individual +nominee(s), mark "For All Except" and write the +number(s) of the nominee(s) on the line below. +PDC ENERGY, INC. +C/O BROADRIDGE CORPORATE ISSUER SOLUTIONS, INC. +P O BOX 1342 +BRENTWOOD, NY 11717 +VOTE BY INTERNET +Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above +Use the Internet to transmit your voting instructions and for electronic delivery of +information. Vote by 11:59 P.M. Eastern Time on May 23, 2023. Have your proxy card +in hand when you access the website and follow the instructions to obtain your records +and to create an electronic voting instruction form. +During The Meeting - Go to www.virtualshareholdermeeting.com/PDCE2023 +You may attend the meeting via the Internet and vote during the meeting. Have the +information that is printed in the box marked by the arrow available and follow the +instructions. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. +Eastern Time on May 23, 2023. Have your proxy card in hand when you call and then +follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we +have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, +Edgewood, NY 11717. +SCAN TO +VIEW MATERIALS & VOTEw +Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, +administrator, or other fiduciary, please give full title as such. Joint owners should each sign +personally. All holders must sign. If a corporation or partnership, please sign in full corporate +or partnership name by authorized officer. +PDC ENERGY, INC. +Nominees: +05) Lynn A. Peterson +06) Carlos A. Sabater +07) Diana L. Sands +01) Barton R. Brookman +02) Pamela R. Butcher +03) Mark E. Ellis +04) Paul J. Korus +3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending +December 31, 2023. +The Board of Directors recommends you vote 1 YEAR on the following proposal: +4. To approve, on an advisory basis, the frequency (every one, two or three years) of future advisory votes on the compensation of the Company's +Named Executive Officers. +2. To approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. +NOTE: To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof. +1. Elect seven Directors nominated by the Board, each for +a term of one year. +The Board of Directors recommends you vote FOR +proposals 1 through 3. +! ! ! ! +1 Year 2 Years 3 Years Abstain +V08711-P90099 +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: +The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com. +PDC ENERGY, INC. +Annual Meeting of Stockholders +May 24, 2023 1:00 PM MDT +This proxy is solicited by the Board of Directors +The stockholder(s) hereby appoint(s) R. Scott Meyers and Nicole L. Martinet, or either of them, as proxies, each with the power to +appoint his or her substitute, and hereby authorize(s) him or her to represent and to vote, as designated on the reverse side of this ballot, +all of the shares of common stock of PDC ENERGY, INC. that the stockholder(s) is/are entitled to vote at the Virtual Annual Meeting +of Stockholders to be held at 1:00 PM, MDT on May 24, 2023, at www.virtualshareholdermeeting.com/PDCE2023, +and any adjournment or postponement thereof. +This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this +proxy will be voted in accordance with the Board of Directors' recommendations. +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0000077877/0001558370-23-005783/proxy_rpt.txt b/raw/proxies/0000077877/0001558370-23-005783/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d95674288f5e8b8f8218b40467858b2ca9c4818d --- /dev/null +++ b/raw/proxies/0000077877/0001558370-23-005783/proxy_rpt.txt @@ -0,0 +1,2 @@ +TRANSACTIONS WITH RELATED PARTIES +During 2022, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than 5% of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S-K. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-15-006411/proxy.txt b/raw/proxies/0000350868/0001047469-15-006411/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..966bf8dc7df0cc09d3402707321b4c4fb913a516 --- /dev/null +++ b/raw/proxies/0000350868/0001047469-15-006411/proxy.txt @@ -0,0 +1,2001 @@ +DEF 14A +1 +a2225538zdef14a.htm +DEF 14A +Use these links to rapidly review the document +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +ITERIS, INC. +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 24, 2015 +To the Stockholders of Iteris, Inc.: +NOTICE +IS HEREBY GIVEN that the 2015 Annual Meeting of Stockholders (the "Annual Meeting") of Iteris, Inc., a Delaware corporation, will be held on September 24, 2015 at +10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in the +proxy statement accompanying this Notice: +1. To +elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams to the Board of Directors, +each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +2. To +ratify the appointment of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016. +3. To +approve the amendment of the Iteris, Inc. 2007 Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance +under the plan by an additional 1,000,000 shares to 4,950,000 shares. +4. To +transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All +stockholders of record as of the close of business on July 28, 2015 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or adjournment(s) +thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. +You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in "street name" (i.e., your shares are held in the name of a brokerage firm, bank or other +nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or +by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date +and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the +Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For +further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Kevin C. Daly, Ph.D. +Chief Executive Officer +Santa +Ana, California +July 29, 2015 +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS +PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD SEPTEMBER 24, 2015 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation ("Iteris" or the "Company"), to be voted at the 2015 Annual Meeting of Stockholders (the "Annual Meeting") to be held on September 24, +2015 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, +Suite 100, Santa Ana, CA 92705. These proxy materials and the form of proxy are expected to be mailed to our stockholders who are entitled to vote at the Annual Meeting on or about +August 7, 2015. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual +Meeting of Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON SEPTEMBER 24, 2015: The proxy +statement, proxy card, and Annual Report on Form 10-K for the fiscal year ended March 31, 2015 (the "Annual Report") are available at www.edocumentview.com/ITI, or at +www.envisionreports.com/ITI for registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +July 28, 2015. At the close of business on the record date, 31,891,457 shares of our common stock, par value $0.10 per share, were outstanding and no shares of our preferred stock were +outstanding. Each stockholder is entitled to one vote for each share of common stock held by such stockholder as of the record date. +The +presence in person or by proxy of the holders of a majority of the outstanding shares of the common stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +1 +In +the election of directors under Proposal One, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual +Meeting, unless cumulative voting is in effect. Pursuant to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in +nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has +given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number +of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of +votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by +proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +With +regard to Proposals Two and Three, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual Meeting +is being sought. +If +you hold your shares in "street name" (i.e., your shares are held in the name of a brokerage firm, bank or other nominee (each, a "custodian")), your custodian is considered to +be the stockholder of record for purposes of voting at the Annual Meeting. Your custodian is required to vote your shares on your behalf in accordance with your instructions. If you do not give +instructions to your custodian, your +custodian is permitted to vote your shares with respect to "routine" matters, such as the ratification of the appointment of McGladrey LLP as our independent registered public accounting firm +under Proposal Two. However, if you do not give instructions to your custodian, your custodian will NOT be permitted to vote your shares with respect to "non-routine" matters. All other proposals +described in this proxy statement are considered non-routine matters. Accordingly, if you do not give your custodian specific instructions for voting on Proposals One and Three, then your shares will +be treated as "broker non-votes" with respect to such proposal(s) and will not be voted on the proposal(s) for which you did not provide instructions. +All +votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. +Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the +tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a +proposal has been approved. +Voting +You may vote by one of the following ways: (i) by mail, (ii) electronically over the Internet or by telephone, or +(iii) by ballot in person at the Annual Meeting. If you are a "registered holder" (i.e., your shares are registered in your own name through our transfer agent), you may vote by +returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in "street name", in lieu of a proxy card you +should receive a voting instruction form from that custodian by mail. The voting instruction form should indicate whether the custodian has a process for beneficial holders to vote over the Internet +or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone +companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the +self-addressed, postage-paid envelope provided. +2 +If +you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you +must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will +be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should +receive from that custodian an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in +multiple accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card or voting instruction form to ensure that all of your shares will be +voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. +Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted +(i) FOR the election of the directors proposed by our Board of Directors (the "Board") under Proposal One and (ii) FOR the approval of each of the other proposals as described in this +proxy statement and the accompanying notice. +The +enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. +We have not been notified by any stockholder of an intent to present a stockholder proposal at the Annual Meeting. +If +your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later +date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your +vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at +the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless +you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the +costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be +furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial +owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be +supplemented by a solicitation by personal contact, telephone, +facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In +the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to +retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +Six persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next +annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate +Governance Committee, our Board of Directors selected and approved the following persons as nominees for election at the Annual Meeting: Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, +Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams. Each nominee is currently a member of our Board of Directors and has agreed to serve if elected. We have no reason to believe that any of the +nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the persons named in the enclosed proxy +will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +Stockholder Approval +The six candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote +at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing +for election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote "FOR" the director nominees listed above. +Directors and Nominees +The table and narrative below set forth information as of July 15, 2015 regarding each director and director nominee, including +the year they first became directors, business experience during at least the past five years, public company boards they currently serve on or have served on during the past five years, and certain +other biographical information and attributes that the Nominating and Corporate Governance Committee determined qualify them to serve as directors. The Nominating and Corporate Governance Committee +believes that the directors and director nominees have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; +sound judgment; analytical skills; the ability to engage management and each other in a constructive and collaborative fashion; diversity of experience and thought; and the commitment to devote +significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +Richard Char(3) +56 +Director +Kevin C. Daly, Ph.D. +71 +Chief Executive Officer and Director +Gregory A. Miner(1) +60 +Chairman of the Board +Gerard M. Mooney(2)(3) +61 +Director +Thomas L. Thomas(1)(2)(3) +66 +Director +Mikel H. Williams(1)(2) +58 +Director +(1) Member +of the Audit Committee +(2) Member +of the Compensation Committee +(3) Member +of the Nominating and Corporate Governance Committee +4 +Richard Char has served as Senior Vice President of Business Development at VeriFone Holdings, Inc., global provider of technology +for electronic payment transactions and value-added services at the point-of-sale, since July 2014. From August 2011 to April 2014, Mr. Char was Managing Director and Global Head of Digital +Networks and Retail Solutions with Citi Enterprise Payments. Prior to joining Citi, Mr. Char was the Senior Managing Director at Regent Pacific Management Corporation, a turnaround, +restructuring, and performance improvement firm, from September 2010 to August 2011. From October 2008 to March 2010, Mr. Char served as CEO of Incentium, LLC (formerly, +VIPGift LLC), a provider of corporate and consumer loyalty and incentive programs. Incentium filed for bankruptcy protection in February 2011. From June 2006 to July 2008, Mr. Char was +the Senior Vice President of Corporate Development and General Counsel of Blackhawk Network, Inc., then an affiliate of Safeway which markets pre-paid gift cards through leading U.S. retailers. +Mr. Char's prior business experience includes serving as the President and Chief Executive Officer of IC Media, a developer of CMOS digital image sensors, as the Managing Director with the +Technology Group of Credit Suisse First Boston, as Co-Head of Technology Investment Banking at Cowen & Company, and as a partner in the law firm of Wilson Sonsini Goodrich & Rosati. +Mr. Char also served on the board of directors of Netlist, Inc. from January 2010 until December 2012. He received his A.B. degree from Harvard College and his J.D. degree from Stanford +Law School. Mr. Char has served as a director since October 2005 and brings to the Board of Directors executive leadership experience, as well as significant corporate finance, legal and +corporate development experience and financial acumen through his many years of work as a lawyer and in corporate finance. +Kevin C. Daly, Ph.D. has served as our interim Chief Executive Officer since February 2015. Prior to his service as our interim CEO, +Dr. Daly served as the CEO of Maxxess Systems, Inc., a provider of electronic security systems, from November 2005. He is currently on leave from that position while he is serving as our +interim CEO. Between August 2007 and August 2009, Dr. Daly also served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of +several technology companies, including Avamar Technologies, Inc. and ATL Products, Inc. Dr. Daly served on the board of directors of sTec, Inc., a provider of solid state +disk systems, from May 2010 until the acquisition of the company in September 2013 by Western Digital Corporation. Dr. Daly received a B.S. degree in electrical engineering from the University +of Notre Dame and M.S., M.A. and Ph.D degrees in engineering from Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and +as a director of both private and public companies, Dr. Daly offers to the Board a wealth of management and leadership experience as well as an understanding of issues faced by such companies. +Gregory A. Miner has served as a Managing Member of Merchant Capital Source, LLC, a company that provides working capital financing +solutions to merchants, since 2004. Since 2007, Mr. Miner has also served as Managing Member of Clearpay Processing, LLC, a company that provides electronic solutions to businesses +within the United States. Prior to that, Mr. Miner served in a number of management positions with us and our subsidiaries, most recently as our Chief Executive Officer. Mr. Miner is a +Certified Public Accountant (inactive) and his business experience includes work at Deloitte Haskins and Sells (now known as Deloitte LLP). Mr. Miner has served as a director since 1998 +and as our Chairman of the Board of Directors since 2004. Through his service in a variety of executive positions with us and our subsidiaries, Mr. Miner has a deep and broad understanding of +our business as well as the leadership skills and the operational understanding to provide sound guidance in continuing to grow our business. +Gerard M. Mooney retired from International Business Machines Corporation ("IBM") in March 2014, after serving in a number of senior +positions since 2000. Most recently, he served as the Vice President Strategy for IBM's Public Sector from February 2012 until his retirement, as the General Manager, Global Smarter Cities for IBM +from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from April 2008 to November 2011. Before +5 +joining +IBM, Mr. Mooney held various management positions at Hewlett-Packard Company for six years. Mr. Mooney has extensive operational and financial experience across a broad range of +technology-based companies, from start-ups to large public companies. He is actively involved in the intelligent transportation market and serves as a member of the board of directors of the +Intelligent Transportation Society of America. He also has considerable experience with the major customers in the professional transportation market. He received a B.A. degree from Mount Saint Mary's +College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. Mr. Mooney has served as a director of Iteris since September 2013 and brings to the Board +of Directors extensive experience in setting and implementing strategy for both large and small technology organizations, deep category knowledge of the intelligent transportation market, and +familiarity with many key customers for intelligent transportation solutions. +Thomas L. Thomas is currently the Managing Partner of T2 Capital Partners, a consulting and investment group. He previously served as the +Executive Chairman of International Decision Systems, a provider of software and solutions for the equipment finance market, from September of 2009 until January 2011. From 2004 until his retirement +in July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, +Mr. Thomas served as the President and CEO at several technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and served in various senior and executive +positions at 3Com Corporation, Dell Computer Corporation, Kraft General Foods and Sara Lee Corporation. Mr. Thomas also served on the board of directors of infoGroup, Inc. from January +2009 to July 2010. Mr. Thomas has served as a director of Iteris since 1999 and offers to the Board of Directors valuable business, leadership and strategic insights obtained +through his service in a variety of industries, including a number of technology companies, and his experience in working with companies through several stages of their development. +Mikel H. Williams served as the Chief Executive Officer and a director of JPS Industries, Inc., a manufacturer of sheet and +mechanically formed glass and aramid substrate materials for the electronics, aerospace ballistics and general industrial applications, from May 2013 until its sale in July 2015. Prior to that, +Mr. Williams was the President, Chief Executive Officer and a director of DDi Corp., a leading provider of time-critical, technologically advanced electronics manufacturing services, +from November 2005 to May 2012 and a Senior Vice President and Chief Financial Officer of DDi from November 2004 to October 2005. DDi was sold in May of 2012. Mr. Williams has also served in +various management positions with several companies in the technology and professional services related industries. Mr. Williams began his career with PricewaterhouseCoopers as a certified +public accountant in the State of Maryland. Mr. Williams also serves as Chairman of the board of directors of Centrus Energy Corp. (formerly USEC Inc.). Mr. Williams was added to +USEC's board of directors in October 2013 on the recommendation of certain holders of USEC's convertible senior notes as USEC was considering a bankruptcy restructuring, which was successfully +initiated and completed in 2014. Mr. Williams previously served on the boards of Lightbridge Communications Corporation until it was sold in January 2015, and Tellabs, Inc. until it was +sold in December 2013. Mr. Williams received his B.S. degree from the University of Maryland in accounting and an M.B.A. from the University of Georgetown. Mr. Williams has served as a +director of Iteris since April 2011 and provides the Board of Directors with operational and public company experience and valuable strategic insights through his many years of leadership positions in +technology-related companies with international operations, as well as valuable knowledge and insights in finance and financial reporting matters. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +6 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our +principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and +Business Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business +Conduct, and any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission ("SEC"), at the same location on our website. +Director Independence +Our policy is to have at least a majority of the directors qualify as "independent" under the listing standards of NYSE MKT. The Board +of Directors has determined that each of Messrs. Char, Miner, Mooney, Thomas and Williams satisfies the requirements for "independence" under such listing standards. Dr. Daly qualified +as an independent director until his appointment as our interim Chief Executive Officer in February 2015. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is +in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined +that having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to +emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, and +the Nominating and Corporate Governance Committee. The Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee each has a written charter that is reviewed +annually and revised as appropriate. A copy of each committee's charter is available on the Investor Relations section of our website at www.iteris.com. +During +the fiscal year ended March 31, 2015 ("Fiscal 2015"), the Board of Directors and the various committees of the Board held the following number of meetings: Board of +Directors—seven; Audit Committee—thirteen; Compensation Committee—three; and Nominating and Corporate Governance Committee—none (action was taken by +written consent). During Fiscal 2015, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors +and the total number of meetings of any committees of the Board held while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee are Messrs. Miner, Thomas and Williams. The Board has determined +that each member +of the Audit Committee is "independent" under the listing standards of NYSE MKT and the SEC rules regarding audit committee memberships. The Board has identified Mr. Williams as the member of +the Audit Committee who qualifies as an "audit committee financial expert" under applicable SEC rules and regulations governing the composition of the Audit Committee. +7 +The +Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity +of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related +policies regarding our accounting, internal accounting controls or auditing matters. +The +Audit Committee meets privately with our independent registered public accounting firm, and such firm has unrestricted access to and reports directly to the Audit Committee. The +Audit Committee has selected McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016 and is recommending that our stockholders ratify +this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Messrs. Mooney, Thomas and Williams. +Dr. Daly served as a +member of the committee until his appointment as our interim Chief Executive Officer in February 2015. The Board has determined that each member of the Compensation Committee is (or was during his +time of service) "independent" under the listing standards of NYSE MKT. +The +Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our +"officers" as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange +Act"); (c) reviews and makes recommendations to the Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our +executive officers; and (e) assists the Board in evaluating potential candidates for executive officer positions and oversees management succession planning. +The +Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The committee considers a number of factors in +determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, +our general business conditions and objectives, and the committee's subjective determination with respect to the executive's individual contributions to such objectives. To assist the committee in its +review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the executives, including himself, and recommendations with respect to all executive compensation matters; +however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. During Fiscal 2015, the Compensation Committee engaged Frederic W. +Cook & Co., Inc., a compensation consultant, to provide a competitive review of the Company's executive compensation program, including a review of base salaries, annual +incentives and long-term incentives. No material modifications to the Company's executive compensation program were made as a result of such review. +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are +Messrs. Char, +Mooney and Thomas. Dr. Daly served as a member of the committee until his appointment as our interim Chief Executive Officer in February 2015. The Board has determined that each member of the +Nominating and Corporate Governance Committee is (or was during his time of service) "independent" under the listing standards of NYSE MKT. +The +primary purposes of the Nominating and Corporate Governance Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or +recommend to the Board of Directors the selection of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies +on the Board; (d) oversee the implementation and monitoring the effectiveness of our corporate governance policies +8 +and +developing and recommending to the Board modifications and or additions to such policies; and (e) review on a regular basis our overall corporate governance and recommend improvements when +necessary. +In +connection with their recommendations regarding the size and composition of the Board, the Nominating and Corporate Governance Committee reviews the appropriate qualities and skills +required of directors in the context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate's independence, personal and professional +integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to +serve the Company's and our stockholders' long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating and +Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight +and expertise to oversee our business. These factors, and others as considered useful by the Nominating and Corporate Governance Committee, are reviewed in the context of an assessment of the +perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Nominating and Corporate Governance Committee and of the Board may change from time to time +to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective directors. The Nominating and Corporate Governance Committee generally +leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates typically involves a series of committee +discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been suggested by other members of the Board or +by our executive officers. From time to time, the Nominating and Corporate Governance Committee may engage the services of a third-party search firm to identify director candidates. +The +Nominating and Corporate Governance Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder +proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must +submit such recommendation in writing to the Chair, Nominating and Corporate Governance Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last +proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a +representation that the nominating stockholder is a stockholder of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to +nominate the person specified in the notice, (d) the nominee's qualifications for membership on the Board, (e) a resume of the candidate's business experience and educational background +as well as all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect +arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made +by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable +background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the Nominating and Corporate Governance Committee may request additional +information from the candidate or the recommending stockholder, and may request an interview with the candidate. The Nominating and Corporate Governance Committee has the discretion to decide which +individuals to recommend for nomination as directors. +9 +No +candidates for director nominations were submitted to the Nominating and Corporate Governance Committee by any stockholder in connection with the election of directors at the Annual +Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. +In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk +assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by +the Compensation Committee and legal and regulatory compliance risks are reviewed by the Nominating and Corporate Governance Committee. In connection with its responsibilities relating to risk +assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any +committee of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary +will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, +providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board's consideration will not be forwarded to the Board. Stockholders who wish to communicate with the +Board can write to the corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; +however, directors are encouraged to attend all such meetings. For our 2014 annual meeting of stockholders, two of our then-current directors attended such meeting. +10 +PROPOSAL TWO: +RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of McGladrey LLP was engaged to serve as our independent registered public accounting firm for the fiscal +year ended March 31, 2015. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2016. We are asking our +stockholders to ratify the selection by the Audit Committee of McGladrey LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal +year ending March 31, 2016 and to perform other appropriate services. Stockholder ratification of the selection of McGladrey LLP as our independent registered public accounting firm is +not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the +Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change +would be in the best interests of us and our stockholders. +A +representative of McGladrey LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the +stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting will +be required for ratification of the selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the ratification and approval of the +selection of McGladrey LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016. +11 +PROPOSAL THREE: +APPROVAL OF AN AMENDMENT TO THE 2007 OMNIBUS INCENTIVE PLAN +The Iteris, Inc. 2007 Omnibus Incentive Plan was adopted by our Board of Directors on July 19, 2007 and approved by our +stockholders on September 21, 2007. As of June 30, 2015, there were options to purchase 2,010,750 shares of common stock and restricted stock unit awards for 183,750 shares outstanding +under the plan, and an aggregate remaining authority to grant awards for the issuance of 1,425,055 shares of common stock. Our Board of Directors recently adopted an amendment of the plan, subject to +stockholder approval, to increase the number of shares of common stock reserved for issuance thereunder by 1,000,000 shares to 4,950,000 shares. +Under +applicable NYSE MKT rules, we are required to obtain stockholder approval of the amendment to the plan. Such approval is also necessary to permit us to grant incentive stock +options to employees under Section 422 of the Internal Revenue Code, as amended (the "Code"), and to ensure that compensation paid under the plan is eligible for an exemption from the limits on +tax deductibility imposed by Section 162(m) of the Code, which limits the deductibility of certain compensation paid to individuals who are, at the end of the tax year for which we would +otherwise claim our tax deduction, our chief executive officer and certain other highly paid executive officers. +We +are asking our stockholders to approve the amendment to the plan to authorize the issuance of an additional 1,000,000 shares of common stock thereunder. Our Board of Directors +believes the amendment is necessary to assure that a sufficient reserve of the common stock remains available for issuance under the plan to allow us to continue to utilize equity incentives to +attract and retain the services of individuals, including a new Chief Executive Officer, essential to our long-term growth and success. +Amended Plan Description +The following is a summary of the principal features of the 2007 Omnibus Incentive Plan, as amended (the "2007 Plan"), and is qualified +in its entirety by reference to the full text of the plan. A copy of the plan, as amended, may be found at Appendix A at the end of this proxy statement. Any stockholder who wishes to obtain an +additional copy of the actual plan document may do so upon written request to us at our principal executive offices. +Administration. Both the Board and the Compensation Committee have the authority to administer the 2007 Plan. The Board may at any time +appoint a +secondary committee comprised of two or more directors to have concurrent authority to make grants and issuances of any equity-based instruments permissible under the 2007 Plan to individuals other +than executive officers and non-employee directors. The committee administering the 2007 Plan will have full power and authority to determine when and to whom awards will be granted, and the type, +amount, form of payment, and other terms and conditions of each award, consistent with the provisions of the 2007 Plan. Subject to the provisions of the 2007 Plan, the committee may amend or waive the +terms and conditions, or accelerate the exercisability, of an outstanding award. The committee has authority to interpret the 2007 Plan, and establish rules and regulations for the administration of +the 2007 Plan. In addition, the Board may exercise the powers of the committee at any time. +Eligible Participants. Any employee, officer, consultant, advisor or director providing services to us or any of our affiliates +(including our +current and future subsidiaries) is eligible to receive an award under the 2007 Plan. As of June 30, 2015, 310 employees (including officers), twelve advisors and five non-employee directors +were eligible to receive awards under the 2007 Plan. +Shares Available For Awards. The aggregate number of shares of common stock that may be issued under all stock-based awards made under +the 2007 Plan +will be 4,950,000. The shares of +12 +common +stock issuable under the 2007 Plan may be drawn from shares of authorized but unissued common stock or from shares of common stock that the Company acquires. Subject to the provisions of +Section 422 or 424 of the Code or any successor provision, all of the shares reserved for issuance under the 2007 Plan may be used for grants of incentive stock options under the plan. No +person may be granted stock options or SARs (defined below) under the 2007 Plan with respect to more than 500,000 shares of common stock in the aggregate within any fiscal year. +The +committee may adjust the number of shares and share limits described above in the case of a stock dividend or other distribution, including a stock split, merger or other similar +corporate transaction or event, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the 2007 Plan. If any shares of our common stock subject +to any award or to which an award relates are forfeited or are reacquired by the Company, or if any award terminates without the delivery of any shares, the shares previously set aside for such awards +will be available for future awards under the 2007 Plan. +Types of Awards and Terms and Conditions. The 2007 Plan permits the granting of: +• stock options (including both incentive and non-qualified stock options); +• stock appreciation rights ("SARs"); +• restricted stock and restricted stock units; +• performance awards of cash, stock or property; +• dividend equivalents; +• other stock grants; and +• other stock-based awards. +Awards +may be granted alone, in addition to, in combination with or in substitution for, any other award granted under the 2007 Plan or any other compensation plan. Awards can be granted +for no cash consideration or for cash or other consideration as determined by the committee or as required by applicable law. Awards may provide that upon the grant or exercise thereof, the holder +will receive shares of our common stock or other securities or property, or any combination of these, in a single payment or installments. The exercise price per share under any stock option and the +grant price of any SAR will be determined by the committee and may not be less than the fair market value on the date of grant of such option or SAR, or less than 110% of fair market value for +incentive stock options granted to holders of more than 10% of our common stock. When our common stock is listed on a stock exchange in the U.S., the fair market value is the closing sale price of one +share of our common stock on the date of determination (or the last preceding date for which such price exists), as reported on the principal U.S. exchange on which our common stock is listed. If our +common stock is not listed on a stock exchange in the U.S., the fair market value will be determined in accordance with methods and procedures established by the committee. The term of awards will not +be longer than 10 years, or in the case of incentive stock options, longer than 5 years with respect to holders of more than 10% of our common stock. +Stock Options. The holder of an option will be entitled to purchase a number of shares of our common stock at a specified exercise price +during a +specified time period, all as determined by the committee. The option exercise price may be payable either in cash or, at the discretion of the committee, in other securities or other property having +a fair market value on the exercise date equal to the exercise price. The shares subject to each option will generally vest in one or more installments over a specified period of service measured from +the grant date. We receive no payment for the grant of an option. Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the +extent exercisable for vested shares. +13 +Stock Appreciation Rights. The holder of a SAR is entitled to receive the excess of the fair market value (calculated as of the +exercise date or, at +the committee's discretion, as of any time during a specified period before or after the exercise date) of a specified number of shares of our common stock over the grant price of the SAR, as +determined by the committee, paid solely in shares of common stock. SARs vest and become exercisable in accordance with a vesting schedule established by the committee. This type of SAR is sometimes +described as a "stock only settled stock appreciation right." +Restricted Stock and Restricted Stock Units. The holder of restricted stock will own shares of our common stock subject to restrictions +imposed by +the committee (including, for example, restrictions on transferability or on the right to vote the restricted shares or to receive any dividends with respect to the shares) for a specified time period +determined by the committee. The restrictions may lapse or be waived separately or collectively, in installments or otherwise, as the committee may determine. The holder of restricted stock units will +have the right, subject to any restrictions imposed by the committee, to receive shares of our common stock at some future date determined by the committee. The committee also may permit accelerated +vesting in the case of a participant's death, disability or retirement, or a change in control. If the participant's employment or service as a director terminates during the vesting period for any +other reason, the restricted stock and restricted stock units will be forfeited, unless the committee determines that it would be in our best interest to waive the remaining restrictions. +Performance Awards. Performance awards granted under the 2007 Plan are intended to qualify as "performance-based compensation" within +the meaning of +Section 162(m) of the Code. Performance awards give participants the right to receive payments in stock or property based solely upon the achievement of certain performance goals during a +specified performance period. The committee must designate all participants for each performance period, and establish performance goals and target awards for each participant no later than +90 days after the beginning of each performance period within the parameters of Section 162(m) of the Code. Performance goals must be based solely on one or more of the following +business criteria: (i) revenue; (ii) cash flow; (iii) gross profit; (iv) earnings before interest and taxes; (v) earnings before interest, taxes, depreciation and +amortization; (vi) net earnings; (vii) earnings per share; (viii) margins, including gross profit, operating and net income margins; (ix) returns, including return on +assets, equity, investment, capital and revenue and total stockholder return; (x) stock price; (xi) economic value added; (xii) working capital; (xiii) market share; +(xiv) cost reductions; (xv) workforce satisfaction and diversity goals; (xvi) employee retention; (xvii) customer satisfaction; (xviii) completion of key projects; +and (xix) strategic plan development and implementation. +The +measure of performance may be set by reference to an absolute standard or a comparison to specified companies or groups of companies, or other external measures, and may be applied +at individual or organizational levels. No person may be granted under the 2007 Plan qualified performance based awards which could result in such person receiving more than $1,500,000 in cash or the +equivalent fair market value of shares of common stock determined at the date of grant for each full or partial fiscal year contained in the performance period of a particular qualified performance +based award, except that if any other qualified performance based awards are outstanding for such person for a given fiscal year, such dollar limitation shall be reduced for each such fiscal year by +the amount that could be received by the person under all such qualified performance based awards, divided, for each such qualified performance based award, by the number of full or partial fiscal +years contained in the performance period of each such outstanding qualified performance based award (subject to adjustment in the case of a stock dividend or other distribution, including a stock +split, merger or other similar corporate transaction or event, but only to the extent that such adjustment does not affect the status of any award intended to qualify as "performance based +compensation" under Section 162(m) of the Code. +14 +Dividend Equivalents. The holder of a dividend equivalent will be entitled to receive payments in shares of our common stock, other +securities or +other property equivalent to the amount of cash dividends paid by us or our stockholders, with respect to the number of shares determined by the committee. Dividend equivalents will be subject to +other terms and conditions determined by the committee. +Stock Awards. The committee may grant unrestricted shares of our common stock, subject to terms and conditions determined by the +committee and the +2007 Plan limitations. +Automatic Option Grant Program. Under the automatic option grant program, eligible non-employee Board members receive a series of +option grants over +their period of Board service. Each non-employee Board member will, at the time of his or her initial election or appointment to the Board, receive an option grant for 20,000 shares of common stock +provided such individual has not been in the previous employ of the Company. In addition, on the date of each annual stockholders meeting, each individual who is to continue to serve as a non-employee +Board member will automatically be granted an option to purchase 10,000 shares of common stock, provided he or she has served as a non-employee Board member for at least six months. There will be no +limit on the number of such 10,000-share option grants any one eligible non-employee Board member may receive over his or her period of continued Board service. +Each +automatic grant will have an exercise price per share equal to the fair market value per share of common stock on the grant date and will have a maximum term of 10 years, +subject to earlier termination following the optionee's cessation of Board service. Each automatic option will be immediately exercisable for any or all of the option shares; the shares acquired under +those options will be subject to repurchase by the Company, at the exercise price paid per share, if the optionee ceases service with the Company prior to vesting in those shares. Each initial +20,000-share automatic option and each annual 10,000-share automatic option will vest in full upon the optionee's completion of one year of service, measured from the grant date. However, the vesting +of each outstanding automatic option grant will automatically accelerate in full upon certain changes in control of the Company or upon the optionee's death or disability while a Board member. +Following the optionee's cessation of Board service for any reason, each option will remain exercisable for a 12-month period and may be exercised during that time for any or all shares in which the +optionee is vested at the time of such cessation of service as a director. +Duration, Termination and Amendment. Unless earlier discontinued or terminated by the Board, the 2007 Plan will expire on July 19, +2017. No +awards may be made after that date. However, unless otherwise expressly provided in an applicable award agreement, any award granted under the 2007 Plan prior to expiration of the 2007 Plan may extend +beyond the end of the expiration of the plan through the award's normal expiration date. +The +Board and, pursuant to the delegation of its authority, the committee may amend, alter or discontinue the 2007 Plan at any time, although stockholder approval must be obtained for +any action that would, absent such approval, (i) violate the rules and regulations of any securities exchange applicable to the Company, (ii) cause Rule 16b-3 of the Securities +Exchange Act of 1934 or Section 162(m) of the Code to become unavailable with respect to the 2007 Plan or (iii) cause the Company to be unable under the Code to grant incentive stock +options under the 2007 Plan. +Acceleration. In the event that we are acquired by merger, asset sale or sale by the stockholders of more than 50% of our outstanding +voting stock +recommended by the Board, each outstanding option under the 2007 Plan that is not to be assumed or replaced by the successor corporation or otherwise continued in effect will automatically accelerate +in full, and all unvested shares outstanding under the 2007 Plan will immediately vest, except to the extent our repurchase rights with respect to those shares are to be assigned to the successor +corporation or otherwise continued in effect. +15 +The +plan administrator will have the authority under the 2007 Plan to provide that options and other awards granted under the 2007 Plan will automatically vest in full (i) upon an +acquisition of the Company, whether or not those awards are assumed or replaced, (ii) upon a hostile change in control of the Company effected through a tender offer for more than 50% of our +outstanding voting stock or by proxy contest for the election of Board members, or (iii) in the event the individual's service is terminated, whether involuntarily or through a resignation for +good reason, within a designated period following an acquisition in which the options are assumed or replaced or otherwise continued in effect upon a hostile change in control. The options granted +under the director automatic option grant program will automatically accelerate and become exercisable in full upon any acquisition or change in control transaction. +The +acceleration of vesting in the event of a change in control of the Company may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a +takeover attempt or other efforts to gain control of the Company. +Transferability of Awards. Unless otherwise provided by the committee, awards under the 2007 Plan may only be transferred by will or by +the laws of +descent and distribution. +Delivery of Shares for Tax Obligation. Under the 2007 Plan, the committee may permit participants receiving or exercising awards, +subject to the +discretion of the committee and upon such terms and conditions as it may impose, to deliver shares of our common stock (either shares received upon the receipt or exercise of the award or shares +previously owned by the holder of the option) to the Company to satisfy federal and state income tax obligations. +Certain Federal Income Tax Consequences +The following is a summary of the principal U.S. federal income tax consequences generally applicable to awards under the 2007 Plan. +Grant of Options and SARs. The grant of a stock option or SAR is not expected to result in taxable income for the recipient. +Exercise of Options and SARs. Upon exercising a non-qualified stock option, the optionee will recognize ordinary income equal to the +excess of the +fair market value of the shares of our common stock acquired on the date of exercise over the exercise price, and we will generally be entitled at that time to an income tax deduction for the same +amount. Upon exercising an incentive stock option, the optionee generally will not recognize taxable income (except that an alternative minimum tax liability may arise), and we will not be entitled to +an income tax deduction. Upon exercising a SAR, the recipient of the SAR will recognize ordinary income in an amount equal to the fair market value on the exercise date of any shares of our common +stock received, and we will receive an income tax deduction in the same amount. +Disposition of Shares Acquired Upon Exercise of Options and SARs. The tax consequence upon a disposition of shares acquired through the +exercise of +an option or SAR will depend on how long the shares have been held and whether the shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option or SAR. +Generally, there will be no tax consequence to us in connection with the disposition of shares acquired under an option or SAR, except that we may be entitled to an income tax deduction in the case of +the disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Code have been satisfied. +Awards Other than Options and SARs. As to other awards granted under the 2007 Plan that are payable in either cash or shares of our +common stock that +are either transferable or not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to (a) the +16 +amount +of cash received or, as applicable, (b) the excess of (i) the fair market value of the shares received (determined as of the date of receipt) over (ii) the amount (if any) +paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount. +As +to an award that is payable in shares of our common stock that are restricted from transfer and subject to substantial risk of forfeiture, unless a special election is made by the +holder of the award under the Code, the holder must recognize ordinary income equal to the excess of (i) the fair market value of the shares received (determined as of the first time the shares +become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for +the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount. +Income Tax Deduction. Subject to the usual rules concerning reasonable compensation, and assuming that, as expected, performance awards +paid under +the 2007 Plan are "qualified performance-based compensation" within the meaning of Section 162(m) of the Code, we will generally be entitled to a corresponding income tax deduction at the time +a participant recognizes ordinary income from awards made under the 2007 Plan. +Application of Section 16. Special rules may apply to individuals subject to Section 16 of the Exchange Act. In particular, +unless a +special election is made pursuant to the Code, shares received through the exercise of a stock option or SAR may be treated as restricted as to transferability and subject to a substantial risk of +forfeiture for a period of up to six months after the date of exercise. Accordingly, the amount of any ordinary income recognized and the amount of our income tax deduction will be determined as of +the end of that period. +Deductibility of Executive Compensation Under Code Section 162(m). Section 162(m) of the Code generally limits to $1,000,000 +the amount +that a publicly-held corporation is allowed each year to deduct for the compensation paid to each of the corporation's chief executive officer and the corporation's other four most highly compensated +executive officers. However, "qualified performance-based qualified compensation" is not subject to the $1,000,000 deduction limit. In general, to qualify as performance-based compensation, the +following requirements need to be satisfied: (1) payments must be computed on the basis of an objective, performance-based compensation standard determined by a committee consisting solely of +two or more "outside directors," (2) the material terms under which the compensation is to be paid, including the business criteria upon which the performance goals are based, and a limit on +the maximum bonus amount which may be paid to any participant with respect to any performance period, must be approved by a majority of our stockholders and (3) the committee must certify that +the applicable performance goals were satisfied before payment of any performance-based compensation. +The +2007 Plan has been designed to permit grants of stock options and SARs issued under the 2007 Plan to qualify under the performance-based compensation rules so that income +attributable to the exercise of a non-qualified stock option or a SAR may be exempt from the $1,000,000 deduction limit. Grants of other awards under the 2007 Plan may not so qualify for this +exemption. The 2007 Plan's provisions are consistent in form with the performance-based compensation rules, so that if the committee that grants options or SARs consists exclusively of members of the +board of directors of the Company who qualify as "outside directors," and the exercise price (or deemed exercise price, with respect to SARs) is not less than the fair market value of the shares of +common stock to which such grants relate, the compensation income arising on exercise of those options or SARs should qualify as +performance-based compensation which is deductible even if that income would be in excess of the otherwise applicable limits on deductible compensation income under Code Section 162(m). +17 +Amended Plan Benefits +The committee in its sole discretion determines the number and types of awards that will be granted in the future. Thus, other than +with respect to the Automatic Grant Program described above, it is not possible to determine at this time the amount or dollar value of awards to be provided under the 2007 Plan. +Stockholder Approval +The affirmative vote of a majority of the shares of common stock present in person or by proxy at the Annual Meeting and entitled to +vote on this matter is required for approval of the proposed amendment to the 2007 Omnibus Incentive Plan. Should such stockholder approval not be obtained, then the share reserve will not be +increased. The plan will, however, continue to remain in effect, and option grants and stock issuances may continue to be made pursuant to the provisions of the plan prior to its amendment until the +available reserve common stock under the plan is issued. +Recommendation of the Board of Directors +The Board of Directors recommends a vote "FOR" approval of the amendment to the 2007 Omnibus Incentive Plan to +increase the number of shares reserved for issuance thereunder by 1,000,000 shares. +18 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +The following table presents the aggregate fees billed by McGladrey LLP for the indicated services for the fiscal years ended +March 31, 2014 and 2015: +Fiscal Year Ended +March 31, +2014 +2015 +Audit Fees +$ +1,291,000 +$ +910,000 +Audit-Related Fees +50,000 +44,000 +Tax Fees +27,000 +10,000 +All Other Fees +— +— +Total Fees +$ +1,368,000 +$ +964,000 +Audit Fees. Audit fees consist of fees for professional services rendered in connection with the audit of our annual +consolidated financial +statements and review of the consolidated financial statements included in our quarterly reports on Form 10-Q and other regulatory filings. +Audit-Related Fees. Audit-related fees consist of fees for professional services that are reasonably related to the performance +of the audit or +review of our consolidated financial statements but are not reported under "Audit Fees." Such fees include, among other things, fees for registration statements, internal control reviews and +assistance with meeting the requirements of Section 404 of the Sarbanes-Oxley Act, certain consultations concerning financial accounting and reporting standards, and professional services +rendered in connection with our annual statutory overhead rate audits. +Tax Fees. Tax fees consist of fees billed to us by McGladrey LLP during the fiscal years ended March 31, 2014 and 2015 +for tax +consultations related to various state tax credit studies. +All Other Fees. There were no other fees billed to us by McGladrey LLP during the fiscal years ended March 31, 2014 and +2015. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by McGladrey LLP or other independent registered public accountants are subject to prior approval +by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services +provided by McGladrey LLP for the fiscal year ended March 31, 2015. +19 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year +ended March 31, 2015 of Iteris, Inc. included in its Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company's management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company's independent registered public accounting firm, McGladrey LLP, the matters +required to be discussed by auditing standards set forth in AU Section 380 established by the Public Company Accounting Oversight Board, +which includes, among other items, matters related to the conduct of the audit of the Company's consolidated financial statements. +The +Audit Committee has received the written disclosures and the letter from McGladrey LLP required by applicable requirements of the Public Company Accounting Oversight Board +regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with McGladrey LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company's Board of +Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended March 31, 2015 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gregory A. Miner +Thomas L. Thomas +Mikel H. Williams +20 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of July 15, 2015, regarding our executive officers. +Name +Age +Capacities in Which Served +Kevin C. Daly, Ph.D. +71 +Chief Executive Officer and Director +Andrew Schmidt +53 +Chief Financial Officer, Vice President of Finance and Secretary +Todd Kreter +55 +Senior Vice President and General Manager, Roadway Sensors +Thomas N. Blair +51 +Senior Vice President, Performance Analytics +Ramin Massoumi +42 +Senior Vice President and General Manager, Transportation Systems +The +following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography +of Dr. Daly appears earlier in this proxy statement. See Proposal One: "Election of Directors." +Andrew Schmidt has served as our Vice President of Finance, Chief Financial Officer and Secretary, since March 2015. Prior to joining us, +Mr. Schmidt served as the Chief Financial Officer and Corporate Secretary of Smith Micro Software, Inc., a publicly-held provider of wireless and mobility software solutions, from 2005 +to May 2014. Prior to joining Smith Micro, Mr. Schmidt held CFO roles for several other public companies, including Genius Products, an entertainment company, and Mad Catz Interactive, a +provider of console video game accessories. He also served as Vice President (Finance) of Peregrine Systems, a publicly-held provider of enterprise level software. Mr. Schmidt holds a B.B.A. +degree in Finance from the University of Texas and an M.S. degree in Accountancy from San Diego State University. +Todd Kreter has served as our Senior Vice President and General Manager, Roadway Sensors since May 2014. Mr. Kreter served as our +Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served +in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company's worldwide customer service organization. +Mr. Kreter holds a B.S. degree in mechanical engineering from California State University, Fullerton. +Thomas N. Blair has served as our Senior Vice President, Performance Analytics (formerly, iPerform) since July 2012. Prior to that, +Mr. Blair served as general manager for Trimble Navigation Limited, a provider of integrated positioning, wireless, and software technology solutions, from 2007 to August 2011, and as vice +president for new business development at @Road, Inc., a leading provider of mobile resource management solutions, from 2006 to 2007. He also worked as director of business and corporate +development at iAnywhere Solutions, a Sybase company, from 2003 to 2006. Mr. Blair holds a B.S. degree in Management Information Systems from DeVry Institute of Technology and an M.S. degree in +Computer Science from Rochester Institute of Technology. +Ramin Massoumi has served as our Senior Vice President and General Manager, Transportation Systems since March 2015. Mr. Massoumi +joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June +2011 to March 2015. Throughout his career, his focus has been in the application of advanced technologies in the traffic management market, and has led projects throughout the United States and the +Middle East. Mr. Massoumi also serves as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of California at Irvine. +Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California Irvine, an M.S. degree in Engineering from the University of California, Berkeley, and an M.B.A. from the +University of Southern California. +21 +Summary Compensation Table +The following table shows information regarding the compensation earned during the fiscal years ended March 31, 2014 and 2015 by +(i) our Chief Executive Officer, (ii) our former Chief Executive Officer and (iii) our two most highly compensated executive officers (other than our Chief Executive Officer) who +were serving as executive officers as of March 31, 2015. The officers listed below are collectively referred to as the "named executive officers" or "NEOs" in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation(2) +All Other +Compensation(3) +Total +Kevin C. Daly, Ph.D.(4) +2015 +$ +47,770 +$ +10,091 +(5) +$ +— +$ +33,500 +(6) +$ +91,361 +Chief Executive Officer +Abbas Mohaddes(7) +2015 +419,855 +107,430 +— +179,037 +(8) +706,322 +Former Chief Executive Officer and President +2014 +376,910 +96,800 +51,316 +13,650 +538,676 +Todd Kreter +2015 +250,982 +53,715 +105,000 +7,949 +417,646 +Senior Vice President +2014 +213,013 +38,720 +38,372 +6,771 +296,876 +Thomas N. Blair +2015 +250,549 +53,715 +47,364 +7,812 +359,440 +Senior Vice President +2014 +230,006 +— +32,848 +6,569 +269,423 +(1) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial +statements in our Annual Report. See also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical +Accounting Policies and Estimates" in the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date and, other than the options +granted to Dr. Daly, vest in equal annual installments over four years and are not exercisable until vested. The option granted to Dr. Daly was for his service as a non-employee director +of the Company and, as such, vests one year after the grant date and is immediately exercisable. +(2) The +amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established +criteria. These awards are discussed in further detail under "Plan-Based Bonuses" below. +(3) Except +as otherwise noted, represents 401(k) plan employer contributions and automobile allowances paid by us. +(4) Dr. Daly +was appointed as our interim Chief Executive Officer in February 2015. +(5) Represents +the grant date fair value of the stock option granted to Dr. Daly during Fiscal 2015 for his service as a non-employee director of the +Company prior to his appointment as our interim Chief Executive Officer. +(6) Consists +of fees that Dr. Daly received during Fiscal 2015 for his service as a non-employee director of the Company prior to his appointment as our +interim Chief Executive Officer. +(7) Mr. Mohaddes +resigned as our Chief Executive Officer and President in February 2015. +(8) Consists +of 401(k) plan employer contributions and automobile allowances paid by us, as well as amounts paid pursuant to his Separation Agreement, +consisting of salary continuation payments of $43,846, bonus of $87,500, transition services payment of $28,333 and COBRA reimbursement. See "Employment Contracts; Termination of Employment and +Change of Control Arrangements—Agreements with Abbas Mohaddes" below. +22 +Plan-Based Bonuses +For Fiscal 2015, the potential compensation for Messrs. Kreter and Blair included an annual cash bonus based upon criteria +established by the Compensation Committee at the beginning of the fiscal year. For Mr. Kreter, 30% of his potential bonus was based on the total revenue and operating income achieved by the +Company, 60% of his potential bonus was based on revenue and operating income achieved by the Roadway Sensors segment, and 10% of his potential bonus was based on achieving certain milestones with +respect to the Performance Analytics segment. The milestones for Mr. Kreter for bonus purposes included oversight of the Performance Analytics segment development activities and IP process. For +Mr. Blair, 40% of his potential bonus was based on the total revenue and operating income achieved by the Company, 25% of his potential bonus was based on revenue achieved by the Performance +Analytics segment, and 35% of his potential bonus was based on achieving certain milestones with respect to the Performance Analytics segment. The milestones for Mr. Blair for bonus purposes +included achieving partnership and development milestones with respect to the Performance Analytics segment according to the approved Fiscal 2015 plan and adding $8.0 million of backlog during +Fiscal 2015. +The +corporate and business unit performance targets for the annual cash bonuses for Messrs. Kreter and Blair for Fiscal 2015 were as follows: +Performance Component(1) +No +Bonuses +At or Below +Target +Maximum +(in thousands) +Corporate Revenue +$ +65,850 +$ +77,450 +$ +85,200 +Corporate Operating Income +300 +350 +400 +Roadway Sensors Revenue +32,400 +36,000 +37,800 +Roadway Sensors Operating Income +3,550 +4,450 +5,100 +Performance Analytics Revenue +6,600 +7,350 +7,700 +(1) The +corporate revenue and operating income goals and the Performance Analytics revenue goal were applicable to each of Messrs. Kreter and Blair, and +the Roadway Sensors revenue and operating income goals were applicable to Mr. Kreter. +The +potential bonuses at target for Fiscal 2015 were as follows: Mr. Kreter—$137,500; and Mr. Blair—$137,500. If our performance for Fiscal 2015 +exceeded the revenue and operating income targets set for bonus purposes, the executives could have earned an additional bonus of up to 50% of the target bonus award that was not based upon achieving +milestones. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the revenue and operating income goals set forth under the "Maximum" column above. If the +Company had achieved revenue and operating income which were less than the goals set forth under the "Maximum" column but more than the amounts set forth under the "Target" column, the additional +bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the performance had exceeded the Target goal by 25% +of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been payable. +In +Fiscal 2015, our revenue and operating results for the Company and for the relevant business units for bonus purposes were as follows: Corporate +Revenue—$72.3 million; Corporate Operating Income—$92,000; Roadway Sensors Revenue—$36.4 million; Roadway Sensors Operating +Income—$4.4 million; Performance Analytics Revenue—$5.6 million. As a percentage of the targets set for bonus purposes, the results were as follows: Corporate +Revenue—93.4%; Corporate Operating Income—26.3%; Roadway Sensors Revenue—101.2%; Roadway Sensors Operating Income—99.5%; and Performance Analytics +Revenue—76.6%. For bonus purposes, segment operating income results include certain corporate allocations. Accordingly, based upon the above described criteria, bonuses in the following +amounts were approved for Fiscal 2015: Mr. Kreter—$105,000 and Mr. Blair—$47,364. +23 +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2015. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date(1) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested(2) +Market Value +of Shares or +Units of Stock +That Have Not +Vested(3) +Kevin C. Daly, Ph.D. +5,000 +— +$ +2.91 +09/16/05 +09/15/15 +— +$ +— +Chief Executive Officer +5,000 +— +2.54 +09/14/06 +09/13/16 +5,000 +— +2.21 +09/21/07 +09/20/17 +5,000 +— +2.10 +09/19/08 +09/18/18 +5,000 +— +1.73 +09/18/09 +09/17/19 +5,000 +— +1.45 +09/17/10 +09/16/20 +10,000 +— +1.18 +09/16/11 +09/15/21 +10,000 +— +1.61 +09/14/12 +09/13/22 +10,000 +— +1.75 +09/23/13 +09/22/23 +10,000 +— +1.76 +10/17/14 +10/16/24 +Abbas Mohaddes(4) +30,000 +— +2.21 +06/15/06 +11/25/15 +— +— +Former Chief Executive +100,000 +— +2.55 +03/14/07 +11/25/15 +Officer and President +200,000 +— +2.34 +10/02/07 +11/25/15 +100,000 +— +1.41 +05/27/09 +11/25/15 +56,250 +— +1.10 +08/10/11 +11/25/15 +25,000 +— +1.81 +07/29/13 +11/25/15 +Todd Kreter +25,000 +— +2.46 +02/21/08 +02/20/18 +5,000 +(5) +9,100 +Senior Vice President +25,000 +— +1.41 +05/27/09 +05/26/19 +22,500 +7,500 +1.10 +08/10/11 +08/09/21 +10,000 +30,000 +1.81 +07/29/13 +07/28/23 +— +50,000 +1.87 +11/18/14 +11/17/24 +Thomas N. Blair +25,000 +75,000 +1.50 +08/09/12 +08/08/22 +25,000 +(6) +45,500 +Senior Vice President +(1) Each +option (other than the options granted to Dr. Daly) vests at the rate of 25% on each of the first four anniversaries of the grant date. +Dr. Daly's options were granted to him for his service as a non-employee director of the Company, and all such options, other than the option granted on October 17, 2014, are fully +vested. The option granted on October 17, 2014 vests one year after the grant date. +(2) Indicates +the number of shares of common stock subject to restricted stock unit ("RSU") awards. Each RSU represents the right to receive one share of our +common stock. The RSU awards vest in equal annual installments over four years, with the first installment vesting approximately one year after the grant date. Vested shares are issued as soon as +practicable after the applicable vesting date. +(3) The +dollar amounts represent the market value of the shares subject to the RSUs, calculated by multiplying the closing sales price of our common stock on +the last business day of Fiscal 2015 by the applicable number of shares. +24 +(4) Mr. Mohaddes +resigned as our Chief Executive Officer and President in February 2015. In accordance with his Separation Agreement, the vested portions +of his options will terminate three months after the cessation of his transition services under the Separation Agreement, to the extent not exercised prior to such termination. The unvested portion of +his options terminated upon his resignation in February 2015 and no additional options will vest after such resignation. +(5) The +original RSU award was granted on August 10, 2011 and vests in equal annual installments over four years. The first installment vested on +August 10, 2012. The shares indicated represent the remaining unvested amount. +(6) The +original RSU award was granted on August 9, 2012 and vests in equal annual installments over four years. The first installment vested on +August 9, 2013. The shares indicated represent the remaining unvested amount. +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements +described below. We provide incentives such as salary, benefits and option grants to attract and retain executive officers and other key associates. The plan administrators of the 1997 Stock Incentive +Plan and the 2007 Omnibus Incentive Plan have the authority to provide for the accelerated vesting of outstanding options held by an individual in connection with the termination of such individual's +employment following an acquisition in which these options are assumed or the repurchase rights with respect to the unvested shares are assigned or upon certain changes in control of the Company. +Other than such accelerated vesting and the agreements described below, there is no agreement or policy which would entitle any named executive officer to severance payments or any other compensation +as a result of such officer's termination. +Agreements with Abbas Mohaddes +On July 29, 2013, we entered into an Employment Agreement (the "Employment Agreement") with Abbas Mohaddes, our then-current +Chief Executive Officer. The Employment Agreement had an initial term of three years and was to renew automatically thereafter for successive one year periods until ten years after the effective date +(such initial term together with any renewal periods, the "Employment Period"), unless either party provides written notice of nonrenewal at least 30 days prior to the end of the initial term +or any renewal period. Under the terms of the Employment Agreement, Mr. Mohaddes was entitled to an initial base salary of $380,000 per year, which may be increased from time to time at the +sole discretion of the Compensation Committee of our Board of Directors. In the event of a termination without Cause (as defined in the Employment Agreement) during the Employment Period, +Mr. Mohaddes was entitled to (i) salary continuation for 12 months following termination (or a lump sum payment equal to his base salary in the event the termination without Cause +occurs within 12 months after a Change in Control (as defined in the Employment Agreement)), (ii) a lump sum payment equal to 50% of his average annual target bonus for the two years +immediately preceding the year of termination, payable no later than 30 days following termination, and (iii) reimbursement for the cost to continue health benefit coverage under the +Consolidated Omnibus Budget Reconciliation Act (COBRA) for a period of up to one year following termination. If his employment had been terminated as a result of death or disability, then +Mr. Mohaddes (or his estate) would have been entitled to, in the case of death, a lump sum payment equal to 50% of his then effective base salary and, in the case of disability, salary +continuation of up to 90 days until he was eligible for short-term disability payments. In the event of a resignation for Good Reason (as defined in the Employment Agreement) after a Change in +Control, in lieu of any other benefits under the Employment Agreement, Mr. Mohaddes would have been entitled to (a) a lump sum payment equal to one year's base salary plus an amount +equal to 50% of his average annual target bonus for the two years immediately preceding the year of termination, payable no later than 30 days following +25 +termination, +and (b) reimbursement for the cost to continue health benefit coverage under COBRA for a period of up to one year following termination. +On +February 25, 2015, in connection with his resignation as our Chief Executive Officer and President, we entered into a Separation Agreement and Release of Claims (the +"Separation Agreement") with Mr. Mohaddes. Pursuant to the Separation Agreement, we agreed to pay to Mr. Mohaddes the consideration set forth in his existing Employment Agreement, +consisting of the following: (i) an amount equal to his then annual base salary, payable over 12 months in accordance with our regular payroll practices; (ii) a bonus in the +amount of $87,500, payable in a lump sum in March 2015; and (iii) reimbursement for his COBRA costs for the 12 months following his cessation of employment. +Pursuant to the Separation Agreement, Mr. Mohaddes has also agreed to provide transitional support services for up to six months ("Transition Period") for a monthly fee of $28,333. +Mr. Mohaddes may terminate such services at any time after March 31, 2015, but our obligation to pay the foregoing consulting fee shall also cease upon such termination. The vested +portions of his options to purchase our common stock will remain outstanding until three months after the end of the Transition Period. The unvested portions of his options terminated effective as of +the termination of his employment. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries receive an annual retainer of $28,000 per year, paid quarterly, +with the Chairman of the Board receiving an additional $10,000 per year. No additional amounts are paid for attending meetings. In addition, each non-employee director who serves on a Board committee +receives the following annual amounts, paid quarterly: Audit Committee—$2,500 ($5,000 for the Chair); Compensation Committee—$1,500 ($3,000 for the Chair); Nominating and +Governance Committee—$1,000 ($2,000 for the Chair); ad hoc committees—$500 ($1,000 for the Chair). All directors are reimbursed for their out-of-pocket expenses incurred in +attending meetings of our Board of Directors and its committees. +Non-employee +directors are also eligible to receive periodic option grants pursuant to the Directors' Automatic Option Grant Program under our 2007 Omnibus Incentive Plan. Under that +plan, each non-employee director receives an option to purchase 20,000 shares of common stock upon his initial appointment to the Board of Directors and an additional option to purchase 10,000 shares +of common stock on the date of each annual meeting provided he has served on the Board for at least six months as of such annual meeting. Each such option is immediately exercisable for any or all of +the option shares, but the shares acquired are subject to repurchase by the Company at the exercise price paid per share if the optionee ceases service with the Company prior to vesting in those +shares. Each option vests in full upon the optionee's completion of one year of service measured from the grant date. However, the vesting of each such option will accelerate in full upon certain +changes in control of the Company or upon the optionee's death or disability while a director. Each option granted to non-employee directors under the Directors' Automatic Option Grant Program will +have an exercise price equal to the fair market value of the common stock on the grant date and a maximum term of ten years, subject to earlier termination following the optionee's cessation of +service as a Board member. Following the optionee's cessation of Board service for any reason, each option will remain exercisable for a 12-month period and may be exercised during that time for any +or all shares in which the optionee is vested at the time of such cessation of service as a director. +26 +The +following table sets forth a summary of the compensation earned in Fiscal 2015 by each person who served as a director during such year, who is not a named executive officer. +Name +Fees Earned +or Paid in +Cash ($)(1) +Option +Awards ($)(2) +Total ($) +Richard Char +$ +29,000 +$ +10,091 +$ +39,091 +Gregory A. Miner +41,500 +10,091 +51,591 +Gerard M. Mooney +28,000 +10,091 +38,091 +Thomas L. Thomas +33,000 +10,091 +43,091 +Mikel H. Williams +34,000 +10,091 +44,091 +(1) Represents +amounts earned by the directors based on the compensation arrangement described above. +(2) The +dollar amounts shown represent the grant date fair value of stock options granted in Fiscal 2015 determined pursuant to the Black-Scholes-Merton option +pricing formula, in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in our Annual +Report. See also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and +Estimates" in the Annual Report. At the end of Fiscal 2015, the non-employee directors held options for the following number of shares of common stock: Richard Char—85,000; Gregory A. +Miner—70,000; Gerard M. Mooney—30,000; Thomas L. Thomas—70,000; and Mikel H. Williams—50,000. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they +may incur in such capacities, including liabilities under the Securities Act of 1933, as amended. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers +to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately +determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or +acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our +certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to us +and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and +in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be +subject to liability for breach of the director's duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, +for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also +does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We +have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These +agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys' +27 +fees), +judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or +officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +EQUITY COMPENSATION PLANS +The following table provides information as of March 31, 2015 with respect to shares of our common stock that may be issued +under existing equity compensation plans. +Plan Category +Number of Securities to +be Issued Upon +Exercise +of Outstanding +Options, +Warrants and Rights +Weighted Average +Exercise Price of +Outstanding +Options, Warrants +and Rights +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation Plans +(excluding some securities +reflected in first column) +Equity Compensation Plans Approved by Security Holders +1997 Stock Incentive Plan +196,000 +$ +2.53 +— +2007 Omnibus Incentive Plan +2,003,000 +(1) +1.76 +(2) +1,423,000 +Equity Compensation Plans Not Approved by Security Holders +None +Total +2,199,000 +(1) +$ +1.83 +(2) +1,423,000 +(1) Includes +194,000 shares of our common stock subject to RSUs that entitle each holder to one share of common stock for each such unit that vests over the +holder's period of continued service. +(2) Calculated +without taking into account the 194,000 shares of common stock subject to outstanding RSUs that become issuable as those units vest, without the +payment of any additional consideration or exercise price. +28 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of June 30, 2015, the number and percentage ownership of our common stock by (i) all +persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers (other than Mr. Mohaddes, who is no longer an executive +officer), (iii) each of our directors and director nominees, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the +persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership(2) +Percent of +Class(2) +Lloyd I. Miller, III(3) +4,980,759 +15.6 +% +Thomson Horstmann & Bryant, Inc.(4) +2,241,092 +7.0 +Kevin C. Daly, Ph.D(5) +425,132 +1.3 +Todd Kreter(6) +133,560 +* +Thomas N. Blair(7) +103,901 +* +Richard Char(8) +94,000 +* +Gregory A. Miner(9) +697,485 +2.2 +Gerard M. Mooney(10) +30,000 +* +Thomas L. Thomas(11) +109,000 +* +Mikel H. Williams(12) +60,000 +* +All executive officers and directors as a group (10 persons)(13) +1,702,693 +5.2 +% +* Less +than 1%. +(1) The +address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) Based +on 32,009,487 shares of common stock outstanding as of June 30, 2015. Shares of common stock subject to options or warrants which are +exercisable within 60 days of June 30, 2015 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of +such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of +outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual's name, the number of shares indicated also +includes shares held for the benefit of the named person under our 401(k) plan. +(3) Pursuant +to an amendment to a Schedule 13G filed on February 5, 2015 with the SEC, Mr. Miller reported that, as of December 31, +2014, he had sole dispositive and voting power with respect to 4,845,122 shares as (i) the manager of a limited liability company that is the general partner of certain limited partnerships, +(ii) the manager of a limited liability company that is the adviser to certain trusts, (iii) the manager of a limited liability company, (iv) trustee to a certain grantor retained +annuity trust and (v) an individual. As of such date, Mr. Miller also had shared dispositive and voting power with respect to 135,637 shares as (x) an advisor to the trustee of a +certain trust and (y) an authorized person with respect to a custody account. The address for Mr. Miller is 3300 South Dixie Highway, Suite I-365, West Palm Beach, Florida 33405. +29 +(4) Pursuant +to an amendment to a Schedule 13G filed on January 22, 2015 with the SEC, Thomson Horstmann & Bryant, Inc. reported +that it had sole dispositive power over 2,241,092 shares (and shared voting power over 1,152,696 shares). The address for Thomson Horstmann & Bryant, Inc. is 501 Merritt 7, Norwalk, CT +06851. +(5) Includes +(i) 100 shares held by Dr. Daly's spouse, (ii) 329,032 shares held by Dr. Daly's IRA, and (iii) 70,000 +shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2015. +(6) Includes +(i) 100,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015 and (ii) 5,000 shares issuable within 60 days after June 30, 2015 upon vesting of RSUs. +(7) Includes +(i) 75,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015 and (ii) 12,500 shares issuable within 60 days after June 30, 2015 upon vesting of RSUs. +(8) Includes +85,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015. +(9) Includes +(i) 183,334 shares held by Mr. Miner's IRA, (ii) 19,230 shares held by Mr. Miner's wife's IRA and (iii) 70,000 +shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after June 30, 2015. +(10) Consists +of 30,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015. +(11) Includes +70,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015. +(12) Includes +50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015. +(13) Includes +(i) 585,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +June 30, 2015 and (ii) 20,000 shares issuable within 60 days after June 30, 2015 upon vesting of RSUs. The number indicated includes shares held by Andrew Schmidt, who was +appointed as our Chief Financial Officer in March 2015, and Ramin Massoumi, who was appointed as our Senior Vice President and General Manager, Transportation Systems in March 2015. +30 +CERTAIN TRANSACTIONS +Since April 1, 2013, other than the agreements and transactions described in "Executive Compensation and Other Information" and +the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will +exceed the lesser of $120,000 or the average of our total assets at year end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any +class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Promissory Note with Maxxess +We previously subleased office space to Maxxess Systems, Inc. ("Maxxess"), one of our former subsidiaries that we sold in +September 2003 and is currently owned by an investor group that includes Dr. Daly, our current Chief Executive Officer and a director, who is also the CEO of Maxxess, although he is on +temporary leave from Maxxess while holding the CEO position with Iteris. The sublease terminated in September 2007, at which time Maxxess owed us an aggregate of $274,000 related to this sublease and +certain ancillary corporate services that we provided to Maxxess. In August 2009, Maxxess executed a promissory note payable to us for $274,000. The promissory note accrued interest at a rate of 6% +per annum, compounded annually, with such interest to be paid annually on the first business day of each calendar year, and allowed payments under the note to be made in bona fide services rendered by +Maxxess to us to the extent such services and amounts are pre-approved in writing by us. All amounts outstanding under the note was to become due and payable on the earliest of +(i) August 10, 2014, (ii) a change of control in Maxxess, or (iii) a financing by Maxxess resulting in gross proceeds of at least $10 million. +On +July 23, 2013, the promissory note with Maxxess was amended and restated. The amended and restated note bears interest at a rate of 6% per annum, compounded annually, with +accrued interest to be paid quarterly on the first business day of each calendar quarter. Payments under the amended and restated note may only be made in cash and all amounts outstanding will become +due and payable on the earliest of (i) August 10, 2016, (ii) a change of control in Maxxess or (iii) a financing by Maxxess resulting in gross proceeds of at least +$10 million. As of March 31, 2015, approximately $259,000 of the original principal balance was outstanding and payable to us. For each of the fiscal years ended March 31, 2014 +and 2015, interest payments totaling approximately $16,000 were made by Maxxess. We have previously fully reserved for amounts owed to us by Maxxess and all outstanding principal remains fully +reserved. +Employment Agreement with Andrew Schmidt +We entered into an employment agreement dated March 9, 2015 with Andrew Schmidt, our new Chief Financial Officer, in connection +with his hiring. Pursuant to the agreement, Mr. Schmidt will receive an annual base salary of $325,000, which may be increased from time to time at the discretion of our Board or the +Compensation Committee of the Board. He will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the +Board or the Compensation Committee, provided that the bonus potential for the fiscal year ending March 31, 2016 will be $125,000. The initial term of the agreement will be for a period of two +years but will renew for successive one year periods until March 2025 unless either the Company or Mr. Schmidt provides written notice of non-renewal at least 30 days prior to the end of +the initial term or renewal term, as applicable. If during the initial term of the agreement or any renewal term, Mr. Schmidt's employment with the Company is terminated without Cause or he +resigns from the Company for Good Reason (as such terms are defined in the agreement), we will pay to Mr. Schmidt salary continuation payments for the six months following his termination in an +aggregate amount of up to 50% of his annual base salary as then in effect. In addition, Mr. Schmidt will be entitled to receive reimbursement for the cost of COBRA coverage for a period of up +to six months following such termination. +31 +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any persons holding more than 10% of our common stock are required to +report their ownership of our common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file +by such dates. Based solely on our review of copies of the reports on Forms 3, 4 and 5 received by us with respect to the fiscal year ended March 31, 2015 and written representations +received from the reporting persons that no other reports were required, we believe that all directors, executive officers and persons who own more than 10% of our common stock have complied with the +reporting requirements of Section 16(a) and have filed all reports required by such section. +ANNUAL REPORT +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The +Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the +SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits +thereto) is also available on the SEC's website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply +with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our +proxy statement for the 2016 Annual Meeting of Stockholders (the "2016 Annual Meeting"). Stockholder proposals that are intended to be presented at our 2016 Annual Meeting and included in the proxy +statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than April 9, 2016. +If +a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a +candidate for election to the Board, the stockholder must submit the proposal or nomination on or between May 27, 2016 and June 26, 2016. If the date of the 2016 Annual Meeting is called +for a date that is not within 30 days before or after the anniversary date of the 2015 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must submit +any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or +(ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of +stockholder proposals and director nominations. +In +addition, with respect to any proposal that a stockholder presents at the 2016 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 +under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted +under Rule 14a-4 under the Exchange Act. +Stockholder +proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, +California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of +timely receipt. The presiding officer of the 2016 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply +with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +32 +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters +set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors +may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa +Ana, California +July 29, 2015 +33 +Appendix A +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(amended and restated as of July 2015) +Table of Contents +Section 1. +Purpose +A-1 +Section 2. +Definitions +A-1 +Section 3. +Administration +A-3 +(a) +Power and Authority of the Committee +A-3 +(b) +Power and Authority of the Board +A-4 +Section 4. +Shares Available for Awards +A-4 +(a) +Shares Available +A-4 +(b) +Accounting for Awards +A-4 +(c) +Adjustments +A-4 +(d) +Section 162(m) Award Limitations Under the Plan +A-5 +Section 5. +Eligibility +A-5 +Section 6. +Awards +A-5 +(a) +Options +A-5 +(b) +Stock Appreciation Rights +A-6 +(c) +Restricted Stock and Restricted Stock Units +A-6 +(d) +Performance Awards +A-7 +(e) +Dividend Equivalents +A-7 +(f) +Other Stock Grants +A-7 +(g) +Other Stock-Based Awards +A-8 +(h) +General +A-8 +(i) +Directors' Automatic Option Grant Program +A-9 +Section 7. +Amendment and Termination; Adjustments +A-10 +(a) +Amendments to the Plan +A-10 +(b) +Amendments to Awards +A-11 +(c) +Correction of Defects, Omissions and Inconsistencies +A-11 +Section 8. +Income Tax Withholding +A-11 +Section 9. +General Provisions +A-11 +(a) +No Rights to Awards +A-11 +(b) +Award Agreements +A-12 +(c) +Plan Provisions Control +A-12 +(d) +No Rights of Stockholders +A-12 +(e) +No Limit on Other Compensation Arrangements +A-12 +(f) +No Right to Employment +A-12 +(g) +Governing Law +A-12 +(h) +Severability +A-12 +(i) +No Trust or Fund Created +A-12 +(j) +Other Benefits +A-13 +(k) +No Fractional Shares +A-13 +(l) +Headings +A-13 +(m) +Section 16 Compliance; Section 162(m) Administration +A-13 +(n) +Conditions Precedent to Issuance of Shares +A-13 +Section 10. +Effective Date of the Plan +A-13 +Section 11. +Term of the Plan +A-13 +A-i +ITERIS, INC. +2007 OMNIBUS INCENTIVE PLAN +(amended and restated as of July 2015) +Section 1. Purpose +The +purpose of the Plan is to promote the interests of the Company and its stockholders by aiding the Company in attracting and retaining employees, officers, consultants, independent +contractors, advisors and directors capable of assuring the future success of the Company, to offer such persons incentives to continue in the Company's employ or service and to afford such persons an +opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company. +Section 2. Definitions +As +used in the Plan, the following terms shall have the meanings set forth below: +(a) " Affiliate " shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is +controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee. +(b) " Award " shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, +Dividend Equivalent, Other Stock Grant or Other Stock-Based Award granted under the Plan. +(c) " Award Agreement " shall mean any written agreement, contract or other instrument or document evidencing an Award granted +under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the +Committee. +(d) " Board " shall mean the Board of Directors of the Company. +(e) " Change in Control " shall mean a change in ownership or control of the Company effected through any of the following +transactions: (i) a merger, consolidation or other reorganization unless securities representing more than 50% of the total combined voting power of the voting securities of the successor +corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company's outstanding voting +securities immediately prior to such transaction; (ii) a sale, transfer or other disposition of all or substantially all of the Company's assets; or (iii) the acquisition, directly or +indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of +beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities +pursuant to a tender or exchange offer made directly to the Company's stockholders. +(f) " Code " shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated +thereunder. +(g) " Committee " shall mean one or more committees of Directors designated by the Board to administer the Plan, of which the +Company's compensation committee shall initially be the primary committee. The primary Committee shall be comprised of at least two Directors but not less than such number of Directors as shall be +required to permit Awards granted under the Plan to qualify under Rule 16b-3 and Section 162(m) of the Code, and each member of the primary Committee shall be a +" Non-Employee Director " and an " Outside Director ." Any secondary Committee shall be comprised of at +least two Directors. +A-1 +(h) " Company " shall mean Iteris, Inc., a Delaware corporation, and any successor corporation. +(i) " Director " shall mean a member of the Board, including any Non-Employee Director. +(j) " Dividend Equivalent " shall mean any right granted under Section 6(e) of the Plan. +(k) " Eligible Person " shall mean any employee, officer, consultant, independent contractor, advisor or director providing +services to the Company or any Affiliate who the Committee determines to be an Eligible Person. +(l) " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended. +(m) " Fair Market Value " shall mean, with respect to any property (including, without limitation, any Shares or other +securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing and unless +otherwise determined by the Committee, if the Shares are at the time listed on any stock exchange in the United States, the Fair Market Value of a Share as of a given date shall be the closing sale +price of one Share as reported on the principal United States exchange on which the Shares are listed on the date as of which Fair Market Value is being determined, or, if there is no closing sales +price for the Shares on the date in question, then the Fair Market Value shall be the closing sales price on the last preceding date for which such price exists. +(n) " Incentive Stock Option " shall mean an option granted under Section 6(a) of the Plan that is intended to qualify +as an "incentive stock option" in accordance with the terms of Section 422 of the Code or any successor provision. +(o) " Non-Employee Director " shall mean any Director who is not also an employee of the Company or an Affiliate within the +meaning of Rule 16b-3. +(p) " Non-Qualified Stock Option " shall mean an option granted under Section 6(a) of the Plan that is not an Incentive +Stock Option. +(q) " Option " shall mean an Incentive Stock Option or a Non-Qualified Stock Option. +(r) " Other Stock Grant " shall mean any right granted under Section 6(f) of the Plan. +(s) " Other Stock-Based Award " shall mean any right granted under Section 6(g) of the Plan. +(t) " Outside Director " shall mean any Director who is an "outside director" within the meaning of Section 162(m) of +the Code. +(u) " Participant " shall mean an Eligible Person designated to be granted an Award under the Plan. +(v) " Performance Award " shall mean any right granted under Section 6(d) of the Plan. +(w) " Performance Goal " shall mean one or more of the following performance goals, either individually, alternatively or in +any combination, applied on a corporate, subsidiary or business unit basis: revenue, cash flow, gross profit, earnings before interest and taxes, earnings before interest, taxes, depreciation and +amortization, net earnings, earnings per share, margins (including one or more of gross, operating and net income margins), returns (including one or more of return on assets, equity, investment, +capital and revenue and total stockholder return), stock price, economic value added, working capital, market share, cost reductions, workforce satisfaction and diversity goals, employee retention, +customer satisfaction, and completion of key projects and strategic plan development and implementation. Such goals may reflect absolute entity or business unit performance or a relative comparison to +the performance of a peer group of entities or other +A-2 +external +measure of the selected performance criteria. Pursuant to rules and conditions adopted by the Committee on or before the 90th day of the applicable performance period for which +Performance Goals are established, the Committee may appropriately adjust any evaluation of performance under such goals to exclude the effect of certain events, including any of the following events: +asset write-downs; litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; severance, contract termination +and other costs related to exiting certain business activities; and gains or losses from the disposition of businesses or assets or from the early extinguishment of debt. +(x) " Person " shall mean any individual or entity, including a corporation, partnership, limited liability company, +association, joint venture or trust. +(y) " Plan " shall mean the Iteris, Inc. 2007 Omnibus Incentive Plan, as amended from time to time, the provisions of +which are set forth herein. +(z) " Qualified Performance Based Award " shall have the meaning set forth in Section 6(d) of the Plan. +(aa) " Restricted Stock " shall mean any Share granted under Section 6(c) of the Plan. +(bb) " Restricted Stock Unit " shall mean any unit granted under Section 6(c) of the Plan evidencing the right to +receive a Share (or evidencing the right to receive a cash payment equal to the Fair Market Value of a Share if explicitly so provided in the Award Agreement) at some future date. +(cc) " Rule 16b-3 " shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the +Exchange Act, or any successor rule or regulation. +(dd) " Section 162(m) " shall mean Section 162(m) of the Code and the applicable Treasury Regulations promulgated +thereunder. +(ee) " Securities Act " shall mean the Securities Act of 1933, as amended. +(ff) " Service " shall mean the performance of services for the Company (or any Affiliate) by a person in the capacity of an +employee, a member of the board of directors or a consultant, except to the extent otherwise specifically provided in the Award Agreement. +(gg) " Share " or " Shares " shall mean a share or shares of common stock, $0.10 +par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. +(hh) " Stock Appreciation Right " shall mean any right granted under Section 6(b) of the Plan. +Section 3. Administration +(a) Power and Authority of the Committee. The Plan shall be administered by the +Board and the primary Committee. The Board may designate a secondary Committee to have concurrent authority to administer the Plan, provided that the secondary Committee shall not have any authority +(i) with regard to grants of Options to be made to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Exchange Act, (ii) in such a manner +as would cause the Plan not to comply with the requirements of Section 162(m) of the Code or (iii) in such a manner as would contravene Section 157 of the Delaware General +Corporation Law. Any Awards made to members of the Committee, however, should be authorized by a disinterested majority of the Board. Subject to the express provisions of the Plan and to applicable +law, the Committee (or the Board, as applicable) shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each +Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be determined in connection with) each +A-3 +Award; +(iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of +any Option or waive any restrictions relating to any Award; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other +Awards or other property, or canceled, forfeited or suspended; (vii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; +(viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any +other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, +determinations, interpretations and other decisions under or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time and +shall be final, conclusive and binding upon any Eligible Person and any holder or beneficiary of any Award. +(b) Power and Authority of the Board. Notwithstanding anything to the contrary +contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan. +Section 4. Shares Available for Awards +(a) Shares Available. Subject to adjustment as provided in Section 4(c) of +the Plan, the aggregate number of Shares that may be issued under the Plan shall be Four Million Nine Hundred Fifty Thousand (4,950,000). Shares to be issued under the Plan may be either authorized +but unissued Shares or Shares re-acquired and held in treasury. Notwithstanding the foregoing, (x) the number of Shares available for granting Incentive Stock Options under the Plan shall not +exceed Four Million Nine Hundred Fifty Thousand (4,950,000), subject to adjustment as provided in Section 4(c) of the Plan and subject to the provisions of Section 422 or 424 of the Code +or any successor provision, and (y) the number of Shares available for granting Restricted Stock and Restricted Stock Units shall not exceed Four Million Nine Hundred Fifty Thousand +(4,950,000), subject to adjustment as provided in Section 4(c) of the Plan. +(b) Accounting for Awards. For purposes of this Section 4, if an Award +entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the +aggregate number of Shares available for granting Awards under the Plan. In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award +otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any +such forfeiture or termination, shall again be available for granting Awards under the Plan. +(c) Adjustments. In the event any dividend or other distribution (whether in the +form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or +exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event +affects the Shares such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the +Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject +of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards, (iii) the purchase price or exercise price with respect to any Award +and (iv) the limitations contained in Section 4(d) of the Plan; provided , however , that +the number of Shares covered by any Award or to which such Award relates shall always be a whole number. +A-4 +(d) Section 162(m) Award Limitations Under the Plan. Notwithstanding any +other provision of the Plan other than Section 4(c), if the Committee provides that this Section 4(d) is applicable to a particular Award, no Participant receiving such an Award shall be +granted: (i) Options or SARs with respect to more than 500,000 Shares in the aggregate within any fiscal year of the Company; or (ii) Qualified Performance Based Awards which could +result in such Participant receiving more than $1,500,000 in cash or the equivalent Fair Market Value of Shares determined at the date of grant for each full or partial fiscal year of the Company +contained in the +performance period of a particular Qualified Performance Based Award; provided , however , that, if any +other Qualified Performance Based Awards are outstanding for such Participant for a given fiscal year, such dollar limitation shall be reduced for each such given fiscal year by the amount that could +be received by the Participant under all such Qualified Performance Based Awards, divided, for each such Qualified Performance Based Award, by the number of full or partial fiscal years of the Company +contained in the performance period of each such outstanding Qualified Performance Based Award; provided , however , that the limitations set forth in this +Section 4(d) shall be subject to adjustment under Section 4(c) of the Plan only to the +extent that such adjustment does not affect the status of any Award intended under Section 6(d) to qualify as "performance based compensation" under Section 162(m) of the Code. +Section 5. Eligibility +Any +Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into +account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its +discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full-time or part-time employees (which term as used herein includes, without +limitation, officers and directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" +of the Company within the meaning of Section 424(f) of the Code or any successor provision. +Section 6. Awards +(a) Options. The Committee is hereby authorized to grant Options to Eligible +Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: +(i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the +Committee; provided , however , that such purchase price shall not be less than 100% of the Fair Market +Value of a Share on the date of grant of such Option. +(ii) Option Term. The term of each Option shall be fixed by the Committee at the time of grant, but shall not be +longer than 10 years from the date of grant. +(iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be +exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any +combination thereof, having a Fair Market Value on the exercise date equal to the applicable exercise +price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. The Committee shall have the discretion to grant Options that are exercisable for unvested +Shares. Should the Participant's Service cease while the Shares issued upon the early exercise of the Participant's Options are still unvested, the Company shall have the right to repurchase any or +all of those unvested Shares at a price per share determined by the Committee. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the +appropriate vesting schedule for the purchased shares) +A-5 +shall +be established by the Committee and set forth in the Award Agreement. Any repurchases must be made in compliance with the relevant provisions of Delaware law. +(iv) Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, the following additional +provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options: +(A) The +Committee will not grant Incentive Stock Options in which the aggregate Fair Market Value (determined as of the time the option is granted) of the Shares with +respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under this Plan and all other plans of the Company and its Affiliates) shall +exceed $100,000. +(B) All +Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by the Board or the date this Plan was approved +by the stockholders of the Company. +(C) Unless +sooner exercised, all Incentive Stock Options shall expire and no longer be exercisable no later than 10 years after the date of grant; provided , however , that in the case of a grant of an Incentive Stock Option to a Participant who, at the +time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of +its Affiliate, such Incentive Stock Option shall expire and no longer be exercisable no later than 5 years from the date of grant. +(D) The +purchase price per Share for an Incentive Stock Option shall be not less than 100% of the Fair Market Value of a Share on the date of grant of the Incentive Stock +Option; provided , however , that, in the case of the grant of an Incentive Stock Option to a Participant +who, at the time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the +Company or of its Affiliate, the purchase price per Share purchasable under an Incentive Stock Option shall be not less than 110% of the Fair Market Value of a Share on the date of grant of the +Inventive Stock Option. +(E) Any +Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent +with and contain all provisions required in order to qualify the Option as an Incentive Stock Option. +(b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock +Appreciation Rights to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. Each Stock Appreciation Right granted under the Plan shall confer on the holder upon +exercise the right to receive a number of Shares equal to the excess of (a) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time +during a specified period before or after the date of exercise) over (b) the grant price of the Stock Appreciation Right as determined by the Committee, which grant price shall not be less than +100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan, the grant price, term, methods of exercise, dates of exercise and any +other terms and conditions (including conditions or restrictions on the exercise thereof) of any Stock Appreciation Right shall be as determined by the Committee. +(c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized +to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of +the Plan as the Committee shall determine: +A-6 +(i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions +as the Committee may impose (including, without limitation, a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which +restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. +(ii) Issuance of Shares. Any Restricted Stock granted under the Plan may be evidenced in such manner as the +Board may deem appropriate, including book-entry registration or issuance of a stock certificate or +certificates which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend +referring to the restrictions applicable to such Restricted Stock. +(iii) Forfeiture. Except as otherwise determined by the Committee, upon a Participant's termination of Service +(as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and Restricted Stock Units at such time subject to restriction +shall be forfeited and reacquired by the Company; provided , however , that the Committee may, when it +finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. +(d) Performance Awards. The Committee is hereby authorized to grant Performance +Awards to Eligible Persons subject to the terms of the Plan. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, +Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, +upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any +performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other +terms and conditions of any Performance Award shall be determined by the Committee. From time to time, the Committee may designate an Award granted pursuant to the Plan as an award of "qualified +performance-based compensation" within the meaning of Section 162(m) of the Code (a " Qualified Performance Based Award "). Qualified Performance +Based Awards shall, to the extent required by Section 162(m), be conditioned solely on the achievement of one or more objective Performance Goals, and such Performance Goals shall be +established by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). The Committee shall also certify in writing that such +Performance Goals have been met prior to payment of the Qualified Performance Based Awards to the extent required by Section 162(m). +(e) Dividend Equivalents. The Committee is hereby authorized to grant Dividend +Equivalents to Eligible Persons under which the Participant shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of +the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan, +such Dividend Equivalents may have such terms and conditions as the Committee shall determine. +(f) Other Stock Grants. The Committee is hereby authorized, subject to the terms of +the Plan, to grant to Eligible Persons Shares without restrictions thereon (" Other Stock Grants ") as are deemed by the Committee to be consistent with +the purpose of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, such Other Stock Grant may have such terms and conditions as the Committee shall determine. +A-7 +(g) Other Stock-Based Awards. The Committee is hereby authorized to grant to +Eligible Persons, subject to the terms of the Plan, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares +(including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a +purchase right granted under this Section 6(g) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, +cash, Shares, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall +not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. +(h) General . +(i) Consideration for Awards. Awards may be granted for no cash consideration or for any cash or other +consideration as determined by the Committee and required by applicable law. +(ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted +either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate. Awards granted in addition to or in tandem +with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the +grant of such other Awards or awards. +(iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, +payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine +(including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a +deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of +reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments. +(iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants) and no right under any such Award +shall be transferable by a Participant other than by will or by the laws of descent and distribution and the Company shall not be required to recognize any attempted assignment of such rights by any +Participant; provided , however , that, if so determined by the Committee, a Participant may, in the +manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death +of the Participant; provided , further , that, if so determined by the Committee, a Participant may, at +any time that such Participant holds such Option, transfer a Non-Qualified Stock Option to any "Family Member" (as such term is defined in the General Instructions to Form S-8, or any successor +to such Instructions or such Form), or to an inter vivos or testamentary trust in which Family Members have a beneficial interest of more than 50% and +which provides that such Option is to be transferred to the beneficiaries upon the Participant's death, provided that the Participant may not receive +any consideration for such transfer, the Family Member may not make any subsequent transfers other than by will or by the laws of descent and distribution and the Company receives written notice of +such transfer, provided , further , that, if so determined by the Committee and except in the case of an +Incentive Stock Option, Awards may be transferable as determined by the Committee. Except as otherwise determined by the Committee, each Award (other than an Incentive Stock Option) or right under any +such Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. Except as +A-8 +otherwise +determined by the Committee, no Award (other than an Incentive Stock Option) or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported +pledge, alienation, attachment or other encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. +(v) Term of Awards. The term of each Award shall be fixed by the Committee at the time of grant, but shall not +be longer than 10 years from the date of grant. +(vi) Restrictions; Securities Exchange Listing. All Shares or other securities delivered under the Plan pursuant +to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities +laws and regulatory requirements, and the Committee may direct appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect +such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and +until such Shares or other securities have been and continue to be admitted for trading on such securities exchange. No Shares or other assets shall be issued or delivered pursuant to the Plan unless +and until there shall have been compliance with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration statement for the +Shares issuable pursuant to the Plan, and all applicable listing requirements of any stock exchange or trading system on which Common Stock is then traded. No Shares shall be issued or delivered +pursuant to the Plan if doing so would violate any internal policies of the Company. +(vii) Prohibition on Repricing. Except as provided in Section 4(c) of the Plan, no Option or Stock +Appreciation Right may be amended to reduce its initial exercise or grant price and no Option or Stock Appreciation Right shall be canceled and replaced with Options or Stock Appreciation Rights +having a lower exercise or grant price, without the approval of the stockholders of the Company or unless there would be no material adverse effect on the Company's financial statements as prepared in +accordance with generally accepted accounting principles in the United States. +(i) Directors' Automatic Option Grant Program . +(i) Annual Grant. Beginning with the 2011 Annual Stockholders Meeting, each Non-Employee Director shall receive +annually on the date of each annual stockholders' meeting a Non-Qualified Stock Option to purchase Ten Thousand (10,000) Shares, provided that such Non-Employee Director has served as a Non-Employee +Director for at least six (6) months and is to continue to serve as a Non-Employee Director, whether or not he or she is standing for reelection at that particular Annual Meeting. The exercise +price for the Shares shall be 100% of the Fair Market Value of the Shares on the date of grant. Each Option shall be exercisable immediately upon grant, shall be exercisable for ten (10) years +following the date of grant and shall be generally subject to the terms and conditions set forth in the Plan. Each such Option shall initially be unvested and shall vest in full upon the Non-Employee +Director's completion of one (1) year of Board service measured from the grant date. There shall be no limit on the number of such automatic Option grants any one Non-Employee Director +may receive over his or her period of Board service, and Non-Employee Directors who have previously been employees of the Company (or any Affiliate) or who have received one or more Option grants from +the Company prior to becoming a Non-Employee Director shall be eligible to receive one or more such automatic Option grants over their period of continued Board service. +(ii) Initial Grant. Upon appointment or initial election to the Board, each Non-Employee Director shall receive +a Non-Qualified Stock Option to purchase Twenty Thousand (20,000) Shares, provided such individual was not previously in the Company's employ. The exercise price +A-9 +for +such Shares shall be 100% of the Fair Market Value of the Shares on the date of grant. Each Option shall be exercisable immediately upon grant, shall be exercisable for 10 years following +the date of grant and shall be generally subject to the terms and conditions set forth in the Plan. Each such Option shall initially be unvested and shall vest in full upon the Non-Employee Director's +completion of one (1) year of Board service measured from the grant date. +(iii) Termination of Board Service. The following provisions shall govern the exercise of any options granted to +Non-Employee Directors pursuant to the Automatic Option Grant Program that are outstanding at the time the Non-Employee Director ceases to serve as a Board member: +(A) Should +the Non-Employee Director's service as a Board member cease for any reason while one or more Options granted pursuant to this Automatic Option Grant Program are +outstanding, then each such Option shall remain exercisable, for any or all of the vested Shares for which the Option is exercisable at the time of such cessation of Board service, until the earlier +of (i) the termination date of the Option or (ii) the expiration of the one-year period measured from the date the Non-Employee Director's Board service ceases. Upon the expiration of +the one-year post-termination exercise period, or (if earlier) upon the termination date of the Option, the Option shall terminate with respect to any vested Shares for which the Option has not been +exercised. +(B) Should +the Non-Employee Director cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the Option granted +pursuant to this Automatic Option Grant Program shall immediately vest so that such Option may, during the twelve (12) month exercise period following such cessation of Board service, be +exercised for all or any portion of those shares as fully vested shares of Common Stock. " Permanent Disability " for purposes of this section shall mean +the inability of the Non-Employee Director to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to +be of continuous duration of twelve (12) months or more. +(C) Each +Option granted pursuant to this Automatic Option Grant Program that is outstanding at the time of the Non-Employee Director's cessation of Board service shall +immediately terminate and cease to remain outstanding with respect to any and all unvested Shares for which the Option is not otherwise at that time exercisable. +(iv) Change in Control. In the event of a Change in Control effected during the Non-Employee Director's period +of Board service, the vesting, if any, of each Option granted pursuant to this Automatic Option +Grant Program at the time held by such Non-Employee Director shall automatically accelerate so that each such Option shall, immediately prior to the specified effective date for the Change in Control, +become fully-vested and exercisable for all of the Shares at the time subject to such Option and may be exercised for all or any portion of such Shares. Upon the consummation of the Change in Control, +all Options granted pursuant to this Automatic Option Grant Program shall terminate and cease to be outstanding. +(v) Remaining Terms. The remaining terms and conditions of each Option granted pursuant to this Automatic Option +Grant Program shall be substantially the same as the terms in effect for Options made under the Plan and shall be set forth in an Option Agreement. +Section 7. Amendment and Termination; +Adjustments +(a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or +terminate the Plan at any time; provided , however , that, notwithstanding any other provision of the Plan +or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: +A-10 +(i) violates +the rules or regulations of the Financial Industry Regulatory Authority, Inc. or any other regulatory organization or securities exchange that are +applicable to the Company; +(ii) causes +the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan; +(iii) increases +the number of shares authorized under the Plan as specified in Section 4(a); +(iv) permits +the award of Options or Stock Appreciation Rights at a price less than 100% of the Fair Market Value of a Share on the date of grant of such Option or Stock +Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b) of the Plan or the repricing of Options or Stock Appreciation Rights, as prohibited by Section 6(h)(vii) of the Plan; or +(v) would +prevent the grant of Options or Stock Appreciation Rights that would qualify under Section 162(m) of the Code. +(b) Amendments to Awards. The Committee may waive any conditions of or rights of +the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or +terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or +beneficiary thereof. Notwithstanding the foregoing, the Committee shall not waive any conditions or rights of the Company, or otherwise amend or alter any outstanding Qualified Performance Based +Awards in such a manner as to cause such Award not to qualify as performance based compensation within the meaning of Section 162(m) of the Code. +(c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct +any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award or Award Agreement in the manner and to the extent it shall deem desirable to implement or maintain the +effectiveness of the Plan. +Section 8. Income Tax Withholding +In +order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable +federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to +assist a Participant in paying all or a portion of the federal, state and local taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the +Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company +withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes +or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the +amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. +Section 9. General Provisions +(a) No Rights to Awards. No Eligible Person or other Person shall have any claim to +be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards +need not be the same with respect to any Participant or with respect to different Participants. +A-11 +(b) Award Agreements. No Participant will have rights under an Award granted to +such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant. +(c) Plan Provisions Control. In the event that any provision of an Award Agreement +conflicts with or is inconsistent in any respect with the terms of the Plan as set forth herein or subsequently amended, the terms of the Plan shall control. +(d) No Rights of Stockholders. Except with respect to Shares of Restricted Stock as +to which the Participant has been granted the right to vote, neither a Participant nor the Participant's legal representative shall be, or have any of the rights and privileges of, a stockholder of +the Company with respect to any Shares issuable to such Participant upon the exercise or payment of any Award, in whole or in part, unless and until such Shares have been issued in the name of such +Participant or such Participant's legal representative without restrictions thereto. +(e) No Limit on Other Compensation Arrangements. Nothing contained in the Plan +shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable +only in specific cases. +(f) No Right to Employment. The grant of an Award shall not be construed as giving +a Participant the right to be retained in the employ, or as giving a director of the Company or an Affiliate the right to continue as a director or an Affiliate of the Company or any Affiliate, nor +will it affect in any way the right of the Company or an Affiliate to terminate a Participant's employment or Service at any time, with or without cause. In addition, the Company or an Affiliate may +at any time dismiss a Participant from employment, or terminate the term of a director of the Company or an Affiliate, free from any liability or any claim under the Plan or any Award, unless +otherwise expressly provided in the Plan or in any Award Agreement. Nothing in this Plan shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or +indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate. The Awards granted hereunder shall not form any part of the wages or salary of any Eligible +Person for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the +Company or any Affiliate be entitled to any compensation for any loss of any right or benefit under the Plan which such employee might otherwise have enjoyed but for termination of employment, whether +such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, each Participant shall be deemed to have accepted all +the +conditions of the Plan and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby. +(g) Governing Law. The validity, construction and effect of the Plan or any Award, +and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Delaware. +(h) Severability. If any provision of the Plan or any Award is or becomes or is +deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or +deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or +the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. +(i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be +construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any +A-12 +Affiliate +and an Eligible Person or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no +greater than the right of any unsecured general creditor of the Company or any Affiliate. +(j) Other Benefits. No compensation or benefit awarded to or realized by any +Participant under the Plan shall be included for the purpose of computing such Participant's compensation under any compensation-based retirement, disability, or similar plan of the Company unless +required by law or otherwise provided by such other plan. +(k) No Fractional Shares. No fractional Shares shall be issued or delivered +pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be +canceled, terminated or otherwise eliminated. +(l) Headings. Headings are given to the Sections and subsections of the Plan solely +as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. +(m) Section 16 Compliance; Section 162(m) Administration. The Plan is +intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements +of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its +absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to +Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Eligible Persons. With respect to Options and Stock Appreciation Rights, the +Company intends to have the Plan administered in accordance with the requirements for the award of "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. +(n) Conditions Precedent to Issuance of Shares. Shares shall not be issued pursuant +to the exercise or payment of the purchase price relating to an Award unless such exercise or payment and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant +provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange and the +Delaware General Corporation Law. As a condition to the exercise or payment of the purchase price relating to such Award, the Company may require that the person exercising or paying the purchase +price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, +such a representation and warranty is required by law. +Section 10. Effective Date of the Plan +The +Plan became effective on September 21, 2007, the date of approval of the Plan by the Company's stockholders. +Section 11. Term of the Plan +No +Award shall be granted under the Plan after (i) July 19, 2017 or (ii) any earlier date of discontinuation or termination established pursuant to +Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the +authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan. +A-13 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints KEVIN C. DALY, PH.D. and ANDREW SCHMIDT, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, on September 24 2015 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof, and to vote all shares of common stock of Iteris held of record by the undersigned on July 28, 2015, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW OR, IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL ONE, “FOR” EACH OF THE OTHER PROPOSAL(S), AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +x Please mark votes as in this example. +1. Election of Directors: To elect Richard Char, Kevin C. Daly, Ph.D., Gregory A. Miner, Gerard M. Mooney, Thomas L. Thomas, and Mikel H. Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o FOR ALL o WITHHOLD FOR ALL o For All EXCEPT* +(*Instructions: To withhold authority to vote for any individual nominee, mark the “For All EXCEPT” box above and write that nominee’s name in the space provided above.) +2. Ratification of McGladrey LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2016. +o FOR o AGAINST o ABSTAIN +3. Approval of the amendment of the Iteris, Inc. 2007 Omnibus Incentive Plan to increase the number of shares of common stock authorized for issuance under the plan by an additional 1,000,000 shares to 4,950,000 shares. +o FOR o AGAINST o ABSTAIN +MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS o +MARK HERE IF YOU PLAN TO ATTEND THE MEETING o +Signature: +Date: +Signature: +Date: +(This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.) \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-15-006411/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-15-006411/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001047469-16-016852/proxy.txt b/raw/proxies/0000350868/0001047469-16-016852/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c77fde31059b94d4bb0cf9c9f313da31f4a05849 --- /dev/null +++ b/raw/proxies/0000350868/0001047469-16-016852/proxy.txt @@ -0,0 +1,2871 @@ +DEF 14A +1 +a2230275zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD DECEMBER 15, 2016 +To the Stockholders of Iteris, Inc.: +NOTICE +IS HEREBY GIVEN that the 2016 Annual Meeting of Stockholders (the "Annual Meeting") of Iteris, Inc., a Delaware corporation, will be held on December 15, 2016 at +10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in +the proxy statement accompanying this Notice: +1. To +approve an amendment of the bylaws to change the size of the Board of Directors to not less than six nor more than eleven members, with the exact number +to be initially set at six. +2 To +elect Joe Bergera, D. Kyle Cerminara, Kevin C. Daly, Ph.D., Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams to the Board of Directors, each +to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +3. To +approve the Iteris, Inc. 2016 Omnibus Incentive Plan. +4. To +approve, by advisory vote, the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +5. To +ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending +March 31, 2017. +6. To +ratify the prior grant to Joe Bergera, the Company's Chief Executive Officer, of an option to purchase 850,000 shares of Common Stock. +7. To +transact any other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All +stockholders of record as of the close of business on October 31, 2016 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or adjournment(s) +thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. +You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in "street name" (i.e., your shares are held in the name of a brokerage firm, bank or other +nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or +by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date +and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the +Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted. For +further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +Santa Ana, California +November 21, 2016 +BY ORDER OF THE BOARD OF DIRECTORS +Joe Bergera +Chief Executive Officer +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS +PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD DECEMBER 15, 2016 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of +Directors of Iteris, Inc., a Delaware corporation ("Iteris," the "Company," "we," "our" and "us"), to be voted at the 2016 Annual Meeting of Stockholders (the "Annual Meeting") to be held on +December 15, 2016 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at +1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. These proxy materials and the form of proxy are expected to be mailed to our stockholders, who are entitled to vote at the Annual +Meeting, on or about November 21, 2016. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual +Meeting of Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON +DECEMBER 15, 2016: The proxy statement, proxy card, and Annual Report on Form 10-K for the fiscal year ended March 31, 2016 +(the "Annual Report") are available at www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +October 31, 2016. At the close of business on the record date, 32,186,185 shares of our Common Stock, par value $0.10 per share, were outstanding and no shares of our Preferred Stock were +outstanding. Each stockholder is entitled to one vote for each share of Common Stock held by such stockholder as of the record date. +The presence in person or by proxy of the holders of a majority of the outstanding shares of the Common Stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +1 +In +the election of directors under Proposal Two, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual +Meeting, unless cumulative voting is in effect. Pursuant to our bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in +nomination prior to the commencement of voting and unless at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has +given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number +of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of +votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by +proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. +With +regard to each of the other proposals, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual +Meeting is being sought. +If +you hold your shares in "street name" (i.e., your shares are held in the name of a brokerage firm, bank or other nominee (each, a "custodian")), your custodian is considered to +be the stockholder of record for purposes of voting at the Annual Meeting. Your custodian is required to vote your shares on your behalf in accordance with your instructions. If you do not give +instructions to your custodian, your custodian is permitted to vote your shares with respect to "routine" matters, such as the ratification of the appointment of Deloitte & Touche LLP as +our independent registered public accounting firm under Proposal Five. However, if you do not give instructions to your custodian, your custodian will NOT be permitted to vote your shares with respect +to "non-routine" matters. All other proposals described in this proxy statement are considered non-routine matters. Accordingly, if you do not give your custodian specific instructions for voting on +each of the other proposals, then your shares will be treated as "broker non-votes" with respect to such proposal(s) and will not be voted on the proposal(s) for which you did not provide +instructions. +All +votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. +Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the +tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a +proposal has been approved. +Voting +You may vote by one of the following ways: (i) by mail, (ii) electronically over the Internet or by telephone, or +(iii) by ballot in person at the Annual Meeting. If you are a "registered holder" (i.e., your shares are registered in your own name through our transfer agent), you may vote by +returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in "street name", in lieu of a proxy card you +should receive a voting instruction form from that custodian by mail. The voting instruction form should indicate whether the custodian has a process for beneficial holders to vote over the Internet +or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone +companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the +self-addressed, postage-paid envelope provided. +2 +If +you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you +must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will +be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should +receive from that custodian an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in +multiple accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card or voting instruction form to ensure that all of your shares will be +voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. +Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares represented thereby are to be voted, the proxy will be voted +(i) FOR the election of the directors proposed by our Board of Directors (the "Board") under Proposal Two and (ii) FOR the approval of each of the other proposals as described in this +proxy statement and the accompanying notice. +The +enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. +We have not been notified by any stockholder of an intent to present a stockholder proposal at the Annual Meeting. +If +your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later +date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your +vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at +the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless +you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the +costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be +furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial +owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be +supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these +individuals for any such services. +In +the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to +retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +APPROVAL OF AMENDMENT OF THE COMPANY'S BYLAWS +The stockholders are being asked to approve an amendment of the Company's bylaws which would reduce the minimum size of the Company's +Board of Directors to six members. The Company's bylaws currently provide for a Board of not less than seven nor more than eleven members. The proposed amendment would provide for a Board of not less +than six nor more than eleven members, with the exact number to be initially set at six, effective immediately upon stockholder approval of the amendment at the Annual Meeting. The Board of Directors +believes that such amendment of the bylaws would provide the Board with greater flexibility in setting the size of the Board to maintain its effectiveness and operations in response to changes in +circumstances. +The +proposed change to the Company's bylaws would be effected by amending the first sentence of Section 1, Article III of the Company's bylaws to read as follows: +"The +Board of Directors shall consist of not less than six (6) nor more than eleven (11) members, the exact number of which shall be six (6) until changed, within the limits +specified above by a resolution duly adopted by the Board of Directors or by the stockholders." +If +the amendment is approved, the size of the Board will be immediately set at six. However, the Board may resolve, at any time thereafter, to change the size of the Board to a different +number within the allowed range of six to eleven directors, and fill any vacancies created thereby without a further vote of the stockholders. The Nominating and Corporate Governance Committee has +retained a recruiting firm to conduct a national search for a qualified independent director (the "Independent Director") with relevant industry and public company experience and expertise. Once such +a person is identified, the Board intends to increase the size of the Board to seven and appoint the Independent Director to fill the vacancy created from such increase. +Stockholder Approval +The affirmative vote of a majority of the common stock present or represented and entitled to vote at the Annual Meeting will be +required for the approval of the amendment of the bylaws as proposed in this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the amendment of the Company's bylaws to +revise the range in the size of the Board of Directors to not less than six nor more than eleven members. +4 +PROPOSAL TWO: +ELECTION OF DIRECTORS +Six persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next +annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate +Governance Committee (the "NCG Committee") and pursuant to the Agreement (defined and described below), our Board of Directors selected and approved the following persons as nominees for election at +the Annual Meeting: Joe Bergera, D. Kyle Cerminara, Kevin C. Daly, Ph.D., Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams. Each nominee is currently a member of our Board of Directors and has +agreed to serve if elected. +On +July 29, 2016, the Company entered into an agreement (the "Agreement") with D. Kyle Cerminara, RELM Wireless Corporation, Fundamental Global Investors, LLC, Fundamental +Global Partners, LP, Fundamental Global Partners GP, LLC, Fundamental Global Partners Master Fund, LP, FG Partners GP, LLC, FGI Global Asset Allocation +Fund, Ltd., FGI Global Asset Allocation Master Fund, LP, Tactical Capital Investments LLC, Ballantyne Strong, Inc., CWA Asset Management Group, LLC, FGI Funds +Management, LLC and FGI International USVI, LLC (collectively, the "Investor Group"). Pursuant to the Agreement, and subject to the conditions set forth therein, the Company increased +the size of the Board from seven to eight directors and filled the newly created vacancy on the Board by appointing Mr. Cerminara as a member of the Board, effective August 1, 2016. +In addition, the Company agreed (i) to retain a national recruiting firm to locate a qualified independent director to join the Board, subject to approval as set forth in the +Agreement (the "Independent Director") and (ii) to nominate a company slate of directors for election at the Company's 2016 Annual Meeting of Stockholders (the "Annual Meeting") to consist of +the following persons (the "Company Slate"): (A) the Independent Director (if such Independent Director is selected prior to the proxy statement filing for the Annual Meeting), +(B) D. Kyle Cerminara, (C) the following three existing directors who were selected by the NCG Committee: Joe Bergera, Gerard M. Mooney and Mikel H. Williams, and (D) two +other existing Board members to be chosen by the NCG Committee. If the Independent Director is not selected prior to the filing of the proxy statement for the Annual Meeting, then the Company will +increase the size of the Board from six directors to seven directors upon the selection of the Independent Director, and will appoint the Independent Director to fill the vacancy created thereby. As +of the date hereof, the Independent Director has not been identified, and the NCG Committee has selected Kevin C. Daly, Ph.D and Thomas L. Thomas as the final two director nominees for the Company +Slate. As such, the remaining two existing Board members, Messrs. Char and Miner will not be standing for re-election at the Annual Meeting. +We +have no reason to believe that any of the nominees on the Company Slate will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to +serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary +authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +Stockholder Approval +The six candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote +at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing +for election as such proxy holders in their discretion elect. +5 +Recommendation of the Board of Directors +Our Board of Directors recommends a vote "FOR" the director nominees listed above. +Director Nominees +The table and narrative below set forth information as of October 31, 2016 regarding each director nominee, including the year +they first became directors of Iteris, their business experience during at least the past five years, the public company boards they currently serve on or have served on during the past five years, +and certain other biographical information and attributes that the NCG Committee determined qualify them to serve as directors. The NCG Committee believes that these persons have the following other +key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the ability to engage management and each +other in a constructive and collaborative fashion; diversity of +experience and thought; and the commitment to devote significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +J. Joseph ("Joe") Bergera +53 +Chief Executive Officer, President and Director +D. Kyle Cerminara +39 +Director +Kevin C. Daly, Ph.D.(2)(3)(4) +72 +Director +Gerard M. Mooney(2)(3) +63 +Director +Thomas L. Thomas(1)(2)(4) +67 +Director +Mikel H. Williams(1)(2) +59 +Director +(1) Current +member of the Audit Committee (2) Current +member of the Compensation Committee (3) Current +member of the Nominating and Corporate Governance Committee (4) Current +member of the Finance and Strategic Committee +Joe Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, +Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, +since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive and general manager +positions with Sage Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the +Booth School of Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. Mr. Bergera has over +20 years of experience in technology-related companies and provides extensive management and global software and service industry knowledge to the Board. +D. Kyle Cerminara has been Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC ("FGI"), an SEC +registered investment advisor that manages equity and fixed income hedge funds, since April 2012. FGI is a significant stockholder of the Company. Mr. Cerminara has also served as the Co-Chief +Investment Officer of CWA Asset Management Group, LLC d/b/a Capital Wealth Advisors ("CWA"), a wealth advisor and multi-family office affiliated with FGI, since December 2012. In addition, he has +served Ballantyne Strong, Inc., a holding company with diverse business activities focused on serving the cinema, retail, financial, and government markets, as a director since February 2015, +as its Chairman since May 2015 and as its CEO since November 2015. Mr. Cerminara has also served on the board of directors of RELM Wireless Corporation, a publicly traded company which designs, +manufactures and markets two-way land mobile radios, repeaters, base stations, and related components and subsystems, since July 2015, and on the board of directors of +6 +Itasca Capital, Ltd., a holding company with cash and tax assets, since June 2016. Ballantyne Strong, Inc. owns 32.1% of the outstanding capital stock of Itasca Capital. Prior to co-founding +FGI and partnering with Capital Wealth Advisors, Mr. Cerminara was a Portfolio Manager at Sigma Capital Management from 2011 to 2012, a Director and Sector Head of the Financials Industry at +Highside Capital Management from 2009 to 2011, and a Portfolio Manager and Director at CR Intrinsic Investors from 2007 to 2009. Before joining CR Intrinsic Investors, Mr. Cerminara was a Vice +President, Associate Portfolio Manager and Analyst at T. Rowe Price from 2001 to 2007 and an Analyst at Legg Mason from 2000 to 2001. Mr. Cerminara received an MBA from the Darden School of +Business at the University of Virginia and a B.S. degree in Finance and Accounting from the Smith School of Business at the University of Maryland, where he was a member of Omicron Delta Kappa, an +NCAA Academic All American and Co-Captain of the men's varsity tennis team. He also completed a China Executive Residency at the Cheung Kong Graduate School of Business in Beijing, China. +Mr. Cerminara holds the Chartered Financial Analyst (CFA) designation. Mr. Cerminara has served as a director of Iteris since August 2016 and brings to the Board the perspective of one +of the Company's largest stockholders, as well as his extensive experience in the financial industry. +Mr. Cerminara was appointed to the Board pursuant to an Agreement dated July 29, 2016 (the "Agreement") entered into by us with Mr. Cerminara, RELM Wireless +Corporation, FGI , Fundamental Global Partners, LP, Fundamental Global Partners GP, LLC, Fundamental Global Partners Master Fund, LP, FG Partners GP, LLC, FGI +Global Asset Allocation Fund, Ltd., FGI Global Asset Allocation Master Fund, LP, Tactical Capital Investments LLC, Ballantyne Strong, Inc., CWA Asset Management +Group, LLC, FGI Funds Management, LLC and FGI International USVI, LLC (collectively, the "Investor Group"). As of September 8, 2016, the Investor Group beneficially owned +approximately 8.1% of our outstanding common stock. See also "Principal Stockholders and Common Stock Ownership of Certain Beneficial Owners and Management." Pursuant to the Agreement, we agreed to +appoint Mr. Cerminara as a member of the Board, effective August 1, 2016, and nominate a slate of directors for election at the Annual Meeting consisting of the following persons: the +Independent Director (if such a director is selected prior to the filing of the proxy statement for the Annual Meeting, and subject to approval as set forth in the Agreement), Joe Bergera, +D. Kyle Cerminara, Gerard M. Mooney, Mikel H. Williams, and two other existing Board members chosen by the NCG Committee. The NCG Committee has retained a recruiting firm to conduct a national +search for a qualified independent director with relevant industry and public company experience and expertise. Mr. Cerminara will have the right to attend meetings of the NCG Committee at +which the Independent Director is considered and approved. Upon selection of the Independent Director, the size of the Board will immediately be increased from six directors to seven directors and the +Board will appoint the Independent Director to fill the vacancy created from such increase. +Kevin C. Daly, Ph.D. served as our interim Chief Executive Officer from February 2015 to September 2015. Prior to his service as our +interim CEO, Dr. Daly served as the CEO of Maxxess Systems, Inc., a provider of electronic security systems, from November 2005. Between August 2007 and August 2009, Dr. Daly also +served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. +and ATL Products, Inc. Dr. Daly served on the board of directors of sTec, Inc., a provider of solid state disk systems, from May 2010 until the acquisition of the company in +September 2013 by Western Digital Corporation. Dr. Daly received a B.S. degree in electrical engineering from the University of Notre +Dame and M.S., M.A. and Ph.D degrees in engineering from Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a +director of both private and public companies, Dr. Daly offers to the Board a wealth of management and leadership experience as well as an understanding of issues faced by such companies. +7 +Gerard M. Mooney retired from International Business Machines Corporation ("IBM") in March 2014, after serving in a number of senior +positions since 2000. Most recently, he served as the Vice President Strategy for IBM's Public Sector from February 2012 until his retirement, as the General Manager, Global Smarter Cities for IBM +from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from 2008 to November 2011. He served as Vice President of IBM's Venture Capital Group from +2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company for six years. Mr. Mooney has extensive operational and financial experience +across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the professional transportation market. He +previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search technology, cognitive intelligence, AI, data +mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and co-founder of theinnovationexchange, which offers SaaS cognitive platforms. He received a +B.A. degree from Mount Saint Mary's College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. Mr. Mooney has served as a director of Iteris since +September 2013 and brings to the Board of Directors extensive experience in setting and implementing strategy for both large and small technology organizations, deep category knowledge of the +intelligent transportation market, and familiarity with many key customers for intelligent transportation solutions. +Thomas L. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in +January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from +September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply +chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT Commerce, Ajuba Solutions, and +Vantive Corporation, and as the First Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held various senior executive +management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. Since 2012, Mr. Thomas has served as a director of Accurate Group, which specializes in the +appraisal and title services business where technology has been instrumental in redefining the transaction model for the industry. He has also served on the board of directors of +infoGroup, Inc. from January 2009 to July 2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, +FrontRange Solutions, IDS International, and Quofore International. Mr. Thomas has served as a director of Iteris since 1999 and offers to the Board of Directors valuable business, leadership +and strategic insights obtained through his service as an executive and as a member of the board of directors in a variety of industries and businesses, +including a number of leading technology companies, and his experience in working with companies through several stages of their development. +Mikel H. Williams has served as the Chief Executive Officer and a director of Targus Cayman Holdco Limited, a leading global supplier that +designs, develops and sells products for the mobile worker, including laptop cases, docking stations and accessories for mobile electronic devices, since February 2016. Prior to that, +Mr. Williams served as the Chief Executive Officer and a director of JPS Industries, Inc., a manufacturer of sheet and mechanically formed glass and aramid substrate materials for the +electronics, aerospace, ballistics and general industrial applications, from May 2013 until its sale in July 2015. Mr. Williams was the President, Chief Executive Officer and a director of DDi +Corp., a leading provider of time-critical, technologically advanced electronics manufacturing services, from November 2005 until its sale in May 2012. He has also served in various management +positions with several companies in the technology and professional services related industries. Mr. Williams began his career with PricewaterhouseCoopers as a certified public accountant in +the State of Maryland. +8 +Mr. Williams +also serves as Chairman of the board of directors of Centrus Energy Corp. (formerly USEC Inc.). He was added to USEC's board of directors in October 2013 on the +recommendation of certain holders of USEC's convertible senior notes as USEC was considering a bankruptcy restructuring, which was successfully initiated and completed in 2014. Since October 2015, +Mr. Williams also serves on the board of directors of B. Riley Financial, Inc. He previously served on the boards of Lightbridge Communications Corporation until it was sold in January +2015, and Tellabs, Inc. until it was sold in December 2013. Mr. Williams received his B.S. degree from the University of Maryland in accounting and an M.B.A. from the University of +Georgetown. Mr. Williams has served as a director of Iteris since April 2011 and provides the Board of Directors with operational and public company experience and valuable strategic insights +through his many years of leadership positions in technology-related companies with international operations, as well as valuable knowledge and insights in finance and financial reporting matters. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +9 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our +principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and +Business Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business +Conduct, and any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission ("SEC"), at the same location on our website. +Director Independence +Our policy is to have at least a majority of the directors qualify as "independent" under the standards established by The Nasdaq Stock +Market ("Nasdaq"). The Board of Directors has determined that each of Messrs. Cerminara, Daly, Mooney, Thomas and Williams currently satisfies the requirements for "independence" under such +standards, except that Dr. Daly did not qualify as an independent director while he was serving as our interim Chief Executive Officer from February 2015 to September 2015. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is +in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined +that having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to +emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, the +NCG Committee, and the Finance and Strategic Committee. The Audit Committee, the Compensation Committee, and the NCG Committee each has a written charter that is reviewed annually and revised as +appropriate. A copy of each committee's charter is available on the Investor Relations section of our website at www.iteris.com. The Finance and Strategic Committee was formed as a standing committee +after the year ended March 31, 2016 ("Fiscal 2016"). +During +the Fiscal 2016, the Board of Directors and the various committees of the Board held the following number of meetings: Board of Directors—four; Audit +Committee—seven; Compensation Committee—two; and NCG Committee—none (action was taken by written consent). During Fiscal 2016, no director +attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any standing committees of the Board held while he was serving on +the Board or such committee. +Audit Committee. The current members of our Audit Committee are Messrs. Miner, Thomas and Williams. The Board has determined +that each member +of the Audit Committee is "independent" under the standards established by Nasdaq and the SEC rules regarding audit committee memberships. The Board has identified Mr. Williams as the member of +the Audit Committee who qualifies as an "audit committee financial expert" under applicable SEC rules and regulations governing the +10 +composition of the Audit Committee. Commencing as of the date of the 2016 Annual Meeting, the members of the Audit Committee will consist of Messrs. Daly, Mooney and Williams and +Mr. Williams will become the Chairman of the Audit Committee. +The +Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity +of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related +policies regarding our accounting, internal accounting controls or auditing matters. +The +Audit Committee meets privately with our independent registered public accounting firm, and such firm has unrestricted access to and reports directly to the Audit Committee. The +Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017 and is recommending that our +stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Messrs. Daly, Mooney, Thomas and Williams. +Dr. Daly was +re-appointed to this committee in November 2015 after conclusion of his service as our interim Chief Executive Officer. The Board has determined that each member of the Compensation Committee is (or +was during his time of service) "independent" under the standards established by Nasdaq. Commencing as of the date of the Annual Meeting, the members +of the Compensation Committee will consist of Messrs. Cerminara, Daly and Thomas, and Mr. Thomas will become the Chairman of the Compensation Committee. +The +Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our +"officers" as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (c) reviews and makes recommendations to the +Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our executive officers; and (e) assists the Board in +evaluating potential candidates for executive officer positions and oversees management succession planning. +The +Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The committee considers a number of factors in +determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, +our general business conditions and objectives, and the committee's subjective determination with respect to the executive's individual contributions to such objectives. To assist the committee in its +review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the executives, including himself, and recommendations with respect to all executive compensation matters; +however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management engaged a compensation +consultant to provide advice or recommendations on the amount or form of executive and director compensation during Fiscal 2016. +Nominating and Corporate Governance Committee. The current members of the NCG Committee are Messrs. Char, Daly and Mooney. +Dr. Daly was +re-appointed to the committee in November 2015 after conclusion of his service as our interim Chief Executive Officer. Mr. Thomas served on the NCG Committee until November 2015. The Board has +determined that each member of the NCG Committee is (or was during his time of service) "independent" under the standards established by Nasdaq. Commencing as of the date of the Annual Meeting, the +members of the NCG Committee will +11 +consist +of Messrs. Daly, Mooney and Williams, and Dr. Daly will become the Chairman of the NCG Committee. +The +primary purposes of the NCG Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or recommend to the Board of +Directors the selection of nominees for +election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; (d) oversee the implementation and monitoring +the effectiveness of our corporate governance policies and developing and recommending to the Board modifications and or additions to such policies; and (e) review on a regular basis our +overall corporate governance and recommend improvements when necessary. +In connection with their recommendations regarding the size and composition of the Board, the NCG Committee reviews the appropriate qualities and skills required of directors in the +context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate's independence, personal and professional integrity, financial literacy or +other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company's and our +stockholders' long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee strives to nominate directors +with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and +others as considered useful by the NCG Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and +emphasis of the NCG Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and +prospective directors. The NCG Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been +suggested by other members of the Board or by our executive officers. From time to time, the NCG Committee may engage the services of a third-party search firm to identify director candidates. +The +NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our +next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in +writing to the Chair, NCG Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: +(a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder +of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee's +qualifications for membership on the Board, (e) a resume of the candidate's business experience and educational background as well as all of the information that would be required in a proxy +statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the +nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee +is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if +elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with +12 +the +candidate. The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +No +candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Finance and Strategy Committee. The current members of the Finance and Strategy Committee are Messrs. Daly, Miner and Thomas. +Mr. Miner +is currently serving as the Chairman of the Finance and Strategy Committee. Commencing as of the date of the Annual Meeting, the members of the Finance and Strategy Committee will consist of +Messrs. Cerminara, Daly, Mooney and Thomas, and Dr. Daly will become the Chairman of the Finance and Strategy Committee. The purpose of the Finance and Strategy Committee is to assist +management in identifying, evaluating and negotiating financial transactions and other strategic opportunities for the Company from time to time. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. +In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk +assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by +the Compensation Committee and legal and regulatory compliance risks are reviewed by the NCG Committee. In connection with its responsibilities relating to risk assessment, our full Board periodically +engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any +committee of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary +will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, +providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board's consideration will not be forwarded to the Board. Stockholders who wish to communicate with the +Board can write to the corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; +however, directors are encouraged to attend all such meetings. For our 2015 annual meeting of stockholders, two of our then-current directors attended such meeting. Mr. Bergera, who was +appointed to the Board subsequent to that meeting, also attended the meeting. +13 +PROPOSAL THREE: +APPROVAL OF 2016 OMNIBUS INCENTIVE PLAN +At the Annual Meeting, stockholders will be asked to consider and approve a proposal to adopt the Iteris, Inc. 2016 Omnibus +Incentive Plan (the "2016 Plan") pursuant to which 3,404,771 shares of Common Stock shall be available for issuance to our officers and employees, non-employee members of our Board (or the board of +our parent or subsidiary) ("non-employee directors"), as well as consultants and other independent advisors in our employ or service. The share reserve may be adjusted, and additional shares may be +awarded under the 2016 Plan, as described in more detail in the section titled "Securities Subject to 2016 Plan" below. The Board adopted the 2016 Plan on August 24, 2016, subject to +stockholder approval. If approved by the stockholders, the 2016 Plan will become effective as of the date of the stockholder approval (the "Plan Effective Date"). +The 2016 Plan serves as the successor to our 2007 Omnibus Incentive Plan (the "Predecessor Plan"), which is expected to terminate on July 19, 2017. If the 2016 Plan is approved, +no further awards shall be made under the Predecessor Plan on or after the Plan Effective Date. Each outstanding award under the Predecessor Plan shall remain outstanding under the Predecessor Plan +and shall be governed solely by the terms of the documents evidencing such awards. No provision of the 2016 Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders +of such outstanding awards under the Predecessor Plan. +Incentive +compensation programs play a pivotal role in our effort to attract and retain key personnel essential to our long-term growth and financial success. For that reason, we have +structured the 2016 Plan to provide flexibility in designing equity incentive programs with a broad array of equity incentives, such as stock options, stock appreciation rights, stock awards, +restricted stock units, cash incentive awards, and dividend equivalents, so that we may implement competitive incentive compensation programs for our key employees and non-employee directors. +Following stockholder approval of the 2016 Plan, the 2016 Plan will be the only plan under which new equity awards may be granted to our employees and other service providers, although grants may be +made outside of a plan under certain circumstances. If this proposal is not approved, we would be at a disadvantage against our competitors for recruiting, retaining and motivating individuals +critical to our success and could be forced to increase cash compensation, thereby reducing resources available to meet our business needs. +Overview of Equity +The Company currently has awards outstanding under two equity incentive plans, the Predecessor Plan and the 1997 Stock Incentive Plan +(the "1997 Plan"). As of July 22, 2016, there were 22,500 shares of common stock subject to outstanding options under the 1997 Plan. The 1997 Plan terminated in 2007, and no further grants or +awards may be made under the 1997 Plan. As of July 22, 2016, there were 3,334,500 shares subject to outstanding options under the Predecessor Plan and 172,500 shares +14 +subject to restricted stock units under the Predecessor Plan, as described in the table below. The total shares of the Company's common stock outstanding as of July 22, 2016 was 32,057,503. +Plans as of July 22, 2016 +Shares +Subject to +Outstanding +Stock Options(1) +Shares +Subject to +Outstanding +Full Value +Awards(2) +Shares +Remaining +Available for +Future Grant +Total +Aggregate +Shares +1997 Plan +22,500 +— +— +22,500 +Predecessor Plan +3,334,500 +172,500 +834,771 +4,341,771 +Total (Before 2016 Plan is approved) +3,357,000 +172,500 +834,771 +4,364,271 +Shares Available for Future Grant Upon Approval of the 2016 Plan(3) +3,404,771 +(1) As +of July 22, 2016, the 3,357,000 stock options outstanding had a weighted average exercise price per share of $2.11 and a weighted average life of +7.9 years. +(2) Consists +solely of RSUs. +(3) This +is subject to adjustment and increase as discussed in the section titled "Securities Subject to 2016 Plan" below. +Based on the Company's Common Stock outstanding as of July 22, 2016, the aggregate total 4,364,271 shares issuable under the Predecessor Plan and the 1997 Plan as set forth +in the table above represents an overhang of approximately 12.0% of shares (including 834,771 shares available for future grant under the Predecessor Plan). If the 2016 Plan is approved, the +additional 2,570,000 shares available for issuance (3,404,771 less 834,771 shares that would have been available under the Predecessor Plan) would increase the overhang to approximately 17.6% if +shares available for future grant are expressed in stock options, or 14.3% if shares available for future grant are expressed in full-value shares. The Company calculates "overhang" as the total of +(a) shares underlying outstanding awards plus shares available for issuance under future equity awards, divided by (b) the total number of shares outstanding, shares underlying +outstanding awards and shares available for issuance under future equity awards. +In +connection with our stock-based compensation programs, we are committed to using equity incentive awards prudently and within reasonable limits. Accordingly, we closely monitor our +stock award "burn +rate" each year. Our annual burn rate is determined by dividing the number of shares of our Common Stock subject to stock-based awards we grant in a calendar year by the weighted average number of our +fully-diluted shares of Common Stock outstanding for that calendar year. +Fiscal Year +Stock Options +Granted +RSUs +Granted +Total +Granted(1) +Weighted +Average +Common Stock +Outstanding +Burn +Rate +2016 +1,807,500 +62,500 +1,870,000 +32,049,000 +5.8 +% +2015 +730,000 +90,000 +820,000 +32,595,000 +2.5 +2014 +710,000 +90,000 +800,000 +32,665,000 +2.4 +3-Year Average +1,082,500 +80,833 +1,163,333 +32,436,333 +3.6 +Section 162(m) of the Internal Revenue Code +We are also asking stockholders to approve the 2016 Plan to satisfy the stockholder approval requirements of Section 162(m) of +the Internal Revenue Code ("Section 162(m)"). In general, Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to our Chief +Executive Officer and any of our three other most highly compensated executive +15 +officers +(other than our Chief Financial Officer). Under Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year generally is not deductible. However, +compensation that qualifies as "performance-based" under Section 162(m) does not count against the $1 million deduction limitation. One of the requirements of "performance-based" +compensation for purposes of Section 162(m) is that the material terms of the plan under which compensation may be paid be disclosed to and approved by our stockholders. For purposes of +Section 162(m), the material terms include (a) the employees eligible to receive compensation, (b) a description of the business criteria on which the performance goals may be +based and (c) the maximum amount of compensation that can be paid to an employee under the performance goals. Each of these aspects of the 2016 Plan is discussed below, and stockholder approval +of this Proposal is intended to be deemed to constitute approval of the material terms of the 2016 Plan for purposes of the stockholder approval requirements of Section 162(m). However, the +plan administrator has complete discretion to determine whether or not awards under the 2016 Plan will be structured so as to comply with the applicable requirements for performance-based compensation +under Section 162(m) and may make non-compliant awards as and when it believes that the circumstances and other relevant factors warrant. +Highlights of the 2016 Equity Plan +The 2016 Plan contains a number of provisions that we believe are consistent with best practices in equity compensation and which +protect the stockholders' interests, as described below. +Prohibition on repricings: The 2016 Plan prohibits the reducing the exercise price in effect for outstanding options or stock appreciation +rights, +the cancellation and replacement of stock options or stock appreciation rights with a grant with a lower exercise price, or a cash buyout of an underwater option or stock appreciation right (except as +permitted in a change in control or in the case of an adjustment event as described in the section titled "Changes in Capitalization" below). +No evergreen authorization: The 2016 Plan does not have an evergreen provision, which normally permits an automatic annual increase in the +share pool +without further stockholder approval. +Reasonable limit on full value awards: For purposes of calculating the shares that remain available for issuance under the 2016 Plan, +grants of +options and stock appreciation rights will be counted as the grant of one share for each one share actually granted, as described below. However, to protect stockholders from potentially greater +dilutive effect of full value awards (i.e., awards other than options and stock appreciation rights), all grants of full value awards will be deducted from the 2016 Plan's share reserve as 1.79 +shares for every one share actually granted. +No automatic vesting upon a change in control: The 2016 Plan allows for an acquiring corporation to assume outstanding awards, and if +awards are +assumed, they will generally not accelerate on the change in control. If awards are not assumed, the vesting of such awards will be accelerated. The plan administrator also has the discretion to take +alternative actions such as accelerating the vesting of outstanding awards or requiring that participants exchange outstanding accelerated awards for cash. +Minimum vesting periods: Options and stock appreciation rights are subject to a minimum vesting period of at least one year. However, +up to 5% of the +available shares of Common Stock authorized for issuance under the 2016 Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest (in full or in part) +over a period of less than one year from the date of grant of the awards (the "5% Basket"). Any option or stock appreciation right granted under the 2016 Plan may vest in full or in part upon death or +disability of the participant, or upon a change in control, under the terms of the 2016 Plan or the applicable award agreement, and such vesting shall not count against the 5% Basket. +No discounted stock options or stock appreciation rights: Stock options and stock appreciation rights must have an exercise price or +base price at or +above fair market value on the date of grant. +16 +Limit on director pay: The maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable +financial +accounting rules) of all awards made to a non-employee director under the 2016 Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other +compensation) paid to such non-employee director in respect of such fiscal year, shall not exceed $250,000 in total value. +No tax gross-ups: The 2016 Plan does not provide for any tax gross-ups. +No liberal change-in-control definition: The 2016 Plan defines change in control based on the consummation of the transaction rather +than the +announcement or stockholder approval of the transaction. +Section 162(m) deductibility: The 2016 Plan permits the plan administrator to design compensation awards that will meet the +requirements of +Section 162(m) at such times as the plan administrator believes that such awards are in the best interests of the Company. +Limitation on dividends and dividend equivalents: Any dividends or dividend equivalents payable in connection with a performance-based +award will be +subject to the same performance goal vesting restrictions as the underlying award and will not be paid until and unless such performance goals are met. +Administered by an independent committee: The 2016 Plan will be administered by our Board's Compensation Committee, which consists +entirely of +independent directors. Administration of the 2016 +Plan may also be delegated to a Secondary Committee or, one or more officers as described in more detail below. +Summary Description of 2016 Omnibus Incentive Plan +The principal terms and provisions of the 2016 Plan are set forth below. The summary, however, is not intended to be a complete +description of all the terms of the 2016 Plan and is qualified in its entirety by reference to the complete text of the 2016 Plan, filed with this Proxy Statement as Appendix A on the SEC's +website at http:www.sec.gov. Any stockholder who wishes to obtain a copy of the actual plan document may do so upon written request to our Corporate Secretary at our principal offices at 1700 Carnegie +Avenue, Suite 100, Santa Ana, CA 92705. +Types of Awards. The following types of awards may be granted under the 2016 Plan: options, stock appreciation rights, stock +awards, restricted stock +units, cash incentive awards and dividend equivalent rights. The principal features of each type of award are described below. +Administration. The Compensation Committee has the exclusive authority to administer the 2016 Plan with respect to awards made to +our executive +officers and non-employee directors and has the authority to make awards under the 2016 Plan to all other eligible individuals. However, our Board may at any time appoint a secondary committee of one +(1) or more Board members to have separate but concurrent authority with the Compensation Committee to make awards under the 2016 Plan to individuals other than executive officers and +non-employee directors. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the 2016 Plan to one or more officers (other than +with respect to grants to executive officers and non-employee directors). +The +term "plan administrator," as used in this summary, will mean our Compensation Committee, the Board and any secondary committee, to the extent each such entity is acting within the +scope of its administrative authority under the 2016 Plan. +Eligibility. Officers and employees, non-employee directors, as well as consultants and other independent advisors, in our employ +or service or in +the employ or service of our parent or subsidiary companies (whether now existing or subsequently established) are eligible to participate in the 2016 +17 +Plan. +As of October 31, 2016, approximately 440 persons (including five executive officers) and six non-employee directors were eligible to participate in the 2016 Plan. +Securities Subject to 2016 Plan. Subject to the capitalization adjustments and the add back provisions related to outstanding +awards under the +Predecessor Plan, each as described below, an aggregate of up to 3,404,771 shares shall be reserved for issuance under the 2016 Plan. However, such share reserve shall be reduced by one share for +every one share that was subject to an option or stock appreciation right granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan and 1.79 shares for every +one share that was subject to an award other than an option or stock appreciation right granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan (such awards +granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan, the "Interim Period Awards"). +Shares +subject to outstanding awards under the 2016 Plan and awards granted under the Predecessor Plan that expire or otherwise terminate prior to the issuance of the shares subject to +those awards will be available for subsequent issuance under the 2016 Plan as follows: (a) for each share subject to an expired option or stock appreciation right, one share of Common Stock +shall become available for subsequent issuance under the 2016 Plan, and (b) for each share subject to an expired award other than an option or stock appreciation right, 1.79 shares shall become +available for subsequent issuance under the 2016 Plan. +Any +unvested shares issued under the 2016 Plan and the Predecessor Plan for cash consideration not less than the fair market value per share on the date of grant that are subsequently +repurchased by us, at a price not greater than the original issue price paid per share, pursuant to our repurchase rights under the 2016 Plan and the Predecessor Plan will be added back to the number +of shares reserved for issuance under the 2016 Plan and will accordingly be available for subsequent issuance. +The +number of shares of Common Stock reserved for issuance under the 2016 Plan shall be reduced on a one-for-one basis for each share subject to an option or stock appreciation right and +by a fixed ratio of 1.79 shares for each share of Common Stock subject to an award other than an option or stock appreciation right. +In +addition, the following share counting procedures will apply in determining the number of shares of Common Stock available from time to time for issuance under the 2016 Plan +(including with respect to Interim Period Awards): +• Should the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option granted under +the 2016 Plan or the Predecessor Plan be paid in shares of our Common Stock (whether through the withholding of a portion of the otherwise issuable shares or through tender of actual outstanding +shares), then in each such case the number of shares so tendered or withheld will be added to the shares reserved for issuance under the 2016 Plan on a one-for-one basis. +• Should shares of Common Stock be withheld by us, or if shares are tendered by the participant, in each case in satisfaction of the +withholding taxes incurred in connection with the issuance, vesting or settlement of an award (other than an option or stock appreciation right) granted under the 2016 Plan or the Predecessor Plan, +then in each case the number of shares so tendered or withheld will be added to the shares of Common Stock available for issuance under the 2016 Plan on a 1.79-for-one basis. +Upon +the exercise of any stock appreciation right granted under the 2016 Plan, the share reserve will be reduced by the net number of shares subject to the award. +The maximum number of shares of Common Stock which may be issued pursuant to options intended to qualify as incentive stock options under the federal tax laws shall be limited to +3,404,771. +18 +The shares of Common Stock issuable under the 2016 Plan may be drawn from shares of our authorized but unissued Common Stock or from shares of our Common Stock that we acquire, including +shares purchased on the open market. +Participant Award Limits. The maximum number of shares of Common Stock which may be issued pursuant to options or stock +appreciation rights that are +settled in shares and granted to any person under the 2016 Plan in any fiscal year shall be limited to 2,000,000 shares. +The maximum number of shares for which awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person under the 2016 Plan in any fiscal +year shall not exceed 2,000,000 shares (which limit shall refer to the maximum amount that can be earned) in the aggregate. +During any fiscal year no participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each 12 months in the performance period. +In +addition, the maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all awards made to a non-employee +director under the 2016 Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such non-employee director in respect of +such fiscal year, shall not exceed $250,000 in total value. +Awards. The plan administrator has complete discretion to determine (a) which eligible individuals are to receive awards, +(b) the type, +size, terms and conditions of the awards to be made, (c) the time or times when those awards are to be granted, (d) the number of shares or amount of payment subject to each such award, +(e) the time when the award is to become exercisable, (f) the status of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws, +(g) the maximum term for which the award is to remain outstanding, (h) the vesting and issuance schedules applicable to the shares which are the subject of the award, (i) the cash +consideration (if any) payable per share subject to the award and the form of payment in which the award is to be settled, (j) the vesting schedule for a cash incentive award and +(k) with respect to performance-based awards, the performance objectives, the amount payable at one or more levels of attained performance and the payout schedule. +Stock Options. Each granted option will have an exercise price per share determined by the plan administrator, but the exercise +price will not be +less than one hundred percent (100%) of the fair market value of the option shares on the grant date. No granted option will have a term in excess of ten (10) years. The shares subject to each +option will generally vest in one or more installments over a specified period of service measured from the grant date or upon the achievement of pre-established performance objectives. However, one +or more options may be structured so that they will be immediately exercisable for any or all of the option shares. The shares acquired under such immediately exercisable options will be subject to +repurchase by us, at the lower of the exercise price paid per share or the fair market value per share, if the optionee ceases service prior to vesting in those shares. Payment of the exercise price +may be paid in one or more of the following forms as determined by the plan administrator: cash, shares of our Common Stock, through a cashless exercise +procedure pursuant to which the optionee effects a same-day exercise of the option and sale of the purchased shares through a broker in order to cover the exercise price for the purchased shares and +the applicable withholding taxes and/or through a net exercise procedure pursuant to which we withhold a number of shares otherwise issuable upon exercise of the option having a value equal to the +exercise price and applicable withholding taxes. +Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the extent exercisable for vested shares. The plan +administrator will have complete discretion to extend the period following the optionee's cessation of service during which his or her outstanding options may be exercised, provide for continued +vesting during the applicable post-service exercise period and/or accelerate the exercisability or vesting of options in whole or in part. Such discretion may be exercised at any time while the +options remain outstanding. +19 +Stock Appreciation Rights. The 2016 Plan allows the issuance of two types of stock appreciation rights: +• Tandem stock appreciation rights granted in conjunction with options which provide the holders with the right to surrender the related +option grant for an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the vested shares of our Common Stock subject to the surrendered option +over (ii) the aggregate exercise price payable for those shares. +• Stand-alone stock appreciation rights which allow the holders to exercise those rights as to a specific number of shares of our Common +Stock and receive in exchange an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the shares of Common Stock as to which those rights are +exercised over (ii) the aggregate exercise price in effect for those shares. The exercise price per share may not be less than the fair market value per share of our Common Stock on the date +the stand-alone stock appreciation right is granted, and the right may not have a term in excess of ten (10) years. +The appreciation distribution on any exercised stock appreciation right will be paid in (i) cash, (ii) shares of our Common Stock or (iii) a combination of cash and +shares of our Common Stock. Upon cessation of service with us, the holder of a stock appreciation right will have a limited period of time in which to exercise that right to the extent exercisable at +that time. The plan administrator has complete discretion to extend the period following the holder's cessation of service during which his or her outstanding stock appreciation rights may be +exercised, provide for continued vesting during the applicable post-service exercise period and/or accelerate the exercisability or vesting of stock appreciation rights in whole or in part. Such +discretion may be exercised at any time while the stock appreciation rights remain outstanding. +Repricing. The plan administrator may not implement any of the following repricing programs (except in the case of a corporate +transaction as +described in the section titled "Changes in Capitalization" below, without stockholder approval): (i) the cancellation of outstanding options or stock appreciation rights in return for new +options or stock appreciation rights with a lower exercise price per share, (ii) the cancellation of outstanding options or stock appreciation rights with exercise prices per share in excess of +the then current fair market value per share of our Common Stock for consideration payable in cash, other awards or our equity securities (except in the event of a change in control) or +(iii) the direct reduction of the exercise price in effect for outstanding options or stock appreciation rights. +Stock Awards and Restricted Stock Units. Shares of our Common Stock may be issued under the 2016 Plan subject to performance or +service vesting +requirements established by the plan administrator or as a fully-vested bonus for past services without any cash outlay required of the recipient. Shares of our Common Stock may also be issued under +the 2016 Plan pursuant to restricted stock units which entitle the recipients to receive those shares upon the attainment of designated performance goals or the completion of a prescribed service +period or upon the expiration of a designated time period following the vesting of those units, including (without limitation), a deferred distribution date following the termination of the +recipient's service with us. +In order to assure that the compensation attributable to one or more cash incentive awards, stock awards or restricted stock units will qualify as performance-based compensation which +will not be subject to the $1 million limitation on the income tax deductibility of the compensation paid per executive officer which is imposed under Section 162(m), the plan +administrator will have the discretionary authority to structure one or more such awards so that the shares of Common Stock subject to those awards (or cash, as applicable) will vest only upon the +achievement of certain pre-established corporate performance goals based on one or more of the following criteria: (i) cash flow; (ii) earnings (including earnings before interest and +taxes, earnings before taxes, earnings before +20 +interest, +taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per +share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in +total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate +of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income +or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating +profit; (xvii) market share, (xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, +completion or attainment of key projects, product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; +(xxiv) development and implementation of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; +(xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession +planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added +performance measures); (xxxi) recruiting and maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development +or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Company's revenue or profitability or enhance its +customer base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Company's performance under one or more +of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Company's business units or divisions or any parent or subsidiary. +Each applicable performance goal may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award will be earned +and a maximum level of performance at which an award will be fully earned. Each applicable performance goal may be structured at the time of the award to provide for appropriate adjustment for one or +more of the following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or +other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) the operations of any business acquired by the Company; +(F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any corporate transaction, such as a merger, consolidation, separation (including +spin-off or other distributions of stock or property by the Company) or reorganization; (H) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently +occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate structure or capital structure of the Company; (K) an event either not +directly related to the operations of the Company, parent, subsidiary, division, business segment or business unit or not within the reasonable control of management; (L) foreign exchange gains +and losses; (M) a change in the fiscal year of the Company; (N) the refinancing or repurchase of bank loans or debt securities; (O) unbudgeted capital expenditures; (P) the +issuance or repurchase of equity securities and other changes in the number of outstanding shares; (Q) conversion of some or all of convertible securities to common stock; (R) any +business interruption event; (S) the cumulative effects of tax or accounting changes in accordance with GAAP; (T) the effect of changes in other laws or regulatory rules affecting +reported results; and (U) any other adjustment consistent with the operation of the 2016 Plan. +Stockholder +approval of this proposal will also constitute approval of the foregoing performance goals for purposes of establishing the vesting targets for one or more awards under the +2016 Plan that are intended to qualify as performance-based compensation under Section 162(m). +21 +Should +the participant cease to remain in service while holding one or more unvested shares or should the performance objectives not be attained with respect to one or more such unvested +shares, then those shares will be immediately subject to cancellation. Outstanding restricted stock units will automatically terminate, and no shares of our Common Stock will actually be issued in +satisfaction of those awards, if the performance goals or service requirements established for such awards are not attained. The plan administrator, however, will have the discretionary authority to +issue shares of our Common Stock in satisfaction of one or more outstanding awards as to which the designated performance goals or service requirements are not attained. However, no vesting +requirements tied to the attainment of performance objectives may be waived with respect to awards which were intended at the time of issuance to qualify as performance-based compensation under +Section 162(m), except in the event of death, disability or a change in control, as described under the heading "General Provisions— Vesting +Acceleration ." +Dividend Equivalent Rights. Dividend equivalent rights may be issued as stand-alone awards or in tandem with other awards made +under the 2016 Plan, +except that dividend equivalents may not be granted in connection with an option, stock appreciation right or cash incentive award. Each dividend equivalent right award will represent the right to +receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of our Common Stock) which is made per issued and outstanding share +of Common Stock during the term the dividend equivalent right remains outstanding. Payment of the amounts attributable to such dividend equivalent rights may be made either concurrently with the +actual dividend or distribution made per issued and outstanding share of our Common Stock or may be deferred to a later date. Payment may be made in cash or shares of our Common Stock, or a +combination of cash and shares, as determined by the plan administrator. +Awards Granted to Employees and Directors +No awards have been granted under the 2016 Plan. Any awards following approval of this proposal shall be at the discretion of the plan +administrator. Accordingly, the benefits +or amounts that may be received by or allocated to each of (i) the officers listed in the Summary Compensation Table, (ii) each of the nominees for election as a director, +(iii) all non-employee directors as a group, (iv) all of our present executive officers as a group, and (v) all of our employees, including all other current officers, as a group +under the 2016 Plan are not determinable at this time. +New Plan Benefits +The following table shows, as to our named executive officers who are identified in the Summary Compensation Table, which appears on +page 34 above and the other individuals and groups indicated, the number of shares of common stock subject to options and restricted stock units awarded under the +22 +Predecessor Plan between April 1, 2015 and July 22, 2016. No other type of equity award was granted during such period. +Name and Position +Number of Share +Subject to Options +Named Executive Officers +Joe Bergera +1,350,000 +Thomas N. Blair +75,000 +Todd Kreter +75,000 +Ramin Massoumi +20,000 +Andrew Schmidt +75,000 +Non-Employee Directors +D. Kyle Cerminara +— +Richard Char +10,000 +Kevin C. Daly, Ph.D +10,000 +Gregory A. Miner +10,000 +Gerard Mooney +10,000 +Thomas L. Thomas +10,000 +Mikel H. Williams +10,000 +All current executive officers as a group (5 persons) +1,595,000 +All current non-employee directors as a group (6 persons) +60,000 +All employees, excluding current executive officers as a group (436 persons) +62,500 +The last reported sale price of a share of our Common Stock on October 31, 2016, was $3.46 per share. No RSUs were granted during Fiscal 2016 to the persons included in the +foregoing table. +General Provisions +Minimum Vesting. No option or stock appreciation right may vest over a period of less than one year from the date of grant, except that +up to 5% of +the available shares of Common Stock reserved for issuance under the 2016 Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest over a period of +less than one year from the date of grant. Additionally, any option or stock appreciation right granted under the 2016 Plan may vest upon the participant's death or disability, or upon a change in +control, and such vesting will not count against the 5% basket described above. +Vesting Acceleration. In the event we should experience a change in control, the following provisions will be in effect for all outstanding +awards +under the 2016 Plan, unless provided otherwise in an award agreement entered into with the participant: +• Each outstanding award may be assumed, substituted, replaced with a cash retention program that preserves the intrinsic value of the +award and provides for subsequent payout in accordance with the same vesting schedule applicable to the award or otherwise continued in effect by the successor corporation. +• To the extent an award is not so assumed, substituted, replaced or continued, the award generally will automatically accelerate in +full (with performance-based award vesting to be determined with reference to actual performance attained as of the change in control). +• The plan administrator has complete discretion to grant one or more awards which will vest upon a change in control, whether or not +such award is to be assumed or otherwise continued, or in the event the individual's service with us or the successor entity is terminated within a +23 +designated +period following a change in control transaction in which those awards are assumed or otherwise continued in effect. +• Unless the plan administrator establishes a different definition for one or more awards, a change in control will be deemed to occur +for purposes of the 2016 Plan in the event (a) we are acquired by merger or asset sale or (b) there occurs any transaction (or series of related transactions within the twelve (12)-month +period ending with the most recent acquisition) pursuant to which any person or group of related persons becomes directly or indirectly the beneficial owner of securities possessing (or convertible +into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power of our outstanding securities or (c) there is a change in the majority of the +board effected through one or more contested elections for board membership. +The +plan administrator's authority above extends to any awards intended to qualify as performance-based compensation under Section 162(m), even though the accelerated vesting of +those awards may result in their loss of performance-based status under Section 162(m). +Changes in Capitalization. In the event any change is made to the outstanding shares of our Common Stock by reason of any stock +split, stock +dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change in corporate structure effected without our receipt of consideration or should the value of +our outstanding shares of Common Stock be substantially reduced by reason of a spin-off transaction or extraordinary dividend or distribution or should there occur any merger, consolidation or other +reorganization, equitable adjustments will be made to: (i) the maximum number and/or class of securities issuable under the 2016 Plan; (ii) the maximum number and/or class of securities +for which incentive stock options may be granted under the 2016 Plan; (iii) the maximum number and/or class of securities for which any one (1) person may be granted Common +Stock-denominated awards under the 2016 Plan per calendar year; (iv) the number and/or class of securities and the exercise price per share in effect for outstanding options and stock +appreciation rights; (v) the number and/or class of securities subject to each outstanding stock award, restricted stock unit, dividend equivalent right and any other award denominated in +shares of our Common Stock and the consideration (if any) payable per share; and the number and/or class of securities subject to repurchase rights and the repurchase price payment per share. Such +adjustments will be made in such manner as the plan administrator deems appropriate. +Valuation. The fair market value per share of our Common Stock on any relevant date under the 2016 Plan is deemed to be equal to +the closing selling +price per share on that date as determined by the NASDAQ Capital Market. As of October 31, 2016, the fair market value of our Common Stock determined on such basis was $3.46 per share. +Stockholder Rights and Transferability. No optionee has any stockholder rights with respect to the option shares until such +optionee has exercised +the option and paid the exercise price for the purchased shares. The holder of a stock appreciation right will not have any stockholder rights with respect to the shares subject to that right unless +and until such person exercises the right and becomes the holder of record of any shares of our Common Stock distributed upon such exercise. Options are not assignable or transferable other than by +will or the laws of inheritance following optionee's death, and during the optionee's lifetime, the option may only be exercised by the optionee. However, the plan administrator may structure one or +more non-statutory options under the 2016 Plan so that those options will be transferable during optionee's lifetime to one or more members of the optionee's family or to a trust established for the +optionee and/or one or more such family members or to the optionee's former spouse, to the extent such transfer is in connection with the optionee's estate plan or pursuant to a domestic relations +order. Standalone stock appreciation rights will be subject to the same transferability restrictions applicable to non-statutory options. +24 +A +participant will have full stockholder rights with respect to any shares of Common Stock issued to him or her under the 2016 Plan, whether or not his or her interest in those shares is +vested. A participant will not have any stockholder rights with respect to the shares of Common Stock subject to restricted stock units until that award vests and the shares of Common Stock are +actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding restricted stock units, subject to +such terms and conditions as the plan administrator may deem appropriate. Notwithstanding the foregoing, any dividends or dividend equivalents payable in connection with a performance-based award will +be subject to the same restrictions as the underlying award and will not be paid until and unless such performance goals are met. +Special Tax Election. The plan administrator may provide one or more holders of awards under the 2016 Plan with the right to +have us withhold a +portion of the shares otherwise issuable to such individuals in satisfaction of the withholding taxes to which they become subject in connection with the issuance, exercise or settlement of those +awards. Alternatively, the plan administrator may allow such individuals to deliver previously acquired shares of our Common Stock in payment of such withholding tax liability. +Deferral Programs. The plan administrator may structure one or more awards (other than options and stock appreciation rights) so +that the +participants may be provided with an election to defer the compensation associated with those awards for federal income tax purposes. +The +plan administrator may also implement a non-employee director retainer fee deferral program that allows the non-employee directors the opportunity to elect to convert the Board and +Board committee retainer fees to be earned for a fiscal year into restricted stock units that defer the issuance of the shares of Common Stock that vest under those units until a permissible date or +event under Internal Revenue Code Section 409A. +To +the extent we maintain one or more separate non-qualified deferred compensation arrangements which allow the participants the opportunity to make notional investments of their +deferred account balances in shares of Common Stock, the plan administrator may authorize the share reserve under the Plan to serve as the source of any shares of Common Stock that become payable +under those deferred compensation arrangements. +Amendment and Termination. Our Board may amend or modify the 2016 Plan at any time subject to stockholder approval to the extent +required under +applicable law or regulation or pursuant to the listing standards of the stock exchange on which our Common Stock is at the time primarily traded. Unless sooner terminated by our board of directors, +the 2016 Plan will terminate on the earliest of (i) the date immediately preceding the tenth anniversary of the Plan Effective Date, (ii) the date on which all shares available for +issuance under the 2016 Plan have been issued as fully-vested shares or (iii) the termination of all outstanding awards in connection with certain changes in control or ownership. +Summary of Federal Income Tax Consequences +The following is a summary of the Federal income taxation treatment applicable to us and the participants who receive awards under the +2016 Plan. +Option Grants. Options granted under the 2016 Plan may be either incentive stock options which satisfy the requirements of +Section 422 of the +Internal Revenue Code or non-statutory options which +25 +are +not intended to meet such requirements. The federal income tax treatment for the two types of options differs as follows: +Incentive Options. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is recognized +for regular +tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize taxable income in the year in which +the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and +(ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two (2) years after the date the option for the shares involved in such sale +or disposition is granted and more than one (1) year after the date the option is exercised for those +shares. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition will result. +Upon +a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of +the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares +on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any +additional gain recognized upon the disposition will be a capital gain. +If +the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, +equal to the amount of ordinary income recognized by the optionee as a result of the disposition. We will not be entitled to any income tax deduction if the optionee makes a qualifying disposition of +the shares. +Non-Statutory Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in +general +recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the +shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income +recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the +optionee. +Stock Appreciation Rights. No taxable income is recognized upon receipt of a stock appreciation right. The holder will recognize +ordinary income in +the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying shares of Common Stock on the exercise date over the base price +in effect for the exercised right, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the +amount of ordinary income recognized by the holder in connection with the exercise of the stock appreciation right. The deduction will be allowed for the taxable year in which such ordinary income is +recognized. +Stock Awards. The recipient of unvested shares of Common Stock issued under the 2016 Plan will not recognize any taxable income at the +time those +shares are issued but will have to report as ordinary income, as and when those shares subsequently vest, an amount equal to the excess of (i) the fair market value of the shares on the vesting +date over (ii) the cash consideration (if any) paid for the shares. The recipient may, however, elect under Section 83(b) of the Internal Revenue Code to include +as ordinary income in the year the unvested shares are issued an amount equal to the excess of (i) the fair market value of those shares on the issue date over (ii) the cash +consideration (if any) paid for such shares. If the Section 83(b) election is made, the recipient will not recognize any additional +26 +income +as and when the shares subsequently vest. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient with respect to the unvested shares. +The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the recipient. +Restricted Stock Units. No taxable income is recognized upon receipt of restricted stock units. The holder will recognize ordinary +income in the year +in which the shares subject to the units are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and the holder will +be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the +time the shares are issued. The deduction will be allowed for the taxable year in which such ordinary income is recognized. +Cash Incentive Awards. In general, no taxable income is recognized upon receipt of cash incentive awards. The holder will recognize +ordinary income +in the year in which the cash incentive awards are actually paid to the participant, and the participant will be required to satisfy the tax withholding requirements applicable to such income. We will +be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time of payment. The deduction will be allowed for the taxable year in which such +ordinary income is recognized. +Dividend Equivalent Rights. No taxable income is recognized upon receipt of a dividend equivalent right award. The holder will +recognize ordinary +income in the year in which a dividend or distribution, whether in cash, securities or other property, is paid to the holder. The amount of that income will be equal to the fair market value of the +cash, securities or other property received, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal +to the amount of the ordinary income recognized by the holder of the dividend equivalent right award at the time the dividend or distribution is paid to such holder. That deduction will be allowed for +the taxable year in which such ordinary income is recognized. +Deductibility of Executive Compensation. We anticipate that any compensation deemed paid by us in connection with the exercise of +non-statutory +options or stock appreciation rights will qualify as performance-based compensation for purposes of Section 162(m) and will not have to be taken into account for purposes of the +$1 million limitation per covered individual on the deductibility of the compensation paid to certain of our executive officers. Accordingly, the compensation deemed paid with respect to +options and stock appreciation rights granted under the 2016 Plan will remain deductible by us without limitation under Section 162(m). However, any compensation deemed paid by us in connection +with shares issued under stock awards or restricted stock units will be subject to the $1 million limitation, unless the issuance of the shares is tied to one or more of the performance +milestones described above. +Accounting Treatment. Pursuant to the accounting standards under FASB Accounting Standards Codification Topic 718, we will be required +to expense all +share-based payments, including grants of stock options, stock appreciation rights, restricted stock, restricted stock units and all other stock-based awards under the 2016 Plan. Accordingly, stock +options and stock appreciation rights which are granted to our employees and non-employee directors and payable in shares of our Common Stock will have to be valued at fair value as of the grant date +under an appropriate valuation formula, and that value will then have to be charged as a direct compensation expense against our reported earnings over the designated vesting period of the award. +Stock appreciation rights that are to be settled in cash will be subject to variable mark-to-market accounting until the settlement date. For shares issuable upon the vesting of restricted stock units +awarded under the 2016 Plan, we will be required to amortize over the vesting period a compensation cost equal to the fair market value of the underlying shares on the date of the award. If any other +shares are unvested at the time of their direct issuance, then the fair market +27 +value +of those shares at that time will be charged to our reported earnings ratably over the vesting period. Such accounting treatment for restricted stock units and direct stock issuances will be +applicable whether vesting is tied to service periods or performance goals, although for performance-based awards, the grant date fair value will initially be determined on the basis of the probable +outcome of performance goal attainment. The issuance of a fully-vested stock bonus will result in an immediate charge to our earnings equal to the fair market value of the bonus shares on the issuance +date. Dividends or dividend equivalents paid on the portion of an award that vests will be charged against our retained earnings. If the award holder is not required to return the dividends or +dividend equivalents if they forfeit their awards, dividends or dividend equivalents paid on instruments that do not vest will be recognized by us as additional compensation cost. +Finally, +it should be noted that the compensation expense accruable for performance-based awards under the 2016 Plan will, in general, be subject to adjustment to reflect the actual +outcome of the +applicable performance goals, and any expenses accrued for such performance-based awards will be reversed if the performance goals are not met, unless those performance goals are deemed to constitute +market conditions (i.e., because they are tied to the price of our common stock) under FASB Accounting Standards Codification Topic 718. +Required Vote +Provided a quorum is present, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy +and voting on this Proposal Three is required for approval of the adoption of the 2016 Plan. Should such approval not be obtained, then the 2016 Plan will not be implemented and awards will continue +to be granted under the Predecessor Plan until its termination on July 19, 2017. +We are required to obtain stockholder approval of the 2016 Plan under the rules of The Nasdaq Stock Market. Such approval is also necessary to permit us to grant incentive stock options +to employees under Section 422 of the Internal Revenue Code, and to ensure that compensation paid under the 2016 Plan is eligible for an exemption from the limits on tax deductibility imposed +by Section 162(m) of the Code, which limits the deductibility of certain compensation paid to individuals who are, at the end of the tax year for which we would otherwise claim our tax +deduction, our chief executive officer and our four other most highly paid executive officers. +The Board believes that the 2016 Plan is necessary for us to be able to attract and retain the services of individuals essential to our long-term growth and success. +Recommendation of the Board of Directors +THE BOARD BELIEVES THAT PROPOSAL THREE IS IN OUR BEST INTERESTS AND IN THE BEST INTERESTS OF OUR STOCKHOLDERS +AND RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 2016 OMNIBUS INCENTIVE PLAN. UNLESS OTHERWISE INDICATED THEREON, THE ACCOMPANYING PROXY WILL BE VOTED FOR APPROVAL OF THE 2016 OMNIBUS INCENTIVE PLAN. +YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2016 OMNIBUS INCENTIVE PLAN. +28 +PROPOSAL FOUR: +ADVISORY VOTE REGARDING EXECUTIVE COMPENSATION +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, +the compensation of our named executive officers. Commonly known as a "say-on-pay" vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation +policies and programs and the compensation paid to the named executive officers. +We +are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution +at the Annual Meeting: +"RESOLVED, +that the compensation paid to the Company's named executive officers, as disclosed in the Company's proxy statement for the 2016 Annual Meeting of Stockholders pursuant to Item 402 +of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved." +The +Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company's executive compensation policies and practices are effective in +achieving the Company's goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives' interests with +those of the stockholders. +The +vote on this proposal is advisory and therefore, is not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of +Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. Advisory votes on the compensation of our named executive +officers are currently conducted once every three years, which was the frequency supported by a significant majority of the votes cast by stockholders (not including abstentions and broker non-votes), +although the Board of Directors and the Compensation Committee may decide to hold such advisory votes more frequently in the future. Under the current policy, the next say-on-pay vote would be held at +the 2019 Annual Meeting of Stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, +will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the advisory resolution approving the compensation of our named +executive officers as disclosed in this proxy statement. +29 +PROPOSAL FIVE: +RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of Deloitte & Touche LLP was engaged to serve as our independent registered public accounting firm +for the fiscal year ended March 31, 2016. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2017. We +are asking our stockholders to ratify the selection by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm to audit our consolidated +financial statements for the fiscal year ending March 31, 2017 and to perform other appropriate services. Stockholder ratification of the selection of Deloitte & Touche LLP as our +independent registered public accounting firm is not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its +selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during +the year if the committee feels that such a change would be in the best interests of us and our stockholders. +A +representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to +the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting will +be required for ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the ratification and approval of the +selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017. +30 +PROPOSAL SIX: +RATIFICATION OF THE PRIOR GRANT TO THE COMPANY'S CEO OF AN OPTION +TO PURCHASE 850,000 SHARES OF COMMON STOCK +The Iteris, Inc. 2007 Omnibus Incentive Plan (the " Plan ") was adopted by our +Board of Directors on July 19, 2007, and our stockholders voted to approve the Plan on September 21, 2007. On October 17, 2014, at the Company's 2014 Annual Meeting, our +stockholders voted to approve an amendment to the Plan, which increased the number of shares reserved under the Plan by 1,500,000 (the " 2014 +Amendment "). On September 24, 2015, at the Company's 2015 Annual Meeting, our stockholders voted to approve another amendment to the Plan, which increased the number of +shares reserved under the Plan by an additional 1,000,000 (the " 2015 Amendment ," and together with the 2014 Amendment, the +" Amendments "). As of July 22, 2016, there were 3,334,500 shares of Common Stock subject to outstanding options under the Plan, 172,500 shares of +Common Stock subject to restricted stock unit awards under the Plan, and 834,771 shares of Common Stock remaining available for future awards under the Plan. +Under Section 4(d) of the Plan, if the Compensation Committee of the Company's Board of Directors provides that this section applies to a particular equity award, then no Plan +participant may be granted stock options or stock appreciation rights ("SARs") in any fiscal year with respect to more than 500,000 shares of Common Stock (the " 500,000 Share +Limit "). Thus, under the terms of the Plan, the Compensation Committee has the authority and discretion to award stock options or stock appreciation rights that exceed the +500,000 Share Limit. +On September 23, 2015, in connection with Mr. Bergera's appointment to serve as President and Chief Executive Officer of the Company, and pursuant to the Plan, the +Compensation Committee granted Mr. Bergera an option to purchase up to 1,350,000 shares of the Company's Common Stock at an exercise price per share of $2.38 (the " CEO +Option "), the closing price of the Common Stock on the date of the grant of the option (collectively, the " Option Grant "). The +CEO Option vests annually in equal installments over four years (beginning on September 23, 2015) and will expire on September 22, 2025. As of September 30, 2016, 337,500 shares +of Common Stock subject to the CEO Option have vested. The purchase price for shares of Common Stock subject to the CEO Option must be paid in full at the time the CEO Option is exercised. This +description of the material features of the CEO Option is subject to, and is qualified entirely by, the full text of the CEO Option, which is attached hereto as Exhibit A. +On +September 15, 2016, a stockholder of the Company (the " Plaintiff ") filed a class action and derivative action (captioned Ionni v. Bergera, et al. , Case No. 16-cv-00807-RGA) in the United States District Court for the District of Delaware (the +" Court ") challenging, among other things, the CEO Option (the " Litigation "). The complaint was filed +against Joe Bergera, Richard Char, Kevin C. Daly, Gregory A. Miner, Abbas Mohaddes, Gerard M. Mooney, Thomas L. Thomas, and Mikel H. Williams (collectively, " Individual +Defendants "). The Company was named as a Nominal Defendant (together with the Individual Defendants, the " Defendants "). The +complaint alleges that the Individual Defendants breached their fiduciary duties by causing the Company to issue purportedly false and misleading proxy statements regarding the 500,000 Share Limit in +connection with the Amendments.(1) Among other things, Plaintiff contends that the Proxy Statements were materially false and misleading because they affirmatively represented that, in any fiscal +year, no person could receive stock options or SARs under the Plan with respect to more than 500,000 shares, but failed to disclose that the Compensation Committee had the discretion to approve an +annual grant to a Plan participant in excess +(1) On +September 8, 2014, Iteris filed a Schedule 14A Definitive Proxy Statement with the SEC in connection with the 2014 Annual Meeting of +Stockholders; and on July 29, 2015, Iteris filed a Schedule 14A Definitive Proxy Statement with the SEC in connection with the 2015 Annual Meeting of Stockholders (collectively, the +" Proxy Statements "). +31 +of that amount. Plaintiff further alleges that, as a result, the Amendments were not valid. Plaintiff seeks rescission of any stock options granted pursuant to the Amendments, including the CEO +Option. Mr. Bergera was the only individual to receive awards covering more than 500,000 shares of Common Stock in any fiscal year pursuant to the Amendments. +The Individual Defendants have denied, and continue to deny, that they breached their fiduciary duties or engaged in any of the wrongful acts alleged in the complaint. Defendants +maintain that the Proxy Statements fully disclosed all material information to the Company's stockholders, that the Amendments were properly approved by the Company's stockholders, and that all stock +awards granted under the Plan, including the CEO Option, were valid. Nonetheless, to eliminate the burden, expense, and uncertainty of the Litigation, on November 8, 2016, Defendants entered +into a Memorandum of Understanding (the " MOU ") with the Plaintiff setting forth their agreement in principle to settle the Litigation, subject to final +approval by the Court.(2) Under the terms of the MOU, the Company has agreed to seek stockholder approval of the portion of the CEO Option that exceeds the 500,000 Share +Limit—i.e., the 850,000 shares above 500,000 shares (the " Excess Shares "). The Company believes that stockholder approval of the +Option Grant for the Excess Shares is not required and that the entire CEO Option, including the Excess Shares, was validly and properly granted by the Compensation Committee under the terms of the +Plan and the Company's bylaws and charter, and was in the best interest of the Company. Nonetheless, in order to resolve the Litigation, the Board of Directors has authorized the Company to submit +this proposal to the Company's stockholders. +Stockholder Approval +The affirmative vote of a majority of the shares of Common Stock, present at the meeting in person or represented by proxy and entitled +to vote at the Annual Meeting, will be required for ratification and approval of the Option Grant for the Excess Shares. The Board of Directors believes that stockholder ratification and approval of +the Option Grant for the Excess Shares is the most efficient and cost-effective way of resolving the litigation and honoring the terms of Mr. Bergera's employment agreement with the Company. +If +the stockholders do not ratify and approve the Option Grant for the Excess Shares by the affirmative vote of the majority of the shares of Common Stock, present and represented by +proxy and entitled to vote at the Annual Meeting, then the Excess Shares will be not be issuable and the Compensation Committee will explore measures to appropriately compensate Mr. Bergera in +accordance with the terms of his employment agreement with the Company, which could include the grant of a new stock option, restricted stock units or restricted stock, or the payment of cash, or a +combination of the foregoing. The Board of Directors believes that such alternative measures to appropriately compensate Mr. Bergera could result in a compensation charge to the Company and +less favorable accounting and tax treatment for the Company. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the ratification and approval of the Option +Grant for the Excess Shares. +(2) The +MOU provides, among other things, that as soon as practicable, the parties will negotiate and execute an appropriate Stipulation of Settlement setting +forth the full terms of the settlement for presentation to the Court; the Stipulation of Settlement is subject to final approval of the Court. +32 +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Principal Accountant Fees +Deloitte & Touche LLP was engaged by us as our principal accountant in October 2015, beginning with the review of our +consolidated financial statements for the second quarter of Fiscal 2016, and rendered the audit opinion on our consolidated financial statements for Fiscal 2016. +The +audit fees billed by Deloitte & Touche LLP for Fiscal 2016 totaled $525,000. Audit fees consist of fees for professional services rendered in connection with the audit +of our annual consolidated financial statements for the applicable fiscal year and review of the consolidated financial statements included in our quarterly reports on Form 10-Q and other +regulatory filings for such fiscal year. There were no other fees billed to us by Deloitte & Touche LLP for Fiscal 2016. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte & Touche LLP or other independent registered public accountants are subject to +prior approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC +rules. The prior approval of the Audit Committee was obtained for all services provided by Deloitte & Touche LLP for Fiscal 2016. +33 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year +ended March 31, 2016 of Iteris, Inc. included in its Annual Report on Form 10-K for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company's management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company's independent registered public accounting firm, Deloitte & +Touche LLP, the matters required to be discussed by auditing standards set forth in AU Section 380 established by the Public Company Accounting Oversight Board ("PCAOB"), which includes, +among other items, matters related to the conduct of the audit of the Company's consolidated financial statements. +The Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding the +independent accountant's communications with the Audit Committee concerning independence, and has discussed with Deloitte & Touche LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company's Board of +Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended March 31, 2016 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gregory A. Miner +Thomas L. Thomas +Mikel H. Williams +34 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of October 31, 2016, regarding our executive officers. +Name +Age +Capacities in Which Served +Joe Bergera +53 +Chief Executive Officer, President and Director +Andrew Schmidt +55 +Chief Financial Officer, Vice President of Finance and Secretary +Todd Kreter +56 +Senior Vice President and General Manager, Roadway Sensors +Thomas N. Blair +52 +Senior Vice President, Agriculture and Weather Analytics +Ramin Massoumi +44 +Senior Vice President and General Manager, Transportation Systems +The +following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography +of Mr. Bergera appears earlier in this proxy statement. See Proposal Two: "Election of Directors." +Andrew Schmidt has served as our Vice President of Finance, Chief Financial Officer and Secretary, since March 2015. Prior to joining us, +Mr. Schmidt served as the Chief Financial Officer and Corporate Secretary of Smith Micro Software, Inc., a publicly-held provider of wireless and mobility software solutions from 2005 to +May 2014. Prior to joining Smith Micro, Mr. Schmidt held CFO roles for several other public companies, including Genius Products, an entertainment company, and Mad Catz Interactive, a provider +of console video game accessories. He also served as Vice President (Finance) of Peregrine Systems, a publicly-held provider of enterprise level software. Mr. Schmidt holds a B.B.A. degree in +Finance from the University of Texas and an M.S. degree in Accountancy from San Diego State University. +Todd Kreter has served as our Senior Vice President and General Manager, Roadway Sensors since May 2014. Mr. Kreter served as our +Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served +in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company's worldwide +customer service organization. Mr. Kreter holds a B.S. degree in mechanical engineering from California State University, Fullerton. +Thomas N. Blair has served as our Senior Vice President, Agriculture and Weather Analytics (formerly, Performance Analytics) since July +2012. Prior to that, Mr. Blair served as general manager for Trimble Navigation Limited, a provider of integrated positioning, wireless, and software technology solutions, from 2007 to August +2011, and as vice president for new business development at @Road, Inc., a leading provider of mobile resource management solutions, from 2006 to 2007. He also worked as director of business +and corporate development at iAnywhere Solutions, a Sybase company, from 2003 to 2006. Mr. Blair holds a B.S. degree in Management Information Systems from DeVry Institute of Technology and an +M.S. degree in Computer Science from Rochester Institute of Technology. +Ramin Massoumi has served as our Senior Vice President and General Manager, Transportation Systems since March 2015. Mr. Massoumi +joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June +2011 to March 2015. Throughout his career, his focus has been in the application of advanced technologies in the traffic management market, and has led projects throughout the United States and the +Middle East. Mr. Massoumi also serves as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of +35 +California +at Irvine. Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California Irvine, an M.S. degree in Engineering from the University of California, Berkeley, +and an M.B.A. from the University of Southern California. +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal year ended March 31, 2015 +("Fiscal 2015") and Fiscal 2016 by (i) our Chief Executive Officer, (ii) our former interim Chief Executive Officer and (iii) our two most highly compensated executive +officers (other than our Chief Executive Officer) who were serving as executive officers as of March 31, 2016. The officers listed below are collectively referred to as the "named executive +officers" or "NEOs" in this report. +Name and Principal Position +Fiscal +Year +Salary +Bonus +Option +Awards(1) +Non-Equity +Incentive Plan +Compensation(2) +All Other +Compensation(3) +Total +Joe Bergera(4) +2016 +$ +197,502 +$ +150,000 +(5) +$ +1,659,150 +$ +63,080 +(5) +$ +7,610 +$ +2,077,341 +Chief Executive Officer +Kevin C. Daly, Ph.D(6) +2016 +313,881 +— +12,381 +(7) +— +14,750 +(8) +341,012 +Former interim Chief +2015 +47,770 +— +10,091 +(7) +— +33,500 +(8) +91,361 +Executive Officer +Andrew Schmidt +2016 +325,000 +32,500 +(9) +91,950 +40,369 +9,750 +499,569 +Chief Financial Officer +2015 +18,750 +(10) +— +101,821 +— +— +120,571 +Todd Kreter +2016 +250,016 +— +91,950 +85,296 +7,650 +434,912 +Senior Vice President +2015 +250,982 +— +53,715 +105,000 +7,949 +417,646 +(1) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See +also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in +the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date and, other than the options granted to Dr. Daly, vest in equal +annual installments over four years and are not exercisable until vested. The option granted to Dr. Daly was for his service as a non-employee director of the Company and, as such, vests one +year after the grant date and is immediately exercisable. +(2) The +amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established +criteria. These awards are discussed in further detail under "Plan-Based Bonuses" below. +(3) Except +as otherwise noted, represents 401(k) plan employer contributions paid by us. +(4) Mr. Bergera +was hired effective September 23, 2015 at an annual salary of $385,000. The Fiscal 2016 salary represents the amount earned by +Mr. Bergera from his hire date to the end of such fiscal year. +(5) Pursuant +to his employment agreement, Mr. Bergera was eligible for a bonus of up to $300,000 for Fiscal 2016, of which $150,000 was a signing bonus +payable on January 31, 2016, provided that Mr. Bergera was employed by the Company as of such date, and of which the remaining $150,000 was payable based on his attainment of certain +pre-established criteria, as discussed in further detail under "Plan-Based Bonuses" below. +(6) Dr. Daly +served as our interim Chief Executive Officer from February 2015 until September 2015. +(7) Represents +the grant date fair value of the stock options granted to Dr. Daly during Fiscal 2015 and Fiscal 2016 for his service as a non-employee +director of the Company prior to and subsequent to his service as our interim Chief Executive Officer. +(8) Consists +of fees that Dr. Daly earned in Fiscal 2015 and Fiscal 2016 for his service as a non-employee director of the Company prior to and +subsequent to his service as our interim Chief Executive Officer. +(9) Discretionary +cash bonus. +(10) Mr. Schmidt +was hired in March 2015 at an annual salary of $325,000. The Fiscal 2015 salary represents the amount earned by Mr. Schmidt from +his hire date to the end of such fiscal year. +36 +Plan-Based Bonuses +For Fiscal 2016, the potential compensation for Messrs. Bergera, Schmidt and Kreter included an annual cash bonus based upon +criteria established by the Compensation Committee for such fiscal year. +Under +his employment agreement, Mr. Bergera was provided a target bonus opportunity of $150,000 (not including his signing bonus of $150,000), subject to attainment of specified +corporate performance goals and Mr. Bergera's achievement of strategic objectives that were qualitative in nature and were established by the Compensation Committee. The objectives for +Mr. Bergera generally included strategic assessment of the market and operations of the Company's business units, the design and implementation of forecasts, restructuring of the corporate +marketing function and implementing a new role to drive the ITS/connected vehicle strategy. Mr. Bergera's bonus was based 40% on our total revenue and operating income goals (as described in +more detail below) and 60% on his achievement of his strategic objectives. +For +Mr. Schmidt, his bonus was based 60% on our total revenue and operating income goals, 20% on revenue and operating income goals for our Performance Analytics segment, and 20% +on achieving certain objectives related to staff recruitment and development, as well as strategic financial planning for the Company. +For +Mr. Kreter, his bonus was based 35% on our total revenue and operating income goals, 45% on revenue and operating income goals for our Roadway Sensors segment, and 20% on +achieving certain objectives with respect to the Roadway Sensors segment, including development and enhancement of +products, new customer development, and revamping the international strategy and distribution channel. +The +corporate and business unit performance targets for the annual cash bonuses for Messrs. Bergera, Schmidt and Kreter for Fiscal 2016 were as follows: +Performance Component(1) +No +Bonuses At +or Below +Target +Maximum +(in thousands) +Corporate Revenue +$ +72,505 +$ +85,300 +$ +93,830 +Corporate Operating Income +1,120 +1,400 +1,680 +Roadway Sensors Revenue +35,505 +39,450 +43,395 +Roadway Sensors Operating Income +4,120 +5,150 +6,180 +Performance Analytics Revenue +9,720 +10,800 +11,880 +Performance Analytics Operating Income +(7,500 +) +(6,250 +) +(5,000 +) +(1) The +corporate revenue and operating income goals were applicable to each of Messrs. Bergera, Schmidt and Kreter. The Roadway Sensors revenue and +operating income goals were applicable to Mr. Kreter, and the Performance Analytics revenue and operating income goals were applicable to Mr. Schmidt. +The +target bonus opportunities for Fiscal 2016 based on the above criteria were as follows: Mr. Bergera—$150,000; Mr. Schmidt—$125,000; and +Mr. Kreter—$137,500. If our performance for Fiscal 2016 exceeded the revenue and operating income targets set for bonus purposes, the executives could have earned an additional +bonus of up to 50% of the target bonus award that was not based upon achieving individual objectives. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the +revenue and operating income goals set forth under the "Maximum" column above. If the Company had achieved revenue and operating income which were less than the goals set forth under the "Maximum" +column but more than the amounts set forth under the "Target" column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from +the Target amount. For example, if the +37 +performance +had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been +payable. +In +Fiscal 2016, our revenue and operating results for the Company and for the relevant business units for bonus purposes were as follows: Corporate +Revenue—$77.7 million; Corporate Operating Loss—$(3.5) million; Roadway Sensors Revenue—$40.3 million; Roadway Sensors Operating +Income—$4.8 million; Performance Analytics Revenue—$5.2 million; and Performance Analytics Operating Loss—$(9.3) million. As a percentage of the +targets set for bonus purposes, the results were as follows: Corporate Revenue—91.1%; Corporate Operating Income—0%; Roadway Sensors Revenue—102.2%; Roadway Sensors +Operating Income—93.2%; Performance Analytics Revenue—0%; and Performance Analytics Operating Income—0%. For bonus purposes, segment operating income results +include certain corporate allocations. Accordingly, based upon the above described criteria, bonuses in the following amounts were approved for Fiscal 2016: Mr. Bergera—$63,080; +Mr. Schmidt—$40,369; and Mr. Kreter—$85,296. +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth the outstanding equity awards held by each named executive officer as of July 22, 2016. +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date(1) +Option +Expiration +Date +Joe Bergera +— +1,350,000 +$ +2.38 +09/23/15 +09/22/25 +Chief Executive Officer +Kevin C. Daly, Ph.D. +5,000 +— +2.54 +09/14/06 +09/13/16 +Former interim Chief Executive +5,000 +— +2.21 +09/21/07 +09/20/17 +Officer +5,000 +— +2.10 +09/19/08 +09/18/18 +5,000 +— +1.73 +09/18/09 +09/17/19 +5,000 +— +1.45 +09/17/10 +09/16/20 +10,000 +— +1.18 +09/16/11 +09/15/21 +10,000 +— +1.61 +09/14/12 +09/13/22 +10,000 +— +1.75 +09/23/13 +09/22/23 +10,000 +— +1.76 +10/17/14 +10/16/24 +10,000 +— +2.40 +09/24/15 +09/23/25 +Andrew Schmidt +25,000 +75,000 +1.79 +03/16/15 +03/15/25 +Chief Financial Officer +— +75,000 +2.37 +11/02/15 +11/01/25 +Todd Kreter +25,000 +— +2.46 +02/21/08 +02/20/18 +Senior Vice President +25,000 +— +1.41 +05/27/09 +05/26/19 +30,000 +— +1.10 +08/10/11 +08/09/21 +20,000 +20,000 +1.81 +07/29/13 +07/28/23 +12,500 +37,500 +1.87 +11/18/14 +11/17/24 +— +75,000 +2.37 +11/02/15 +11/01/25 +(1) Each +option (other than the options granted to Dr. Daly) vests at the rate of 25% on each of the first four anniversaries of the grant date. +Dr. Daly's options were granted to him for his service as a non-employee director of the Company, and all such options, other than the option granted on September 24, 2015, are fully +vested. +38 +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements +described below. We provide incentives such as salary, benefits, option grants and restricted stock unit awards to attract and retain executive officers and other key associates. The plan +administrator of the 2007 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a qualifying termination of employment following +certain changes in control of the Company, or upon such change in control, but we do not provide for any automatic "single trigger" acceleration of equity awards upon a change in control (other than +the option grant received by Dr. Daly in connection with his service as a non-employee director). Other than as noted in this section, there is no agreement or policy which would automatically +entitle any named executive officer to severance payments or any other compensation as a result of such officer's termination. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated +September 8, 2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the +discretion of the Compensation Committee. Mr. Bergera will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be +established annually by the Board or a committee of the Board, provided that the bonus potential for Fiscal 2016 will be $300,000, of which $150,000 was a signing bonus payable on January 31, +2016 provided that Mr. Bergera was employed by the Company as of such date. The agreement is for an initial term of three years and will renew for successive one year periods until September +2025 unless either we or Mr. Bergera provides written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +Pursuant +to the agreement, Mr. Bergera also received an option grant under our 2007 Omnibus Incentive Plan to purchase up to 1,350,000 shares of our common stock (the "Option"). +The Option will vest in equal annual installments over four years and has an exercise price equal to the closing sales price of our common stock on the date of grant of the Option. +If +during the initial term of the agreement or any renewal term, Mr. Bergera's employment with the Company is terminated without Cause (as such term is defined in the agreement), +Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of +his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated and (iii) reimbursement for the cost of COBRA coverage for a period of up to +12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are +defined in the agreement) (such termination or resignation, a "CIC Termination"), Mr. Bergera will be entitled to receive (i) a lump sum payment equal to 125% of his base salary as then +in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the CIC Termination occurs, +(iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination, and (iv) acceleration of the vesting of the Option. In addition, +upon termination of his employment due to death, Mr. Bergera's estate or beneficiaries will be entitled to receive salary continuation payments in the aggregate equal to 50% of his then current +base salary. +Agreement with Andrew Schmidt +We entered into an employment agreement dated March 9, 2015 with Andrew Schmidt, our new Chief Financial Officer, in connection +with his hiring. Pursuant to the agreement, Mr. Schmidt will +39 +receive +an annual base salary of $325,000, which may be increased from time to time at the discretion of the Board or the Compensation Committee. He will also be eligible to participate in our +executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or the Compensation Committee, provided that the bonus potential for Fiscal 2016 +was to be $125,000. The agreement will have an initial term of two years and will renew for successive one year periods until March 2025 unless either the Company or Mr. Schmidt provides +written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. If during the initial term of the agreement or any renewal term, +Mr. Schmidt's employment with the Company is terminated without Cause or he resigns from the Company for Good Reason (as such terms are defined in the agreement), Mr. Schmidt will be +entitled to salary continuation payments for six months following his termination in an aggregate amount of up to 50% of his annual base salary as then in effect. In addition, Mr. Schmidt will +be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to six months following such termination. +Director Compensation +Directors who are not employees of Iteris or any of its subsidiaries receive an annual retainer of $35,000 per year, paid quarterly, +with the Chairman of the Board receiving an additional $30,000 per year. No additional amounts are paid for attending meetings. In addition, each non-employee director who serves on a Board committee +receives the following annual amounts, paid quarterly: Audit Committee—$6,000 (additional $6,000 for the Chair); Compensation Committee—$4,500 (additional $4,500 for the +Chair); Nominating and Governance Committee—$2,000 (additional $2,000 for the Chair); and Finance and Strategic Committee—$4,500 (additional $4,500 for the Chair). All +directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board of Directors and its committees. +Non-employee +directors are also eligible to receive periodic restricted stock units ("RSUs") under the Company's equity incentive plan then in effect. Each non-employee director shall be +granted an annual RSU upon approval of the grant by the Compensation Committee as soon as reasonably practicable following the annual meeting of stockholders at which such director is re-elected. The +annual RSU grant shall be worth $40,000 based on the closing price of the Company's common stock on the RSU grant date. Each RSU entitles the holder to receive shares of the Company's common stock +upon vesting of those units. Each annual RSU vests in full upon the director's completion of one year of service measured from the date of the annual stockholders meeting to which the RSU relates. If +a non-employee director joins the Board in between annual stockholder meetings, such director would receive an RSU for a pro rata portion of the annual grant, which RSU vests in full on the day before +the next annual stockholders meeting. +The +following table sets forth a summary of the compensation earned in Fiscal 2016 by each person who served as a director during such year, who is not a named executive officer. +Name +Fees +Earned +or Paid +in Cash +($)(1) +Option +Awards +($)(2) +Total ($) +Richard Char +$ +29,000 +$ +12,381 +$ +41,381 +Gregory A. Miner +41,500 +12,381 +53,881 +Gerard M. Mooney +31,750 +12,381 +44,131 +Thomas L. Thomas +34,875 +12,381 +47,256 +Mikel H. Williams +34,500 +12,381 +46,881 +(1) Represents +amounts earned by the directors based on the compensation arrangement described above. +40 +(2) The +dollar amounts shown represent the grant date fair value of stock options granted in Fiscal 2016 determined pursuant to the Black-Scholes-Merton option +pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See also our discussion of +stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in the Annual Report. At +the end of Fiscal 2016, the above-listed directors held options for the following number of shares of common stock: Richard Char—75,000; Gregory A. Miner—75,000; Gerard M. +Mooney—40,000; Thomas L. Thomas—75,000; and Mikel H. Williams—60,000. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they +may incur in such capacities, including liabilities under the Securities Act of 1933, as amended. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers +to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately +determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or +acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our +certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to us +and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our +stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for +payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as +the federal securities laws or state or federal environmental laws. +We +have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These +agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by such person in any action or +proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at our request. +41 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of September 8, 2016, the number and percentage ownership of our common stock by +(i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors and director +nominees, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and +investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature of +Beneficial Ownership(2) +Percent of +Class(2) +Lloyd I. Miller, III(3) +4,980,759 +15.5 +% +Fundamental Global Investors, LLC(4) +2,600,194 +8.1 +Joe Bergera(5) +337,500 +1.0 +Andrew Schmidt(6) +53,750 +* +Todd Kreter(7) +173,113 +* +D. Kyle Cerminara(4) +2,600,194 +8.1 +Richard Char(8) +84,000 +* +Kevin C. Daly, Ph.D(9) +483,232 +1.5 +Gregory A. Miner(10) +737,485 +2.3 +Gerard M. Mooney(11) +40,000 +* +Thomas L. Thomas(12) +124,000 +* +Mikel H. Williams(13) +70,000 +* +All executive officers and directors as a group (11 persons)(14) +4,931,777 +14.9 +% +* Less +than 1%. +(1) The +address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) Based +on 32,169,490 shares of common stock outstanding as of September 8, 2016. Shares of common stock subject to options or warrants which are +exercisable within 60 days of September 8, 2016 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of +ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon +exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual's name, the number of shares indicated +also includes shares held for the benefit of the named person under our 401(k) plan. +(3) Pursuant +to an amendment to a Schedule 13G filed on February 2, 2016 with the SEC, Mr. Miller reported that, as of December 31, +2015, he had sole dispositive and voting power with respect to 4,845,122 shares as (i) the manager of a limited liability company that is the general partner of certain limited partnerships, +(ii) the manager of a limited liability company that is the adviser to certain trusts, (iii) the manager of a limited liability company, (iv) trustee to a certain grantor retained +annuity trust and (v) an individual. As of such date, Mr. Miller also had shared dispositive and voting power with respect to 135,637 shares as (x) an advisor to the trustee of a +certain trust and (y) an agent under a general durable power of attorney with respect to shares held in a trust account. The address for Mr. Miller is 3300 South Dixie Highway, +Suite 1-365, West Palm Beach, Florida 33405. +42 +(4) Pursuant +to a Schedule 13D filed with the SEC on February 26, 2016, as amended on July 5, 2016, July 8, 2016, and +August 3, 2016 and a Form 4 filed on September 8, 2016, (i) Fundamental Global Partners, LP, a Delaware limited partnership ("FGPP"); (ii) Fundamental Global +Partners Master Fund, LP, a Cayman Islands exempted limited partnership ("FGPM"); (iii) Fundamental Global Investors, LLC, a North Carolina limited liability company; +(iv) FGI Funds Management, LLC, a Florida limited liability company; (v) Joseph H. Moglia; (vi) D. Kyle Cerminara; (vii) Lewis M. Johnson; (viii) RELM +Wireless Corporation, a Nevada corporation ("RELM"); and (ix) Tactical Capital Investments LLC, a Delaware limited liability company and a wholly-owned subsidiary of RELM, reported that, +as of July 8, 2016, they beneficially owned in the aggregate 2,600,194 shares of Iteris' common stock, of which 248,854, 573,191, and 1,778,149 shares are held directly by FGPP, FGPM and RELM, +respectively. Of the shares attributed to RELM, 100 shares are held by RELM of record; the remaining shares held by RELM are in an account that is managed by CWA Asset Management Group, LLC +(doing business as "Capital Wealth Advisors"). FGI owns 50% of CWA Asset Management Group, LLC. Share purchases by RELM were made through Tactical Capital Investments LLC. +FGI +may be deemed to beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. As principals of FGI, Messrs. Cerminara, Johnson and Moglia may be deemed to +beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. FGI Funds Management, LLC, as the investment manager to FGPP and FGPM, may be deemed to beneficially +own the shares of common stock disclosed as directly owned by FGPP and FGPM. As principals of FGI Funds Management, LLC, Messrs. Cerminara and Johnson may be deemed to beneficially own +the shares of common stock disclosed as directly owned by FGPP and FGPM. FGI and its affiliates, as the largest stockholder of RELM, may be deemed to beneficially own the shares of +common stock disclosed as directly owned by RELM. As principals of FGI and directors of RELM, Messrs. Cerminara and Johnson may be deemed to beneficially own the shares of common stock +disclosed as directly owned by RELM. Messrs. Cerminara, Johnson and Moglia expressly disclaim such beneficial ownership. FGI expressly disclaims beneficial ownership of the shares of common +stock held by RELM. +Each +of FGPP and FGPM beneficially owns, and has the shared power to direct the voting and disposition of, the shares of common stock disclosed as beneficially owned by it. FGI has the shared power to +direct the voting and disposition of the shares of common stock held by FGPP and FGPM. FGI Funds Management, LLC, as the investment manager of FGPP and FGPM, has the shared power to direct the +voting and disposition of the shares of common stock held by FGPP and FGPM. Messrs. Cerminara and Johnson, as principals of FGI Funds Management, LLC, may be deemed to have the shared +power to direct the voting and disposition of the shares of common stock held by FGPP and FGPM. Messrs. Cerminara, Johnson and Moglia, as principals of FGI, may be deemed to have the shared +power to direct the voting and disposition of the shares of common stock held by FGPP and FGPM. RELM beneficially owns, and has the shared power to direct the voting and disposition of, the shares of +common stock disclosed as beneficially owned by it. As principal of FGI and directors of RELM, Messrs. Cerminara and Johnson, and FGI may be deemed to have the shared power to direct the voting +and disposition of the shares of common stock held by RELM. +The +principal business addresses of the various entities and persons are as follows: (i) RELM and Tactical Capital Investments LLC: 7100 Technology Drive, West Melbourne, Florida 32904; +(ii) FGPP, FGI and Mr. Moglia: 4201 Congress Street, Suite 140, Charlotte, North Carolina 28209; (iii) FGPM: c/o Maples Corporate Services Limited, +P.O. Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands; (iv) FGI Funds Management, LLC: 9045 Strada Stell Court, Suite 106, Naples, Florida 34109; +(v) Mr. Cerminara: c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte, North Carolina 28209; c/o Ballantyne Strong, Inc., 13710 FNB +43 +Parkway, +Suite 400, Omaha, Nebraska 68154; and 131 Plantation Ridge Dr., Suite 100, Mooresville, North Carolina 28117; and (vi) Mr. Johnson: c/o CWA Asset Management +Group, LLC, 9045 Strada Stell Court, Suite 106, Naples, Florida 34109, and c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte, North +Carolina 28209. +(5) Consists +of 337,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(6) Includes +43,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(7) Includes +141,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(8) Includes +75,000 shares held by the Char-Yoshida Family Trust, of which Mr. Char is a trustee. +(9) Consists +of (i) 79,100 shares held by the Daly Family Trust, of which Dr. Daly is a trustee, (ii) 329,032 shares held by +Dr. Daly's IRA, (iii) 100 shares held by Dr. Daly's spouse, and (iv) 70,000 shares issuable upon exercise of options that are currently exercisable or will become +exercisable within 60 days after September 8, 2016. +(10) Includes +(i) 183,334 shares held by Mr. Miner's IRA, (ii) 19,230 shares held by Mr. Miner's wife's IRA and (iii) 70,000 +shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 8, 2016. +(11) Consists +of 40,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(12) Includes +70,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(13) Includes +60,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. +(14) Includes +1,021,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 8, 2016. The number indicated includes shares held by Tom Blair and Ramin Massoumi, who are executive officers but not named executive officers for purposes of the Annual Report. +CERTAIN TRANSACTIONS +Since April 1, 2014, other than the agreements and transactions described in "Executive Compensation and Other Information" and +the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will +exceed the lesser of $120,000 or the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any +class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We +previously subleased office space to Maxxess Systems, Inc. ("Maxxess"), one of our former subsidiaries that we sold in September 2003. The sublease terminated in September +2007, at which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which was subsequently amended and restated on July 23, 2013. The amended and +restated note bears interest at a rate of 6% per annum, compounded annually, with accrued interest payable quarterly on +the first business day of each calendar quarter. Maxxess continues to pay down the balance of this note by providing consulting services to Iteris, although we have previously fully reserved for +amounts owed to us by Maxxess and the outstanding principal balance remains fully reserved. As of March 31, 2016, +44 +approximately $219,000 of the original principal balance was outstanding and payable to us. For each of the fiscal years ended March 31, 2016 and 2015, interest payments totaling approximately +$14,000 and $16,000, respectively, were made by Maxxess. During the three months ended September 30, 2016, Maxxess rendered approximately $18,000 of professional services to the Company, which +further reduced the outstanding balance due on this note. As of September 30, 2016, approximately $146,000 of the original principal balance was outstanding and payable to Iteris. Maxxess is +currently owned by an investor group that includes one former Iteris director, who has not been a director of Iteris since September 2013, and one existing director of Iteris, who currently owns less +than 2% of Maxxess' capital stock. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under the federal securities laws, our directors and officers and any persons holding more than 10% of our common stock are required to +report their ownership of our common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file +by such dates. For Fiscal 2016, the Form 4 reports for option grants for 75,000, 75,000, 20,000 and 75,000 shares of common stock, respectively, for Messrs. Thomas Blair, Todd Kreter, +Ramin Massoumi, and Andrew Schmidt were not filed within two business days of the November 2, 2015 grant date. Based solely on our review of copies of the reports on Forms 3, 4 and 5 +received by us during or with respect to Fiscal 2016 and written representations received from the reporting persons that no other reports were required, except as indicated in the foregoing sentence, +we believe that all directors, executive officers and persons who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a) and have filed all reports +required by such section. +ANNUAL REPORT +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The +Annual Report is not +incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, +by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available +on the SEC's website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply +with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our +proxy statement for the 2017 Annual Meeting of Stockholders (the "2017 Annual Meeting"). Stockholder proposals that are intended to be presented at our 2017 Annual Meeting and included in the proxy +statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than July 24, 2017. +If +a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a +candidate for election to the Board, the proposal or nomination must be received by us on or between August 17, 2017 and September 16, 2017. If the date of the 2017 Annual Meeting is +called for a date that is not within 30 days before or after the anniversary date of the 2016 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must +submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or +(ii) public disclosure of the date of such meeting is first made. +45 +Stockholders +are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In +addition, with respect to any proposal that a stockholder presents at the 2017 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 +under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted +under Rule 14a-4 under the Exchange Act. +Stockholder +proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, +California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of +timely receipt. The presiding officer of the 2017 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply +with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters +set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors +may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa +Ana, California +November 21, 2016 +46 +Appendix A +ITERIS, INC. +2016 OMNIBUS INCENTIVE PLAN +ARTICLE 1 +GENERAL PROVISIONS +1.1 PURPOSE OF THE PLAN +This +2016 Omnibus Incentive Plan (the "Plan") is intended to promote the interests of Iteris, Inc., a Delaware corporation, by providing eligible persons in the Corporation's +service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such service. +The +Plan serves as the successor to the Corporation's 2007 Omnibus Incentive Plan (the "Predecessor Plan"), and no further awards shall be made under the Predecessor Plan on or after the +Plan Effective Date. All awards outstanding under the Predecessor Plan on the Plan Effective Date shall remain outstanding under the Predecessor Plan and shall be governed solely by the terms of the +documents evidencing such award, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such awards. +Capitalized +terms shall have the meanings assigned to such terms in the attached Appendix. +1.2 TYPES OF AWARDS +Awards +may be made under the Plan in the form of (i) options, (ii) stock appreciation rights, (iii) stock awards, (iv) restricted stock units, (v) cash +incentive awards and (vi) dividend equivalent rights. +1.3 ADMINISTRATION OF THE PLAN +(a) The +Compensation Committee shall have sole and exclusive authority to administer the Plan with respect to Section 16 Insiders. Administration of the Plan with +respect to all other persons eligible to participate in the Plan may, at the Board's discretion, be vested in the Compensation Committee or a Secondary Board Committee, or the Board may retain the +power to administer those programs with respect to such persons. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the Plan +with respect to one or more classes of eligible persons (other than Section 16 Insiders) to one or more officers of the Corporation. +(b) Members +of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and may be removed by the Board at +any time. The Board may also at any time terminate the functions of any Secondary Board Committee and reassume all powers and authority previously delegated to such committee. +(c) Each +Plan Administrator shall, within the scope of its administrative functions under the Plan, have full authority to determine (i) which eligible persons are to +receive Awards under the Plan, (ii) the type, size, terms and conditions of the Awards to be made to each Participant, (iii) the time or times when those Awards are to be made, +(iv) the number of shares or amount of payment to be covered by each such Award, (v) the time or times when the Award is to become exercisable, (vi) the status of an option for +federal tax purposes, (vii) the maximum term for which an Award is to remain outstanding, (viii) the vesting and issuance schedules applicable to the shares which are the subject of the +Award, (ix) the cash consideration (if any) payable for those shares and the form (cash or shares of Common Stock) in which the Award is to be settled, (x) the vesting schedule for a +cash incentive award, and (xi) with respect to performance-based Awards, the performance objectives for each such Award, the amounts payable at designated levels of attained performance, any +applicable service vesting requirements, and the payout schedule for each such Award. +(d) Each +Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to +establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the provisions of the +Plan and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and +binding on all parties who have an interest in the Plan under its jurisdiction or any Award thereunder. +(e) Service +as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service as Board members, and the members +of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Compensation Committee or the +Secondary Board Committee shall be liable for any act or omission made in good faith with respect to the Plan or any Award thereunder. +1.4 ELIGIBILITY +(a) The +persons eligible to participate in the Plan are as follows: +(i) Employees, +(ii) Non-Employee +Directors and non-employee members of the board of any Parent or Subsidiary, and +(iii) consultants +and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). +1.5 STOCK SUBJECT TO THE PLAN +(a) The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open +market. Subject to Section 1.5(h) and adjustment pursuant to Section 1.5(j), the number of shares reserved for issuance under the Plan shall be 3,404,771. However, such share reserve +shall be reduced by one (1) share for every one (1) share that was subject to an option or stock appreciation right granted after July 22, 2016 and prior to the Plan Effective +Date under the Predecessor Plan and 1.79 shares for every one (1) share that was subject to an award (other than an option or stock appreciation right) granted after July 22, 2016 and +prior to the Plan Effective Date under the Predecessor Plan (such awards granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan, the "Interim Period +Awards"). +(b) Subject to adjustment pursuant to Section 1.5(j), the maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under the +Plan shall be 3,404,771. +(c) The +maximum number of shares of Common Stock for which options and stock appreciation rights that are settled in shares may be granted to any person under the Plan in +any fiscal year shall not exceed 2,000,000 shares of Common Stock in the aggregate. +(d) The maximum number of shares of Common Stock for which Awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person +under the Plan in any fiscal year shall not exceed 2,000,000 shares of Common Stock (which limit shall refer to the maximum amount that can be earned) in the aggregate. +(e) During any fiscal year, no Participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each twelve (12) months +in the performance period. +(f) The +maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards made to any +Non-Employee Director under +A-2 +the +Plan in any fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such Non-Employee Director in respect of such fiscal year, shall +not exceed $250,000 in total value. +(g) The +number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section 1.5(a) shall be reduced on a one-for-one basis for each +share of Common Stock subject to an option or stock appreciation right and by a fixed ratio of 1.79 shares of Common Stock for each share of Common Stock subject to a Full Value Award. +(h) Shares +of Common Stock subject to outstanding Awards (including awards granted under the Predecessor Plan) shall be available for subsequent award and issuance under the +Plan to the extent those Awards expire, are forfeited or cancelled or terminate for any reason prior to the issuance of the shares of Common Stock subject to those Awards. Any shares that again become +available for Awards under the Plan pursuant to this Section shall be added as (i) one (1) share for every one (1) share subject to options or stock appreciation rights granted +under the Plan and the Predecessor Plan, (ii) as 1.79 shares for every one (1) share subject to Awards other than options or stock appreciation rights granted under the Plan and the +Predecessor Plan, and (iii) for each unvested share issued under the Plan and the Predecessor Plan for cash consideration not less than the Fair Market Value per share of Common Stock on the +date of grant and subsequently repurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the Corporation's repurchase rights under the +Plan and Predecessor Plan, as applicable, one share shall become available for subsequent award and issuance under the Plan. +(i) Should +the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option under the Plan (or any options granted under the +Predecessor Plan) be paid with shares of Common Stock (whether through the withholding of a portion of the otherwise issuable shares or through the tender of actual outstanding shares), then in each +such case, the shares so tendered or withheld shall be added to the shares of Common Stock available for grant under the Plan on a one-for-one basis. Upon the exercise of any stock appreciation right +under the Plan (and any Interim Period Awards), the share reserve shall be reduced only by the net number of shares issued upon such exercise and not by the gross number of shares as to which such +right is exercised. If shares of Common Stock are withheld by the Corporation, or if shares of Common Stock are tendered by the Participant, in either case, in satisfaction of the withholding taxes +incurred in connection with the vesting or settlement of a Full Value Award (or an award other than a stock option or stock appreciation right that was granted under the Predecessor Plan), then in +each such case the shares of Common Stock so tendered or withheld shall be added to the shares of Common Stock available for issuance under the Plan in accordance with the ratio described in +Sections 1.5(h) above. +(j) Should +any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off +transaction or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, or should the value of outstanding shares of Common Stock be +substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation, reincorporation or other reorganization, then +equitable adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of +securities for which any one person may be granted options and Stand-alone Rights that are settled in shares under the Plan in any fiscal year, (iii) the maximum number and/or class of +securities for which any one person may be granted Awards (other than Stock options and Stand-alone Rights that are settled in shares) under the Plan in any fiscal year, (iv) the maximum number +and/or class of securities that may be issued pursuant to Incentive Options, (v) the number and/or class of securities and the exercise or base price per share in effect under each outstanding +Award under the Plan (including the Interim Period Awards) and the consideration (if any) payable per share, and (vi) the number and/or class of securities subject to the Corporation's +A-3 +outstanding +repurchase rights under the Plan and the repurchase price payable per share. The adjustments shall be made in such manner as the Plan Administrator deems appropriate and such adjustments +shall be final, binding and conclusive. In addition, in the event of a Change in Control, the provisions of Section 2.7 shall apply. +(k) Outstanding +Awards granted pursuant to the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or +business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +(l) Substitute +Awards shall not reduce the shares authorized for issuance under the Plan or the limitations on grants to a Participant under Section 1.5(c) or 1.5(d), +nor shall shares subject to a terminated, cancelled or forfeited Substitute Award be added to the shares available for issuance under the Plan as provided above. Additionally, in the event that a +company acquired by the Company or any Subsidiary (or Parent) or with which the Company or any Subsidiary (or Parent) combines has shares available under a pre-existing plan approved by stockholders +and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the +exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to +such acquisition or combination) may be used for Awards under the Plan and shall not reduce the shares authorized for issuance under the Plan (and shares subject to such Awards shall not be added to +the shares available for issuance under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the +terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Non-Employee Directors prior to such acquisition or combination. +For purposes of this section, " Substitute Awards " shall mean Awards granted or shares issued by the Company in assumption of, or in substitution or +exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary (or Parent) or with which the Company or +any Subsidiary (or Parent) combines. +ARTICLE 2 +AWARDS +2.1 OPTIONS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable +in its sole discretion, to grant Incentive Options and Non-Statutory Options evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each +such agreement shall not be inconsistent with the terms specified below. Each agreement evidencing an Incentive Option shall, in addition, be subject to the provisions of Section 2.1(f) below. +(b) Exercise Price . +(i) The +exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less than one hundred percent (100%) of +the Fair Market Value per share of Common Stock on the grant date. +(ii) The +exercise price shall be payable in one or more of the following forms as determined by the Plan Administrator and specified in the Award Agreement: +(A) cash +or check made payable to the Corporation, +(B) shares +of Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership) held for the requisite period (if any) necessary +to avoid +A-4 +any +resulting charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, +(C) shares +of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with such withheld shares to be valued +at Fair Market Value on the exercise date, or +(D) to +the extent the option is exercised for vested shares of Common Stock, through a special sale and remittance procedure pursuant to which the Participant shall +concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in compliance with the Corporation's +pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds +to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and +(b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale. +Except +to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. +(c) Exercise and Term of Options . Each option shall be exercisable at such time or +times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the Award Agreement evidencing the option, subject to Section 2.9. +However, no option shall have a term in excess of ten (10) years measured from the option grant date. +(d) Effect of Termination of Service . +(i) The +following provisions shall govern the exercise of any options that are outstanding at the time of the Participant's cessation of Service or death: +(A) Any +option outstanding at the time of the Participant's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be +determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. +(B) Any +option held by the Participant at the time of the Participant's death and exercisable in whole or in part at that time may be subsequently exercised by the personal +representative of the Participant's estate or by the person or persons to whom the option is transferred pursuant to the Participant's will or the laws of inheritance or by the Participant's +designated beneficiary or beneficiaries of that option. +(C) Should +the Participant's Service be terminated for Misconduct or should the Participant otherwise engage in Misconduct while holding one or more outstanding options, +then all of those options shall terminate immediately and cease to be outstanding. +(D) During +the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which the option is at the time +exercisable. No additional shares shall vest under the option following the Participant's cessation of Service except to the extent (if any) specifically authorized by the Plan Administrator in its +sole discretion pursuant to an express written agreement with the Participant. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option +shall terminate and cease to be outstanding for any shares for which the option has not been exercised. +A-5 +(ii) The +Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: +(A) extend +the period of time for which the option is to remain exercisable following the Participant's cessation of Service from the limited exercise period otherwise in +effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term; +(B) include +an automatic extension provision whereby the specified post-Service exercise period in effect for any option shall automatically be extended by an additional +period of time equal in duration to any interval within the specified post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such +option could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension result in the continuation of such option beyond the expiration +date of the term of that option; and/or +(C) permit +the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which +such option is exercisable at the time of the Participant's cessation of Service but also with respect to one or more additional installments in which the Participant would have vested had the +Participant continued in Service. +(e) Repurchase Rights . The Plan Administrator shall have the discretion to grant options +which are exercisable for unvested shares of Common Stock. Should the Participant exercise an option for unvested shares and subsequently cease Service while such shares are unvested, the Corporation +shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per +share or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall be exercisable (including the period and procedure for +exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. +(f) Incentive Options . The terms specified below shall be applicable to all Incentive +Options. Except as modified by the provisions of this Section 2.1(f), all the provisions of the Plan shall be applicable to Incentive Options. Options which are specifically designated as +Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section 2.1(f). +(i) Eligibility . Incentive Options may only be granted to Employees. +(ii) Dollar Limitation . The aggregate Fair Market Value of the shares of Common +Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or +Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). +To +the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of the foregoing limitations +on the exercisability of those options as Incentive Options, such options shall be deemed to become first exercisable in that calendar year on the basis of the chronological order in which they were +granted, except to the extent otherwise provided under applicable law or regulation. +(iii) 10% Stockholder . If any Employee to whom an Incentive Option is granted is a +10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the +option term shall not exceed five (5) years measured from the option grant date. +A-6 +2.2 STOCK APPRECIATION RIGHTS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable +in its sole discretion, to grant stock appreciation rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement +shall not be inconsistent with the terms specified below. +(b) Types . Two types of stock appreciation rights shall be authorized for issuance under +this Section 2.2: (i) tandem stock appreciation rights ("Tandem Rights") and (ii) stand-alone stock appreciation rights ("Stand-alone Rights"). +(c) Tandem Rights . The following terms and conditions shall govern the grant and +exercise of Tandem Rights. +(i) One +or more Participants may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish, subject to +Section 2.9, to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for a distribution from the Corporation in an amount +equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Participant is at the time vested under the surrendered option (or +surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. +(ii) Any +distribution to which the Participant becomes entitled upon the exercise of a Tandem Right may be made in (i) shares of Common Stock valued at Fair Market +Value on the option surrender date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award Agreement. +(d) Stand-Alone Rights . The following terms and conditions shall govern the grant and +exercise of Stand-alone Rights: +(i) One +or more Participants may be granted a Stand-alone Right not tied to any underlying option. The Stand-alone Right shall relate to a specified number of shares of +Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish, subject to Section 2.9. In no event, however, may the Stand-alone Right have a +maximum term in excess of ten (10) years measured from the grant date. +(ii) Upon +exercise of the Stand-alone Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the +aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the aggregate base price in effect for those shares. +(iii) The +number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined by the Plan Administrator in +its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value per underlying share of Common Stock on the +grant date. +(iv) The +distribution with respect to an exercised Stand-alone Right may be made in (i) shares of Common Stock valued at Fair Market Value on the exercise date, +(ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement. +(v) The +holder of a Stand-alone Right shall have no stockholder rights with respect to the shares subject to the Stand-alone Right unless and until such person shall have +exercised the Stand-alone Right and +become a holder of record of the shares of Common Stock issued upon the exercise of such Stand-alone Right. +A-7 +(e) Post-Service Exercise . The provisions governing the exercise of Tandem and +Stand-alone Rights following the cessation of the Participant's Service shall be substantially the same as those set forth in Section 2.1(d) for the options granted under the Plan, and the Plan +Administrator's discretionary authority under Section 2.1(d)(ii) shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights. +2.3 STOCK AWARDS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable +in its sole discretion, to grant stock awards either as vested or unvested shares of Common Stock, through direct and immediate issuances. Each stock award shall be evidenced by an Award Agreement in +the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Consideration . +Shares +of Common Stock may be issued under a stock award for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: +(i) cash +or check made payable to the Corporation, +(ii) past +services rendered to the Corporation (or any Parent or Subsidiary); or +(iii) any +other valid consideration under the State in which the Corporation is at the time incorporated. +(c) Vesting Provisions . +(i) Stock +awards may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance as a bonus for Service rendered or may vest in one or more +installments over the Participant's period of Service and/or upon the attainment of specified performance objectives. The elements of the vesting schedule applicable to any stock award shall be +determined by the Plan Administrator and incorporated into the Award Agreement. +(ii) The +Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more stock awards so that the shares +of Common Stock subject to those Awards shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period +specified by the Plan Administrator at the time of the grant of the Award. +(iii) Should +the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under a stock award or should the performance +objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant +shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent, +the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair +Market Value of those shares at the time of cancellation. +(iv) The +Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the +cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant's +interest in the shares of Common Stock as to which the waiver applies. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to shares which were +intended at the time of issuance to qualify as performance-based compensation under Code +A-8 +Section 162(m), +except in the event of the Participant's death or Permanent Disability or a Change in Control. +(v) Any +new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to +receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off +transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to +(i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate, +unless and to the extent the Plan Administrator determines at the time to vest and distribute such securities or other property. Notwithstanding the provisions of this Section, cash dividends, stock +and any other property (other than cash) distributed as a dividend or otherwise with respect to any stock Award that vests based on achievement of Performance Goals shall be accumulated, subject to +restrictions and risk of forfeiture to the same extent as the underlying Award, and shall be paid at the time such restrictions and risk of forfeiture lapse. Equitable adjustments to reflect each such +transaction shall also be made by the Plan Administrator to the repurchase price payable per share by the Corporation for any unvested securities subject to its existing repurchase rights under the +Plan; provided the aggregate repurchase price shall in each instance remain the same. +2.4 RESTRICTED STOCK UNITS +(a) Authority . The Plan Administrator shall have the full power and authority, +exercisable in its sole discretion, to grant restricted stock units evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such +agreement shall not be inconsistent with the terms specified below. +(b) Terms . Each restricted stock unit award shall entitle the Participant to receive the +shares underlying that Award (or an amount based on the value of the shares) upon vesting or upon the expiration of a designated time period following the vesting of those Awards. Payment of shares +underlying a restricted stock unit Award may be deferred for a period specified by the Plan Administrator at the time the restricted stock unit is initially granted or (to the extent permitted by the +Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. Restricted stock units subject to +performance vesting may also be structured so that the underlying shares are convertible into shares of Common Stock (or a payment +based on the value of the shares), but the rate at which each share is to so convert shall be based on the attained level of performance for each applicable performance objective. +(c) Vesting Provisions . +(i) Restricted +stock units may, in the discretion of the Plan Administrator, vest in one or more installments over the Participant's period of Service or upon the +attainment of specified performance objectives. +(ii) The +Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more restricted stock unit awards so +that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable) upon the achievement of pre-established performance objectives based on one or more Performance Goals +and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. +(iii) Outstanding +restricted stock units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for those +Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to +A-9 +make +a payment under one or more outstanding Awards of restricted stock units as to which the designated Performance Goals or Service requirements have not been attained or satisfied. However, no +vesting requirements tied to the attainment of Performance Goals may be waived with respect to Awards which were intended, at the time those Awards were granted, to qualify as performance-based +compensation under Code Section 162(m), except in the event of the Participant's death or Permanent Disability or a Change in Control. +(d) Payment . Restricted stock units that vest may be settled in (i) cash, +(ii) shares of Common stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole +discretion. +2.5 CASH INCENTIVE AWARDS +(a) The +Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant cash incentive awards. The Plan Administrator shall determine +the terms and conditions applicable to cash incentive awards, including the criteria for the vesting and payment of cash incentive awards. Cash incentive awards shall be based on such measures as the +Plan Administrator deems appropriate and need not relate to the value of shares of Common Stock. Cash incentive awards may, in the discretion of the Plan Administrator, vest in one or more +installments over the Participant's period of Service or upon the attainment of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by the Plan +Administrator at the time the Award is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance +with the requirements of Code Section 409A. +(b) The +Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more cash incentive awards so that +the awards shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator +at the time of the grant of the Award. +(c) Outstanding +cash incentive awards units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for +those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding cash incentive awards as to which +the designated Performance Goals or Service requirements have not been attained or satisfied. However, no vesting requirements tied to the attainment of Performance Goals may be waived with respect to +cash incentive awards which were intended, at the time those Awards were granted, to qualify as performance-based compensation under Code Section 162(m), except in the event of the +Participant's death or Permanent Disability or a Change in Control. +2.6 DIVIDEND EQUIVALENT RIGHTS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable +in its sole discretion, to grant dividend equivalent rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided however, that the terms of each such agreement +shall not be inconsistent with the terms specified below. +(b) Terms . The dividend equivalent rights may be granted as stand-alone awards or in +tandem with other Awards made under the Plan, except dividend equivalent rights shall not be granted in connection with an option, stock appreciation right or cash incentive award. The term of each +dividend equivalent right award shall be established by the Plan Administrator at the time of grant, but no such award shall have a term in excess of ten (10) years. +A-10 +(c) Entitlement . Each dividend equivalent right shall represent the right to receive the +economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of Common Stock), which is made per issued and outstanding share of Common Stock +during the term the dividend equivalent right remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to whom a dividend equivalent right is +granted, and that account shall be credited per dividend equivalent right with each such dividend or distribution made per issued and outstanding share of Common Stock during the term of that dividend +equivalent right remains outstanding. +(d) Timing of Payment . Payment of the amounts credited to such book account may be made +to the Participant either concurrently with the actual dividend or distribution made per issued and outstanding share of Common Stock or may be deferred for a period specified by the Plan +Administrator at the time the dividend equivalent right is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election +made in accordance with the requirements of Code Section 409A. In no event, however, shall any dividend equivalent right award made with respect to an Award subject to performance-vesting +conditions vest or become payable prior to the vesting of that Award (or the portion thereof to which the dividend equivalent right award relates) upon the attainment of the applicable Performance +Goals and shall accordingly be subject to cancellation and forfeiture to the same extent as the underlying Award. +(e) Form of Payment . Payment of the amounts due with respect to dividend equivalent +rights may be made in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole +discretion and set forth in the Award Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into which the cash dividend or distribution amounts are to +be converted for purposes of the Participant's book account may be based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an average of the Fair Market +Value per share of Common Stock over a designated period, as determined by the Plan Administrator in its sole discretion. +2.7 EFFECT OF CHANGE IN CONTROL +Unless +otherwise provided in an Award Agreement, the following provisions shall apply with respect to Awards in the event of a Change in Control: +(a) In +the event of a Change in Control, each outstanding Award, as determined by the Plan Administrator in its sole discretion, may be (i) assumed by the successor +corporation (or parent thereof), (ii) canceled and substituted with an Award granted by the successor corporation (or parent thereof), (iii) otherwise continued in full force and effect +pursuant to the terms of the Change in Control transaction, or (iv) replaced with a cash retention program of the Corporation or any successor corporation (or parent thereof) which preserves +the spread existing on the unvested Award shares subject to the Award at the time of the Change in Control (the excess of the Fair Market Value of those shares over the aggregate purchase price +payable for such shares) and, subject to Section 2.7(c) below, provides for subsequent payout of that spread in accordance with the same exercise/vesting schedule applicable to those unvested +Award shares, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation subject to Code Section 409A. +(b) To +the extent an outstanding Award is not assumed, substituted, continued or replaced in accordance with Section 2.7(a), such Award shall automatically vest in +full immediately prior to the effective date of the Change in Control, unless the acceleration of such Award is subject to other limitations imposed by the Plan Administrator at the time of the grant +of the Award. The Plan Administrator in its sole discretion shall have the authority to provide that to the extent any such Award, as so accelerated, remains unexercised and outstanding on the +effective date of the Change in Control, such Award shall terminate and cease to be outstanding. The holder of such Award +A-11 +shall +become entitled to receive, upon consummation of the Change in Control and subject to Section 2.7(c), a lump sum cash payment in an amount equal to the product of (i) number of +shares of Common Stock subject to such Award and (ii) the excess of (a) the Fair Market Value per share of Common Stock on the date of the Change in Control over (b) the per share +exercise price or purchase price in effect for such Award. However, any such Award shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, +if the Fair Market Value per share of Common Stock on the date of such Change in Control is less than the per share exercise price or purchase price in effect for such Award. Notwithstanding the +foregoing, if any Award is subject to a performance-vesting condition tied to the attainment of one or more specified Performance Goals, and such Award is not to be so assumed, substituted, continued, +or replaced, that Award shall vest immediately prior to the effective date of the actual Change in Control transaction, based on actual performance as of the Change in Control, and the shares of +Common Stock underlying the portion of the Award that vests on such accelerated basis (if any) shall be issued in accordance with the applicable Award Agreement, unless such accelerated vesting is +precluded by other limitations imposed in the Award Agreement. +(c) The +Plan Administrator shall have the authority to provide that any escrow, holdback, earn-out or similar provisions in the definitive agreement effecting the Change in +Control shall apply to any cash payment made pursuant to Section 2.7(a) or Section 2.7(b) to the same extent and in the same manner as such provisions apply to a holder of a share of +Common Stock. +(d) Immediately +following the consummation of the Change in Control, all outstanding Awards shall terminate and cease to be outstanding, except to the extent assumed by the +successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction. +(e) In +the event of any Change in Control, the Plan Administrator in its sole discretion may determine that all outstanding repurchase rights (i) are to be assigned +to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) are to be terminated and the +shares of Common Stock subject to those terminated rights are to immediately vest in full, unless such accelerated vesting is precluded by limitations imposed by the Plan Administrator at the time the +repurchase right is issued. +(f) Each +Award which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in +Control, to apply to the number and class of securities into which the shares of Common Stock subject to that Award would have been converted in consummation of such Change in Control had those shares +actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise or base price or cash consideration payable per share in +effect under each outstanding Award, provided the aggregate exercise or base price or cash consideration in effect for such securities shall remain the +same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities for which +Incentive Options may be granted under the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted Awards under the Plan per calendar year and +(v) the number and/or class of securities subject to the Corporation's outstanding repurchase rights under the Plan and the repurchase price payable per share. To the extent the actual holders +of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the +assumption or continuation of the outstanding Awards under the Plan and subject to the Plan Administrator's approval, substitute, for the securities underlying those assumed Awards, one or more shares +of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in +A-12 +such +Change in Control transaction, provided such common stock is readily traded on an established U.S. securities exchange or market. +(g) The +Plan Administrator shall have the discretion, exercisable either at the time an Award is granted or at any time while an Award remains outstanding, to structure such +Award so that (i) it shall automatically accelerate and vest in full (and any repurchase rights of the Corporation with respect to the unvested shares subject to that Award shall immediately +terminate) upon the occurrence of a Change in Control, whether or not such Award is to be assumed in the Change in Control or otherwise continued in effect or (ii) the shares subject to such +Award will automatically vest on an accelerated basis should the Participant's Service terminate by reason of an Involuntary Termination within a designated period following the effective date of any +Change in Control in which the Award is assumed or otherwise continued in effect and the repurchase rights applicable to those shares do not otherwise terminate. +(h) The +portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable +One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory +Option under the Federal tax laws. +2.8 REPRICING PROGRAMS +The +Plan Administrator shall not have the discretionary authority, except pursuant to Section 1.5(j), to (i) implement cancellation/regrant programs pursuant to which +outstanding options or stock appreciation rights under the Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise or base price per share, +(ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or base prices per share in excess of the then current Fair Market Value per share of Common Stock for +consideration payable in cash, other Awards, or in equity securities of the Corporation (except in the event of a Change in Control) or (iii) reduce the exercise or base price in effect for +outstanding options or stock appreciation rights under the Plan, in any case without stockholder approval. +2.9 MINIMUM VESTING +No +option or stock appreciation right may vest over a period of less than one year from the date of grant of the award. Notwithstanding the foregoing, up to 5% of the available shares of +Common Stock authorized for issuance under the Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest (in full or in part) over a period of less +than one year from the date of grant of the awards (the "5% Basket"). Any option or stock appreciation right granted under the Plan may vest in full or in part upon death or disability of the +Participant, or upon a Change in Control, under Section 2.7 or the applicable Award Agreement, and such vesting shall not count against the 5% Basket. +ARTICLE 3 +MISCELLANEOUS +3.1 DEFERRED COMPENSATION +(a) The +Plan Administrator may, in its sole discretion, structure one or more Awards (other than options and stock appreciation rights) so that the Participants may be +provided with an election to defer the compensation associated with those Awards for federal income tax purposes. Any such deferral opportunity shall comply with all applicable requirements of Code +Section 409A. +(b) The +Plan Administrator may implement a non-employee Board member retainer fee deferral program under the Plan so as to allow the non-employee Board members the +opportunity to elect, +A-13 +prior +to the start of each calendar year, to convert the Board and Board committee retainer fees to be earned for such year into restricted stock units under the Plan that will defer the issuance of +the shares of Common Stock that vest under those restricted stock units until a permissible date or event under Code Section 409A. If such program is implemented, the Plan Administrator shall +have the authority to establish such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible distribution events under Code +Section 409A. +(c) To +the extent the Corporation maintains one or more separate non-qualified deferred compensation arrangements which allow the Participants the opportunity to make +notional investments of their deferred account balances in shares of Common Stock, the Plan Administrator may authorize the share reserve under the Plan to serve as the source of any shares of Common +Stock that become payable under those deferred compensation arrangements. In such event, the share reserve under the Plan shall be reduced on a share-for-share basis for each share of Common Stock +issued under the Plan in settlement of the deferred compensation owed under those separate arrangements. +3.2 TRANSFERABILITY OF AWARDS +The +transferability of Awards granted under the Plan shall be governed by the following provisions: +(a) Incentive Options . During the lifetime of the Participant, Incentive Options +shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant's death. +(b) Other Awards . All other Awards shall be subject to the same limitation on +transfer as Incentive Options, except that the Plan Administrator may structure one or more such Awards so that the Award may be assigned in whole or in part during the Participant's lifetime to one +or more Family Members of the Participant or to a trust established exclusively for the Participant and/or such Family Members, to the extent such assignment is in connection with the Participant's +estate plan or pursuant to a domestic relations order. The assigned portion of an Award may only be exercised (if applicable) by the person or persons who acquire a proprietary interest in the Award +pursuant to the assignment. The terms applicable to the assigned portion of the Award shall be the same as those in effect for the Award immediately prior to such assignment and shall be set forth in +such documents issued to the assignee as the Plan Administrator may deem appropriate. +(c) Beneficiary Designation . Notwithstanding the foregoing, a Participant may, to +the extent permitted by the Plan Administrator, designate one or more persons as the beneficiary or beneficiaries of some or all of his or her outstanding Awards, and those Awards shall, in accordance +with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant's death while holding those Awards. Such beneficiary or beneficiaries shall take the +transferred Awards subject to all the terms and conditions of the applicable agreement evidencing each such transferred Award, including (without limitation) the limited time period during which the +Award may be exercised (if applicable) following the Participant's death. +3.3 STOCKHOLDER RIGHTS +A +Participant shall not have any of the rights of a stockholder with respect to shares of Common Stock covered by an Award until the Participant becomes the holder of record of such +shares. However, a Participant may be granted the right to receive dividend equivalents under Section 2.6 with respect to one or more outstanding Awards. +3.4 TAX WITHHOLDING +(a) The +Corporation's obligation to deliver shares of Common Stock upon the exercise, issuance or vesting of an Award under the Plan shall be subject to the satisfaction of +all applicable tax withholding requirements. +A-14 +(b) The +Plan Administrator may, in its discretion, provide Participants to whom Awards are made under the Plan with the right to use shares of Common Stock in satisfaction +of all or part of the Withholding Taxes to which such holders may become subject in connection with the issuance, exercise, vesting or settlement of those Awards or the issuance of shares of Common +Stock thereunder. Such right may be provided to any such holder in either or both of the following formats: +(i) Stock Withholding : The election to have the Corporation withhold, from the +shares of Common Stock otherwise issuable upon the issuance, exercise, vesting or settlement of such Award or the issuance of shares of Common Stock thereunder, a portion of those shares with an +aggregate Fair Market Value at the time of delivery equal to the percentage of the Withholding Taxes based on the minimum required tax withholding rate for the Participant, or such other rate as +determined by the Plan Administrator. +(ii) Stock Delivery : The election to deliver to the Corporation, at the time of the +issuance, exercise, vesting or settlement of such Award, one or more shares of Common Stock previously acquired by such individual (other than in connection with the exercise, share issuance or share +vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the individual. +3.5 SHARE ESCROW/LEGENDS +Unvested +shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the +Participant with restrictive legends on the certificates evidencing those unvested shares. +3.6 EFFECTIVE DATE AND TERM OF THE PLAN +(a) The +Plan shall become effective on the Plan Effective Date. +(b) The +Plan shall terminate upon the earliest to occur of (i) the date immediately preceding the tenth anniversary of +the Plan Effective Date, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully vested shares, (iii) the termination of all outstanding +Awards in connection with a Change in Control, or (iii) the termination of the Plan by the Board. Should the Plan terminate under subsection (i) above, then all Awards outstanding at +that time shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards. +3.7 AMENDMENT OF THE PLAN +(a) The +Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, subject to stockholder approval to the extent +required under applicable law or regulation or pursuant to the listing standards of the Stock Exchange on which the Common Stock is at the time primarily traded. However, no such amendment or +modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under the Plan unless the Participant consents to such amendment or modification. +(b) The +Compensation Committee shall have the discretionary authority to adopt and implement from time to time such addenda or subplans to the Plan as it may deem necessary +in order to bring the Plan into compliance with applicable laws and regulations of any foreign jurisdictions in which Awards are to be made under the Plan and/or to obtain favorable tax treatment in +those foreign jurisdictions for the individuals to whom the Awards are made. +(c) Awards +may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided no shares +shall actually be issued pursuant to those Awards until the number of shares of Common Stock available for issuance under +A-15 +the +Plan is sufficiently increased by stockholder approval of an amendment of the Plan authorizing such increase. If such stockholder approval is not obtained within twelve (12) months after +the date the first excess Award is made, then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding. +3.8 USE OF PROCEEDS +Any +cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. +3.9 REGULATORY APPROVALS +(a) The +implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock in connection with the issuance, exercise, +vesting or settlement of any Award under the Plan shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, +the Awards made under the Plan and the shares of Common Stock issuable pursuant to those Awards. +(b) No +shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements +of applicable securities laws, and all applicable listing requirements of any Stock Exchange on which Common Stock is then listed for trading. +3.10 NO EMPLOYMENT/SERVICE RIGHTS +Nothing +in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights +of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any +time for any reason, with or without cause. +3.11 RECOUPMENT +Participants +shall be subject to any clawback, recoupment or other similar policy required by law or regulations or adopted by the Board as in effect from time to time and Awards and any +cash, shares of Common Stock or other property or amounts due, paid or issued to a Participant shall be subject to the terms of such policy, as in effect from time to time. +A-16 +APPENDIX +The following definitions shall be in effect under the Plan: +(a) Award shall mean any of the following awards authorized for issuance or grant under the Plan: options, stock appreciation +rights, stock awards, restricted stock units, cash incentive awards and dividend equivalents. +(b) Award Agreement shall mean the written agreement(s) (which may be in electronic form) between the Corporation and the +Participant evidencing a particular Award made to that individual under the Plan, as such agreement(s) may be in effect from time to time. +(c) Board shall mean the Corporation's Board of Directors. +(d) Change in Control shall, with respect to each Award made under the Plan, be defined in accordance with the following +provisions: +(i) Change +in Control shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into +the Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Change in Control definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Change +in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions: +(A) consummation +of a merger, consolidation or other reorganization approved by the Corporation's stockholders, unless +securities representing at least fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or +indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation's outstanding voting securities immediately prior to such transaction, +(B) a +sale, transfer or other disposition of all or substantially all of the Corporation's assets, +(C) the +closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a "group" within the meaning of +Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or +is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period +ending with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities +possessing) more than fifty percent (50%) of the total combined voting power of the Corporation's securities (as measured in terms of the power to vote with respect to the election of Board members) +outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Corporation or the acquisition of +outstanding securities held by one or more of the Corporation's existing stockholders, or +(D) a +change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members ceases to be +comprised of individuals who either (A) have been Board members continuously since the beginning of such period ("Incumbent Directors") or (B) have been elected or nominated +A-17 +for +election as Board members during such period by at least a majority of the Incumbent Directors who were still in office at the time the Board approved such election or nomination; provided that +any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent +Directors will be considered an Incumbent Director. +(e) Code shall mean the Internal Revenue Code of 1986, as amended. +(f) Common Stock shall mean the Corporation's Common Stock. +(g) Compensation Committee shall mean the Compensation Committee of the Board comprised of two (2) or more +non-employee Board members, each of whom is intended to qualify as a "non-employee director" (as defined in Rule 16b-3 under the Exchange Act), an "outside director" for purposes of +Section 162(m) of the Code and an "independent director" under the rules of any securities exchange or automated quotation system on which the Common Stock is then listed, quoted or traded; +provided that any action taken by the Compensation Committee shall be valid and effective, whether or not one or more members of the Compensation Committee at the time of such action are later +determined not to have satisfied the requirements for membership set forth in this definition or otherwise provided in the charter of the Compensation Committee. +(h) Corporation shall mean Iteris, Inc., a Delaware corporation, and any corporate successor to all or substantially +all of the assets or voting stock of Iteris, Inc. +(i) Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now +existing or subsequently established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. +(j) Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise. +(k) Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following +provisions: +(i) If +the Common stock is at the time traded on a Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of +regular hours trading (i.e., before after-hours trading begins) on date in question on the Stock Exchange serving as the primary market for the Common Stock, as such price is reported by the +National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange +on which the Common Stock is then primarily traded. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on +the last preceding date for which such quotation exists. +(ii) If +the Common Stock is at the time quoted on a national or regional securities exchange or market system (including over-the-counter markets and the Nasdaq Capital +Market) determined by the Plan Administrator to be the primary market for the Common Stock, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in +question, as such price is officially reported by such exchange or market system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be +the closing selling price of a share of Common Stock on the last preceding date for which such quotation exists. +A-18 +(l) Family Member shall mean, with respect to a particular Participant, any child, stepchild, grandchild, parent, stepparent, +grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. +(m) Full Value Award means an Award other than an option or stock appreciation right. +(n) Good Reason shall, with respect to each Award made under the Plan, be defined in accordance with the following +provisions: +(i) Good +Reason shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the +Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Good Reason definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Good Reason +shall mean an individual's voluntary resignation following one or more of the following without the individual's consent; (A) a change in his or her position with the Corporation (or any Parent +or Subsidiary) which materially reduces his or her duties, responsibilities or authority, (B) a material diminution in the duties, responsibilities or authority of the person to whom such +individual reports, (C) a material reduction in such individual's level of base compensation, with a reduction of more than fifteen percent (15%) to be deemed material for such purpose, or +(D) a material relocation of such individual's place of employment, with a relocation of more than fifty (50) miles to be deemed material for such purpose, provided, however, that a +resignation for Good Reason may be effected only after (i) the individual provides written notice to the Corporation of +the event or transaction constituting grounds for such resignation within sixty (60) days after the occurrence of that event or transaction, (ii) the Corporation fails to take the +requisite remedial action with respect to such event or transaction within thirty (30) days after receipt of such notice, and (iii) the individual resigns within thirty (30) days +after the expiration of the Corporation's cure period set forth in subsection (ii). +(o) Incentive Option shall mean an option which satisfies the requirements of Code Section 422. +(p) Involuntary Termination shall, with respect to each Award made under the Plan, be defined in accordance with the +following provisions: +(i) Involuntary +Termination shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference +into the Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Involuntary Termination definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), +Involuntary Termination shall mean such individual's involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or such individual's +voluntary resignation for Good Reason. +(q) Misconduct shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Misconduct +shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the +Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Misconduct definition in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award +A-19 +Agreement), +Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or +trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or +Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss any Participant +or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to +constitute grounds for termination for Misconduct. +(r) 1934 Act shall mean the Securities Exchange Act of 1934, as amended. +(s) Non-Employee Director shall mean a non-employee member of the Board. +(t) Non-Statutory Option shall mean an option not an Incentive Option. +(u) Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the +Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined +voting power of all classes of stock in one of the other corporations in such chain. +(v) Participant shall mean any eligible person who is granted an Award under the Plan. +(w) Permanent Disability shall mean the inability of the Participant to engage in any substantial gainful activity by reason +of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. +(x) Performance Goals shall mean any of the following performance criteria upon which the vesting of one or more Awards under +the Plan may be based: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and +charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per +share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to +a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; +(xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; +(xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, +(xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, completion or attainment of key projects, +product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation +of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; (xxvi) improvement in workforce diversity; +(xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession planning goals; (xxx) economic value added +(including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); (xxxi) recruiting and +maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development or marketing collaborations, formations of joint +ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation's revenue or profitability or enhance its +A-20 +customer +base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Corporation's performance under one or +more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Corporation's business units or divisions or any Parent or +Subsidiary. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), in accordance with accounting principles +established by the International Accounting Standards Board ("IASB Principles"), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP or +under IASB Principles. Each applicable Performance Goal may include a minimum threshold level of performance below which no Award will be earned, levels of performance at which specified portions of +an Award will be earned and a maximum level of performance at which an Award will be fully earned. Each applicable Performance Goal may be structured at the time of the Award to provide for +appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in +tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring +programs; (E) the operations of any business acquired by the Corporation; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any +corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Corporation) or reorganization; (H) restructurings, +discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate +structure or capital structure of the Corporation; (K) an event either not directly related to the operations of the Corporation, Parent, Subsidiary, division, business segment or business unit +or not within the reasonable control of management; (L) foreign exchange gains and losses; (M) a change in the fiscal year of the Corporation; (N) the refinancing or repurchase of +bank loans or debt securities; (O) unbudgeted capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares; +(Q) conversion of some or all of convertible securities to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accounting changes in accordance +with GAAP; (T) the effect of changes in other laws or regulatory rules affecting reported results; and (U) any other adjustment consistent with the operation of the Plan. +(y) Plan shall mean the Corporation's 2016 Equity Omnibus Plan, as set forth in this document. +(z) Plan Administrator shall mean the particular entity, whether the Compensation Committee, the Board, the Secondary Board +Committee or any delegate of the Board or the Compensation Committee authorized to administer the Plan with respect to one or more classes of eligible persons, to the extent such entity is carrying +out its administrative functions under the Plan with respect to the persons under its jurisdiction. +(aa) Plan Effective Date shall mean the date upon which the Plan is approved by the stockholders. +(bb) Predecessor Plan shall mean the Corporation's 2007 Omnibus Incentive Plan. +(cc) Secondary Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the +Plan with respect to eligible persons other than Section 16 Insiders. +(dd) Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit +liabilities of Section 16 of the 1934 Act. +A-21 +(ee) Service shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Service +shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award +Agreement for purposes of defining such term. +(ii) In +the absence of any other definition of Service in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award +Agreement), Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an +Employee, a Non-Employee Director or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Award. For purposes of this particular +definition of Service, a Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) the Participant no longer performs services in +any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which the Participant is performing such services ceases to remain a Parent or Subsidiary +of the Corporation, even though the Participant may subsequently continue to perform services for that entity. +(iii) Service +shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that should +such leave of absence exceed three (3) months, then for purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the +Participant's Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Participant is provided with the right to return to Service +following such leave either by statute or by written contract. Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation's written policy +on leaves of absence, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence. +(ff) Stand-alone Rights shall have the meaning set forth in Section 2.2. +(gg) Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock +Exchange. +(hh) Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with +the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total +combined voting power of all classes of stock in one of the other corporations in such chain. +(ii) Tandem Rights shall have the meaning set forth in Section 2.2. +(jj) 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten +percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). +(kk) Withholding Taxes shall mean the applicable federal, state and foreign income and employment withholding taxes and other +payments to which the holder of an Award under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award. +A-22 +Appendix B +ITERIS, INC. +NON-INCENTIVE STOCK OPTION AGREEMENT +This NON-INCENTIVE STOCK OPTION AGREEMENT (the " Agreement ") is made this 23rd day of +September 2015, by and between Iteris, Inc., a Delaware corporation (the " Company "), and Joe Bergera, an individual resident of Piedmont, +California (" Optionee "). Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the +Iteris, Inc. 2007 Omnibus Incentive Plan (the " Plan "). +1. Grant of Option. The Company hereby grants Optionee the option (the +" Option ") to purchase all or any part of an aggregate of 1,350,000 shares (the " Shares ") of common +stock, $0.10 par value (" Common Stock "), of the Company at the exercise price of $2.38 per share according to the terms and conditions set forth in this +Agreement and in the Plan. The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue +Code of 1986, as amended (the " Code "). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be +furnished upon request of Optionee. +The +Option shall terminate at the close of business ten (10) years from the date hereof. +2. Vesting of Option Rights. +(a) Except +as otherwise provided in this Agreement, the Option may be exercised by Optionee in accordance with the following schedule: +Exercise Schedule : The Option shall become exercisable in a series of four (4) successive equal annual installments +( i.e., one-fourth of the Shares each year) upon Optionee's completion of each year of Service over the four (4) year period measured from +September 23, 2015 (" Vesting Commencement Date "). In no event shall the Option become exercisable for any additional Shares after Optionee's +cessation of Service. +(b) During +the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws +of descent and distribution. Notwithstanding the foregoing, Optionee may transfer the Option to any Family Member (as such term is defined in the General Instructions to Form S-8 (or successor +to such Instructions or such Form)); provided , however , that (i) Optionee may not receive any +consideration for such transfer, (ii) the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution +and (iii) the Company receives prior written notice of such transfer. +(c) If, +during the twelve (12)-month period following a Change in Control (as defined in Section 5(e)), the Optionee voluntarily resigns for Good Reason (as defined +below) or the Company terminates Optionee's employment for any reason other than for Cause (as defined in Section 3(e)) (such resignation or termination a " CIC +Termination "), then the vesting and exercisability of this Option as set forth in Section 2(a) shall accelerate in part as follows: (i) if the CIC Termination +occurs prior to the second anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the Option fifty percent (50%) vested as of the CIC Termination; +(ii) if the CIC Termination occurs prior to the third anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the Option seventy-five percent (75%) +vested as of the CIC Termination; and (iii) if the CIC Termination occurs prior to the fourth anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the +Option one hundred percent (100%) vested as of the CIC Termination. For purposes of this Agreement, " Good Reason " shall have the meaning ascribed to the +term in that certain Employment Agreement dated +B-1 +September 8, +2015 by and between the Company and Optionee (as may be amended from time to time, the " Employment Agreement "). +3. Exercise of Option after Death or Termination of Employment or Service. The Option shall terminate and may no +longer be exercised if Optionee ceases to be employed by or provide Service to the Company or its Affiliates, except that: +(a) If +Optionee's employment shall be terminated for any reason, voluntary or involuntary, other than for Cause or Optionee's death or disability (within the meaning of +Section 22(e)(3) of the Code), Optionee may at any time within a period of three (3) months after such termination exercise the Option to the extent the Option was exercisable by +Optionee on the date of the termination of Optionee's employment. +(b) If +Optionee's employment is terminated for Cause, the Option shall be terminated as of the date of the act giving rise to such termination. +(c) If +Optionee shall die while the Option is still exercisable according to its terms or if employment is terminated because Optionee has become disabled (within the +meaning of Section 22(e)(3) of the Code) while in the employ of the Company and Optionee shall not have fully exercised the Option, such Option may be exercised at any time within +12 months after Optionee's death or date of termination of employment for disability by Optionee, personal representatives or administrators or guardians of Optionee, as applicable or by any +person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of Shares Optionee was entitled to purchase under the +Option on (i) the earlier of the date of death or termination of employment or (ii) the date of termination for such disability, as applicable. +(d) Notwithstanding +the above, in no case may the Option be exercised to any extent by anyone after the termination date of the Option. +(e) " Cause " shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee, any unauthorized use +or disclosure by such person of confidential information or trade secrets of the Company (or any Affiliate), or any other intentional misconduct by such person adversely affecting the business or +affairs of the Company (or any Affiliate) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Affiliate) may +consider as grounds for the dismissal or discharge of any Optionee in the Service of the Company (or any Affiliate). However , if the term or concept has +been defined in an employment agreement between the Company and Optionee (including the Employment Agreement), then Cause shall have the definition set forth in such employment agreement. For purposes +of this paragraph, no action or failure to act on Optionee's part shall be considered "willful" unless done or omitted to be done, by Optionee in bad faith and without reasonable belief that his or +her action or omission was in the best interests of the Company. +4. Method of Exercise of Option. Subject to the foregoing, the Option may be exercised in whole or in part from +time to time by serving written notice of exercise on the Company at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being +exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made (i) in cash (including bank check, personal check or money order payable to the +Company), (ii) with the approval of the Company (which may be given in its sole discretion), by delivering to the Company for cancellation shares of the Company's Common Stock already owned by +Optionee having a Fair Market Value equal to the full exercise price of the Shares being acquired, (iii) with the approval of the Company (which may be given in its sole discretion) and subject +to Section 402 of the Sarbanes-Oxley Act of 2002, by delivering to the Company the full exercise price of the Shares being acquired in a combination of cash and Optionee's full recourse +liability promissory note with a principal amount not to exceed eighty percent (80%) of the exercise price and a term not +B-2 +to +exceed five (5) years, which promissory note shall provide for interest on the unpaid balance thereof which at all times is not less than the minimum rate required to avoid the imputation of +income, original issue discount or a below-market rate loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor provisions thereto, (iv) subject to Section 402 of +the Sarbanes-Oxley Act of 2002, to the extent this Option is exercised for vested shares, through a special sale and remittance procedure pursuant to which Optionee shall concurrently provide +irrevocable instructions (1) to Optionee's brokerage firm to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement +date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares plus all applicable income and employment taxes required to be withheld by the Company by reason of such +exercise and (2) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale, or (v) with the approval of the +Company (which may be given in its sole discretion) and subject to Section 402 of the Sarbanes-Oxley Act of 2002, by delivering to the Company a combination of any of the forms of payment +described above. This Option may be exercised only with respect to full shares and no fractional share of stock shall be issued. +5. Change in Control. +(a) Immediately +prior to the effective date of a "Change in Control" (as defined in Section 5(e)), this Option shall vest and become exercisable for all of the Shares +and may be exercised for any or all of those Shares. However, this Option shall not vest and become exercisable on an accelerated basis if and to the extent: (i) this Option is to be assumed by +the successor corporation (or parent thereof) or is otherwise to be continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) this Option is to be +replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on the Shares for which this Option is not otherwise at +that time exercisable (the excess of the Fair Market Value of those Shares over the aggregate exercise price payable for such Shares) and provides for subsequent payout of that spread no later than +the time this Option would have vested and become exercisable for those Shares. +(b) Immediately +following the consummation of the Change in Control, this Option shall terminate, except to the extent assumed by the successor corporation (or parent +thereof) or otherwise continued in effect pursuant to the terms of the Change in Control transaction. +(c) If +this Option is assumed or otherwise continued in effect in connection with a Change in Control, then this Option shall be appropriately adjusted, upon such Change in +Control, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Change in Control had this Option been exercised immediately prior to such +Change in Control, and appropriate adjustments shall also be made to the exercise price, provided the aggregate exercise price shall remain the same. To the extent that the holders of Common Stock +receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation (or its parent) may, in connection with the assumption of this Option, substitute +one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control. +(d) This +Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, +consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +(e) For +purposes of this Agreement, " Change in Control " shall mean a change in ownership or control of the Company effected +through any of the following transactions: (i) a merger, consolidation or other reorganization unless securities representing more than 50% of the total combined voting power of the voting +securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially +B-3 +owned +the Company's outstanding voting securities immediately prior to such transaction; (ii) a sale, transfer or other disposition of all or substantially all of the Company's assets; or +(iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under +common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of +the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders. However , if the term or concept +has been defined in an employment agreement between the Company and Optionee (including the Employment Agreement), then Change in Control shall have the definition set forth in such employment +agreement. +6. Capital Adjustments and Reorganization. Should any change be made to the Common Stock by reason of any stock +split, reverse stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company's receipt +of consideration, appropriate adjustments shall be made to (a) the number and/or class of securities subject to this Option and (b) the exercise price in order to reflect such change and +thereby preclude a dilution or enlargement of benefits hereunder. +7. Miscellaneous . +(a) Entire Agreement; Plan Provisions Control. This Agreement (and any addendum hereto) and the Plan constitute +the entire agreement between the parties hereto with regard to the subject matter hereof. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the +terms of the Plan, the terms of the Plan shall control. All decisions of the Committee with respect to any question or issue arising under the Plan or this Agreement shall be and binding on all +persons having an interest in this Option. All capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the meaning assigned to them in the Plan. +(b) No Rights of Stockholders. Neither Optionee, Optionee's legal representative nor a permissible assignee of +this Option shall have any of the rights and privileges of a stockholder of the Company with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee's +legal representative or permissible assignee, as applicable, without restrictions thereto. +(c) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be +retained in the employ of, or if Optionee is a director of the Company or an Affiliate as giving the Optionee the right to continue as a director of, the Company or an Affiliate, nor will it affect in +any way the right of the Company or an Affiliate to terminate such employment or position at any time, with or without Cause. In addition, the Company or an Affiliate may at any time dismiss Optionee +from employment, or terminate the term of a director of the Company or an Affiliate, free +from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or +indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate. The Option granted hereunder shall not form any part of the wages or salary of Optionee for +purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Company or any +Affiliate be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such employee might otherwise have enjoyed but for termination of employment, whether +such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the +conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby. +B-4 +(d) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and +regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Delaware. +(e) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or +unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, +or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be +stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect. +(f) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust +or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and Optionee or any other person. +(g) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to +facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof. +(h) Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall +be addressed to the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be addressed to Optionee at the address of record provided to +the Company by Optionee in connection with Optionee's employment with or Services provided to the Company or such other address as Optionee may designate by ten (10) days' advance written +notice to the Company. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon the third (3rd) day following deposit in +the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice. +(i) Conditions Precedent to Issuance of Shares. Shares shall not be issued pursuant to the exercise of the +Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act +of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state blue sky laws, the requirements of any applicable Stock Exchange or the Nasdaq Stock Market and the +Delaware General Corporation Law. As a condition to the exercise of the purchase price relating to the Option, the Company may require that the person exercising or paying the purchase price represent +and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a +representation and warranty is required by law. +(j) Withholding. In order to provide the Company with the opportunity to claim the benefit of any income tax +deduction which may be available to it upon the exercise of the Option and in order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as +it deems appropriate to insure that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Optionee. +(k) Consultation With Professional Tax and Investment Advisors. Optionee acknowledges that the grant, exercise +and vesting with respect to this Option, and the sale or other taxable disposition of the Shares, may have tax consequences pursuant to the Code or under local, state or international tax laws. +Optionee further acknowledges that Optionee is relying solely and exclusively on Optionee's own professional tax and investment advisors with respect to any and all such matters (and is not relying, +in any manner, on the Company or any of its employees or representatives). Optionee understands and agrees that any and all tax consequences resulting from the Option and its grant, exercise and +vesting, +B-5 +and +the sale or other taxable disposition of the Shares, is solely and exclusively the responsibility of Optionee without any expectation or understanding that the Company or any of its employees or +representatives will pay or reimburse Optionee for such taxes or other items. +(l) Acceptance of Option. By accepting this Agreement, Optionee hereby agrees to the terms and conditions set +forth in this Agreement and the Plan with respect to the Option and any Shares issued as a result of the exercise of the Option, in whole or in part. +IN WITNESS WHEREOF , the Company has executed this Agreement and caused this Option to be issued to Optionee on the date set forth in the +first paragraph above. +ITERIS, INC. +By: +/s/ KEVIN C. DALY +Name: +Kevin C. Daly +Title: +CEO +B-6 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints JOE BERGERA and ANDREW SCHMIDT, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA, 92705, on December 15, 2016 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof (the “Annual Meeting”), and to vote all shares of common stock of Iteris held of record by the undersigned on October 31, 2016, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED OR, IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL ONE, “FOR” EACH OF THE OTHER PROPOSALS AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +C. +Non-Voting Items +Change of Address - Please print new address below +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +A. Proposals - The Board of Directors recommends a vote FOR all of the nominees listed, and FOR Proposals 1,3,4,5 and 6. +x Please mark votes as in this example. +1. +Approval of the amendment of the bylaws to change the size of the Board of Directors to not less than six nor more than eleven members, with the exact number to be set at six until changed within the foregoing limits by resolution of the Board or the stockholders. +o FOR +o AGAINST +o ABSTAIN +2. +Election of Directors: To elect Joe Bergera, D. Kyle Cerminara, Kevin C. Daly, Ph.D., Gerard M. Mooney, Thomas L. Thomas, and Mikel H. Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o Mark here to vote FOR all nominees +o Mark here to WITHHOLD vote from all nominees +o For All EXCEPT - To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +3. +Approval of the Iteris, Inc. 2016 Omnibus Incentive Plan. +o FOR +o AGAINST +o ABSTAIN +4. +Approval, by advisory vote, the compensation of our named executive officers. +o FOR +o AGAINST +o ABSTAIN +5. +Ratification of Deloitte & Touche LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2017. +o FOR +o AGAINST +o ABSTAIN +6. +Approval of prior grant to the Company’s CEO of an option to purchase 850,000 shares of common stock. +o FOR +o AGAINST +o ABSTAIN +B. +Authorized Signature - This section must be completed for your vote to be counted. +Date and Sign below. This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title. +Date (mm/dd/yyyy) – Please print date below. +Signature 1 – Please keep signature within the box. +Signature 2 – Please keep signature within the box. +/ / +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. +QuickLinks +PROPOSAL ONE: APPROVAL OF AMENDMENT OF THE COMPANY'S BYLAWS +PROPOSAL TWO: ELECTION OF DIRECTORS +CORPORATE GOVERNANCE +PROPOSAL THREE: APPROVAL OF 2016 OMNIBUS INCENTIVE PLAN +PROPOSAL FOUR: ADVISORY VOTE REGARDING EXECUTIVE COMPENSATION +PROPOSAL FIVE: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL SIX: RATIFICATION OF THE PRIOR GRANT TO THE COMPANY'S CEO OF AN OPTION TO PURCHASE 850,000 SHARES OF COMMON STOCK +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +AUDIT COMMITTEE REPORT +EXECUTIVE COMPENSATION AND OTHER INFORMATION +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +CERTAIN TRANSACTIONS +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +ANNUAL REPORT +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +OTHER BUSINESS +Appendix A +ITERIS, INC. 2016 OMNIBUS INCENTIVE PLAN ARTICLE 1 GENERAL PROVISIONS +ARTICLE 2 AWARDS +ARTICLE 3 MISCELLANEOUS +APPENDIX +Appendix B +ITERIS, INC. NON-INCENTIVE STOCK OPTION AGREEMENT \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-16-016852/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-16-016852/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001047469-17-006054/proxy.txt b/raw/proxies/0000350868/0001047469-17-006054/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8312b464168304ae13ed0a3fcd3c57ad301dd2ab --- /dev/null +++ b/raw/proxies/0000350868/0001047469-17-006054/proxy.txt @@ -0,0 +1,2181 @@ +DEF 14A +1 +a2233384zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD NOVEMBER 8, 2017 +To the Stockholders of Iteris, Inc.: +NOTICE +IS HEREBY GIVEN that the 2017 Annual Meeting of Stockholders (the " Annual Meeting ") of Iteris, Inc., a Delaware corporation, +will be held on November 8, 2017 at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following +purposes, as more fully described in the proxy statement accompanying this Notice: +1. To +elect Joe Bergera, Kevin C. Daly, Ph.D., Scott E. Deeter, Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams to the Board of Directors, each to hold such +office until the next annual meeting of stockholders or until his successor is elected and qualified. +2. To +approve the Iteris, Inc. Employee Stock Purchase Plan. +3. To +ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, +2018. +4. To +transact any other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All +stockholders of record as of the close of business on September 11, 2017 are entitled to notice of and to vote at the Annual Meeting and at any postponement(s) or +adjournment(s) thereof. You are cordially invited to be present and to vote at this Annual Meeting. Whether or not you plan to attend, it is important that your shares be represented and voted at the +Annual Meeting. You can vote your shares by completing and returning the enclosed proxy card. If your shares are held in "street name" ( i.e. , your +shares are held in the name of a brokerage firm, bank or other nominee), in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be +eligible to vote your shares electronically over the Internet or by telephone. If you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or +registered in different names or addresses, please sign, date and return each proxy card or voting instruction form to ensure that all of your shares +are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically +and only your vote at the Annual Meeting will be counted. For further information, please see the discussion of voting rights and proxies beginning on page 1 of the enclosed proxy statement. +Santa Ana, California +September 25, 2017 +BY ORDER OF THE BOARD OF DIRECTORS +Joe Bergera +Chief Executive Officer +YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED +PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. +ITERIS, INC. +1700 Carnegie Avenue, Suite 100 +Santa Ana, California 92705 +PROXY STATEMENT +FOR THE 2017 ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD NOVEMBER 8, 2017 +General +These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors +of Iteris, Inc., a Delaware corporation (" Iteris ," the " Company ," +" we ," " our " and " us "), to be voted at the 2017 Annual +Meeting of Stockholders (the " Annual Meeting ") to be held on November 8, 2017 and at any adjournment(s) or postponement(s) of the meeting. The +Annual Meeting will be held at 10:00 a.m. Pacific Time, at our principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. These proxy materials and the +form of proxy are expected to be mailed to our stockholders, who are entitled to vote at the Annual Meeting, on or about September 29, 2017. +Purpose of Meeting +The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of +Stockholders and are described in more detail in this proxy statement. +Internet Availability of Materials +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON NOVEMBER 8, +2017: The proxy statement, proxy card, and Annual Report on Form 10-K and Form 10-K/A, as amended, for the +fiscal year ended March 31, 2017 (the " Annual Report ") are available at www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for +registered holders (Internet voting included). +Voting Rights +The record date for determining those stockholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as +September 11, 2017. At the close of business on the record date, 32,628,528 shares of our Common Stock, par value $0.10 per share, were outstanding and no shares of our Preferred Stock were +outstanding. Each stockholder is entitled to one vote for each share of Common Stock held by such stockholder as of the record date. +The +presence in person or by proxy of the holders of a majority of the outstanding shares of the Common Stock entitled to vote will constitute a quorum for the transaction of business at +the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. +In +the election of directors under Proposal One, directors will be elected by a plurality of the votes cast at the Annual Meeting, unless cumulative voting is in effect. Pursuant to our +bylaws, no stockholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting and unless at least one +stockholder +1 +has +given notice prior to commencement of voting of his or her intention to cumulate votes. If any stockholder has given such notice, then each stockholder may cumulate votes by multiplying the number +of shares of common stock the stockholder is entitled to vote by the number of directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed +among several candidates, at the discretion of the stockholder. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting +is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named +candidates as they determine. +With +regard to each of the other proposals, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual +Meeting is being sought. +If +you hold your shares in "street name" ( i.e. , your shares are held in the name of a brokerage firm, bank or other nominee (each, a +" custodian ")), your custodian is considered to be the stockholder of record for purposes of voting at the Annual Meeting. Your custodian is required to +vote your shares on your behalf in accordance with your instructions. If you do not give instructions to your custodian, your custodian is permitted to vote your shares with respect to "routine" +matters, such as the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm under Proposal Three. However, if you do not give +instructions to your custodian, your custodian will NOT be permitted to vote your shares with respect to "non-routine" matters. All other proposals described in this proxy statement are considered +non-routine matters. Accordingly, if you do not give your custodian specific instructions for voting on each of the other proposals, then your shares will be treated as "broker non-votes" with respect +to such proposal(s) and will not be voted on the proposal(s) for which you did not provide instructions. +All +votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. +Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions will be counted towards the +tabulations of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether a +proposal has been approved. +Voting +You may vote by one of the following ways: (i) by mail, (ii) electronically over the Internet or by telephone, or (iii) by +ballot in person at the Annual Meeting. If you are a "registered holder" ( i.e. , your shares are registered in your own name through our transfer agent), +you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet at www.envisionreports.com/ITI. If your shares are held in "street name", in lieu of a +proxy card you should receive a voting instruction form from that custodian by mail. The voting instruction form should indicate whether the custodian has a process for beneficial holders to vote over +the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from +telephone companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in +the self-addressed, postage-paid envelope provided. +If +you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you +must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We +2 +recommend +that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting. +Proxies +Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should receive from +that custodian an instruction form for voting by mail, the Internet or by telephone. If you receive more than one proxy card or voting instruction form because your shares are held in multiple +accounts or registered in different names or addresses, please be sure to complete, sign, date, and return each proxy card +or voting instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated, and timely returned (or otherwise properly voted +by Internet or telephone) will be counted in the quorum and voted. Properly executed proxies will be voted in the manner directed by the stockholders. If the proxy does not specify how the shares +represented thereby are to be voted, the proxy will be voted (i) FOR the election of the directors proposed by our Board of Directors (the +" Board ") under Proposal One and (ii) FOR the approval of each of the other proposals as described in this proxy statement and the accompanying +notice. +The +enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. +We have not been notified by any stockholder of an intent to present a stockholder proposal at the Annual Meeting. +If +your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later +date with our Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your +vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at +the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless +you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy. +Solicitation +The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the costs of +preparing, assembling, printing, and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to +brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In +addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be +supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these +individuals for any such services. +In +the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to +retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +3 +PROPOSAL ONE: +ELECTION OF DIRECTORS +On February 23, 2017, the Board increased the number of directors from six to seven and appointed Scott E. Deeter to fill the vacancy +created by the increase. Pursuant to a letter agreement dated August 16, 2017 between the Company and D. Kyle Cerminara (the " Agreement "), +Mr. Cerminara agreed not to stand for re-election at the Annual Meeting. As a result of the decision set forth in the Agreement, on August 21, 2017, the Board adopted a resolution to set +the number of directors on the Board at six (6), effective upon the Annual Meeting. +Six +persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their +successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of +the Nominating and Corporate Governance Committee (the " NCG Committee "), our Board of Directors selected and approved the following persons as nominees +for election at the Annual Meeting: (1) Joe Bergera, (2) Kevin C. Daly, Ph.D., (3) Scott E. Deeter, (4) Gerard M. Mooney, (5) Thomas L. Thomas and (6) Mikel +H. Williams. Each nominee is currently a member of our Board of Directors and has agreed to serve if elected. +We +have no reason to believe that any of the director nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the +time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies +received by them FOR the nominees named above. +Stockholder Approval +The six candidates receiving the highest number of votes cast at the Annual Meeting will be elected as our directors. However, if cumulative +voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing for election as such proxy holders in their discretion elect (as described +above). +Recommendation of the Board of Directors +Our Board of Directors recommends a vote "FOR" the director nominees listed above. +Director Nominees +The table and narrative below set forth information as of September 11, 2017 regarding each director nominee, including the year they +first became directors of Iteris, their business experience during at least the past five years, the public company boards they currently serve on or have served on during the past five years, and +certain other biographical information and attributes that the NCG Committee determined qualify them to serve as directors. The NCG Committee believes that +these persons have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the +ability to engage management and each other in a constructive and collaborative fashion; diversity of experience +4 +and +thought; and the commitment to devote significant time and energy to service on the Board and its committees. +Name +Age +Current Position(s) with Iteris +J. Joseph ("Joe") Bergera +53 +Chief Executive Officer, President and Director +Kevin C. Daly, Ph.D.(1)(2)(3)(4) +73 +Director +Scott E. Deeter +54 +Director +Gerard M. Mooney(1)(3)(4) +64 +Director +Thomas L. Thomas(2)(4) +68 +Director +Mikel H. Williams(1)(3) +60 +Director +(1) Current +member of the Audit Committee +(2) Current +member of the Compensation Committee +(3) Current +member of the Nominating and Corporate Governance Committee +(4) Current +member of the Finance and Strategy Committee +Joe Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, +Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, +since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive positions with Sage +Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the Booth School of +Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. Mr. Bergera has over 20 years of +experience in technology-related companies and provides extensive management and global software and service industry knowledge to the Board. +Kevin C. Daly, Ph.D served as our interim Chief Executive Officer from February 2015 to September 2015. Prior to his service as our +interim CEO, Dr. Daly served as the CEO of Maxxess Systems, Inc., a provider of electronic security systems, from November 2005. Between August 2007 and August 2009, Dr. Daly also +served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. +and ATL Products, Inc. Dr. Daly served on the board of directors of sTec, Inc., a provider of solid state disk systems, from May 2010 until the acquisition of sTec in September +2013 by Western Digital Corporation. Dr. Daly received a B.S. degree in Electrical Engineering from the University of Notre Dame and M.S., M.A. and Ph.D degrees in Engineering from Princeton +University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a director of both private and public companies, Dr. Daly offers to +the Board a wealth of management and leadership experience, as well as an understanding of issues faced by such companies. +Scott E. Deeter has served as a director since February 23, 2017. Mr. Deeter has served as Ventria Bioscience Inc.'s +President and CEO and as a director since 2002. Ventria is the first company to commercialize recombinant proteins derived from a plant-based manufacturing system. From 1999 to 2001, he served as +President and CEO and as a director of CyberCrop.com Incorporated, a supply chain software company connecting producers with their markets to optimize quality, logistics and efficiency. From 1996 to +1998, Mr. Deeter served as Vice President of Agriculture of Koch Industries, Inc. Previously, Mr. Deeter held various positions at Cargill, Incorporated as well as started and led +a joint venture between Cargill and F. Hoffmann-La Roche, Ltd. that commercialized pharmaceutical intermediates and functional food ingredients. Earlier in his career, Mr. Deeter was a +5 +member +of the Technology and Life Sciences Group of Salomon Brothers Inc. He received a BSc degree in Economics from the University of Kansas; an M.B.A. from the University of Chicago; and an +MSc degree in Economics from the London School of Economics. Mr. Deeter is a proven leader who is widely known across entrepreneurial sectors of the agribusiness and agricultural biotech +industry. +Gerard M. Mooney retired from International Business Machines Corporation (" IBM ") in March +2014, after serving in a number of senior positions since 2000. Most recently, he served as the Vice President Strategy for IBM's Public Sector from February 2012 until his retirement, as the General +Manager, Global Smarter Cities for IBM from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from 2008 to November 2011. He served as Vice President +of IBM's Venture Capital Group from 2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company for six years. Mr. Mooney has extensive +operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the +professional transportation market. He previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search +technology, cognitive intelligence, AI, data mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and co-founder of theinnovationexchange, which +offers SaaS cognitive platforms. He received a B.A. degree in Philosophy from Mount Saint Mary's College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. +Mr. Mooney has served as a director of Iteris since September 2013 and brings to the Board of Directors extensive experience in setting and implementing strategy for both large and small +technology organizations, deep category knowledge of the intelligent transportation market, and familiarity with many key customers for intelligent transportation solutions. +Thomas L. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in +January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from +September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business to business EDI and supply +chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT Commerce, Ajuba Solutions, and +Vantive Corporation, and as the first Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held various senior executive +management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. Since July 2017, Mr. Thomas has served as Chairman of the Board of Directors of VIP Software +Corporation, a provider of software solutions in the insurance industry. Since 2012, Mr. Thomas has served as a director of Accurate Group, which specializes in the appraisal and title services +business where technology has been instrumental in redefining the transaction model for the industry. He has also served on the board of directors of infoGroup, Inc. from January 2009 to July +2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, FrontRange Solutions, IDS International, and +Quofore International. Mr. Thomas has served as a director of Iteris since 1999 and as our Chairman of the +Board of Directors since 2016. Mr. Thomas offers to our Board of Directors valuable business, leadership and strategic insights obtained through his service as an executive and as a member of +the board of directors in a variety of industries and businesses, including a number of leading technology companies, and his experience in working with companies through several stages of their +development. +Mikel H. Williams has served as the Chief Executive Officer and a director of Targus Cayman Holdco Limited, a leading global supplier that +designs, develops and sells products for the mobile worker, including laptop cases, docking stations and accessories for mobile electronic devices, since February 2016. Prior to that, +Mr. Williams served as the Chief Executive Officer and a director of JPS +6 +Industries, Inc., +a manufacturer of sheet and mechanically formed glass and aramid substrate materials for the electronics, aerospace, ballistics and general industrial applications, from May +2013 until its sale in July 2015. Mr. Williams was the President, Chief Executive Officer and a director of DDi Corp., a leading provider of time-critical, technologically advanced electronics +manufacturing services, from November 2005 to May 2012 and a Senior Vice President and Chief Financial Officer of DDi from November 2004 to October 2005. DDi was sold in May of 2012. He has also +served in various management positions with several companies in the technology and professional services related industries. Mr. Williams began his career with PricewaterhouseCoopers as a +certified public accountant in the State of Maryland. Mr. Williams also serves as Chairman of the board of directors of Centrus Energy Corp. (formerly USEC Inc.). He was added to USEC's +board of directors in October 2013 on the recommendation of certain holders of USEC's convertible senior notes as USEC was considering a bankruptcy restructuring, which was successfully initiated and +completed in 2014. Since October 2015, Mr. Williams also serves on the board of directors of B. Riley Financial, Inc. He previously served on the boards of Lightbridge Communications +Corporation until it was sold in January 2015, and Tellabs, Inc. until it was sold in December 2013. Mr. Williams received his B.S. degree in Accounting from the University of Maryland +and an M.B.A. from the University of Georgetown. Mr. Williams has served as a director of Iteris since April 2011 and provides the Board of Directors with operational and public company +experience and valuable strategic insights through his many years of leadership positions in technology-related companies with international operations, as well as valuable knowledge and insights in +finance and financial reporting matters. +Family Relationships +There are no family relationships among any of our directors, director nominees, or executive officers. +7 +CORPORATE GOVERNANCE +Code of Ethics and Business Conduct +Our Board of Directors has adopted a Code of Ethics and Business Conduct, which applies to all directors, officers (including our principal +executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics and Business +Conduct is available on the Investor Relations section of our website at www.iteris.com. We intend to disclose future amendments to certain provisions of the Code of Ethics and Business Conduct, and +any waivers of provisions of the Code of Ethics required to be disclosed under the rules of the Securities and Exchange Commission (" SEC "), at the same +location on our website." +Director Independence +Our policy is to have at least a majority of the directors qualify as "independent" under the standards established by The Nasdaq Stock Market +(" Nasdaq "). The Board of Directors has determined that each of Messrs. Cerminara, Daly, Deeter, Mooney, Thomas and Williams currently satisfies +the requirements for "independence" using the standards established by Nasdaq, except that Dr. Daly did not qualify as an independent director while he was serving as our interim Chief +Executive Officer from February 2015 to September 2015. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the +best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that +having an independent director serve as the Chairman is currently in the best interest of our stockholders in recognition of the different demands and responsibilities of the roles and to emphasize +the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board of Directors, including the Audit Committee, the Compensation Committee, the NCG +Committee, and the Finance and Strategy Committee. The Audit Committee, the Compensation Committee, the NCG Committee, and the Finance and Strategy Committee each has a written charter that is +reviewed annually and revised as appropriate. A copy of each committee's charter is available on the Investor Relations section of our website at www.iteris.com. +During +the fiscal year ended March 31, 2017 (" Fiscal 2017 "), the Board of Directors and the various committees of the Board held +the following number of meetings: Board of Directors—four; Audit Committee—five; Compensation Committee—six; NCG Committee—five; and Finance and +Strategy Committee—five. During Fiscal 2017, no director attended fewer than 75% of the +aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any standing committees of the Board held while he was serving on the Board or such committee. +Audit Committee. The current members of our Audit Committee are Dr. Daly and Messrs. Mooney and Williams, and +Mr. Williams +serves as the Chairman of this committee. The Board has determined that each member of the Audit Committee is "independent" under the standards established by Nasdaq and the SEC rules regarding audit +committee memberships. The Board has identified Mr. Williams as the member of the Audit Committee who qualifies as an "audit committee +8 +financial +expert" under applicable SEC rules and regulations governing the composition of the Audit Committee. +The +Audit Committee oversees on behalf of the Board (a) the conduct of the accounting and financial reporting processes, the audits of our financial statements and the integrity +of our audited financial statements and other financial reports; (b) the performance of our internal accounting and financial controls function; (c) the engagement, replacement, +compensation, qualifications, independence and performance of our independent registered public accounting firm; and (d) the portions of the Code of Ethics and Business Conduct and related +policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews and approves related party transactions identified in Item 404 of SEC +Regulation S-K and makes recommendations to the full Board regarding the same. +The +Audit Committee meets privately with our independent registered public accounting from time to time, and such firm has unrestricted access to and reports directly to the Audit +Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018 and is +recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Dr. Daly and Messrs. Cerminara and +Thomas, and +Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is (or was during his time of service) "independent" under the +standards established by Nasdaq. We anticipate that after the Annual Meeting, Mr. Deeter will be appointed as a member of the Compensation Committee. +The +Compensation Committee (a) evaluates officer and director compensation policies, goals, plans and programs; (b) determines the cash and non-cash compensation of our +"officers" as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the " Exchange Act "); +(c) reviews and makes recommendations to the Board with respect to our equity-based and other incentive compensation plans for employees; (d) evaluates the performance of our executive +officers; and (e) assists the Board in evaluating potential candidates for executive officer positions and oversees management succession planning. +The +Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number +of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent +outside sources, our general business conditions and objectives, and the committee's subjective determination with respect to the executive's individual contributions to such objectives. To assist the +committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers, and makes recommendations with respect to executive +compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management +engaged a compensation consultant to provide advice or recommendations on the amount or form of executive and director compensation during Fiscal 2017; however, the Compensation Committee did retain +Frederic W. Cook & Co., Inc., an independent compensation consultant to assist in the design of the Company's 2016 Omnibus Incentive Plan, which was adopted at the 2016 Annual +Meeting of Stockholders +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee (the +" NCG Committee ") are Dr. Daly and Messrs. Mooney and Williams. Mr. Mooney serves as the Chairman of this committee. The Board has +determined that each member of the NCG Committee is "independent" under the standards established by Nasdaq. +9 +The +primary purposes of the NCG Committee are to (a) identify, screen and review individuals qualified to serve as directors; (b) select or recommend to the Board of +Directors the selection of nominees for election at the next annual meeting of stockholders; (c) recommend to the Board of Directors candidates to fill any vacancies on the Board; +(d) oversee the implementation and monitoring the effectiveness of our corporate governance policies and developing and recommending to the Board modifications and or additions to such +policies; and (e) review on a regular basis our overall corporate governance and recommend improvements when necessary. +In +connection with their recommendations regarding the size and composition of the Board, the NCG Committee reviews the appropriate qualities and skills required of directors in the +context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate's independence, personal and professional integrity, financial literacy or +other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company's and our +stockholders' long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee strives to nominate directors +with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and +others as considered useful by the NCG Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and +emphasis of the NCG Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and +prospective directors. The NCG Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been +suggested by other members of the Board or by our executive officers; however, from time to time, the NCG Committee has, and may in the future, engage the services of a third-party search firm to +identify director candidates. +The +NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our +next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in +writing to the Chair, NCG Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: +(a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder +of record of our stock entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee's +qualifications for membership on the Board, (e) a resume of the candidate's business experience and educational background as well as all of the information that would be required in a proxy +statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the +nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee +is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if +elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. +The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +10 +No +candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Finance and Strategy Committee. The current members of the Finance and Strategy Committee are Dr. Daly and +Messrs. Cerminara, Mooney +and Thomas, and Dr. Daly and serves as the Chairman of this committee. The purpose of the Finance and Strategy Committee is to assist management in identifying, evaluating and negotiating +financial transactions and other strategic opportunities for the Company from time to time. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by committees of the Board. In +particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk +assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. Risks related to our compensation programs are reviewed by +the Compensation Committee, and certain legal and regulatory compliance risks are reviewed by the NCG Committee. In connection with its responsibilities relating to risk assessment, our full Board +periodically engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee +of the Board or any individual Board member, care of our corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our corporate Secretary will be +primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, +providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board's consideration will not be forwarded to the Board. Stockholders who wish to communicate with the +Board can write to the Corporate Secretary at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our stockholders; however, +directors are encouraged to attend all such meetings. For our 2016 annual meeting of stockholders, two of our then-current directors attended such meeting. +11 +PROPOSAL TWO: +APPROVAL OF EMPLOYEE SHARE PURCHASE PLAN +The stockholders are being asked to approve the adoption of the Iteris, Inc. Employee Stock Purchase Plan (the +" Purchase Plan "), under which 1,000,000 shares of the Company's common stock will be reserved for issuance. The Purchase Plan was adopted by the Board +of Directors on August 16, 2017, subject to stockholder approval of the Purchase Plan at the Annual Meeting. +The +Purchase Plan is designed to allow eligible employees of the Company and its participating subsidiaries (whether now existing or subsequently established or acquired) to purchase +shares of common stock at designated intervals through their accumulated payroll deductions. +The +following is a summary of the principal features of the new Purchase Plan. The summary, however, is not intended to be a complete description of all the provisions of the Purchase +Plan and is qualified in its entirety by reference to the complete text of the Purchase Plan. A copy of the actual Purchase Plan is attached as Appendix A to this Proxy Statement. +Administration +The Purchase Plan will be administered by the Compensation Committee of the Board of Directors. Such committee will, as plan administrator, have +full authority to adopt administrative rules and procedures and to interpret the provisions of the Purchase Plan. +Securities Subject to the Purchase Plan +The number of shares of the Company common stock reserved for issuance under the Purchase Plan will initially be 1,000,000 shares. The shares +issuable under the Purchase Plan may be made available from authorized but unissued shares of common stock or from shares of common stock repurchased by the Company, including shares repurchased on +the open market. +In +the event that any dividend or other distribution (whether in the form of cash, common stock, or other property), recapitalization, stock split, reverse stock split, reorganization, +merger, consolidation, reincorporation, other reorganization, split-up, spin-off, combination, repurchase, or exchange of common stock or other securities of the Company, or other change in the +Company's structure affecting the common stock occurs without the Company's receipt of consideration, or should the value of shares of common stock be substantially reduced as a result of a spin-off +transaction or an extraordinary dividend or distribution, then the plan administrator will, in such manner as it deems equitable, adjust the maximum number of shares and class of common stock that may +be issued under the Purchase Plan, the purchase price per share and the number of shares of common stock covered by each outstanding option under the Purchase Plan, and the maximum number of shares +purchasable per participant during any offering period. +Offering Periods and Options +Shares of the Company's common stock will be offered for purchase under the Purchase Plan through a series of successive offering periods which +will be of such duration (not to exceed 27 months) as determined by the plan administrator. Unless otherwise specified by the plan administrator prior to the start of the applicable offering +period, (i) each offering period will have a duration of six (6) months and (ii) offering periods will commence on January 1 and July 1 each year. The initial +offering period under the Purchase Plan will commence on January 1, 2018. +On +the first trading day of each offering period, each participant will be granted an option to acquire shares of the Company's common stock on the last trading day of that offering +period, subject to certain limitations described below. +12 +Eligibility and Participation +Any individual who is employed on a basis under which he or she is regularly expected to work for more than 20 hours per week for more +than five months per calendar year in the employ of the Company or any participating subsidiary corporation (whether any such corporation is currently a subsidiary or subsequently acquired or is +subsequently established at any time during the term of the Purchase Plan) will be eligible to participate in any offering period implemented under the Purchase Plan. +To +participate in a particular offering period, an eligible employee must complete and file the requisite enrollment forms during the enrollment period for that offering period. +As +of August 15, 2017, approximately 440 employees, including six executive officers, would have been eligible to participate in the Purchase Plan had it been in effect on such +date. +Payroll Deductions and Stock Purchases +Each participant may authorize periodic payroll deductions in any multiple of one percent up to a maximum of 15% of the cash compensation paid +to the participant for the offering period. +The +accumulated contributions will automatically be applied to the acquisition of common stock at six-month intervals. Accordingly, on each such purchase date (the last trading day in +July and December each year), each participant's payroll deductions accumulated for the offering period ending on that purchase date will automatically be applied to the purchase of whole shares of +common stock at the purchase price in effect for the participant for that purchase date. The first purchase under the Purchase Plan is expected to occur on June 29, 2018. +Purchase Price +The purchase price of the common stock acquired on each semi-annual purchase date will not be less than 85% of the lower of the fair market +value per share of the Company's common stock on the first trading day of the offering period or the fair market value on the last trading day of that offering period. +The +fair market value per share of the Company's common stock on any particular date under the Purchase Plan will be deemed to be equal to the closing price per share on such date on the +stock exchange or national market system on which the shares are listed at that time (or if there is no closing price on such date, then the closing price per share on the last preceding date for +which such quotation exists). On September 22, 2017, the fair market value of the Company's common stock determined on such basis was $6.56 per share, the closing price per share on that date +as reported by the NASDAQ Capital Market. +Special Limitations +The Purchase Plan imposes certain limitations upon a participant's rights to acquire common stock, including the following +limitations: +• Options granted to a participant may not permit such individual to purchase more than $25,000 worth of the Company's common stock (valued at +the time each option is granted) for each calendar year those option are outstanding at any time. +• Options may not be granted to any individual if such individual would, immediately after the grant, own or hold outstanding options or other +rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the Company's outstanding stock or the outstanding stock of any of +the Company's affiliates. +13 +• No participant may purchase more than 5,000 shares of common stock during any offering period (subject to adjustment as indicated above). +The +plan administrator will have the discretionary authority to increase or decrease the per participant limitation as of the start date of any new offering period under the Purchase +Plan, with the new limit to be in effect for that offering period. +Termination of Option +The participant may withdraw from the Purchase Plan at any time up to a number of days prior to the next scheduled purchase date (as specified +by the plan administrator), and his or her accumulated payroll deductions for the offering period in which that withdrawal occurs will be refunded promptly. +The +participant's option will immediately terminate upon his or her cessation of employment or loss of eligible employee status. Any payroll deductions which the participant may have +made for the offering period in which such cessation of employment or loss of eligibility occurs will be refunded or used to purchase shares on the purchase date for that offering period (depending on +when such termination or loss of status occurs). +Stockholder Rights +No participant will have any stockholder rights with respect to the shares covered by his or her options until the shares are actually purchased +on the participant's behalf and the participant has become a holder of record of the purchased shares. No adjustment will be made for dividends, distributions or other rights for which the record date +is prior to the date of such purchase. +Assignability +No options will be assignable or transferable by the participant, and the options will be exercisable only by the participant. +Corporate Transaction +In the event of a corporate transaction, the plan administrator may provide that all outstanding options (i) may be assumed or +substituted by the successor corporation, (ii) will automatically be exercised immediately prior to the effective date of such change in control or (iii) will be terminated and +accumulated payroll deductions be refunded. The purchase price for any abbreviated offering period will be based on the purchase price formula in effect for the offering period in which such change in +control occurs. A corporate transaction means a merger, consolidation, acquisition of property or stock, separation, reorganization or other corporate event described in Section 424 of the Code +(defined below). +Share Pro-Ration +Should the total number of shares of common stock to be purchased pursuant to outstanding options on any particular date exceed the number of +shares then available for issuance under the Purchase Plan, then the plan administrator will make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the +payroll deductions of each participant, to the +extent in excess of the aggregate purchase price payable for the common stock pro-rated to such individual, will be refunded. +Amendment and Termination +The Purchase Plan will terminate on December 31, 2027, unless terminated earlier by the plan administrator. +14 +The +plan administrator may alter or amend the Purchase Plan at any time. In no event may the plan administrator effect either of the following amendments or revisions to the Purchase +Plan without the approval of the stockholders: (i) increase the number of shares of the Company's common stock issuable under the Purchase Plan, except for permissible adjustments in the event +of certain changes in the Company's capitalization or (ii) materially modify the eligibility requirements for participation in the Purchase Plan. +New Plan Benefits +The Purchase Plan will not become effective unless it is approved by the stockholders at the annual meeting and no options have been granted +under the Purchase Plan. +Summary of Federal Income Tax Consequences +The Purchase Plan is intended to be an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code, as +amended (the " Code "). Under a plan +which so qualifies, no taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the options. Taxable income will +not be recognized until there is a sale or other disposition of the shares acquired under the Purchase Plan or in the event the participant should die while still owning the purchased shares. +If +the participant sells or otherwise disposes of the purchased shares within two years after the start date of the offering period in which such shares were acquired or within one year +after the purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the +purchase date exceeded the purchase price paid for those shares, and the Company will be entitled to an income tax deduction, for the taxable year in which such sale or disposition occurs, equal in +amount to such excess. +If +the participant sells or disposes of the purchased shares more than two years after the start date of the offering period in which the shares were acquired and more than one year +after the purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (i) the amount by which the fair market +value of the shares on the sale or disposition date exceeded the purchase price paid for those shares or (ii) fifteen percent (15%) of the fair market value of the shares on the start date of +that offering period, and any additional gain upon the disposition will be taxed as a long-term capital gain. The Company will not be entitled to an income tax deduction with respect to such sale or +disposition. +If +the participant still owns the purchased shares at the time of death, then the participant will recognize ordinary income at such time equal to the lesser of (i) the amount by +which the fair market value of the shares on the date of death exceeds the purchase price or (ii) fifteen percent (15%) of the fair market value of the shares on the start date of the offering +period in which those shares were acquired. +Summary of Accounting Treatment +Pursuant to Accounting Standards Codification Topic 718 of the Financial Accounting Standards Board, the Company's contribution amount will be +charged as a direct compensation expense to its reported earnings in the period that the contribution is made. +Vote Required +Approval of the Purchase Plan requires the affirmative vote of (i) a majority of the shares of common stock present in person or +represented by proxy and voting at the annual meeting and (ii) a +15 +majority +of the shares of common stock required to constitute a quorum. If such stockholder approval not be obtained, then the Purchase Plan will not become effective. +Recommendation of Board of Directors +The Board of Directors recommends that the stockholders vote FOR the approval of the implementation of the Purchase +Plan . The Board of Directors believes that it is in the best interests of the Company to provide our employees with the opportunity to acquire an ownership interest in the +Company through their participation in the Purchase Plan and thereby encourage them to remain in the Company's employ and more closely align their interests with those of the stockholders. +16 +PROPOSAL THREE: +RATIFICATION OF SELECTION OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of Deloitte & Touche LLP was engaged to serve as our independent registered public accounting firm for Fiscal +2017. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending March 31, 2018. We are asking our stockholders to ratify the +selection by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending +March 31, 2018 and to perform other appropriate services. Stockholder ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm +is not required by our bylaws or otherwise. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the +Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change +would be in the best interests of us and our stockholders. +A +representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to +the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting will be +required for ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the ratification and approval of the selection of +Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018. +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Audit Fees +Deloitte & Touche LLP was engaged by us as our principal accountant in October 2015, and rendered the audit opinion on our +consolidated financial statements for Fiscal 2017. +The +audit fees billed by Deloitte & Touche LLP were $905,000 and $525,000 for Fiscal 2017 and Fiscal 2016, respectively. Audit fees consist of fees for professional +services rendered in connection with the audit of our annual consolidated financial statements for the applicable fiscal year and review of the consolidated financial statements included in our +quarterly reports on Form 10-Q and other regulatory filings for such fiscal year. There were no other fees billed to us by Deloitte & Touche LLP for Fiscal 2017 or Fiscal 2016. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte & Touche LLP or other independent registered public accountants are subject to prior +approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The prior +approval of the Audit Committee was obtained for all services provided by Deloitte & Touche LLP for Fiscal 2017. +17 +AUDIT COMMITTEE REPORT +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended +March 31, 2017 of Iteris, Inc. included in its Annual Report on Form 10-K and as amended on Form 10-K/A for that year. +Review with Management +The Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company's management. +Review and Discussions with Independent Registered Public Accounting Firm +The Audit Committee has discussed with the Company's independent registered public accounting firm, Deloitte & Touche LLP, the +matters required to be discussed by Statement on Auditing Standards No. 61, as amended, and Auditing Standard No. 1301, each as adopted by the Public Company Accounting Oversight Board +(" PCAOB "), which includes, among other items, matters related to the conduct of the audit of the Company's consolidated financial statements. +The +Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding the +independent accountant's communications with the Audit Committee concerning independence, and has discussed with Deloitte & Touche LLP its independence from the Company. +Conclusion +Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company's Board of Directors that +the audited financial statements be included in the Company's Annual Report on Form 10-K as amended on Form 10-K/A for the year ended March 31, 2017 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Kevin C. Daly, Ph.D. +Gerard M. Mooney +Mikel H. Williams +18 +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of September 11, 2017, regarding our executive officers. +Name +Age +Capacities in Which Served +J. Joseph ("Joe") Bergera +53 +Chief Executive Officer, President and Director +Andrew Schmidt +56 +Chief Financial Officer, Vice President of Finance and Secretary +Thomas N. Blair +53 +Chief Technology Officer, Agriculture and Weather Analytics +Joseph Boissy +53 +Chief Marketing Officer +James Chambers +51 +Senior Vice President and General Manager, Agriculture and Weather Analytics +Todd Kreter +57 +Senior Vice President and General Manager, Roadway Sensors +Ramin Massoumi +45 +Senior Vice President and General Manager, Transportation Systems +The +following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography +of Mr. Bergera appears earlier in this proxy statement. See Proposal One: "Election of Directors." +Andrew Schmidt has served as our Vice President of Finance, Chief Financial Officer and Secretary since March 2015. Prior to joining us, +Mr. Schmidt served as the Chief Financial Officer and Corporate Secretary of Smith Micro Software, Inc., a publicly-held provider of wireless and mobility software solutions from 2005 to +May 2014. Prior to joining Smith Micro, Mr. Schmidt held CFO roles for several other public companies, including Genius Products, an entertainment company, and Mad Catz Interactive, a provider +of console video game accessories. He also served as Vice President (Finance) of Peregrine Systems, a publicly-held provider of enterprise level software. Mr. Schmidt holds a +B.B.A. degree in Finance from the University of Texas and an M.S. degree in Accountancy from San Diego State University. +Thomas N. Blair has served as our Chief Technology Officer, Agriculture and Weather Analytics since August 2017 and prior to that served +as our Senior Vice President, Agriculture and Weather Analytics since July 2012. Prior to that, Mr. Blair served as General Manager for Trimble Navigation Limited, a provider of integrated +positioning, wireless, and software technology solutions, from 2007 to August 2011, and as Vice President for New Business development at @Road, Inc., a leading provider of mobile resource +management solutions, from 2006 to 2007. He also worked as Director of Business and Corporate Development at iAnywhere Solutions, a Sybase company, from 2003 to 2006. Mr. Blair holds a B.S. +degree in Management Information Systems from DeVry Institute of Technology and an M.S. degree in Computer Science from Rochester Institute of Technology. +Joseph Boissy has served as our Chief Marketing Officer since January 2017. Prior to that, Mr. Boissy served as Chief Marketing +Officer of Vendavo, Inc. (acquired by Francisco Partners in October 2014), a provider of margin and profit optimization solutions, from September 2013 to November 2016. Prior to that, he served +as the Chief Marketing Officer at 3VR Inc., a video intelligence solutions provider, from October 2011 to September 2013. From February 2002 to October 2011, he served in various management +positions at ILOG, Inc. (acquired by IBM in July 2008), a provider of business rule management systems, most recently as Vice President ILOG Worldwide Marketing, then Program Director, +Go-to-Market Strategy and Industry Marketing IBM WebSphere. Mr. Boissy was Vice President Program Management, Credient at SunGard Trading & Risk Systems Inc., a provider of +financial software solutions and services, from 2000 to 2002, and from 1997 to 2000, he served in management positions in product development, support and product management, most recently as the Vice +President Product Marketing, with Infinity Financial Technology, Inc., a +19 +financial +trading and risk management software solutions provider that was acquired by SunGard in October 1997. Prior to Infinity, Mr. Boissy was Director Product Development at Diagram +Financial Software, Inc. (now part of Thomson Reuters) from 1993 to 1997. Mr. Boissy holds a B.S. degree in Electrical Engineering from the Lebanese University (Lebanon) and a M.S. +degree in Computer Science and Data Analytics from the University of Paris XI (France). +James Chambers has served as our Senior Vice President and General Manager, Agriculture and Weather Analytics since August 2017. Prior to +that, Mr. Chambers served as Chief Executive Officer of Observant, Inc. (acquired by Jain Irrigation, Inc. in February 2017), a provider of agricultural in-field hardware and +cloud based applications for precision farm water management, from February 2016 to February 2017. From June 2013 to February 2016, he served as Director of Marketing at Bayer CropScience, a company +specialized in agriculture, and lifesciences. Prior to that, Mr. Chambers served in various key management positions at divisions of Deere & Company, including John Deere Water (acquired +by FIMI Opportunity Funds in June 2014), a provider of integrated Ag water management +solutions, most recently as Director of Global Product Management and Marketing and then as the Director of Global Technology Solutions, from August 2010 to May 2013, and John Deere Agri +Services, Inc. (acquired by Constellation Software, Inc. in January 2011), a provider of software solutions for the agricultural supply chain, most recently as the General Manager for +the Specialty Crop Business Unit and then as the Director of Marketing, from June 2006 to August 2010. From January 2003 to June 2006, he was Global Business Manager at Valent BioSciences Corporation, +a provider of technologies and products for the agricultural, public health, forestry and household markets, and from March 2001 to January 2003, he was Director of Global Sales and Marketing with +AgraQuest (acquired by Bayer CropScience in July 2012), a supplier of biological pest management solutions. From 1989 to 2001, Mr. Chambers served in various management positions at Monsanto +Company, a provider of agriculture products for farmers, most recently as Business Development Manager and Financial Analyst, then as Marketing Manager Animal Productivity and Market and Sales +Manager. Mr. Chambers holds a B.S. degree in Agriculture Business Management and Economics from The Ohio State University. +Todd Kreter has served as our Senior Vice President and General Manager, Roadway Sensors since May 2014. Mr. Kreter served as our +Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served +in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company's worldwide customer service organization. +Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +Ramin Massoumi has served as our Senior Vice President and General Manager, Transportation Systems since March 2015. Mr. Massoumi +joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June +2011 to March 2015. Throughout his career, his focus has been in the application of advanced technologies in the traffic management market, and has led projects throughout the United States and the +Middle East. Mr. Massoumi also serves as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of California at Irvine. +Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California Irvine, an M.S. degree in Engineering from the University of California, Berkeley, and an M.B.A. from the +University of Southern California. +20 +Compensation Discussion and Analysis +This section discusses the principles underlying our compensation policies for our executive officers who are named in the Summary Compensation +Table below, who we refer to as our " named executive officers " or " NEOs " for Fiscal 2017 and who include +the following executive officers: +• Joe Bergera, our Chief Executive Officer, President and Director; +• Andrew Schmidt, our Chief Financial Officer, Vice President of Finance and Secretary; +• Thomas N. Blair, our Senior Vice President, Agriculture and Weather Analytics; +• Todd Kreter, our Senior Vice President and General Manager, Roadway Sensors; and +• Ramin Massoumi, our Senior Vice President and General Manager, Transportation Systems. +Compensation Philosophy and Objectives +Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful +incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our stockholders. Based on this +philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• ensure that any cash incentive compensation programs for our named executive officers are aligned with our corporate strategies and business +objectives by tying the potential payouts under such programs to the achievement of key strategic, financial and operational goals; and +• utilize long-term equity awards to align interests between our named executive officers and stockholders. +Impact of 2016 Say-on-Pay Vote +The most recent stockholder advisory vote on executive officer compensation required under the federal securities laws was held on +December 15, 2016. Approximately 81.5% of the total votes cast on such proposal (which excluded broker non-votes) were in favor of the compensation of the named executive officers, as that +compensation was disclosed in the various compensation tables and narrative that appeared in the Company's proxy statement dated November 21, 2016. Based on that high level of stockholder +approval, the Compensation Committee decided not to make any material changes to the Company's compensation philosophies, policies and practices for the 2017 fiscal year compensation of the named +executive officers. Based on the voting preference of the Company's stockholders, advisory votes on executive officer compensation will be conducted every three years; accordingly, the next advisory +vote will be conducted at the 2019 Annual Meeting of Stockholders. The Compensation Committee will continue to take into account each such advisory vote in order to +determine whether any subsequent changes to the Company's executive compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes. +Annual Review of Cash and Equity Compensation +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our +executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review each component of compensation as related but distinct. Although the Compensation +Committee reviews total compensation, it has not adopted any formal guidelines for allocating total compensation between cash and equity compensation. We +21 +determine +the appropriate level of each compensation component based in part, but not exclusively, on our retention goals and short-term and long-term objectives. +This +review generally occurs in the first quarter of each fiscal year at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, +reviews and approves any bonus awards and programs, establishes the performance objectives for our cash based bonus plan, and may grant of equity compensation to the executive officers to ensure their +interests are aligned with our stockholders and for retention. In Fiscal 2016, the Compensation Committee engaged Frederic W. Cook & Co., Inc., an independent compensation +consultant, to assist in the review of its executive compensation policies and procedures with respect to our Fiscal 2016 executive officer compensation. This consultant provided the Compensation +Committee with market data and analysis of our total direct compensation for each executive officer position as compared with the competitive market and also provided market data for director +compensation. The Company did not use a compensation consultant to establish executive officer or director compensation in Fiscal 2017; however, Frederic W. Cook & Co., Inc. did +assist the Company in the design of the Company's 2016 Plan, which was approved by the stockholders at the 2016 Annual Meeting of Stockholders. +In +setting executive compensation, the Compensation Committee takes into account a number of factors, including the nature and scope of the named executive officer's responsibilities, +his or her individual performance level and contribution to the achievement of our corporate objectives, the experience level of the executive, the recommendations of our Chief Executive Officer for +each individual's compensation package (other than his own) and the compensation trends in the industry. +As +part of the review process, our Chief Executive Officer provides our Compensation Committee with his recommendations as to the base salary, cash bonus potential and long-term equity +incentive award for each of our named executive officers other than himself based on that officer's level of responsibility, individual performance and contribution to the attainment of our strategic +corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer's recommendations into consideration in setting named executive officer compensation, but retains +complete discretionary authority to make all compensation-related decisions for our named executive officers. Our Compensation Committee makes its compensation decisions with respect to the Chief +Executive Officer on the basis of relevant market data furnished by a variety of sources and its subjective assessment of his individual performance and contributions to our overall corporate +performance. Any decisions regarding our Chief Executive Officer's compensation are made without him present. +Compensation Components and Structure +We utilize three main components in structuring compensation programs for our named executive +officers: +• Base salary, which is the only fixed compensation element in executive compensation program and is primarily used to recruit and retain +executive talent and provide an element of economic security from year to year; +• Performance-based cash bonuses that are primarily designed to reward achievement of financial and operational goals; and +• Equity incentive awards designed to ensure long-term retention of our executive talent and align their interests with those of our +stockholders. +We +view each component of compensation as related but distinct. It is the practice of our Compensation Committee to allocate a substantial portion of each named executive officer's total +compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for +22 +its +cash-based bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, +and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee determines the +compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual's performance and contribution to our financial performance and +the other factors identified in the Compensation Decision-Making Process section above to determine the appropriate level and balance of total compensation. We believe that this approach allows us to +tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and responsibilities +required of all +our named executive officers. Each named executive officer's base salary level is typically reviewed on an annual basis and adjustments may be made to the individual's base salary on the basis of his +or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +In +June 2016, the Compensation Committee reviewed the base salaries of the named executive officers and established the base salaries for Fiscal 2017 for such officers as is set forth +below. +Named Executive Officer +Fiscal 2017 +Annual Base Salary +Joe Bergera +$ +385,000 +Andrew Schmidt +336,500 +Thomas N. Blair +259,000 +Todd Kreter +265,000 +Ramin Massoumi +239,200 +Fiscal 2017 Cash-Based Bonus Plan ("2007 Bonus Plan"). Our named executive officers are eligible to receive an annual cash-based +bonus under our 2017 +Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals, which +generally include the Company's revenues and operating income for the fiscal year, the revenues and contribution margin of such officer's business unit, and personal objectives set for each officer +(" MBOs "). We define "contribution margin" as the business unit's operating income without corporate expense allocations. The Compensation Committee +typically meets during the first fiscal quarter of each year to evaluation the NEO's achievement of such performance objectives and annual bonuses are typically paid out as soon as practicable +thereafter. +23 +The +corporate and business unit performance targets and the actual achievement of such objectives for Fiscal 2017 were as follows (dollars in thousands): +Performance Components +No Bonuses +At or Below +Target +Maximum +Actual +% +Attained +Corporate Revenue +$ +75,101 +$ +93,876 +$ +112,651 +$ +95,982 +102.2 +% +Corporate Operating Income +(4,174 +) +(3,478 +) +(2,782 +) +(3,069) +(1) +113.3 +Roadway Sensors Revenue +35,021 +43,776 +52,531 +42,270 +96.3 +Roadway Sensors Contribution Margin +7,037 +8,796 +10,555 +9,799 +111.4 +Transportation Systems Revenue +35,543 +44,429 +53,315 +49,270 +110.9 +Transportation Systems Contribution Margin +5,164 +6,455 +7,746 +8,482 +131.4 +Agriculture and Weather Analytics Revenue +4,538 +5,672 +6,806 +4,542 +0.0 +Agriculture and Weather Analytics Contribution Margin +(8,346 +) +(6,955 +) +(5,564 +) +(7,389) +(1) +94.1 +(1) Actual +results exclude a $2.2 million goodwill impairment charge. +If +our performance for Fiscal 2017 exceeded the Company and business unit performance targets set for bonus purposes, the named executive officers could have earned an additional bonus +of up to 50% of the target bonus award that was not based upon achieving individual objectives. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the +performance goals set forth under the "Maximum" column above. If the Company had achieved performance that was less than the goals set forth under the "Maximum" column but more than the amounts set +forth under the "Target" column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the +performance had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been +payable. +24 +The +performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2017 is as follows: +Named Executive Officer +Performance +Objectives +Allocation +(%) +2017 Target +Bonus +2017 Actual +Bonus +% of Target +Awarded +Joe Bergera +$ +300,000 +$ +354,000 +118 +% +Corporate Revenue +40 +% +Corporate Operating Income +40 +% +MBOs +20 +% +Andrew Schmidt +$ +134,600 +$ +161,970 +120 +% +Corporate Revenue +40 +% +Corporate Operating Income +40 +% +MBOs +20 +% +Thomas N. Blair +$ +142,321 +$ +91,598 +64 +% +Ag & Weather Analytics Revenue +30 +% +Ag & Weather Analytics Contribution Margin +20 +% +Corporate Revenue +15 +% +Corporate Operating Income +15 +% +MBOs +20 +% +Todd Kreter +$ +145,757 +154,692 +106 +% +Roadway Sensors Revenue +25 +% +Roadway Sensors Contribution Margin +25 +% +Corporate Revenue +15 +% +Corporate Operating Income +15 +% +MBOs +Ramin Massoumi +$ +131,583 +$ +159,234 +121 +% +Transportation Systems Revenue +25 +% +Transportation Systems Contribution Margin +25 +% +Corporate Revenue +15 +% +Corporate Operating Income +15 +% +MBOs +20 +% +See +2017 Grant of Plan-Based Awards below for additional information on Fiscal 2017 cash bonuses. +Equity Compensation. Our equity award program is the primary vehicle for offering long-term incentives to our named executive +officers and providing +an inducement for long-term retention. Our equity component also aligns the interests of our named executive officers with those of our stockholders and focuses their attention on the creation of +stockholder value in the form of stock price appreciation. The Compensation Committee uses both stock options and restricted stock units as part of the Company's long-term incentive program for named +executive officers, and the relative allocation of such instruments may vary from time to time. The Company believes that there are several advantages of using restricted stock units including ongoing +concerns over the dilutive effect of option grants on the Company's outstanding shares, the Company's desire to have a more direct correlation between the compensation expense it must record for +financial accounting purposes and the actual value delivered +to executive officers, and the fact that the incentive and retention value of a restricted stock unit award is less affected by market volatility than stock options. We believe that the equity-based +compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our named +executive officers and our stockholders. +25 +Typically, +the Compensation Committee provides grant guidelines to our Chief Executive Officer, who in turn will make recommendations back the Compensation Committee regarding the number +of options to be granted to our executive officers. See 2017 Grant of Plan-Based Awards below for the Fiscal 2017 awards. +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2017, 2016 and 2015 by +(i) our Chief Executive Officer, (ii) our Chief Financial Officer and (iii) our three other most highly compensated executive officers (other than our Chief Executive and +Financial Officers) who were serving as executive officers as of March 31, 2017. The officers listed below are collectively referred to as the " named executive +officers " or " NEOs " in this report. +Name and Principal Position +Fiscal +Year +Salary +Bonus +Stock +Awards(1) +Non-Equity +Incentive Plan +Compensation(2) +All Other +Compensation(3) +Total +Joe Bergera(4) +2017 +$ +399,816 +$ +— +$ +328,362 +$ +354,000 +$ +3,594 +$ +1,085,772 +Chief Executive Officer +2016 +197,502 +150,000 +(5) +1,659,150 +63,080 +7,610 +2,077,342 +and President +2015 +— +— +— +— +— +— +Andrew Schmidt +2017 +346,790 +— +164,181 +161,970 +8,118 +681,059 +Chief Financial Officer +2016 +325,000 +32,500 +(6) +91,950 +40,369 +9,750 +499,569 +Vice President of +2015 +18,750 +— +101,821 +— +— +120,571 +Finance and Secretary +Thomas N. Blair +2017 +266,705 +— +422,949 +(7) +91,598 +8,009 +789,261 +Senior Vice President, +2016 +250,016 +— +91,950 +72,977 +7,650 +422,593 +Agriculture and Weather +2015 +250,549 +— +53,715 +47,364 +7,812 +359,440 +Analytics +Todd Kreter +2017 +271,745 +— +164,181 +154,691 +8,060 +598,677 +Senior Vice President +2016 +250,016 +— +91,950 +85,296 +7,650 +434,912 +and GM, Roadway +2015 +250,982 +— +53,715 +105,000 +7,949 +417,646 +Sensors +Ramin Massoumi +2017 +241,522 +— +164,181 +159,234 +7,365 +569,302 +Senior Vice President +2016 +209,248 +— +24,520 +35,592 +6,441 +275,801 +and GM, Transportation +2015 +188,655 +— +19,940 +29,580 +5,237 +243,412 +Systems +(1) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See +also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in +the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date and vest in equal annual installments over four years and are not +exercisable until vested. +(2) The +amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established criteria. These +awards are discussed in further detail under "Plan-Based Bonuses" below. +(3) Except +as otherwise noted, represents 401(k) plan employer contributions paid by us. +(4) Mr. Bergera +was hired effective September 23, 2015 at an annual salary of $385,000. The Fiscal 2016 salary represents the amount earned by +Mr. Bergera from his hire date to the end of that fiscal year. +(5) Pursuant +to his employment agreement, Mr. Bergera was eligible for a bonus of up to $300,000 for Fiscal 2016, of which $150,000 was a signing bonus payable on +January 31, 2016, provided that Mr. Bergera was employed by the Company as of such date, and the remaining $150,000 was payable based on his attainment of certain pre-established +criteria, as discussed in further detail under "Plan-Based Bonuses" below. +(6) Discretionary +cash bonus. +(7) The +Stock Awards for Mr. Blair in Fiscal 2017 include restricted stock units totaling $258,768. +26 +2017 Grant of Plan-Based Awards +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive +compensation plan and our 2016 Omnibus Incentive Plan in Fiscal 2017, which constitute all of the plan-based awards granted to our named executive officers in Fiscal 2017. +Estimated Possible Payouts Under +Non-Equity Incentive Plan Awards +Number of +Securities +Underlying +Options or +Stock Units (#) +Per Share +Exercise Price +of Option +Awards +($/share) +Grant Date +Fair Value of +Awards +($)(2) +Name +Grant Date +Threshold +($) +Target +($)(1) +Maximum +($)(1) +Joe Bergera +03/03/2017 +$ +— +$ +300,000 +$ +420,000 +150,000 +$ +4.91 +$ +328,362 +Andrew Schmidt +03/03/2017 +— +134,600 +188,440 +75,000 +4.91 +164,181 +Thomas N. Blair +03/03/2017 +— +142,321 +199,249 +75,000 +4.91 +164,181 +03/22/2017 +51,140 +— +258,768 +(3) +Todd Kreter +03/03/2017 +— +145,757 +204,060 +75,000 +4.91 +164,181 +Ramin Massoumi +03/03/2017 +— +131,583 +184,216 +75,000 +4.91 +164,181 +(1) Reflects +the amount payable upon achievement of the objectives describes under the heading "Plan-Based Bonuses" below. +(2) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See +also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in +the Annual Report. +(3) The +March 22, 2017 grant for Mr. Blair is a grant of restricted stock units. The dollar amounts shown as the grant date fair value represents the grant +date fair value determined based on the closing market price of our common stock on the grant date. +27 +Equity Awards at Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2017. +Option Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date(1) +Option +Expiration +Date +Joe Bergera +337,500 +1,012,500 +$ +2.38 +09/23/15 +09/22/25 +Chief Executive Officer +— +150,000 +4.91 +03/03/17 +03/02/27 +Andrew Schmidt +50,000 +50,000 +1.79 +03/16/15 +03/15/25 +Chief Financial Officer, Vice President of +18,750 +56,250 +2.37 +11/02/15 +11/01/25 +Finance, and Secretary +— +75,000 +4.91 +03/03/17 +03/02/27 +Tom Blair +25,000 +25,000 +1.87 +11/18/14 +11/17/24 +Senior Vice President, +18,750 +56,250 +2.37 +11/02/15 +11/01/25 +Agriculture and Weather Analytics +— +75,000 +4.91 +03/03/17 +03/02/27 +Todd Kreter +25,000 +— +2.46 +02/21/08 +02/20/18 +Senior Vice President and +25,000 +— +1.41 +05/27/09 +05/26/19 +GM, Roadway Systems +30,000 +— +1.10 +08/10/11 +08/09/21 +20,000 +20,000 +1.81 +07/29/13 +07/28/23 +12,500 +37,500 +1.87 +11/18/14 +11/17/24 +— +75,000 +2.37 +11/02/15 +11/01/25 +Ramin Massoumi +22,500 +7,500 +1.81 +07/29/13 +07/28/23 +Senior Vice President and +10,000 +10,000 +1.87 +11/18/14 +11/17/24 +GM, Transportation Systems +5,000 +15,000 +2.37 +11/02/15 +11/01/25 +— +75,000 +4.91 +03/03/17 +03/02/27 +(1) Mr. Blair +was also granted 51,140 RSUs on March 22, 2017 in addition to the stock options reported above. +2017 Option Exercises and Stock Vesting Table +The following table provides information regarding option exercises and vesting of awards held by the named executive officers during Fiscal +2017. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value +Realized on +Exercise +($)(1) +Number of Shares +Acquired on Vesting +(#) +Value +Realized on +Vesting +($)(2) +Joe Bergera +— +$ +— +— +$ +— +Andrew Schmidt +— +— +— +— +Thomas N. Blair +100,000 +351,000 +12,500 +41,875 +Todd Kreter +50,000 +165,250 +— +— +Ramin Massoumi +20,000 +76,000 +— +— +(1) Value +realized is determined by multiplying (i) the amount by which the market price of a common share on the date of exercise exceeded the exercise price by +(ii) the number of shares for which the options were exercised. +28 +(2) Value +realized is determined by multiplying (i) the market price of a common share on the date of vesting by (ii) the number of shares which vested. +Employment Contracts; Termination of Employment and Change of Control Arrangements +We do not currently have any employment contracts in effect with any of our named executive officers other than the agreements described below. +We provide incentives such as salary, benefits, option grants and RSUs to attract and retain executive officers and other key employees. The plan administrator of the 2007 Omnibus Incentive Plan and +2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a qualifying termination of employment following certain changes in +control of the Company, or +upon such change in control, but we do not provide for any automatic "single trigger" acceleration of equity awards upon a change in control (other than the option grant received by Dr. Daly in +connection with his service as a non-employee director). Other than as noted in this section, there is no agreement or policy which would automatically entitle any named executive officer to severance +payments or any other compensation as a result of such officer's termination. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, +2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera +will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board, provided +that the bonus potential for Fiscal 2016 will be $300,000, of which $150,000 was a signing bonus payable on January 31, 2016 provided that Mr. Bergera was employed by the Company as of +such date. The agreement is for an initial term of three years and will renew for successive one year periods until September 2025 unless either we or Mr. Bergera provides written notice of +non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +Pursuant +to the agreement, Mr. Bergera also received an option grant under our 2007 Omnibus Incentive Plan to purchase up to 1,350,000 shares of our common stock (the +" Option "). The Option will vest in equal annual installments over four years and has an exercise price equal to the closing sales price of our common +stock on the date of grant of the Option. +If +during the initial term of the agreement or any renewal term, Mr. Bergera's employment with the Company is terminated without Cause (as such term is defined in the agreement), +Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of +his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated and (iii) reimbursement for the cost of COBRA coverage for a period of up to +12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are +defined in the agreement) (such termination or resignation, a " CIC Termination "), Mr. Bergera will be entitled to receive (i) a lump sum +payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal +year in which the CIC Termination occurs, (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination, and (iv) acceleration +of the vesting of the Option. In addition, upon termination of his employment due to death, Mr. Bergera's estate or beneficiaries will be entitled to receive salary continuation payments in the +aggregate equal to 50% of his then current base salary. +29 +Agreement with Andrew Schmidt +We entered into an employment agreement dated March 9, 2015 with Andrew Schmidt, our Chief Financial Officer, in connection with his +hiring. Pursuant to the agreement, Mr. Schmidt will receive an annual base salary of $325,000, which may be increased from time to time at the discretion of the Board or the Compensation +Committee. He will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or the Compensation +Committee, provided that the bonus potential for Fiscal 2016 was to be $125,000. The agreement will have an initial term of two years and will renew for successive one year periods until March 2025 +unless either the Company or Mr. Schmidt provides written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. The agreement was +amended on June 12, 2017 and provides that if Mr. Schmidt's employment with the Company is terminated without Cause or in connection with a Change of Control (as such terms are defined +in the agreement), Mr. Schmidt will be entitled to salary continuation payments for twelve months following his termination of his annual base salary as then in effect. In addition, +Mr. Schmidt will be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to twelve months following such termination. +Director Compensation +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for +non-employee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are our employees are not +compensated for their services as directors. +Board and Committee Retainers +For Fiscal 2017, annual cash compensation for non-employee directors was as follows: +Position +Annual +Retainer +Chairman of the Board +$ +65,000 +Non-Employee Director (other than the Chairman) +$ +35,000 +Additional +retainers for each non-employee director who served on one or more Board committees in Fiscal 2017 were as follows: +Position +Annual +Retainer +Audit Committee +Chair +$ +12,000 +Member +$ +6,000 +Compensation Committee +Chair +$ +9,000 +Member +$ +4,500 +Nominating and Corporate Governance Committee +Chair +$ +4,000 +Member +$ +2,000 +Finance Committee +Chair +$ +9,000 +Member +$ +4,500 +All +directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board of Directors and its committees, but they do not receive separate meeting fees. +30 +Annual Equity Compensation +Non-employee directors are also eligible to receive periodic restricted stock units (" RSUs ") +under the Company's equity incentive plan then in effect. Each non-employee director shall be granted an annual RSU upon approval of the grant by the Compensation Committee as soon as reasonably +practicable following the annual meeting of stockholders at which such director is re-elected. The annual RSU grant shall be worth $40,000 based on the closing price of the Company's common stock on +the RSU grant date. Each RSU entitles the holder to receive shares of the Company's common stock upon vesting of those units. Each annual RSU vests in full upon the director's completion of one year +of service measured from the date of the annual stockholders meeting to which the RSU relates. If a non-employee director joins the Board in between annual stockholder meetings, such director would +receive an RSU for a pro rata portion of the annual grant, which RSU vests in full on the day before the next annual stockholders meeting. +2017 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2017 by each non-employee director during that year: +Name +Fees Earned +or Paid in +Cash ($)(1) +Restricted +Stock Units +($)(2) +Total ($) +D. Kyle Cerminara +$ +25,927 +$ +49,531 +$ +75,458 +Richard Char(3) +27,750 +— +27,750 +Kevin C. Daly, Ph.D +49,250 +39,997 +89,247 +Scott E. Deeter +3,548 +39,997 +43,545 +Gregory A. Miner(3) +60,000 +— +60,000 +Gerard M. Mooney +45,438 +39,997 +85,435 +Thomas L. Thomas +64,208 +39,997 +104,205 +Mikel H. Williams +50,958 +39,997 +90,955 +(1) Represents +amounts earned by the directors based on the arrangement described above. +(2) The +dollar amounts shown represent the grant date fair value of restricted stock unit awards granted in Fiscal 2017 determined based on the closing market price of +our common stock on the grant date. At the end of Fiscal 2017, the above-listed directors held options for the following number of shares of common stock: Kevin C. Daly—70,000; Gregory A. +Miner—70,000; Gerard M. Mooney—40,000; and Mikel H. Williams—60,000. At the end of Fiscal 2017, the above-listed directors held RSUs for the following number of +shares of common stock: Kyle Cerminara—8,146; Kevin C. Daly—8,146; Scott E. Deeter—6,606; Gerard M. Mooney—8,146; Thomas L. Thomas—8,146; +and Mikel H. Williams—8,146. +(3) No +longer on the Board as of December 16, 2016. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent +functions) of any entity that has one or more executive officers serving on our Board of Directors or Compensation Committee. No interlocking relationship exists between any member of the Board of +Directors and any member of the compensation committee (or other committee performing equivalent functions) of any other company. +31 +Kevin +C. Daly, Ph.D, a member of our compensation committee, previously served as our interim Chief Executive Officer from February 2015 to September 2015. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur +in such capacities, including liabilities under the Securities Act of 1933, as amended. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the +fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer to repay such advances if it is ultimately +determined that the director or officer is not entitled to indemnification. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or +acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our +certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to us +and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our +stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for +payment of dividends or approval of stock +repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or +federal environmental laws. +We +have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These +agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by such person in any action or +proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at our request. +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any +potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably +likely to have a material adverse impact on our business or our financial condition. The following compensation design features help minimize the incentives for excessive +risk-taking: +• Our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a +reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• A portion of each executive's incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained +performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; and +32 +• Annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, +discourages the taking of short-term risk at the expense of long-term performance. +• Each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to +manipulate. +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the discussion and analysis of the compensation of our named executive +officers as disclosed under the heading "Compensation Discussion and Analysis." Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the +Compensation Discussion and Analysis be included in this Proxy Statement for the 2017 Annual Meeting. +D. Kyle Cerminara +Kevin C. Daly, Ph.D +Thomas L. Thomas (Chairman) +33 +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of September 11, 2017, the number and percentage ownership of our common stock by (i) all +persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our +executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common +stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and +Nature of +Beneficial +Ownership(2) +Percent of +Class(2) +Lloyd I. Miller, III(3) +4,980,759 +15.3 +% +Fundamental Global Investors, LLC and RELM Wireless Corporation(4) +2,126,948 +6.5 +Joe Bergera(14) +337,500 +1.0 +Andrew Schmidt(5) +87,500 +* +Thomas N. Blair(9) +68,750 +* +Todd Kreter(6) +141,111 +* +Ramin Massoumi(7) +64,175 +* +D. Kyle Cerminara(4) +2,137,669 +6.6 +Kevin C. Daly, Ph.D(8) +483,232 +1.5 +Scott E. Deeter +— +— +Gerard M. Mooney(10) +40,000 +* +Thomas L. Thomas(11) +124,000 +* +Mikel H. Williams(12) +70,000 +* +All executive officers and directors as a group (13 persons)(13) +1,427,019 +4.3 +% +* Less +than 1%. +(1) The +address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) Based +on 32,566,210 shares of common stock outstanding as of September 11, 2017. Shares of common stock subject to options or warrants which are exercisable +within 60 days of July 15, 2017 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person +but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding +options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual's name, the number of shares indicated also includes shares +held for the benefit of the named person under our 401(k) plan. +(3) Pursuant +to an amendment to a Schedule 13G/A filed on January 30, 2017 with the SEC, Mr. Miller reported that, as of December 31, 2016, +he had sole dispositive and voting power with respect to 4,827,822 shares as (i) the manager of a limited liability company that is the general partner of certain limited partnerships, +(ii) the manager of a limited liability company that is the adviser to certain trusts, (iii) the manager of a limited liability company, (iv) trustee to a certain grantor retained +annuity trust and (v) an individual. As of such date, Mr. Miller also had shared dispositive and voting power with respect to 152,937 shares as (x) an advisor to the trustee of a +certain trust and (y) an agent under a general durable power of attorney with respect to shares +34 +held +in a trust account. The address for Mr. Miller is 3300 South Dixie Highway, Suite 1-365, West Palm Beach, Florida 33405. +(4) Pursuant +to a Schedule 13D filed with the SEC on February 26, 2016, as amended on July 5, 2016, July 8, 2016, August 3, 2016, +June 20, 2017 and August 22, 2017 (i) Fundamental Global Partners, LP, a Delaware limited partnership ("FGPP"); (ii) Fundamental Global Partners Master +Fund, LP, a Cayman Islands exempted limited partnership ("FGPM"); (iii) Fundamental Global Investors, LLC, a North Carolina limited liability company ("FGI"); (iv) FGI +Funds Management, LLC, a Florida limited liability company; (v) Joseph H. Moglia; (vi) D. Kyle Cerminara; (vii) Lewis M. Johnson; (viii) RELM Wireless Corporation, a +Nevada corporation ("RELM"); and (ix) Tactical Capital Investments LLC, a Delaware limited liability company and a wholly-owned subsidiary of RELM, reported that, as of August 22, +2017, they beneficially owned in the aggregate 2,126,948 shares of Iteris' common stock, of which 261,231, 250,789, and 1,614,928 shares are held directly by FGPP, FGPM and RELM, respectively. Of the +shares attributed to RELM, 100 shares are held by RELM of record; the remaining shares held by RELM are in an account that is managed by CWA Asset Management Group, LLC (doing business as +"Capital Wealth Advisors"). Share purchases by RELM were made through Tactical Capital Investments LLC. In addition, as reported in its Schedule 13-D, CWA Asset Management +Group, LLC, which is 50% owned by FGI, held 99,578 shares for account of individual investors. Mr. Cerminara directly held 2,605 shares and 8,146 RSUs (all of which will accelerate and +become vested at the Annual Meeting). +FGI +may be deemed to beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. As principals of FGI, Messrs. Cerminara, Johnson and Moglia may be deemed to +beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. FGI Funds Management, LLC, as the investment manager to FGPP and FGPM as the relying manager to FGI, +may be deemed to beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. As principals of FGI Funds Management, LLC, Messrs. Cerminara and Johnson may +be deemed to beneficially own the shares of common stock disclosed as directly owned by FGPP and FGPM. FGI and its affiliates, as the largest stockholder of RELM, may be deemed to beneficially own the +shares of common stock disclosed as directly owned by RELM. As principals of FGI and directors of RELM, Messrs. Cerminara and Johnson may be deemed to beneficially own the shares of common +stock disclosed as directly owned by RELM. Messrs. Cerminara, Johnson and Moglia expressly disclaim such beneficial ownership. FGI expressly disclaims beneficial ownership of the shares of +common stock held by RELM. +Each +of FGPP and FGPM beneficially owns, and has the shared power to direct the voting and disposition of, the shares of common stock disclosed as beneficially owned by it. FGI has the shared power to +direct the voting and disposition of the shares of common stock held by FGPP and FGPM. FGI Funds Management, LLC, as the investment manager of FGPP and FGPM as the relying manager to FGI, has +the shared power to direct the voting and disposition of the shares of common stock held by FGPP and FGPM. Messrs. Cerminara and Johnson, as principals of FGI Funds Management, LLC, may +be deemed to have the shared power to direct the voting and disposition of the shares of common stock held by FGPP and FGPM. Messrs. Cerminara, Johnson and Moglia, as principals of FGI, may be +deemed to have the shared power to direct the voting and disposition of the shares of common stock held by FGPP and FGPM. RELM beneficially owns, and has the shared power to direct the voting and +disposition of, the shares of common stock disclosed as beneficially owned by it. As principal of FGI and directors of RELM, Messrs. Cerminara and Johnson, and FGI may be deemed to have the +shared power to direct the voting and disposition of the shares of common stock held by RELM. +The +principal business addresses of the various entities and persons are as follows: (i) RELM and Tactical Capital Investments LLC: 7100 Technology Drive, West Melbourne, Florida 32904; +35 +(ii) FGPP, +FGI and Mr. Moglia: 4201 Congress Street, Suite 140, Charlotte, North Carolina 28209; (iii) FGPM: c/o Maples Corporate Services Limited, +P.O. Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands; (iv) FGI Funds Management, LLC: 9130 Galleria Court, Third Floor, Naples, Florida 34109; +(v) Mr. Cerminara: c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte, North Carolina 28209; c/o Ballantyne Strong, Inc., 11422 +Miracle Hills Drive, Suite 300, Omaha, Nebraska 68154; and 131 Plantation Ridge Dr., Suite 100, Mooresville, North Carolina 28117; and (vi) Mr. Johnson: c/o CWA Asset +Management Group, LLC, 9130 Galleria Court, Third Floor, Naples, Florida 34109, and c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte, North +Carolina 28209. +(5) Consists +of 87,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 11, 2017. +(6) Includes +92,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +(7) Includes +50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +(8) Consists +of (i) 412,019 shares held by the Daly Family Trust, of which Dr. Daly is a trustee, (ii) 6,113 shares held by Dr. Daly's IRA, +(iii) 100 shares held by Dr. Daly's spouse; and (iv) 65,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after September 11, 2017. +(9) Includes +18,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +(10) Consists +of 40,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after +September 11, 2017. +(11) Consists +of (i) 15,000 shares held directly by Mr. Thomas and (ii) 109,000 shares held by Mr. Thomas's IRA. +(12) Includes +60,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +(13) Includes +759,396 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +(14) Includes +337,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after September 11, +2017. +36 +Equity Compensation Plans +The following table provides information as of March 31, 2017 with respect to shares of our common stock that may be issued under +existing equity compensation plans. +Plan Category +Number of +Securities to +be Issued Upon +Exercise of +Outstanding +Options +Weighted Average +Exercise Price of +Outstanding +Options +Number of Securities +Remaining Available For +Future Issuance under +Equity Compensation +Plans (excluding some +securities reflected +in first column) +Equity Compensation Plans Approved by Security Holders +2007 Omnibus Incentive Plan +3,035,125 +(1) +$ +2.15 +(2) +— +2016 Omnibus Incentive Plan +972,976 +(3) +$ +4.92 +(4) +2,443,382 +Equity Compensation Plans Not Approved by Security Holders +None +Total +4,008,101 +(1)(3) +$ +2.76 +(2)(4) +2,443,382 +(1) Includes +93,125 shares of our common stock subject to RSUs that entitle each holder to one share of common stock for each such unit, which vests over the holder's +period of continued service. +(2) Calculated +without taking into account the 93,125 shares of common stock subject to outstanding RSUs that become issuable as those units vest, without the payment of +any additional consideration or exercise price. +(3) Includes +138,476 shares of our common stock subject to RSUs that entitle each holder to one share of common stock for each such unit, which vests over the holder's +period of continued service. +(4) Calculated +without taking into account the 138,476 shares of common stock subject to outstanding RSUs that become issuable as those units vest, without the payment +of any additional consideration or exercise price. +37 +CERTAIN TRANSACTIONS +Since April 1, 2014, other than the agreements and transactions described in "Item 11. Executive Compensation" and the +transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will +exceed the lesser of $120,000 or the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any +class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We +previously subleased office space to Maxxess Systems, Inc. (" Maxxess"), one of our former subsidiaries that we sold in September +2003 and is currently owned by an investor group that includes one of our directors, who is also a director of Maxxess and previously served as its CEO. The sublease terminated in September 2007, at +which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which was subsequently amended and restated on July 23, 2013. The amended and restated +note bears interest at a rate of 6% per annum, compounded annually, with accrued interest payable quarterly on the first business day of each calendar quarter. Maxxess continues to pay down the +balance of this note by providing consulting services to Iteris, although we have previously fully reserved for amounts owed to us by Maxxess and the outstanding principal balance remains fully +reserved. As of March 31, 2017, approximately $146,000 of the original principal balance was outstanding and payable to Iteris. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of +our securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and other equity securities. Based solely on a review of copies of such forms +received with respect to Fiscal 2017 and the written representations received from certain reporting persons that no other reports were required, we believe that all directors, officers and persons +who own more than 10% of our Common Stock have complied with the reporting requirements of Section 16(a), except that the following two Form 4 reports were filed late during Fiscal 2017: +(i) Mr. Kreter sold 28,252 shares on March 16, 2017 and the Form 4 was filed on April 5, 2017; and (ii) Mr. Massoumi sold 2,000 shares on +February 22, 2017 and the Form 4 was filed on February 27, 2017. +ANNUAL REPORT +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report +is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without +charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also +available on the SEC's website at www.sec.gov. +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the +requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholders proposals may be eligible for inclusion in our proxy +statement for the 2018 Annual Meeting of Stockholders (the " 2018 Annual Meeting "). Stockholder proposals that are intended to be presented at our 2018 +Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than June 1, 2018. +38 +If +a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a +candidate for election to the Board, the proposal or nomination must be received by us on or between July 11, 2018, 2018 and August 10, 2018. If the date of the 2018 Annual Meeting is +called for a date that is not within 30 days before or after the anniversary date of the 2017 Annual Meeting of Stockholders (a situation that we do not anticipate), then the stockholder must +submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or +(ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of +stockholder proposals and director nominations. +In +addition, with respect to any proposal that a stockholder presents at the 2018 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 +under the Exchange Act, the proxy solicited by the Board of Directors for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted +under Rule 14a-4 under the Exchange Act. +Stockholder +proposals must be in writing and should be addressed to our corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, +California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of +timely receipt. The presiding officer of the 2018 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply +with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +OTHER BUSINESS +The Board of Directors is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set +forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board of Directors may +recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF ITERIS, INC. +Santa +Ana, California +September 25, 2017 +39 +Appendix A +ITERIS, INC. EMPLOYEE STOCK PURCHASE PLAN +1. Purpose. This Iteris, Inc. ("Company") Employee Stock Purchase Plan (the "Plan") is intended to +provide employees of the Company and its Participating Subsidiaries with an opportunity to acquire a proprietary interest in the Company through the purchase of shares of Common Stock. The Company +intends that the Plan qualify as an "employee stock purchase plan" under Section 423 of the Code and the Plan shall be interpreted in a manner that is consistent with that intent. +2. Definitions. +" Board or Board of Directors " means the Board of Directors of the Company, as constituted from time to time. +" Code " means the U.S. Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall +be deemed to include a reference to any regulations promulgated thereunder. +" Committee " means the Compensation Committee or other committee appointed by the Board to administer the Plan. +" Common Stock " means the common stock of the Company, par value $0.10 per share. +" Company " means Iteris, Inc., a Delaware corporation, including any successor thereto. +" Compensation " means the fixed salary or base wage paid by the Company or a Participating Subsidiary to a Participant as reported by the +Company or a Participating Subsidiary, as applicable, to the United States government for income tax purposes, including bonuses and commissions and an Employee's portion of salary deferral +contributions pursuant to Section 401(k) of the Code and any amount excludable pursuant to Section 125 of the Code, overtime, vacation pay, holiday pay, jury duty pay and funeral leave +pay, but excluding education or tuition reimbursements, imputed income arising under any group insurance or benefit program, travel expenses, business and relocation expenses, and income received in +connection with stock options or other equity-based awards. +" Corporate Transaction " means a merger, consolidation, acquisition of property or stock, separation, reorganization or other corporate +event described in Section 424 of the Code. +" Designated Broker " means the financial services firm or other agent designated by the Company to maintain ESPP Share Accounts on behalf +of Participants who have purchased shares of Common Stock under the Plan. +" Effective Date " means January 1, 2018, subject to the Plan obtaining stockholder approval in accordance with Section 19.11 +hereof. +" Employee " means any person who renders services to the Company or a Participating Subsidiary as an employee pursuant to an employment +relationship with such employer. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on military leave, sick leave or other leave of +absence approved by the Company or a Participating Subsidiary that meets the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three +(3) months, or such other period of time specified in Treasury Regulation Section 1.421-1(h)(2), and the individual's right to re-employment is not guaranteed by statute or contract, the +employment relationship shall be deemed to have terminated on the first day immediately following such three-month period, or such other period specified in Treasury Regulation +Section 1.421-1(h)(2). +" Eligible Employee " means an Employee who is customarily employed (and regularly scheduled) for at least twenty (20) hours per week +and more than five (5) months in any calendar year. +A-1 +Notwithstanding +the foregoing, the Committee may exclude from participation in the Plan or any Offering Employees who are "highly compensated employees" of the Company or a Participating Subsidiary +(within the meaning of Section 414(q) of the Code) or a sub-set of such highly compensated employees. +" Enrollment Form " means an agreement pursuant to which an Eligible Employee may elect to enroll in the Plan, to authorize a new level of +payroll deductions, or to stop payroll deductions and withdraw from an Offering Period. +" ESPP Share Account " means an account into which Common Stock purchased with accumulated payroll deductions at the end of an Offering +Period are held on behalf of a Participant. +" Exchange Act " means the U.S. Securities Exchange Act of 1934, as amended. +" Fair Market Value " means, as of any date, the value of the shares of Common Stock as determined below. If the shares are listed on any +established stock exchange or a national market system, including, without limitation, the NASDAQ Stock Market, the Fair Market Value shall be the closing selling price of a share (or if no sales were +reported, the closing price on the date immediately preceding such date) at the close of regular hours trading (i.e., before after-hours trading begins) as quoted on such exchange or system on +the day of determination, as reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape +of transactions on any other Stock Exchange on which the Common Stock is then primarily traded. In the absence of an established market for the shares, the Fair Market Value shall be determined in +good faith by the Committee and such determination shall be conclusive and binding on all persons. +" Offering Date " means the first Trading Day of each Offering Period as designated by the Committee. +" Offering" or "Offering Period " means a period of six months beginning each +January 1st and July 1 st of each year; provided, that, pursuant to Section 5, the Committee may change the duration of future +Offering Periods (subject to a maximum Offering Period of twenty-seven (27) months) and/or the start and end dates of future Offering Periods. +" Participant " means an Eligible Employee who is actively participating in the Plan. +" Participating Subsidiaries " means the Subsidiaries that have been designated as eligible to participate in the Plan, and such other +Subsidiaries that may be designated by the Committee from time to time in its sole discretion. +" Plan " means this Iteris, Inc. Employee Stock Purchase Plan, as set forth herein, and as amended from time to time. +" Purchase Date " means the last Trading Day of each Offering Period. +" Purchase Price " means an amount equal to the lesser of (1) eighty-five percent (85%) (or such greater percentage as determined by +the Committee) of the Fair Market Value on the Offering Date or (2) eighty-five percent (85%) (or such greater percentage as determined by the Committee) of the Fair Market Value on the +Purchase Date; provided, that, the Purchase Price per share of Common Stock will in no event be less than the par value of the Common Stock. +" Securities Act " means the Securities Act of 1933, as amended. +" Subsidiary " means any domestic corporation, of which not less than 50% of the combined voting power is held by the Company or a +Subsidiary, whether or not such corporation exists now or is hereafter organized or acquired by the Company or a Subsidiary. In all cases, the determination of whether an entity is a Subsidiary shall +be made in accordance with Section 424(f) of the Code. +A-2 +" Trading Day " means any day on which the national stock exchange upon which the Common Stock is listed is open for trading or, if the +Common Stock is not listed on an established stock exchange or national market system, a business day, as determined by the Committee in good faith. +3. Administration. The Plan shall be administered by the Committee, which shall have the authority to construe +and interpret the Plan, prescribe, amend and rescind rules relating to the Plan's administration and take any other actions necessary or desirable for the administration of the Plan. The Committee may +correct any defect or supply any omission or reconcile any inconsistency or ambiguity in the Plan. The Committee shall have the authority and discretion to change the Purchase Price within the +parameters set forth above, and if the Committee changes the Purchase Price from one Offering Period to another, the Company will notify Participants of any change in Purchase Price at least fifteen +(15) days prior to the beginning of the next Offering Period to which the changed Purchase Price applies. The decisions of the Committee shall be final and binding on all persons. All expenses +of administering the Plan shall be borne by the Company. +4. Eligibility. Unless otherwise determined by the Committee in a manner that is consistent with +Section 423 of the Code, any individual who is an Eligible Employee as of the Offering Date for a particular Offering Period shall be eligible to participate in such Offering Period, subject to +the requirements of Section 423 of the Code. +Notwithstanding +any provision of the Plan to the contrary, no Eligible Employee shall be granted an option under the Plan if (i) immediately after the grant of the option, such +Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or hold +outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary or (ii) such option would permit +his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate that exceeds $25,000 +of the Fair Market Value of such stock (determined at the time the option is granted) for each calendar year in which such option is outstanding at any time. +5. Offering Periods. The Plan shall be implemented by a series of Offering Periods, each of which shall be six +(6) months in duration, with new Offering Periods commencing on or about January 1 and July 1 of each year (or such other times as determined by the Committee). The Committee +shall have the authority to change the duration, frequency, start and end dates of Offering Periods. +6. Participation. +6.1 Enrollment; Payroll Deductions. An Eligible Employee may elect to participate in the Plan by properly +completing an Enrollment Form, which may be electronic, and submitting it to the Company, in accordance with the enrollment procedures established by the Committee. Participation in the Plan is +entirely voluntary. By submitting an Enrollment Form, the Eligible Employee authorizes payroll deductions from his or her pay check in an amount equal to at least 1%, but not more than 15% of his or +her Compensation on each pay day occurring during an Offering Period (or such other maximum percentage as the Committee may establish from time to time before an Offering Period begins). Payroll +deductions shall commence on the first payroll date following the Offering Date and end on the last payroll date on or before the Purchase Date. The Company shall maintain records of all payroll +deductions but shall have no obligation to pay interest on payroll deductions or to hold such amounts in a trust or in any segregated account. +6.2 Election Changes. During an Offering Period, a Participant may decrease or increase his or her rate of +payroll deductions applicable to such Offering Period only once. To make such a change, the Participant must submit a new Enrollment Form authorizing the new rate of payroll +A-3 +deductions +and any change shall become effective on the next payroll period that begins no earlier than five (5) business days after the Company's receipt of a new Enrollment Form or such other +notice period as may be established by the Compensation Committee from time to time in its sole discretion (to the extent practical under the Company's payroll practices) following delivery of a new +Enrollment Form. A Participant may decrease or increase his or her rate of payroll deductions for future Offering Periods by submitting a new Enrollment Form authorizing the new rate of payroll +deductions at least fifteen days before the start of the next Offering Period. +6.3 Automatic Re-enrollment. The deduction rate selected in the Enrollment Form shall remain in effect for +subsequent Offering Periods unless the Participant (a) submits a new Enrollment Form authorizing a new level of payroll deductions in accordance with Section 6.2, (b) withdraws +from the Plan in accordance with Section 10, or (c) terminates employment or otherwise becomes ineligible to participate in the Plan. +7. Grant of Option. On each Offering Date, each Participant in the applicable Offering Period shall be granted +an option to purchase, on the Purchase Date, a number of shares of Common Stock determined by dividing the Participant's accumulated payroll deductions by the applicable Purchase Price; provided, +however, that in no event shall any Participant purchase more than 5,000 shares of Common Stock during an Offering Period (subject to adjustment in accordance with Section 18 and the +limitations set forth in Section 13 of the Plan). +8. Exercise of Option/Purchase of Shares. A Participant's option to purchase shares of Common Stock will be +exercised automatically on the Purchase Date of each Offering Period. The Participant's accumulated payroll deductions will be used to purchase the maximum number of whole shares that can be purchased +with the amounts in the Participant's notional account. No fractional shares may be purchased but any remaining funds that are not used to purchase Common Stock will carry forward to +the next Offering Period, subject to earlier withdrawal by the Participant in accordance with Section 10 or termination of employment in accordance with Section 11. +9. Transfer of Shares. As soon as reasonably practicable after each Purchase Date, the Company will arrange for +the delivery to each Participant of the shares of Common Stock purchased upon exercise of his or her option. The Committee may permit or require that the shares be deposited directly into an ESPP +Share Account established in the name of the Participant with a Designated Broker and may require that the shares of Common Stock be retained with such Designated Broker for a specified period of +time. Participants will not have any voting, dividend or other rights of a shareholder with respect to the shares of Common Stock subject to any option granted hereunder until such shares have been +delivered pursuant to this Section 9. +10. Withdrawal. +10.1 Withdrawal Procedure. A Participant may withdraw from an Offering by submitting to the Company a revised +Enrollment Form indicating his or her election to withdraw at any time before the Purchase Date, provided that such revised Enrollment Form is received at least ten (10) business days prior to +the Purchase Date (or such other period as may be established by the Compensation Committee from time to time in its sole discretion). The accumulated payroll deductions held on behalf of a +Participant in his or her notional account (that have not been used to purchase shares of Common Stock) shall be paid to the Participant promptly following receipt of the Participant's Enrollment Form +indicating his or her election to withdraw and the Participant's option shall be automatically terminated. If a Participant withdraws from an Offering Period, no payroll deductions will be made during +any succeeding Offering Period, unless the Participant re-enrolls in accordance with Section 6.1 of the Plan. +10.2 Effect on Succeeding Offering Periods. A Participant's election to withdraw from an Offering Period will +not have any effect upon his or her eligibility to participate in succeeding +A-4 +Offering +Periods that commence following the completion of the Offering Period from which the Participant withdraws, provided the Participant submits a new Enrollment Form in accordance with this +Plan. +11. Termination of Employment; Change in Employment Status. Upon termination of a Participant's employment for +any reason, including death, disability or retirement, or a change in the Participant's employment status following which the Participant is no longer an Eligible Employee, which in either case occurs +at least fifteen days (or such other period as may be established by the Compensation Committee from time to time in its sole discretion) before the Purchase Date, the Participant will be deemed to +have withdrawn from the Plan and the payroll deductions in the Participant's notional account (that have not been used to purchase shares of Common Stock) shall be returned to the Participant, or in +the case of the Participant's death, to the person(s) entitled to such amounts under Section 17, and the Participant's option shall be automatically terminated. If the Participant's termination +of employment or change in status occurs within fifteen days (or such other period as may be established by the Compensation Committee from time to time in its sole discretion) before a Purchase Date, +the accumulated payroll deductions shall be used to purchase shares on the Purchase Date. +12. Interest. No interest shall accrue on or be payable with respect to the payroll deductions of a Participant +in the Plan. +13. Shares Reserved for Plan. +13.1 Number of Shares. A total of One Million (1,000,000) shares of Common Stock have been reserved as +authorized for the grant of options under the Plan. The shares of Common Stock may be newly issued shares, treasury shares or shares acquired on the open market. +13.2 Over-subscribed Offerings. The number of shares of Common Stock which a Participant may purchase in an +Offering under the Plan may be reduced if the Offering is over-subscribed. No option granted under the Plan shall permit a Participant to purchase shares of Common Stock which, if added together with +the total number of shares of Common Stock purchased by all other Participants in such Offering would exceed the total number of shares of Common Stock remaining available under the Plan. If the +Committee determines that, on a particular Purchase Date, the number of shares of Common Stock with respect to which options are to be exercised exceeds the number of shares of Common Stock then +available under the Plan, the Company shall make a pro rata allocation of the shares of Common Stock remaining available for purchase in as uniform a manner as practicable and as the Committee +determines to be equitable. +14. Transferability. No payroll deductions credited to a Participant, nor any rights with respect to the +exercise of an option or any rights to receive Common Stock hereunder may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and +distribution, or as provided in Section 17 hereof) by the Participant. Any attempt to assign, transfer, pledge or otherwise dispose of such rights or amounts shall be without effect. +15. Application of Funds. All payroll deductions received or held by the Company under the Plan may be used by +the Company for any corporate purpose to the extent permitted by applicable law, and the Company shall not be required to segregate such payroll deductions or contributions. +16. Statements. Participants will be provided with statements at least annually which shall set forth the +contributions made by the Participant to the Plan, the Purchase Price of any shares of Common Stock purchased with accumulated funds, the number of shares of Common Stock purchased, and any payroll +deduction amounts remaining in the Participant's notional account. +17. Designation of Beneficiary. A Participant may file, on forms supplied by the Company, a written designation +of beneficiary who is to receive any shares of Common Stock and cash in respect of +A-5 +any +fractional shares of Common Stock, if any, from the Participant's ESPP Share Account under the Plan in the event of such Participant's death. In addition, a Participant may file a written +designation of beneficiary who is to receive any cash withheld through payroll deductions and credited to the Participant's notional account in the event of the Participant's death prior to the +Purchase Date of an Offering Period. +18. Adjustments Upon Changes in Capitalization; Dissolution or Liquidation; Corporate Transactions. +18.1 Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common +Stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, reincorporation, other reorganization, split-up, spin-off, combination, +repurchase, or exchange of Common Stock or other securities of the Company, or other change in the Company's structure affecting the Common Stock occurs without the Company's receipt of consideration, +or should the value of shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, then in order to prevent dilution or +enlargement of the benefits or potential benefits intended to be made available under the Plan, the Committee will, in such manner as it deems equitable, adjust the number of shares and class of +Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each outstanding option under the Plan, and the numerical limits of +Section 7 and Section 13. +18.2 Dissolution or Liquidation. Unless otherwise determined by the Committee, in the event of a proposed +dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a new Purchase Date and the Offering Period will end immediately prior to the proposed +dissolution or liquidation. The new Purchase Date will be before the date of the Company's +proposed dissolution or liquidation. Before the new Purchase Date, the Committee will provide each Participant with written notice, which may be electronic, of the new Purchase Date and that the +Participant's option will be exercised automatically on such date, unless before such time, the Participant has withdrawn from the Offering in accordance with Section 10. +18.3 Corporate Transaction. In the event of a Corporate Transaction, the Committee may cause each outstanding +option to be assumed or an equivalent option substituted by the successor corporation or a parent or Subsidiary of such successor corporation. If the successor corporation does not assume or +substitute the option, the Committee may either: (a) shorten the Offering Period with respect to which the option relates and set a new Purchase Date on which the Offering Period will end. The +new Purchase Date will occur before the date of the Corporate Transaction. Prior to the new Purchase Date, the Committee will provide each Participant with written notice, which may be electronic, of +the new Purchase Date and that the Participant's option will be exercised automatically on such date, unless before such time, the Participant has withdrawn from the Offering in accordance with +Section 10; or (b) terminate the Offering Period and refund all accumulated payroll deductions to the Participants. +19. General Provisions. +19.1 Equal Rights and Privileges. Notwithstanding any provision of the Plan to the contrary and in accordance +with Section 423 of the Code, all Eligible Employees who are granted options under the Plan shall have the same rights and privileges. +19.2 No Right to Continued Service. Neither the Plan nor any compensation paid hereunder will confer on any +Participant the right to continue as an Employee or in any other capacity. +19.3 Rights as Stockholder. A Participant will become a stockholder with respect to the shares of Common Stock +that are purchased pursuant to options granted under the Plan when the shares are transferred to the Participant's ESPP Share Account. A Participant will have no rights +A-6 +as +a stockholder with respect to shares of Common Stock for which an election to participate in an Offering Period has been made until such Participant becomes a stockholder as provided above. +19.4 Successors and Assigns. The Plan shall be binding on the Company and its successors and assigns. +19.5 Entire Plan. This Plan constitutes the entire plan with respect to the subject matter hereof and supersedes +all prior plans with respect to the subject matter hereof. +19.6 Compliance with Law. The obligations of the Company with respect to payments under the Plan are subject to +compliance with all applicable laws and regulations. Common Stock shall not be issued with respect to an option granted under the Plan unless the exercise of such option and the issuance and delivery +of the shares of Common Stock pursuant thereto shall comply with all applicable provisions of law, including, without limitation, the Securities Act, the Exchange Act, and the requirements of any +stock exchange upon which the shares may then be listed. +19.7 Notice of Disqualifying Dispositions. Each Participant shall give the Company prompt written notice of any +disposition or other transfer of shares of Common Stock acquired pursuant to the exercise of an option acquired under the Plan, if such disposition or transfer is made within two years after the +Offering Date or within one year after the Purchase Date. +19.8 Term of Plan. The Plan shall become effective on the Effective Date and, unless terminated earlier pursuant +to Section 19.9, shall have a term of ten years. +19.9 Amendment or Termination. The Committee may, in its sole discretion, amend, suspend or terminate the Plan +at any time and for any reason, provided, however, that in no event may the Committee effect any of the following amendments or revisions to the Plan without the approval of the Company's +shareholders: (i) increase the number of shares of Common Stock issuable under the Plan (other than adjustments pursuant to Section 19.1) or (ii) materially modify the +requirements for eligibility to participate in the Plan. If the Plan is terminated, the Committee may elect to terminate all outstanding Offering Periods either immediately or once shares of Common +Stock have been purchased on the next Purchase Date (which may, in the discretion of the Committee, be accelerated) or permit Offering Periods to expire in accordance with their terms (and subject to +any adjustment in accordance with Section 18). If any Offering Period is terminated before its scheduled expiration, all amounts that have not been used to purchase shares of Common Stock will +be returned to Participants (without interest, except as otherwise required by law) as soon as administratively practicable. +19.10 Applicable Law. The laws of the State of Delaware shall govern all questions concerning the construction, +validity and interpretation of the Plan, without regard to such state's conflict of law rules. +19.11 Stockholder Approval. The Plan shall be subject to approval by the shareholders of the Company within +twelve (12) months before or after the date the Plan is adopted by the Board. +19.12 Section 423. The Plan is intended to qualify as an "employee stock purchase plan" under +Section 423 of the Code. Any provision of the Plan that is inconsistent with Section 423 of the Code shall be reformed to comply with Section 423 of the Code. +19.13 Withholding. To the extent required by applicable Federal, state or local law, a Participant must make +arrangements satisfactory to the Company for the payment of any withholding or similar tax obligations that arise in connection with the Plan. +19.14 Severability. If any provision of the Plan shall for any reason be held to be invalid or unenforceable, +such invalidity or unenforceability shall not affect any other provision hereof, and the Plan shall be construed as if such invalid or unenforceable provision were omitted. +19.15 Headings. The headings of sections herein are included solely for convenience and shall not affect the +meaning of any of the provisions of the Plan. +A-7 +PROXY +ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder of ITERIS, INC. hereby appoints JOE BERGERA and ANDREW SCHMIDT, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of Iteris to be held at the Company’s principal executive offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA, 92705, on November 8, 2017 at 10:00 a.m. Pacific Time, and at any adjournments or postponements thereof (the “ Annual Meeting ”), and to vote all shares of common stock of Iteris held of record by the undersigned on September 11, 2017, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED OR, IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL ONE, “FOR” EACH OF THE OTHER PROPOSALS AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +C. +Non-Voting Items +Change of Address - Please print new address below +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +A. Proposals - The Board of Directors recommends a vote FOR all of the nominees listed below, and FOR Proposals 2 and 3. +x Please mark votes as in this example. +1. +Election of Directors: To elect Joe Bergera, Kevin C. Daly, Ph.D., Scott E. Deeter, Gerard M. Mooney, Thomas L. Thomas and Mikel H. Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders or until his successor is elected and qualified. +o Mark here to vote FOR all nominees +o Mark here to WITHHOLD vote from all nominees +o For All EXCEPT - To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +2. +Approval of the Iteris, Inc. Employee Stock Purchase Plan. +o FOR +o AGAINST +o ABSTAIN +3. +Ratification of Deloitte & Touche LLP as the independent registered public accounting firm of Iteris for the fiscal year ending March 31, 2018. +o FOR +o AGAINST +o ABSTAIN +B. +Authorized Signature - This section must be completed for your vote to be counted. +Date and Sign below. This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title. +Date (mm/dd/yyyy) – Please print date below. +Signature 1 – Please keep signature within the box. +Signature 2 – Please keep signature within the box. +/ / +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A, B and C +ON BOTH SIDES OF THIS CARD. +QuickLinks +PROPOSAL ONE: ELECTION OF DIRECTORS +CORPORATE GOVERNANCE +PROPOSAL TWO: APPROVAL OF EMPLOYEE SHARE PURCHASE PLAN +PROPOSAL THREE: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +AUDIT COMMITTEE REPORT +EXECUTIVE COMPENSATION AND OTHER INFORMATION +PRINCIPAL STOCKHOLDERS AND COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +CERTAIN TRANSACTIONS +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +ANNUAL REPORT +DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS +OTHER BUSINESS +Appendix A ITERIS, INC. EMPLOYEE STOCK PURCHASE PLAN \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-17-006054/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-17-006054/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000350868/0001047469-18-005916/proxy.txt b/raw/proxies/0000350868/0001047469-18-005916/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..153d7344fd4f0f81ec91a2f6bde2bd78588fb746 --- /dev/null +++ b/raw/proxies/0000350868/0001047469-18-005916/proxy.txt @@ -0,0 +1,3708 @@ +DEF 14A +1 +a2236514zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD OCTOBER 11, 2018 +To the Stockholders of Iteris, Inc.: +NOTICE +IS HEREBY GIVEN that the 2018 Annual Meeting of Stockholders (the " Annual Meeting ") of Iteris, Inc., a Delaware corporation +(the " Company "), will be held on October 11, 2018 at 10:00 a.m. Pacific Time, at our principal executive offices located at +1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, for the following purposes, as more fully described in the proxy statement accompanying this +Notice: +1. To +elect Joe Bergera, Kevin C. Daly, Ph.D., Scott E. Deeter, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and +Mikel H. Williams to the Board of Directors, each to hold such office until the next annual meeting of stockholders and until his or her successor is elected and qualified. +2. To +approve the amendment and restatement of the Iteris, Inc. 2016 Omnibus Incentive Plan. +3. To +approve the amendment of the Company's Restated Certificate of Incorporation to eliminate cumulative voting in the election of directors. +4. To +approve the amendment of the Company's Restated Certificate of Incorporation to adopt a majority voting standard for uncontested director elections. +5. To +ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, +2019. +6. To +transact any other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +All +stockholders are cordially invited to attend the Annual Meeting. All stockholders of record as of the close of business on August 30, 2018 are entitled to notice of and to +vote at the Annual Meeting, and at any postponement(s) or adjournment(s) thereof. It is important that all of our stockholders be represented at our Annual Meeting. Whether you plan to attend the +Annual Meeting in person or not, we urge you to vote your shares by submitting your proxy as soon as possible. Submitting your proxy card or voting instruction form does not affect your right to vote +in person if you attend the Annual Meeting. Also, if you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names +or addresses, please be sure to sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. +Santa Ana, California +September 6, 2018 +BY ORDER OF THE BOARD OF DIRECTORS +Joe Bergera +Chief Executive Officer +YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY PROXY PRIOR TO THE MEETING. IF YOU CHOOSE TO VOTE BY MAIL, PLEASE DO SO PROMPTLY TO +ENSURE YOUR PROXY ARRIVES IN SUFFICIENT TIME. +Table of Contents +TABLE OF CONTENTS +Page +Notice of Annual Meeting of Stockholders +Questions and Answers About the Annual Meeting and Voting +1 +Proposal 1—Election of Directors +7 +Corporate Governance, Board Meetings and Committees +11 +Director Compensation +14 +Compensation Committee Interlocks and Insider Participation +16 +Executive Compensation and Other Information +17 +Executive Officers +17 +Summary Compensation Table +18 +Fiscal 2018 Grants of Plan-Based Awards +19 +Outstanding Equity Awards at 2018 Fiscal Year-End +20 +Fiscal 2018 Option Exercises and Stock Vested +21 +Potential Payments upon Termination or Change in Control +21 +Indemnification of Directors and Officers +23 +Compensation Discussion & Analysis +25 +Compensation Committee Report +30 +Compensation Risk Assessment +30 +Pay Ratio +30 +Proposal 2—Approval of Amendment and Restatement of 2016 Omnibus Incentive Plan +32 +Proposal 3—Approval of Amendment to Restated Certificate of Incorporation to Eliminate Cumulative +Voting +47 +Proposal 4—Approval of Amendment to Restated Certificate of Incorporation to Add Majority Voting +Standard in Uncontested Director Elections +49 +Proposal 5—Ratification of Independent Registered Public Accounting Firm +51 +Matters Related To Independent Registered Public Accounting Firm +51 +Fees Paid to Independent Registered Public Accounting Firm +51 +Audit Committee Report +52 +Stock Ownership of Certain Beneficial Owners and Management +54 +Additional Information +55 +Transactions with Related Persons +55 +Section 16(a) Beneficial Ownership Reporting Compliance +56 +Annual Report +56 +Delivery of Documents to Stockholders Sharing an Address +56 +Deadline for Receipt of Stockholder Proposals +56 +Other Matters +57 +Table of Contents +PROXY STATEMENT +FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. TO BE HELD ON OCTOBER 11, 2018 +The Board of Directors (the " Board ") of Iteris, Inc., a Delaware corporation (sometimes referred to as +"Iteris," the "Company," "we," "us," or "our"), is soliciting your proxy for the Company's 2018 Annual Meeting of Stockholders and any and all adjournments or postponements of such meeting (the +" Annual Meeting "). The Annual Meeting will be held at 10:00 a.m. Pacific time on October 11, 2018, at the Company's corporate headquarters +located at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The approximate date on which this proxy statement and the enclosed proxy materials are first being sent or given to the +Company's stockholders is September 6, 2018. +References +in this proxy statement to fiscal years refer to the Company's fiscal year ended March 31 of the referenced year. For example, " Fiscal +2017 " refers to the fiscal year ended March 31, 2017, " Fiscal 2018 " refers to the fiscal year ended March 31, +2018, and " Fiscal 2019 " refers to the fiscal year ending March 31, 2019. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS +This +Proxy Statement and our Annual Report on Form 10-K, as amended by the Form 10-K/A, for the fiscal year ended March 31, 2018 (the +" Annual Report ") are available on the Internet by accessing www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders. +Information on this website does not constitute part of this Proxy Statement and shall not be deemed incorporated by reference therein. +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING +Who is soliciting this proxy and who will bear the cost of soliciting this Proxy Statement? +The enclosed proxy is being solicited by our Board of Directors. Iteris will bear the entire cost of proxy solicitation, including the +costs of +preparing, assembling, printing and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to +brokerage houses, fiduciaries, and nominees holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In +addition, we may reimburse such persons for their reasonable expenses in +forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or +any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In +the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to +retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +1 +Table of Contents +Who is entitled to vote at the Annual Meeting? +You are entitled to vote your shares of our common stock at the Annual Meeting if you owned the shares as of the close of business on +August 30, 2018 (the " Record Date "). As of the Record Date, there were a total of 33,241,187 shares of our common stock outstanding and entitled +to vote at the Annual Meeting. No shares of our preferred stock are currently outstanding. You are entitled to one vote for each share of common stock that you own. +What matters will be voted upon at the Annual Meeting and what are the Board of Director's recommendations for the proposals? +The only matters that we currently expect will be voted on at the Annual Meeting are the following proposals, and the Board's recommendation to +you regarding such proposals is set forth opposite of each proposal below: +Proposal +Board's +Recommendation +1. +Election of the Board of Directors. +ü FOR each nominee +2. +Approval of the amendment and restatement of the 2016 Omnibus Incentive Plan, which includes an increase in the number of shares authorized under such plan by 2,400,000 shares. +ü FOR +3. +Approval of an amendment to the Restated Certificate of Incorporation to eliminate cumulative voting in the election of directors. +ü FOR +4. +Approval of an amendment to the Restated Certificate of Incorporation to include a majority voting standard for uncontested director elections. +ü FOR +5. +Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2019. +ü FOR +The +foregoing proposals are described in more detail in this proxy statement. +What if other matters come up at the Annual Meeting? +If other matters are properly presented at the Annual Meeting, the persons designated in the proxy cards, Joe Bergera and Andrew Schmidt, will +vote your shares in their discretion. +What constitutes a quorum for the Annual Meeting? +The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum +for the transaction of business at such meeting. If you sign and return your proxy card or authorize a proxy to vote through the Internet or by telephone, your shares will be counted to determine +whether we have a quorum even if you abstain or fail to vote as indicated in the proxy materials. If a quorum is not present at the scheduled time of the Annual Meeting, the Annual Meeting may be +adjourned until a quorum is present. Both abstentions and broker non-votes (as described below) are counted for the purpose of determining the presence of a quorum. +What is the difference between holding shares as a stockholder of record and as a beneficial owner? +Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered to be the +stockholder of +record of such shares, and we are sending the Notice and +2 +Table of Contents +these +proxy materials directly to you. If you are a record stockholder, you should have received a proxy card with this proxy statement for you to use to vote your shares. +Beneficial Owner. If your shares are held in a brokerage account or by a bank, trustee or other nominee (each a +" Nominee "), you are considered the beneficial owner of shares held in street name, and the Notice and proxy materials are being forwarded to you on +behalf of your Nominee. As the beneficial +owner, you have the right to direct your Nominee how to vote your shares. Your Nominee has enclosed a voting instruction form with this proxy statement for you to use in directing the Nominee how to +vote your shares. +Since +a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the Nominee who holds your +shares giving you the right to vote the shares at the Annual Meeting. +How do I vote my shares? +You may vote by one of the following ways: (i) by mail, (ii) electronically over the Internet or by telephone, or (iii) by +ballot in person at the Annual Meeting. If you are a stockholder of record, you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet or by phone +as described on your proxy card. If your shares are held in street name, in lieu of a proxy card, you should receive a voting instruction form from your Nominee by mail. The voting instruction form +should indicate whether the Nominee has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card +or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. If your voting instruction form does not reference Internet or +telephone information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If +you are a record holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must +obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above to +ensure your vote will be counted if you later decide not to attend the Annual Meeting. +What are broker non-votes and how are broker non-votes treated? +Broker non-votes occur when shares held in street name by a Nominee for a beneficial owner are not voted with respect to a particular proposal +because (i) the Nominee does not +receive voting instructions from the beneficial owner, and (ii) the Nominee lacks discretionary authority to vote the shares. We will treat broker non-votes as +follows: +• Broker non-votes will not be treated as shares present and entitled to vote for purposes of any matter requiring the affirmative vote of a +majority or other proportion of the shares present and entitled to vote (even though the same shares are considered present for quorum purposes and may be entitled to vote on other matters). Thus, a +broker non-vote will not affect the outcome of the voting on a proposal for which the minimum affirmative vote required for approval of the proposal is a plurality or a majority (or some other +percentage) of (i) the votes actually cast, or (ii) the shares present and entitled to vote. +• Broker non-votes will have the same effect as votes against a proposal for which the minimum affirmative vote required for approval of the +proposal is a majority (or some other percentage) of all shares outstanding and entitled to vote. +A +Nominee only has discretionary authority to vote shares on a proposal that is considered a "routine" matter under applicable rules and related guidance. Proposal 5 for the ratification +of the +3 +Table of Contents +appointment +of our independent registered public accounting firm is considered a "routine" matter and, accordingly, a Nominee has discretionary authority to vote shares on such proposal. The other +proposals included in this proxy statement are considered "non-routine" matters. As such, a Nominee does not have discretionary authority to vote shares on such proposals. Accordingly, your shares may +be voted on Proposal 5 if they are held in the name of a brokerage firm even if you do not provide the brokerage firm with voting instructions. Proposals 1, 2, 3 and 4 are considered "non-routine" +matters. Therefore, if you do not provide voting instructions to your brokerage firm, no vote for your shares will be cast with respect to these proposals and a broker non-vote will result for these +shares. +What vote is required to elect a director? +For Proposal 1, you may vote "FOR" or "AGAINST" any director nominee or you may abstain from voting with respect to a director nominee's +election. In an uncontested director election, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee to be elected. As such, the number of shares +voted "FOR" a director nominee must exceed the number of votes cast as "AGAINST" that nominee's election. In a contested director election (i.e., where the number of nominees exceeds the number +of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. For purposes +of the election of directors, abstentions and broker non-votes, if any, will be excluded from the vote and will not be counted in determining the outcome of a director's election. +What happens if a majority of the votes cast are not voted in favor of a director nominee? +Pursuant to the procedures set forth in the Company's Bylaws, in the event that a nominee who is already a director of the Company does not +receive a majority of the votes cast with respect to such nominee in an uncontested election of directors, such nominee is required to promptly tender his or her resignation to the Board for +consideration. If a director's resignation is not accepted, that director will continue to serve until our next annual meeting of stockholders and his or her successor is duly elected and qualified, +or until his or her earlier death, resignation or removal. If the Board accepts the director's resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of +the Board to eliminate the vacancy. +What is the required vote for approval of Proposals 2, 3, 4 and 5? +For each of the other proposals, you may vote "FOR" or "AGAINST" the proposal or you may abstain from voting on the proposal. The approval of +Proposals 2 and 5 will require the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Approval +of Proposals 3 and +4 requires the approval of a majority of the outstanding common stock of the Company entitled to vote at the Annual Meeting. +Can I change my vote or revoke my proxy? +Yes. There are several ways in which you may revoke your proxy or change your voting instructions before the time of voting at the Annual +Meeting. Please note that, in order to be counted, the revocation or change must be received by the Company prior to 1:00 am Pacific time on October 11, +2018: +• Vote again by telephone or at the Internet website. +• Transmit a revised proxy card or voting instruction form that is dated later than the prior one. +• Stockholders of record may vote in person at the Annual Meeting. +4 +Table of Contents +• Stockholders of record may notify the Company's Corporate Secretary in writing that a prior proxy is revoked. +The +latest-dated, timely, properly completed proxy that you submit to the Company, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for +your shares and you subsequently submit a proxy card that is not properly signed and dated, then the previously recorded vote will stand. +Is cumulative voting permissible and how does it work? +Yes. Pursuant to our Certificate of Incorporation, no stockholder is entitled to cumulate his or her votes for candidates other than those whose +names have been placed in nomination prior to the commencement of voting and only if at least one stockholder has given notice prior to commencement of voting of his or her intention to cumulate +votes. If any stockholder has given such notice, then each stockholder may cumulate votes by multiplying the number of shares of common stock the stockholder is entitled to vote by the number of +directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the stockholder. The candidates +receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the proxy holders named in the accompanying proxy will vote the +shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. If Proposal 3 is approved, cumulative +voting will not be available for future stockholder votes. +How will my shares be voted? +Any proxy that you submit and that is not revoked will be voted as you direct. If you are a stockholder of record and you indicate when voting +through the Internet or by telephone that you wish to vote as recommended by our Board, or if you sign and return a proxy card without giving specific voting instructions, then the persons designated +as proxy holders in the accompanying proxy cards will vote your shares as follows: +• "FOR" the election of all of the nominees for director. +• "FOR" the amendment and restatement of our 2016 Omnibus Incentive Plan. +• "FOR" the amendment of our Restated Certificate of Incorporation to eliminate cumulative voting in the election of directors. +• "FOR" the amendment of our Restated Certificate of Incorporation to require a majority voting standard for uncontested elections of directors. +• "FOR" the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the +fiscal year ending March 31, 2019. +If +you are a beneficial owner of shares of our common stock and your Nominee does not receive instructions from you about how your shares are to be voted, then your Nominee will have the +discretion to vote your shares on the "routine" matters being considered at the Annual Meeting, but will not be able to vote your shares on the "non-routine" matters being considered at the Annual +Meeting, meaning that broker non-votes will result for these matters. +In +the event any director nominee declines or is unable to serve as a director at the time of the Annual Meeting (which is not anticipated), the persons named in the enclosed proxy card +will vote for the election of such person or persons as may be designated by the present Board. As to any other business or matters which might otherwise properly come before the Annual Meeting, the +enclosed proxy grants the proxy holders discretionary authority to vote on any other business that may properly +5 +Table of Contents +come +before the Annual Meeting, as well as any procedural matters. We have not been notified by any stockholder of intent to present a stockholder proposal at the Annual Meeting. +I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided instructions to the +contrary. If you wish to receive a separate set of proxy materials now, please send your request to: Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, Attention: +Corporate Secretary. A separate set of proxy materials will be sent promptly following receipt of your request. You may also contact us if you received multiple copies of the proxy materials and would +prefer to receive a single copy in the future. +Who will count the votes? +The inspector of election for the Annual Meeting, who is appointed by the Board, will count the votes. It is expected that a representative of +our transfer agent will serve as the inspector of elections. +6 +Table of Contents +PROPOSAL ONE: +ELECTION OF DIRECTORS +Seven +persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, +and until their respective successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee +(the " NCG Committee "), our Board selected and approved the following persons as nominees for election at the Annual Meeting: Joe Bergera, Kevin C. Daly, +Ph.D., Scott E. Deeter, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and Mikel H. Williams. Each nominee is currently a member of our Board and has agreed to serve if elected. Unless otherwise +instructed, the proxy holders will vote the proxies received by them FOR the nominees named above. +We +have no reason to believe that any of the director nominees will be unavailable to serve. In the event any of the director nominees named herein is unable to serve or declines to +serve at the time of the Annual Meeting, the proxy holders named in the enclosed proxy will exercise discretionary authority to vote for substitutes. +Voting Requirements +In May 2018, our Board approved an amendment to the Company's bylaws to implement a majority voting requirement for uncontested elections of +directors. As a result, in such elections, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee. This means that the number of shares voted "FOR" a +director nominee must exceed the number of votes cast as "AGAINST" that nominee's election. In a contested election of directors (i.e., where the number of nominees exceeds the number of +directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. If the plurality +voting standard applies, the seven candidates receiving the highest number of votes cast at the Annual Meeting will be elected as our directors. +Any +director may resign at any time upon providing notice to the Company. Our Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to +receive the requisite majority vote in an uncontested election must tender to the Board for its consideration his or her resignation from the Board and from all of the Board committees on which he or +she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the +resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +Please +note: if cumulative voting is in effect (as described above) for a particular election of directors, the proxy holders will have the right to cumulate and allocate votes among +those nominees standing for election as such proxy holders in their discretion elect. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote "FOR" the director nominees listed above. +Director Nominees +The table and narrative below set forth information as of August 30, 2018 regarding each director nominee, including the year they first +became directors of Iteris, their business experience during at least the past five years, the public company boards on which they currently serve on or have served on during the past five years, and +certain other biographical information and attributes that the NCG Committee determined qualify them to serve as directors. The NCG Committee believes that these +7 +Table of Contents +persons +have the following other key attributes that are important to an effective board of directors: integrity and demonstrated high ethical standards; sound judgment; analytical skills; the +ability to engage management and each other in a constructive and collaborative fashion; diversity of experience and thought; and the commitment to devote significant time and energy to service on the +Board and its committees. +Name +Age +Current Position(s) with Iteris +J. Joseph ("Joe") Bergera +54 +Chief Executive Officer, President and Director +Kevin C. Daly, Ph.D.(2)(3)(4) +74 +Director +Scott E. Deeter(1)(2) +54 +Director +Gerard M. Mooney(1)(3)(4) +64 +Director +Thomas L. Thomas(2)(4)(5) +69 +Chairman of the Board +Laura L. Siegal +55 +Director +Mikel H. Williams(1)(3) +61 +Director +(1) Current +member of the Audit Committee +(2) Current +member of the Compensation Committee +(3) Current +member of the Nominating and Corporate Governance Committee +(4) Current +member of the Finance and Strategy Committee +(5) Our +Bylaws provide that our Chairman of the Board is also an ex-officio member of each of our Board committees. +Joe Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, +Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, +since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive positions with Sage +Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the Booth School of +Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. Mr. Bergera has over 20 years of +experience in technology-related companies and provides extensive management and global software and service industry knowledge to the Board of Directors. +Kevin C. Daly, Ph.D. served as our interim Chief Executive Officer from February 2015 to September 2015. Prior to his service as our +interim CEO, Dr. Daly served as the CEO of Maxxess Systems, Inc., a provider of electronic security systems, from November 2005. Between August 2007 and August 2009, Dr. Daly also +served as CEO of iStor Networks, Inc., a manufacturer of IP SAN storage systems. Prior to that, he served as the CEO of several technology companies, including Avamar Technologies, Inc. +and ATL Products, Inc. Dr. Daly served on the board of directors of sTec, Inc., a provider of solid state disk systems, from May 2010 until the acquisition of the company in +September 2013 by Western Digital Corporation. Dr. Daly received a B.S. degree in Electrical Engineering from the University of Notre Dame and M.S., M.A. and Ph.D. degrees in Engineering from +Princeton University. He has served as a director of Iteris since 1993. Having served as the CEO of several technology companies and as a director of both private and public companies, Dr. Daly +offers to the Board of Directors a wealth of management and leadership experience, as well as an understanding of issues faced by such companies. +Scott E. Deeter has served as a director since February 23, 2017. Mr. Deeter has served as Ventria Bioscience Inc.'s +President and CEO and as a director since 2002. Ventria is the first company to +8 +Table of Contents +commercialize +recombinant proteins derived from a plant-based manufacturing system. From 1999 to 2001, he served as President and CEO and as a director of CyberCrop.com Incorporated, a supply +chain software company connecting producers with their markets to optimize quality, logistics and efficiency. From 1996 to 1998, Mr. Deeter served as Vice President of Agriculture of Koch +Industries, Inc. Previously, Mr. Deeter held various positions at Cargill, Incorporated, as well as started and led a joint venture between Cargill and F. Hoffmann-La Roche, Ltd. +that commercialized pharmaceutical intermediates and functional food ingredients. Earlier in his career, Mr. Deeter was a member of the Technology and Life Sciences Group of Salomon +Brothers Inc. He received a BSc degree in Economics from the University of Kansas; an M.B.A. from the University of Chicago; and an MSc degree in Economics from the London School of Economics. +Mr. Deeter is a proven leader who is widely known across entrepreneurial sectors of the agribusiness and agricultural biotech industry. +Gerard M. Mooney retired from International Business Machines Corporation (" IBM ") in March +2014, after serving in a number of senior positions since 2000. Most recently, he served as the Vice President Strategy for IBM's Public Sector from February 2012 until his retirement, as the General +Manager, Global Smarter Cities for IBM from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from 2008 to November 2011. He served as Vice President +of IBM's Venture Capital Group from 2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company for six years. Mr. Mooney has extensive +operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the +professional transportation market. He previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search +technology, cognitive intelligence, AI, data mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and cofounder of Swarm Intelligence LLC +formerly theinnovationexchange, which offers SaaS cognitive platforms. He received a B.A. degree in Philosophy from Mount Saint Mary's College, an M.S. degree in Accounting from Georgetown University +and an M.B.A. from Yale University. Mr. Mooney has served as a director of Iteris since September 2013 and brings to the Board of Directors extensive experience in setting and implementing +strategy for both large and small technology organizations, deep category knowledge of the intelligent transportation market, and familiarity with many key customers for intelligent transportation +solutions. +Laura L. Siegal joined our Board of Directors in May 2018. Ms. Siegal has served as the Chief Financial Officer and a member of the +board of directors at Natel Engineering Company, Inc. dba NEO Technology Solutions, a manufacturer of products in the industrial, medical, and aerospace and defense markets. Prior to that, +Ms. Siegal served in various financial positions with Kratos Defense & Security Solutions, Inc. (" Kratos ") formerly Wireless +Facilities Inc. since 2000, most recently as its Principal Accounting Officer, Vice President and Corporate Controller from April 2006 to July 2013. Kratos is a publicly-traded leading +technology, intellectual property, proprietary product and system solution +company which provides engineering, information technology and other technical services to government agencies. Throughout her career, she has held a variety of financial management positions in +technology and consulting companies including Controller of MEC Analytical Systems. Ms. Siegal is a Certified Public Accountant and received a B.A. degree in Economics from the University of +California, San Diego. Ms. Siegal's extensive experience in technology and public agency markets, financial expertise, and demonstrated success with mergers and acquisitions provide important +resources in her service on our Board of Directors. +Thomas L. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in +January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from +September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of +9 +Table of Contents +business +to business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT +Commerce, Ajuba Solutions, and Vantive Corporation, and as the first Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held +various senior executive management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. Since July 2017, Mr. Thomas has served as chairman of the board of +directors of VIP Software Corporation, a provider of software solutions in the insurance industry. Since 2012, Mr. Thomas has served as a director of Accurate Group, which specializes in the +appraisal and title services business where technology has been instrumental in redefining the transaction model for the industry. He has also served on the board of directors of +infoGroup, Inc. from January 2009 to July 2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, +FrontRange Solutions, IDS International, and Quofore International. Mr. Thomas has served as a director of Iteris since 1999 and as our Chairman of the Board of Directors since 2016. +Mr. Thomas offers to our Board of Directors valuable business, leadership and strategic insights obtained through his service as an executive and as a member of the board of directors in a +variety of industries and businesses, including a number of leading technology companies, and his experience in working with companies through several stages of their development. +Mikel H. Williams has served as the Chief Executive Officer and a director of Targus Cayman Holdco Limited, a leading global supplier that +designs, develops and sells products for the mobile worker, including laptop cases, docking stations and accessories for mobile electronic devices, since February 2016. Prior to that, +Mr. Williams served as the Chief Executive Officer and a director of JPS Industries, Inc., a manufacturer of sheet and mechanically formed glass and aramid substrate materials for the +electronics, aerospace, ballistics and general industrial applications, from May 2013 until its sale in July 2015. Mr. Williams was the President, Chief Executive Officer and a director of DDi +Corp., a leading provider of time-critical, technologically advanced electronics manufacturing services, from November 2005 to May 2012 and a Senior Vice President and Chief Financial Officer of DDi +from November 2004 to October 2005. DDi was sold in May of 2012. He has also served in various +management positions with several companies in the technology and professional services related industries. Mr. Williams began his career with PricewaterhouseCoopers as a certified public +accountant in the State of Maryland. Mr. Williams also serves as chairman of the board of directors of Centrus Energy Corp. (formerly USEC Inc.). He was added to USEC's board of +directors in October 2013 on the recommendation of certain holders of USEC's convertible senior notes as USEC was considering a bankruptcy restructuring, which was successfully initiated and completed +in 2014. Since October 2015, Mr. Williams also serves on the board of directors of B. Riley Financial, Inc. He previously served on the boards of Lightbridge Communications Corporation +until it was sold in January 2015, and Tellabs, Inc. until it was sold in December 2013. Mr. Williams received his B.S. degree in Accounting from the University of Maryland and an M.B.A. +from the University of Georgetown. Mr. Williams has served as a director of Iteris since April 2011 and provides the Board of Directors with operational and public company experience and +valuable strategic insights through his many years of leadership positions in technology-related companies with international operations, as well as valuable knowledge and insights in finance and +financial reporting matters. +Family Relationships +There are no family relationships among any of our directors or executive officers. +10 +Table of Contents +CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES +Code of Ethics and Business Conduct +Our Board has adopted a Code of Ethics and Business Conduct (" Code of Ethics "), which applies to +all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The +full text of our Code of Ethics is available under the "Corporate Governance" heading on the Investor Relations section of our website at www.iteris.com. We will also provide an electronic or paper +copy of the Code of Ethics, free of charge, upon request made to our Corporate Secretary. If any substantive amendments are made to our Code of Ethics, or if any waiver of any provision of the Code of +Ethics is granted that is required to be disclosed under the rules of the SEC, such amendment or waiver will be disclosed at the same location on our website, or, if required, in a current report on +Form 8-K. +Director Independence +Our policy is to have at least a majority of the directors qualify as "independent" under the standards established by The Nasdaq Stock Market +(" Nasdaq "). The Board has determined that Ms. Siegal, Dr. Daly and each of Messrs. Deeter, Mooney, Thomas and Williams satisfies +the requirements for "independence" using the standards established by Nasdaq, except that Dr. Daly did not qualify as an independent director while he was serving as our interim Chief +Executive Officer from February 2015 to September 2015. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the +best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that +having an independent director serve as the Chairman is currently in the best interest of our Company and stockholders in recognition of the different demands and responsibilities of the roles and to +emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board, including the Audit Committee, the Compensation Committee, the NCG Committee, and +the Finance and Strategy Committee. The Audit Committee, the Compensation Committee, the NCG Committee, and the Finance and Strategy Committee each has a written charter that is reviewed annually and +revised as appropriate. A copy of each committee's charter is available on the Investor Relations section of our website at www.iteris.com. +During +Fiscal 2018, the Board and the various committees of the Board held the following number of meetings: Board of Directors—nine; Audit Committee—four; +Compensation Committee—four; NCG Committee—four; and Finance and Strategy Committee—two. During Fiscal 2018, no director attended fewer than 75% of the aggregate of +the total number of meetings of the Board and no director attended fewer than 75% of the total number of meetings of the standing committees of the Board on which such director served during that +period. +Audit Committee. The current members of our Audit Committee are Messrs. Deeter, Mooney and Williams. Mr. Williams +serves as the +Chairman of this committee. The Board has determined that each member of the Audit Committee is "independent" under the standards established by both Nasdaq and the SEC rules regarding audit committee +members. The Board has identified Mr. Williams as the +11 +Table of Contents +member +of the Audit Committee who qualifies as an "audit committee financial expert" under applicable SEC rules and regulations governing the composition of the Audit Committee. +The +Audit Committee oversees on behalf of the Board (a) the conduct of the Company's accounting and financial reporting processes, the audits of our financial statements and the +integrity of the Company's audited financial statements and other financial reports; (b) the performance of the Company's internal accounting, internal auditing, and financial controls +function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent auditors, +and (d) the portions of our Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews +and approves related party transactions identified in Item 404 of SEC Regulation S-K and makes recommendations to the full Board regarding the same. +The +Audit Committee meets privately with our independent registered public accounting firm from time to time, and such firm has unrestricted access to and reports directly to the Audit +Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2019 and is +recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Dr. Daly and Messrs. Deeter and Thomas, +and +Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is (or was during his time of service) "independent" under the +standards established by Nasdaq. +The +primary purposes of the Compensation Committee are to (a) evaluate officer and director compensation policies, goals, plans and programs; (b) oversee compensation +programs and policies for all employees as they relate to the Company's risk management; (c) determine the cash and non-cash compensation of our directors and "executive officers" as defined in +the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the " Exchange Act "); (d) review, and make +recommendations to the Board with respect to the administration of, our equity-based and other incentive compensation plans for all employees; (e) evaluate the performance of our executive +officers; (f) assist the Board in evaluating potential candidates for executive officer positions with the Company and oversee management succession planning; and (g) produce the +Committee report required by the applicable rules and regulations of the SEC and other regulatory bodies for inclusion in our annual proxy statements. +The +Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number +of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent +outside sources, our general business conditions and objectives, and the committee's subjective determination with respect to the executive's individual contributions to such objectives. To assist the +committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers and makes recommendations with respect to executive +compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. Neither the Compensation Committee nor management +engaged a compensation consultant to provide advice or recommendations on the amount or form of director compensation during Fiscal 2018; however, the Compensation Committee did retain Frederic W. +Cook & Co., Inc., an independent compensation consultant (" FWC ") to assist in finalizing the compensation packages for the +Company's Chief Executive Officer and Chief Financial Officer, as well as in determining the appropriate number of additional shares to authorize under the Company's Amended and Restated 2016 Omnibus +Incentive Plan. +12 +Table of Contents +Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee (the +" NCG Committee ") are Dr. Daly and Messrs. Mooney and Williams. Mr. Mooney serves as the Chairman of this committee. The Board has +determined that each member of the NCG Committee is "independent" under the standards established by Nasdaq. +The +primary purposes of the NCG Committee are to assist the Board in (a) establishing the minimum qualifications for director nominees; (b) identifying and evaluating +director nominees; (c) recommend to the Board candidates for the Annual Meeting of Stockholders or to fill any vacancies on the Board; and (d) developing and assessing corporate +governance policies. +In +connection with their recommendations regarding the size and composition of the Board, the NCG Committee reviews the appropriate qualities and skills required of directors in the +context of the then current make-up of the Board and the needs of the Company. This includes an assessment of each candidate's independence, personal and professional integrity, financial literacy or +other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment, and ability to serve the Company's and our +stockholders' long-term interests. While we do not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee strives to nominate directors +with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, insight and expertise to oversee our business. These factors, and +others as considered useful by the NCG Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and +emphasis of the NCG Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and +prospective directors. The NCG Committee generally leads the search for and selects, or recommends that the Board select, candidates for election to the Board. Consideration of new director candidates +typically involves a series of committee discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been +suggested by other members of the Board or by our executive officers; however, from time to time, the NCG Committee has, and may in the future, engage the services of a third-party search firm to +identify director candidates. +The +NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our +next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in +writing to the Chair, NCG Committee, care of our corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: +(a) the name and address of +the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock entitled to +vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee's qualifications for membership on +the Board, (e) a resume of the candidate's business experience and educational background as well as all of the information that would be required in a proxy statement soliciting proxies for +the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or +persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee +for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its +evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The NCG Committee has the +discretion to decide which individuals to recommend for nomination as directors. +13 +Table of Contents +No +candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Finance and Strategy Committee. The current members of the Finance and Strategy Committee are Dr. Daly and +Messrs. Mooney and Thomas. +Dr. Daly serves as the Chairman of this committee. The purpose of the Finance and Strategy Committee is to consider and make recommendations to the Board regarding issues impacting the +financial structure and strategic direction of the Company, including, but not limited to, revisions to our capital structure, mergers, acquisition and divestiture activities, as well as changes to +the scope and mix of business. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by certain committees of the Board. +In particular, the Audit Committee focuses on financial risk, including internal controls, and is responsible for discussing with management and our independent auditors policies with respect to risk +assessment and risk management, including the process by which we undertake major financial and accounting risk assessment and management. +Risks related to our compensation programs are reviewed by the Compensation Committee (See "Compensation Risk Assessment" below), and certain legal and regulatory compliance risks are reviewed by the +NCG Committee. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing +(including cyber security risks; and how these risks are being managed. +Changes in Nominating Procedures +There have not been any material changes to the procedures by which security holders may recommend nominees to our Board that were implemented +since we last disclosed such procedures. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee +of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be +primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, +providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. +Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board's consideration will not be forwarded to the Board. Stockholders who wish to communicate with the +Board can submit a written request to Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705; Attention: Corporate Secretary. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board at annual meetings of our stockholders; however, directors are +encouraged to attend all such meetings. For our 2017 annual meeting of stockholders, two of our then-current directors attended such meeting. +DIRECTOR COMPENSATION +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for +non-employee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are our employees are not +compensated for their services as directors. +14 +Table of Contents +Board and Committee Retainers +For Fiscal 2018, annual cash compensation for non-employee directors was as follows: +Position +Annual +Retainer +Chairman of the Board +$ +65,000 +Non-Employee Director (other than the Chairman) +$ +35,000 +Additional +retainers for each non-employee director who served on one or more Board committees in Fiscal 2018 were as follows: +Position +Annual +Retainer +Audit Committee +Chair +$ +12,000 +Member +$ +6,000 +Compensation Committee +Chair +$ +9,000 +Member +$ +4,500 +Nominating and Corporate Governance Committee +Chair +$ +4,000 +Member +$ +2,000 +Finance and Strategy Committee +Chair +$ +9,000 +Member +$ +4,500 +All +directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board and its committees, but they do not receive separate meeting fees. +Annual Equity Compensation +Non-employee directors are also eligible to receive periodic restricted stock units (" RSUs ") +under the Company's equity incentive plan then in effect. Each non-employee director shall be granted an annual RSU upon approval of the grant by the Compensation Committee as soon as reasonably +practicable following the annual meeting of stockholders at which such director is re-elected. The annual RSU grant to directors shall be worth $40,000 based on the closing price of the Company's +common stock on the RSU grant date. Each RSU entitles the holder to receive shares of the Company's common stock upon vesting of those units. Each annual RSU generally vests in full upon the +director's completion of one year of service measured from the date of the grant; however, it is expected that future annual RSU grants will vest in full on the annual stockholder meeting date to +which the RSU relates. If a non-employee director joins the Board in between annual stockholder meetings, such director would receive an RSU for a pro rata portion of the annual grant. +15 +Table of Contents +2018 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2018 by each person who served as a non-employee directors during +that year: +Name +Fees Earned +or Paid in +Cash ($)(1) +Restricted +Stock Units ($)(2) +Total ($) +D. Kyle Cerminara(3) +$ +26,663 +$ +— +$ +26,663 +Kevin C. Daly, Ph.D. +54,136 +40,000 +94,136 +Scott E. Deeter +42,816 +40,000 +82,816 +Gerard M. Mooney +49,500 +40,000 +89,500 +Laura L. Siegal(4) +— +— +— +Thomas L. Thomas +78,500 +40,000 +118,500 +Mikel H. Williams +49,000 +40,000 +89,000 +(1) Represents +amounts earned by the directors based on the arrangement described above, which amounts have been prorated for directors who served on such committees for +less than a full term. +(2) The +dollar amounts shown represent the grant date fair value of restricted stock unit awards granted in Fiscal 2018 determined in accordance with ASC 718. For each +director, the number of units was determined by dividing $40,000 by $6.91, the closing sales price of the Company's common stock on the grant date. At the end of Fiscal 2018, the above-listed +directors held options for the following number of shares of common stock: D. Kyle Cerminara—0; Kevin C. Daly—65,000; Gerard M. Mooney—40,000; Laura L. +Siegal—0; and Mikel H. Williams—60,000. At the end of Fiscal 2018, the above listed directors held RSUs for the following number of shares of common stock: Kyle +Cerminara—0; Kevin C. Daly—5,788; Scott E. Deeter—5,788; Laura L. Siegal—0; Gerard M. Mooney—5,788; Thomas L. Thomas—5,788; and +Mikel H. Williams—5,788. +(3) Mr. Cerminara +did not stand for re-election at the 2017 Annual Meeting of Stockholders. As such, his Board service concluded on November 8, 2017. +(4) Ms. Siegal +did not join the Board until May 2018, and accordingly, did not earn any compensation in Fiscal 2018. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent +functions) of any entity that has one or more executive officers serving on our Board or Compensation Committee. No interlocking relationship exists between any member of the board of directors and +any member of the compensation committee (or other committee performing equivalent functions) of any other company. Kevin C. Daly, Ph.D., a member of our Compensation Committee, previously served as +our interim Chief Executive Officer from February 2015 to September 2015. +16 +Table of Contents +EXECUTIVE COMPENSATION AND OTHER INFORMATION +Executive Officers +The table below sets forth certain information, as of August 30, 2018, regarding our executive officers. +Name +Age +Capacities in Which Served +J. Joseph ("Joe") Bergera +54 +Chief Executive Officer, President and Director +Andrew Schmidt +57 +Chief Financial Officer, Vice President of Finance and Secretary +Joe Boissy +52 +Chief Marketing Officer +James Chambers +52 +Senior Vice President and General Manager, Agriculture and Weather Analysis +Todd Kreter +58 +Senior Vice President and General Manager, Roadway Sensors +Ramin Massoumi +46 +Senior Vice President and General Manager, Transportation Systems +The +following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography +of Mr. Bergera appears earlier in this proxy statement. See Proposal One: "Election of Directors." +Andrew Schmidt has served as our Vice President of Finance, Chief Financial Officer and Secretary since March 2015. Prior to joining us, +Mr. Schmidt served as the Chief Financial Officer and Corporate Secretary of Smith Micro Software, Inc., a publicly-held provider of wireless and mobility software solutions from 2005 to +May 2014. Prior to joining Smith Micro, Mr. Schmidt held CFO roles for several other public companies, including Genius Products, an entertainment company, and Mad Catz Interactive, a provider +of console video game accessories. He also served as Vice President (Finance) of Peregrine Systems, a publicly-held provider of enterprise level software. Mr. Schmidt holds a B.B.A. degree in +Finance from the University of Texas and an M.S. degree in Accountancy from San Diego State University. +Joseph Boissy has served as our Chief Marketing Officer since January 2017. Prior to that, Mr. Boissy served as Chief Marketing +Officer of Vendavo, Inc. (acquired by Francisco Partners in October 2014), a provider of margin and profit optimization solutions, from September 2013 to November 2016. Prior to that, he served +as the Chief Marketing Officer at 3VR Inc., a video intelligence solutions provider, from October 2011 to September 2013. From February 2002 to October 2011, he served in various management +positions at ILOG, Inc. (acquired by IBM in July 2008), a provider of business rule management systems, most recently as Vice President ILOG Worldwide Marketing, then Program Director, +Go-to-Market Strategy and Industry Marketing IBM WebSphere. Mr. Boissy was Vice President Program Management, Credient at SunGard Trading & Risk Systems Inc., a provider of +financial software solutions and services, from 2000 to 2002, and from 1997 to 2000, he served in management positions in product development, support and product management, most recently as the Vice +President Product Marketing, with Infinity Financial Technology, Inc., a financial trading and risk management software solutions provider that was acquired by SunGard in October 1997. Prior to +Infinity, Mr. Boissy was Director Product Development at Diagram Financial Software, Inc. (now part of Thomson Reuters) from 1993 to 1997. Mr. Boissy holds a B.S. degree in +Electrical Engineering from the Lebanese University (Lebanon) and a M.S. degree in Computer Science and Data Analytics from the University of Paris XI (France). +James Chambers has served as our Senior Vice President and General Manager, Agriculture and Weather Analytics since August 2017. Prior to +that, Mr. Chambers served as Chief Executive Officer of Observant, Inc. (acquired by Jain Irrigation, Inc. in February 2017), a provider of agricultural in-field hardware and +cloud based applications for precision farm water management, from February 2016 to February 2017. From June 2013 to February 2016, he served as Director of Marketing at Bayer CropScience, a company +specialized in agriculture and life sciences. Prior to that, Mr. Chambers served +17 +Table of Contents +in +various key management positions at divisions of Deere & Company, including John Deere Water (acquired by FIMI Opportunity Funds in June 2014), a provider of integrated Ag water management +solutions, most recently as Director of Global Product Management and Marketing and then as the Director of Global Technology Solutions, from August 2010 to May 2013, and John Deere Agri +Services, Inc. (acquired by Constellation Software, Inc. in January 2011), a provider of software solutions for the agricultural supply chain, most recently as the General Manager for +the Specialty Crop Business Unit and then as the Director of Marketing, from June 2006 to August 2010. From January 2003 to June 2006, he was Global Business Manager at Valent BioSciences Corporation, +a provider of technologies and products for the agricultural, public health, forestry and household markets, and from March 2001 to January 2003, he was Director of Global Sales and Marketing with +AgraQuest (acquired by Bayer CropScience in July 2012), a supplier of biological pest management solutions. From 1989 to 2001, Mr. Chambers served in various management positions at Monsanto +Company, a provider of agriculture products for farmers, most recently as Business Development Manager and Financial Analyst, then as Marketing Manager Animal Productivity and Market and Sales +Manager. Mr. Chambers holds a B.S. degree in Agriculture Business Management and Economics from The Ohio State University +Todd Kreter has served as our Senior Vice President and General Manager, Roadway Sensors since May 2014. Mr. Kreter served as our +Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served +in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company's worldwide customer service organization. +Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +Ramin Massoumi has served as our Senior Vice President and General Manager, Transportation Systems since March 2015. Mr. Massoumi +joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June +2011 to March 2015. Throughout his career, his focus has been in the application of advanced technologies in the traffic management market, and has led projects throughout the United States and the +Middle East. Mr. Massoumi also serves as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of California at Irvine. +Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California Irvine, an M.S. degree in Engineering from the University of California, Berkeley, and an M.B.A. from the +University of Southern California. +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2018, 2017 and 2016 by +(i) our Chief Executive Officer, (ii) our Chief Financial Officer and (iii) our three other most highly compensated executive officers (other than our Chief Executive and +Financial Officers) who were serving as executive officers as of March 31, 2018. The +18 +Table of Contents +officers +listed below are collectively referred to as the " named executive officers " or " NEOs " in this +proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Bonus +Stock +Awards(1) +Non-Equity +Incentive Plan +Compensation(2) +All Other +Compensation(3) +Total +Joe Bergera(4) +2018 +$ +396,648 +$ +— +$ +649,238 +180,000 +$ +8,848 +$ +1,234,825 +Chief Executive Officer +2017 +399,816 +328,362 +354,000 +(5) +3,594 +1,085,772 +and President +2016 +197,502 +150,000 +(5) +1,659,150 +63,080 +7,610 +2,077,342 +Andrew Schmidt +2018 +346,138 +15,000 +(6) +259,731 +94,035 +8,683 +723,587 +Chief Financial Officer, +2017 +346,790 +— +164,181 +161,970 +8,118 +681,059 +Vice President of Finance +2016 +325,000 +32,500 +(6) +91,950 +40,369 +9,750 +499,569 +and Secretary +James Chambers +2018 +195,322 +(7) +— +322,425 +65,541 +5,616 +589,004 +Senior Vice President and General Manager, Agriculture and Weather Analytics +Todd Kreter +2018 +276,721 +— +194,799 +99,281 +8,477 +579,278 +Senior Vice President and +2017 +271,745 +— +164,181 +154,691 +8,060 +598,677 +General Manager, +2016 +250,016 +— +91,950 +85,296 +7,650 +434,912 +Roadway Sensors +Ramin Massoumi +2018 +254,932 +— +194,799 +127,925 +8,433 +586,089 +Senior Vice President and +2017 +241,522 +— +164,181 +159,234 +7,365 +569,302 +General Manager, +2016 +209,248 +— +24,520 +35,592 +6,441 +275,801 +Transportation Systems +(1) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See +also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in +the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date and vest in equal annual installments over four years and are not +exercisable until vested. +(2) The +amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established management's +objectives. These awards are discussed in further detail under "Fiscal 2018 Cash-Based Bonus Plan" below. +(3) Except +as otherwise noted, represents 401(k) plan employer contributions paid by us. +(4) Mr. Bergera +was hired effective September 23, 2015 at an annual salary of $385,000. The Fiscal 2016 salary represents the amount earned by +Mr. Bergera from his hire date to the end of that fiscal year. +(5) Pursuant +to his employment agreement, Mr. Bergera was eligible for a bonus of up to $300,000 for Fiscal 2016, of which $150,000 was a signing bonus payable on +January 31, 2016, provided that Mr. Bergera was employed by the Company as of such date, and the remaining $150,000 was payable pursuant to the Company's 2017 Bonus Plan based on his +achievement of certain pre-established criteria. +(6) Represents +a discretionary cash bonus. +(7) Mr. Chambers +was hired in August 2017 at an annual salary of $275,000. The Fiscal 2018 salary represents the amount earned by Mr. Chambers from his +hire date through the end Fiscal 2018. +Fiscal 2018 Grant of Plan-Based Awards +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive +compensation plan and our 2016 Omnibus Incentive +19 +Table of Contents +Plan +in Fiscal 2018, which constitute all of the plan-based awards granted to our named executive officers in Fiscal 2018. +Estimated Possible Payouts Under +Non-Equity Incentive Plan Awards +Number of +Securities +Underlying +Options or +Stock Units +(#) +Grant Date +Fair Value of +Awards +($)(2) +Name +Grant Date +Threshold +($) +Target +($)(1) +Maximum +($)(1) +Awards +($/share) +Joe Bergera +02/16/2018 +$ +— +$ +300,000 +$ +420,000 +250,000 +$ +5.52 +$ +650,000 +Andrew Schmidt +02/16/2018 +— +156,725 +219,415 +100,000 +5.52 +260,000 +Todd Kreter +02/16/2018 +— +151,533 +212,146 +75,000 +5.52 +195,000 +Ramin Massoumi +02/16/2018 +— +142,587 +199,622 +75,000 +5.52 +195,000 +James Chambers +02/16/2018 +— +100,832 +126,040 +25,000 +5.52 +65,000 +(1) Reflects +the amount payable upon achievement of the management objectives described under the heading "Fiscal 2018 Cash-Based Bonus Plan" below. +(2) The +dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined pursuant to the +Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 11 to our consolidated financial statements in the Annual Report. See +also our discussion of stock-based compensation under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in +the Annual Report. +Outstanding Equity Awards at 2018 Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2018. None of the NEOs +held outstanding RSUs at the end of Fiscal 2018. +Option Awards(1) +Name +Number of +Securities +Underlying +Outstanding +Options (#) +Exercisable +Number of +Securities +Underlying +Outstanding +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date +Option +Expiration +Date +Joe Bergera +675,000 +675,000 +$ +2.38 +09/23/15 +09/22/25 +Chief Executive Officer, President +37,500 +112,500 +4.91 +03/03/17 +03/02/27 +and Director +— +250,000 +5.52 +02/16/18 +02/15/28 +Andrew Schmidt +75,000 +25,000 +1.79 +03/16/15 +03/15/25 +Chief Financial Officer, Vice President of +37,500 +37,500 +2.37 +11/02/15 +11/01/25 +Finance and Secretary +18,750 +56,250 +4.91 +03/03/17 +03/02/27 +— +100,000 +5.52 +02/16/18 +02/15/28 +James Chambers +25,000 +75,000 +5.90 +08/17/17 +08/16/27 +Senior Vice President and +— +25,000 +5.52 +02/16/18 +02/15/28 +General Manager, Agriculture and Weather Analytics +Todd Kreter +— +12,500 +1.87 +11/18/14 +11/17/24 +Senior Vice President and +37,500 +37,500 +2.37 +11/02/15 +11/01/25 +General Manager, Roadway Systems +18,750 +56,250 +4.91 +03/03/17 +03/02/27 +— +75,000 +5.52 +02/16/18 +02/15/28 +Ramin Massoumi +15,000 +5,000 +1.87 +11/18/14 +11/17/24 +Senior Vice President and +10,000 +10,000 +2.37 +11/02/15 +11/01/25 +General Manager, Transportation Systems +18,750 +56,250 +4.91 +03/03/17 +03/02/27 +— +75,000 +5.52 +02/16/18 +02/15/28 +(1) All +options vest in four equal annual installments following the date of grant. +20 +Table of Contents +Fiscal 2018 Option Exercises and Stock Vesting Table +The following table provides information regarding option exercises and vesting of awards held by the named executive officers during Fiscal +2018. +Option Awards +Stock Awards +Name +Number of +Shares +Acquired on +Exercise (#) +Value +Realized on +Exercise ($)(1) +Number of +Shares +Acquired on +Vesting (#) +Value +Realized on +Vesting ($)(2) +Joe Bergera +— +$ +— +— +$ +— +Andrew Schmidt +— +— +— +— +James Chambers +— +— +— +— +Todd Kreter +107,500 +470,350 +— +— +Ramin Massoumi +30,000 +136,500 +— +— +(1) Value +realized is determined by multiplying (i) the amount by which the market price of a common share on the date of exercise exceeded the exercise price by +(ii) the number of shares for which the options were exercised. +(2) Value +realized is determined by multiplying (i) the market price of a common share on the date of vesting by (ii) the number of shares which vested. +Potential Payments upon Termination of Employment and Change of Control +We do not currently have any employment contracts or change in control arrangements in effect with any of our named executive officers other +than the agreements described below. We provide incentives such as salary, benefits, option grants and RSUs to attract and retain executive officers and other key associates. The plan administrator of +the 2007 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a qualifying termination of +employment following certain changes in control of the Company, or upon such change in control, but we do not provide for any automatic "single trigger" acceleration of equity awards upon a change in +control (other than the option grant received by Dr. Daly in connection with his service as a non-employee director). Other than as noted in this section, there is no agreement or policy which +would automatically entitle any named executive officer to severance payments or any other compensation as a result of such officer's termination. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, +2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera +will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board, provided +that the bonus potential for Fiscal 2016 will be $300,000, of which $150,000 was a signing bonus payable on January 31, 2016 provided that Mr. Bergera was employed by the Company as of +such date. The agreement is for an initial term of three years and will renew for successive one year periods until September 2025 unless either we or Mr. Bergera provides written notice of +non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +Pursuant +to the agreement, Mr. Bergera also received an option grant under our 2007 Omnibus Incentive Plan to purchase up to 1,350,000 shares of our common stock (the +" Option "). The Option +21 +Table of Contents +vests +in equal annual installments over four years and has an exercise price equal to the closing sales price of our common stock on the date of grant of the Option. +If +during the initial term of the agreement or any renewal term, Mr. Bergera's employment with the Company is terminated without Cause (as such term is defined in the agreement), +Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of +his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated and (iii) reimbursement for the cost of COBRA coverage for a period of up to +12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are +defined in the agreement) (such termination or resignation, a " CIC Termination "), Mr. Bergera will be entitled to receive (i) a lump sum +payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal +year in which the CIC Termination occurs, (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination, and (iv) acceleration +of the vesting of the Option. In addition, upon termination of his employment due to death, Mr. Bergera's estate or beneficiaries will be entitled to receive salary continuation payments in the +aggregate equal to 50% of his then current base salary. +Agreement with Andrew Schmidt +We entered into an employment agreement dated March 9, 2015 with Andrew Schmidt, our Chief Financial Officer, in connection with his +hiring. Pursuant to the agreement, Mr. Schmidt will receive an annual base salary of $325,000, which may be increased from time to time at the discretion of the Board or the Compensation +Committee. He will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or the Compensation +Committee, provided that the bonus potential for Fiscal 2016 was to be $125,000. The agreement will have an initial term of two years and will renew for successive one year periods until March 2025 +unless either the Company or Mr. Schmidt provides written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. The agreement was +amended on June 12, 2017 and provides that if Mr. Schmidt's employment with the Company is terminated without Cause or in connection with a Change of Control (as such terms are defined +in the agreement), Mr. Schmidt will be entitled to salary continuation payments for twelve months following his termination of his annual base salary as then in effect. In addition, +Mr. Schmidt will be entitled to receive reimbursement for the cost of COBRA coverage for a period of up to twelve months following such termination. +Iteris, Inc. Executive Severance Plan +The Iteris, Inc. Executive Severance Plan (the " Severance Plan ") was adopted on +February 5, 2018. Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Securities Exchange Act of 1934, as amended, and who is not +otherwise covered by an employment agreement that includes severance terms, is eligible to receive severance payments under the Severance Plan upon certain qualifying terminations of employment (the +" Eligible Employees "). Eligible Employees for the purposes of the Severance Plan is limited to a select group of management or highly compensated +employees within the meaning of the Employee Retirement Income Security Act of 1974, as amended. +The +Severance Plan provides Eligible Employees with severance payments in the event that an Eligible Employee's employment with the Company or its subsidiaries is terminated either +(a) by the Company without Cause not in connection with a Change of Control (" Non-CIC Qualifying Termination ") or (b) if in connection +with or within 12 months following a Change of Control, by the +22 +Table of Contents +Eligible +Employee for Good Reason (as such terms are defined in the Severance Plan) or by the Company without Cause (a " CIC Qualifying Termination "). +Non-CIC Qualifying Termination. Upon a Non-CIC Qualifying Termination, an Eligible Employee will be eligible to receive the +following: +• A cash payment equal to the Eligible Employee's annual base salary, payable in substantially equal installment payments over the one-year +period following termination, in accordance with the Company's normal payroll practices; and +• Reimbursement for the Eligible Employee's monthly COBRA premiums for the 12-month period following termination or until the Eligible Employee +receives substantially similar medical coverage from another employer. +CIC Qualifying Termination. Upon a CIC Qualifying Termination, an Eligible Employee will be eligible to receive the +following: +• A cash payment equal to the Eligible Employee's annual base salary, payable in a lump sum on the next payroll date after the 61st day +following termination; and +• Reimbursement for the Eligible Employee's monthly COBRA premiums for the 12-month period following, or until the Eligible Employee receives +substantially similar medical coverage from another employer. +The +severance payments are subject to the Eligible Employee's execution of a severance agreement within 60 days following termination that includes a release of claims and certain +non-solicitation, confidentiality, and non-disparagement restrictions. +The +Company may amend or terminate the Severance Plan at any time by providing at least 90 days' advance written notice to each participant, provided that no such amendment or +termination that has the effect of reducing or diminishing the right of any participant will be effective unless one year's advance written notice is provided to participants, and such amendment or +termination will not be effective if a Change of Control occurs during the one-year notice period. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur +in such capacities, including liabilities under the Securities Act of 1933, as amended (the " Securities Act "). Our certificate of incorporation and +bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the +director or officer. If it is ultimately determined that the director or officer is not entitled to indemnification, the director or officer is required to repay such advances. The bylaws further +provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or +otherwise. +Our +certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to us +and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of +non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our +stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for +payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a +23 +Table of Contents +director's +responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We +have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These +agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by such person in any action or +proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which +the person provides services at our request. +Generally Available Benefit Plans +Section 401(k) Plan. We make available a tax-qualified retirement plan that provides eligible employees, including our +executive officers, +with an opportunity to save for retirement on a tax-advantaged basis. Participants are able to defer a portion of their eligible compensation, subject to applicable annual limits under the Internal +Revenue Code of 1986, as amended (the " Code "). Pre-tax contributions are allocated to each participant's individual account and may be invested in +selected alternative investments according to the participant's direction. We do currently make a matching contribution under the 401(k) plan up to a maximum of 4% of the employee's base salary. Such +matching contribution is at the discretion of the Board and is typically evaluated on an annual basis. +Employee Stock Purchase Plan. We maintain an employee stock purchase plan (the " ESPP "), which is +intended to qualify as an "employee stock purchase plan" under Section 423 of the Code, to promote stock ownership by our employees. The ESPP was approved by our stockholders in November 2017, +and 1,000,000 shares of common stock have been reserved for issuance under the ESPP. Under the ESPP, eligible employees are able to acquire shares of our common stock by accumulating funds through +payroll deductions. +24 +Table of Contents +COMPENSATION DISCUSSION AND ANALYSIS +This +section discusses the principles underlying our compensation policies for our executive officers who are named in the "Summary Compensation Table" below, who we +refer to as our "named executive officers" or "NEOs" for Fiscal 2018 and who include the following executive officers: +• Joe Bergera, our Chief Executive Officer, President and Director; +• Andrew Schmidt, our Chief Financial Officer, Vice President of Finance and Secretary; +• James Chambers, our Senior Vice President and General Manager, Agriculture and Weather Analytics; +• Todd Kreter, our Senior Vice President and General Manager, Roadway Sensors; and +• Ramin Massoumi, our Senior Vice President and General Manager, Transportation Systems. +Compensation Philosophy and Objectives +Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful +incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our shareholders. Based on this +philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• ensure that any cash incentive compensation programs for our named executive officers are aligned with our corporate strategies and business +objectives by tying the potential payouts under such programs to the achievement of key strategic, financial and operational goals; and +• utilize long-term equity awards to align interests between our named executive officers and stockholders. +Impact of 2016 Say-on-Pay Vote +The most recent stockholder advisory vote on executive officer compensation required under the federal securities laws was held on +December 15, 2016. Approximately 81.5% of the total votes cast on such proposal (which excluded broker non-votes) were in favor of the compensation of the named executive officers, as that +compensation was disclosed in the various compensation tables and narrative that appeared in the Company's proxy statement dated November 21, 2016. Based on that high level of stockholder +approval, the Compensation Committee decided not to make any material changes to the Company's compensation philosophies, policies and practices for the Fiscal 2018 compensation of the named executive +officers. Based on the voting preference of the Company's stockholders, advisory votes on executive officer compensation will be conducted every three years. Accordingly, the next advisory vote will +be conducted at the 2019 Annual Meeting of Stockholders. The Compensation Committee will continue to take into account each such advisory vote in order to determine whether any subsequent changes to +the Company's executive compensation programs and policies would be warranted to reflect any stockholder concerns in those advisory votes. +Annual Review of Cash and Equity Compensation +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our +executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review each component of compensation as related but distinct. Although the Compensation +Committee reviews total compensation, it has not adopted any +25 +Table of Contents +formal +guidelines for allocating total compensation between cash and equity compensation. We determine the appropriate level of each compensation component based in part, but not exclusively, on our +retention goals and short-term and long-term objectives. +This +review generally occurs in the first quarter of each fiscal year at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, +reviews and approves any bonus awards and programs, establishes the performance objectives for our cash based bonus plan, and may grant equity compensation to the executive officers to ensure their +interests are aligned with our stockholders and for retention. In Fiscal 2018, the Compensation Committee engaged and retained the services of an independent compensation consulting firm, Frederic W. +Cook & Co., Inc. (" FWC "), to assist in the review of its executive compensation with respect to our Chief Executive Officer and our +Chief Financial Officer. This consultant provided the Compensation Committee with market data and analysis of our total direct compensation for such executive officer positions as compared with the +competitive market. FWC reports only to the Compensation Committee and has not performed any other work for the Company since being retained as an independent consultant to the Compensation Committee. +As provided in its charter, the Compensation Committee has the authority to determine the scope of FWC's services and may terminate their engagement at any time. +In +setting executive compensation, the Compensation Committee takes into account a number of factors, including the nature and scope of the named executive officer's responsibilities, +his or her individual performance level and contribution to the achievement of our corporate objectives, the experience level of the executive, the recommendations of our Chief Executive Officer for +each individual's compensation package (other than his own) and the compensation trends in the industry. +As +part of the review process, our Chief Executive Officer provides our Compensation Committee with recommendations as to the base salary, cash bonus potential and long-term equity +incentive award for each of our executive officers other than himself based on that officer's level of responsibility, individual performance and contribution to the attainment of our strategic +corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer's recommendations into consideration in setting named executive officer compensation, but retains +complete discretionary authority to make all compensation-related decisions for our named executive officers. Our Compensation Committee makes its compensation decisions with respect to the Chief +Executive Officer on the basis of relevant market data furnished by a variety of sources and its subjective assessment of individual performance and contributions to our overall corporate performance. +Any decisions regarding our Chief Executive Officer's compensation are made without such officer present. +Compensation Components and Structure +We utilize three main components in structuring compensation programs for our named executive +officers: +• Base salary, which is the only fixed compensation element in executive compensation program and is primarily used to recruit and retain +executive talent and provide an element of economic security from year to year; +• Performance-based cash bonuses that are primarily designed to reward achievement of financial and operational goals; and +• Equity incentive awards designed to ensure long-term retention of our executive talent and align their interests with those of our +stockholders. +We +view each component of compensation as related but distinct. It is the practice of our Compensation Committee to allocate a substantial portion of each named executive officer's total +compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for +26 +Table of Contents +its +cash-based bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, +and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee +determines the compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual's performance and contribution to our financial +performance and the other factors identified in the "Annual Review of Cash and Equity Compensation" section above to determine the appropriate level and balance of total compensation. We believe that +this approach allows us to tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and +responsibilities required of all +our named executive officers. Each named executive officer's base salary level is typically reviewed on an annual basis and adjustments may be made to the individual's base salary on the basis of his +or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +In +June 2017, the Compensation Committee reviewed the base salaries of the named executive officers and established the base salaries for Fiscal 2018 for such officers as is set forth +below. +Named Executive Officer +Fiscal 2018 Annual +Base Salary +Joe Bergera +$ +400,000 +Andrew Schmidt +351,500 +James Chambers +172,534 +(1) +Todd Kreter +275,516 +Ramin Massoumi +259,248 +(1) Mr. Chamber's +Fiscal 2018 base salary was prorated since he joined the Company in August 14, 2017. +Fiscal 2018 Cash-Based Bonus Plan ("2018 Bonus Plan"). Our named executive officers are eligible to receive an annual cash-based +bonus under our 2018 +Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals, which +generally include the Company's revenues and operating income for the fiscal year, the revenues and contribution margin of such officer's business unit, as applicable, and personal objectives set for +each officer (" MBOs "). We define "contribution margin" as the business unit's operating income without corporate expense allocations. Corporate +operating income and the operating income of each business unit is calculated on a non-GAAP basis to exclude amortization, depreciation, stock-based compensation, goodwill impairment charge, if any, +and such other non-cash items that the Compensation Committee, in its sole discretion, believes are not directly indicative of the performance of the Company and the business units. The Compensation +Committee typically meets near the end of the first fiscal quarter of each year to evaluation the NEO's +achievement of such performance objectives and annual bonuses are typically paid out as soon as practicable thereafter. +27 +Table of Contents +The +corporate and business unit performance targets and the actual achievement of such objectives for Fiscal 2018 were as follows (dollars in thousands): +Performance Components +No Bonuses +At or Below +Target +Maximum +Actual +% Attained +Corporate Revenue +$ +82,587 +$ +103,234 +$ +123,881 +$ +103,729 +100.5 +% +Corporate Operating Income +(2,105 +) +(1,754 +) +(1,403 +) +(5,602 +) +31.3 +Roadway Sensors Revenue +36,472 +45,590 +54,708 +44,163 +96.9 +Roadway Sensors Contribution Margin +8,004 +10,005 +12,006 +8,825 +88.2 +Transportation Systems Revenue +40,310 +50,388 +60,466 +54,481 +108.1 +Transportation Systems Contribution Margin +6,250 +7,812 +9,374 +8,639 +110.6 +Agriculture and Weather Analytics Revenue +5,805 +7,256 +8,707 +4,891 +0.0 +Agriculture and Weather Analytics Contribution Margin +(6,940 +) +(5,783 +) +(4,626 +) +(8,048 +) +0.0 +If +our performance for Fiscal 2018 exceeded the Company and business unit performance targets set for bonus purposes, the named executive officers could have earned an additional bonus +of up to 50% of the target bonus award that was not based upon achieving individual objectives. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the +performance goals set forth under the "Maximum" column above. If the Company had achieved performance that was less than the goals set forth under the "Maximum" column but more than the amounts set +forth under the "Target" column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the +performance had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been +payable. +28 +Table of Contents +The +performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2018 is as follows: +Named Executive Officer +Performance +Objectives +Allocation (%) +2018 Target +Bonus ($) +2018 Actual +Bonus ($) +% of Target +Awarded +(%) +Joe Bergera +$ +300,000 +$ +180,000 +60 +% +Corporate Revenue +40 +% +Corporate Operating Income +40 +MBOs +20 +Andrew Schmidt +156,725 +94,035 +(1) +60 +Corporate Revenue +40 +Corporate Operating Income +40 +MBOs +20 +James Chambers +100,833 +65,541 +65 +Agriculture and Weather Analytics Revenue +10 +Agriculture and Weather Analytics Contribution Margin +10 +Corporate Revenue +15 +Corporate Operating Income +15 +MBOs +50 +Todd Kreter +151,534 +99,281 +66 +Roadway Sensors Revenue +25 +Roadway Sensors Contribution Margin +25 +Corporate Revenue +15 +Corporate Operating Income +15 +MBOs +20 +Ramin Massoumi +142,586 +127,925 +90 +Transportation Systems Revenue +25 +Transportation Systems Contribution Margin +25 +Corporate Revenue +15 +Corporate Operating Income +15 +MBOs +20 +(1) Excludes +$15,000 additional discretionary bonus earned in Fiscal 2018 for successful completion of special projects. +See +"2018 Grant of Plan-Based Awards" below for additional information on Fiscal 2018 cash bonuses. +Equity Compensation. Our equity award program is the primary vehicle for offering long-term incentives to our named executive +officers and providing +an inducement for long-term retention. Our equity component also aligns the interests of our named executive officers with those of our stockholders and focuses their attention on the creation of +stockholder value in the form of stock price appreciation. The Compensation Committee uses both stock options and restricted stock units as part of the Company's long-term incentive program for named +executive officers, and the relative allocation of such instruments may vary from time to time. The Company believes that there are several advantages of using restricted stock units including ongoing +concerns over the dilutive effect of option grants on the Company's outstanding shares, the Company's desire to have a more direct correlation between the compensation expense it must record for +financial accounting purposes and the actual value delivered to executive officers, and the fact that the incentive and retention value of a restricted stock unit award is less affected by market +volatility than stock options. We believe that the equity- +29 +Table of Contents +based +compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our +named executive officers and our shareholders. +Typically, +the Compensation Committee provides grant guidelines to our Chief Executive Officer, who in turn will make recommendations back to the Compensation Committee regarding the +number of options to be granted to our executive officers. See "2018 Grant of Plan-Based Awards" below for the Fiscal 2018 awards. +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the discussion and analysis of the compensation of our named executive +officers as disclosed in this Annual Report under the heading "Compensation Discussion and Analysis." Based on this review and discussion, the Compensation Committee has recommended to the Board that +the Compensation Discussion and Analysis be included in this Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018. +Kevin Daly, Ph.D. +Scott E. Deeter +Thomas L. Thomas (Chairman) +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any +potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably +likely to have a material adverse impact on our business or our financial condition. The following compensation design features help minimize the incentives for excessive +risk-taking: +• Our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a +reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• A portion of each executive's incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained +performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; and +• Annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, +discourages the taking of short-term risk at the expense of long-term performance. +• Each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to +manipulate. +Pay Ratio +As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of +Regulation S-K, we are providing the ratio of the annual total compensation of our Chief Executive Officer, Joe Bergera (the " CEO "), to that of +our median employee (excluding our Chief Executive Officer). The SEC requires us to disclose the annual total compensation of each of Mr. Bergera and such median employee, as well as the ratio +of their respective annual total compensation to each other (in each case, with annual total compensation calculated in accordance +30 +Table of Contents +with +SEC rules applicable to the Summary Compensation Table). Please see the "Summary Compensation Table" for an explanation of amounts set forth in the "Stock Awards" columns. +The +pay ratio values for Fiscal 2018 are as follows: +• The estimated median of the annual total compensation of all employees of the Company (other than our CEO) was $68,428; and +• The Fiscal 2018 annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere in this report, was +$1,234,825. +• Based on this information, for Fiscal 2018, the estimated ratio of the annual total compensation of our CEO to the median of the annual total +compensation of all employees was 18 to 1. +Pay Ratio Methodology +We used the following methodology to identify our median employee and calculate the above-disclosed values. +• In determining our median employee, we chose our fiscal year end, March 31, 2018, as the determination date (the +" Determination Date "), which date is within the last three months of our last completed fiscal year, for the determination of employees in such +analysis. As of the Determination Date, Iteris and its wholly-owned subsidiary, employed an aggregate of 446 persons (excluding our CEO), consisting of 413 full-time and 33 part-time, all of +whom reside in the United States. +• We used a Consistently Applied Compensation Measure (" CACM ") for all our employee (but +excluding our CEO), to calculate the median employee compensation earned in Fiscal 2018. For our CACM, we used our internal payroll records for Fiscal 2018 to identify the sum of (i) base +salary or wages earned, (ii) annual bonus earned for Fiscal 2018, (iii) the Company's 401(k) matching contribution made in Fiscal 2018, and (iv) the grant date fair value of stock +awards approved during Fiscal 2018 for each employee employed as of the Determination Date. +• In determining our median employee, we did not use any of the exemptions permitted under SEC rules. Similarly, except as described above, we +did not rely on any material assumptions, adjustments (e.g., cost-of-living adjustments) or estimates (e.g., statistical sampling) to identify our median employee or to determine annual +total compensation or any elements of annual total compensation for our median employee or our CEO. +• We then calculated the median employee's Fiscal 2018 compensation in the same manner (using the same components) as the NEOs' compensation as +presented in the Summary Compensation Table, which required us to substitute bonus earned in Fiscal 2018 instead of the bonus actually paid in Fiscal 2018. +The +SEC rules for identifying the median employee and calculating the pay ratio based on that employee's annual total compensation allow companies to adopt a variety of methodologies, to +apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the +pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating +their own pay ratios. +31 +Table of Contents +PROPOSAL TWO: +APPROVAL OF AMENDED AND RESTATED +ITERIS, INC. 2016 OMNIBUS INCENTIVE PLAN +At the Annual Meeting, stockholders will be asked to consider and approve a proposal to amend and restate the Iteris, Inc. 2016 Omnibus Incentive Plan (the +" 2016 Plan ") for the primary purpose to (i) increase the number of shares of common stock available for issuance under the Plan by an additional +2,400,000 shares and (ii) make certain technical changes to conform the 2016 Plan to current law. The Board adopted the amendment and restatement of the 2016 Plan on August 6, 2018, +subject to stockholder approval at the Annual Meeting. +Incentive compensation programs play a pivotal role in our effort to attract and retain key personnel essential to our long-term growth and financial success. For that reason, we have +structured the 2016 Plan to provide flexibility in designing equity incentive programs with a broad array of equity incentives, such as stock options, stock appreciation rights, stock awards, +restricted stock units, cash incentive awards, and dividend equivalents, so that we may implement competitive incentive compensation +programs for our key employees and non-employee directors. As of August 30, 2018, a total of 1,300,902 shares of common stock remained available for future grants under the 2016 Plan. We +believe that the current share reserve amount is insufficient to meet our future needs with respect to attracting, motivating and retaining key executives and employees in a competitive market for +talent. If this proposal is not approved, we may be unable to continue to offer competitive equity packages to attract and retain employees and we may have to increase cash compensation to recruit, +retain and motivate our employees, thereby reducing resources available to meet our business needs. +Current Overview of Outstanding Equity Information +The 2016 Plan became effective on December 15, 2016 upon its approval by the stockholders at the 2016 Annual Meeting (the +" Plan Effective Date "). The 2016 Plan is the successor to our 2007 Omnibus Incentive Plan (the " Predecessor +Plan "), which terminated on the Plan Effective Date, following which no awards may be made under the Predecessor Plan. The 2016 Plan is the only plan under which discretionary +equity awards may be granted to our employees and other service providers, although grants may be made outside of the 2016 Plan under certain circumstances. +When +deciding on the number of shares to be available for awards under the 2016 Plan, the Board considered a number of factors, including the remaining number of shares available under +the 2016 Plan, the number of shares needed for future awards, a dilution analysis, the recommendation from the Compensation Committee based on input from FWC, competitive data from relevant peer +companies, the current and future accounting expenses associated with our equity award practices, and input from our stockholders and stockholder advisory firms. +The Company currently has awards outstanding under the 2016 Plan and the Predecessor Plan. As of August 30, 2018, there were 1,858,150 shares subject to outstanding options and +99,938 shares subject to outstanding restricted stock units under the 2016 Plan and 2,293,750 shares subject to outstanding options and 45,000 shares subject to outstanding restricted stock units +under the +32 +Table of Contents +Predecessor Plan, as described in the table below. The total shares of the Company's common stock outstanding as of August 30, 2018 was 33,241,187. +Plans as of July 31, 2018 +Shares +Subject to +Outstanding +Stock Options(1) +Shares +Subject to +Outstanding +Full Value +Awards(2) +Shares +Remaining +Available for +Future Grant +Total +Aggregate +Shares +2016 Plan +1,858,150 +99,938 +1,300,902 +3,258,990 +Predecessor Plan +2,293,750 +45,000 +— +2,338,548 +Total (Before 2016 Plan amendment and restatement is approved) +4,151,900 +144,938 +1,300,902 +5,597,740 +Shares Available for Future Grant Upon Approval of the amendment and restatement of 2016 Plan(3) +4,151,900 +144,938 +3,700,902 +7,997,740 +(1) As +of August 30, 2018, the 4,151,900 stock options outstanding had a weighted average exercise price per share of $3.60 and a weighted average life of +7.8 years. +(2) Consists +solely of RSUs. +(3) This +is subject to adjustment and increase as discussed in the section titled "Securities Subject to 2016 Plan" below. +Based on the Company's common stock outstanding as of July 31, 2018, the aggregate total 5,597,740 shares issuable under the 2016 Plan and the Predecessor Plan as set forth in the +table above represents an overhang of approximately 14.4% of shares. If the amendment and restatement of the 2016 Plan is approved, the additional 2,400,000 shares available for issuance would +increase the overhang to approximately 19.2% if shares available for future grant are expressed in stock options, or 15.8% if shares available for future grant are expressed in full-value shares. The +Company calculates "overhang" as the total of (a) shares underlying outstanding awards plus shares available for issuance under future equity awards, divided by (b) the total number of +shares outstanding, shares underlying outstanding awards and shares available for issuance under future equity awards. +We +recognize that equity awards dilute existing stockholders. In connection with our stock-based compensation programs, we are committed to using equity incentive awards prudently and +within reasonable limits. Accordingly, we closely monitor our stock award "burn rate" each year. Our annual burn rate is determined by dividing the number of shares of our common stock subject to +stock-based +awards we grant in a fiscal year by the weighted average number of our fully-diluted shares of common stock outstanding for that fiscal year. +Fiscal Year +Stock +Options +Granted +RSUs +Granted +Total +Granted +Weighted +Average +Common Stock +Outstanding +Burn Rate +2018 +1,103,150 +72,590 +1,175,740 +32,776,447 +4 +% +2017 +904,500 +141,081 +1,045,581 +32,174,431 +3 +% +2016 +1,807,500 +62,500 +1,870,000 +32,048,586 +6 +% +3-Year Average +1,271,717 +92,057 +1,363,774 +32,333,155 +4 +% +Based +on our current equity award practices, the Board estimates that the authorized shares under the 2016 Plan may be sufficient to provide us with an opportunity to grant equity awards +for approximately two to three years, in amounts determined appropriate by the Compensation Committee or the Board, which will administer the 2016 Plan (as discussed below). This is only an estimate, +and circumstances could cause the share reserve to be used more quickly or more slowly. These +33 +Table of Contents +circumstances +include, but are not limited to, the future price of shares of the common stock, the mix of options and full value awards provided as long-term incentive compensation, grant amounts +provided by our competitors, payout of performance-based awards in excess of target in the event of superior performance, hiring activity, and promotions during the next few years. +Highlights of the 2016 Equity Plan +The 2016 Plan contains a number of provisions that we believe are consistent with best practices in equity compensation and which protect the +stockholders' interests, as described below. +Prohibition on repricings: The 2016 Plan prohibits the reducing of the exercise price in effect for outstanding options or stock +appreciation rights, +the cancellation and replacement of stock options or stock appreciation rights with a grant with a lower exercise price, or a cash buyout of an underwater option or stock appreciation right (except as +permitted in a change in control or in the case of an adjustment event as described in the section titled "Changes in Capitalization" below). +No evergreen authorization: The 2016 Plan does not have an evergreen provision, which normally permits an automatic annual increase in +the share pool +without further stockholder approval. +Reasonable limit on full value awards: For purposes of calculating the shares that remain available for issuance under the 2016 Plan, +grants of +options and stock appreciation rights will be counted as the grant of one share for each one share actually granted, as described below. However, to protect stockholders from potentially greater +dilutive effect of full value awards (i.e., awards other than options and stock appreciation rights), all grants of full value awards will be deducted from the 2016 Plan's share reserve as 1.79 +shares for every one share actually granted. +No automatic vesting upon a change in control: The 2016 Plan allows for an acquiring corporation to assume outstanding awards, and if +awards are +assumed, they will generally not accelerate on the change in control. If awards are not assumed, the vesting of such awards will be accelerated. The plan administrator also has the discretion to take +alternative actions such as accelerating the vesting of outstanding awards or requiring that participants exchange outstanding accelerated awards for cash. +Minimum vesting periods: Options and stock appreciation rights are subject to a minimum vesting period of at least one year. However, +up to 5% of the +available shares of common stock authorized for issuance under the 2016 Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest (in full or in part) +over a period of less than one year from the date of grant of the awards (the "5% Basket" ). Any option or stock appreciation right granted under the +2016 Plan may vest in full or in part upon death or disability of the participant, or upon a change in control, under the terms of the 2016 Plan or the applicable award agreement, and such vesting +shall not count against the 5% Basket. +No discounted stock options or stock appreciation rights: Stock options and stock appreciation rights must have an exercise price or +base price at or +above fair market value on the date of grant. +Limit on director pay: The maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable +financial +accounting rules) of all awards made to a non-employee director under the 2016 Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other +compensation) paid to such non-employee director in respect of such fiscal year, shall not exceed $250,000 in total value. +No tax gross-ups: The 2016 Plan does not provide for any tax gross-ups. +34 +Table of Contents +No liberal change-in-control definition: The 2016 Plan defines change in control based on the consummation of the transaction rather +than the +announcement or stockholder approval of the transaction. +Limitation on dividends and dividend equivalents: Any dividends or dividend equivalents payable in connection with a performance-based +award will be +subject to the same performance goal vesting restrictions as the underlying award and will not be paid until and unless such performance goals are met. +Administered by an independent committee: The 2016 Plan will be administered by our Board's Compensation Committee, which consists +entirely of +independent directors. Administration of the 2016 Plan may also be delegated to a secondary committee or, one or more officers or retained by the Board as described in more detail below. +Summary Description of 2016 Omnibus Incentive Plan +The principal terms and provisions of the 2016 Plan, as amended and restated, are set forth below. The summary, however, is not intended to be a +complete description of all the terms of the 2016 Plan and is qualified in its entirety by reference to the complete text of the 2016 Plan, attached to this proxy statement as Appendix B, which +may be accessed on the SEC's website at www.sec.gov. Any stockholder who wishes to obtain a copy of the actual plan document may do so upon written request to our Corporate Secretary at our principal +offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +Types of Awards. The following types of awards may be granted under the 2016 Plan: options, stock appreciation rights, stock +awards, restricted stock +units, cash incentive awards and dividend equivalent rights. The principal features of each type of award are described below. +Administration. The Compensation Committee has the exclusive authority to administer the 2016 Plan with respect to awards made to +our executive +officers and non-employee directors and has the authority to make awards under the 2016 Plan to all other eligible individuals. However, our Board may, at any time appoint a secondary committee of one +(1) or more Board members to have separate but concurrent authority with the Compensation Committee to make awards under the 2016 Plan to individuals other than executive officers and +non-employee directors or the Board may retain authority to make awards to such persons. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its +authority to administer the 2016 Plan to one or more officers (other than with respect to grants to executive officers and non-employee directors). In January 2018, the Board exercised this authority +and delegated to the Company Chief Executive Officer the authority to grant options to purchase up to 60,000 in any fiscal year to key non-executive hires under the 2016 Plan, provided that the +options are granted with an exercise price per share equal to the fair market value of the Company's common stock on the date of grant. +The +term "plan administrator," as used in this summary, will mean our Compensation Committee, the Board and any secondary committee, to the extent each such entity is acting within the +scope of its administrative authority under the 2016 Plan. +Eligibility. Officers and employees, non-employee directors, as well as consultants and other independent advisors, in our employ or +service or in +the employ or service of our parent or subsidiary companies (whether now existing or subsequently established) are eligible to participate in the 2016 Plan. As of August 30, 2018, approximately +394 persons (including six executive officers) and six non-employee directors were eligible to participate in the 2016 Plan. +Securities Subject to 2016 Plan. Subject to the capitalization adjustments and the add back provisions related to outstanding +awards under the +Predecessor Plan, each as described below, an +35 +Table of Contents +aggregate of up to 5,903,602 shares shall be reserved for issuance under the 2016 Plan. This share reserve is comprised of (i) the 3,400,108 shares available on the Plan Effective Date (after +taking into account awards granted under the Predecessor Plan after July 22, 2016 and prior to the Plan Effective Date); (ii) the 103,494 shares transferred to the 2016 Plan from the +Predecessor Plan since the Plan Effective Date; and (iii) the 2,400,000-share increase approved by the Board on August 6, 2018 subject to stockholder approval at the Annual Meeting. +Shares +subject to outstanding awards under the 2016 Plan and awards granted under the Predecessor Plan that expire or otherwise terminate prior to the issuance of the shares subject to +those awards will be available for subsequent issuance under the 2016 Plan as follows: (a) for each share subject to an expired option or stock appreciation right, one share of common stock +shall become available for subsequent issuance under the 2016 Plan, and (b) for each share subject to an expired award other than an option or stock appreciation right, 1.79 shares shall become +available for subsequent issuance under the 2016 Plan. +Any +unvested shares issued under the 2016 Plan and the Predecessor Plan for cash consideration not less than the fair market value per share on the date of grant that are subsequently +repurchased by us, at a price not greater than the original issue price paid per share, pursuant to our repurchase rights under the 2016 Plan and the Predecessor Plan will be added back to the number +of shares reserved for issuance under the 2016 Plan and will accordingly be available for subsequent issuance. +The +number of shares of common stock reserved for issuance under the 2016 Plan shall be reduced on a one-for-one basis for each share subject to an option or stock appreciation right and +by a fixed ratio of 1.79 shares for each share of common stock subject to an award other than an option or stock appreciation right. +In +addition, the following share counting procedures will apply in determining the number of shares of common stock available from time to time for issuance under the 2016 +Plan: +• Should the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option granted under the 2016 +Plan or the Predecessor Plan be paid in shares of our common stock (whether through the withholding of a portion of the otherwise issuable shares or through tender of actual outstanding shares), then +in each such case the number of shares so tendered or withheld will be added to the shares reserved for issuance under the 2016 Plan on a one-for-one basis. +• Should shares of common stock be withheld by us, or if shares are tendered by the participant, in each case in satisfaction of the withholding +taxes incurred in connection with the issuance, vesting or settlement of an award (other than an option or stock appreciation right) granted under the 2016 Plan or the Predecessor Plan, then in each +case the number of shares so tendered or withheld will be added to the shares of common stock available for issuance under the 2016 Plan on a 1.79-for-one basis. +Upon +the exercise of any stock appreciation right granted under the 2016 Plan, the share reserve will be reduced by the net number of shares subject to the award. +The +maximum number of shares of common stock that may be issued pursuant to options intended to qualify as incentive stock options under the federal tax laws shall be limited to +5,903,602. +The +Company may grant awards in assumption of, or in substitution or exchange for, awards previously granted by a company acquired by the Company or any subsidiary. Such substitute +awards will not reduce the shares of common stock authorized for issuance under the 2016 Plan or the limitations on grants to a participant during a fiscal year as described above. Additionally, if +the acquired company's equity plan has shares available, such shares may be available for grant under the +36 +Table of Contents +terms +of that plan (as adjusted using the exchange ratio described above), which will not reduce the shares authorized for issuance under the 2016 Plan. +The +shares of common stock issuable under the 2016 Plan may be drawn from shares of our authorized but unissued common stock or from shares of our common stock that we acquire, including +shares purchased on the open market. +Participant Award Limits. The maximum number of shares of common stock which may be issued pursuant to options or stock +appreciation rights that are +settled in shares and granted to any person under the 2016 Plan in any fiscal year shall be limited to 2,000,000 shares. +The +maximum number of shares for which awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person under the 2016 Plan in any fiscal +year shall not exceed 2,000,000 shares (which limit shall refer to the maximum amount that can be earned) in the aggregate. +During +any fiscal year, no participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each 12 months in the performance period. +In +addition, the maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all awards made to a non-employee +director under the 2016 Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such non-employee director in respect of +such fiscal year, shall not exceed $250,000 in total value. +Awards. The plan administrator has complete discretion to determine (a) which eligible individuals are to receive awards, +(b) the type, +size, terms and conditions of the awards to be made, (c) the time or times when those awards are to be granted, (d) the number of shares or amount of payment subject to each such award, +(e) the time when the award is to become exercisable, (f) the status of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws, +(g) the maximum term for which the award is to remain outstanding, (h) the vesting and issuance schedules applicable to the shares which are the subject of the award, (i) the cash +consideration (if any) payable per share subject to the award and the form of payment in which the award is to be settled, (j) the vesting schedule for a cash incentive award and +(k) with respect to performance-based awards, the performance objectives, the amount payable at one or more levels of attained performance and the payout schedule. +Stock Options. Each granted option will have an exercise price per share determined by the plan administrator, but the exercise +price will not be +less than one hundred percent (100%) of the fair market value of the option shares on the grant date. No granted option will have a term in excess of ten (10) years. The shares subject to each +option will generally vest in one or more installments over a specified period of service measured from the grant date or upon the achievement of pre-established performance objectives. However, one +or more options may be structured so that they will be immediately exercisable for any or all of the option shares. The shares acquired under such immediately exercisable options will be subject to +repurchase by us, at the lower of the exercise price paid per share or the fair market value per share, if the optionee ceases service prior to vesting in those shares. Payment of the exercise price +may be paid in one or more of the following forms as determined by the plan administrator: cash, shares of our common stock, through a cashless exercise procedure pursuant to which the optionee +effects a same-day exercise of the option and sale of the purchased shares through a broker in order to cover the exercise price for the purchased shares and the applicable withholding taxes and/or +through a net exercise procedure pursuant to which we withhold a number of shares otherwise issuable upon exercise of the option having a value equal to the exercise price and applicable withholding +taxes. +37 +Table of Contents +Upon +cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the extent exercisable for vested shares. The plan +administrator will have complete discretion to extend the period following the optionee's cessation of service during which his or her outstanding options may be exercised, provide for continued +vesting during the applicable post-service exercise period and/or accelerate the exercisability or vesting of options in whole or in part. Such discretion may be exercised at any time while the +options remain outstanding. +Stock Appreciation Rights. The 2016 Plan allows the issuance of two types of stock appreciation rights: +• Tandem stock appreciation rights granted in conjunction with options which provide the holders with the right to surrender the related option +grant for an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the vested shares of our common stock subject to the surrendered option over +(ii) the aggregate exercise price payable for those shares. +• Stand-alone stock appreciation rights which allow the holders to exercise those rights as to a specific number of shares of our common stock +and receive in exchange an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the shares of common stock as to which those rights are exercised +over (ii) the aggregate exercise price in effect for those shares. The exercise price per share may not be less than the fair market value per share of our common stock on the date the +stand-alone stock appreciation right is granted, and the right may not have a term in excess of ten (10) years. +The +appreciation distribution on any exercised stock appreciation right will be paid in (i) cash, (ii) shares of our common stock or (iii) a combination of cash and +shares of our common stock. Upon cessation of service with us, the holder of a stock appreciation right will have a limited period of time in which to exercise that right to the extent exercisable at +that time. The plan administrator has complete discretion to extend the period following the holder's cessation of service during which his or her outstanding stock appreciation rights may be +exercised, provide for continued vesting during the applicable +post-service exercise period and/or accelerate the exercisability or vesting of stock appreciation rights in whole or in part. Such discretion may be exercised at any time while the stock appreciation +rights remain outstanding. +Repricing. The plan administrator may not implement any of the following repricing programs (except in the case of a corporate +transaction as +described in the section titled "Changes in Capitalization" below, without stockholder approval): (i) the cancellation of outstanding options or stock appreciation rights in return for new +options or stock appreciation rights with a lower exercise price per share, (ii) the cancellation of outstanding options or stock appreciation rights with exercise prices per share in excess of +the then current fair market value per share of our common stock for consideration payable in cash, other awards or our equity securities (except in the event of a change in control) or +(iii) the direct reduction of the exercise price in effect for outstanding options or stock appreciation rights. +Stock Awards and Restricted Stock Units. Shares of our common stock may be issued under the 2016 Plan subject to performance or +service vesting +requirements established by the plan administrator or as a fully-vested bonus for past services without any cash outlay required of the recipient. Shares of our common stock may also be issued under +the 2016 Plan pursuant to restricted stock units which entitle the recipients to receive those shares upon the attainment of designated performance goals or the completion of a prescribed service +period or upon the expiration of a designated time period following the vesting of those units, including (without limitation), a deferred distribution date following the termination of the +recipient's service with us. +38 +Table of Contents +The plan administrator will have the discretionary authority to structure one or more such awards so that the shares of common stock subject to those awards (or +cash, as applicable) will vest only upon the achievement of certain pre-established corporate performance goals based on one or more of the following criteria: (i) cash flow; +(ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, +earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; +(vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; +(viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth +in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating +profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, (xviii) market capitalization, +(xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, completion or attainment of key projects, product sales or milestones, +(xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation of strategic plans and/or +organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; (xxvi) improvement in workforce diversity; (xxvii) compliance +requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession planning goals; (xxx) economic value added (including typical +adjustments consistently applied from generally accepted accounting principles required to +determine economic value added performance measures); (xxxi) recruiting and maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff +development; (xxxii) development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Company's +revenue or profitability or enhance its customer base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the +Company's performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Company's business units or +divisions or any parent or subsidiary. Each applicable performance goal may include a minimum threshold level of performance below which no award will be earned, levels of performance at which +specified portions of an award will be earned and a maximum level of performance at which an award will be fully earned. Each applicable performance goal may be structured at the time of the award to +provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect +of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) the operations +of any business acquired by the Company; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any corporate transaction, such as a merger, +consolidation, separation (including spin-off or other distributions of stock or property by the Company) or reorganization; (H) restructurings, discontinued operations, extraordinary items, +and other unusual, infrequently occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate structure or capital structure of the Company; +(K) an event either not directly related to the operations of the Company, parent, subsidiary, division, business segment or business unit or not within the reasonable control of management; +(L) foreign exchange gains and losses; (M) a change in the fiscal year of the Company; (N) the refinancing or repurchase of bank loans or debt securities; (O) unbudgeted +capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares; (Q) conversion of some or all of convertible securities +to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accounting changes in accordance with GAAP; (T) the effect of changes in other laws or +regulatory rules affecting reported results; and (U) any other +39 +Table of Contents +adjustment +consistent with the operation of the 2016 Plan. The plan administrator may also grant awards that are subject to vesting based on performance goals other than those set forth above. +Should +the participant cease to remain in service while holding one or more unvested shares or should the performance objectives not be attained with respect to one or more such unvested +shares, then those shares will be immediately subject to cancellation. Outstanding restricted stock units will automatically terminate, and no shares of our common stock will actually be issued in +satisfaction of those awards, if the performance goals or service requirements established for such awards are not attained. The plan administrator, however, will have the discretionary authority to +issue shares of our common stock in satisfaction of one or more outstanding awards as to which the designated performance goals or service requirements are not attained. +Cash Incentive Awards. The plan administrator may grant cash incentive awards, which need not relate to the value of shares of +common stock. The +terms and conditions for cash incentive awards will be determined by the plan administrator. Cash incentive awards may vest in one or more installments over a specified period of service or upon the +achievement of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by the plan administrator. Upon cessation of service, the cash incentive award +will automatically terminate without any payment if the designated service or performance goals have not been satisfied. However, the plan administrator has complete discretion to make a payment under +one or more outstanding cash incentive awards as to which the service or performance goals have not been satisfied. +Dividend Equivalent Rights. Dividend equivalent rights may be issued as stand-alone awards or in tandem with other awards made +under the 2016 Plan, +except that dividend equivalents may not be granted in connection with an option, stock appreciation right or cash incentive award. Each dividend equivalent right award will represent the right to +receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of our common stock) which is made per issued and outstanding share +of common stock during the term the dividend equivalent right remains outstanding. Payment of the amounts attributable to such dividend equivalent rights may be made either concurrently with the +actual dividend or distribution made per issued and outstanding share of our common stock or may be deferred to a later date. Payment may be made in cash or shares of our common stock, or a +combination of cash and shares, as determined by the plan administrator. +New Plan Benefits +No awards have been granted under the amended and restated 2016 Plan. Any awards following approval of this proposal shall be at the discretion +of the plan administrator. Accordingly, the benefits or amounts that may be received by or allocated to each of (i) the officers listed in the Summary Compensation Table, (ii) each of +the nominees for election as a director, (iii) all non-employee directors as a group, (iv) all of our present executive officers as a group, and (v) all of our employees, +including all other current officers, as a group under the 2016 Plan are not determinable at this time. +Outstanding Equity Awards +The following table shows the number of shares of common stock subject to options and restricted stock units awarded under the 2016 Plan between +April 1, 2017 and July 31, 2018 to our named +40 +Table of Contents +executive +officers and the other individuals and groups indicated below. No other type of equity award was granted during such period. +Name and Position +Number of Shares +Subject to Options +Weighted +Average +Exercise Price +per Share +Number of +Shares Subject +to RSU Awards +Named Executive Officers +Joe Bergera +250,000 +$ +5.52 +— +Chief Executive Officer, President and Director +Andrew Schmidt +100,000 +5.52 +— +Chief Financial Officer, Vice President of Finance and Secretary +James Chambers +150,000 +5.66 +— +Senior Vice President and General Manager, Agriculture and Weather Analytics +Todd Kreter +75,000 +5.52 +— +Senior Vice President and General Manager, Roadway Sensors +Ramin Massoumi +75,000 +5.52 +— +Senior Vice President and General Manager, Transportation Services +Non-Employee Directors +Kevin C. Daly, Ph.D. +— +— +5,788 +Scott E. Deeter +— +— +5,788 +Gerard M. Mooney +— +— +5,788 +Laura L. Siegal +— +— +4,180 +Thomas L. Thomas +— +— +5,788 +Mikel H. Williams +— +— +5,788 +All current executive officers as a group (6 persons) +675,000 +5.55 +— +All current non-employee directors as a group (6 persons) +— +— +33,120 +All employees, excluding current executive officers as a group (76 persons) +473,150 +5.61 +41,350 +General Provisions +Minimum Vesting. No option or stock appreciation right may vest over a period of less than one year from the date of grant, +except that up to 5% of +the available shares of common stock reserved for issuance under the 2016 Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest over a period of +less than one year from the date of grant. Additionally, any option or stock appreciation right granted under the 2016 Plan may vest upon the participant's death or disability, or upon a change in +control, and such vesting will not count against the 5% Basket described above. +Vesting Acceleration. In the event we should experience a change in control, the following provisions will be in effect for all +outstanding awards +under the 2016 Plan, unless provided otherwise in an award agreement entered into with the participant: +• Each outstanding award may be assumed, substituted, replaced with a cash retention program that preserves the intrinsic value of the award and +provides for subsequent payout in accordance +41 +Table of Contents +with +the same vesting schedule applicable to the award or otherwise continued in effect by the successor corporation. +• To the extent an award is not so assumed, substituted, replaced or continued, the award generally will automatically accelerate in full (with +performance-based award vesting to be determined with reference to actual performance attained as of the change in control). +• The plan administrator has complete discretion to grant one or more awards which will vest upon a change in control, whether or not such award +is to be assumed or otherwise continued, or in the event the individual's service with us or the successor entity is terminated within a designated period following a change in control transaction in +which those awards are assumed or otherwise continued in effect. +• Unless the plan administrator establishes a different definition for one or more awards, a change in control will be deemed to occur for +purposes of the 2016 Plan in the event (a) we are acquired by merger or asset sale or (b) there occurs any transaction (or series of related transactions within the twelve (12)-month +period ending with the most recent acquisition) pursuant to which any person or group of related persons becomes directly or indirectly the beneficial owner of securities possessing (or convertible +into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power of our outstanding securities or (c) there is a change in the majority of the +board effected through one or more contested elections for board membership. +Changes in Capitalization. In the event any change is made to the outstanding shares of our common stock by reason of any stock +split, stock +dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change in corporate structure effected without our receipt of consideration or should the value of +our outstanding shares of common stock be substantially reduced by reason of a spin-off transaction or extraordinary dividend or distribution or should there occur any merger, consolidation, +reincorporation or other reorganization, equitable adjustments will be made to: (i) the maximum number and/or class of securities issuable under the 2016 Plan; (ii) the maximum number +and/or class of securities for which incentive stock options may be granted under the 2016 Plan; (iii) the maximum number and/or class of securities for which any one (1) person may be +granted common stock-denominated awards under the 2016 Plan per calendar year; (iv) the number and/or class of securities and the exercise price per share in effect for outstanding options and +stock appreciation rights; (v) the number and/or class of securities subject to each outstanding stock award, restricted stock unit, dividend equivalent right and any other award denominated in +shares of our common stock and the consideration (if any) payable per share; and the number and/or class of securities subject to repurchase rights and the repurchase price payment per share. Such +adjustments will be made in such manner as the plan administrator deems appropriate. +Valuation. The fair market value per share of our common stock on any relevant date under the 2016 Plan is deemed to be equal to +the closing selling +price per share on that date as determined by the NASDAQ Capital Market. As of August 30, 2018, the fair market value of our common stock determined on such basis was $5.09 per share. +Stockholder Rights and Transferability. No optionee has any stockholder rights with respect to the option shares until such +optionee has exercised +the option and paid the exercise price for the purchased shares. The holder of a stock appreciation right will not have any stockholder rights with respect to the shares subject to that right unless +and until such person exercises the right and becomes the holder of record of any shares of our common stock distributed upon such exercise. Options are not assignable or transferable other than by +will or the laws of inheritance following optionee's death, and during the optionee's lifetime, the option may only be exercised by the optionee. However, the plan administrator may structure one or +more non-statutory options under the 2016 Plan so that those +42 +Table of Contents +options +will be transferable during optionee's lifetime to one or more members of the optionee's family or to a trust established for the optionee and/or one or more such family members or to the +optionee's former spouse, to the extent such transfer is in connection with the optionee's estate plan or pursuant to a domestic relations order. Standalone stock appreciation rights will be subject +to the same transferability restrictions applicable to non-statutory options. +A +participant will have full stockholder rights with respect to any shares of common stock issued to him or her under the 2016 Plan, whether or not his or her interest in those shares is +vested. A participant will not have any stockholder rights with respect to the shares of common stock subject to restricted stock units until that award vests and the shares of common stock are +actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of common stock, on outstanding restricted stock units, subject to +such terms and conditions as the plan administrator may deem appropriate. Notwithstanding the foregoing, any dividends or dividend equivalents payable in connection with a performance-based award will +be subject to the same restrictions as the underlying award and will not be paid until and unless such performance goals are met. +Special Tax Election. The plan administrator may provide one or more holders of awards under the 2016 Plan with the right to +have us withhold a +portion of the shares otherwise issuable to such individuals in +satisfaction of the withholding taxes to which they become subject in connection with the issuance, exercise or settlement of those awards. Alternatively, the plan administrator may allow such +individuals to deliver previously acquired shares of our common stock in payment of such withholding tax liability. +Deferral Programs. The plan administrator may structure one or more awards (other than options and stock appreciation rights) so +that the +participants may be provided with an election to defer the compensation associated with those awards for federal income tax purposes. +The +plan administrator may also implement a non-employee director retainer fee deferral program that allows the non-employee directors the opportunity to elect to convert the Board and +Board committee retainer fees to be earned for a fiscal year into restricted stock units that defer the issuance of the shares of common stock that vest under those units until a permissible date or +event under Internal Revenue Code Section 409A. +To +the extent we maintain one or more separate non-qualified deferred compensation arrangements which allow the participants the opportunity to make notional investments of their +deferred account balances in shares of common stock, the plan administrator may authorize the share reserve under the Plan to serve as the source of any shares of common stock that become payable +under those deferred compensation arrangements. +Amendment and Termination. Our Board may amend or modify the 2016 Plan at any time subject to stockholder approval to the extent +required under +applicable law or regulation or pursuant to the listing standards of the stock exchange on which our common stock is at the time primarily traded. Unless sooner terminated by our Board, the 2016 Plan +will terminate on the earliest of (i) the date immediately preceding the tenth anniversary of the Plan Effective Date, (ii) the date on which all shares available for issuance under the +2016 Plan have been issued as fully-vested shares (iii) the termination of all outstanding awards in connection with certain changes in control or ownership, or (iv) the termination of +the 2016 Plan by the Board. +Summary of Federal Income Tax Consequences +The following is a summary of the Federal income taxation treatment applicable to us and the participants who receive awards under the 2016 +Plan. +43 +Table of Contents +Option Grants. Options granted under the 2016 Plan may be either incentive stock options which satisfy the requirements of +Section 422 of the +Internal Revenue Code or non-statutory options which are not intended to meet such requirements. The federal income tax treatment for the two types of options differs as follows: +Incentive Options. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is +recognized for ordinary +income tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize taxable income in the year in +which the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and +(ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two (2) years after the date the option for the shares involved in such sale or +disposition is granted and more than one (1) year after the date the option is exercised for those shares. If the sale or disposition occurs before these two periods are satisfied, then a +disqualifying disposition will result. +Upon +a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of +the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares +on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any +additional gain or loss recognized upon the disposition will be a capital gain or loss. +If +the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, +equal to the amount of ordinary income recognized by the optionee as a result of the disposition. We will not be entitled to any income tax deduction if the optionee makes a qualifying disposition of +the shares. +Non-Statutory Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will +in general +recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date +over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction +equal to the amount of ordinary income recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such +ordinary income is recognized by the optionee. +Stock Appreciation Rights. No taxable income is recognized upon receipt of a stock appreciation right. The holder will recognize +ordinary income in +the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the base price +in effect for the exercised right, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the +amount of ordinary income recognized by the holder in connection with the exercise of the stock appreciation right. The deduction will be allowed for the taxable year in which such ordinary income is +recognized. +Stock Awards. The recipient of unvested shares of common stock issued under the 2016 Plan will not recognize any taxable income +at the time those +shares are issued but will have to report as ordinary income, as and when those shares subsequently vest, an amount equal to the excess of (i) the fair market value of the shares on the vesting +date over (ii) the cash consideration (if any) paid for the shares. The recipient may, however, elect under Section 83(b) of the Internal Revenue Code to include as ordinary income in +the year the unvested shares are issued an amount equal to the excess of (i) the +44 +Table of Contents +fair +market value of those shares on the issue date over (ii) the cash consideration (if any) paid for such shares. If the Section 83(b) election is made, the recipient will not +recognize any additional income as and when the shares subsequently vest. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient with respect +to the unvested shares. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the recipient. +Restricted Stock Units. No taxable income is recognized upon receipt of restricted stock units. The holder will recognize +ordinary income in the year +in which the shares subject to the units are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and the holder will +be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income +recognized by the holder at the time the shares are issued. The deduction will be allowed for the taxable year in which such ordinary income is recognized. +Cash Incentive Awards. In general, no taxable income is recognized upon receipt of cash incentive awards. The holder will +recognize ordinary income +in the year in which the cash incentive awards are actually paid to the participant, and the participant will be required to satisfy the tax withholding requirements applicable to such income. We will +be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time of payment. The deduction will be allowed for the taxable year in which such +ordinary income is recognized. +Dividend Equivalent Rights. No taxable income is recognized upon receipt of a dividend equivalent right award. The holder will +recognize ordinary +income in the year in which a dividend or distribution, whether in cash, securities or other property, is paid to the holder. The amount of that income will be equal to the fair market value of the +cash, securities or other property received, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal +to the amount of the ordinary income recognized by the holder of the dividend equivalent right award at the time the dividend or distribution is paid to such holder. That deduction will be allowed for +the taxable year in which such ordinary income is recognized. +Section 162(m) of the Code. Prior to 2018, Section 162(m) of the Code imposed a $1 million limit on the amount a +public company +may deduct for compensation paid to a company's chief executive officer or any of the company's three other most highly compensated executive officers (other than the chief financial officer) who are +employed as of the end of the year. This limitation did not apply to compensation that meets the tax code requirements for "qualifying performance-based" compensation (i.e., compensation paid +only if the individual's performance meets pre-established objective goals based on performance criteria approved by stockholders, including stock options). We have modified the 2016 Plan to remove +certain restrictions for future awards that previously were required to comply with Section 162(m) of the Code, which are no longer necessary as a result of the recent changes to +Section 162(m) of the Code. +The +performance-based compensation exemption and the exemption of the chief financial officer from Section 162(m)'s deduction limit have been repealed, among other changes, +effective for taxable years beginning after December 31, 2017, such that awards paid to our covered executive officers (including our chief executive officer) in excess of $1 million +will not be deductible in future years, unless it qualifies for transition relief applicable to certain arrangements that were in effect as of November 2, 2017 and are not materially modified +thereafter. +As +in prior years, while deductibility of executive compensation for federal income tax purposes is among the factors the Compensation Committee considers when structuring our executive +compensation arrangements, it is not the sole or primary factor considered. We retain the flexibility to +45 +Table of Contents +authorize +compensation that may not be deductible if we believe it is in the best interests of the Company. +Accounting Treatment. Pursuant to the accounting standards under Financial Accounting Standards Board +(" FASB ") Accounting Standards Codification Topic 718, we will be required to expense all share-based payments, including grants of stock options, stock +appreciation rights, restricted stock, restricted stock units and all other stock-based awards under the 2016 Plan. Accordingly, stock options and stock appreciation rights which are granted to our +employees and non-employee directors and payable in shares of our common stock will have to be valued at fair value as of the grant date under an appropriate valuation formula, and that value will +then have to be charged as a direct compensation expense against our reported earnings over the designated vesting period of the award. Stock appreciation rights that are to be settled in cash will be +subject to variable mark-to-market accounting until the settlement date. For shares issuable upon the vesting of restricted stock units awarded under the 2016 Plan, we will be required to amortize +over the vesting period a compensation cost equal to the fair market value of the underlying shares on the date of the award. If any other shares are unvested at the time of their direct issuance, +then the fair market value of those shares at that time will be charged to our reported earnings ratably over the vesting period. Such accounting treatment for restricted stock units and direct stock +issuances will be applicable whether vesting is tied to service periods or performance goals, although for performance-based awards, the grant date fair value will initially be determined on the basis +of the probable outcome of performance goal attainment. The issuance of a fully-vested stock bonus will result in an immediate charge to our earnings equal to the fair market value of the bonus shares +on the issuance date. Dividends or dividend equivalents paid on the portion of an award that vests will be charged against our retained earnings. If the award holder is not required to return the +dividends or dividend equivalents if they forfeit their awards, dividends or dividend equivalents paid on instruments that do not vest will be recognized by us as additional compensation cost. +Finally, +it should be noted that the compensation expense accruable for performance-based awards under the 2016 Plan will, in general, be subject to adjustment to reflect the actual +outcome of the applicable performance goals, and any expenses accrued for such performance-based awards will be reversed if the performance goals are not met, unless those performance goals are deemed +to constitute market conditions (i.e., because they are tied to the price of our common stock) under FASB Accounting Standards Codification Topic 718. +Required Vote +Provided a quorum is present, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and +voting on this Proposal Two is required for approval of the amendment and restatement of the 2016 Plan. Should such approval not be obtained, then the share reserve under the 2016 Plan will not be +increased and awards will continue to be granted under the 2016 Plan, subject to previously authorized share limits. +We +are required to obtain stockholder approval for the amendment and restatement of the 2016 Plan under the rules of The Nasdaq Stock Market. Such approval is also necessary to permit us +to grant incentive stock options to employees under Section 422 of the Internal Revenue Code. +The +Board believes that the amendment and restatement of the 2016 Plan is necessary for us to be able to attract and retain the services of individuals essential to our long-term growth +and success. +Recommendation of the Board of Directors +THE BOARD BELIEVES THAT PROPOSAL TWO IS IN OUR BEST INTERESTS AND IN THE BEST INTERESTS OF OUR STOCKHOLDERS AND +RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2016 OMNIBUS INCENTIVE PLAN. UNLESS OTHERWISE INDICATED THEREON, THE ACCOMPANYING PROXY WILL BE VOTED FOR APPROVAL OF THE +2016 OMNIBUS INCENTIVE PLAN. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2016 OMNIBUS INCENTIVE PLAN. +46 +Table of Contents +PROPOSAL THREE: +APPROVAL OF THE AMENDMENT AND RESTATEMENT +OF OUR RESTATED CERTIFICATE OF INCORPORATION TO +ELIMINATE +CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS +On August 6, 2018, our Board unanimously approved, subject to stockholder approval, the amendment and restatement of our Restated +Certificate of Incorporation (the " Restated Charter ") (i) to eliminate cumulative voting in the election of directors; and (ii) to include +a majority voting standard for the election of directors in substantially the form previously added to the Company's Bylaws. The full text of the Restated Charter is set forth in Appendix A to +this proxy statement. +Our +stockholders currently may elect directors by a procedure called "cumulative voting." Cumulative voting enables a stockholder to cumulate such stockholder's votes for the election of +a director nominee by casting a number of votes for such nominee equal to the number of directors to be elected multiplied by the number of votes to which the stockholder is entitled. The stockholder +also may distribute his or her votes among two or more nominees on the same basis. This procedure allows a stockholder to cumulate his or her votes for one or more of the nominees for director, +meaning that his or her votes may be cast for one or more of the nominees. For example, in an election of three directors where a stockholder has one vote per share of common stock, the stockholder +would have three votes if cumulative voting was in effect. The stockholder could cast those three votes for one of the directors, or cast two votes for one director and one vote for another, or cast +one vote for each of the three nominees. +Our +Board believes this procedure is overly complicated to implement, seldom if ever used by stockholders, and is no longer in the best interests of our company and our stockholders, +particularly in view of our large number of stockholders and broad-based ownership of our shares. In addition, a stockholder or group of stockholders holding a relatively small number of shares that +cumulatively votes its shares in an election of directors could elect one or more directors, whose loyalty may primarily be to the minority group responsible for their election rather than to our +Company and all of our stockholders. Our Board believes that each director is responsible to, and should represent the interests of all stockholders, as opposed to a minority stockholder group that +may have special interests and goals inconsistent with those of the majority of stockholders. The election of directors who view themselves as representing a particular minority stockholder group +could result in partisanship and discord on our Board, and may impair the ability of our directors to act in the best interests of our company and all of our stockholders. In addition, our Board +believes that cumulative voting is not a customary practice among other public companies, with fewer than 5% of Fortune 500 companies allowing cumulative voting in the election of directors. +Accordingly, our Board is proposing to eliminate cumulative voting. +The +elimination of cumulative voting might under certain circumstances render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder +of a large block of our common shares or the removal of incumbent management. Neither management nor our +Board is aware of any attempt by any stockholder to accumulate sufficient shares to obtain control of our Company. +In order to implement the removal of cumulative voting, the Company proposes to delete the references to cumulative voting in the EIGHTH and ELEVENTH Article in the Company's Restated +Certificate of Incorporation and to add the following sentence at the end of the EIGHTH Article, "No stockholder shall have the right to cumulate votes in the election of directors." The foregoing +amendment of the Restated Charter has been approved by our Board but is subject to stockholder approval. +Appendix A +to this proxy statement includes the full text of the Restated Charter. Because this Proposal provides only a summary of the proposed amendments contained in the +Restated Charter, it +47 +Table of Contents +may +not contain all of the information that is important to you. Accordingly, you should read the Restated Charter carefully before you decide how to vote. The foregoing general description of the +Restated Charter is qualified in its entirety by reference to the full text of the Restated Charter, which is set forth in Appendix A to this proxy statement. +If the foregoing amendment is approved by the requisite vote of the stockholders, we will file the Restated Charter with the Delaware Secretary of State as soon as reasonably practicable +after the Annual Meeting to give effect to such amendments. These amendments will become effective upon filing the Restated Charter with the Delaware Secretary of State. The Restated Charter will also +contain the amendments discussed below under Proposal Four if such proposal is approved at the Annual Meeting. +Vote Required +Approval of the proposed amendment to our Restated Certificate of Incorporation to eliminate cumulative voting in the election of directors will +require the affirmative vote of the majority of the outstanding shares of common stock entitled to vote at the Annual Meeting. Proxies solicited by management for which no specific direction is +included will be voted "FOR" the approval of the foregoing amendment to the Restated Charter. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF AN AMENDMENT TO OUR RESTATED CHARTER TO ELIMINATE CUMULATIVE VOTING IN +THE ELECTION OF DIRECTORS. +48 +Table of Contents +PROPOSAL FOUR: +APPROVAL OF THE AMENDMENT AND RESTATEMENT +OF OUR RESTATED CERTIFICATE OF INCORPORATION +TO ADOPT A MAJORITY VOTING STANDARD +FOR +UNCONTESTED DIRECTOR ELECTIONS +The General Corporation Law of the State of Delaware provides that, unless otherwise addressed in a company's certificate of incorporation or +bylaws, directors are elected by a plurality of the votes cast by the shares entitled to vote at a meeting. Under this default standard, directors receiving the highest number of affirmative votes +from stockholders are elected. +While +historically our directors have been elected by a plurality standard, our Board periodically analyzes current corporate governance trends and considers the arguments in favor of +and against +maintaining the existing plurality voting standard. As a result of this analysis, our Board has determined that many public companies currently provide for a majority voting standard rather than a +plurality standard, and that such an approach to director elections is currently viewed as a "best practice" by many commentators, large investors and other public companies perceived to be market +leaders in the area of corporate governance. +Our +Board believes that generally requiring directors to be elected by a majority of votes cast both provides that only director nominees with broad acceptability among our voting +stockholders will be elected to serve as members of our Board and enhances the accountability of each elected director to our stockholders. As a result, in May 2018, the Board adopted an amendment to +the Company's bylaws to implement this majority voting standard in connection with uncontested director elections. After careful consideration, our Board has determined that it would be in the best +interests of the Company to also amend our Restated Certificate of Incorporation to include a majority voting standard for uncontested director elections so that the Board cannot eliminate this +majority voting standard in the future without stockholder approval of such elimination. +In +order to implement a majority voting standard for director nominees in an uncontested election, we are requesting that the stockholders approve the following amendment to our Restated +Certificate of Incorporation, which shall be added at the end of the Eighth Article as follows if this Proposal Four is adopted by the stockholders: +"At +any meeting of stockholders at which directors may be elected, each director nominee shall be elected by an affirmative vote of a majority of the votes cast with respect to such +director nominee by the stockholders entitled to vote in the election at a meeting at which a quorum is present, unless the number of nominees exceeds the number of directors to be elected, in which +case each director nominee shall be elected by a plurality of the votes of the shares properly represented and entitled to vote in the election at such meeting. In the event that a nominee is already +a director of the Corporation and does not receive a majority of the votes cast with respect to such nominee in an election where the number of nominees equals the number of directors to be elected, +such nominee shall promptly tender his or her resignation to the Board of Directors and Board committees for consideration. +The +foregoing amendment has been approved by our Board of Directors but is subject to stockholder approval. The majority voting provisions will not apply to vacancies on the Board +(including a vacancy resulting from an increase in the number of directors) filled by a vote of the Board. In addition, in a contested election, where the number of nominees exceeds the number of +directors to be elected, a plurality voting standard would continue to apply. +Our +Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to receive the requisite majority vote in an uncontested election must tender to +the Board for its consideration his or her resignation from the Board and from all of the Board committees on which +49 +Table of Contents +he +or she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the +resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +Appendix A +to this proxy statement includes the full text of the Restated Charter containing the amendment discussed in this Proposal Four. Because this Proposal provides only a +summary of the proposed amendment contained in the Restated Charter, it may not contain all of the information that is important to you. Accordingly, you should read the Restated Charter carefully +before you decide how to vote. The foregoing general description of the Restated Charter is qualified in its entirety by reference to the full text of the Restated Charter, which is set forth in +Appendix A to this proxy statement. +Vote Required +Approval of the proposed amendment to our Restated Charter will require the affirmative vote of the majority of the outstanding shares of common +stock entitled to vote at the Annual Meeting. Proxies solicited by management for which no specific direction is included will be voted "FOR" the approval of the amendment to our Restated Charter to +include a majority voting standard for uncontested elections of directors. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF AN AMENDMENT TO OUR RESTATED CHARTER TO ADOPT A MAJORITY VOTING +STANDARD FOR UNCONTESTED DIRECTOR ELECTIONS. +50 +Table of Contents +PROPOSAL FIVE: +RATIFICATION OF SELECTION OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of Deloitte & Touche LLP (" Deloitte ") has been engaged by our +Audit Committee to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2019. Deloitte has been our principal independent registered public accounting +firm since October 2015. Information regarding the services provided to us by Deloitte during Fiscal 2018 and Fiscal 2017 is set forth below under the heading entitled "Matters Related to Independent +Registered Public Accounting Firm." +We +are asking our stockholders to ratify the selection by the Audit Committee of Deloitte as our independent registered public accounting firm to audit our consolidated financial +statements for Fiscal 2019 and to perform other appropriate services. Although stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not +required by our bylaws or otherwise, we are submitting the appointment of Deloitte to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance and to provide a +means by which our stockholders may communicate their opinion to the Audit Committee. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its +selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during +the year if the committee feels that such a change would be in the best interests of the Company and our stockholders. +A +representative of Deloitte is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or +she so desires and is expected to be available to respond to appropriate questions from stockholders. +Vote Required +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be +required for ratification of the selection of Deloitte as our independent registered public accounting firm for Fiscal 2019. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote "FOR" the ratification and approval of the selection of +Deloitte & Touche LLP as our independent registered public accounting firm for Fiscal 2019. +MATTERS RELATED TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Fees Paid to Deloitte & Touche LLP +The following table sets forth the fees we have paid to Deloitte in the following categories and amounts during Fiscal 2018 and Fiscal 2017: +Year Ended March 31, +Fee Category +2018 +2017 +Audit fees +$ +916,000 +$ +905,000 +Audit related fees +190,000 +— +Tax fees +— +— +All other fees +— +— +Total fees +$ +1,106,000 +$ +905,000 +51 +Table of Contents +Audit Fees. Audit fees consist of fees billed for professional services rendered in connection with the audit of our annual +consolidated financial +statements for the applicable fiscal year and review of our consolidated financial statements included in our quarterly reports on Form 10-Q and other regulatory filings for such fiscal year. +Audit Related Fees. Audit related fees consist of fees billed for assurance and related services that are reasonably related to the +performance of +the audit or review of our consolidated financial statements but are not reporting under "Audit Fees." These fees were related to the review of our registration statements on Form S-3 and +Form S-8 as well as fees related to the adoption of ASC 606. There were no other fees billed by Deloitte for Fiscal 2018 or Fiscal 2017. +Tax Fees. Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. There were no tax +fees billed by +Deloitte for Fiscal 2018 or Fiscal 2017. +All Other Fees. Except as set forth above, no fees were billed by Deloitte in Fiscal 2018 or Fiscal 2017 for any other services. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte or other independent registered public accountants are subject to prior approval by the Audit +Committee; however, de minimis, non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by +Deloitte for Fiscal 2018 and Fiscal 2017. +Audit Committee Report +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended +March 31, 2018 of Iteris, Inc. included in its Annual Report on Form 10-K and as amended on Form 10-K/A for that year. +Our +management is responsible for the Company's financial reporting process, including its systems of internal control over financial reporting, and for the preparation of its financial +statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of our +consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles +(" GAAP ") and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee +these financial processes on behalf of the Board. +The +members of the Committee are not employees of Iteris and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct +auditing or accounting reviews or procedures. Therefore, in performing the Committee's oversight role, the Committee necessarily must rely on management's representations that it has maintained +appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance +with accounting standards and applicable laws and regulations, and that the Company's financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the +representations of our independent registered public accounting firm included in its reports on the Company's financial statements. +In +this context, the Audit Committee hereby reports as follows: +1. The +Audit Committee has reviewed and discussed our consolidated audited financial statements with our management. +52 +Table of Contents +2. The +Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, +" Communications with Audit Committees ," as adopted by the Public Company Accounting Oversight Board (the +" PCAOB "). +3. The +Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of +the PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent +registered public accounting firm its independence. +4. Based +on the review and discussions referred to above in this report, the Audit Committee recommended to the Company's Board, and the Board has approved, that the +consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2018 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Scott E. Deeter +Gerard M. Mooney +Mikel H. Williams +The information contained in the foregoing Audit Committee Report is not "soliciting material" and is not deemed filed with the SEC. Such report is not to be +incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof, and irrespective of any general incorporation +language in any such filing. +53 +Table of Contents +STOCK OWNERSHIP OF CERTAIN +BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of August 30, 2018, the number and percentage ownership of our common stock by (i) all persons +known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our executive +officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown +as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner(1) +Amount and Nature +of Beneficial +Ownership(2) +Percent of +Class(2) +Neil S. Subin(3) +4,698,533 +14.1 +% +BlackRock, Inc.(4) +1,733,531 +5.2 +Joe Bergera(5) +1,050,000 +3.1 +Andrew Schmidt(6) +131,250 +* +James Chambers(7) +25,000 +* +Todd Kreter(8) +89,861 +* +Ramin Massoumi(9) +77,925 +* +Kevin C. Daly, Ph.D.(10) +491,378 +1.5 +Scott E. Deeter +6,606 +* +Gerard M. Mooney(11) +48,146 +* +Laura L. Siegal +— +* +Thomas L. Thomas(12) +132,146 +* +Mikel H. Williams(13) +78,146 +* +All executive officers and directors as a group (13 persons)(14) +2,155,458 +6.2 +% +* Less +than 1%. +(1) The +address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) Based +on 33,241,187 shares of common stock outstanding as of August 30, 2018. Shares of common stock subject to options or warrants which are exercisable +within 60 days of August 30, 2018 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such +person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of +outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual's name, the number of shares indicated also +includes shares held for the benefit of the named person under our 401(k) plan. +(3) Pursuant +to a Schedule 13G filed on February 1, 2018 with the SEC, Mr. Subin reported that, as of January 12, 2018, he had sole +dispositive and voting power with respect to 4,601,659 shares and shares dispositive and voting power over 96,874 shares. Mr. Subin reported that he was the successor President and Manager of +MILFAM LLC, which serves as manager, general partner or investment advisor of a number of entities formerly managed or advised by the late Lloyd I. Miller, III. Mr. Subin also serves as +trustee of a number of Mr. Miller's family trusts. The address for Mr. Subin is 3300 South Dixie Highway, Suite 1-365, West Palm Beach, Florida 33405. +(4) Pursuant +to a Schedule 13G filed on January 23, 2018 with the SEC, BlackRock, Inc. reported that through the following subsidiaries, it has sole +dispositive and voting power with respect to +54 +Table of Contents +1,733,531 +shares: BlackRock Advisors, LLC, BlackRock Fund Advisors; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc. and BlackRock +Investment Management, LLC. The address for BlackRock Inc. is 55 East 52nd Street, New York, NY 10005. +(5) Consists +of 712,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, +2018. +(6) Consists +of 131,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, +2018. +(7) Consists +of 25,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, +2018. +(8) Consists +of (i) 33,303 shares held directly, (ii) 308 shares held by Mr. Kreter's IRA and (iii) 56,250 shares issuable upon exercise of +options that are currently exercisable or will become exercisable within 60 days after August 30, 2018. +(9) Consists +of (i) 31,624 shares held by the Massoumi Family Trust; (ii) 2,551 shares held by Mr. Massoumi's IRA and (iii) 43,750 shares +issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, 2018. +(10) Consists +of (i) 420,165 shares held by the Daly Family Trust, of which Dr. Daly is a trustee, (ii) 6,113 shares held by Dr. Daly's IRA, +(iii) 100 shares held by Dr. Daly's spouse; and (iv) 65,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within +60 days after August 30, 2018. +(11) Includes +40,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, +2018, +(12) Consists +of (i) 15,000 shares held directly by Mr. Thomas and (ii) 117,146 shares held by Mr. Thomas's Trust. +(13) Consists +of (i) 10,000 shares held by Mr. Williams' IRA; (ii) 8,146 shares held by Mr. Williams' family trust and (iii) 60,000 +shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after August 30, 2018. +(14) Includes +1,496,250 shares issuable upon exercise of options held by the executive officers and directors as a group that are currently exercisable or will become +exercisable within 60 days after August 30, 2018. +ADDITIONAL MATTERS +Transactions with Related Persons +Since April 1, 2015, other than the agreements and transactions described in "Item 11. Executive Compensation" in the Annual +Report and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved +exceeded or will exceed the lesser of $120,000 or the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of +more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We +previously subleased office space to Maxxess Systems, Inc. (" Maxxess "), one of our former subsidiaries that we sold in September +2003. The sublease terminated in September 2007, at which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which was subsequently amended and restated +on July 23, 2013, and extended on August 11, 2016 and +55 +Table of Contents +August 13, +2018. The amended and restated note bears interest at a rate of 6% per annum, compounded annually, with accrued interest payable annually on the first business day of each calendar +year. When authorized by the Company, Maxxess may pay down the balance of this note by providing consulting services to Iteris. We have previously fully reserved for amounts owed to us by Maxxess and +the outstanding principal balance remains fully reserved. As of March 31, 2018, approximately $146,000 of the original principal balance was outstanding and payable to Iteris. The note +currently matures +August 20, 2020. Maxxess is currently owned by an investor group that includes, among others, one former Iteris director, who has not been a director of Iteris since September 2013, and one +existing director of Iteris, who currently owns less than 2% of Maxxess' capital stock. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of +our securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Based solely on a review of copies of such forms +received with respect to Fiscal 2018 and the written representations received from certain reporting persons that no other reports were required, we believe that all directors, officers and persons +who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a). +Annual Report +A copy of our Annual Report, as amended (excluding the exhibits thereto), accompanies the proxy materials being mailed to all stockholders. The +Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the +SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the +exhibits thereto) is also available on the SEC's website at www.sec.gov. +Delivery of Documents to Stockholders Sharing an Address +Some street name holders of our common stock may be "householding" our proxy statements and annual reports, which means that we will deliver +only one copy of our proxy statement and annual report to multiple stockholders who share the same address (if they appear to be members of the same family), unless we have received instructions to +the contrary. This procedure reduces our printing costs, mailing costs and fees. Upon request, we will promptly deliver a separate copy of either document to you if you write us at our corporate +offices at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, +Santa Ana, CA 92705, Attention: Corporate Secretary. You may also contact us or your Nominee if you received multiple copies of the proxy materials and would prefer to receive a single +copy in the future. +Deadline for Receipt of Stockholder Proposals +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the +requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholder proposals may be eligible for inclusion in our proxy +statement for the 2019 Annual Meeting of Stockholders (the " 2019 Annual Meeting "). Stockholder proposals that are intended to be presented at our 2019 +Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than May 8, 2019. +If +a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a +candidate for election to the Board, the proposal or nomination must be received by us on or between June 13, 2019 +56 +Table of Contents +and +July 13, 2019. If the date of the 2019 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the 2019 Annual Meeting of Stockholders +(a situation that we do not anticipate), then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of +(i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain +these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In +addition, with respect to any proposal that a stockholder presents at the 2018 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 +under the Exchange Act, the proxy solicited by the Board for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under +Rule 14a-4 under the Exchange Act. +Stockholder +proposals must be in writing and should be addressed to our Corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, +Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our corporate Secretary and utilize +certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2019 Annual Meeting reserves the right to reject, rule out of order, or take other +appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +Other Matters +The Board is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this +proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board may recommend. Discretionary +authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF ITERIS, INC. +Santa Ana, California +September 6, 2018 +57 +Table of Contents +Appendix A +RESTATED CERTIFICATE OF INCORPORATION +OF +ITERIS, INC. +Iteris, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: +I. The +original certificate of incorporation of this corporation was filed with the Secretary of State of the State of Delaware on July 13, 1987 under the name +Odetics, Inc., and was restated on August 21, 2009. +II. The +restatement of the certificate of incorporation of the corporation, as heretofore amended or supplemented, has been duly approved by the directors of the +corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. +III. The +certificate of incorporation of the corporation, as heretofore amended or supplemented, is hereby restated to read in full as follows: +FIRST: The +name of the corporation is Iteris, Inc. (the "Corporation"). +SECOND: The +address of the registered office of the Corporation in the State of Delaware is 32 W. Loockerman Street, Suite 201, in the City of Dover, County of Kent. +The name of the Corporation's registered agent at that address is Registered Agent Solutions, Inc. +THIRD: The +purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law +of the State of Delaware. +FOURTH: +A. The +total number of shares of stock which the Corporation shall have authority to issue is 72,000,000, consisting of 70,000,000 shares of Common Stock, par value $0.10 +per share (the "Common Stock"), and 2,000,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"). +B. Shares +of Preferred Stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title +as shall be fixed by resolution of the Board of Directors of the Corporation (the "Board of Directors" or the "Board") prior to the issuance of any shares thereof. Each such class or series of +Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights, and such qualifications, +limitations or restrictions thereon, as shall be stated in such resolution providing for the issuance of such class or series of Preferred Stock as may be adopted from time to time by the Board of +Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. The Board of Directors is +further authorized to increase or decrease (but not below the number of shares of such +class or series then outstanding) the number of shares of any class or series subsequent to the issuance of shares of that class or series. +C. Common +Stock Voting Rights . The holder of each share of Common Stock shall have the right to one vote per share and shall be entitled to vote +upon such matters and in such manner as may be provided by law or by this Restated Certificate of Incorporation or by the Bylaws of the Corporation. +A-1 +Table of Contents +FIFTH: In +furtherance and not in limitation of the powers conferred by statute and subject to Article Sixth hereof, the Board of Directors is expressly authorized to adopt, +repeal, rescind, alter or amend in any respect the Bylaws with the exception that a bylaw specifying or changing a fixed number of directors or the maximum or minimum number of directors or changing +from a fixed to a variable board may be adopted only by approval of a majority of the outstanding shares of each class of common stock; provided, however, that an amendment reducing the number of +directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more +than 16-2/3% of the outstanding shares entitled to vote. +SIXTH: Notwithstanding +Article Fifth hereof, the Bylaws may be adopted, repealed, rescinded, altered or amended in any respect by the stockholders of the Corporation, or by +the affirmative vote of a majority of the voting power of all outstanding shares, regardless of class and voting together as a single voting class subject to the terms of Article Fourth hereof. +SEVENTH: The +business and affairs of the corporation shall be managed by and under the direction of the Board of Directors. Except as may otherwise be provided in this +Restated Certificate of Incorporation, the exact number of directors of the Corporation shall be determined from time to time by a Bylaw or amendment thereto. +EIGHTH: Directors +shall be elected at each annual meeting of stockholders and may be elected at any special meeting of stockholders called for that purpose, to serve until +the next annual meeting of stockholders and until their respective successors are elected, unless they shall sooner resign, become disqualified or disabled or be removed from office. A director or the +entire Board of Directors may be removed with or without cause by the affirmative vote of the holders of a majority of the securities entitled to vote for each director. A director may be removed for +cause by the Court of Chancery in a suit by stockholders holding at least 10% of the outstanding shares of any class. +Additional +directors elected pursuant to Article Fourth, Paragraph B hereof in connection with the rights to elect such additional directors under specified circumstances which +may be granted to the holders of any class or series of Preferred Stock shall serve for such term or terms and pursuant to such other provisions as are specified in the resolution of the Board of +Directors establishing such class or series. +At any meeting of stockholders at which directors may be elected, each director nominee shall be elected by an affirmative vote of a majority of the votes cast +with respect to such director nominee by the stockholders entitled to vote in the election at a meeting at which a quorum is present, unless the number of nominees exceeds the number of directors to +be elected, in which case each director nominee shall be elected by a plurality of the votes of the shares properly represented and entitled to vote in the election at such +meeting. In the event that a nominee is already a director of the Corporation and does not receive a majority of the votes cast with respect to such nominee in an election where the number of nominees +equals the number of directors to be elected, such nominee shall promptly tender his or her resignation to the Board of Directors for consideration. No stockholder shall have the right to cumulate +votes in the election of directors. +NINTH: Except +as may otherwise be provided pursuant to Article Fourth, Paragraph B hereof in connection with rights to elect additional directors under specified +circumstances which may be granted to the holders of any class or series of Preferred Stock, newly created directorships resulting from any increase in the number of directors, or any vacancies on the +Board of Directors resulting from death, resignation, removal or other causes, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less +than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the directorship which was newly created +or as to +A-2 +Table of Contents +which +the vacancy occurred and until such director's successor shall have been elected and qualified or until such director's death, resignation or removal, whichever first occurs. +TENTH: Except +as may otherwise be provided pursuant to Article Fourth, Paragraph B hereof in connection with rights to elect additional directors under specified +circumstances which may be granted to holders of any class or series of Preferred Stock, any director may be removed from office by the affirmative vote of a majority of the voting power of all +outstanding shares of stock entitled to vote in connection with the election of such director, regardless of class and voting together as a single voting class. +ELEVENTH: At +any meeting of stockholders, the stockholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if +demanded by any stockholder before the voting has begun. +TWELFTH: +A. The +Corporation shall indemnify to the full extent authorized or permitted by the General Corporation Law of the State of Delaware or any other applicable law as +presently or hereafter in effect any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that +he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other +corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other +than directors and officers may be entitled by law. No amendment or repeal of this Paragraph A of Article Twelfth shall apply to or have any effect on any right to indemnification provided +hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. +B. No +director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director +as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by Delaware law (i) for any breach of the director's duty of loyalty to the Corporation +or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the +General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Paragraph B +of Article Twelfth shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any act or omission of such director occurring +prior to such amendment or repeal. +C. In +furtherance and not in limitation of the powers conferred by statute: +(1) The +Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the +request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted +against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the +provisions of law; and +(2) The +Corporation may create a trust fund, grant a security interest or use other means (including, without limitation, letters of credit, surety bonds or other similar +arrangements), as well as enter into +contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to +A-3 +Table of Contents +any +or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. +THIRTEENTH: Special +meetings of the stockholders of the Corporation. for any purpose or purposes may be called at any time by a majority of the entire Board of Directors, by +the Chairman of the Board, by the President, or by one or more stockholders holding shares in the aggregate—entitled to-cast not less than 10% of the votes at the special meeting. Special +meetings may not be called by any other person or persons. Each special meeting shall be held at such date and time as is requested by the person or persons calling the meeting, within the limits +fixed by law. +FOURTEENTH: Meetings +of stockholders of the Corporation may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be +kept (subject to any provision of applicable law) outside the state of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws. +FIFTEENTH: The +Corporation may make loans to or guarantee the obligations of (i) its officers or directors only if such loan or guarantee, or an employee benefit plan +authorizing such loan or guarantee, is approved by the Corporation's stockholders, and (ii) to its officers only if such loan or guarantee is approved by its Board of Directors (excluding the +vote of interested directors) pursuant to a stockholder-approved bylaw provision. +SIXTEENTH: The +Corporation reserves the right to adopt, repeal, rescind, alter or amend in any respect any provision contained in this Restated Certificate of Incorporation +in the manner now or hereafter prescribed by applicable law, and all rights conferred on stockholders herein are granted subject to this reservation. +******* +A-4 +Table of Contents +APPENDIX B +ITERIS, INC. +2016 OMNIBUS INCENTIVE PLAN +(AMENDED AND RESTATED EFFECTIVE , 2018) +ARTICLE 1 +GENERAL PROVISIONS +1.1 PURPOSE OF THE PLAN +This +2016 Omnibus Incentive Plan (the " Plan ") is intended to promote the interests of Iteris, Inc., a Delaware corporation, by +providing eligible persons in the Corporation's service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for +them to remain in such service. +The +Plan serves as the successor to the Corporation's 2007 Omnibus Incentive Plan (the " Predecessor Plan "), and no further awards shall be +made under the Predecessor Plan on or after the Plan Effective Date. All awards outstanding under the Predecessor Plan on the Plan Effective Date shall remain outstanding under the Predecessor Plan +and shall be governed solely by the terms of the documents evidencing such award, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of +such awards. +Capitalized +terms shall have the meanings assigned to such terms in the attached Appendix. +1.2 TYPES OF AWARDS +Awards +may be made under the Plan in the form of (i) options, (ii) stock appreciation rights, (iii) stock awards, (iv) restricted stock units, (v) cash +incentive awards and (vi) dividend equivalent rights. +1.3 ADMINISTRATION OF THE PLAN +(a) The +Compensation Committee shall have sole and exclusive authority to administer the Plan with respect to Section 16 Insiders. Administration of the Plan with +respect to all other persons eligible to participate in the Plan may, at the Board's discretion, be vested in the Compensation Committee or a Secondary Board Committee, or the Board may retain the +power to administer those programs with respect to such persons. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the Plan +with respect to one or more classes of eligible persons (other than Section 16 Insiders) to one or more officers of the Corporation. +(b) Members +of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and may be removed by the Board at +any time. The Board may also at any time terminate the functions of any Secondary Board Committee and reassume all powers and authority previously delegated to such committee. +(c) Each +Plan Administrator shall, within the scope of its administrative functions under the Plan, have full authority to determine (i) which eligible persons are to +receive Awards under the Plan, (ii) the type, size, terms and conditions of the Awards to be made to each Participant, (iii) the time or times when those Awards are to be made, +(iv) the number of shares or amount of payment to be covered by each such Award, (v) the time or times when the Award is to become exercisable, (vi) the status of an option for +federal tax purposes, (vii) the maximum term for which an Award is to remain outstanding, (viii) the vesting and issuance schedules applicable to the shares which are the subject of the +Award, (ix) the cash consideration (if any) payable for those shares and the form (cash or shares of Common Stock) in which the Award is to be settled, (x) the +B-1 +Table of Contents +vesting +schedule for a cash incentive award, and (xi) with respect to performance—based Awards, the performance objectives for each such Award, the amounts payable at designated +levels of attained performance, any applicable service vesting requirements, and the payout schedule for each such Award. +(d) Each +Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to +establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the provisions of the +Plan and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and +binding on all parties who have an interest in the Plan under its jurisdiction or any Award thereunder. +(e) Service +as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service as Board members, and the members +of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Compensation Committee or the +Secondary Board Committee shall be liable for any act or omission made in good faith with respect to the Plan or any Award thereunder. +1.4 ELIGIBILITY +(a) The +persons eligible to participate in the Plan are as follows: +(i) Employees, +(ii) Non-Employee +Directors and non-employee members of the board of any Parent or Subsidiary, and +(iii) consultants +and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). +1.5 STOCK SUBJECT TO THE PLAN +(a) The +stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open +market. Subject to Section 1.5(h) and adjustment pursuant to Section 1.5(j), the number of shares reserved for issuance under the Plan shall be 5,903,602. The share reserve is comprised +of (i) the share reserve available on the Plan Effective Date (after taking into account Awards granted under the Predecessor Plan after July 22, 2016 and prior to the Plan Effective +Date), (ii) the 103,494 shares added to the Plan as a result of the expiration, cancellation, forfeiture or termination of Awards under the Predecessor Plan after the Plan Effective Date; and +(iii) the 2,400,000-share increase approved by the Board on August 6, 2018 subject to stockholder approval at the 2018 Annual Stockholders Meeting. +(b) Subject +to adjustment pursuant to Section 1.5(j), the maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under the +Plan shall be 5,903,602. +(c) The +maximum number of shares of Common Stock for which options and stock appreciation rights that are settled in shares may be granted to any person under the Plan in +any fiscal year shall not exceed 2,000,000 shares of Common Stock in the aggregate. +(d) The +maximum number of shares of Common Stock for which Awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person +under the +B-2 +Table of Contents +Plan +in any fiscal year shall not exceed 2,000,000 shares of Common Stock (which limit shall refer to the maximum amount that can be earned) in the aggregate. +(e) During +any fiscal year no Participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each twelve (12) months +in the performance period. +(f) The +maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards made to any +Non-Employee Director under the Plan in any fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such Non-Employee Director in respect +of such fiscal year, shall not exceed $250,000 in total value. +(g) The +number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section 1.5(a) shall be reduced on a one-for-one basis for each +share of Common Stock subject to an option or stock appreciation right and by a fixed ratio of 1.79 shares of Common Stock for each share of Common Stock subject to a Full Value Award. +(h) Shares +of Common Stock subject to outstanding Awards (including awards granted under the Predecessor Plan) shall be available for subsequent award and issuance under the +Plan to the extent those Awards expire, are forfeited or cancelled or terminate for any reason prior to the issuance of the shares of Common Stock subject to those Awards. Any shares that again become +available for Awards under the Plan pursuant to this Section shall be added as (i) one (1) share for every one (1) share subject to options or stock appreciation rights granted +under the Plan and the Predecessor Plan, (ii) as 1.79 shares for every one (1) share subject to Awards other than options or stock appreciation rights granted under the Plan and the +Predecessor Plan, and (iii) for each unvested share issued under the Plan and +the Predecessor Plan for cash consideration not less than the Fair Market Value per share of Common Stock on the date of grant and subsequently repurchased by the Corporation, at a price per share not +greater than the original issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan and Predecessor Plan, as applicable, one share shall become available for +subsequent award and issuance under the Plan. +(i) Should +the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option under the Plan (or any options granted under the +Predecessor Plan) be paid with shares of Common Stock (whether through the withholding of a portion of the otherwise issuable shares or through the tender of actual outstanding shares), then in each +such case, the shares so tendered or withheld shall be added to the shares of Common Stock available for grant under the Plan on a one-for-one basis. Upon the exercise of any stock appreciation right +under the Plan, the share reserve shall be reduced only by the net number of shares issued upon such exercise and not by the gross number of shares as to which such right is exercised. If shares of +Common Stock are withheld by the Corporation, or if shares of Common Stock are tendered by the Participant, in either case, in satisfaction of the withholding taxes incurred in connection with the +vesting or settlement of a Full Value Award (or an award other than a stock option or stock appreciation right that was granted under the Predecessor Plan), then in each such case the shares of Common +Stock so tendered or withheld shall be added to the shares of Common Stock available for issuance under the Plan in accordance with the ratio described in Sections 1.5(h) above. +(j) Should +any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off +transaction or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, or should the value of outstanding shares of Common Stock be +substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation, reincorporation or other reorganization, then +equitable +B-3 +Table of Contents +adjustments +shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for +which any one person may be granted options and stock appreciation rights that are settled in shares under the Plan in any fiscal year, (iii) the maximum number and/or class of securities for +which any one person may be granted Awards (other than options and stock appreciation rights that are settled in shares) under the Plan in any fiscal year, (iv) the maximum number and/or class +of securities that may be issued pursuant to Incentive Options, (v) the number and/or class of securities and the exercise or base price per share in effect under each outstanding Award under +the Plan and the consideration (if any) payable per share, and (vi) the number and/or class of securities subject to the Corporation's outstanding repurchase rights under the Plan and the +repurchase price payable per share. The adjustments shall be made in +such manner as the Plan Administrator deems appropriate and such adjustments shall be final, binding and conclusive. In addition, in the event of a Change in Control, the provisions of +Section 2.7 shall apply. +(k) Outstanding +Awards granted pursuant to the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or +business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +(l) Substitute +Awards shall not reduce the shares authorized for issuance under the Plan or the limitations on grants to a Participant under Section 1.5(c) or 1.5(d), +nor shall shares subject to a terminated, cancelled or forfeited Substitute Award be added to the shares available for issuance under the Plan as provided above. Additionally, in the event that a +company acquired by the Company or any Subsidiary (or Parent) or with which the Company or any Subsidiary (or Parent) combines has shares available under a pre-existing plan approved by stockholders +and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the +exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to +such acquisition or combination) may be used for Awards under the Plan and shall not reduce the shares authorized for issuance under the Plan (and shares subject to such Awards shall not be added to +the shares available for issuance under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the +terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Non-Employee Directors prior to such acquisition or combination. +For purposes of this section, " Substitute Awards " shall mean Awards granted or shares issued by the Company in assumption of, or in substitution or +exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary (or Parent) or with which the Company or +any Subsidiary (or Parent) combines. +ARTICLE 2 +AWARDS +2.1 OPTIONS +(a) Authority . The Plan Administrator shall have full power +and authority, exercisable in its sole discretion, to grant Incentive Options and Non-Statutory Options evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, +however, that the terms of each such agreement shall not be inconsistent with the terms specified below. Each agreement evidencing an Incentive Option shall, in addition, be subject to the provisions +of Section 2.1(f) below. +B-4 +Table of Contents +(b) Exercise Price . +(i) The +exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less than one hundred percent (100%) of +the Fair Market Value per share of Common Stock on the grant date. +(ii) The +exercise price shall be payable in one or more of the following forms as determined by the Plan Administrator and specified in the Award Agreement: +(A) cash +or check made payable to the Corporation, +(B) shares +of Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership) held for the requisite period (if any) necessary +to avoid any resulting charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, +(C) shares +of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with such withheld shares to be valued +at Fair Market Value on the exercise date, or +(D) to +the extent the option is exercised for vested shares of Common Stock, through a special sale and remittance procedure pursuant to which the Participant shall +concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in compliance with the Corporation's +pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds +to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and +(b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale. +Except +to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. +(c) Exercise and Term of Options . Each option shall be +exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the Award Agreement evidencing the option, subject +to Section 2.9. However, no option shall have a term in excess of ten (10) years measured from the option grant date. +(d) Effect of Termination of Service . +(i) The +following provisions shall govern the exercise of any options that are outstanding at the time of the Participant's cessation of Service or death: +(A) Any +option outstanding at the time of the Participant's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be +determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. +(B) Any +option held by the Participant at the time of the Participant's death and exercisable in whole or in part at that time may be subsequently exercised by the personal +representative of the Participant's estate or by the person or persons to whom the option is transferred pursuant to the Participant's will or the laws of inheritance or by the Participant's +designated beneficiary or beneficiaries of that option. +B-5 +Table of Contents +(C) Should +the Participant's Service be terminated for Misconduct or should the Participant otherwise engage in Misconduct while holding one or more outstanding options, +then all of those options shall terminate immediately and cease to be outstanding. +(D) During +the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which the option is at the time +exercisable. No additional shares shall vest under the option following the Participant's cessation of Service except to the extent (if any) specifically authorized by the Plan Administrator in its +sole discretion pursuant to an express written agreement with the Participant. Upon the expiration of the applicable exercise period or (if earlier) +upon the expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not been exercised. +(ii) The +Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: +(A) extend +the period of time for which the option is to remain exercisable following the Participant's cessation of Service from the limited exercise period otherwise in +effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term; +(B) include +an automatic extension provision whereby the specified post-Service exercise period in effect for any option shall automatically be extended by an additional +period of time equal in duration to any interval within the specified post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such +option could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension result in the continuation of such option beyond the expiration +date of the term of that option; and/or +(C) permit +the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which +such option is exercisable at the time of the Participant's cessation of Service but also with respect to one or more additional installments in which the Participant would have vested had the +Participant continued in Service. +(e) Repurchase Rights . The Plan Administrator shall have +the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Participant exercise an option for unvested shares and subsequently cease Service while such +shares are unvested, the Corporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of +(i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall be exercisable +(including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing +such repurchase right. +(f) Incentive Options . The terms specified below shall be +applicable to all Incentive Options. Except as modified by the provisions of this Section 2.1(f), all the provisions of the Plan shall be applicable to Incentive Options. Options which are +specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section 2.1(f). +(i) Eligibility . Incentive Options may only be granted to Employees. +B-6 +Table of Contents +(ii) Dollar Limitation . The aggregate Fair Market Value of the shares of Common Stock +(determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) +may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). +To +the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of the foregoing limitations on the +exercisability of those options as Incentive Options, such options shall be deemed to become first exercisable in that calendar year on the basis of the chronological order in which they were granted, +except to the extent otherwise provided under applicable law or regulation. +(iii) 10% Stockholder . If any Employee to whom an Incentive Option is granted is a 10% +Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term +shall not exceed five (5) years measured from the option grant date. +2.2 STOCK APPRECIATION RIGHTS +(a) Authority . The Plan Administrator shall have full power +and authority, exercisable in its sole discretion, to grant stock appreciation rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms +of each such agreement shall not be inconsistent with the terms specified below. +(b) Types . Two types of stock appreciation rights shall be +authorized for issuance under this Section 2.2: (i) tandem stock appreciation rights (" Tandem Rights ") and (ii) stand-alone stock +appreciation rights (" Stand-alone Rights "). +(c) Tandem Rights . The following terms and conditions shall +govern the grant and exercise of Tandem Rights. +(i) One +or more Participants may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish, subject to +Section 2.9, to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for a distribution from the Corporation in an amount +equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Participant is at the time vested under the surrendered option (or +surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. +(ii) Any +distribution to which the Participant becomes entitled upon the exercise of a Tandem Right may be made in (i) shares of Common Stock valued at Fair Market +Value on the option surrender date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award Agreement. +(d) Stand-Alone Rights . The following terms and conditions +shall govern the grant and exercise of Stand-alone Rights: +(i) One +or more Participants may be granted a Stand-alone Right not tied to any underlying option. The Stand-alone Right shall relate to a specified number of shares of +Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish, subject to Section 2.9. In no event, however, may the Stand-alone Right have a +maximum term in excess of ten (10) years measured from the grant date. +(ii) Upon +exercise of the Stand-alone Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the +aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the aggregate base price in effect for those shares. +B-7 +Table of Contents +(iii) The +number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined by the Plan Administrator in +its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value per underlying share of Common Stock on the +grant date. +(iv) The +distribution with respect to an exercised Stand-alone Right may be made in (i) shares of Common Stock valued at Fair Market Value on the exercise date, +(ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement. +(v) The +holder of a Stand-alone Right shall have no stockholder rights with respect to the shares subject to the Stand-alone Right unless and until such person shall have +exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued upon the exercise of such Stand-alone Right. +(e) Post-Service Exercise . The +provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the Participant's Service shall be substantially the same as those set forth in Section 2.1(d) for +the options granted under the Plan, and the Plan Administrator's discretionary authority under Section 2.1(d)(ii) shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights. +2.3 STOCK AWARDS +(a) Authority . The Plan Administrator shall have full power +and authority, exercisable in its sole discretion, to grant stock awards either as vested or unvested shares of Common Stock, through direct and immediate issuances. Each stock award shall be +evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Consideration . +Shares +of Common Stock may be issued under a stock award for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: +(i) cash +or check made payable to the Corporation, +(ii) past +services rendered to the Corporation (or any Parent or Subsidiary); or +(iii) any +other valid consideration under the State in which the Corporation is at the time incorporated. +(c) Vesting Provisions . +(i) Stock +awards may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance as a bonus for Service rendered or may vest in one or more +installments over the Participant's period of Service and/or upon the attainment of specified performance objectives. The elements of the vesting schedule applicable to any stock award shall be +determined by the Plan Administrator and incorporated into the Award Agreement. +(ii) The +Plan Administrator shall also have the discretionary authority to structure one or more stock awards so that the shares of Common Stock subject to those Awards +shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the +time of the grant of the Award. +B-8 +Table of Contents +(iii) Should +the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under a stock award or should the performance +objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant +shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent, +the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair +Market Value of those shares at the time of cancellation. +(iv) The +Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the +cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant's +interest in the shares of Common Stock as to which the waiver applies. +(v) Any +new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to +receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off +transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to +(i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate, +unless and to the extent the Plan Administrator determines at the time to vest and distribute such securities or other property. Notwithstanding the provisions of this Section, cash dividends, stock +and any other property (other than cash) distributed as a dividend or otherwise with respect to any stock Award that vests based on achievement of Performance Goals shall be accumulated, subject to +restrictions and risk of forfeiture to the same extent as the underlying Award, and shall be paid at the time such restrictions and risk of forfeiture lapse. Equitable adjustments to reflect each such +transaction shall also be made by the Plan Administrator to the repurchase price payable per share by the Corporation for any unvested securities subject to its existing repurchase rights under the +Plan; provided the aggregate repurchase price shall in each instance remain the same. +2.4 RESTRICTED STOCK UNITS +(a) Authority . The Plan Administrator shall have the full +power and authority, exercisable in its sole discretion, to grant restricted stock units evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the +terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Terms . Each restricted stock unit award shall entitle +the Participant to receive the shares underlying that Award (or an amount based on the value of the shares) upon vesting or upon the expiration of a designated time period following the vesting of +those Awards. Payment of shares underlying a restricted stock unit Award may be deferred for a period specified by the Plan Administrator at the time the restricted stock unit is initially granted or +(to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. +Restricted stock units subject to performance vesting may also be structured so that the underlying shares are convertible into shares of Common Stock (or a payment based on the value of the shares), +but the rate at which each share is to so convert shall be based on the attained level of performance for each applicable performance objective. +B-9 +Table of Contents +(c) Vesting Provisions . +(i) Restricted +stock units may, in the discretion of the Plan Administrator, vest in one or more installments over the Participant's period of Service or upon the +attainment of specified performance objectives. +(ii) The +Plan Administrator shall also have the discretionary authority to structure one or more restricted stock unit awards so that the shares of Common Stock subject to +those Awards shall vest (or vest and become issuable) upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period +specified by the Plan Administrator at the time of the grant of the Award. +(iii) Outstanding +restricted stock units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for those +Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding Awards of restricted stock units as to +which the designated Performance Goals or Service requirements have not been attained or satisfied. +(d) Payment . Restricted stock units that vest may be +settled in (i) cash, (ii) shares of Common stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock, as determined by the +Plan Administrator in its sole discretion. +2.5 CASH INCENTIVE AWARDS +(a) The +Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant cash incentive awards. The Plan Administrator shall determine +the terms and conditions applicable to cash incentive awards, including the criteria for the vesting and payment of cash incentive awards. Cash incentive awards shall be based on such measures as the +Plan Administrator deems appropriate and need not relate to the value of shares of Common Stock. Cash incentive awards may, in the discretion of the Plan Administrator, vest in one or more +installments over the Participant's period of Service or upon the attainment of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by the Plan +Administrator at the time the Award is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance +with the requirements of Code Section 409A. +(b) The +Plan Administrator shall also have the discretionary authority to structure one or more cash incentive awards so that the awards shall vest upon the achievement of +pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. +(c) Outstanding +cash incentive awards units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for +those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding cash incentive awards as to which +the designated Performance Goals or Service requirements have not been attained or satisfied. +2.6 DIVIDEND EQUIVALENT RIGHTS +(a) Authority . The Plan Administrator shall have full power +and authority, exercisable in its sole discretion, to grant dividend equivalent rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided however, that the terms +of each such agreement shall not be inconsistent with the terms specified below. +B-10 +Table of Contents +(b) Terms . The dividend equivalent rights may be granted as +stand-alone awards or in tandem with other Awards made under the Plan, except dividend equivalent rights shall not be granted in connection with an option, stock appreciation right or cash incentive +award. The term of each dividend equivalent right award shall be established by the Plan Administrator at the time of grant, but no such award shall have a term in excess of ten (10) years. +(c) Entitlement . Each dividend equivalent right shall +represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of Common Stock), which is made per issued and +outstanding share of Common Stock during the term the dividend equivalent right remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to whom +a dividend equivalent right is granted, and that account shall be credited per dividend equivalent right with each such dividend or distribution made per issued and outstanding share of Common Stock +during the term of that dividend equivalent right remains outstanding. +(d) Timing of Payment . Payment of the amounts credited to +such book account may be made to the Participant either concurrently with the actual dividend or distribution made per issued and outstanding share of Common Stock or may be deferred for a period +specified by the Plan Administrator at the time the dividend equivalent right is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a +timely deferral election made in accordance with the requirements of Code Section 409A. In no event, however, shall any dividend equivalent right award made with respect to an Award subject to +performance-vesting conditions vest or become payable prior to the vesting of that Award (or the portion thereof to which the dividend equivalent right award relates) upon the attainment of the +applicable Performance Goals and shall accordingly be subject to cancellation and forfeiture to the same extent as the underlying Award. +(e) Form of Payment . Payment of the amounts due with +respect to dividend equivalent rights may be made in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock, as determined by the Plan +Administrator in its sole discretion and set forth in the Award Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into which the cash dividend or +distribution amounts are to be converted for purposes of the Participant's book account may be based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an +average of the Fair Market Value per share of Common Stock over a designated period, as determined by the Plan Administrator in its sole discretion. +2.7 EFFECT OF CHANGE IN CONTROL +Unless +otherwise provided in an Award Agreement, the following provisions shall apply with respect to Awards in the event of a Change in Control: +(a) In +the event of a Change in Control, each outstanding Award, as determined by the Plan Administrator in its sole discretion, may be (i) assumed by the successor +corporation (or parent thereof), (ii) canceled and substituted with an Award granted by the successor corporation (or parent thereof), (iii) otherwise continued in full force and effect +pursuant to the terms of the Change in Control transaction, or (iv) replaced with a cash retention program of the Corporation or any successor corporation (or parent thereof) which preserves +the spread existing on the unvested Award shares subject to the Award at the time of the Change in Control (the excess of the Fair Market Value of those shares over the aggregate purchase price +payable for such shares) and, subject to Section 2.7(c) below, provides for subsequent payout of that spread in accordance with the same exercise/vesting schedule applicable to those unvested +Award shares, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation subject to Code Section 409A. +B-11 +Table of Contents +(b) To +the extent an outstanding Award is not assumed, substituted, continued or replaced in accordance with Section 2.7(a), such Award shall automatically vest in +full immediately prior to the effective date of the Change in Control, unless the acceleration of such Award is subject to other limitations imposed by the Plan Administrator at the time of the grant +of the Award. The Plan Administrator in its sole discretion shall have the authority to provide that to the extent any such Award, as so accelerated, remains unexercised and outstanding on the +effective date of the Change in Control, such Award shall terminate and cease to be outstanding. The holder of such Award shall become entitled to receive, upon consummation of the Change in Control +and subject to Section 2.7(c), a lump sum cash payment in an amount equal to the product of (i) number of shares of Common Stock subject to such Award and (ii) the excess of +(a) the Fair Market Value per share of Common Stock on the date of the Change in Control over (b) the per share exercise price or purchase price in effect for such Award. However, any +such Award shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, if the Fair Market Value per share of Common Stock on the date of such +Change in Control is less than the per share exercise price or purchase price in effect for such Award. Notwithstanding the foregoing, if any Award is subject to a performance-vesting condition tied +to the attainment of one or more specified Performance Goals, and such Award is not to be so assumed, substituted, continued, or replaced, that Award shall vest immediately prior to the effective date +of the actual Change in Control transaction, based on actual performance as of the Change in Control, and the shares of Common Stock underlying the portion of the Award that vests on such accelerated +basis (if any) shall be issued in accordance with the applicable Award Agreement, unless such accelerated vesting is precluded by other limitations imposed in the Award Agreement. +(c) The +Plan Administrator shall have the authority to provide that any escrow, holdback, earn-out or similar provisions in the definitive agreement effecting the Change in +Control shall apply to any cash +payment made pursuant to Section 2.7(a) or Section 2.7(b) to the same extent and in the same manner as such provisions apply to a holder of a share of Common Stock. +(d) Immediately +following the consummation of the Change in Control, all outstanding Awards shall terminate and cease to be outstanding, except to the extent assumed by the +successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction. +(e) In +the event of any Change in Control, the Plan Administrator in its sole discretion may determine that all outstanding repurchase rights (i) are to be assigned +to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) are to be terminated and the +shares of Common Stock subject to those terminated rights are to immediately vest in full, unless such accelerated vesting is precluded by limitations imposed by the Plan Administrator at the time the +repurchase right is issued. +(f) Each +Award which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in +Control, to apply to the number and class of securities into which the shares of Common Stock subject to that Award would have been converted in consummation of such Change in Control had those shares +actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise or base price or cash consideration payable per share in +effect under each outstanding Award, provided the aggregate exercise or base price or cash consideration in effect for such securities shall remain the +same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities for which +Incentive Options may be granted under the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted Awards under the Plan per calendar year and +(v) the number and/or class of securities subject to +B-12 +Table of Contents +the +Corporation's outstanding repurchase rights under the Plan and the repurchase price payable per share. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash +consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the outstanding Awards under the Plan +and subject to the Plan Administrator's approval, substitute, for the securities underlying those assumed Awards, one or more shares of its own common stock with a fair market value equivalent to the +cash consideration paid per share of Common Stock in such Change in Control transaction, provided such common stock is readily traded on an established U.S. securities exchange or market. +(g) The +Plan Administrator shall have the discretion, exercisable either at the time an Award is granted or at any time while an Award remains outstanding, to structure such +Award so that (i) it shall automatically accelerate and vest in full (and any repurchase rights of the Corporation with respect to the unvested shares subject to that Award shall immediately +terminate) upon the occurrence of a Change in Control, whether or not such Award is to be assumed in the Change in Control or otherwise continued in effect or (ii) the shares subject to such +Award will automatically vest on an accelerated basis should the Participant's Service terminate by reason of an Involuntary Termination within a designated period following the effective date of any +Change in Control in which the Award is assumed or otherwise continued in effect and the repurchase rights applicable to those shares do not otherwise terminate. +(h) The +portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable +One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory +Option under the Federal tax laws. +2.8 REPRICING PROGRAMS +The +Plan Administrator shall not have the discretionary authority, except pursuant to Section 1.5(j), to (i) implement cancellation/regrant programs pursuant to which +outstanding options or stock appreciation rights under the Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise or base price per share, +(ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or base prices per share in excess of the then current Fair Market Value per share of Common Stock for +consideration payable in cash, other Awards, or in equity securities of the Corporation (except in the event of a Change in Control) or (iii) reduce the exercise or base price in effect for +outstanding options or stock appreciation rights under the Plan, in any case without stockholder approval. +2.9 MINIMUM VESTING +No +option or stock appreciation right may vest over a period of less than one year from the date of grant of the award. Notwithstanding the foregoing, up to 5% of the available shares of +Common Stock authorized for issuance under the Plan as of the Plan Effective Date may be issued pursuant to options or stock appreciation rights that vest (in full or in part) over a period of less +than one year from the date of grant of the awards (the " 5% Basket "). Any option or stock appreciation right granted under the Plan may vest in full or +in part upon death or disability of the Participant, or upon a Change in Control, under Section 2.7 or the applicable Award Agreement, and such vesting shall not count against the 5% Basket. +B-13 +Table of Contents +ARTICLE 3 +MISCELLANEOUS +3.1 DEFERRED COMPENSATION +(a) The +Plan Administrator may, in its sole discretion, structure one or more Awards (other than options and stock appreciation rights) so that the Participants may be +provided with an election to defer the compensation associated with those Awards for federal income tax purposes. Any such deferral opportunity shall comply with all applicable requirements of Code +Section 409A. +(b) The +Plan Administrator may implement a non-employee Board member retainer fee deferral program under the Plan so as to allow the non-employee Board members the +opportunity to elect, prior to the start of each calendar year, to convert the Board and Board committee retainer fees to be earned for such year into restricted stock units under the Plan that will +defer the issuance of the shares of Common Stock that vest under those restricted stock units until a permissible date or event under Code Section 409A. If such program is implemented, the Plan +Administrator shall have the authority to establish such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible distribution +events under Code Section 409A. +(c) To +the extent the Corporation maintains one or more separate non-qualified deferred compensation arrangements which allow the Participants the opportunity to make +notional investments of their deferred account balances in shares of Common Stock, the Plan Administrator may authorize the share reserve under the Plan to serve as the source of any shares of Common +Stock that become payable under those deferred compensation arrangements. In such event, the share reserve under the Plan shall be reduced on a share-for-share basis for each share of Common Stock +issued under the Plan in settlement of the deferred compensation owed under those separate arrangements. +3.2 TRANSFERABILITY OF AWARDS +The +transferability of Awards granted under the Plan shall be governed by the following provisions: +(a) Incentive Options . During the lifetime of the Participant, Incentive Options +shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant's death. +(b) Other Awards . All other Awards shall be subject to the same limitation on +transfer as Incentive Options, except that the Plan Administrator may structure one or more such Awards so that the Award may be assigned in whole or in part during the Participant's lifetime to one +or more Family Members of the Participant or to a trust established exclusively for the Participant and/or such Family Members, to the extent such assignment is in connection with the Participant's +estate plan or pursuant to a domestic relations order. The assigned portion of an Award may only be exercised (if applicable) by the person or persons who acquire a proprietary interest in the Award +pursuant to the assignment. The terms applicable to the assigned portion of the Award shall be the same as those in effect for the Award immediately prior to such assignment and shall be set forth in +such documents issued to the assignee as the Plan Administrator may deem appropriate. +(c) Beneficiary Designation . Notwithstanding the foregoing, a Participant may, to +the extent permitted by the Plan Administrator, designate one or more persons as the beneficiary or beneficiaries of some or all of his or her outstanding Awards, and those Awards shall, in accordance +with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant's death while holding those Awards. Such beneficiary or beneficiaries shall take the +transferred Awards subject to all the terms and conditions of the applicable agreement evidencing each such transferred Award, including (without limitation) the limited time period during which the +Award may be exercised (if applicable) following the Participant's death. +B-14 +Table of Contents +3.3 STOCKHOLDER RIGHTS +A +Participant shall not have any of the rights of a stockholder with respect to shares of Common Stock covered by an Award until the Participant becomes the holder of record of such +shares. However, a Participant may be granted the right to receive dividend equivalents under Section 2.6 with respect to one or more outstanding Awards. +3.4 TAX WITHHOLDING +(a) The +Corporation's obligation to deliver shares of Common Stock upon the exercise, issuance or vesting of an Award under the Plan shall be subject to the satisfaction of +all applicable tax withholding requirements. +(b) The +Plan Administrator may, in its discretion, provide Participants to whom Awards are made under the Plan with the right to use shares of Common Stock in satisfaction +of all or part of the Withholding Taxes to which such holders may become subject in connection with the issuance, exercise, vesting or settlement of those Awards or the issuance of shares of Common +Stock thereunder. Such right may be provided to any such holder in either or both of the following formats: +(i) Stock Withholding : The election to have the Corporation withhold, from the shares of Common +Stock otherwise issuable upon the issuance, exercise, vesting or settlement of such Award or the issuance of shares of Common Stock thereunder, a portion of those shares with an aggregate Fair Market +Value at the time of delivery equal to the percentage of the Withholding Taxes based on the minimum required tax withholding rate for the Participant, or such other rate as determined by the Plan +Administrator. +(ii) Stock Delivery : The election to deliver to the Corporation, at the time of the issuance, +exercise, vesting or settlement of such Award, one or more shares of Common Stock previously acquired by such individual (other than in connection with the exercise, share issuance or share vesting +triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the individual. +3.5 SHARE ESCROW/LEGENDS +Unvested +shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the +Participant with restrictive legends on the certificates evidencing those unvested shares. +3.6 EFFECTIVE DATE AND TERM OF THE PLAN +(a) The +Plan became effective on the Plan Effective Date. +(b) The +Plan was amended and restated by the Board on August 6, 2018, subject to stockholder approval at the 2018 Annual Stockholder Meeting to increase the share +reserve and make certain clarifications +regarding the Plan Administrator and its authority. In no event shall any changes made pursuant to this amendment and restatement apply to any Award that was outstanding on November 2, 2017 and +intended to qualify as performance—based compensation under Section 162(m) of the Code to the extent such change would constitute a material modification of the Award. +(c) The +Plan shall terminate upon the earliest to occur of (i) the date immediately preceding the tenth anniversary of +the Plan Effective Date, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully vested shares, (iii) the termination of all outstanding +Awards in connection with a Change in Control, or (iii) the termination of the Plan by the Board. Should the Plan terminate under subsection (i) above, then all Awards outstanding at +B-15 +Table of Contents +that +time shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards. +3.7 AMENDMENT OF THE PLAN +(a) The +Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, subject to stockholder approval to the extent +required under applicable law or regulation or pursuant to the listing standards of the Stock Exchange on which the Common Stock is at the time primarily traded. However, no such amendment or +modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under the Plan unless the Participant consents to such amendment or modification. +(b) The +Compensation Committee shall have the discretionary authority to adopt and implement from time to time such addenda or subplans to the Plan as it may deem necessary +in order to bring the Plan into compliance with applicable laws and regulations of any foreign jurisdictions in which Awards are to be made under the Plan and/or to obtain favorable tax treatment in +those foreign jurisdictions for the individuals to whom the Awards are made. +(c) Awards +may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided no shares +shall actually be issued pursuant to those Awards until the number of shares of Common Stock available for issuance under +the Plan is sufficiently increased by stockholder approval of an amendment of the Plan authorizing such increase. If such stockholder approval is not obtained within twelve (12) months after +the date the first excess Award is made, then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding. +3.8 USE OF PROCEEDS +Any +cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. +3.9 REGULATORY APPROVALS +(a) The +implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock in connection with the issuance, exercise, +vesting or settlement of any Award under the Plan shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, +the Awards made under the Plan and the shares of Common Stock issuable pursuant to those Awards. +(b) No +shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements +of applicable securities laws, and all applicable listing requirements of any Stock Exchange on which Common Stock is then listed for trading. +3.10 NO EMPLOYMENT/SERVICE RIGHTS +Nothing +in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights +of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any +time for any reason, with or without cause. +3.11 RECOUPMENT +Participants +shall be subject to any clawback, recoupment or other similar policy required by law or regulations or adopted by the Board as in effect from time to time and Awards and any +cash, shares of +Common Stock or other property or amounts due, paid or issued to a Participant shall be subject to the terms of such policy, as in effect from time to time. +B-16 +Table of Contents +APPENDIX +The following definitions shall be in effect under the Plan: +(a) Award shall mean any of the following awards authorized for issuance or grant under the +Plan: options, stock appreciation rights, stock awards, restricted stock units, cash incentive awards and dividend equivalents. +(b) Award Agreement shall mean the written agreement(s) (which may be in electronic form) +between the Corporation and the Participant evidencing a particular Award made to that individual under the Plan, as such agreement(s) may be in effect from time to time. +(c) Board shall mean the Corporation's Board of Directors. +(d) Change in Control shall, with respect to each Award made under the Plan, be defined in +accordance with the following provisions: +(i) Change +in Control shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into +the Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Change in Control definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Change +in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions: +(A) consummation +of a merger, consolidation or other reorganization approved by the Corporation's stockholders, unless +securities representing at least fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or +indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation's outstanding voting securities immediately prior to such transaction, +(B) a +sale, transfer or other disposition of all or substantially all of the Corporation's assets, +(C) the +closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a "group" within the meaning of +Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or +is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period +ending with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities +possessing) more than fifty percent (50%) of the total combined voting power of the Corporation's securities (as measured in terms of the power to vote with respect to the election of Board members) +outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Corporation or the acquisition of +outstanding securities held by one or more of the Corporation's existing stockholders, or +(D) a +change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members ceases to be +comprised of individuals who either (A) have been Board members continuously since the beginning of such period (" Incumbent Directors ") or +(B) have been elected or nominated +B-A-1 +Table of Contents +for +election as Board members during such period by at least a majority of the Incumbent Directors who were still in office at the time the Board approved such election or nomination; provided that +any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent +Directors will be considered an Incumbent Director. +(e) Code shall mean the Internal Revenue Code of 1986, as amended. +(f) Common Stock shall mean the Corporation's Common Stock. +(g) Compensation Committee shall mean the Compensation Committee of the Board comprised of two +(2) or more non-employee Board members, each of whom is intended to qualify as a "non-employee director" (as defined in Rule 16b-3 under the Exchange Act), an "outside director" for +purposes of the qualified performance-based exception under Section 162(m) of the Code as in effect prior to January 1, 2018 and an "independent director" under the rules of any +securities exchange or automated quotation system on which the Common Stock is then listed, quoted or traded; provided that any action taken by the Compensation Committee shall be valid and effective, +whether or not one or more members of the Compensation Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this definition or +otherwise provided in the charter of the Compensation Committee. +(h) Corporation shall mean Iteris, Inc., a Delaware corporation, and any corporate +successor to all or substantially all of the assets or voting stock of Iteris, Inc. +(i) Employee shall mean an individual who is in the employ of the Corporation (or any Parent or +Subsidiary, whether now existing or subsequently established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. +(j) Exercise Date shall mean the date on which the Corporation shall have received written +notice of the option exercise. +(k) Fair Market Value per share of Common Stock on any relevant date shall be determined in +accordance with the following provisions: +(i) If +the Common stock is at the time traded on a Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of +regular hours trading (i.e., before after-hours trading begins) on date in question on the Stock Exchange serving as the primary market for the Common Stock, as such price is reported by the +National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange +on which the Common Stock is then primarily traded. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on +the last preceding date for which such quotation exists. +(ii) If +the Common Stock is at the time quoted on a national or regional securities exchange or market system (including over-the-counter markets and the Nasdaq Capital +Market) determined by the Plan Administrator to be the primary market for the Common Stock, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in +question, as such price is officially reported by such exchange or market system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be +the closing selling price of a share of Common Stock on the last preceding date for which such quotation exists. +B-A-2 +Table of Contents +(l) Family Member shall mean, with respect to a particular Participant, any child, stepchild, +grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. +(m) Full Value Award means an Award other than an option or stock appreciation right. +(n) Good Reason shall, with respect to each Award made under the Plan, be defined in accordance +with the following provisions: +(i) Good +Reason shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the +Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Good Reason definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Good Reason +shall mean an individual's voluntary resignation following one or more of the following without the individual's consent; (A) a change in his or her position with the Corporation (or any Parent +or Subsidiary) which materially reduces his or her duties, responsibilities or authority, (B) a material diminution in the duties, responsibilities or authority of the person to whom such +individual reports, (C) a material reduction in such individual's level of base compensation, with a reduction of more than fifteen percent (15%) to be deemed material for such purpose, or +(D) a material relocation of such individual's place of employment, with a relocation of more than fifty (50) miles to be deemed material for such purpose, provided, however, that a +resignation for Good Reason may be effected only after (i) the individual provides written notice to the Corporation of +the event or transaction constituting grounds for such resignation within sixty (60) days after the occurrence of that event or transaction, (ii) the Corporation fails to take the +requisite remedial action with respect to such event or transaction within thirty (30) days after receipt of such notice, and (iii) the individual resigns within thirty (30) days +after the expiration of the Corporation's cure period set forth in subsection (ii). +(o) Incentive Option shall mean an option which satisfies the requirements of Code +Section 422. +(p) Involuntary Termination shall, with respect to each Award made under the Plan, be defined in +accordance with the following provisions: +(i) Involuntary +Termination shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference +into the Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Involuntary Termination definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), +Involuntary Termination shall mean such individual's involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or such individual's +voluntary resignation for Good Reason. +(q) Misconduct shall, with respect to each Award made under the Plan, be defined in accordance +with the following provisions: +(i) Misconduct +shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the +Award Agreement for purposes of defining such term. +(ii) In +the absence of any other Misconduct definition in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award +B-A-3 +Table of Contents +Agreement), +Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or +trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or +Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss any Participant +or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to +constitute grounds for termination for Misconduct. +(r) 1934 Act shall mean the Securities Exchange Act of 1934, as amended. +(s) Non-Employee Director shall mean a non-employee member of the Board. +(t) Non-Statutory Option shall mean an option not an Incentive Option. +(u) Parent shall mean any corporation (other than the Corporation) in an unbroken chain of +corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or +more of the total combined voting power of all classes of stock in one of the other corporations in such chain. +(v) Participant shall mean any eligible person who is granted an Award under the Plan. +(w) Permanent Disability shall mean the inability of the Participant to engage in any +substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. +(x) Performance Goals shall mean any of the following performance criteria upon which the +vesting of one or more Awards under the Plan may be based: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, +taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; +(iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total +stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of +return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or +net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating +profit; (xvii) market share, (xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, +completion or attainment of key projects, product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; +(xxiv) development and implementation of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; +(xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession +planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added +performance measures); (xxxi) recruiting and maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development +or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation's revenue or profitability or enhance its +B-A-4 +Table of Contents +customer +base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Corporation's performance under one or +more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Corporation's business units or divisions or any Parent or +Subsidiary. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles +(" GAAP "), in accordance with accounting principles established by the International Accounting Standards Board (" IASB +Principles "), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP or under IASB Principles. Each applicable +Performance Goal may include a minimum threshold level of performance below which no Award will be earned, levels of performance at which specified portions of an Award will be earned and a maximum +level of performance at which an Award will be fully earned. Each applicable Performance Goal may be structured at the time of the Award to provide for appropriate adjustment for one or more of the +following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or other such +laws or provisions affecting reported results; (D) accruals for reorganization and restructuring +programs; (E) the operations of any business acquired by the Corporation; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any +corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Corporation) or reorganization; (H) restructurings, +discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate +structure or capital structure of the Corporation; (K) an event either not directly related to the operations of the Corporation, Parent, Subsidiary, division, business segment or business unit +or not within the reasonable control of management; (L) foreign exchange gains and losses; (M) a change in the fiscal year of the Corporation; (N) the refinancing or repurchase of +bank loans or debt securities; (O) unbudgeted capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares; +(Q) conversion of some or all of convertible securities to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accounting changes in accordance +with GAAP; (T) the effect of changes in other laws or regulatory rules affecting reported results; and (U) any other adjustment consistent with the operation of the Plan. +(y) Plan shall mean the Corporation's 2016 Equity Omnibus Plan, as set forth in this document. +(z) Plan Administrator shall mean the particular entity, whether the Compensation Committee, the +Board, the Secondary Board Committee or any delegate of the Board or the Compensation Committee authorized to administer the Plan with respect to one or more classes of eligible persons, to the extent +such entity is carrying out its administrative functions under the Plan with respect to the persons under its jurisdiction. +(aa) Plan Effective Date shall mean December 15, 2016, which is the date upon which the +Plan was first approved by the Corporation's stockholders. +(bb) Predecessor Plan shall mean the Corporation's 2007 Omnibus Incentive Plan. +(cc) Secondary Board Committee shall mean a committee of one or more Board members appointed by +the Board to administer the Plan with respect to eligible persons other than Section 16 Insiders. +(dd) Section 16 Insider shall mean an officer or director of the Corporation subject to +the short-swing profit liabilities of Section 16 of the 1934 Act. +B-A-5 +Table of Contents +(ee) Service shall, with respect to each Award made under the Plan, be defined in accordance +with the following provisions: +(i) Service +shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award +Agreement for purposes of defining such term. +(ii) In +the absence of any other definition of Service in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award +Agreement), Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an +Employee, a Non-Employee Director or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Award. For purposes of this particular +definition of Service, a Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) the Participant no longer performs services in +any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which the Participant is performing such services ceases to remain a Parent or Subsidiary +of the Corporation, even though the Participant may subsequently continue to perform services for that entity. +(iii) Service +shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that should +such leave of absence exceed three (3) months, then for purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the +Participant's Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Participant is provided with the right to return to Service +following such leave either by statute or by written contract. Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation's written policy +on leaves of absence, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence. +(ff) Stand-alone Rights shall have the meaning set forth in Section 2.2. +(gg) Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select +Market or the New York Stock Exchange. +(hh) Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of +corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent +(50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. +(ii) Tandem Rights shall have the meaning set forth in Section 2.2. +(jj) 10% Stockholder shall mean the owner of stock (as determined under Code +Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). +(kk) Withholding Taxes shall mean the applicable federal, state and foreign income and +employment withholding taxes and other payments to which the holder of an Award under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award. +B-A-6 +PROXY – ITERIS, INC. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stock holder of ITERIS, INC. (“Iteris” or the “Company”) hereby appoints JOE BERGERA and ANDREW SCHMIDT , and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held on October 11 , 201 8 at 10:00 a.m. Pacific Time, at the Company’s offices located at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA, 92705, and at any adjournments or postponements thereof, and to vote all shares of common stock of the Company held of record by the undersigned on August 30 , 201 8 , with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy. +The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof. +THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED OR , IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL ONE , “FOR” EACH OF THE OTHER PROPOSALS, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. +Electronic Voting Instructions +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. +Proxies submitted by the Internet or the telephone must be received by 1:00 a.m., PDT, on October 11, 2018. +Vote by Internet +· Go to www.envisionreports.com/ITI +· Or scan the QR code with your smartphone. +· Follow the steps outlined on the secure website. +Vote by Internet +· Call toll-free 1-800-652-VOTE (8683) within the USA, US territories and Canada on a touch tone telephone +· Follow the instructions provided by the recorded message. +Using a black ink pen, mark our votes with an X as shown in this example. Please do not write outside of the designated areas. Please mark votes s in this example. +x +Annual Meeting Proxy Card +IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE +A. Proposals: The Board of Directors recommends a vote “FOR” the nominees listed in Proposal 1 and “FOR” Proposals 2, 3, 4 and 5. +1. To elect the following persons to the Board of Directors of ITERIS, each to hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified: +01 +Joe Bergera +For o +Against o +Abstain o +05 +Laura L. Siegal +For o +Against o +Abstain o +02 +Kevin C. Daly, Ph.D. +For o +Against o +Abstain o +06 +Thomas L. Thomas +For o +Against o +Abstain o +03 +Scott E. Deeter +For o +Against o +Abstain o +07 +Mikel H. Williams +For o +Against o +Abstain o +04 +Gerard M. Mooney +For o +Against o +Abstain o +2. To approve the amendment and restatement of the 2016 Omnibus Incentive Plan +For o +Against o +Abstain o +3. To approve the amendment of the Company’s Restated Certificate of Incorporation to eliminate cumulative voting in the elections of directors +For o +Against o +Abstain o +4. To approve the amendment of the Company’s Restated Certificate of Incorporation to adopt a majority voting standard for uncontested director elections +For o +Against o +Abstain o +5. To ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2019 +For o +Against o +Abstain o +B. Non-Voting Items +Change of Address – Please print your new address below. +Comments – Please print your comments below. +Meeting Attendance +Mark the box to the right if you plan to attend the Annual Meeting +o +C. Authorized Signatures – This section must be completed for your vote to be counted. – Date and Sign Below +This Proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title. +Date (mm/dd/yyyy) – Please print date below +Signature 1 – Please keep signature within the box +Signature 2 – Please keep signature within the box +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A, B, AND C +ON BOTH SIDES OF THIS CARD \ No newline at end of file diff --git a/raw/proxies/0000350868/0001047469-18-005916/proxy_rpt.txt b/raw/proxies/0000350868/0001047469-18-005916/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..131e46c98673d04060079f29a9c38a8541e24f85 --- /dev/null +++ b/raw/proxies/0000350868/0001047469-18-005916/proxy_rpt.txt @@ -0,0 +1,18 @@ +Transactions with Related Persons +Since April 1, 2015, other than the agreements and transactions described in "Item 11. Executive Compensation" in the Annual +Report and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved +exceeded or will exceed the lesser of $120,000 or the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of +more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We +previously subleased office space to Maxxess Systems, Inc. (" Maxxess "), one of our former subsidiaries that we sold in September +2003. The sublease terminated in September 2007, at which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which was subsequently amended and restated +on July 23, 2013, and extended on August 11, 2016 and +55 +Table of Contents +August 13, +2018. The amended and restated note bears interest at a rate of 6% per annum, compounded annually, with accrued interest payable annually on the first business day of each calendar +year. When authorized by the Company, Maxxess may pay down the balance of this note by providing consulting services to Iteris. We have previously fully reserved for amounts owed to us by Maxxess and +the outstanding principal balance remains fully reserved. As of March 31, 2018, approximately $146,000 of the original principal balance was outstanding and payable to Iteris. The note +currently matures +August 20, 2020. Maxxess is currently owned by an investor group that includes, among others, one former Iteris director, who has not been a director of Iteris since September 2013, and one +existing director of Iteris, who currently owns less than 2% of Maxxess' capital stock. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-20-086704/proxy.txt b/raw/proxies/0000350868/0001104659-20-086704/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..cff62b3b03e4f488bce13b5d6b229f4dee741f79 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-20-086704/proxy.txt @@ -0,0 +1,1553 @@ +DEF 14A +1 +tm2025323-1_def14a.htm +DEF 14A +tm2025323-1_def14a - none - 5.937728s +TABLE OF CONTENTS +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No.   ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant ☐ +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ +No fee required. +☐ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +☐ +Fee paid previously with preliminary materials. +☐ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD SEPTEMBER 10, 2020 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 10, 2020 at 2:00 p.m. Pacific Time, held exclusively online by means of a live webcast over the Internet at www.meetingcenter.io/287381059, for the following purposes, as more fully described in the proxy statement accompanying this notice: +1. +To elect J. Joseph (“Joe”) Bergera, Anjali Joshi, Gerard M. Mooney, Luke P. Schneider, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank to the Board of Directors, each to hold such office until the next annual meeting of stockholders and until his or her successor is elected and qualified. +2. +To conduct an advisory vote to approve the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +3. +To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2021. +4. +To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements thereof. +All stockholders are cordially invited to attend the Annual Meeting virtually this year. There will be no physical in-person meeting location for the Annual Meeting. All stockholders of record as of the close of business on July 20, 2020 are entitled to notice of and to vote at the Annual Meeting, and at any and all postponements or adjournments thereof. It is important that all of our stockholders be represented at our Annual Meeting. Whether you plan to attend the Annual Meeting virtually or not, we urge you to vote your shares by submitting your proxy as soon as possible. Submitting your proxy card or voting instruction form does not affect your right to vote during the Annual Meeting if you attend the Annual Meeting virtually. Also, if you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. Please note that stockholders who wish to submit questions at the Annual Meeting must do so in advance. You will find instructions for how to submit such questions in this proxy statement. +Santa Ana, California +July 27, 2020 +BY ORDER OF THE BOARD OF DIRECTORS +Joe Bergera +Chief Executive Officer +YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY PROXY PRIOR TO THE MEETING. IF YOU CHOOSE TO VOTE BY MAIL, PLEASE DO SO PROMPTLY TO ENSURE YOUR PROXY ARRIVES IN SUFFICIENT TIME. +TABLE OF CONTENTS +TABLE OF CONTENTS +Page +Notice of the Annual Meeting of Stockholders +Questions and Answers About the Annual Meeting and Voting +1 +Proposal 1: Election of Directors +7 +Director Nominees +8 +Corporate Governance, Board Meetings and Committees +10 +Criteria for Director Candidate Qualifications +12 +Selection Process for Nomination of Director Candidate +13 +Director Tenure and Refreshment +14 +Risk Oversight Role +15 +Director Compensation +17 +Compensation Committee Interlocks and Insider Participation +19 +Proposal 2: Advisory Vote Regarding Executive Compensation +20 +Executive Officers +21 +Executive Compensation and Other Information +22 +Executive Compensation +22 +Fiscal 2020 Business Results Summary +22 +Fiscal 2020 Executive Compensation Results Overview +22 +Characteristics of our Executive Compensation Program +24 +Impact of 2019 Say-on-Pay Vote +24 +Compensation Philosophy and Objectives +25 +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +25 +Peer Groups +26 +Compensation Components and Structure +27 +Benefit Plans +31 +Incentive Compensation Clawback Policy +31 +Policy against Hedging and Pledging +31 +Compensation Risk Assessment +32 +Tax Deductibility of Executive Compensation +32 +Accounting for Stock-Based Compensation +32 +Compensation Committee Report +33 +Executive Compensation Tables +34 +Summary Compensation Table +34 +Fiscal 2020 Grant of Plan-Based Awards Table +35 +Outstanding Equity Awards at 2020 Fiscal Year End +36 +Fiscal 2020 Option Exercises and Stock Vesting Table +36 +Potential Payments upon Termination of Employment and Change in Control +37 +Indemnification of Directors and Officers +39 +Equity Compensation Plan Information +40 +Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm +41 +Matters Related to Independent Registered Public Accounting Firm +42 +Fees Paid to Independent Registered Public Accounting Firm +42 +i +TABLE OF CONTENTS +Page +Audit Committee Pre-Approval Policies and Procedures +42 +Audit Committee Report +42 +Stock Ownership of Certain Beneficial Owners and Management +44 +Environmental, Social, Governance and Related Matters +46 +Additional Matters +46 +Transactions with Related Persons +46 +Delinquent Section 16(a) Reports +46 +Annual Report +47 +Delivery of Documents to Stockholders Sharing an Address +47 +Deadline for Receipt of Stockholder Proposals +47 +Other Matters +48 +ii +TABLE OF CONTENTS +P +roxy S tatement +F or the 2020 A nnual M eeting of S tockholders +of I teris , I nc . to be H eld on S eptember 10, 2020 +The Board of Directors (the “Board”) of Iteris, Inc., a Delaware corporation (sometimes referred to as “Iteris,” the “Company,” “we,” “us,” or “our”), is soliciting your proxy for the Company’s 2020 Annual Meeting of Stockholders and any and all adjournments or postponements of such meeting (the “Annual Meeting”). Due to the coronavirus (“COVID-19”) pandemic, for the safety of all of our people, including our stockholders, employees and their families, and taking into account recent federal, state and local guidance that has been issued, we have determined that the Annual Meeting will be held in a virtual-only meeting format, via the Internet, with no physical, in-person meeting. The Annual Meeting will be held at 2:00 p.m. Pacific Time on September 10, 2020, through the virtual meeting live webcast site located at www.meetingcenter.io/287381059. At our Annual Meeting, stockholders will be able to attend and vote by visiting www.meetingcenter.io/287381059. Please note that stockholders who wish to submit questions at the Annual Meeting must do so in advance. You will find instructions for how to submit such questions in this proxy statement. The approximate date on which this proxy statement and the enclosed proxy materials are first being released to the Company’s stockholders is July 27, 2020. Our principal executive offices are located at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +References in this proxy statement to fiscal years refer to the Company’s fiscal year ended March 31 of the referenced year. For example, “Fiscal 2019” refers to the fiscal year ended March 31, 2019, “Fiscal 2020” refers to the fiscal year ended March 31, 2020 and “Fiscal 2021” refers to the fiscal year ending March 31, 2021. +I +mportant N otice R egarding the A vailability of P roxy M aterials +This Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (the “Annual Report”) is available on the Internet by accessing www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders. Information on this website does not constitute part of this Proxy Statement and shall not be deemed incorporated by reference therein. +Q +uestions and A nswers A bout the A nnual M eeting and V oting +Who is soliciting this proxy and who will bear the cost of soliciting this Proxy Statement? +The enclosed proxy is being solicited by our Board of Directors. Iteris will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and nominees holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +1 +TABLE OF CONTENTS +Where and when will the Annual Meeting take place? +The Annual Meeting will be held virtually, on Thursday, September 10, 2020, at 2:00 p.m., Pacific Time, via the Internet at www.meetingcenter.io/287381059. The password is ITI2020. Online check-in will begin at 1:30 p.m., Pacific Time, to allow time for online check-in procedures. +At our virtual Annual Meeting, stockholders will be able to attend and vote via the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to ask questions and vote and submit your proxy in advance of the meeting by one of the methods described in these proxy materials. Please note that stockholders who wish to submit questions at the Annual Meeting must do so in advance of the Annual Meeting. You will find instructions for how to submit such questions below in this proxy statement. +How do I register to attend the Annual Meeting virtually on the Internet? +If you are a registered stockholder (i.e., you hold your shares directly in your name through our transfer agent, Computershare), you do not need to register to attend the Annual Meeting virtually on the Internet. Please follow the instructions on the notice or proxy card that you received. However, you will need to submit any questions you would like to ask at the Annual Meeting in advance. You will find instructions for how to submit such questions below in this proxy statement. +If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the Annual Meeting virtually on the Internet. +To register to attend the virtual Annual Meeting online by webcast you must submit proof of your proxy power (legal proxy) reflecting your Iteris holdings along with your name and email address to Computershare. Requests for registration must be labeled as “Legal Proxy” and be received no later than 2:00p.m., Pacific Time September 7, 2020 . +You will receive a confirmation of your registration by email after we receive your registration materials. +Requests for registration should be directed to us at the following: +By email : +Forward the email from your broker, or attach an image of your legal proxy, to legalproxy@computershare.com +By mail : +Computershare +Iteris Legal Proxy +P.O. Box 43001 +Providence, RI 02940-3001 +Why a virtual Annual Meeting format? +Due to the COVID-19 pandemic, for the safety of all of our people, including our stockholders, employees and their families, and taking into account recent federal, state and local guidance that has been issued, we have determined that the Annual Meeting will be held in a virtual-only meeting format, with no physical, in-person meeting. We are excited to embrace the latest technology to provide expanded access, enhanced communication and cost savings for our stockholders and the Company. +You will be able to attend the Annual Meeting online and vote during the Annual Meeting electronically by visiting www.meetingcenter.io/287381059. Please note that stockholders who wish to submit questions at the Annual Meeting must do so in advance of the Annual Meeting. You will find instructions for how to submit such questions below in this proxy statement. +2 +TABLE OF CONTENTS +What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website? +We will have technicians ready to assist you with any technical difficulties you may experience in accessing the virtual Annual Meeting. If you encounter any technical difficulties in accessing the virtual Annual Meeting during the check-in or meeting time, please call: +Tel # (Toll-free): 800-962-4284 +Tel # (Toll line): +1 781-575-3120 (International) +Who is entitled to vote at the Annual Meeting? +You are entitled to vote your shares of our common stock at the Annual Meeting if you owned the shares as of the close of business on July 20, 2020 (the “Record Date”). As of the Record Date, there were a total of 40,909,820 shares of our common stock outstanding and entitled to vote at the Annual Meeting. No shares of our preferred stock are currently outstanding. You are entitled to one vote for each share of common stock that you own. +What matters will be voted upon at the Annual Meeting and what are the Board of Director’s recommendations for the proposals? +The only matters that we currently expect will be voted on at the Annual Meeting are the following proposals, and the Board’s recommendation to you regarding such proposals is set forth opposite each proposal below: +Proposals +Board’s +Recommendation +1. Election of the Board of Directors. +✓ FOR each nominee +2. Approval, by advisory vote, of the compensation of our named executive officers, as described in this proxy statement. +✓ FOR +3. Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2021. +✓ FOR +The foregoing proposals are described in more detail in this proxy statement. +What if other matters come up at the Annual Meeting? +Other than the three items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If other matters are properly presented at the Annual Meeting, the persons designated in the proxy cards, Joe Bergera and Douglas L. Groves, will vote your shares in their discretion. +What constitutes a quorum for the Annual Meeting? +The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum for the transaction of business at such meeting. If you sign and return your proxy card or authorize a proxy to vote through the Internet or by telephone, your shares will be counted to determine whether we have a quorum even if you abstain or fail to vote as indicated in the proxy materials. If a quorum is not present at the scheduled time of the Annual Meeting, the Annual Meeting may be adjourned until a quorum is present. Both abstentions and broker non-votes (as described below) are counted for the purpose of determining the presence of a quorum. +What is the difference between holding shares as a stockholder of record and as a beneficial owner? +Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered to be the stockholder of record of such shares, and we are sending the notice and these +3 +TABLE OF CONTENTS +proxy materials directly to you. If you are a record stockholder, you should have received a proxy card with this proxy statement for you to use to vote your shares +Beneficial Owner. If your shares are held in a brokerage account or by a bank, trustee or other nominee (each a “Nominee”), you are considered the beneficial owner of shares held in street name, and the notice and proxy materials are being forwarded to you on behalf of your Nominee. As the beneficial owner, you have the right to direct your Nominee how to vote your shares. Your Nominee has enclosed a voting instruction form with this proxy statement for you to use in directing the Nominee how to vote your shares. +Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the Nominee who holds your shares giving you the right to vote the shares at the Annual Meeting. +How do I vote my shares? +You may vote your shares prior to the Annual Meeting in any one of the following ways: (i) by mail, (ii) electronically over the Internet or (iii) by telephone. If you are a stockholder of record, you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet or by telephone as described on your proxy card. If your shares are held in street name, in lieu of a proxy card, you should receive a voting instruction form from your Nominee by mail. The voting instruction form should indicate whether the Nominee has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. Stockholders who do not desire to vote over the Internet or by telephone may complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If you are a stockholder of record, you may also vote your shares electronically during the Annual Meeting over the Internet only. Shares held through a broker or nominee may be voted via the Internet only if you obtain a legal proxy from the broker or nominee that holds your shares giving you the right to vote the shares. Please go to www.meetingcenter.io/287381059, at the time of the meeting, have your control number available (which can be found on your proxy card form) and follow the instructions to participate in the virtual meeting. Those stockholders that held their shares in street name as of the Record Date will need to register prior to the meeting (see above question — “How do I register to attend the Annual Meeting virtually on the Internet?”). We recommend that you vote your shares in advance as described above to ensure your vote will be counted if you later decide not to attend the Annual Meeting. +Will I be able to submit a question during the Annual Meeting? +All stockholder questions for the Annual Meeting must be submitted in advance of the Annual Meeting by submitting them via Computershare meeting center website (www.meetingcenter.io/287381059) and entering your Computershare-issued control number (found on your proxy card form) and the meeting password ITI2020. All questions must be sent by 5:00 p.m., Pacific Time, on September 9, 2020. Stockholders will not be able to otherwise submit questions during the Annual Meeting. +What are broker non-votes and how are broker non-votes treated? +Broker non-votes occur when shares held in street name by a Nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the Nominee does not receive voting instructions from the beneficial owner, and (ii) the Nominee lacks discretionary authority to vote the shares. We will treat broker non-votes as follows: +• +Broker non-votes will not be treated as shares present and entitled to vote for purposes of any matter requiring the affirmative vote of a majority or other proportion of the shares present and entitled to vote (even though the same shares are considered present for quorum purposes and may be entitled to vote on other matters). Thus, a broker non-vote will not affect the outcome of the voting on a proposal for which the minimum affirmative vote required for approval of the proposal is a plurality or a majority (or some other percentage) of (i) the votes actually cast, or (ii) the shares present and entitled to vote. +4 +TABLE OF CONTENTS +• +Broker non-votes will have the same effect as votes against a proposal for which the minimum affirmative vote required for approval of the proposal is a majority (or some other percentage) of all shares outstanding and entitled to vote. +A Nominee only has discretionary authority to vote shares on a proposal that is considered a “routine” matter under applicable rules and related guidance. Proposal 3 for the ratification of the appointment of our independent registered public accounting firm is considered a “routine” matter and, accordingly, a Nominee has discretionary authority to vote shares on such proposal. The other proposals included in this proxy statement are considered “non-routine” matters. As such, a Nominee does not have discretionary authority to vote shares on such proposals. Accordingly, your shares may be voted on Proposal 3 if they are held in the name of a brokerage firm even if you do not provide the brokerage firm with voting instructions. Proposals 1 and 2 are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your brokerage firm, no vote for your shares will be cast with respect to these proposals and a broker non-vote will result for these shares. +What vote is required to elect a director? +For Proposal 1, you may vote “FOR” or “AGAINST” any director nominee or you may abstain from voting with respect to a director nominee’s election. In an uncontested director election, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee to be elected. As such, the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested director election (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. For purposes of the election of directors, abstentions and broker non-votes, if any, will be excluded from the vote and will not be counted in determining the outcome of a director’s election. +What happens if a majority of the votes cast are not voted in favor of a director nominee? +Pursuant to the procedures set forth in the Company’s bylaws, in the event that a nominee who is already a director of the Company does not receive a majority of the votes cast with respect to such nominee in an uncontested election of directors, such nominee is required to promptly tender his or her resignation to the Board for consideration. If a director’s resignation is not accepted, that director will continue to serve until our next annual meeting of stockholders and his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy. +What is the required vote for approval of Proposals 2 and 3? +For each of the other proposals, you may vote “FOR” or “AGAINST” the proposal or you may abstain from voting on the proposal. The approval of Proposals 2 and 3 will require the affirmative vote of a majority of the shares represented and entitled to vote at the Annual Meeting. For purposes of Proposals 2 and 3, broker non-votes will not affect the outcome of the voting on these proposals and abstentions will have the same effect as a vote against these proposals. +May I change my vote or revoke my proxy? +Yes. There are several ways in which you may revoke your proxy or change your voting instructions before the time of voting at the Annual Meeting, as follows: +• +Vote again by telephone or at the Internet website. +• +Transmit a revised proxy card or voting instruction form that is dated later than the prior one. +• +Stockholders of record may vote electronically during the Annual Meeting, at the Internet website. +• +Stockholders of record may notify the Company’s Corporate Secretary in writing that a prior proxy is revoked. +5 +TABLE OF CONTENTS +Please note that, in order to be counted, the revocation or change must be received by the Company prior to the close of the Annual Meeting on September 10, 2020. The latest-dated, timely, properly completed proxy that you submit to the Company, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for your shares and you subsequently submit a proxy card that is not properly signed and dated, then the previously recorded vote will stand. +Is cumulative voting permissible? +No. Cumulative voting is not permitted by our certificate of incorporation. +Will I have appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting? +No. You will not be entitled to appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting. +How will my shares be voted? +Any proxy that you submit and that is not revoked will be voted as you direct. If you are a stockholder of record and you indicate when voting through the Internet or by telephone that you wish to vote as recommended by our Board, or if you sign and return a proxy card without giving specific voting instructions, then the persons designated as proxy holders in the accompanying proxy cards will vote your shares as follows: +• +“FOR” the election of each of the persons nominated by the Board in Proposal 1. +• +“FOR” the approval, by advisory vote, of the compensation of our named executive officers, as described in this proxy statement. +• +“FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the fiscal year ending March 31, 2021. +If you are a beneficial owner of shares of our common stock and your Nominee does not receive instructions from you about how your shares are to be voted, then your Nominee will have the discretion to vote your shares on the “routine” matter being considered at the Annual Meeting, but will not be able to vote your shares on the “non-routine” matters being considered at the Annual Meeting, meaning that broker non-votes will result for these matters. +In the event any director nominee declines or is unable to serve as a director at the time of the Annual Meeting (which is not anticipated), the persons named in the enclosed proxy card will vote for the election of such person or persons as may be designated by the present Board. As to any other business or matters which might otherwise properly come before the Annual Meeting, the enclosed proxy grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting, as well as any procedural matters. We have not been notified by any stockholder of any intention to present a stockholder proposal at the Annual Meeting. +I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided instructions to the contrary. If you wish to receive a separate set of proxy materials now, please send your request to: Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, Attention: Corporate Secretary. A separate set of proxy materials will be sent promptly following receipt of your request. You may also contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Who will count the votes? +The inspector of election for the Annual Meeting, who is appointed by the Board, will count the votes. It is expected that a representative of our transfer agent will serve as the inspector of election. +6 +TABLE OF CONTENTS +P roposal 1: E lection of D irectors +Seven persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee (the “NCG Committee”), our Board selected and approved the following persons as nominees for election at the Annual Meeting: Joe Bergera, Anjali Joshi, Gerard M. Mooney, Luke P. Schneider, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank. Each nominee is currently a member of our Board and has agreed to serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the nominees named above. +We have no reason to believe that any of the director nominees will be unavailable to serve. In the event any of the director nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the proxy holders named in the enclosed proxy will exercise discretionary authority to vote for substitutes. +Voting Requirements +In May 2018, our Board approved an amendment to the Company’s bylaws to implement a majority voting requirement for uncontested elections of directors. As a result, in such elections, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee. This means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested election of directors (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. If the plurality voting standard applies, the available director seats will be filled with the candidates receiving the highest number of votes cast at such meeting. +Any director may resign at any time upon providing notice to the Company. Our Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to receive the requisite majority vote in an uncontested election must tender to the Board for its consideration his or her resignation from the Board and from all of the Board committees on which he or she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +7 +TABLE OF CONTENTS +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” each of the director nominees listed above. +Director Nominees +The table and narrative below set forth information as of July 24, 2020 regarding each director nominee, including the year they first became directors of Iteris, their business experience during at least the past five years, the public company boards on which they currently serve on or have served on during the past five years, and certain other biographical information. The NCG Committee believes that these persons have qualifications in competencies and expertise that are important to an effective board of directors, as further detailed in “Director Qualifications Matrix” under Corporate Governance, Board Meetings and Committees below. +Name +Age +Current Position(s) with Iteris +J. Joseph (“Joe”) Bergera +56 +Chief Executive Officer, President and Director +Anjali Joshi (3) +60 +Director +Gerard M. Mooney (1)(3) +66 +Director +Thomas L. Thomas (2)(3)(4) +71 +Chairman of the Board +Lucas (“Luke”) P. Schneider (2) +52 +Director +Laura L. Siegal (1)(2) +57 +Director +Dennis W. Zank (1) +65 +Director +(1) +Current member of the Audit Committee +(2) +Current member of the Compensation Committee +(3) +Current member of the Nominating and Corporate Governance Committee +(4) +Our bylaws provide that our Chairman of the Board is also an ex-officio member of each of our Board committees. +J. Joseph (“Joe”) Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive positions with Sage Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Prior to Sage Software, Mr. Bergera held senior roles at Infovista, Astrolink, MicroStrategy, and American Management Systems (acquired by CGI, Inc.). Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the Booth School of Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. +Anjali Joshi has served as a director of Iteris since June 2020. Until March 2019, Ms. Joshi served as Vice President of Product Management at Google, Inc. (“Google”), where she led Google’s product efforts focused on emerging markets. Prior to that, Ms. Joshi held various positions at Google from 2006 to 2016, including product development teams for Search and Image Search products, product management teams for Maps, Translate News and Global Infrastructure, and early efforts for Google Cloud and Fiber To The Home. Prior to Google, Ms. Joshi served as Executive Vice President of engineering for Covad Communications, Inc., a company providing voice and data communications products and services to consumers and businesses, from 1998 to 2003, and helped grow the company from a start-up to a public company. Before that, she held positions at AT&T Bell Labs, working in the areas of voice and high-speed data from 1990 to 1998. Since November 2019, Ms. Joshi has served as a board member of Lattice Semiconductor, a provider of low power FPGA solutions. Since September 2019, Ms. Joshi has served as a board member of MobileIron, a provider of mobile security solutions. Since July 2017, Ms. Joshi has served as a board member of The McClatchy Company, a publisher of newspapers and provider of digital marketing services, where she serves as a member of the compensation committee. She earned a bachelor’s +8 +TABLE OF CONTENTS +degree in electrical engineering from the Indian Institute of Technology, a master’s degree in computer engineering from the State University of New York at Buffalo, New York, and a master’s degree in management science from Stanford University. +Gerard M. Mooney has served as a director of Iteris since September 2013. Mr. Mooney retired from International Business Machines Corporation (“IBM”) in March 2014, after serving in a number of senior positions since 2000. Most recently, he served as the Vice President Strategy for IBM’s Public Sector from February 2012 until his retirement, as the General Manager, Global Smarter Cities for IBM from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from 2008 to November 2011. He served as Vice President of IBM’s Venture Capital Group from 2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company (“HP”) for six years, most recently as General Manager for New Business Initiatives related to technologies developed by HP Labs. Mr. Mooney joined HP from HP’s acquisition of Edge Emitter Technology (ETT), Inc., a development stage company commercializing a solid state print head device, where Mr. Mooney served as President. Mr. Mooney has extensive operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the intelligent transportation systems market. He previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search technology, cognitive intelligence, AI, data mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and cofounder of Swarm Intelligence LLC (formerly theinnovationexchange), which offers SaaS cognitive platforms. He received a B.A. degree in Philosophy from Mount Saint Mary’s College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. +Lucas (“Luke”) P. Schneider has served as a director of Iteris since July 2020. From August 2019 to July 2020, Mr. Schneider served as Chief Operating Officer of Wejo Ltd., an early-stage technology company focusing on connected vehicle data and analytics. From 2012 to December 2018, Mr. Schneider launched and served as the Chief Executive Officer and board member of Silvercar, Inc., an Austin, TX-based start-up focusing on consumer transportation mobility offerings using a proprietary technology platform, multiple vehicle fleets, and retail store operations. In 2017 Silvercar was acquired by Audi AG. From 2010 to 2012, Mr. Schneider served as Chief Technology Officer of Creative Kingdoms LLC, a motion-oriented sensing technology company in the live-action gaming space. Creative Kingdoms was acquired by Great Wolf Resorts in 2012. From 2007 through 2010 Mr. Schneider served as Chief Technology Officer of Zipcar, Inc., a car-sharing company, and founded its FastFleet division. From 2006 to its acquisition by Zipcar in 2007, Mr. Schneider served as Chief Technology Officer and Vice President of Strategy at Flexcar, Inc. a car sharing company. Prior to 2006, Mr. Schneider held various executive leadership positions in the early dot com era with companies including Verticalnet, B2eMarkets and consulting firm Pittiglio Rabin Todd & McGrath. Mr. Schneider began his career with Ford Motor Company, serving in multiple positions spanning product development, strategic planning, marketing and production operations. Mr. Schneider currently serves as a director of Plug Power Inc., which offers hydrogen and fuel cell technology solutions. He received a B.S. degree in Mechanical Engineering from University of Texas at Austin, and an M.S. degree in Industrial Administration from the Graduate School of Industrial Administration, known today as the David A. Tepper School of Business at Carnegie Mellon University. +Laura L. Siegal has served as a director of Iteris since May 2018. Ms. Siegal is currently Partner and Executive Vice President, Finance, at Acorn Growth Companies, a private equity firm focused on aerospace, defense and intelligence. From July 2013 to June 2019, Ms. Siegal was the Chief Financial Officer and a member of the board of directors at NEO Tech Inc., a manufacturer of products in the industrial, medical, and aerospace and defense markets. Prior to that, since 2000 Ms. Siegal served in various financial positions with Kratos Defense & Security Solutions, Inc. (“Kratos”) which was formerly Wireless Facilities Inc., including as its Principal Accounting Officer, Vice President and Corporate Controller from April 2006 to July 2013. Kratos is a publicly traded leading technology, intellectual property, proprietary product and system solution company that provides engineering, information technology and other technical services to government agencies. Throughout her career, she has held a variety of financial management positions in technology and consulting companies including Controller of MEC Analytical Systems. Since October 2019, Ms. Siegal has served as a director of Creation Technologies Ltd, a privately held company that provides end-to-end, scalable electronic manufacturing services to original equipment manufacturers and other +9 +TABLE OF CONTENTS +companies around the world. Ms. Siegal is a Certified Public Accountant and received a B.A. degree in Economics from the University of California, San Diego. +Thomas L. Thomas has served as a director of Iteris since 1999 and as our Chairman of the Board since 2016. Mr. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business to business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and as the first Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held various senior executive management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. From July 2017 to July 2019, Mr. Thomas served as Chairman of the Board of Directors of VIP Software Corporation, a provider of software solutions in the insurance industry. Since 2012, Mr. Thomas has served as a director of Accurate Group, which specializes in the appraisal and title services business where technology has been instrumental in redefining the transaction model for the industry. He has also served on the board of directors of infoGroup, Inc. from January 2009 to July 2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, FrontRange Solutions, IDS International, and Quofore International. +Dennis W. Zank has served as a director of Iteris since January 2020. From January 2012 until stepping down in September 2018, Mr. Zank served as Chief Operating Officer of Raymond James Financial, Inc. (“RJF”) responsible for domestic private client group businesses as well as many of RJF’s corporate, administrative and sales support departments. Prior to that, Mr. Zank served as President of Raymond James & Associates, a subsidiary of RJF, responsible for domestic employee channel private client business, from October 2002 to January 2012. Prior to that, Mr. Zank served in a number of financial and operational management positions with RJF and RJF subsidiaries, holding titles such as Executive Vice President of Operations and Administration, Sr. Vice President, Controller and Treasurer, since joining the RJF in 1978. Mr. Zank served on the Board of Directors of RJF from 1996 to 2002. From 2000 to 2006, Mr. Zank served on the board of directors of the Options Clearing Corporation. He also served on the board of directors of the National Securities Clearing Corporation, from 1994 to 1997. Mr. Zank has been actively involved in the Corporate Mentorship Program at the University of South Florida since inception over 25 years ago. Mr. Zank holds a bachelor’s degree in accounting from the University of South Florida and a M.B.A. from the University of Tampa. +Family Relationships +There are no family relationships among any of our directors or executive officers. +C orporate G overnance , B oard M eetings and C ommittees +Director Independence +Our policy is to have a majority of the directors qualify as “independent” under the standards established by The Nasdaq Stock Market (“Nasdaq”). The Board has determined that each of our directors, other than our Chief Executive Officer, Joe Bergera, satisfies the requirements for “independence” using the standards established by Nasdaq. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the +10 +TABLE OF CONTENTS +best interest of our company and stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board, including the Audit Committee, the Compensation Committee, the NCG Committee, and, until July 2020, the Finance and Strategy Committee. The Audit Committee, the Compensation Committee, and the NCG Committee each has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During Fiscal 2020, the Board and the various committees of the Board held the following number of meetings: Board of Directors — ten; Audit Committee — four; Compensation Committee — four; NCG Committee — two; and Finance and Strategy Committee — two. During Fiscal 2020, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of the standing committees of the Board on which such director served during that period. +Audit Committee. The current members of our Audit Committee are Ms. Siegal and Messrs. Mooney and Zank. Mr. Zank serves as the Chairman of this committee. The Board has determined that each member of the Audit Committee is “independent” under the standards established by both the Nasdaq rules and the SEC rules regarding audit committee members. The Board has identified Mr. Zank as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the Company’s accounting and financial reporting processes, the audits of our financial statements and the integrity of the Company’s audited financial statements and other financial reports; (b) the performance of the Company’s internal accounting, internal auditing, and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent auditors, and (d) the portions of our Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews and approves or disapproves related party transactions identified in Item 404 of SEC Regulation S-K and makes recommendations to the full Board regarding the same. +The Audit Committee meets privately with our independent registered public accounting firm from time to time, and such firm has unrestricted access to, and reports directly to, the Audit Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2021 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Ms. Siegal and Messrs. Thomas and Schneider. Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the Compensation Committee are to (a) evaluate officer and director compensation policies, goals, plans and programs; (b) oversee compensation programs and policies for all employees as they relate to the Company’s risk management; (c) determine the cash and non-cash compensation of our directors and “executive officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (d) review, and make recommendations to the Board with respect to the administration of, our equity-based and other incentive compensation plans for all employees; (e) evaluate the performance of our executive officers; (f) assist the Board in evaluating potential candidates for executive officer positions with the Company and oversee management succession planning; and (g) produce the committee report required by the applicable rules and regulations of the SEC and other regulatory bodies for inclusion in our annual proxy statements. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number of factors in +11 +TABLE OF CONTENTS +determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to each executive’s contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers and makes recommendations with respect to executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. The Compensation Committee retained Frederic W. Cook & Co., Inc., an independent compensation consultant (“FW Cook”), to advise on executive compensation. FW Cook did not provide any other services to us in Fiscal 2020 beyond its engagement as an advisor to the Compensation Committee on executive compensation matters. The Compensation Committee assessed the independence of FW Cook pursuant to SEC and Nasdaq rules and concluded that no conflict of interest existed that would have prevented FW Cook from serving as an independent consultant to the compensation committee currently or during Fiscal 2020. +Nominating and Corporate Governance Committee. The current members of the NCG Committee are Ms. Joshi and Messrs. Mooney and Thomas. Mr. Mooney serves as the Chairman of this committee. The Board has determined that each member of the NCG Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the NCG Committee are to assist the Board in (a) establishing the minimum qualifications for director nominees; (b) identifying and evaluating director nominees; (c) recommending to the Board candidates for the Annual Meeting of Stockholders or to fill any vacancies on the Board; and (d) developing and assessing corporate governance policies and making recommendations related to such policies to the Board. +Finance and Strategy Committee. For Fiscal 2020, the members of the Finance and Strategy Committee consisted of Dr. Daly and Messrs. Mooney and Thomas, with Dr. Daly serving as the Chairman of this committee. Dr. Daly served on the Finance and Strategy Committee until stepping down from the Board on March 31, 2020. The Finance and Strategy Committee held no meetings since the end of Fiscal 2020. In July 2020, the Board determined that the Finance and Strategy Committee was no longer necessary and decided to dissolve the Finance and Strategy Committee. The full Board will absorb the Finance and Strategy Committee’s purpose in its role regarding issues impacting the financial structure and strategic direction of the Company, including, but not limited to, revisions to our capital structure, mergers, acquisition and divestiture activities, as well as changes to the scope and mix of business. +Criteria for Director Candidate Qualifications +Our NCG Committee applies the same standards in considering director candidates submitted by stockholders as it does in evaluating other candidates, including incumbent directors. The identification and selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, and will be significantly influenced by the particular needs of the Board from time to time. As a result, there is no specific set of minimum qualifications, qualities or skills that are necessary for a nominee to possess, other than those that are necessary to meet U.S. legal, regulatory and Nasdaq listing requirements and the provisions of our Certificate of Incorporation, Bylaws and charters of the Board’s committees. However, the NCG Committee and the Board have identified the following skills and qualifications listed below as important criteria for membership on our Board: +➢ +Board Experience — Experience serving on public company boards of directors. +➢ +Data/Analytics — A demonstrated understanding of data and analytics, as well as the ability to commercialize the resulting processes, techniques and/or insights. +➢ +Diversity — Representation of gender, racial, ethnic and/or other diverse perspectives that expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, governments and other stakeholders worldwide. +➢ +Financial Sophistication — Past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which +12 +TABLE OF CONTENTS +results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. +➢ +Growth/Value Creation — Demonstrated experience in entrepreneurial growth and/or other transformational operating models resulting in measurable increase in stockholder value. +➢ +Mergers and Acquisitions (M&A) — Experience evaluating and leading acquisitions and other strategic transactions, with the ability to assess “build or buy” decisions, analyze the fit of a target with our strategy and culture, accurately value transactions, and evaluate operational integration plans. +➢ +Operating Leadership — Experience as a chief executive officer, president, chief operating officer or general manager leading an organization our size or bigger. +➢ +Product/Technology — Experience working in technology, resulting in knowledge of how to anticipate technological trends, generate disruptive innovation, and extend or create new business models. +➢ +SaaS/IaaS — Experience in software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and/or subscription-based, software-enabled service delivery models. +➢ +Sales and Marketing — Experience developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation. +➢ +Smart Mobility — Experience related to the application of cloud computing, artificial intelligence, advanced sensors, advisory services and/or managed services to the transportation sector, including mobility-as-a-service, connected and automated vehicles and/or transportation infrastructure. +Director Qualifications Matrix +The following matrix shows how the NCG Committee has applied our director qualifications to the director nominees and identifies areas of expertise and experience that may benefit the Board in the future and led to each nominee’s selection as a member of the Board, as well as gaps in those areas that may arise as directors retire. +Selection Process for Nomination of Director Candidates +The NCG Committee regularly reviews the composition of the Board, including the qualifications, expertise and characteristics that are represented in the current Board as well as the criteria it considers needed to support our long-term strategy. In its most recent search processes to add new directors to the Board, the NCG Committee has retained an independent search firm to identify and vet candidates. After an in-depth review of the candidates, the NCG Committee recommends candidates to the Board in accordance +13 +TABLE OF CONTENTS +with its charter, our Certificate of Incorporation and Bylaws and our criteria for director candidate qualifications described above. After careful review and consideration, the Board will nominate candidates for election, or re-election, at our annual meeting of stockholders. The Board may appoint a director to the Board during the course of the year to serve until the next meeting of stockholders. +Director Tenure and Refreshment +When recommending to the Board the slate of director nominees for election at our annual meeting of stockholders, the NCG Committee strives to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. The Board believes that refreshment is important to help ensure that Board composition is aligned with the needs of the Company as our business evolves over time, and that fresh viewpoints and perspectives are regularly considered. The Board also believes that over time directors develop an understanding of the Company and an ability to work effectively as a group. Because this provides significant value, a degree of continuity year-over-year is beneficial to stockholders and generally should be expected. All our directors are elected each year to hold office until the next annual meeting and until their successors are elected and qualified. Because tenure or age limits could cause the loss of experience or expertise important to the optimal operation of the Board, there are no absolute limits on the length of time that a director may serve. +Our nominees have average tenure on our Board of approximately 6 years, and the following table shows the range of tenures of our director nominees, evidencing the Board refreshment we have undertaken in recent years: +Years of Tenure +Directors +0 – 2 years +3 +2 – 5 years +2 +5+ years +2 +Stockholder Nomination of Director Candidates +The NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible +14 +TABLE OF CONTENTS +stockholders wishing to recommend a nominee must submit such recommendation in writing to the NCG Committee Chair, care of our Corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock and entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by certain committees of the Board, as described in the table below. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing (including cyber security risks); and how these risks are being managed. +15 +TABLE OF CONTENTS +Audit Committee +• +Focuses on financial risk of the Company +• +Reviews internal controls and the Company’s financial statements with the CEO, CFO and the external and internal auditors. +• +Oversees risks assessment and risk management (and its applicable processes) by management and our independent auditors relating to key financial, accounting and reporting policies. +• +Oversees the selection, appointment, retention, compensation, evaluation and performance of the work of the Company’s independent auditors. +• +Meets quarterly with CEO, CFO and the Company’s external independent auditors in executive session. +Compensation Committee +• +Oversees risks associated with our compensation policies and programs with respect to both executive compensation and compensation for all employees generally. +• +Utilizes external independent compensation consultant to assist in designing and reviewing compensation policies and programs, including the potential risks created by the policies and programs. +• +Assists Board in overseeing the Company’s executive management succession planning. +• +Oversees the process for conducting the annual risk assessment of the Company’s compensation programs and policies, including retaining, from time to time, third party consultants to assess risk. See “Compensation Risk Assessment” below. +Nominating and Corporate Governance Committee +• +Oversees risks relating to certain legal and regulatory compliance risks with respect to the Company’s corporate governance policies and standards. +• +Oversees compliance and risks related to Board structure, directors and director nominations. +• +Oversees risks related to compliance matters by reviewing on at least an annual basis issues and developments related to corporate governance. +• +Oversees risks related to the Company’s compliance with the listing standards and the Sarbanes/ Oxley Act. +Changes in Nominating Procedures +There have not been any material changes to the procedures by which security holders may recommend nominees to our Board that were implemented since we last disclosed such procedures. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can submit a written request to Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705; Attention: Corporate Secretary. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. For our 2019 annual meeting of stockholders, two of our then-current directors attended such meeting. +Policy against Hedging and Pledging +The Company does not currently have a policy against hedging or pledging in our equity securities by our officers, directors or employees. +16 +TABLE OF CONTENTS +D irector C ompensation +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for non-employee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are our employees are not compensated for their services as directors. +Board and Committee Retainers +For Fiscal 2020, annual cash compensation for non-employee directors was as follows: +Position +Annual +Retainer +Chairman of the Board +$ +65,000 +Non-Employee Director (other than the Chairman) +$ +35,000 +Additional retainers for each non-employee director who served on one or more Board committees in Fiscal 2020 were as follows: +Position +Annual +Retainer +Audit Committee +Chair +$ +12,000 +Member +$ +6,000 +Compensation Committee +Chair +$ +9,000 +Member +$ +4,500 +Nominating and Corporate Governance Committee +Chair +$ +4,000 +Member +$ +2,000 +Finance and Strategy Committee +Chair +$ +9,000 +Member +$ +4,500 +All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board and its committees, but they do not receive separate meeting fees. +17 +TABLE OF CONTENTS +Annual Equity Compensation +Non-employee directors are also eligible to receive periodic restricted stock units (“RSUs”) under the Company’s equity incentive plan then in effect. Each non-employee director shall be granted an annual RSU award upon approval of the grant by the Compensation Committee as soon as reasonably practicable following the annual meeting of stockholders at which such director is re-elected. The annual RSU grant to directors shall be worth approximately $40,000 based on the closing price of the Company’s common stock on the RSU grant date. Each RSU entitles the holder to receive one share of the Company’s common stock upon vesting of such unit. Each annual RSU generally vests on the date of the first annual stockholder meeting following the date of grant. If a non-employee director joins the Board in between annual stockholder meetings, such director will receive an RSU for a pro rata portion of the annual grant, which typically vests in full on the date of the first annual stockholder meeting following the date of grant. +2020 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2020 by each person who served as a non-employee director during that year: +Name +Fees Earned +or Paid in +Cash ($) (1) +Stock +Awards ($) (2) +Total ($) +Kevin C. Daly, Ph.D. (3) +$ +50,500 +$ +40,001 +$ +90,501 +Scott E. Deeter (4) +43,233 +40,001 +83,234 +Gerard M. Mooney +49,500 +40,001 +89,501 +Laura L. Siegal +38,967 +40,001 +78,968 +Thomas L. Thomas +79,256 +40,001 +119,257 +Mikel H. Williams (5) +36,750 +— +36,750 +Dennis W. Zank (6) +6,827 +25,683 +32,510 +(1) +Represents amounts earned by the directors based on the arrangements described above, which amounts have been prorated for directors who served on Board committees for less than a full term. +(2) +The dollar amounts shown represent the grant date fair value of restricted stock unit awards granted in Fiscal 2020 determined in accordance with ASC 718. For a discussion of valuation assumptions used in the calculations, see Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Part II, Item 7 in the Annual Report. +For each director, the number of units was determined by dividing $40,000 by $4.82, the closing sales price of the Company’s common stock on the grant date. At the end of Fiscal 2020, the above-listed directors held options for the following number of shares of common stock: Kevin C. Daly — 55,000; Scott E. Deeter — 0; Gerard M. Mooney — 40,000; Laura L. Siegal — 0; Thomas L. Thomas — 0; Mikel H. Williams — 0; and Dennis W. Zank — 0. At the end of Fiscal 2020, the above listed directors held RSUs for the following number of shares of common stock: Kevin C. Daly — 8,299; Scott E. Deeter — 8,299; Gerard M. Mooney — 8,299; Laura L. Siegal — 8,299; Thomas L. Thomas — 8,299; Mikel H. Williams — 0; and Dennis W. Zank — 4,855. +(3) +Dr. Daly stepped down from the Board on March 31, 2020. +(4) +Mr. Deeter stepped down from the Board on July 15, 2020 concurrently with the appointment of Mr. Schneider. +(5) +Mr. Williams stepped down from the Board on November 14, 2019. +(6) +Mr. Zank joined the Board in January 2020, accordingly, Mr. Zank earned pro-rated Board fees in Fiscal 2020. +18 +TABLE OF CONTENTS +Director Stock Ownership Guidelines +Pursuant to stock ownership guidelines adopted by the Board in February 2016 with a five-year phase-in period, non-employee members of the Board are required to own shares of Company common stock having a value equal to or greater than three times their annual cash Board retainer, which is currently set at $35,000 per year. Unexercised stock options do not count toward fulfillment of this ownership requirement. Each director will have until the later of (i) February 2021 and (ii) five years from the time he or she is elected to the Board, to meet the stock ownership guidelines. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of the Board or Compensation Committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or Compensation Committee. No interlocking relationship exists between any member of the Board and any member of the Compensation Committee (or other committee performing equivalent functions) of any other company. +19 +TABLE OF CONTENTS +P roposal 2: A dvisory V ote R egarding E xecutive C ompensation +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. Commonly known as a “say-on-pay” vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation policies and programs and the compensation paid to the named executive officers. +We are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution at the Annual Meeting: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved.” +The Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company’s executive compensation policies and practices are effective in achieving the Company’s goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives’ interests with those of the stockholders. +The vote on this proposal is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. +20 +TABLE OF CONTENTS +E xecutive O fficers +The table below sets forth certain information, as of July 24, 2020, regarding our executive officers. +Name +Age +Capacities in Which Served +J. Joseph (“Joe”) Bergera +56 +Chief Executive Officer, President and Director +Douglas L. Groves +58 +Chief Financial Officer, Senior Vice President of Finance and Secretary +Todd Kreter +60 +Senior Vice President and General Manager, Roadway Sensors +Ramin Massoumi +47 +Senior Vice President and General Manager, Transportation Systems +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Bergera appears earlier in this proxy statement. See “Proposal 1: Election of Directors.” +Douglas L. Groves has served as our Senior Vice President and Chief Financial Officer, since he joined on December 4, 2019. Mr. Groves has more than 30 years of unique and highly valuable experience. Most recently, he served as Vice President, Chief Financial Officer and Treasurer of Ducommun, Inc., through June 2019, having joined the company in January 2013. Through December 2012, he held the position of Corporate Vice President and Chief Information Officer at Beckman Coulter, following a series of financial roles at the company beginning in January 1998. Beckman Coulter was acquired by Danaher Corporation in February 2011. Prior to joining Beckman Coulter, Mr. Groves was corporate controller of a privately held civil engineering firm and senior auditor and consultant at Deloitte & Touche. Mr. Groves holds an M.B.A. from the University of Southern California and a B.S. degree in Accountancy from California State University, Long Beach. +Todd Kreter has served as our Senior Vice President and General Manager, Roadway Sensors since May 2014. Mr. Kreter served as our Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +Ramin Massoumi has served as our Senior Vice President and General Manager, Transportation Systems since March 2015. Mr. Massoumi joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June 2011 to March 2015. Mr. Massoumi also serves as a director of the Intelligent Transportation Society of America’s National and California State Chapter Boards of Directors and as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of California, Irvine. Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California, Irvine, and an M.S. degree in Engineering from the University of California, Berkeley, and an M.B.A. from the University of Southern California. +21 +TABLE OF CONTENTS +E xecutive C ompensation and O ther I nformation +Executive Compensation +The following is a summary of the compensation policies, plans and arrangements for our executive officers. This summary should be read in conjunction with the Summary Compensation Table and related disclosures set forth below. We are eligible to, and have chosen to, comply with the executive compensation disclosure rules applicable to a “smaller reporting company,” as defined in the applicable SEC rules, but we have also voluntarily included additional disclosure about our executive compensation program to help our stockholders understand our executive compensation program. This section discusses the principles underlying our compensation policies for our officers who are named in the “Summary Compensation Table” below, who we refer to as our “named executive officers” or “NEOs” for Fiscal 2020: +• +J. Joseph (“Joe”) Bergera, our Chief Executive Officer, President and Director; +• +Douglas L. Groves, our Chief Financial Officer, Senior Vice President of Finance and Secretary; and +• +Ramin Massoumi, our Senior Vice President and General Manager, Transportation Systems. +• +Andrew Schmidt, our former Chief Financial Officer, Vice President of Finance and Secretary. +Fiscal 2020 Business Results Summary +We are a provider of smart mobility infrastructure solutions. Municipalities, government agencies, and other transportation infrastructure providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. Our reportable segments consist of: Roadway Sensors, Transportation Systems, and, prior to May 5, 2020, Agriculture and Weather Analytics (“AWA”). During Fiscal 2020, we made significant progress across a range of financial and strategic dimensions, including the highlights below. +• +Reported Fiscal 2020 total revenue of $114.1 million, representing a 15% increase over the $99.1 million that we reported in Fiscal 2019; +• +Recorded total net bookings for Fiscal 2020 of $121.0 million, up 15% year over year (1) ; +• +Completed a subscribed public offering of 6,182,797 shares of our common stock in June 2019 that resulted in net proceeds of $26.8 million; +• +Completed the acquisition of Albeck Gerken, Inc. which enhanced our presence in Florida, a strategic geography, and contributed approximately $6.4 million of service revenue and approximately $1.7 million of net income; +• +Prepared for the transaction to sell the Company’s AWA business segment to DTN, LLC (“DTN”), which was closed on May 5, 2020 for a total purchase price of $12.0 million. DTN is an operating company of TBG AG, a Swiss-based holding company; and +• +Negotiated certain ancillary agreements with DTN that will provide us with ongoing access to weather and pavement data that it integrates into our transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in the global transportation market. +(1) +Net bookings is an operational measure representing the total dollar value of all definitive contracts executed during the relevant period, net of cancellations of previously authorized contract funding. +Fiscal 2020 Executive Compensation Results Overview +The Compensation Committee did not make any material changes to the named executive compensation program for Fiscal 2020 as compared to Fiscal 2019. As previously stated, the named executive compensation plan is composed of three elements; base salary, short-term annual incentive, and long-term equity incentive. The base salaries reflect the market for similar roles at similar companies. The short-term incentives have +22 +TABLE OF CONTENTS +specific targets tied to the company’s financial performance. Below is a summary of the results of our executive compensation program for Fiscal 2020: +• +In the first half of Fiscal 2020, after reviewing pay governance guidelines, receiving guidance from the Compensation Committee’s compensation consultant, FW Cook, reviewing prevailing compensation practices, and evaluating recent Company performance, the Compensation Committee approved the base salary increases for the named executive officers. These increases averaged 3.4% for our named executive officers. +• +Our named executive officers’ target bonuses for Fiscal 2020 remained unchanged from the target bonus levels in place during Fiscal 2019. Messrs. Bergera and Groves’ annual bonus targets were Iteris revenue and Iteris adjusted operating income. Because Mr. Massoumi leads the Transportation Systems business unit, he had four targets, including Iteris revenue, Iteris adjusted operating income, Transportation Systems revenue and Transportation Systems contribution margin. The annual cash performance bonuses for the named executive officers in Fiscal 2020 were earned at 56% of target for Messrs. Bergera and Groves, and 89% of target for Mr. Massoumi. The corporate bonus objectives for Messrs. Bergera and Groves paid out on the Iteris revenue target but missed the minimum threshold on the Iteris adjusted operating income target. Mr. Massoumi’s bonus paid out on both Transportation Systems revenue and Transportation Systems contribution margin targets (in addition to performance against the Iteris revenue). Individual performance against management performance objectives is also considered in determining the final annual bonus payouts. See “Fiscal 2020 Cash-Based Bonus Plan” table below for further details about results of our annual cash-based bonus program for Fiscal 2020. +• +The long-term incentive compensation program for named executive officers for Fiscal 2020 consisted of stock options that vest over four years at a rate of 25% per year, which was consistent with typical peer practices. +• +Commencing in Fiscal 2021, in response to stockholder feedback, the Company updated its long-term incentive compensation program to incorporate the use of performance-based restricted stock units (“PSUs”). +• +Commencing with Fiscal Year 2021, the Company has rebalanced management’s long-term incentive compensation to include a mix of stock options (50%), restricted stock units (“RSUs”) (25%), and PSUs (25%) (with percentages measured based on the awards’ grant date values, assuming target level achievement of applicable performance goals in the case of PSUs).See “Fiscal 2021 Long-Term Incentive Compensation Updates” below for further details about updates to the executive compensation plan for Fiscal 2021. +23 +TABLE OF CONTENTS +Characteristics of our Executive Compensation Programs +Our executive compensation programs include a number of practices intended to align the interests of management and our stockholders. +What We Have +What We Do Not Have ++ +We have approximately 68% of target direct compensation for the chief executive officer (and 53% of the other named executive officers) that is performance-based or is at-risk ++ +We have a performance-based long-term incentive plan commencing in Fiscal 2021 that utilizes PSUs, RSUs, and stock options ++ +We have a clawback policy in place for our annual and long-term incentive plans ++ +We have stock ownership guidelines in place for directors ++ +We have an independent compensation consultant to advise our Compensation Committee ++ +We have ongoing stockholder outreach efforts to obtain input on our compensation practices +✓ +We do not provide 280G excise tax gross-ups +✓ +We do not provide any pension or supplemental retirement benefits +✓ +We do not provide for any “single trigger” equity vesting for equity awards +✓ +We prohibit repricing options without shareholder approval +✓ +We prohibit granting stock options with an exercise price below 100% of fair market value +✓ +We do not provide any perquisites +Impact of 2019 Say-on-Pay Vote +The most recent stockholder advisory vote on named executive officer compensation required under the SEC rules was held on September 12, 2019. Approximately 72.4% of the total votes cast on such proposal (which excluded broker non-votes) were in favor of the compensation of our named executive officers. Based both on this result and the Board’s commitment to continue to strengthen the compensation plan for the Company’s named executive officers, the Compensation Committee evaluated and modified elements of the Company’s compensation plan to better align management’s long-term incentive compensation with stockholder interests. Specifically, the Company determined that, commencing in Fiscal 2020, a portion of long-term incentive compensation will be granted in the form of performance stock units (“PSUs”), which may be earned based on the achievement of certain financial performance and total stockholder return metrics. Prior to implementing these changes to our long-term incentive compensation, the Company invited several of our largest stockholders to provide comments on the proposed changes and accordingly made adjustments to the original proposal to reflect investor feedback prior to finalizing the plan structure. +As the Company continues to grow and mature, the Compensation Committee will continue to make appropriate adjustments to our management team’s long-term incentive compensation. Currently, based on the voting preference of the Company’s stockholders, advisory votes on executive officer compensation will be conducted every year. The Compensation Committee will continue to take into account each such advisory vote in order to determine whether any subsequent changes to the Company’s executive compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes. +24 +TABLE OF CONTENTS +Compensation Philosophy and Objectives +Our executive compensation plans and arrangements are overseen and administered by our Compensation Committee, which is comprised entirely of independent directors as determined in accordance with applicable Nasdaq and SEC rules. Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our stockholders. Based on this philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• +establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• +ensure that any cash incentive compensation programs for our named executive officers are aligned with our corporate strategies and business objectives by tying the potential payouts under such programs to the achievement of key strategic, financial and operational goals; and +• +utilize long-term equity awards to align interests between our named executive officers and stockholders. +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review each component of compensation as related but distinct. Although the Compensation Committee reviews total compensation, it has not adopted any formal guidelines for allocating total compensation between cash and equity compensation. We determine the appropriate level of each compensation component based in part, but not exclusively, on our retention goals and short-term and long-term objectives. +This review generally occurs in the first quarter of each fiscal year at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, reviews and approves any bonus awards and programs, establishes the performance objectives for our cash based bonus plan, and may grant equity compensation to the executive officers to ensure their interests are aligned with our stockholders and for retention. +In Fiscal 2020, the Compensation Committee retained the services of an independent compensation consulting firm, FW Cook, to advise on executive compensation. FW Cook provided the Compensation Committee with market data and analysis of our total direct compensation for such executive officer positions as compared with the competitive market. FW Cook reports only to the Compensation Committee and did not performed any other work for the Company during Fiscal 2020 beyond its services related to executive compensation. As provided in its charter, the Compensation Committee has the authority to determine the scope of FW Cook’s services and may terminate their engagement at any time. +As part of the review process, our Chief Executive Officer provides our Compensation Committee with recommendations as to the base salary, cash bonus potential and long-term equity incentive awards for each of our executive officers other than himself based on that officer’s level of responsibility, individual performance and contribution to the attainment of our strategic corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer’s recommendations into consideration in setting named executive officer compensation, but retains complete discretionary authority to make all compensation-related decisions for our named executive officers. Our Compensation Committee makes its compensation decisions with respect to the Chief Executive Officer on the basis of relevant market data furnished by a variety of sources and its subjective assessment of individual performance and contributions to our overall corporate performance. Any decisions regarding our Chief Executive Officer’s compensation are made without such officer present. +25 +TABLE OF CONTENTS +Peer Groups +The Compensation Committee benchmarks our compensation programs to a peer group, which consists of publicly-traded technology companies in the applications software, systems software, and technology hardware industry categories, that are similar in size, as measured by revenues and market capitalization. +As of October 1, 2019, when competitive analyses were conducted for Fiscal 2020, the peer revenues ranged from $55 million to $254 million, with a median of $104 million, which compared to Iteris’ revenues of $99 million. Market capitalization on October 1, 2019 for the peers ranged from $41 million to $936 million, with a median of $180 million, which compared to Iteris’ market capitalization of $219 million. +The Fiscal 2020 peer group consisted of the following companies (1) : +• +Agilysys, Inc. +• +AutoWeb, Inc. +• +Clearfield, Inc. +• +Digi International Inc. +• +Digital Turbine, Inc. +• +EMCORE Corporation +• +Intevac, Inc. +• +IntriCon Corporation +• +KVH Industries, Inc. +• +Majesco +• +MobileIron, Inc. +• +Napco Security Technologies, Inc. +• +OneSpan Inc. +• +PCTEL, Inc. +• +Perceptron, Inc. +• +RealNetworks, Inc. +• +SeaChange International, Inc. +• +Telenav, Inc. +• +TransAct Technologies Incorporated +• +Upland Software, Inc. +• +Zix Corporation +(1) +Three companies were acquired from the Fiscal 2019 peer group and thus were removed for Fiscal 2020. These companies were Aerohive Networks, Inc., Maxwell Technologies, Inc., and Quantenna Communications, Inc. +The Compensation Committee evaluates our compensation program versus that of the peer companies with respect to both individual pay levels as well as the structure of the program. The Compensation Committee uses this data primarily to ensure that our executive compensation program as a whole is competitive. Market data is one of several factors that is used to evaluate compensation levels. Other factors may include individual and company performance, experience in the role, responsibility level, and internal equity. +26 +TABLE OF CONTENTS +Compensation Components and Structure +We utilize four main components in structuring compensation programs for our named executive officers: +Pay Component +Rationale and Value to Stockholders +Base Salary +• +Only fixed compensation element in the executive compensation program +• +Recruit and retain executive talent and provide an element of economic security from year-to-year +• +Reflects competitive market conditions +Performance-Based Cash Bonus +(Short-Term Incentive Program) +• +Motivates achievement of strategic priorities for the fiscal year as measured by financial and operational metrics +• +Diversified group of metrics to drive growth and stockholder value +Equity Incentive Awards (Options, +RSUs and PSUs) (1) +• +Encourages focus on long-term stockholder value creation (and PSUs link compensation to achievement of specified corporate financial performance objectives) +• +Aligns to stockholders interests +• +Provides long-term retention incentive of our executive talent +(1) +Historically, the long-term incentive compensation for our named executive officers was largely in the form of stock options. Commencing in Fiscal 2020, the long-term incentive compensation component for our named executive officers will consist of stock options, RSUs and PSUs. For Fiscal 2020, the Company updated its long-term incentive compensation program to incorporate the use of performance-based PSUs. See “Fiscal 2021 Long-Term Incentive Compensation Updates” below for further details about updates to the executive compensation plan for Fiscal 2021. +We view each component of compensation as related but distinct. It is the practice of our Compensation Committee to allocate a substantial portion of each named executive officer’s total compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for its cash-based bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee determines the compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual’s performance and contribution to our financial performance and the other factors identified in the “Annual Review of Cash and Equity Compensation” section above to determine the appropriate level and balance of total compensation. We believe that this approach allows us to tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and responsibilities required of all of our named executive officers. Each named executive officer’s base salary level is typically reviewed on an annual basis and adjustments may be made to the individual’s base salary on the basis of his or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +27 +TABLE OF CONTENTS +In May 2019, the Compensation Committee reviewed the base salaries of the named executive officers and established the base salaries for Fiscal 2020 for such officers as set forth below: +Named Executive Officer +Fiscal 2020 +Annual Base +Salary +J. Joseph (“Joe”) Bergera +$ +430,000 +Douglas L. Groves (1) +400,000 +Andrew Schmidt (2) +373,375 +Ramin Massoumi +280,000 +(1) +Mr. Groves was hired December 4, 2019, and his Fiscal 2020 base salary was set by the Compensation Committee with his commencement of employment. +(2) +Mr. Schmidt ceased to serve as our Chief Financal Officer, Vice President of Finance and Secretary on December 4, 2019. +Fiscal 2020 Cash-Based Bonus Plan (“2020 Bonus Plan”). Our named executive officers are eligible to receive an annual cash-based bonus under our 2020 Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals, which generally include the Company’s revenues and adjusted operating income for the fiscal year, the revenues and contribution margin of such officer’s business unit, and personal objectives set for each officer (“MBOs”). We define “contribution margin” as the business unit’s adjusted operating income without corporate expense allocations. Corporate adjusted operating income and the adjusted operating income of each business unit is calculated on a non-GAAP basis to exclude amortization, depreciation, stock-based compensation, goodwill impairment charge, if any, and such other non-cash items that the Compensation Committee, in its sole discretion, believes are not directly indicative of the performance of the Company and the business units. +Mr. Bergera’s Fiscal 2020 annual bonus was based 20% on achievement of his MBOs, including among other things, achieving certain acquisition and post-acquisition integration objectives and executing on other strategic transformation activities. The Compensation Committee determined Mr. Bergera successfully executed on his MBOs, resulting in a 99% payout of the MBOs portion of his fiscal 2020 annual bonus. +Mr. Groves’ Fiscal 2020 annual bonus was based 20% on achievement of his MBOs, including certain strategic transformation initiatives, talent recruitment and development, succession planning, attainment of certain expense reductions, and certain contributions to strategic financial planning for the Company. The Compensation Committee determined Mr. Groves successfully executed on his MBOs, and determined Mr. Groves earned 100% of the MBOs portion of his fiscal 2020 annual bonus. +Mr. Massoumi’s Fiscal 2020 annual bonus was based 20% on achievement of his MBOs, including the development and enhancement of certain solutions, achievement of new customer and market development activities in the Transportation Systems business segment, and achievement of certain bookings targets. The Compensation Committee determined Mr. Massoumi successfully executed on his MBOs, resulting in a 98% payout of the MBOs portion of his Fiscal 2020 annual bonus. +28 +TABLE OF CONTENTS +The corporate and business unit performance targets and the actual achievement of such objectives for Fiscal 2020 were as follows: +Performance Components +No Bonuses +At or +Below +Target +Maximum +Actual (1) +% +Attained +Corporate Revenue +$ +87,560 +$ +109,450 +$ +136,813 +$ +107,672 +98.4 % +Corporate Adjusted Operating Income +120 +150 +180 +(919 ) +0.0 +Transportation Systems Revenue +43,400 +54,250 +67,813 +51,588 +95.1 +Transportation Systems Contribution Margin +5,950 +7,438 +9,298 +8,836 +118.8 +(1) +The 2020 Bonus Plan excluded results from the AGI acquisition. +If our performance for Fiscal 2020 exceeded the Company and business unit performance targets set for bonus purposes, the NEOs could have earned an additional bonus of up to 50% of the target bonus award that was not based upon achieving individual objectives. The full 50% additional bonus would have been earned by the NEOs if the Company had achieved the performance goals set forth under the “Maximum” column above. If the Company had achieved performance that was less than the goals set forth under the “Maximum” column but more than the amounts set forth under the “Target” column, the additional bonus payable would have been proportional, or based on the level of the Maximum goal achieved when measured from the Target amount. For example, if the performance had exceeded the Target goal by 25% of the difference between the Maximum and Target amounts, then 25% of the 50% additional bonus relating to such performance goal would have been payable. +The Compensation Committee typically meets near the end of the first fiscal quarter of each year to evaluate each NEO’s achievement of their respective MBOs and annual bonuses are typically paid out as soon as practicable thereafter. +The performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2020 were as follows: +Named Executive Officer +Performance +Objectives +Allocation (%) +2020 Target +Bonus ($) +2020 Actual +Bonus ($) +% of Target +Awarded (%) +Joe Bergera +$ +322,500 +$ +180,155 +56 % +Corporate Revenue +40 % +Corporate Adjusted Operating Income +40 +MBOs +20 +Douglas L. Groves (1) +66,667 +37,334 +56 +Corporate Revenue +40 +Corporate Adjusted Operating Income +40 +MBOs +20 +Ramin Massoumi +154,000 +136,531 +89 +Transportation Systems Revenue +25 +Transportation Systems Contribution Margin +25 +Corporate Revenue +15 +Corporate Adjusted Operating Income +15 +MBOs +20 +(1) +Mr. Groves was hired December 4, 2019 and his Fiscal 2020 bonus was pro-rated to reflect the portion of Fiscal 2020 during which he was employed with the Company. +29 +TABLE OF CONTENTS +Equity Compensation. Our equity award program is one of our vehicles for offering long-term incentives to our named executive officers and providing an inducement for long-term retention. Our equity component also aligns the interests of our named executive officers with those of our stockholders and focuses their attention on the creation of stockholder value in the form of stock price appreciation. We believe that the equity-based compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our named executive officers and our stockholders. We have had no program, plan or practice pertaining to the timing of stock option grants to named executive officers coinciding with the release of material non-public information. +To reward and retain our named executive officers in a manner that best aligns employees’ interests with stockholders’ interests, we have historically used stock options as the primary incentive vehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because executives are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time. The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined under our equity plan. Stock option awards generally in four equal annual installments over a four-year period, subject to continuous service through each vesting date. From time to time, our Compensation Committee may, however, determine that a different vesting schedule is appropriate. +We have also, from time to time, awarded RSUs to our named executive officers, which vest over a three-year period, but no RSUs were granted to our named executive officers during Fiscal 2020. +Typically, the Compensation Committee provides grant guidelines to our Chief Executive Officer, who in turn will make recommendations back to the Compensation Committee regarding the number of options to be granted to our executive officers (other than himself). See “Fiscal 2020 Grant of Plan-Based Awards” table below for the Fiscal 2020 awards made to our named executive officers, all of which were granted in the form of stock options. +Fiscal 2021 Long-Term Incentive Compensation Updates . Commencing with Fiscal Year 2021, in response to stockholder feedback and consultation with FW Cook, the Compensation Committee determined to rebalance management’s long-term incentive compensation to include a mix of stock options (50%), restricted stock units (RSUs) (25%), and performance stock units (PSUs) (25%) (with percentages measured based on the awards’ grant date values, assuming target level achievement of applicable performance goals in the case of PSUs), as follows: +• +50% of the long-term incentive compensation for our named executive officers will be granted in the form of stock options, which will vest in accordance with the standard four-year vesting schedule described above. +• +25% of the long-term incentive compensation for our named executive officers will be granted in the form of RSUs, which will vest over three years, with 50% of such RSUs vesting on the second anniversary of the grant date and 50% of such RSUs vesting on the third anniversary of the grant date. Each RSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. +• +25% of the long-term compensation for our named executive officers will be granted in the form of PSUs. Each PSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. The number of PSUs that vest at the end of each three-year performance period will depend, in part, on the Company’s average revenues per share and cash flow from operations performance during the three-year performance period and, in part, on the Company’s total stockholder return (“rTSR”) relative to the Russell 2000 over the three-year performance period. Executives will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. +• +Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. +30 +TABLE OF CONTENTS +Benefit Plans +Section 401(k) Plan. We make available a tax-qualified retirement plan that provides eligible employees, including our executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Participants are able to defer a portion of their eligible compensation, subject to applicable annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). Pre-tax contributions are allocated to each participant’s individual account and may be invested in selected alternative investments according to the participant’s direction. We do currently make a matching contribution under the 401(k) plan up to a maximum of 4% of the employee’s base salary. Such matching contribution is at the discretion of the Board and is typically evaluated on an annual basis. +Employee Stock Purchase Plan. We maintain an employee stock purchase plan (the “ESPP”), which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code, to promote stock ownership by our employees. The ESPP was approved by our stockholders in November 2017, and 1,000,000 shares of common stock have been reserved for issuance under the ESPP. Under the ESPP, eligible employees are able to acquire, at a price equal to 95% of the lower of the fair market price at the beginning or end of the 6-month purchase period, shares of our common stock by accumulating funds through payroll deductions. +Health and Welfare Benefits. Our named executive officers are eligible to participate in all our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits. +Perquisites. We do not provide significant perquisites or personal benefits to our named executive officers. +Post-Employment Compensation +For a summary of the material terms and conditions of our post-employment compensation arrangements, see “— Potential Payments upon Termination or Change in Control” below. +Incentive Compensation Clawback Policy +In July 2020, the Board adopted a Clawback Policy (the “Clawback Policy”) to create and maintain a culture that emphasizes integrity and accountability, and that reinforces the Company’s pay-for-performance compensation philosophy. Under the Clawback Policy, the Compensation Committee may direct the Company to seek to recover incentive compensation awarded or paid to an executive officer or other employee of the Company deemed subject to the Clawback Policy (“covered persons”) for a fiscal period if the Company must subsequently restate its financial statements. +The Clawback Policy is in addition to any recovery rights provided under applicable law. The Board continues to monitor regulatory developments and intends to further review and revise the Clawback Policy, if necessary, to comply with any final regulations issued for the purpose of implementing the requirements of the Dodd-Frank Act. +Policy against Hedging and Pledging +The Company does not currently have a policy against hedging or pledging in our equity securities by our executive officers, directors or employees. +31 +TABLE OF CONTENTS +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably likely to have a material adverse impact on our business or our financial condition. The following compensation design features help minimize the incentives for excessive risk-taking and keeps our named executive officers focused on the creation of long-term, sustainable value for our stockholders: +• +Our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• +To further ensure that the interests of our named executive officers are aligned with those of our stockholders, commencing with Fiscal 2021, a portion of executive officer long-term incentive compensation will be awarded as equity subject to performance- and time-based vesting requirements. RSUs and PSUs will vest and settle over a three-year period, as applicable — in the case of RSUs, 50% vesting after two years and remaining vesting after completion of three years, and in the case of PSUs, cliff-vesting based on achievement of applicable performance goals at the end of a three-year performance period. +• +A portion of each executive’s incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; +• +Annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, discourages the taking of short-term risk at the expense of long-term performance; and +• +Each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to manipulate. +Tax Deductibility of Executive Compensation +The Compensation Committee considers the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for “covered employees.” While we consider the tax deductibility of each element of executive compensation as a factor in our overall compensation program, the compensation committee, however, retains the discretion to approve compensation that may not qualify for the compensation deduction if, considering all applicable circumstances, it would be in our best interest for such compensation to be paid without regard to whether it may be tax deductible. +Accounting for Stock-Based Compensation +Under FASB ASC 718, we are required to estimate the grant date “fair value” for each grant of equity award using various assumptions. This calculation is performed for accounting purposes and reported in the compensation tables in this proxy statement, even though recipients may never realize any value from their awards. ASC 718 also requires us to recognize the compensation cost of stock-based awards in our income statements over the period that an employee is required to render service in exchange for the award. +32 +TABLE OF CONTENTS +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the discussion and analysis of the compensation of our named executive officers as disclosed in this proxy statement under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in the Annual Report and this proxy statement. +Luke P. Schneider +Laura L. Siegal +Thomas L. Thomas (Chairman) +33 +TABLE OF CONTENTS +Executive Compensation Tables +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2020, 2019 and 2018 by (i) our Chief Executive Officer, (ii) our two other most highly compensated executive officers (other than our Chief Executive Officer) who were serving as executive officers as of March 31, 2020, and (iii) one other individual who would have been an executive officer described in clause (ii) but for the fact he is no longer serving as an executive officer as of March 31, 2020. The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Bonus +Option +Awards (1) +Non-Equity +Incentive Plan +Compensation (2) +All Other +Compensation (3) +Total +J. Joseph (“Joe”) Bergera +Chief Executive Officer and +President +2020 +$ +430,314 +$ +— +$ +634,300 +$ +180,155 +$ +11,351 +$ +1,256,120 +2019 +412,894 +— +421,425 +137,280 +17,118 +988,716 +2018 +396,648 +— +649,328 +180,000 +8,848 +1,234,825 +Douglas L. Groves +Chief Financial Officer, Senior Vice President of Finance and Secretary +2020 +121,617 (4) +— +489,540 +37,333 +4,800 +653,290 +Andrew Schmidt (5) +Former Chief Financial Officer, Vice President of Finance and Secretary +2020 +307,587 +— +— +— +431,435 (6) +738,022 +2019 +358,670 +— +159,205 +71,775 +12,792 +602,442 +2018 +346,138 +15,000 (7) +259,731 +94,035 +8,683 +723,587 +Ramin Massoumi +Senior Vice President and +General Manager, Roadway +Sensors +2020 +279,688 +— +177,604 +136,531 +10,262 +604,084 +2019 +268,306 +— +112,380 +70,166 +11,440 +462,293 +2018 +254,932 +— +194,799 +127,925 +5,641 +583,297 +(1) +The dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined in accordance with ASC 718. Under ASC 718, the grant date fair value of the stock options is determined pursuant to the Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Part II, Item 7 in the Annual Report. The options have an exercise price equal to the closing sales price of our common stock as of the grant date and vest in equal annual installments over four years and are not exercisable until vested. +(2) +The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established management objectives. These awards are discussed in further detail under “Fiscal 2020 Cash-Based Bonus Plan” above. +(3) +Except as otherwise noted, represents Section 401(k) plan employer contributions paid by us. +(4) +Mr. Groves was hired December 4, 2019 at an annual salary of $400,000. The Fiscal 2020 salary represents the amount earned by Mr. Groves from his hire date through the end of Fiscal 2020. +(5) +Mr. Schmidt ceased to serve as our Chief Financial Officer, Vice President of Finance and Secretary on December 4, 2019. +(6) +Consists of 401(k) plan employer contributions paid by us, as well as amounts paid pursuant to his Severance Agreement (defined below), consisting of base salary of $388,589 and COBRA reimbursement. See “Agreements with Andrew Schmidt” under “Potential Payments upon Termination of Employment and Change in Control” below. +(7) +Represents a discretionary cash bonus. +34 +TABLE OF CONTENTS +Fiscal 2020 Grant of Plan-Based Awards Table +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive compensation plan and our 2016 Omnibus Incentive Plan in Fiscal 2020, which constitute all of the plan-based awards granted to our named executive officers in Fiscal 2020. +Name +Grant Date +Compensation +Committee +Action Date +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) (2) +Exercise +or Base +Price of +Option +Awards +($/share) +Grant Date +Fair Value +of Stock +and Option +Awards +($) (3) +Threshold +($) +Target +($) (1) +Maximum +($) (1) +Joe Bergera +— +12/09/2019 +$ +— +$ +322,500 +$ +483,750 +250,000 +$ +5.10 +$ +634,300 +Douglas L. Groves +12/04/2019 +11/14/2019 +— +66,667 +100,000 +200,000 +4.92 +489,540 +Ramin Massoumi +— +12/09/2019 +— +154,000 +231,000 +70,000 +5.10 +177,604 +(1) +Reflects the amount payable upon achievement of the management objectives described under the heading “Fiscal 2020 Cash-Based Bonus Plan” above. +(2) +All options vest in four equal installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officers continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(3) +The dollar amounts shown represent the grant date fair value of stock options granted during the applicable fiscal year determined in accordance with ASC 718. Under ASC 718, the grant date fair value of the stock options is determined pursuant to the Black-Scholes-Merton option pricing formula. For a discussion of valuation assumptions used in the calculations, see Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Part II, Item 7 of the Annual Report. +35 +TABLE OF CONTENTS +Outstanding Equity Awards at 2020 Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2020. None of the NEOs held outstanding RSUs at the end of Fiscal 2020. +Option Awards (1) +Name +Number of +Securities +Underlying +Outstanding +Options (#) +Exercisable +Number of +Securities +Underlying +Outstanding +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date +Option +Expiration +Date +J. Joseph (“Joe”) Bergera +Chief Executive Officer, President and +Director +1,350,000 +— +$ +2.38 +09/23/15 +09/22/25 +112,500 +37,500 +4.91 +03/03/17 +03/02/27 +125,000 +125,000 +5.52 +02/16/18 +02/15/28 +56,250 +168,750 +4.16 +12/10/18 +12/09/28 +— +250,000 +5.10 +12/09/19 +12/08/29 +Douglas L. Groves +Chief Financial Officer, Senior Vice President +of Finance and Secretary +— +200,000 +4.92 +12/04/19 +12/03/29 +Andrew Schmidt (2) +Former Chief Financial Officer, Vice President +of Finance and Secretary +100,000 +— +1.79 +03/16/15 +03/15/25 +75,000 +— +2.37 +11/02/15 +11/01/25 +56,250 +18,750 +4.91 +03/03/17 +03/02/27 +50,000 +50,000 +5.52 +02/16/18 +02/15/28 +21,250 +63,750 +4.16 +12/10/18 +12/09/28 +Ramin Massoumi +Senior Vice President and General Manager, +Transportation Systems +20,000 +— +1.87 +11/18/14 +11/17/24 +20,000 +— +2.37 +11/02/15 +11/01/25 +56,250 +18,750 +4.91 +03/03/17 +03/02/27 +37,500 +37,500 +5.52 +02/16/18 +02/15/28 +15,000 +45,000 +4.16 +12/10/18 +12/09/28 +— +70,000 +5.10 +12/09/19 +12/08/29 +(1) +All options vest in four equal annual installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officers continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Change in Control” below. +(2) +Mr. Schmidt ceased to serve as our Chief Financial Officer, Vice President of Finance and Secretary on December 4, 2019. In accordance with his Severance Agreement, all of Mr. Schmidt’s outstanding options will continue vesting of up to twelve months from the date he ceased his employment with the Company in consideration of serving as a senior advisor to assist in the transition of his Chief Financial Officer duties. +Fiscal 2020 Option Exercises and Stock Vesting Table +No options were exercised by the NEOs and no stock awards vested during Fiscal 2020. +36 +TABLE OF CONTENTS +Potential Payments upon Termination of Employment and Change in Control +We do not currently have any employment contracts or change in control arrangements in effect with any of our named executive officers other than the agreements described below. We provide incentives such as salary, benefits, option grants and RSUs, to attract and retain executive officers and other key associates. The plan administrator of the 2007 Omnibus Incentive Plan and 2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a qualifying termination of employment following certain changes in control of the Company, or upon such change in control, but our equity plans do not provide for any automatic “single trigger” acceleration of equity awards upon a change in control. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, 2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board, provided that the bonus potential for Fiscal 2016 was $300,000, of which $150,000 was a signing bonus payable on January 31, 2016 provided that Mr. Bergera was employed by the Company as of such date. The agreement is for an initial term of three years and will renew for successive one year periods until September 2025 unless either we or Mr. Bergera provide written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +If during the term of the agreement, Mr. Bergera’s employment with the Company is terminated without Cause (as such term is defined in the agreement), Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are defined in the agreement) (such termination or resignation, a “CIC Termination”), Mr. Bergera will be entitled to receive (i) a lump sum payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the CIC Termination occurs, (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination, and (iv) acceleration of the vesting of the Option. In addition, upon termination of his employment due to death, Mr. Bergera’s estate or beneficiaries will be entitled to receive a lump sum payment in the aggregate equal to 50% of his then current base salary. +Severance Agreement with Andrew Schmidt +On December 9, 2019, in connection with Mr. Schmidt’s departure, the Company and Mr. Schmidt entered into a severance and release agreement (the “Severance Agreement”). Pursuant to the Severance Agreement, the Company agreed to pay to Mr. Schmidt a severance package, consisting of the following (i) Mr. Schmidt’s base salary of currently approximately $388,589, less applicable taxes and withholding, paid in equal installments for a 12 month period in accordance with the Company’s normal payroll practices, (ii) COBRA premiums reimbursement for up to a 12 month period, and (iii) continued vesting of all outstanding Company equity awards for up to 12 months in consideration of serving as a senior advisor to assist in the transition of his Chief Financial Officer duties. +37 +TABLE OF CONTENTS +Iteris, Inc. Executive Severance Plan +The Iteris, Inc. Executive Severance Plan was adopted on February 5, 2018 and amended and restated effective on June 4, 2019 (the “Severance Plan”). Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Exchange, and who is not otherwise covered by an employment agreement that includes severance terms (the “Eligible Employees”), is eligible to receive severance payments under the Severance Plan upon certain qualifying terminations of employment. +The Severance Plan provides Eligible Employees with severance payments in the event that an Eligible Employee’s employment with the Company or its subsidiaries is terminated either (a) by the Company without Cause not in connection with a Change of Control (“Non-CIC Qualifying Termination”) or (b) if in connection with or within 12 months following a Change of Control, which, for Eligible Employees employed by that business, includes a divestiture of a material business, by the Eligible Employee for Good Reason (as such terms are defined in the Severance Plan) or by the Company without Cause (a “CIC Qualifying Termination”). +Non-CIC Qualifying Termination. Upon a Non-CIC Qualifying Termination, an Eligible Employee will receive the following: +• +A cash payment equal to the Eligible Employee’s annual base salary, payable in substantially equal installment payments over the one-year period following termination, in accordance with the Company’s normal payroll practices; and +• +Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination or until the Eligible Employee receives substantially similar medical coverage from another employer. +CIC Qualifying Termination. Upon a CIC Qualifying Termination, an Eligible Employee will receive the following: +• +A cash payment equal to the Eligible Employee’s annual base salary, payable in a lump sum on the next payroll date after the 61 st day following termination; and +• +Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination, or until the Eligible Employee receives substantially similar medical coverage from another employer. +The severance payments are subject to the Eligible Employee’s execution of a severance agreement within 60 days following termination that includes a release of claims and certain non-solicitation, confidentiality, and non-disparagement restrictions. +The Company may amend or terminate the Severance Plan at any time by providing at least 90 days’ advance written notice to each Eligible Employee, provided that no such amendment or termination that has the effect of reducing or diminishing the right of any Eligible Employee will be effective unless one year’s advance written notice is provided to Eligible Employees, and such amendment or termination will not be effective if a Change of Control occurs during the one-year notice period. +38 +TABLE OF CONTENTS +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer. If it is ultimately determined that the director or officer is not entitled to indemnification, the director or officer is required to repay such advances. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +39 +TABLE OF CONTENTS +E quity C ompensation P lan I nformation +The following table summarizes information as of March 31, 2020 regarding shares of our common stock that may be issued under our equity compensation plans, including the 2007 Omnibus Incentive Plan, the 2016 Omnibus Incentive Plan and ESPP. Each of these plans has been approved by our stockholders. We do not maintain any equity incentive plans that have not been approved by stockholders. +Plan Category +(a) +Number of Securities to be +Issued Upon Exercise of +Outstanding Options, +Warrants and Rights +(b) +Weighted Average +Exercise Price of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available +for Future Issuance +Issuance Under Equity +Compensation Plans +(Excluding Securities +Reflected in Column (a)) +Equity compensation plans approved by +security holders +6,338,000 (1) +$ +2.52 +1,691,000 (2) +(1) +Includes 5,934,000 shares subject to outstanding stock option awards and 404,000 shares subject to outstanding restricted stock unit awards as of March 31, 2020. +(2) +Includes 816,847 shares remaining available for issuance under the ESPP as of March 31, 2020, of which 816,847 shares were eligible to be purchased pursuant to the offering period in effect on such date. +40 +TABLE OF CONTENTS +P roposal 3: R atification of S election of I ndependent R egistered P ublic A ccounting F irm +The accounting firm of Deloitte & Touche LLP (“Deloitte”) has been engaged by our Audit Committee to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2021. Deloitte has been our principal independent registered public accounting firm since October 2015. Information regarding the services provided to us by Deloitte during Fiscal 2020 and Fiscal 2019 is set forth below under the heading entitled “Matters Related to Independent Registered Public Accounting Firm.” +We are asking our stockholders to ratify the selection by the Audit Committee of Deloitte as our independent registered public accounting firm to audit our consolidated financial statements for Fiscal 2021 and to perform other appropriate services. Although stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the appointment of Deloitte to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance and to provide a means by which our stockholders may communicate their opinion to the Audit Committee. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of the Company and our stockholders. +A representative of Deloitte is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Vote Required +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Deloitte as our independent registered public accounting firm for Fiscal 2021. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for Fiscal 2021. +41 +TABLE OF CONTENTS +M atters R elated to I ndependent R egistered P ublic A ccounting F irm +Fees Paid to Independent Registered Public Accounting Firm +The following table sets forth the fees we have paid to Deloitte in the following categories and amounts during Fiscal 2020 and Fiscal 2019: +Year Ended March 31, +Fee Category +2020 +2019 +Audit fees +$ +990,000 +$ +914,000 +Audit related fees +107,000 +30,000 +Tax fees +— +— +All other fees +— +— +Total fees +$ +1,097,000 +$ +944,000 +Audit Fees. Audit fees consist of fees billed for professional services rendered in connection with the audit of our annual consolidated financial statements for the applicable fiscal year and review of our consolidated financial statements included in our quarterly reports on Form 10-Q, Form 10-K and other regulatory filings for such fiscal year. +Audit Related Fees. Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reporting under “Audit Fees.” Audit related fees for Fiscal 2020 were related to the AGI acquisition and the review of our registration statements on Form S-3 and Form S-3/A. Audit related fees for Fiscal 2019 were related to the adoption of ASC 842. +Tax Fees. Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. There were no tax fees billed by Deloitte for Fiscal 2020 or Fiscal 2019. +All Other Fees. There were no fees were billed by Deloitte in Fiscal 2020 or Fiscal 2019 for any other services. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis, non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by Deloitte for Fiscal 2020 and Fiscal 2019. +The Audit Committee reviewed and discussed the services rendered by Deloitte during Fiscal 2020, as well as the fees paid for such services, and has determined that the provision of such services by Deloitte, and the fees paid for such services, were compatible with maintaining Deloitte’s independence. +Audit Committee Report +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2020 included in the Annual Report. +Our management is responsible for the Company’s financial reporting process, including its systems of internal control over financial reporting, and for the preparation of its financial statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles (“GAAP”) and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee these financial processes on behalf of the Board. +42 +TABLE OF CONTENTS +The members of the Audit Committee are not employees of Iteris and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct auditing or accounting reviews or procedures. Therefore, in performing the Audit Committee’s oversight role, the Audit Committee necessarily must rely on management’s representations that it has maintained appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations, and that the Company’s financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the representations of our independent registered public accounting firm included in its reports on the Company’s financial statements. +In this context, the Audit Committee hereby reports as follows: +1. The Audit Committee has reviewed and discussed our consolidated audited financial statements with our management. +2. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). +3. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence. +4. Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board, and the Board approved, that the consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2020 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gerard M. Mooney +Laura L. Siegal +Dennis W. Zank (Chairman) +The information contained in the foregoing Audit Committee Report is not “soliciting material” and is not deemed filed with the SEC. Such report is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof, and irrespective of any general incorporation language in any such filing. +43 +TABLE OF CONTENTS +S tock O wnership of C ertain B eneficial O wners and M anagement +The following table sets forth, as of July 24, 2020, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner (1) +Amount and Nature +of Beneficial +Ownership (2) +Percent of +Class (2) +Black Rock, Inc. (3) +2,842,039 +7 % +The Vanguard Group (4) +2,150,303 +5.29 +Cowen Prime Advisors (5) +2,140,092 +5.27 +Joe Bergera (6) +1,648,060 +3.88 +Doug L. Groves (7) +10,000 +* +Ramin Massoumi (8) +182,925 +* +Andrew Schmidt (9) +302,500 +* +Anjali Joshi (10) +2,181 +* +Gerard M. Mooney (11) +71,848 +* +Luke P. Schneider (12) +1,309 +* +Laura L. Siegal (13) +32,847 +* +Thomas L. Thomas (14) +165,848 +* +Dennis W. Zank (15) +4,855 +* +All executive officers and directors as a group (10 persons) (16) +2,361,923 +5.64 % +* +Less than 1%. +(1) +The address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) +Based on 40,913,570 shares of common stock outstanding as of July 24, 2020. Shares of common stock subject to options or warrants which are exercisable within 60 days of July 24, 2020 deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) plan. +(3) +Pursuant to a Schedule 13G/A filed on February 5, 2020 with the SEC, BlackRock, Inc. reported that through the following subsidiaries, it has sole dispositive power with respect to 2,842,039 shares and sole voting power with respect to 2,803,786 shares: BlackRock Advisors, LLC, BlackRock Fund Advisors; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc. and BlackRock Investment Management, LLC. The address for BlackRock Inc. is 55 East 52nd Street, New York, NY 10005. +(4) +Pursuant to a Schedule 13G filed on February 11, 2020 with the SEC, The Vanguard Group, Inc. reported that it directly and through its wholly-owned subsidiary, Vanguard Fiduciary Trust Company, has sole voting power with respect to 78,117 shares, sole dispositive power with respect to 2,072,186 shares and shared dispositive power with respect to 78,117 shares. The address for The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, PA 19355. +(5) +Pursuant to a Schedule 13G filed on February 4, 2020 with the SEC, Cowen Prime Advisors, a division of Cowen Prime Services LLC, reported that, through its various clients, it has shared dispositive +44 +TABLE OF CONTENTS +power with respect to 2,140,092 shares. The address for Cowen Prime Advisors is 599 Lexington Avenue, Floor 21, New York, NY 10022. +(6) +Consists of (i) 4,310 shares held directly by Mr. Bergera and (ii) 1,643,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 24, 2020. +(7) +Consists of 10,000 shares held in a trust, of which Mr. Groves is a trustee. +(8) +Consists of (i) 31,624 shares held in a trust, of which Mr. Massoumi is a trustee, (ii) 2,551 shares are held in Mr. Massoumi’s 401(k) plan, and (iii) 148,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 24, 2020. +(9) +Consists of 302,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 24, 2020. +(10) +Consists of 2,181 shares subject to RSUs that vest within 60 days after July 24, 2020. +(11) +Consists of (i) 23,549 shares held directly by Mr. Mooney, (ii) 40,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 24, 2020, and (iii) 8,299 shares subject to RSUs that vest within 60 days after July 24, 2020. +(12) +Consists of 1,309 shares subject to RSUs that vest within 60 days after July 24, 2020. +(13) +Consists of (i) 24,548 shares held directly by Ms. Siegal and (ii) 8,299 shares subject to RSUs that vest within 60 days after July 24, 2020. +(14) +Consists of (i) 30,403 shares held directly by Mr. Thomas, (ii) 117,146 shares held by Mr. Thomas’s Trust, and (iii) 8,299 shares subject to RSUs that vest within 60 days after July 24, 2020. +(15) +Consists of 4,855 shares subject to RSUs that vest within 60 days after July 24, 2020. +(16) +Includes (i) 2,016,250 shares issuable upon exercise of options held by the executive officers and directors as a group that are currently exercisable or will become exercisable within 60 days after July 24, 2020 and (ii) 41,541 shares subject to RSUs held by the executive officers and directors as a group that vest within 60 days of July 24, 2020. +45 +TABLE OF CONTENTS +E nvironmental , S ocial , G overnance A nd R elated M atters +We believe that leadership in ethical, environmental, social, governance and related matters will have a positive impact on our business, employees, customers and communities we serve. Accordingly, we adopted policies that help us to implement these standards. +Code of Ethics and Business Conduct +Our Board has adopted a Code of Ethics and Business Conduct (“Code of Ethics”), which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. We will also provide an electronic or paper copy of the Code of Ethics, free of charge, upon request made to our Corporate Secretary. If any substantive amendments are made to our Code of Ethics, or if any waiver (including any implicit waiver) of any provision of the Code of Ethics is granted that is required to be disclosed under the rules of the SEC, such amendment or waiver will be disclosed at the same location on our website, or, if required, in a current report on Form 8-K. +Environmental, Social and Governance Practices +Environmental, social and governance (“ESG”) is becoming increasingly important to our stockholders and clients and our Board supports Iteris in pursuing thriving communities. In June 2020, our Board adopted an Environmental Policy and Human Rights Policy to further our commitment to continually improve how Iteris operates. The full text of our Environmental Policy and Human Rights Policy is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +Diversity and Inclusion +Consistent with our core values, we promote diversity and inclusion in every aspect of our business. We are an equal opportunity employer and make employment decisions on the basis of merit. We administer all phases of our employment practices without regard to race, religious creed, color, national origin, ancestry, disability, sex, gender, gender identity, gender expression, sexual orientation, transgender identity, age, military or veteran status, or any other consideration made unlawful by law. Additionally, as a contractor for the United States Government, we develop and implement an affirmative action plan to (1) assess our inclusion of women, members of minority groups, protected veterans, and individuals with disabilities into our workforce, (2) establish goals for increased inclusion and (3) implement strategies to reach those goals. +A dditional M atters +Transactions with Related Persons +Since April 1, 2019, other than the agreements and transactions described in “Executive Compensation and Other Matters” above and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We previously had a promissory note, with an interest rate of 6%, owed to us by Maxxess Systems, Inc., which is currently owned by an investor group that includes two former Iteris directors. During Fiscal 2020, Maxxess paid the full amount due on the note, $146,000, to the Company. +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Based solely on a review of +46 +TABLE OF CONTENTS +copies of such forms filed with the SEC with respect to Fiscal 2020 and the written representations received from certain reporting persons that no other reports were required, we believe that all directors, officers and persons who own more than 10% of our common stock have complied with the reporting requirements of Section 16(a) except that each of Dr. Daly, Mr. Deeter, Mr. Mooney, Ms. Siegal, Mr. Williams and Mr. Zank failed to timely report one transaction on Form 4 with respect to the grant or vesting of restricted stock units, all of which were subsequently filed. +Annual Report +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +Delivery of Documents to Stockholders Sharing an Address +Some street name holders of our common stock may be “householding” our proxy statements and annual reports, which means that we will deliver only one copy of our proxy statement and annual report to multiple stockholders who share the same address (if they appear to be members of the same family), unless we have received instructions to the contrary. This procedure reduces our printing costs, mailing costs and fees. Upon request, we will promptly deliver a separate copy of either document to you if you write us at our corporate offices at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, Attention: Corporate Secretary, Telephone: (949) 270-9400. You may also contact us or your Nominee if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Deadline for Receipt of Stockholder Proposals +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholder proposals may be eligible for inclusion in our proxy statement for the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2021 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than March 29, 2021. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the proposal or nomination must be received by us on or between May 13, 2021 and June 12, 2021. If the date of the 2021 Annual Meeting of Stockholders is called for a date that is not within 30 days before or after the anniversary date of the 2020 Annual Meeting of Stockholders, then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents at the 2021 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our Corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our Corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2021 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any +47 +TABLE OF CONTENTS +proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +Other Matters +The Board is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa Ana, California +July 27, 2020 +48 +TABLE OF CONTENTS +TABLE OF CONTENTS \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-20-086704/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-20-086704/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..839bc1191a3765b332249d22a2e30c13022cbd5e --- /dev/null +++ b/raw/proxies/0000350868/0001104659-20-086704/proxy_rpt.txt @@ -0,0 +1,3 @@ +Transactions with Related Persons +Since April 1, 2019, other than the agreements and transactions described in “Executive Compensation and Other Matters” above and the transactions described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +We previously had a promissory note, with an interest rate of 6%, owed to us by Maxxess Systems, Inc., which is currently owned by an investor group that includes two former Iteris directors. During Fiscal 2020, Maxxess paid the full amount due on the note, $146,000, to the Company. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-21-096160/proxy.txt b/raw/proxies/0000350868/0001104659-21-096160/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..75765388c6c97304017629eaf17dad052f813b2a --- /dev/null +++ b/raw/proxies/0000350868/0001104659-21-096160/proxy.txt @@ -0,0 +1,2920 @@ +DEF 14A +1 +tm2122999-1_def14a.htm +DEF 14A +tm2122999-1_def14a - none - 13.2969558s +TABLE OF CONTENTS +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No.   ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant o +Check the appropriate box: +☐ +Preliminary Proxy Statement +☐ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ +Definitive Proxy Statement +☐ +Definitive Additional Materials +☐ +Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ +No fee required. +☐ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +☐ +Fee paid previously with preliminary materials. +☐ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD SEPTEMBER 9, 2021 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 9, 2021 at 2:00 p.m. Pacific Time, held exclusively online by means of a live virtual webcast at meetings.computershare.com/MVTVFVH, for the following purposes, as more fully described in the proxy statement accompanying this notice: +1. +To elect Joe Bergera, Anjali Joshi, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank to the Board of Directors, each to hold such office until the next annual meeting of stockholders and until his or her successor is elected and qualified. +2. +To conduct a vote to approve the amendment and restatement of the 2016 Omnibus Incentive Plan. +3. +To conduct an advisory vote to approve the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +4. +To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2022. +5. +To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements thereof. +All stockholders are cordially invited to attend the Annual Meeting virtually this year. There will be no physical in-person meeting location for the Annual Meeting. In light of the continued public health risks posed by the coronavirus pandemic, we have determined it is appropriate to hold the Annual Meeting virtually. +All stockholders of record as of the close of business on July 13, 2021 are entitled to notice of and to vote at the Annual Meeting, and at any and all postponements or adjournments thereof. It is important that all of our stockholders be represented at our Annual Meeting. Whether you plan to attend the Annual Meeting virtually or not, we urge you to vote your shares by submitting your proxy as soon as possible. Submitting your proxy card or voting instruction form does not affect your right to vote during the Annual Meeting if you attend the Annual Meeting virtually. Also, if you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. +Santa Ana, California +July 27, 2021 +BY ORDER OF THE BOARD OF DIRECTORS +Joe Bergera +Chief Executive Officer +YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY PROXY PRIOR TO THE MEETING. IF YOU CHOOSE TO VOTE BY MAIL, PLEASE DO SO PROMPTLY TO ENSURE YOUR PROXY ARRIVES IN SUFFICIENT TIME. +TABLE OF CONTENTS +TABLE OF CONTENTS +Page +Notice of the Annual Meeting of Stockholders +Questions and Answers About the Annual Meeting and Voting +1 +Proposal 1: Election of Directors +8 +Director Nominees +8 +Corporate Governance, Board Meetings and Committees +11 +Criteria for Director Candidate Qualifications +13 +Selection Process for Nomination of Director Candidate +14 +Director Tenure and Refreshment +14 +Risk Oversight Role +15 +Director Compensation +17 +Compensation Committee Interlocks and Insider Participation +19 +Proposal 2: Approval of Amended and Restated Iteris, Inc. 2016 Omnibus Incentive Plan +20 +Proposal 3: Advisory Vote Regarding Executive Compensation +34 +Executive Officers +35 +Executive Compensation and Other Information +36 +Executive Compensation +36 +Fiscal 2021 Business Results Summary +36 +Fiscal 2021 Executive Compensation Results Overview +37 +Characteristics of our Executive Compensation Program +38 +Impact of 2020 Say-on-Pay Vote +38 +Compensation Philosophy and Objectives +39 +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +39 +Benchmarking and Peer Groups +40 +Compensation Components and Structure +41 +Benefit Plans +45 +Incentive Compensation Clawback Policy +45 +Compensation Risk Assessment +45 +Tax Deductibility of Executive Compensation +46 +Accounting for Stock-Based Compensation +46 +Compensation Committee Report +46 +Executive Compensation Tables +47 +Summary Compensation Table +47 +Fiscal 2021 Grant of Plan-Based Awards Table +49 +Outstanding Equity Awards at 2021 Fiscal Year End +51 +Fiscal 2021 Option Exercises and Stock Vesting Table +52 +Non-Qualified Deferred Compensation for Fiscal 2021 +52 +Potential Payments upon Termination of Employment and Change in Control +55 +Indemnification of Directors and Officers +58 +Equity Compensation Plan Information +59 +Proposal 4: Ratification of Selection of Independent Registered Public Accounting Firm +60 +Matters Related to Independent Registered Public Accounting Firm +61 +i +TABLE OF CONTENTS +Page +Fees Paid to Independent Registered Public Accounting Firm +61 +Audit Committee Pre-Approval Policies and Procedures +61 +Audit Committee Report +61 +Stock Ownership of Certain Beneficial Owners and Management +63 +Environmental, Social, Governance and Related Matters +65 +Additional Matters +66 +Transactions with Related Persons +66 +Annual Report +66 +Delivery of Documents to Stockholders Sharing an Address +66 +Deadline for Receipt of Stockholder Proposals +66 +Other Matters +67 +ii +TABLE OF CONTENTS +P roxy S tatement +F or the 2021 A nnual M eeting of S tockholders +of I teris , I nc . to be H eld on S eptember 9, 2021 +The Board of Directors (the “Board”) of Iteris, Inc., a Delaware corporation (sometimes referred to as “Iteris,” the “Company,” “we,” “us,” or “our”), is soliciting your proxy for the Company’s 2021 Annual Meeting of Stockholders and any and all adjournments or postponements of such meeting (the “Annual Meeting”). Due to the ongoing concerns relating to the public health impact of the coronavirus (“COVID-19”) pandemic, for the safety of all of our people, including our stockholders, employees and their families, we have determined that the Annual Meeting will be held in a live virtual-only meeting format, via the Internet, with no physical, in-person meeting. The Annual Meeting will be held at 2:00 p.m. Pacific Time on September 9, 2021, through the virtual meeting live webcast site located at meetings.computershare.com/ MVTVFVH. At our Annual Meeting, stockholders will be able to attend and vote by visiting meetings.computershare.com/MVTVFVH. Stockholders who wish to submit questions at the Annual Meeting may do so in advance or during the Annual Meeting. You will find instructions for how to submit such questions in this proxy statement. The approximate date on which this proxy statement and the enclosed proxy materials are first being released to the Company’s stockholders is July 27, 2021. Our principal executive offices are located at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. +References in this proxy statement to fiscal years refer to the Company’s fiscal year ended March 31 of the referenced year. For example, “Fiscal 2020” refers to the fiscal year ended March 31, 2020, “Fiscal 2021” refers to the fiscal year ended March 31, 2021 and “Fiscal 2022” refers to the fiscal year ending March 31, 2022. +I mportant N otice R egarding the A vailability of P roxy M aterials +This Proxy Statement and our Annual Report on Form 10-K, as amended by the Form 10-K/A, for the fiscal year ended March 31, 2021 (the “Annual Report”) is available on the Internet by accessing www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders. Information on this website does not constitute part of this proxy statement and shall not be deemed incorporated by reference therein. +Q uestions and A nswers about the A nnual M eeting and V oting +Who is soliciting this proxy and who will bear the cost of soliciting this Proxy Statement? +The enclosed proxy is being solicited by our Board of Directors. Iteris will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this proxy statement, the proxy card, and any additional material furnished to the stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and nominees holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, e-mail or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us. +1 +TABLE OF CONTENTS +Where and when will the Annual Meeting take place? +The Annual Meeting will be held virtually, on Thursday, September 9, 2021, at 2:00 p.m., Pacific Time, via the Internet at meetings.computershare.com/MVTVFVH. Online check-in will begin at 1:30 p.m., Pacific Time, to allow time for online check-in procedures. +How do I attend the virtual Annual Meeting on the Internet? +Registered Stockholders . If you are a registered stockholder of record (i.e., you hold your shares directly in your name through our transfer agent, Computershare), you do not need to register to attend the virtual Annual Meeting. Please follow the instructions on the notice or proxy card that you received. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Beneficial Stockholders . If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the virtual Annual Meeting. +To register to attend the virtual Annual Meeting you must submit proof of your proxy power (legal proxy) reflecting your Iteris holdings along with your name and email address to Computershare, by email or by mail as described below. You may need to contact your intermediary, such as your bank or broker, to obtain your legal proxy. Requests for registration must include your proof of your legal proxy, be labeled as “Legal Proxy,” and be received no later than 2:00 p.m., Pacific Time September 6, 2021 . +Through the contact information you provide to Computershare, you will receive from Computershare a confirmation of your registration with a control number that will allow you to login to the virtual Annual Meeting site as a stockholder. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Requests for registration to attend our virtual Annual Meeting should be directed to us at the following: +By email : +Forward the email from your broker, or attach an image of your legal proxy, to: +legalproxy@computershare.com +By mail : +Computershare +Iteris Legal Proxy +P.O. Box 43001 +Providence, RI 02940-3001 +Stockholders will be able to attend our Annual Meeting online and vote during the Annual Meeting electronically by visiting meetings.computershare.com/MVTVFVH via the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to ask questions and vote and submit your proxy in advance of the Annual Meeting by one of the methods described in this proxy statement, but there will be a question-and-answer session at the end of the Annual Meeting. You can submit questions and comments by clicking the icon (illustrated below) located on the virtual Annual Meeting center website. +Guest Attendees . You are invited to attend our virtual Annual Meeting as a “guest,” but such guest attendee will only be able to listen to the Annual Meeting. A guest attendee may not ask questions or vote at the Annual Meeting. If you attend as a guest attendee, please click “I am a guest” when accessing the virtual Annual Meeting link on the Internet. Please follow the instructions at the virtual Annual Meeting site (See above question “Where and when will the Annual Meeting take place?”). +2 +TABLE OF CONTENTS +Why a virtual Annual Meeting format? +We are utilizing the virtual meeting format to enhance stockholder access and encourage participation and communication with our management. We will continue to ensure that our stockholders are afforded the same rights and opportunities to participate as they would at an in-person meeting. We believe this format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, and equally, using any internet-connected device from any location around the world at no cost. We believe a virtual meeting protects the health and safety of attendees and saves the Company’s and stockholders’ time and money. +What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website? +We will have technicians ready to assist you with any technical difficulties you may experience in accessing the virtual Annual Meeting. If you encounter any technical difficulties in accessing the virtual Annual Meeting during the check-in or meeting time, please call: +Tel # (Toll-free): 800-962-4284 +Tel # (Toll line): +1 781-575-3120 (International) +Who is entitled to vote at the Annual Meeting? +You are entitled to vote your shares of our common stock at the Annual Meeting if you owned the shares as of the close of business on July 13, 2021 (the “Record Date”). As of the Record Date, there were a total of 42,281,621 shares of our common stock outstanding and entitled to vote at the Annual Meeting. No shares of our preferred stock are currently outstanding. You are entitled to one vote for each share of common stock that you own. +What matters will be voted upon at the Annual Meeting and what are the Board of Director’s recommendations for the proposals? +The only matters that we currently expect will be voted on at the Annual Meeting are the following proposals, and the Board’s recommendation to you regarding such proposals is set forth opposite each proposal below: +Proposals +Board’s +Recommendation +1. +Election of the Board of Directors. +✓ FOR each nominee +2. +Approval of the amendment and restatement of the 2016 Omnibus Incentive Plan. +✓ FOR +3. +Approval, by advisory vote, of the compensation of our named executive +officers, as described in this proxy statement. +✓ FOR +4. +Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2022. +✓ FOR +The foregoing proposals are described in more detail in this proxy statement. +What if other matters come up at the Annual Meeting? +Other than the four items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If other matters are properly presented at the Annual Meeting, the persons designated in the proxy cards, Joe Bergera and Douglas L. Groves, will vote your shares in their discretion. +What constitutes a quorum for the Annual Meeting? +The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum for the transaction of business at such meeting. If you sign and +3 +TABLE OF CONTENTS +return your proxy card or authorize a proxy to vote through the Internet or by telephone, your shares will be counted to determine whether we have a quorum even if you abstain or fail to vote as indicated in the proxy materials. If a quorum is not present at the scheduled time of the Annual Meeting, the Annual Meeting may be adjourned until a quorum is present. Both abstentions and broker non-votes (as described below) are counted for the purpose of determining the presence of a quorum. +What is the difference between holding shares as a stockholder of record and as a beneficial owner? +Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered to be the stockholder of record of such shares, and we are sending the notice and these proxy materials directly to you. If you are a stockholder of record, you should have received a proxy card with this proxy statement for you to use to vote your shares +Beneficial Owner. If your shares are held in a brokerage account or by a bank, trustee or other nominee (each a “Nominee”), you are considered the beneficial owner of shares held in street name, and the notice and proxy materials are being forwarded to you on behalf of your Nominee. As the beneficial owner, you have the right to direct your Nominee how to vote your shares. Your Nominee has enclosed a voting instruction form with this proxy statement for you to use in directing the Nominee how to vote your shares. +Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the Nominee who holds your shares giving you the right to vote the shares at the Annual Meeting. +How do I vote my shares? +You may vote your shares prior to the Annual Meeting in any one of the following three ways: (i) by mail, (ii) electronically over the Internet or (iii) by telephone. If you are a stockholder of record, you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet or by telephone as described on your proxy card. If your shares are held in street name, in lieu of a proxy card, you should receive a voting instruction form from your Nominee by mail. The voting instruction form should indicate whether the Nominee has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. Stockholders who do not desire to vote over the Internet or by telephone may complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +If you are a stockholder of record, you may also vote your shares electronically during the Annual Meeting over the Internet only. Shares held through a broker or nominee may be voted via the Internet only if you obtain a legal proxy from the broker or nominee that holds your shares giving you the right to vote the shares. Please go to meetings.computershare.com/MVTVFVH, at the time of the meeting, have your control number available (which can be found on your proxy card form) and follow the instructions to participate in the virtual meeting. Those stockholders that held their shares in street name as of the Record Date will need to register prior to the meeting (see above question — “How do I attend the virtual Annual Meeting on the Internet?”). We recommend that you vote your shares in advance as described above to ensure your vote will be counted if you later decide not to attend the Annual Meeting. +How will I be able to submit a question? +Stockholders may submit questions for the Annual Meeting in advance of and during the Annual Meeting by submitting them via the Annual Meeting center website (meetings.computershare.com/ MVTVFVH) and entering your Computershare-issued control number (found on your proxy card form). +All questions submitted in advance must be sent by 5:00 p.m., Pacific Time, on September 8, 2021. Stockholders will also be able to submit questions during the Annual Meeting. During the meeting, we will answer submitted questions. +No recording of the Annual Meeting is allowed, including audio and video recording. +4 +TABLE OF CONTENTS +Even if you plan on attending the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this proxy statement to ensure that your vote will be represented at the Annual Meeting. We reserve the right to eject an attendee or cut off speaking privileges for behavior likely to cause disruption or annoyance or for failure to comply with reasonable requests or the rules of conduct for the Annual Meeting, including time limits applicable to attendees who are permitted to speak. +We will endeavor to answer as many questions submitted by shareholders as time permits. We reserve the right to edit profanity or other inappropriate language and to exclude questions regarding topics that are not pertinent to meeting matters or Company business. If we receive substantially similar questions, we may group such questions together and provide a single response to avoid repetition +What are broker non-votes and how are broker non-votes treated? +Broker non-votes occur when shares held in street name by a Nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the Nominee does not receive voting instructions from the beneficial owner, and (ii) the Nominee lacks discretionary authority to vote the shares. +Broker non-votes will not be treated as shares present and entitled to vote for purposes of any matter requiring the affirmative vote of a majority or other proportion of the shares present and entitled to vote (even though the same shares are considered present for quorum purposes and may be entitled to vote on other matters). Thus, a broker non-vote will not affect the outcome of the voting on a proposal for which the minimum affirmative vote required for approval of the proposal is a plurality or a majority (or some other percentage) of (i) the votes actually cast, or (ii) the shares present and entitled to vote. +A Nominee only has discretionary authority to vote shares on a proposal that is considered a “routine” matter under applicable rules and related guidance. Proposal 4 for the ratification of the appointment of our independent registered public accounting firm is considered a “routine” matter and, accordingly, a Nominee has discretionary authority to vote shares on such proposal. The other proposals included in this proxy statement are considered “non-routine” matters. As such, a Nominee does not have discretionary authority to vote shares on such proposals. Accordingly, your shares may be voted on Proposal 4 if they are held in the name of a brokerage firm even if you do not provide the brokerage firm with voting instructions. Proposals 1, 2 and 3 are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your brokerage firm, no vote for your shares will be cast with respect to these proposals and a broker non-vote will result for these shares. +What vote is required to elect a director? +For Proposal 1, you may vote “FOR” or “AGAINST” any director nominee or you may abstain from voting with respect to a director nominee’s election. In an uncontested director election, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee to be elected. As such, the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested director election (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. For purposes of the election of directors, abstentions and broker non-votes, if any, will be excluded from the vote and will not be counted in determining the outcome of a director’s election. +What happens if a majority of the votes cast are not voted in favor of a director nominee? +Pursuant to the procedures set forth in the Company’s bylaws, in the event that a nominee who is already a director of the Company does not receive a majority of the votes cast with respect to such nominee in an uncontested election of directors, such nominee is required to promptly tender his or her resignation to the Board for consideration. If a director’s resignation is not accepted, that director will continue to serve until our next annual meeting of stockholders and his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy. +5 +TABLE OF CONTENTS +What is the required vote for approval of Proposals 2, 3 and 4? +For each of the other proposals, you may vote “FOR” or “AGAINST” the proposal or you may abstain from voting on the proposal. The approval of Proposals 2, 3 and 4 will require the affirmative vote of a majority of the shares represented and entitled to vote at the Annual Meeting. For purposes of Proposals 2, 3 and 4, broker non-votes will not affect the outcome of the voting on these proposals and abstentions will have the same effect as a vote against these proposals. +May I change my vote or revoke my proxy? +Yes. If you are a stockholder of record, there are several ways in which you may revoke your proxy or change your voting instructions before the time of voting at the Annual Meeting, as follows: +• +Vote again by telephone or at the Internet website. +• +Transmit a revised proxy card or voting instruction form that is dated later than the prior one. +• +Vote electronically during the Annual Meeting, at the Internet website. +• +Notify the Company’s Corporate Secretary in writing that a prior proxy is revoked. +If you are a beneficial owner of shares, your broker or Nominee should provide instructions explaining how you may change or revoke your voting instructions. +Please note that, in order to be counted, the revocation or change must be received by the Company prior to the close of the Annual Meeting on September 9, 2021. The latest-dated, timely, properly completed proxy that you submit to the Company, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for your shares and you subsequently submit a proxy card that is not properly signed and dated, then the previously recorded vote will stand. +Is cumulative voting permissible? +No. Cumulative voting is not permitted by our certificate of incorporation. +Will I have appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting? +No. You will not be entitled to appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting. +How will my shares be voted? +Any proxy that you submit and that is not revoked will be voted as you direct. If you are a stockholder of record and you indicate when voting through the Internet or by telephone that you wish to vote as recommended by our Board, or if you sign and return a proxy card without giving specific voting instructions, then the persons designated as proxy holders in the accompanying proxy cards will vote your shares as follows: +• +“FOR” the election of each of the persons nominated by the Board in Proposal 1. +• +“FOR” the approval of the amendment and restatement of the 2016 Omnibus Incentive Plan. +• +“FOR” the approval, by advisory vote, of the compensation of our named executive officers, as described in this proxy statement. +• +“FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the fiscal year ending March 31, 2022. +If you are a beneficial owner of shares of our common stock and your Nominee does not receive instructions from you about how your shares are to be voted, then your Nominee will have the discretion to vote your shares on the “routine” matter being considered at the Annual Meeting, but will not be able to vote your shares on the “non-routine” matters being considered at the Annual Meeting, meaning that broker non-votes will result for these matters. +6 +TABLE OF CONTENTS +In the event any director nominee declines or is unable to serve as a director at the time of the Annual Meeting (which is not anticipated), the persons named in the enclosed proxy card will vote for the election of such person or persons as may be designated by the present Board. The enclosed proxy grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting, as well as any procedural matters. We have not been notified by any stockholder of any intention to present a stockholder proposal at the Annual Meeting. +I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided instructions to the contrary. If you wish to receive a separate set of proxy materials now, please send your request to: Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, Attention: Corporate Secretary. A separate set of proxy materials will be sent promptly following receipt of your request. You may also contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Who will count the votes? +The inspector of election for the Annual Meeting, who is appointed by the Board, will count the votes. It is expected that a representative of our transfer agent will serve as the inspector of election. +7 +TABLE OF CONTENTS +P roposal 1: E lection of D irectors +In July 2021, the Board unanimously approved a decrease in the number of directors from seven to six, effective upon the Annual Meeting. The Board may later increase the Board size to comply with the provisions of the California Board Gender Diversity Mandate that will become effective on December 31, 2021. +Six persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee (the “NCG Committee”), our Board selected and approved the following persons as nominees for election at the Annual Meeting: Joe Bergera, Anjali Joshi, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank. Each nominee is currently a member of our Board and has agreed to serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the nominees named above. +We have no reason to believe that any of the director nominees will be unavailable to serve. In the event any of the director nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the proxy holders named in the enclosed proxy will exercise discretionary authority to vote for substitutes. +Voting Requirements +In May 2018, our Board approved an amendment to the Company’s bylaws to implement a majority voting requirement for uncontested elections of directors. As a result, in such elections, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee. This means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested election of directors (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. If the plurality voting standard applies, the available director seats will be filled with the candidates receiving the highest number of votes cast at such meeting. +Any director may resign at any time upon providing notice to the Company. Our Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to receive the requisite majority vote in an uncontested election must tender to the Board for its consideration his or her resignation from the Board and from all of the Board committees on which he or she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” each of the director nominees listed above and below. +Director Nominees +The table and narrative below set forth information as of July 13, 2021 regarding each director nominee, including the year they first became directors of Iteris, their business experience during at least the past five years, the public company boards on which they currently serve on or have served on during the past five years, and certain other biographical information. The NCG Committee believes that these persons have qualifications, competencies, expertise and diversity that are important to an effective board of directors, as further detailed in “Director Qualifications Matrix” under Corporate Governance, Board Meetings and Committees below. +8 +TABLE OF CONTENTS +Name +Age +Current Position(s) with Iteris +Joe Bergera +57 +Chief Executive Officer, President and Director +Anjali Joshi (3) +61 +Director +Gerard M. Mooney (1)(3) +67 +Director +Thomas L. Thomas (2)(3)(4) +72 +Chairman of the Board +Laura L. Siegal (1)(2) +58 +Director +Dennis W. Zank (1) +66 +Director +(1) +Current member of the Audit Committee +(2) +Current member of the Compensation Committee +(3) +Current member of the Nominating and Corporate Governance Committee +(4) +Our bylaws provide that our Chairman of the Board is also an ex-officio member of each of our Board committees. +Joe Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive positions with Sage Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Prior to Sage Software, Mr. Bergera held senior roles at Infovista, Astrolink, MicroStrategy, and American Management Systems (acquired by CGI, Inc.). Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the Booth School of Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. The Board believes that Mr. Bergera’s extensive management and technology industry experience qualify him to serve as a director. +Anjali Joshi has served as a director of Iteris since June 2020. Until March 2019, Ms. Joshi was Vice President of Product Management at Google, where most recently she worked on products focused on emerging markets. Earlier she led the product teams for Search, Maps, Translate, News, Finance, and Global Infrastructure. She also led early efforts for Cloud services and Fiber networks. Prior to Google, Ms. Joshi served as Executive Vice President of engineering for Covad Communications, Inc., a company providing voice and data communications products and services to consumers and businesses, from 1998 to 2003. Before that, she held positions at AT&T Bell Labs, working in the areas of voice and high-speed data from 1990 to 1998. Since March 2021, Ms. Joshi has served as a board member of Alteryx, Inc. (NYSE: AYX), an end-to-end enterprise analytics automation company. Ms. Joshi has served as a board member of Lattice Semiconductor (NASDAQ: LSCC), a provider of low power FPGA solutions since November 2019. Prior to its acquisition by Ivanti in December 2020, Ms. Joshi served on the board of MobileIron (NASDAQ: MOBL), a provider of mobile security solutions, and earlier served on the board of The McClatchy Company (NYSE: MNI), a publisher of newspapers, until its acquisition by Chatham Asset Management, LLC in September 2020. She earned a bachelor’s degree in electrical engineering from the Indian Institute of Technology, a master’s degree in computer engineering from the State University of New York at Buffalo, New York, and a master’s degree in management science from Stanford University. The Board believes that Ms. Joshi’s extensive technical expertise and scaling global technology businesses, such as her deep combined knowledge of communications infrastructure and geospatial technologies, qualify her to serve as a director. +Gerard M. Mooney has served as a director of Iteris since September 2013. Mr. Mooney retired from International Business Machines Corporation (“IBM”) in March 2014, after serving in a number of senior positions since 2000. Most recently, he served as the Vice President Strategy for IBM’s Public Sector from February 2012 until his retirement, as the General Manager, Global Smarter Cities for IBM from November 2011 to February 2012, and as the General Manager, Global Government and Education for IBM from 2008 to November 2011. He served as Vice President of IBM’s Venture Capital Group from 2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard +9 +TABLE OF CONTENTS +Company (“HP”) for six years, most recently as General Manager for New Business Initiatives related to technologies developed by HP Labs. Mr. Mooney joined HP from HP’s acquisition of Edge Emitter Technology (ETT), Inc., a development stage company commercializing a solid state print head device, where Mr. Mooney served as President. Mr. Mooney has extensive operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the intelligent transportation systems market. He previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search technology, cognitive intelligence, AI, data mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and cofounder of Swarm Intelligence LLC (formerly theinnovationexchange), which offers SaaS cognitive platforms. He received a B.A. degree in Philosophy from Mount Saint Mary’s College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. The Board believes that Mr. Mooney’s extensive management, financial and industry experience qualify him to serve as a director. +Laura L. Siegal has served as a director of Iteris since May 2018. Ms. Siegal is currently Partner and Chief Financial Officer at Acorn Growth Companies, a private equity firm focused on aerospace, defense, intelligence and space investments. From July 2013 to June 2019, Ms. Siegal was the Chief Financial Officer and a member of the board of directors at NEOTech, a leading provider of high reliability electronic manufacturing solutions in the aerospace and defense, industrial and medical sectors. Prior to joining NEOTech, Ms. Siegal spent 13 years at Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), which develops and fields transformative, affordable systems, platforms and products for national security and communications needs. There Ms. Siegal held a number of financial management positions including Principal Accounting Officer, Vice President and Corporate Controller and Vice President of Finance and Treasurer. Since October 2019, Ms. Siegal has served as a director of Creation Technologies Ltd, a privately held company that provides end-to-end, scalable electronic manufacturing services to original equipment manufacturers and other companies around the world. Ms. Siegal is a Certified Public Accountant and received a B.A. degree in Economics from the University of California, San Diego. The Board believes that Ms. Siegal’s extensive financial expertise, experience in technology and public agency markets, and demonstrated success with mergers and acquisitions qualify her to serve as a director. +Thomas L. Thomas has served as a director of Iteris since 1999 and as our Chairman of the Board since 2016. Mr. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and as the first Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held various senior executive management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. From July 2017 to July 2019, Mr. Thomas served as Chairman of the Board of Directors of VIP Software Corporation, a provider of software solutions in the insurance industry. Since 2012, Mr. Thomas has served as a director of Accurate Group, which specializes in the appraisal and title services business where technology has been instrumental in redefining the transaction model for the industry. He has also served on the board of directors of infoGroup, Inc. from January 2009 to July 2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, FrontRange Solutions, IDS International, and Quofore International. The Board believes that Mr. Thomas’ extensive industry and Company experience, along with his financial expertise, qualify him to serve as a director. +Dennis W. Zank has served as a director of Iteris since January 2020. From January 2012 until stepping down in September 2018, Mr. Zank served as Chief Operating Officer of Raymond James Financial, Inc. (“RJF”), a leading diversified financial services company, responsible for domestic private client group businesses as well as many of RJF’s corporate, administrative and sales support departments. Prior to that, Mr. Zank served as President of Raymond James & Associates, a subsidiary of RJF, responsible for domestic employee channel private client business, from October 2002 to January 2012. Prior to that, Mr. Zank served in a number of financial and operational management positions with RJF and RJF subsidiaries, +10 +TABLE OF CONTENTS +holding titles such as Executive Vice President of Operations and Administration, Sr. Vice President, Controller and Treasurer, since joining RJF in 1978. From 1996 to 2002, Mr. Zank served on the board of directors of RJF. From 2000 to 2006, Mr. Zank served on the board of directors of the Options Clearing Corporation. He also served on the board of directors of the National Securities Clearing Corporation, from 1994 to 1997. Mr. Zank has been actively involved in the Corporate Mentorship Program at the University of South Florida since inception over 25 years ago. Mr. Zank holds a bachelor’s degree in accounting from the University of South Florida and a M.B.A. from the University of Tampa. The Board believes that Mr. Zank’s extensive management, financial and industry experience qualify him to serve as a director. +Family Relationships +There are no family relationships among any of our directors or executive officers. +C orporate G overnance , B oard M eetings and C ommittees +Director Independence +Our policy is to have a majority of the directors qualify as “independent” under the standards established by The Nasdaq Stock Market (“Nasdaq”). The Board has determined that each of our directors, other than our Chief Executive Officer, Joe Bergera, satisfies the requirements for “independence” using the standards established by Nasdaq. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our company and stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board, including the Audit Committee, the Compensation Committee, and the NCG Committee. The Audit Committee, the Compensation Committee, and the NCG Committee each has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During Fiscal 2021, the Board held eighteen formal meetings, the Audit Committee held five formal meetings; the Compensation Committee held eight formal meetings; and the NCG Committee met several times informally as we continued our ongoing process for Board refreshment and the NCG Committee acted formally once by unanimous written consent. During Fiscal 2021, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of the standing committees of the Board on which such director served during that period. During Fiscal 2021, due to complications related to COVID-19 and in order to protect the safety of our employees and directors of the Board, the Board and various committees of the Board did not hold any in-person meetings. +Audit Committee. The current members of our Audit Committee are Ms. Siegal and Messrs. Mooney and Zank. Mr. Zank serves as the Chairman of this committee. The Board has determined that each member of the Audit Committee is “independent” under the standards established by both the Nasdaq rules and the SEC rules regarding audit committee members. The Board has identified Mr. Zank as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the Company’s accounting and financial reporting processes, the audits of our financial statements and the integrity of the Company’s +11 +TABLE OF CONTENTS +audited financial statements and other financial reports; (b) the performance of the Company’s internal accounting, internal auditing, and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent auditors, and (d) the portions of our Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews and approves or disapproves related party transactions identified in Item 404 of SEC Regulation S-K and makes recommendations to the full Board regarding the same. +The Audit Committee meets privately with our independent registered public accounting firm from time to time, and such firm has unrestricted access to, and reports directly to, the Audit Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2022 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Ms. Siegal and Mr. Thomas and Mr. Luke Schneider, who will serve as a director and a member of the Compensation Committee until the Annual Meeting. Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the Compensation Committee are to (a) evaluate officer and director compensation policies, goals, plans and programs; (b) oversee compensation programs and policies for all employees as they relate to the Company’s risk management; (c) determine the cash and non-cash compensation of our directors and “executive officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (d) review, and make recommendations to the Board with respect to the administration of, our equity-based and other incentive compensation plans for all employees; (e) evaluate the performance of our executive officers; (f) assist the Board in evaluating potential candidates for executive officer positions with the Company and oversee management succession planning; and (g) produce the committee report required by the applicable rules and regulations of the SEC and other regulatory bodies for inclusion in our annual proxy statements. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to each executive’s contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers and makes recommendations with respect to executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. The Compensation Committee retained Frederic W. Cook & Co., Inc., an independent compensation consultant (“FW Cook”), to advise on executive compensation. FW Cook did not provide any other services to us in Fiscal 2021 beyond its engagement as an advisor to the Compensation Committee on executive compensation matters. The Compensation Committee assessed the independence of FW Cook pursuant to SEC and Nasdaq rules and concluded that no conflict of interest existed that would have prevented FW Cook from serving as an independent consultant to the compensation committee currently or during Fiscal 2021. +Nominating and Corporate Governance Committee. The current members of the NCG Committee are Ms. Joshi and Messrs. Mooney and Thomas. Mr. Mooney serves as the Chairman of this committee. The Board has determined that each member of the NCG Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the NCG Committee are to assist the Board in (a) establishing the minimum qualifications for director nominees; (b) identifying and evaluating director nominees; (c) recommending to the Board candidates for the Annual Meeting of Stockholders or to fill any vacancies on the Board; and (d) developing and assessing corporate governance policies and making recommendations related to such policies to the Board. +12 +TABLE OF CONTENTS +Criteria for Director Candidate Qualifications +Our NCG Committee applies the same standards in considering director candidates submitted by stockholders as it does in evaluating other candidates, including incumbent directors. The identification and selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, and will be significantly influenced by the particular needs of the Board from time to time. As a result, there is no specific set of minimum qualifications, qualities or skills that are necessary for a nominee to possess, other than those that are necessary to meet U.S. legal, regulatory and Nasdaq listing requirements and the provisions of our Certificate of Incorporation, Bylaws and charters of the Board’s committees. However, the NCG Committee and the Board have identified the following skills and qualifications listed below as important criteria for membership on our Board: +➢ +Board Experience — Experience serving on public company boards of directors. +➢ +Data/Analytics — A demonstrated understanding of data and analytics, as well as the ability to commercialize the resulting processes, techniques and/or insights. +➢ +Diversity — Representation of gender, racial, ethnic and/or other diverse perspectives that expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, governments and other stakeholders worldwide. +➢ +Financial Sophistication — Past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. +➢ +Growth/Value Creation — Demonstrated experience in entrepreneurial growth and/or other transformational operating models resulting in measurable increase in stockholder value. +➢ +Mergers and Acquisitions (M&A) — Experience evaluating and leading acquisitions and other strategic transactions, with the ability to assess “build or buy” decisions, analyze the fit of a target with our strategy and culture, accurately value transactions, and evaluate operational integration plans. +➢ +Operating Leadership — Experience as a chief executive officer, president, chief operating officer or general manager leading an organization our size or bigger. +➢ +Product/Technology — Experience working in technology, resulting in knowledge of how to anticipate technological trends, generate disruptive innovation, and extend or create new business models. +➢ +SaaS/IaaS — Experience in software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and/or subscription-based, software-enabled service delivery models. +➢ +Sales and Marketing — Experience developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation. +➢ +Smart Mobility — Experience related to the application of cloud computing, artificial intelligence, advanced sensors, advisory services and/or managed services to the transportation sector, including mobility-as-a-service, connected and automated vehicles and/or transportation infrastructure. +Director Qualifications Matrix +The following matrix presents how the NCG Committee maps our director qualifications to the director nominees and led to each nominee’s selection as a member of the Board. The NCG Committee routinely reviews this qualification matrix, modifies the matrix to reflect adjustments to our business strategy and/or market landscape, and evaluates whether it would be prudent to make any changes to the size or composition of our Board. +13 +TABLE OF CONTENTS +Selection Process for Nomination of Director Candidates +The NCG Committee regularly reviews the composition of the Board, including the qualifications, expertise and characteristics that are represented in the current Board as well as the criteria it considers needed to support our long-term strategy. In its most recent search processes to add new directors to the Board, the NCG Committee retained an independent search firm to identify and vet candidates. After an in-depth review of the candidates, the NCG Committee recommends candidates to the Board in accordance with its charter, our Certificate of Incorporation and Bylaws and our criteria for director candidate qualifications described above. After careful review and consideration, the Board will nominate candidates for election, or re-election, at our annual meeting of stockholders. The Board may appoint a director to the Board during the course of the year to serve until the next meeting of stockholders. +Director Tenure and Refreshment +When recommending to the Board the slate of director nominees for election at our annual meeting of stockholders, the NCG Committee strives to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. The Board believes that refreshment is important to help ensure that Board +14 +TABLE OF CONTENTS +composition is aligned with the needs of the Company as our business evolves over time, and that fresh viewpoints and perspectives are regularly considered. The Board also believes that over time directors develop an understanding of the Company and an ability to work effectively as a group. Because this provides significant value, a degree of continuity year-over-year is beneficial to stockholders and generally should be expected. All our directors are elected each year to hold office until the next annual meeting and until their successors are elected and qualified. Because tenure or age limits could cause the loss of experience or expertise important to the optimal operation of the Board, there are no absolute limits on the length of time that a director may serve. +Our director nominees have average tenure on our Board of approximately 7 years, and the following table shows the range of tenures of our director nominees, evidencing the Board refreshment we have undertaken in recent years: +Years of Tenure +Directors +0-2 years +2 +2-5 years +1 +5+ years +3 +Stockholder Nomination of Director Candidates +The NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the NCG Committee Chair, care of our Corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock and entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by certain committees of the Board, as described in the table below. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing (including cyber security risks); and how these risks are being managed. +15 +TABLE OF CONTENTS +Audit Committee +• +Focuses on financial risk of the Company +• +Reviews internal controls and the Company’s financial statements with the CEO, CFO and the external and internal auditors. +• +Oversees risks assessment and risk management (and its applicable processes) by management and our independent auditors relating to key financial, accounting and reporting policies. +• +Oversees the selection, appointment, retention, compensation, evaluation and performance of the work of the Company’s independent auditors. +• +Meets quarterly with CEO, CFO and the Company’s external independent auditors in executive session. +Compensation Committee +• +Oversees risks associated with our compensation policies and programs with respect to both executive compensation and compensation for all employees generally. +• +Utilizes external independent compensation consultant to assist in designing and reviewing compensation policies and programs, including the potential risks created by the policies and programs. +• +Assists Board in overseeing the Company’s executive management succession planning. +• +Oversees the process for conducting the annual risk assessment of the Company’s compensation programs and policies, including retaining, from time to time, third party consultants to assess risk. See “Compensation Risk Assessment” below. +Nominating and Corporate Governance Committee +• +Oversees risks relating to certain legal and regulatory compliance risks with respect to the Company’s corporate governance policies and standards. +• +Oversees compliance and risks related to Board structure, directors and director nominations. +• +Oversees risks related to compliance matters by reviewing on at least an annual basis issues and developments related to corporate governance. +• +Oversees risks related to the Company’s compliance with the listing standards and the Sarbanes/ Oxley Act. +Changes in Nominating Procedures +There have not been any material changes to the procedures by which security holders may recommend nominees to our Board that were implemented since we last disclosed such procedures. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can submit a written request to Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705; Attention: Corporate Secretary. +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. All of our then-current directors attended our 2020 annual meeting of stockholders. +16 +TABLE OF CONTENTS +Policy against Hedging and Pledging +The Company has a policy strongly recommending against hedging or pledging in our equity securities by our officers, directors or employees. +D irector C ompensation +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for nonemployee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are our employees are not compensated for their services as directors. +Board and Committee Retainers +For Fiscal 2021, annual cash compensation for nonemployee directors was as follows: +Position +Annual +Retainer +Chairman of the Board +$ +65,000 +Nonemployee Director (other than the Chairman) +$ +35,000 +Additional retainers for each nonemployee director who served on one or more Board committees in Fiscal 2021 were as follows: +Position +Annual +Retainer +Audit Committee +Chair +$12,000 +Member +$6,000 +Compensation Committee +Chair +$9,000 +Member +$4,500 +Nominating and Corporate Governance Committee +Chair +$4,000 +Member +$2,000 +All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board and its committees, but they do not receive separate meeting fees. +Annual Equity Compensation +Nonemployee directors are also eligible to receive periodic restricted stock units (“RSUs”) under the Company’s equity incentive plan then in effect. Each nonemployee director shall be granted an annual RSU award upon approval of the grant by the Compensation Committee as soon as reasonably practicable following the annual meeting of stockholders at which such director is re-elected. The annual RSU grant to directors shall be worth approximately $40,000 based on the closing price of the Company’s common stock on the RSU grant date. Each RSU entitles the holder to receive one share of the Company’s common stock upon vesting of such unit. Each annual RSU generally vests on the date of the first annual stockholder meeting following the date of grant. If a nonemployee director joins the Board in between annual stockholder meetings, such director will receive an RSU for a pro rata portion of the annual grant, which typically vests in full on the date of the first annual stockholder meeting following the date of grant. +2021 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2021 by each person who served as a nonemployee director during that year: +17 +TABLE OF CONTENTS +Name +Fees Earned +or Paid in +Cash ($) (1) +Stock +Awards ($) (2) +Total ($) +Anjali Joshi (3) +28,938 +39,998 +68,936 +Scott E. Deeter (4) +19,750 +— +19,750 +Gerard M. Mooney +46,125 +39,998 +86,123 +Laura L. Siegal +45,329 +39,998 +85,327 +Lucas (“Luke”) P. Schneider (5) +28,122 +39,998 +68,121 +Thomas L. Thomas +80,470 +39,998 +120,468 +Dennis W. Zank +50,370 +39,998 +90,369 +(1) +Represents amounts earned by the directors based on the arrangements described above, which amounts have been prorated for directors who served on Board committees for less than a full term. +(2) +The dollar amounts shown represent the grant date fair value of restricted stock unit awards granted in Fiscal 2021 determined in accordance with ASC 718. For a discussion of valuation assumptions used in the calculations, see Note 9 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Part II, Item 7 in the Annual Report. +For each director, the number of units was determined by dividing $40,000 by $4.18, the closing sales price of the Company’s common stock on the grant date. At the end of Fiscal 2021, the above-listed directors held no stock options. At the end of Fiscal 2021, the above listed directors held RSUs for the following number of shares of common stock: Ms. Joshi — 9,569; Mr. Deeter — 0; Mr. Mooney — 9,569; Ms. Siegal — 9,569; Mr. Thomas — 9,569; Mr. Schneider — 9,569; and Mr. Zank — 9,569. +(3) +Ms. Joshi joined the Board in June 2020, and accordingly, earned pro-rated Board fees in Fiscal 2021. +(4) +Mr. Deeter stepped down from the Board on July 15, 2020, concurrently with the appointment of Mr. Schneider. +(5) +Mr. Schneider joined the Board in July 2020, and accordingly, earned pro-rated Board fees in Fiscal 2021. Mr. Schneider will serve as a director until the Annual Meeting. +Stock Ownership Guidelines +Pursuant to stock ownership guidelines adopted by the Board in February 2016, each nonemployee member of the Board is required to own shares of the Company common stock having a value equal to or greater than three times the annual cash Board retainer, which is currently set at $35,000 per year. Each director has until the later of (i) February 2021 and (ii) five years from the time he or she is elected to the Board, to meet the stock ownership guidelines. +Effective September 2020, the Company adopted additional stock ownership guidelines to align the interests of management with those of stockholders of the company. Under these guidelines, the CEO will be expected to own common stock of the Company having a value equal to or greater than three times his or her base salary and the other executive officers are expected to own common stock of the Company having a value equal to or greater than one times his or her base salary. Each executive has the goal of meeting this threshold by the later of (i) September 2025 and (ii) the fifth anniversary of his or her first employment as an executive officer. +All Company shares held by the director or executive officer, his or her related trusts and immediate family members, shares underlying restricted stock units or performance stock units, and 50% of the in-the-money value of vested stock options shall be included in the calculations. +As of March 31, 2021, each of our nonemployee directors were in compliance with our stock ownership guidelines or had additional time under the terms of the guidelines within which to fulfill the requirement. +18 +TABLE OF CONTENTS +Deferred Compensation Plan +Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of nonemployee members of our Board. Under the DC Plan, our nonemployee directors may elect to defer up to 100% of any RSU awards and up to 100% of their cash compensation for service as a director. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. For a description of the terms of the DC Plan, see “Executive Compensation and Other Information — Non-Qualified Deferred Compensation for Fiscal 2021” herein. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of the Board or Compensation Committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or Compensation Committee. No interlocking relationship exists between any member of the Board and any member of the Compensation Committee (or other committee performing equivalent functions) of any other company. +19 +TABLE OF CONTENTS +P roposal 2: A pproval of A mended and R estated +I teris , inc . 2016 O mnibus I ncentive P lan +At the Annual Meeting, stockholders will be asked to consider and approve a proposal to amend the Iteris, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). The Board approved the amendment and restatement of the 2016 Plan on July 15, 2021, subject to stockholder approval at the Annual Meeting. The amended and restated plan is referred to herein as the “Restated Plan.” +The Restated Plan implements the following material amendments to the 2016 Plan: +• +Increase in Share Reserve . We are asking our stockholders to approve an increase of 3,360,000 in the number of shares available for issuance under the Restated Plan over the existing share reserve under the 2016 Plan. Incentive compensation programs play a pivotal role in our effort to attract and retain key personnel essential to our long-term growth and financial success. For that reason, we have structured the 2016 Plan to provide flexibility in designing equity incentive programs with a broad array of equity incentives, such as stock options, stock appreciation rights, stock awards, restricted stock units, cash incentive awards, and dividend equivalents, so that we may implement competitive incentive compensation programs for our key employees and non-employee directors. As of July 13, 2021, a total of 776,492 shares of common stock remained available for future grants under the 2016 Plan (with performance awards counted at “target”). We believe that the current share reserve amount is insufficient to meet our future needs with respect to attracting, motivating and retaining key executives and employees in a competitive market for talent. If this proposal is not approved, we may be unable to continue to offer competitive equity packages to attract and retain employees and we may have to increase cash compensation to recruit, retain and motivate our employees, thereby reducing resources available to meet our business needs. +• +Extension of Term . The Restated Plan will have a ten-year term ending July 15, 2031. +• +Limitations on Dividend Payments on Unvested Awards . The Restated Plan prohibits the payment of dividends and dividend equivalent rights on unvested awards. +• +Increase in the Limit on Director Pay. The limit on director pay, including any cash payments and the grant date fair value of equity granted to any one non-employee director during a single fiscal year, is being increased from $250,000 to $350,000. +• +Revise the Full-Value Award Ratio. The fungible rate at which awards other than options or stock appreciation rights granted under the Restated Plan are counted against the shares of common stock available for future issuance under the Restated Plan is being decreased from 1.79 shares for every one share issued, to 1.52 for every one share to be issued for future award under the Restated Plan. +Current Overview of Outstanding Equity Information +The 2016 Plan became effective on December 15, 2016 upon its approval by the stockholders at the 2016 Annual Meeting (the “Original Plan Effective Date”). The 2016 Plan is the successor to our 2007 Omnibus Incentive Plan (the “Predecessor Plan”), which terminated on the Original Plan Effective Date, following which no awards may be made under the Predecessor Plan. The 2016 Plan was most recently amended and restated effective October 11, 2018, when our stockholders approved an amendment to increase the number of shares of our common stock authorized and reserved for issuance under the 2016 Plan by 2,400,000. +On December 4, 2020, our Board approved the Iteris, Inc. 2020 Employment Inducement Incentive Award Plan (the “Inducement Plan”) in conjunction with acquisition of the assets of TrafficCast International, Inc. (“TrafficCast”). The terms of the Inducement Plan are substantially similar to the terms of the 2016 Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by our Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Board initially reserved 300,000 shares of our common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board of the Company or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only +20 +TABLE OF CONTENTS +if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. +The 2016 Plan is the only plan under which future equity awards may be granted to our employees and other service providers. No further awards will be granted under the Inducement Plan, although the outstanding awards under the Inducement Plan remain outstanding in accordance with their terms. +When deciding on the number of shares to be available for awards under the Restated Plan, the Board considered a number of factors, including the remaining number of shares available under the 2016 Plan, the number of shares needed for future awards, a dilution analysis, the recommendation from the Compensation Committee based on input from FW Cook, its independent compensation consultant, competitive data from relevant peer companies, the current and future accounting expenses associated with our equity award practices, and input from our stockholders and stockholder advisory firms. +The Company currently has awards outstanding under the 2016 Plan, the Predecessor Plan, and Inducement Plan. The table below reflects the outstanding awards under these plans, and the shares available for issuance under such plan, in each case as of July 13, 2021. The total number of shares of the Company’s common stock outstanding as of July 13, 2021 was 42,281,621. +Plans as of July 13, 2021 +Shares +Subject to +Outstanding +Stock +Options (1) +Shares +Subject to +Outstanding +Restricted +Unit Awards +Shares Subject +to Outstanding +Performance +Stock Unit +Awards (2) +Shares +Remaining +Available for +Future Grant +2016 Plan +3,586,282 +22,960 +132,403 +776,492 +Predecessor Plan +1,434,500 +327,589 +— +— +Inducement Plan (3) +95,000 +84,914 +— +120,086 +Total (Before Restated Plan is approved) +5,115,782 +435,463 +132,403 +896,578 +Shares to be added to share reserve pursuant to Restated Plan +— +— +— +3,360,000 +Total (After Approval of Restated Plan) (4) +5,115,782 +435,463 +132,403 +4,136,492 +(1) +As of July 13, 2021, the 5,115,782 stock options outstanding had a weighted average exercise price per share of $4.22 and a weighted average life of 6.7 years. +(2) +Consists of PSUs at “target” level of performance. The number of performance shares outstanding as of July 13, 2021, under the 2016 Plan assuming “maximum” performance is 264,806. +(3) +No further awards will be made under the Inducement Plan. +(4) +This is subject to adjustment and increase as discussed in the section titled “Securities Subject to Restated Plan” below. +Note that the 4,136,492 shares to be available for issuance under the Restated Plan excludes any remaining shares available for issuance under the Inducement Plan, and no further awards will be made under the Inducement Plan. For purposes of calculating the shares that remain available for grant under the 2016 Plan and the Restated Plan (assuming approval of this Proposal 2), each “full value” award is counted using the applicable ratio as specified in the plan and PSUs are calculated assuming “target” performance. +Based on the Company’s common stock outstanding as of July 13, 2021, the aggregate total shares issuable under the 2016 Plan, the Predecessor Plan and Inducement Plan as set forth in the table above (consisting of shares available for future issuance under such plans as of such date and shares subject to outstanding awards, with PSUs at “target” level of performance) represents an overhang of approximately 13.5% of shares. If the amendment and restatement of the 2016 Plan is approved, the additional 3,360,000 shares available for issuance would increase the overhang to approximately 18.8% if shares available for future grant are expressed in stock options, or 16.6% if shares available for future grant are expressed in full-value shares. The Company calculates “overhang” as the total of (a) shares underlying outstanding awards +21 +TABLE OF CONTENTS +plus shares available for issuance under future equity awards, divided by (b) the total number of shares outstanding, shares underlying outstanding awards and shares available for issuance under future equity awards. +We recognize that equity awards dilute existing stockholders. In connection with our stock-based compensation programs, we are committed to using equity incentive awards prudently and within reasonable limits. Accordingly, we closely monitor our stock award “burn rate” each year. Our annual burn rate is determined by dividing the number of shares of our common stock subject to stock-based awards we grant in a fiscal year by the weighted average number of our fully-diluted shares of common stock outstanding for that fiscal year. +Fiscal Year +Stock Options +Granted +RSUs +Granted +PSUs +Granted (1) +Total +Granted +Weighted +Average +Common +Stock +Outstanding +Burn +Rate +2021 +830,600 +231,863 +68,285 +1,130,748 +41,599,432 +3 % +2020 +1,205,500 +373,939 +— +1,579,439 +39,012,348 +4 % +2019 +1,037,850 +61,870 +— +1,099,720 +33,266,192 +3 % +3-Year Average +1,024,650 +222,557 +22,762 +1,269,969 +37,959,324 +3 % +(1) +Consists of performance-based restricted stock units at “target” level of performance. There were no performance-based restricted stock units earned based on performance during 2019, 2020, and 2021. +Based on our current equity award practices, the Board estimates that the authorized shares under the Restated Plan may be sufficient to provide us with an opportunity to grant equity awards for approximately two to three years, in amounts determined appropriate by the Compensation Committee or the Board, which will administer the Restated Plan (as discussed below). This is only an estimate, and circumstances could cause the share reserve to be used more quickly or more slowly. These circumstances include, but are not limited to, the future price of shares of the common stock, the mix of options and full value awards provided as long-term incentive compensation, grant amounts provided by our competitors, payout of performance-based awards in excess of target in the event of superior performance, hiring activity, and promotions during the next few years. +Highlights of the Restated Plan +The Restated Plan contains a number of provisions that we believe are consistent with best practices in equity compensation and which protect the stockholders’ interests, as described below. +Prohibition on re-pricings: The Restated Plan prohibits the reduction of the exercise price in effect for outstanding options or stock appreciation rights, the cancellation and replacement of stock options or stock appreciation rights with a grant with a lower exercise price, or a cash buyout of an underwater option or stock appreciation right (except as permitted in a change in control or in the case of an adjustment event as described in the section titled “Changes in Capitalization” below). +No evergreen authorization: The Restated Plan does not have an evergreen provision, which normally permits an automatic annual increase in the share pool without further stockholder approval. +Reasonable limit on full value awards: For purposes of calculating the shares that remain available for issuance under the Restated Plan, grants of options and stock appreciation rights will be counted as the grant of one share for each one share actually granted, as described below. However, to protect stockholders from potentially greater dilutive effect of full value awards (i.e., awards other than options and stock appreciation rights), all grants of full value awards will be deducted from the Restated Plan’s share reserve as 1.52 shares for each one share actually granted (this ratio is being amended, as the ratio currently in effect under the 2016 Plan, prior to approval of the Restated Plan, is 1.79). +No automatic vesting upon a change in control: The Restated Plan allows for an acquiring corporation to assume outstanding awards, and if awards are assumed, they will generally not accelerate on the change +22 +TABLE OF CONTENTS +in control. If awards are not assumed, the vesting of such awards will be accelerated. The plan administrator also has the discretion to take alternative actions such as accelerating the vesting of outstanding awards or requiring that participants exchange outstanding accelerated awards for cash. +Minimum vesting periods: Options and stock appreciation rights are subject to a minimum vesting period of at least one year from the date of grant. However, the minimum vesting requirement will not apply to (a) any awards up to 5% of the available shares of common stock authorized for issuance under the Restated Plan (the “5% Basket”), (b) any awards delivered in lieu of fully-vested cash-based awards under the Restated Plan (or other fully-vested cash awards or payments), and (c) any awards to non-employee directors for which the vesting period runs from the date of one annual meeting of the Company’s stockholders to the next annual meeting of the Company’s stockholders which is at least fifty (50) weeks after the immediately preceding year’s annual meeting. Any option or stock appreciation right granted under the Restated Plan may vest in full or in part upon death or disability of the participant, upon a participant’s termination of service, or upon a change in control, and such vesting shall not count against the 5% Basket. +No discounted stock options or stock appreciation rights: Stock options and stock appreciation rights must have an exercise price or base price at or above fair market value on the date of grant. +Limit on director pay: The maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all awards made to a non-employee director under the Restated Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such non-employee director in respect of such fiscal year, shall not exceed $350,000 in total value ($250,000 under the 2016 Plan, prior to approval of the Restated Plan). +No tax gross-ups: The Restated Plan does not provide for any tax gross-ups. +No liberal change-in-control definition: The Restated Plan defines change in control based on the consummation of the transaction rather than the announcement or stockholder approval of the transaction. +Limitation on dividends and dividend equivalents: Any dividends or dividend equivalents payable in connection with an award subject to vesting will be subject to the same vesting restrictions as the underlying award and will not be paid until and unless such vesting conditions are met. +Administered by an independent committee: The Restated Plan will be administered by our Board’s Compensation Committee, which consists entirely of independent directors. Administration of the Restated Plan may also be delegated to a secondary committee or, one or more officers or retained by the Board as described in more detail below. +Awards subject to Company’s clawback policy: Awards granted under the Restated Plan are subject to the Company’s clawback policy, which applies to executive officers’ incentive compensation in the event of a financial restatement, and is described in more detail elsewhere in this proxy statement. +Summary Description of Restated Plan +The principal terms and provisions of the Restated Plan are set forth below. The summary, however, is not intended to be a complete description of all the terms of the Restated Plan and the complete text of the Restated Plan, is attached to this proxy statement as Appendix A , which may be accessed on the SEC’s website at www.sec.gov. Any stockholder who wishes to obtain a copy of the actual plan document may do so upon written request to our Corporate Secretary at our principal offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +Types of Awards. The following types of awards may be granted under the Restated Plan: options, stock appreciation rights, stock awards, performance-based restricted stock units, restricted stock units, cash incentive awards and dividend equivalent rights. The principal features of each type of award are described below. +Administration. The Compensation Committee has the exclusive authority to administer the Restated Plan with respect to awards made to our executive officers and non-employee directors and has the authority to make awards under the Restated Plan to all other eligible individuals. However, our Board may, at any +23 +TABLE OF CONTENTS +time appoint a secondary committee of one (1) or more Board members to have separate but concurrent authority with the Compensation Committee to make awards under the Restated Plan to individuals other than executive officers and non-employee directors or the Board may retain authority to make awards to such persons. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the Restated Plan to one or more officers (other than with respect to grants to executive officers and non-employee directors). +The term “plan administrator,” as used in this summary, will mean our Compensation Committee, the Board and any secondary committee, to the extent each such entity is acting within the scope of its administrative authority under the Restated Plan. +Eligibility. Officers and employees, non-employee directors, as well as consultants and other independent advisors, in our employ or service or in the employ or service of our parent or subsidiary companies (whether now existing or subsequently established) are eligible to participate in the Restated Plan. As of July 13, 2021, we had approximately 430 employees (including 4 named executive officers), approximately 4 consultants and 6 nonemployee directors, who were eligible to participate in the Restated Plan and would have been eligible to participate in the Restated Plan had it been in effect on such date. +Securities Subject to Restated Plan. The Restated Plan authorizes an increase of 3,360,000 in the number of shares available for issuance under the Restated Plan over the existing share reserve under the 2016 Plan. Accordingly, when the new share request is added to the shares previously authorized under the 2016 Plan, the Restated Plan will authorize the issuance of the sum of: +• +9,263,602 shares of common stock (comprised of (i) the 3,400,108 shares available on the Original Plan Effective Date (after taking into account awards granted under the Predecessor Plan after July 22, 2016 and prior to the Original Plan Effective Date); (ii) the 103,494 shares transferred to the 2016 Plan as a result of cancelled the Predecessor Plan awards since the Original Plan Effective Date, (iii) the 2,400,000-share increase approved by the shareholders on October 11, 2018, and (iv) the 3,360,000-share increase approved by the Board on July 15, 2021 pursuant to the Restated Plan, subject to stockholder approval at the Annual Meeting); plus +• +For each award that is outstanding under the Predecessor Plan as of the effective date of the Restated Plan, (i) one share for each share subject to an award that is an option or stock appreciation right and (ii) 1.52 shares for each share subject to a full-value award, in each case, that subsequently becomes available for issuance under the Restated Plan pursuant to the share counting provisions described below. +• +No further awards will be made under the Inducement Plan. +As of July 13, 2021, awards covering a total of 3,741,645 shares were subject to outstanding awards under the 2016 Plan (with performance awards counted assuming “target” performance). Therefore, for the avoidance of doubt, the 9,263,602 shares reflected in the first bullet above includes shares subject to awards granted and settled in prior years and is not a reflection of availability for new, future awards following the effective date of the Restated Plan. A maximum of an additional 1,932,435 shares could become available for future issuance under the Restated Plan in respect of outstanding awards under the Predecessor Plan that expire or are terminated pursuant to the terms of the Restated Plan, as described below. +As of July 13, 2021, there were 776,492 shares remaining available for grant under the 2016 Plan (with each “full value” award counted using the applicable ratio as specified in the plan and PSUs calculated assuming “target” performance). Therefore, as of the date of the Company’s 2021 Annual Meeting, and subject to stockholder approval, there will be 4,136,492 shares available for the grant of new awards under the Restated Plan (the sum of 776,492 remaining shares and the requested 3,360,000 new shares), less grants made after July 13, 2021 and counted at the fungible ratio described above and subject to adjustments as described in the Restated Plan and below. +Shares subject to outstanding awards under the Restated Plan and awards granted under the Predecessor Plan that expire or otherwise terminate prior to the issuance of the shares subject to those awards will be available for subsequent issuance under the Restated Plan as follows: (a) for each share subject to an expired option or stock appreciation right, one share of common stock shall become available for subsequent +24 +TABLE OF CONTENTS +issuance under the Restated Plan, and (b) for each share subject to an expired award other than an option or stock appreciation right, 1.52 shares shall become available for subsequent issuance under the Restated Plan. +Any unvested shares issued under the Restated Plan and the Predecessor Plan for cash consideration not less than the fair market value per share on the date of grant that are subsequently repurchased by us, at a price not greater than the original issue price paid per share, pursuant to our repurchase rights under the Restated Plan and the Predecessor Plan will be added back to the number of shares reserved for issuance under the Restated Plan and will accordingly be available for subsequent issuance. +The number of shares of common stock reserved for issuance under the Restated Plan shall be reduced on a one-for-one basis for each share subject to an option or stock appreciation right and by a fixed ratio of 1.52 shares for each share of common stock subject to an award other than an option or stock appreciation right. +In addition, the following share counting procedures will apply in determining the number of shares of common stock available from time to time for issuance under the Restated Plan: +• +Should the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option granted under the Restated Plan or the Predecessor Plan be paid in shares of our common stock (whether through the withholding of a portion of the otherwise issuable shares or through tender of actual outstanding shares), then in each such case the number of shares so tendered or withheld will be added to the shares reserved for issuance under the Restated Plan on a one-for-one basis. +• +Should shares of common stock be withheld by us, or if shares are tendered by the participant, in each case in satisfaction of the withholding taxes incurred in connection with the issuance, vesting or settlement of an award (other than an option or stock appreciation right) granted under the Restated Plan or the Predecessor Plan, then in each case the number of shares so tendered or withheld will be added to the shares of common stock available for issuance under the Restated Plan on a 1.52-for-one basis (this ratio is being amended, as the ratio currently in effect under the 2016 Plan, prior to approval of the Restated Plan, is 1.79). +Upon the exercise of any stock appreciation right granted under the Restated Plan, the share reserve will be reduced by the net number of shares subject to the award. +The maximum number of shares of common stock that may be issued pursuant to options intended to qualify as incentive stock options under the federal tax laws shall be limited to 10,000,000. +The Company may grant awards in assumption of, or in substitution or exchange for, awards previously granted by a company acquired by the Company or any subsidiary. Such substitute awards will not reduce the shares of common stock authorized for issuance under the Restated Plan or the limitations on grants to a participant during a fiscal year as described above. Additionally, if the acquired company’s equity plan has shares available, such shares may be available for grant under the terms of that plan (as adjusted using the exchange ratio described above), which will not reduce the shares authorized for issuance under the Restated Plan. +The shares of common stock issuable under the Restated Plan may be drawn from shares of our authorized but unissued common stock or from shares of our common stock that we acquire, including shares purchased on the open market. +Participant Award Limits. The maximum number of shares of common stock which may be issued pursuant to options or stock appreciation rights that are settled in shares and granted to any person under the Restated Plan in any fiscal year shall be limited to 2,000,000 shares. +The maximum number of shares for which awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person under the Restated Plan in any fiscal year shall not exceed 2,000,000 shares (which limit shall refer to the maximum amount that can be earned) in the aggregate. +During any fiscal year, no participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each 12 months in the performance period. +25 +TABLE OF CONTENTS +In addition, the maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all awards made to a non-employee director under the Restated Plan in a single fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such non-employee director in respect of such fiscal year, shall not exceed $350,000 in total value ($250,000 under the 2016 Plan, prior to approval of the Restated Plan). +Awards. The plan administrator has complete discretion to determine (a) which eligible individuals are to receive awards, (b) the type, size, terms and conditions of the awards to be made, (c) the time or times when those awards are to be granted, (d) the number of shares or amount of payment subject to each such award, (e) the time when the award is to become exercisable, (f) the status of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws, (g) the maximum term for which the award is to remain outstanding, (h) the vesting and issuance schedules applicable to the shares which are the subject of the award, (i) the cash consideration (if any) payable per share subject to the award and the form of payment in which the award is to be settled, (j) the vesting schedule for a cash incentive award and (k) with respect to performance-based awards, the performance objectives, the amount payable at one or more levels of attained performance and the payout schedule. +Stock Options. Each granted option will have an exercise price per share determined by the plan administrator, but the exercise price will not be less than one hundred percent (100%) of the fair market value of the option shares on the grant date. No granted option will have a term in excess of ten (10) years. The shares subject to each option will generally vest in one or more installments over a specified period of service measured from the grant date or upon the achievement of pre-established performance objectives. However, one or more options may be structured so that they will be immediately exercisable for any or all of the option shares. The shares acquired under such immediately exercisable options will be subject to repurchase by us, at the lower of the exercise price paid per share or the fair market value per share, if the optionee ceases service prior to vesting in those shares. Payment of the exercise price may be paid in one or more of the following forms as determined by the plan administrator: cash, shares of our common stock, through a cashless exercise procedure pursuant to which the optionee effects a same-day exercise of the option and sale of the purchased shares through a broker in order to cover the exercise price for the purchased shares and the applicable withholding taxes and/or through a net exercise procedure pursuant to which we withhold a number of shares otherwise issuable upon exercise of the option having a value equal to the exercise price and applicable withholding taxes. +Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the extent exercisable for vested shares. The plan administrator will have complete discretion to extend the period following the optionee’s cessation of service during which his or her outstanding options may be exercised, provide for continued vesting during the applicable post-service exercise period and/or accelerate the exercisability or vesting of options in whole or in part. Such discretion may be exercised at any time while the options remain outstanding. +Stock Appreciation Rights. The Restated Plan allows the issuance of two types of stock appreciation rights: +• +Tandem stock appreciation rights granted in conjunction with options which provide the holders with the right to surrender the related option grant for an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the vested shares of our common stock subject to the surrendered option over (ii) the aggregate exercise price payable for those shares. +• +Stand-alone stock appreciation rights which allow the holders to exercise those rights as to a specific number of shares of our common stock and receive in exchange an appreciation distribution from us in an amount equal to the excess of (i) the fair market value of the shares of common stock as to which those rights are exercised over (ii) the aggregate exercise price in effect for those shares. The exercise price per share may not be less than the fair market value per share of our common stock on the date the stand-alone stock appreciation right is granted, and the right may not have a term in excess of ten (10) years. +The appreciation distribution on any exercised stock appreciation right will be paid in (i) cash, (ii) shares of our common stock or (iii) a combination of cash and shares of our common stock. Upon cessation of service with us, the holder of a stock appreciation right will have a limited period of time in which +26 +TABLE OF CONTENTS +to exercise that right to the extent exercisable at that time. The plan administrator has complete discretion to extend the period following the holder’s cessation of service during which his or her outstanding stock appreciation rights may be exercised, provide for continued vesting during the applicable post-service exercise period and/or accelerate the exercisability or vesting of stock appreciation rights in whole or in part. Such discretion may be exercised at any time while the stock appreciation rights remain outstanding. +Repricing Prohibited. The plan administrator may not implement any of the following repricing programs (except in the case of a corporate transaction as described in the section titled “Changes in Capitalization” below, without stockholder approval): (i) the cancellation of outstanding options or stock appreciation rights in return for new options or stock appreciation rights with a lower exercise price per share, (ii) the cancellation of outstanding options or stock appreciation rights with exercise prices per share in excess of the then current fair market value per share of our common stock for consideration payable in cash, other awards or our equity securities (except in the event of a change in control) or (iii) the direct reduction of the exercise price in effect for outstanding options or stock appreciation rights. +Stock Awards and Restricted Stock Units. Shares of our common stock may be issued under the Restated Plan subject to performance or service vesting requirements established by the plan administrator or as a fully-vested bonus for past services without any cash outlay required of the recipient. Shares of our common stock may also be issued under the Restated Plan pursuant to restricted stock units which entitle the recipients to receive those shares upon the attainment of designated performance goals or the completion of a prescribed service period or upon the expiration of a designated time period following the vesting of those units, including (without limitation), a deferred distribution date following the termination of the recipient’s service with us. Any dividends or dividend equivalents payable in connection with a stock award or restricted stock unit award subject to vesting will be subject to the same vesting restrictions as the underlying award and will not be paid until and unless such vesting conditions are met. +The plan administrator will have the discretionary authority to structure one or more such awards so that the shares of common stock subject to those awards (or cash, as applicable) will vest only upon the achievement of certain pre-established corporate performance goals, which may be based on one or more of the following criteria: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, (xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, completion or attainment of key projects, product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; (xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); (xxxi) recruiting and maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Company’s revenue or profitability or enhance its customer base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Company’s performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Company’s business units or divisions or any parent or subsidiary. Each applicable performance goal may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award will be earned and a maximum level of performance at which an award will be fully earned. +27 +TABLE OF CONTENTS +Each applicable performance goal may be structured at the time of the award to provide for appropriate adjustment, which may be based on one or more of the following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) the operations of any business acquired by the Company; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Company) or reorganization; (H) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate structure or capital structure of the Company; (K) an event either not directly related to the operations of the Company, parent, subsidiary, division, business segment or business unit or not within the reasonable control of management; (L) foreign exchange gains and losses; (M) a change in the fiscal year of the Company; (N) the refinancing or repurchase of bank loans or debt securities; (O) unbudgeted capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares; (Q) conversion of some or all of convertible securities to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accounting changes in accordance with GAAP; (T) the effect of changes in other laws or regulatory rules affecting reported results; and (U) any other adjustment consistent with the operation of the Restated Plan. The plan administrator may also grant awards that are subject to vesting based on performance goals other than those set forth above. +Cash Incentive Awards . The plan administrator may grant cash incentive awards, which need not relate to the value of shares of common stock. The terms and conditions for cash incentive awards will be determined by the plan administrator. Cash incentive awards may vest in one or more installments over a specified period of service or upon the achievement of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by the plan administrator. Upon cessation of service, the cash incentive award will automatically terminate without any payment if the designated service or performance goals have not been satisfied. However, the plan administrator has complete discretion to make a payment under one or more outstanding cash incentive awards as to which the service or performance goals have not been satisfied. +Dividend Equivalent Rights. Dividend equivalent rights may be issued as stand-alone awards or in tandem with other awards made under the Restated Plan, except that dividend equivalents may not be granted in connection with an option, stock appreciation right or cash incentive award. Each dividend equivalent right award will represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of our common stock) which is made per issued and outstanding share of common stock during the term the dividend equivalent right remains outstanding. Payment of the amounts attributable to such dividend equivalent rights may be made either concurrently with the actual dividend or distribution made per issued and outstanding share of our common stock or may be deferred to a later date. Payment may be made in cash or shares of our common stock, or a combination of cash and shares, as determined by the plan administrator. Any dividends or dividend equivalents payable in connection with an award subject to vesting will be subject to the same vesting restrictions as the underlying award and will not be paid until and unless such vesting conditions are met. +Clawback Policy. Awards granted under the Restated Plan are subject to any clawback or recoupment policy that may be adopted by the Company and amended from time to time, including the current clawback policy maintained by the Company. The Company’s clawback policy is described in the “Executive Compensation and Other Information” section of this proxy statement and covers executive officer incentive compensation in the event of a financial restatement. +General Provisions +Minimum Vesting. Options and stock appreciation rights are subject to a minimum vesting period of at least one year from the date of grant. However, the minimum vesting requirement will not apply to (a) any awards up to the 5% Basket, (b) any awards delivered in lieu of fully-vested cash-based awards under the Restated Plan (or other fully-vested cash awards or payments), and (c) any awards to non-employee directors for which the vesting period runs from the date of one annual meeting of the Company’s stockholders to +28 +TABLE OF CONTENTS +the next annual meeting of the Company’s stockholders which is at least fifty (50) weeks after the immediately preceding year’s annual meeting. Any option or stock appreciation right granted under the Restated Plan may vest in full or in part upon death or disability of the participant, upon a participant’s termination of service, or upon a change in control, and such vesting shall not count against the 5% Basket. +Vesting Acceleration . In the event we should experience a change in control, the following provisions will be in effect for all outstanding awards under the Restated Plan, unless provided otherwise in an award agreement entered into with the participant: +• +Each outstanding award may be assumed, substituted, replaced with a cash retention program that preserves the intrinsic value of the award and provides for subsequent payout in accordance with the same vesting schedule applicable to the award or otherwise continued in effect by the successor corporation. +• +To the extent an award is not so assumed, substituted, replaced or continued, the award generally will automatically accelerate in full (with performance-based award vesting to be determined with reference to actual performance attained as of the change in control). +• +The plan administrator has complete discretion to grant one or more awards which will vest upon a change in control, whether or not such award is to be assumed or otherwise continued, or in the event the individual’s service with us or the successor entity is terminated within a designated period following a change in control transaction in which those awards are assumed or otherwise continued in effect. +• +Unless the plan administrator establishes a different definition for one or more awards, a change in control will be deemed to occur for purposes of the Restated Plan in the event (a) we are acquired by merger or asset sale or (b) there occurs any transaction (or series of related transactions within the twelve (12)-month period ending with the most recent acquisition) pursuant to which any person or group of related persons becomes directly or indirectly the beneficial owner of securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power of our outstanding securities or (c) there is a change in the majority of the board effected through one or more contested elections for board membership. +Changes in Capitalization. In the event any change is made to the outstanding shares of our common stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change in corporate structure effected without our receipt of consideration or should the value of our outstanding shares of common stock be substantially reduced by reason of a spin-off transaction or extraordinary dividend or distribution or should there occur any merger, consolidation, reincorporation or other reorganization, equitable adjustments will be made to: (i) the maximum number and/or class of securities issuable under the Restated Plan; (ii) the maximum number and/or class of securities for which incentive stock options may be granted under the Restated Plan; (iii) the maximum number and/or class of securities for which any one (1) person may be granted common stock-denominated awards under the Restated Plan per calendar year; (iv) the number and/or class of securities and the exercise price per share in effect for outstanding options and stock appreciation rights; (v) the number and/or class of securities subject to each outstanding stock award, restricted stock unit, dividend equivalent right and any other award denominated in shares of our common stock and the consideration (if any) payable per share; and the number and/or class of securities subject to repurchase rights and the repurchase price payment per share. Such adjustments will be made in such manner as the plan administrator deems appropriate. +Valuation. The fair market value per share of our common stock on any relevant date under the Restated Plan is deemed to be equal to the closing selling price per share on that date as determined by the NASDAQ Capital Market. As of July 13, 2021, the fair market value of our common stock determined on such basis was $6.19 per share. +Stockholder Rights and Transferability. No optionee has any stockholder rights with respect to the option shares until such optionee has exercised the option and paid the exercise price for the purchased shares. The holder of a stock appreciation right will not have any stockholder rights with respect to the shares subject to that right unless and until such person exercises the right and becomes the holder of record of +29 +TABLE OF CONTENTS +any shares of our common stock distributed upon such exercise. Options are not assignable or transferable other than by will or the laws of inheritance following optionee’s death, and during the optionee’s lifetime, the option may only be exercised by the optionee. However, the plan administrator may structure one or more non-statutory options under the Restated Plan so that those options will be transferable during optionee’s lifetime to one or more members of the optionee’s family or to a trust established for the optionee and/or one or more such family members or to the optionee’s former spouse, to the extent such transfer is in connection with the optionee’s estate plan or pursuant to a domestic relations order. Standalone stock appreciation rights will be subject to the same transferability restrictions applicable to non-statutory options. +A participant will have full stockholder rights with respect to any shares of common stock issued to him or her under the Restated Plan, whether or not his or her interest in those shares is vested. A participant will not have any stockholder rights with respect to the shares of common stock subject to restricted stock units until that award vests and the shares of common stock are actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of common stock, on outstanding restricted stock units, subject to such terms and conditions as the plan administrator may deem appropriate. Notwithstanding the foregoing, any dividends or dividend equivalents payable in connection with an unvested award will be subject to the same restrictions as the underlying award and will not be paid until and unless such award vests. +Special Tax Election. The plan administrator may provide one or more holders of awards under the Restated Plan with the right to have us withhold a portion of the shares otherwise issuable to such individuals in satisfaction of the withholding taxes to which they become subject in connection with the issuance, exercise or settlement of those awards. Alternatively, the plan administrator may allow such individuals to deliver previously acquired shares of our common stock in payment of such withholding tax liability. +Deferral Programs. The plan administrator may structure one or more awards (other than options and stock appreciation rights) so that the participants may be provided with an election to defer the compensation associated with those awards for federal income tax purposes. +The plan administrator may also implement a non-employee director retainer fee deferral program that allows the non-employee directors the opportunity to elect to convert the Board and Board committee retainer fees to be earned for a fiscal year into restricted stock units that defer the issuance of the shares of common stock that vest under those units until a permissible date or event under Internal Revenue Code Section 409A. +To the extent we maintain one or more separate non-qualified deferred compensation arrangements which allow the participants the opportunity to make notional investments of their deferred account balances in shares of common stock, the plan administrator may authorize the share reserve under the Plan to serve as the source of any shares of common stock that become payable under those deferred compensation arrangements. +Amendment and Termination. Our Board may amend or modify the Restated Plan at any time subject to stockholder approval to the extent required under applicable law or regulation or pursuant to the listing standards of the stock exchange on which our common stock is at the time primarily traded. Unless sooner terminated by our Board, the Restated Plan will terminate on the earliest of (i) the tenth anniversary of the date our Board approved the Restated Plan, (ii) the date on which all shares available for issuance under the Restated Plan have been issued as fully-vested shares, (ii) the termination of all outstanding awards in connection with certain changes in control or ownership, or (iii) the termination of the Restated Plan by the Board. No incentive stock options may be issued under the Restated Plan after the tenth anniversary of the date the Restated Plan was approved by our Board. +Summary of Federal Income Tax Consequences +The following is a summary of the Federal income taxation treatment applicable to us and the participants who receive awards under the Restated Plan. +Option Grants. Options granted under the Restated Plan may be either incentive stock options which satisfy the requirements of Section 422 of the Internal Revenue Code or non-statutory options which are not intended to meet such requirements. The federal income tax treatment for the two types of options differs as follows: +30 +TABLE OF CONTENTS +Incentive Options . No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is recognized for ordinary income tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two (2) years after the date the option for the shares involved in such sale or disposition is granted and more than one (1) year after the date the option is exercised for those shares. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition will result. +Upon a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any additional gain or loss recognized upon the disposition will be a capital gain or loss. +If the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the amount of ordinary income recognized by the optionee as a result of the disposition. We will not be entitled to any income tax deduction if the optionee makes a qualifying disposition of the shares. +Non-Statutory Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in general recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the optionee. +Stock Appreciation Rights. No taxable income is recognized upon receipt of a stock appreciation right. The holder will recognize ordinary income in the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the base price in effect for the exercised right, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder in connection with the exercise of the stock appreciation right. The deduction will be allowed for the taxable year in which such ordinary income is recognized. +Stock Awards. The recipient of unvested shares of common stock issued under the Restated Plan will not recognize any taxable income at the time those shares are issued but will have to report as ordinary income, as and when those shares subsequently vest, an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the cash consideration (if any) paid for the shares. The recipient may, however, elect under Section 83(b) of the Internal Revenue Code to include as ordinary income in the year the unvested shares are issued an amount equal to the excess of (i) the fair market value of those shares on the issue date over (ii) the cash consideration (if any) paid for such shares. If the Section 83(b) election is made, the recipient will not recognize any additional income as and when the shares subsequently vest. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient with respect to the unvested shares. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the recipient. +Restricted Stock Units (and Performance Based Restricted Stock Units). No taxable income is recognized upon receipt of restricted stock units. The holder will recognize ordinary income in the year in which the shares subject to the units are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal +31 +TABLE OF CONTENTS +to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will be allowed for the taxable year in which such ordinary income is recognized. +Cash Incentive Awards. In general, no taxable income is recognized upon receipt of cash incentive awards. The holder will recognize ordinary income in the year in which the cash incentive awards are actually paid to the participant, and the participant will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time of payment. The deduction will be allowed for the taxable year in which such ordinary income is recognized. +Dividend Equivalent Rights. No taxable income is recognized upon receipt of a dividend equivalent right award. The holder will recognize ordinary income in the year in which a dividend or distribution, whether in cash, securities or other property, is paid to the holder. The amount of that income will be equal to the fair market value of the cash, securities or other property received, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of the ordinary income recognized by the holder of the dividend equivalent right award at the time the dividend or distribution is paid to such holder. That deduction will be allowed for the taxable year in which such ordinary income is recognized. +Section 162(m) of the Code. Section 162(m) of the Code imposes a $1 million limit on the amount a public company may deduct for compensation paid to a company’s chief executive officer or any of the company’s three other most highly compensated executive officers who are employed as of the end of the year. While deductibility of executive compensation for federal income tax purposes is among the factors the Compensation Committee considers when structuring our executive compensation arrangements, it is not the sole or primary factor considered. We retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of the Company. +New Plan Benefits +No awards have been granted under the Restated Plan. Any awards following approval of this proposal shall be at the discretion of the plan administrator. Accordingly, the benefits or amounts that may be received by or allocated to each of (i) the officers listed in the Summary Compensation Table, (ii) each of the nominees for election as a director, (iii) all non-employee directors as a group, (iv) all of our present executive officers as a group, and (v) all of our employees, including all other current officers, as a group, under the Restated Plan are not determinable at this time. +Plan Benefits +The following table represents all awards granted under the 2016 Plan that remain outstanding as of July 13, 2022 to our named executive officers and the other individuals and groups indicated below. +Name and Position +Number of +Shares +Subject to +Options +Number of +Shares Subject +to RSU +Awards +Number of +Shares +Subject to +PSU Awards +at “Target” +Named Executive Officers +Joe Bergera +Chief Executive Officer, President and Director +1,012,500 +38,408 +72,646 +Douglas L. Groves +Chief Financial Officer, Senior Vice President of Finance and Secretary +250,000 +12,449 +24,899 +Todd Kreter +Senior Vice President & General Manager, Advanced Sensors Technologies +315,000 +8,714 +17,429 +Ramin Massoumi +Senior Vice President & General Manager, +Consulting Solutions +315,000 +8,714 +17,429 +32 +TABLE OF CONTENTS +Name and Position +Number of +Shares +Subject to +Options +Number of +Shares Subject +to RSU +Awards +Number of +Shares +Subject to +PSU Awards +at “Target” +All current executive officers as a group +(4 persons) +1,892,500 +68,285 +132,403 +Nonemployee Directors +Anjali Joshi +— +9,569 +— +Gerard M. Mooney +— +9,569 +— +Luke Schneider +— +9,569 +— +Laura L. Siegal +— +9,569 +— +Thomas L. Thomas +— +9,569 +— +Dennis Zank +— +9,569 +— +All current nonemployee directors as a group (6 persons) +— +57,414 +— +All employees, excluding current executive officers as a group +(430 persons) +573,100 +106,164 +— +(1) +All of the non-employee members of our Board will, upon re-election to the Board at the Annual Meeting, receive an award of restricted stock units under the Restated Plan, as described above under “Director Compensation.” All future grants under the Restated Plan are within the discretion of the plan administrator and the benefits of such grants are, therefore, not determinable. +Required Vote +Provided a quorum is present, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and voting on this Proposal 2 is required for approval of the Restated Plan. Should such approval not be obtained, then the Restated Plan will not be effective, the 2016 Plan will remain in effect in accordance with its terms, and awards may continue to be granted under the 2016 Plan, subject to its previously authorized share limits. +We are required to obtain stockholder approval for the Restated Plan under the rules of The Nasdaq Stock Market. Such approval is also necessary to permit us to grant incentive stock options to employees under Section 422 of the Internal Revenue Code. +The Board believes that the Restated Plan is necessary for us to be able to attract and retain the services of individuals essential to our long-term growth and success. +Recommendation of the Board of Directors +The Board believes that Proposal 2 is in our best interests and in the best interests of our stockholders and recommends a vote “FOR” the approval of the amendment and restatement of the 2016 Omnibus Incentive Plan. +33 +TABLE OF CONTENTS +P roposal 3: A dvisory V ote R egarding E xecutive C ompensation +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. Commonly known as a “say-on-pay” vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation policies and programs and the compensation paid to the named executive officers. +We are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution at the Annual Meeting: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2021 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved.” +The Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company’s executive compensation policies and practices are effective in achieving the Company’s goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives’ interests with those of the stockholders. +The vote on this proposal is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. +34 +TABLE OF CONTENTS +E xecutive O fficers +The table below sets forth certain information, as of July 13, 2021, regarding our executive officers. +Name +Age +Capacities in Which Served +Joe Bergera +57 +Chief Executive Officer, President and Director +Douglas L. Groves +59 +Chief Financial Officer, Senior Vice President of Finance and Secretary +Todd Kreter +61 +Senior Vice President & General Manager, Advanced Sensors Technologies +Ramin Massoumi +48 +Senior Vice President & General Manager, Consulting Solutions +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Bergera appears earlier in this proxy statement. See “Proposal 1: Election of Directors.” +Douglas L. Groves has served as Senior Vice President and Chief Financial Officer since he joined on December 4, 2019. Mr. Groves has more than 30 years of unique and highly valuable experience. Most recently, he served as Vice President, Chief Financial Officer and Treasurer of Ducommun, Inc., through June 2019, having joined the company in January 2013. Through December 2012, he held the position of Corporate Vice President and Chief Information Officer at Beckman Coulter, following a series of financial roles at the company beginning in January 1998. Beckman Coulter was acquired by Danaher Corporation in February 2011. Prior to joining Beckman Coulter, Mr. Groves was corporate controller of a privately held civil engineering firm and senior auditor and consultant at Deloitte & Touche. Mr. Groves holds an M.B.A. from the University of Southern California and a B.S. degree in Accountancy from California State University, Long Beach. +Todd Kreter has led our sensors line of business since May 2014. He held the title of Senior Vice President and General Manager, Roadway Sensors from May 2014 until March 31, 2021. Following a reorganization on April 1, 2021, Mr. Kreter assumed the title of Senior Vice President & General Manager, Advance Sensors Technologies. Mr. Kreter served as our Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +Ramin Massoumi has led our traffic engineering, systems integration, and business process outsourcing lines of business since March 2015. Held the title of Senior Vice President and General Manager, Transportation Systems from March 2015 until March 31, 2021. Following a reorganization on April 1, 2021, Mr. Massoumi assumed the title of Senior Vice President & General Manager, Consulting Solutions. Mr. Massoumi joined Iteris in 1998 and served in a number of executive and managerial positions prior to the promotion to his current position, most recently as our Vice President of Business Development from June 2011 to March 2015. Mr. Massoumi also serves as a director of the Intelligent Transportation Society of America’s National and California State Chapter Boards of Directors and as a lecturer of upper division courses on transportation engineering, ITS and multi-modal operation at University of California, Irvine. Mr. Massoumi holds a B.S. degree in Civil Engineering from the University of California, Irvine, and an M.S. degree in Engineering from the University of California, Berkeley, and an M.B.A. from the University of Southern California. +35 +TABLE OF CONTENTS +E xecutive C ompensation and O ther I nformation +Executive Compensation +The following is a summary of the compensation policies, plans and arrangements for our executive officers. This summary should be read in conjunction with the Summary Compensation Table and related disclosures set forth below. We are eligible to, and have chosen to, comply with the executive compensation disclosure rules applicable to a “smaller reporting company,” as defined in the applicable SEC rules, but we have also voluntarily included additional disclosure about our executive compensation program to help our stockholders understand our executive compensation program. This section discusses the principles underlying our compensation policies for our officers who are named in the “Summary Compensation Table” below, who we refer to as our “named executive officers” or “NEOs” for Fiscal 2021: +• +Joe Bergera, our Chief Executive Officer, President and Director; +• +Douglas L. Groves, our Chief Financial Officer, Senior Vice President of Finance and Secretary; +• +Todd Kreter, our Senior Vice President & General Manager, Advanced Sensors Technologies; and +• +Ramin Massoumi, our Senior Vice President & General Manager, Consulting Solutions. +Fiscal 2021 Business Results Summary +We are a provider of smart mobility infrastructure management solutions. Municipalities, government agencies, and other transportation infrastructure providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. Until March 31, 2021, our reportable segments consisted of: Roadway Sensors, Transportation Systems, and, prior to May 5, 2020, Agriculture and Weather Analytics (“AWA”). During Fiscal 2021, we made significant progress across a range of financial and strategic dimensions, including the highlights below. +• +Reported Fiscal 2021 total revenue of $117.1 million, up 9% year over year; +• +Reported net income from continuing operations of $0.5 million, or $0.01 per share, a $2.2 million, or $0.05 per share, improvement year over year; +• +Adjusted EBITDA (1) of $7.5 million, a $3.3 million, or 79%, increase year over year; +• +Recorded total net bookings for Fiscal 2021 of $121.8 million, up 6% year over year (2) ; +• +Completed the transaction to sell the Company’s AWA segment to DTN, LLC (“DTN”), which closed on May 5, 2020, for a total purchase price of $12.0 million. DTN is an operating company of TBG AG, a Swiss-based holding company; +• +On April 30, 2020, in connection with the sale of the AWA segment, the Company restructured to better position itself for increased profitability and growth, incurring approximately $1.5 million in expenses; and +• +Completed the acquisition of TrafficCast, which closed on December 7, 2020. Iteris purchased substantially all of TrafficCast’s assets, composed of its travel information technology, applications and content (“Business”), and assumed certain specified liabilities of the Business in exchange for a total purchase price of up to $17,000,000, with $15,000,000 paid in cash on the closing date, $1,000,000 held back as security for certain post-closing adjustments and post-closing indemnity +(1) +Adjusted EBITDA is adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, acquisition costs, non-recurring executive severance and transition costs, and fair value adjustment related to TrafficCast’s opening balance inventory. For more information, refer to Non-GAAP Financial Measures, to the Consolidated Financial Statements, included on page 25 in Part II, Item 7 of the Company’s Annual Report. +(2) +Net bookings is an operational measure representing the total dollar value of all definitive contracts executed during the relevant period, net of cancellations of previously authorized contract funding. +36 +TABLE OF CONTENTS +obligations of TrafficCast, and a $1,000,000 earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. +Impacts of COVID-19 on Iteris +The COVID-19 pandemic has had an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and “stay-at-home” orders. In turn, the uncertainties caused by these events and actions created various disruptions to our vendors, our employees and customers and negatively affected customer sentiment in general. While there has been no material impact to the Company, nor any facility closures during Fiscal 2021, we did experience some work and supply delays due to the COVID-19 pandemic. Should such delays become protracted or worsen the impacts of the COVID-19 pandemic could impact our business, results of operations and financial condition. Given the uncertainties of the COVID-19 pandemic, the Company has taken certain actions to preserve its liquidity, manage cash flow and strengthen its financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, implementing restructuring activities, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts. +On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. For more information, refer to Note 6, Income Taxes, to the Consolidated Financial Statements, included in Part II, Item 8 of the Company’s Annual Report. +Fiscal 2021 Executive Compensation Results Overview +The Compensation Committee made significant changes to the named executive compensation program for Fiscal 2021, particularly with respect to long-term incentives. Prior to implementing these changes, our Compensation Committee solicited input from a representative set of our larger stockholders. The named executive compensation plan is composed of three elements: base salary, short-term annual incentive, and long-term equity incentives. The base salaries reflect the market for similar roles at similar companies. The short-term incentives program has specific targets tied to the company’s annual financial performance. The long-term incentives consist of a mix between stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”). The inclusion of RSUs and PSUs in our long-term incentive program is new for Fiscal 2021, as the Company granted only stock options in Fiscal 2020. +Below is a summary of the results of our executive compensation program for Fiscal 2021: +• +Base Salaries . In the first half of Fiscal 2021, after reviewing pay governance guidelines, receiving guidance from the Compensation Committee’s compensation consultant, FW Cook, reviewing prevailing compensation practices, evaluating recent Company performance, and given the economic uncertainty resulting from the COVID-19 pandemic, the Compensation Committee determined not to increase the base salaries for the named executive officers for Fiscal 2021. +• +Annual Incentives . Our named executive officers’ target bonuses for Fiscal 2021 remained generally unchanged from the target bonus levels in place during Fiscal 2020. Messrs. Bergera and Groves’ annual bonus targets were Iteris revenue and Iteris Adjusted EBITDA. Because Messrs. Kreter and Massoumi lead a business unit, Mr. Kreter for the Roadway Sensors and Mr. Massoumi for Transportation Systems, each had four targets, including Iteris revenue, Iteris Adjusted EBITDA, their respective business segment revenue and business segment contribution margin. The annual cash performance bonuses for the named executive officers in Fiscal 2021 were earned at 139% of target for Mr. Bergera; 140% for Mr. Groves; 146% for Mr. Kreter; and 97% for Mr. Massoumi. The corporate bonus objectives for Messrs. Bergera and Groves paid out at target on the Iteris revenue target and paid out at the maximum on the Adjusted EBITDA target. Mr. Kreter’s bonus paid out above target on both Roadway Sensors revenue and Roadway Sensors contribution margin targets (in addition to performance against the Iteris revenue and Adjusted EBITDA). Mr. Massoumi’s bonus paid out below target on both Transportation Systems revenue and Transportation Systems contribution margin targets (in addition to performance against the Iteris revenue and Adjusted EBITDA). Individual +37 +TABLE OF CONTENTS +performance against management performance objectives is also considered in determining the final annual bonus payouts. See “Fiscal 2021 Cash-Based Bonus Plan” table below for further details about results of our annual cash-based bonus program for Fiscal 2021. +• +Long-Term Incentives . Commencing in Fiscal 2021, in response to stockholder feedback, the Company updated its long-term incentive compensation program to incorporate the use of PSUs for 25% of the long-term opportunity. The remaining portion consisted of 50% in stock options and 25% in RSUs. PSUs are earned based on the Company’s average revenues per share and cash flow from operations performance, as well as the Company’s total stockholder return (“rTSR”) relative to the Russell 2000. See “Fiscal 2021 Long-Term Incentive Compensation Updates” below for further details about updates to the executive compensation plan for Fiscal 2022. +Characteristics of our Executive Compensation Programs +Our executive compensation programs include a number of practices intended to align the interests of management and our stockholders. +What We Have +What We Do Not Have ++ +We have approximately 68% of target direct compensation for the chief executive officer (and 53% of the other named executive officers) that is performance-based or is at-risk ++ +We have a performance-based long term incentive plan that utilizes PSUs, RSUs, and stock options ++ +We have a clawback policy for incentive compensation ++ +We have stock ownership guidelines for executive officers and directors ++ +We have an independent compensation consultant to advise our Compensation Committee ++ +We make ongoing stockholder outreach efforts to obtain input on our compensation practices +✓ +We do not provide 280G excise tax gross-ups +✓ +We do not provide any pension or supplemental retirement benefits +✓ +We do not provide for any “single trigger” equity vesting for equity awards +✓ +We prohibit repricing options without shareholder approval +✓ +We prohibit granting stock options with an exercise price below 100% of fair market value +✓ +We do not provide any significant perquisites +Impact of 2020 Say-on-Pay Vote +The most recent stockholder advisory vote on named executive officer compensation required under the SEC rules was held on September 10, 2020. Approximately 94.6% of the total votes cast on such proposal (which excluded broker non-votes) were in favor of the compensation of our named executive officers. Based on the Board’s commitment to continue to strengthen the compensation plan for the Company’s named executive officers, the Compensation Committee evaluated and modified elements of the Company’s compensation plan to better align management’s long-term incentive compensation with stockholder interests. Specifically, the Company determined that, commencing in Fiscal 2021, a portion of long-term incentive compensation will be granted in the form of PSUs, earned based on the achievement of certain financial performance and total stockholder return metrics. Prior to implementing these changes to our long-term incentive compensation, the Company invited several of our largest stockholders to provide comments on the proposed changes and accordingly made adjustments to the original proposal to reflect investor feedback prior to finalizing the plan structure. +As the Company continues to grow and mature, the Compensation Committee will continue to make appropriate adjustments to our management team’s long-term incentive compensation. Currently, based on the voting preference of the Company’s stockholders, advisory votes on executive officer compensation will be conducted every year. The Compensation Committee will continue to take into account each such +38 +TABLE OF CONTENTS +advisory vote in order to determine whether any subsequent changes to the Company’s executive compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes. +Compensation Philosophy and Objectives +Our executive compensation plans and arrangements are overseen and administered by our Compensation Committee, which is comprised entirely of independent directors as determined in accordance with applicable Nasdaq and SEC rules. Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our stockholders. Based on this philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• +establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• +ensure that any cash incentive compensation programs for our named executive officers are aligned with our corporate strategies and business objectives by tying the potential payouts under such programs to the achievement of key strategic, financial and operational goals; and +• +utilize long-term equity awards to align interests between our named executive officers and stockholders. +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review each component of compensation as related but distinct. Although the Compensation Committee reviews total compensation, it has not adopted any formal guidelines for allocating total compensation between cash and equity compensation. We determine the appropriate level of each compensation component based in part, but not exclusively, on our retention goals and short-term and long-term objectives. +This review generally occurs in the first quarter of each fiscal year at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, reviews and approves any bonus awards and programs, establishes the performance objectives for our cash based bonus plan, and may grant equity compensation to the executive officers to ensure their interests are aligned with our stockholders and for retention. +In Fiscal 2021, the Compensation Committee retained the services of an independent compensation consulting firm, FW Cook, to advise on executive compensation. FW Cook provided the Compensation Committee with market data and analysis of our total direct compensation for such executive officer positions as compared with the competitive market. FW Cook reports only to the Compensation Committee and did not perform any other work for the Company during Fiscal 2021 beyond its services related to executive compensation. As provided in its charter, the Compensation Committee has the authority to determine the scope of FW Cook’s services and may terminate their engagement at any time. +As part of the review process, our Chief Executive Officer provides our Compensation Committee with recommendations as to the base salary, cash bonus potential and long-term equity incentive awards for each of our executive officers other than himself based on that officer’s level of responsibility, individual performance and contribution to the attainment of our strategic corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer’s recommendations into consideration in setting named executive officer compensation, but retains complete discretionary authority to make all compensation-related decisions for our named executive officers. Our Compensation Committee makes its compensation decisions with respect to the Chief Executive Officer on the basis of relevant market data furnished by a variety of sources and its subjective assessment of individual performance and contributions to our overall corporate performance. Any decisions regarding our Chief Executive Officer’s compensation are made without such officer present. +39 +TABLE OF CONTENTS +Benchmarking and Peer Groups +The Compensation Committee benchmarks our compensation programs to a peer group, which consists of publicly-traded technology companies in the applications software, systems software, and technology hardware industry categories, that are similar in size, as measured by revenues and market capitalization. +As of June 1, 2020, when the peer group was last assessed for Fiscal 2021, the peer revenues ranged from $44 million to $281 million, with a median of $139 million, which compared to Iteris’ revenues of $114 million. Market capitalization on June 1, 2020 for the peers ranged from $16 million to $1.1 billion, with a median of $191 million, which compared to Iteris’ market capitalization of $198 million. +The Fiscal 2021 peer group consisted of the following companies: +• +Agilysys, Inc. +• +AutoWeb, Inc. +• +Clearfield, Inc. +• +Digi International Inc. +• +Digital Turbine, Inc. +• +EMCORE Corporation +• +Intevac, Inc. +• +IntriCon Corporation +• +KVH Industries, Inc. +• +Majesco +• +MobileIron, Inc. +• +Napco Security Technologies, Inc. +• +OneSpan Inc. +• +PCTEL, Inc. +• +Perceptron, Inc. +• +RealNetworks, Inc. +• +SeaChange International, Inc. +• +Telenav, Inc. +• +TransAct Technologies Incorporated +• +Upland Software, Inc. +• +Zix Corporation +The Compensation Committee evaluates our compensation program versus that of the peer companies with respect to both individual pay levels as well as the structure of the program. The Compensation Committee uses this data primarily to ensure that our executive compensation program as a whole is competitive. Market data is one of several factors that is used to evaluate compensation levels. Other factors may include individual and company performance, experience in the role, responsibility level, and internal equity. +40 +TABLE OF CONTENTS +Compensation Components and Structure +We utilize three main components in structuring compensation programs for our named executive officers: +Pay Component +Rationale and Value to Stockholders +Base Salary +• +Only fixed compensation element in the executive compensation program +• +Recruit and retain executive talent and provide an element of economic security from year to year +• +Reflects competitive market conditions +Performance-Based Cash Bonus +(Short-Term Incentive Program) +• +Motivates achievement of strategic priorities for the fiscal year as measured by financial and operational metrics +• +Diversified group of metrics to drive growth and stockholder value +Equity Incentive Awards +(Options, RSUs and PSUs) (1) +• +Encourages focus on long-term stockholder value creation (and PSUs link compensation to achievement of specified corporate financial performance objectives) +• +Aligns with stockholders’ interests +• +Provides long-term retention incentive of our executive talent +(1) +Historically, the long-term incentive compensation for our named executive officers was largely in the form of stock options. Commencing in Fiscal 2021, the long-term incentive compensation component for our named executive officers consist of stock options, RSUs and PSUs. See “Fiscal 2021 Long-Term Incentive Compensation Updates” below for further details about updates to the executive compensation plan for Fiscal 2021. +It is the practice of our Compensation Committee to allocate a substantial portion of each named executive officer’s total compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for its cash-based bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee determines the compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual’s performance and contribution to our financial performance and the other factors identified in the “Annual Review of Cash and Equity Compensation” section above to determine the appropriate level and balance of total compensation. We believe that this approach allows us to tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and responsibilities required of all of our named executive officers. Each named executive officer’s base salary level is typically reviewed on an annual basis and adjustments may be made to the individual’s base salary on the basis of his or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +In June 2020, the Compensation Committee reviewed the base salaries of the named executive officers and determined not to provide increases for Fiscal 2021. The base salaries for Fiscal 2021 for such officers are set forth below: +41 +TABLE OF CONTENTS +Named Executive Officer +Fiscal 2021 +Annual Base +Salary +Joe Bergera +$ +430,000 +Douglas L. Groves +400,000 +Todd Kreter +290,000 +Ramin Massoumi +280,000 +Fiscal 2021 Cash-Based Bonus Plan (“2021 Bonus Plan”). Our named executive officers are eligible to receive an annual cash-based bonus under our 2021 Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals, which generally include the Company’s revenues and Adjusted EBITDA for the fiscal year, the revenues and contribution margin of such officer’s business unit, and personal objectives set for each officer (“MBOs”). We define “contribution margin” as the business unit’s adjusted operating income without corporate expense allocations. The adjusted operating income of each business unit is calculated on a non-GAAP basis to exclude amortization, depreciation, stock-based compensation, goodwill impairment charge, if any. For Fiscal 2021 the Compensation Committee approved using Adjusted EBITDA as a corporate performance objective, which is adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, acquisition costs, non-recurring executive severance and transition costs, and fair value adjustment related to TrafficCast’s opening balance inventory. For more information, refer to Non-GAAP Financial Measures, to the Consolidated Financial Statements, included on page 25 in Part II, Item 7 of the Company’s Annual Report.” +The corporate and business unit performance targets and the actual achievement of such objectives for Fiscal 2021 were as follows: +Performance Components +Threshold +Target +Maximum +Actual +% of Target +Payout +Attained +Corporate Revenue +$ +93,806 +$ +117,258 +$ +140,710 +$ +117,138 +100.0 % +Corporate Adjusted EBITDA +2,863 +4,406 +7,930 +7,450 +169.0 +Roadway Sensors Revenue +42,206 +52,758 +63,309 +56,548 +107.0 +Roadway Sensors Contribution Margin +7,022 +8,778 +10,534 +11,554 +132.0 +Transportation Systems Revenue +51,600 +64,500 +77,400 +60,590 +94.0 +Transportation Systems Contribution Margin +8,442 +7,438 +12,664 +8,964 +85.0 +Under the Fiscal 2021 plan, if performance is below the “Threshold” goal amounts shown above, no bonus would be payable for that particular objective. If performance exceeds the “Maximum” goal amounts above, the NEOs could earn up to a maximum of 200% of their target opportunity for that particular objective. The combined maximum potential payout of the defined bonus elements is 160%. When combined with the 20% for personal objectives, the total maximum payouts for NEOs are 180%. Payouts in between the Threshold and Maximum levels above would be determined using linear interpolation. +Mr. Bergera’s Fiscal 2021 MBOs included, among other things, achieving certain divesture and post-divesture integration objectives, and executing on other strategic transformation activities. The Compensation Committee determined Mr. Bergera successfully executed on his MBOs, resulting in a 95% payout of the MBO’s portion of his Fiscal 2021 annual bonus. +Mr. Groves’ Fiscal 2021 MBOs included certain strategic transformation initiatives, enhancing our investor communication, building capabilities in the accounting organization, attainment of certain expense reductions, and certain contributions to strategic financial planning for the Company. The Compensation Committee determined Mr. Groves successfully executed on his MBOs, and determined Mr. Groves earned 100% of the MBOs portion of his Fiscal 2021 annual bonus. +Mr. Kreter’s Fiscal 2021 MBOs included the development and enhancement of certain solutions, achievement of new customer and market development activities in the Roadway Sensors business segment, +42 +TABLE OF CONTENTS +and achievement of certain bookings targets. The Compensation Committee determined Mr. Kreter successfully executed on his MBOs, resulting in an 85% payout of the MBOs portion of his Fiscal 2021 annual bonus. +Mr. Massoumi’s Fiscal 2021 MBOs included the development and enhancement of certain solutions, achievement of new customer and market development activities in the Transportation Systems business segment, and achievement of certain bookings targets. The Compensation Committee determined Mr. Massoumi successfully executed on his MBOs, resulting in a 98% payout of the MBOs portion of his Fiscal 2021 annual bonus. +The Compensation Committee typically meets near the end of the first fiscal quarter of each year to evaluate each NEO’s achievement of their respective MBOs and annual bonuses are typically paid out as soon as practicable thereafter. +The performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2021 were as follows: +Named Executive Officer +Performance +Objectives +Allocation (%) +2021 Target +Bonus ($) +2021 Actual +Bonus ($) +% of Target +Awarded (%) +Joe Bergera +$ +322,500 +$ +448,275 +139 % +Corporate Revenue +40 % +Corporate Adjusted EBITDA +40 +MBOs +20 +Douglas L. Groves +$ +200,000 +$ +280,000 +140 % +Corporate Revenue +40 +Corporate Adjusted EBITDA +40 +MBOs +20 +Todd Kreter +$ +159,500 +$ +232,462 +146 % +Roadway Sensors Revenue +25 +Roadway Sensors Contribution Margin +25 +Corporate Revenue +15 +Corporate Adjusted EBITDA +15 +MBOs +20 +Ramin Massoumi +$ +154,000 +$ +149,959 +97 % +Transportation Systems Revenue +25 +Transportation Systems Contribution Margin +25 +Corporate Revenue +15 +Corporate Adjusted EBITDA +15 +MBOs +20 +Equity Compensation. Our equity award program is one of our vehicles for offering long-term incentives to our named executive officers and providing an inducement for long-term retention. Our equity component also aligns the interests of our named executive officers with those of our stockholders and focuses their attention on the creation of stockholder value in the form of stock price appreciation. We believe that the equity-based compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our named executive officers and our stockholders. We have had no program, plan or practice pertaining to the timing of equity awards to named executive officers coinciding with the release of material non-public information. +Historically, to reward and retain our named executive officers in a manner that best aligns employees’ interests with stockholders’ interests, we have used stock options as the primary incentive vehicles for +43 +TABLE OF CONTENTS +long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because executives are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time. The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined under our equity plan. Stock option awards generally vest in four equal annual installments over a four-year period, subject to continuous service through each vesting date. From time to time, our Compensation Committee may, however, determine that a different vesting schedule is appropriate. +Fiscal 2021 Long-Term Incentive Awards . Commencing with Fiscal 2021, in response to stockholder feedback and consultation with FW Cook, the Compensation Committee decided to rebalance management’s long-term incentive compensation to include a mix of stock options (50%), RSUs (25%), and PSUs (25%) (with percentages measured based on the awards’ grant date values, assuming target level achievement of applicable performance goals in the case of PSUs), as follows: +• +50% of the long-term incentive compensation for our named executive officers were granted in the form of stock options, which will vest in accordance with the standard four-year vesting schedule described above. +• +25% of the long-term incentive compensation for our named executive officers were granted in the form of RSUs, which will vest over three years, with 50% of such RSUs vesting on the second anniversary of the grant date and 50% of such RSUs vesting on the third anniversary of the grant date. Each RSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. +• +25% of the long-term compensation for our named executive officers were granted in the form of PSUs. Each PSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. The number of PSUs that vest at the end of each three-year performance period will depend, in part, on the Company’s average revenues per share and cash flow from operations performance during the three-year performance period and, in part, on the Company’s total stockholder return (“rTSR”) relative to the Russell 2000 over the three-year performance period. Executives will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. +• +Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. +For purposes of the PSUs granted in Fiscal 2021, the performance targets for Fiscal 2021, the first year in the three-year performance period, were as follows: cash flow from operations — threshold, $3,520,000; target, $4,400,000; and maximum, $5,280,000, and revenues per share — threshold, $2.53; target, $2.81; and maximum, $3.09; Our actual performance for Fiscal 2021 for cash flow from operations was $8,888,000, resulting in a 160% achievement compared to the target. Our actual performance for Fiscal 2021 for revenues per share was $2.82, resulting in a 102% achievement compared to the target. These achievement levels for Fiscal 2021 will be used to determine our average performance for the three-year performance period ending March 31, 2023 for purposes of determining the final vesting of the PSUs. +Typically, the Compensation Committee provides grant guidelines to our Chief Executive Officer, who in turn will make recommendations back to the Compensation Committee regarding the number of shares to be granted to our executive officers (other than himself). See “Fiscal 2021 Grant of Plan-Based Awards” table below for the Fiscal 2021 awards made to our named executive officers. +44 +TABLE OF CONTENTS +Benefit Plans +Section 401(k) Plan. We make available a tax-qualified retirement plan that provides eligible employees, including our executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Participants are able to defer a portion of their eligible compensation, subject to applicable annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). Pre-tax contributions are allocated to each participant’s individual account and may be invested in selected alternative investments according to the participant’s direction. We do currently make a matching contribution under the 401(k) plan up to a maximum of 4% of the employee’s base salary. Such matching contribution is at the discretion of the Board and is typically evaluated on an annual basis. +Health and Welfare Benefits. Our named executive officers are eligible to participate in all our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits. +Perquisites. We do not provide significant perquisites or personal benefits to our named executive officers. +Post-Employment Compensation +For a summary of the material terms and conditions of our post-employment compensation arrangements, see “— Potential Payments upon Termination or Change in Control” below. +Incentive Compensation Clawback Policy +In July 2020, the Board adopted a Clawback Policy (the “Clawback Policy”) to create and maintain a culture that emphasizes integrity and accountability, and that reinforces the Company’s pay-for-performance compensation philosophy. Under the Clawback Policy, the Compensation Committee may direct the Company to seek to recover incentive compensation awarded or paid to an executive officer or other employee of the Company deemed subject to the Clawback Policy (“covered persons”) for a fiscal period if the Company must subsequently restate its financial statements. +The Clawback Policy is in addition to any recovery rights provided under applicable law. The Board continues to monitor regulatory developments and intends to further review and revise the Clawback Policy, if necessary, to comply with any final regulations issued for the purpose of implementing the requirements of the Dodd-Frank Act. +Stock Ownership Guidelines +The Board has adopted stock ownership guidelines for the Company’s non-employee directors and executive officers. Please see “Director Compensation” above for a description of these guidelines. +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably likely to have a material adverse impact on our business or our financial condition. The following compensation design features help minimize the incentives for excessive risk-taking and keeps our named executive officers focused on the creation of long-term, sustainable value for our stockholders: +• +Our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• +To further ensure that the interests of our named executive officers are aligned with those of our stockholders, commencing with Fiscal 2021, a portion of executive officer long-term incentive +45 +TABLE OF CONTENTS +compensation was awarded as equity subject to performance- and time-based vesting requirements. RSUs and PSUs will vest and settle over a three-year period, as applicable — in the case of RSUs, 50% vesting after two years and remaining vesting after completion of three years, and in the case of PSUs, cliff-vesting based on achievement of applicable performance goals at the end of a three-year performance period. +• +A portion of each executive’s incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; +• +Annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, discourages the taking of short-term risk at the expense of long-term performance; and +• +Each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to manipulate. +Tax Deductibility of Executive Compensation +The Compensation Committee considers the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for “covered employees.” While we consider the tax deductibility of each element of executive compensation as a factor in our overall compensation program, the compensation committee, however, retains the discretion to approve compensation that may not qualify for the compensation deduction if, considering all applicable circumstances, it would be in our best interest for such compensation to be paid without regard to whether it may be tax deductible. +Accounting for Stock-Based Compensation +Under FASB ASC 718, we are required to estimate the grant date “fair value” for each grant of equity award using various assumptions. This calculation is performed for accounting purposes and reported in the compensation tables in this proxy statement, even though recipients may never realize any value from their awards. ASC 718 also requires us to recognize the compensation cost of stock-based awards in our income statements over the period that an employee is required to render service in exchange for the award. +C ompensation C ommittee R eport +The Compensation Committee has reviewed and discussed with management the discussion and analysis of the compensation of our named executive officers as disclosed in this proxy statement under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in the Annual Report and this proxy statement. +Thomas L. Thomas (Chairman) +Luke P. Scheider +Laura L. Siegal +46 +TABLE OF CONTENTS +E xecutive C ompensation T ables +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2021, 2020 and 2019 by (i) our Chief Executive Officer and (ii) our executive officers (other than our Chief Executive Officer) who were serving as executive officers as of March 31, 2021. The titles for Messrs. Todd Kreter and Ramin Massoumi were held by them up through March 31, 2021. Following April 1, 2021, Messrs. Kreter and Massoumi assumed new titles as further described above under “Executive Officers.” The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position +Fiscal +Year +Salary +Stock +Awards (1) +Option +Awards (1) +Non-Equity +Incentive Plan +Compensation (2) +All Other +Compensation (3) +Total +Joe Bergera +Chief Executive Officer +and President +2021 +$ +432,030 +$ +254,388 +$ +323,125 +$ +448,275 +$ +11,200 +$ +1,469,018 +2020 +430,314 +— +634,300 +180,155 +11,351 +1,256,120 +2019 +412,894 +— +421,425 +137,280 +17,118 +988,716 +Douglas L. Groves +Chief Financial Officer, +Senior Vice President of +Finance and Secretary +2021 +401,947 +82,723 +117,500 +280,000 +11,200 +893,370 +2020 +121,617 (4) +— +489,540 +37,333 +4,800 +653,290 +Todd Kreter +Senior Vice President +and General Manager, +Roadway Sensors +2021 +291,690 +57,715 +82,250 +232,462 +11,200 +675,317 +2020 +295,890 +— +177,604 +103,895 +11,187 +588,576 +2019 +282,734 +— +112,380 +49,286 +15,353 +459,753 +Ramin Massoumi +Senior Vice President +and General Manager, +Transportation Systems +2021 +280,785 +57,715 +82,250 +149,959 +11,200 +581,909 +2020 +279,688 +— +177,604 +136,531 +10,262 +604,084 +2019 +268,306 +— +112,380 +70,166 +11,440 +462,292 +(1) +The dollar amounts shown represent the grant date fair value of equity awards, including RSUs, PSUs, and stock options granted during the applicable fiscal year determined in accordance with ASC 718. Under ASC 718, the grant date fair value of the stock options is determined pursuant to the Black-Scholes-Merton option pricing formula. The grant date fair value of the RSUs is based on the closing price per share of our common stock on the date of grant. The fair value of our performance stock unit awards is estimated on the grant date using a Monte Carlo simulation model. +With respect to the PSUs granted during Fiscal 2021, the number of PSUs that are eligible to vest will be determined, in part, based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three-year performance period, ending March 31, 2023. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will also depend, in part, on the Company’s total stockholder return (“rTSR”) relative to the Russell 2000 over the three-year performance period. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. The final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. +In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2021, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and so the grant date fair value of the PSUs included in +47 +TABLE OF CONTENTS +this column for Fiscal 2021 represents the grant date fair value for one-third of the PSU award eligible to vest based on Fiscal 2022 performance. In accordance with ASC Topic 718, the grant date fair value of the PSUs was calculated using the Monte Carlo simulation which utilizes the stock volatility, dividend yield and market correlation of the Company and the Company’s peer group. For the PSU awards granted during Fiscal 2021, such inputs consisted of: (a) an expected term that was based on the actual three-year term of the award; (b) a risk-free interest rate of 0.17% derived from the yield on U.S. government bonds of appropriate term from the U.S. Department of Treasury; (c) a dividend yield of 0.00% because we do not currently issue a dividend; (d) stock price volatility for Iteris of 55.48% based on an analysis of the historical stock price volatility of the Company and stock price volatility of 59.87% for the Russell 2000 Index based on the 2.75 years preceding the date of grant to conform to the term of the awards; and (e) initial TSR performance of 38.11% based on the actual historical TSR performance for the Company and the Russell 2000 Index. The valuation method resulted in each PSU being valued at $5.47 on June 30, 2020, the date of the grant, or 115.04% of the stock price on such date. The grant date fair values reflected in the table above for the NEOs reflect the one-third of the PSU award eligible to vest based on Fiscal 2021 performance, calculated by multiplying the $5.47 per share by one-third of the “target” number of PSUs. Assuming performance at the maximum level, the “maximum” grant date fair value of the one-third of the PSU award eligible to vest based on Fiscal 2021 performance, calculated by multiplying the $5.47 per share by one-third of the “maximum” number of PSUs, is as follows: $140,061 for Mr. Joe Bergera; $45,397 for Mr. Douglas Groves; $31,777 for Mr. Todd Kreter; and $31,777 for Mr. Ramin Massoumi. For a discussion of valuation assumptions used in the calculations, see Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” on page 28 in Part II, Item 7 in the Annual Report. +(2) +The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established management objectives. These awards are discussed in further detail under “Fiscal 2021 Cash-Based Bonus Plan” above. +(3) +Represents Section 401(k) plan employer contributions paid by us. +(4) +Mr. Groves was hired December 4, 2019 at an annual salary of $400,000. The Fiscal 2020 salary represents the amount earned by Mr. Groves from his hire date through the end of Fiscal 2020. +48 +TABLE OF CONTENTS +Fiscal 2021 Grant of Plan-Based Awards Table +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive compensation plan and our 2016 Omnibus Incentive Plan in Fiscal 2021, which constitute all of the plan-based awards granted to our named executive officers in Fiscal 2021. +Name +Grant Date +Description +Estimated Future Payouts +Under Non-Equity +Incentive Plan Awards (1) +Estimated Future Payouts +Under Equity +Incentive Plan Awards (2) +All Other +Stock +Awards +Number +of Shares +of Stock +or +Units(#) +All +Other +Stock +Awards: +Number of +Securities +Underlying +Options(#) (4) +Exercise +or Base +Price of +Option or +Awards +($/share) +Grant +Date +Fair Value +of Stock +and +Option +Awards +($) (5) +Threshold/ +Minimum +($) +Target +($) +Maximum +($) +Threshold/ +Minimum +(#) +Target +(#) +Maximum +(#) +Joe Bergera +06/22/2020 +Cash Bonus +$ +0 +$ +322,500 +$ +580,500 +— +— +— +— +— +— +— +06/30/2020 +PSU +— +— +— +0 +12,803 +25,605 +— +— +$ +— +$ +70,030 +11/16/2020 +RSU +— +— +— +— +— +— +38,408 (3) +— +— +184,358 +11/16/2020 +Options +— +— +— +— +— +— +137,500 (4) +137,500 +4.80 +323,125 +Douglas L. Groves +06/22/2020 +Cash Bonus +0 +200,000 +360,000 +— +— +— +— +— +— +— +06/30/2020 +PSU +— +— +— +0 +4,150 +8,299 +— +— +— +22,968 +11/16/2020 +RSU +— +— +— +— +— +— +12,449 (3) +— +— +59,755 +11/16/2020 +Options +— +— +— +— +— +— +50,000 (4) +50,000 +4.80 +117,500 +Todd Kreter +06/22/2020 +Cash Bonus +0 +159,500 +287,100 +— +— +— +— +— +— +— +06/30/2020 +PSU +— +— +— +0 +2,905 +5,809 +— +— +— +15,888 +11/16/2020 +RSU +— +— +— +— +— +— +8,714 (3) +41,827 +11/16/2020 +Options +— +— +— +— +— +— +35,000 (4) +35,000 +4.80 +82,250 +Ramin Massoumi +Cash Bonus +0 +154,000 +277,200 +— +— +— +— +— +— +— +06/30/2020 +PSU +— +— +— +0 +2,905 +5,809 +— +— +— +15,888 +11/16/2020 +RSU +— +— +— +— +— +— +8,714 (3) +— +— +41,827 +11/16/2020 +Options +— +— +— +— +— +— +35,000 4) +35,000 +4.80 +82,250 +(1) +Reflects the potential amount payable (not the actual amount payable) upon achievement of the management objectives described under the heading “Fiscal 2021 Cash-Based Bonus Plan” above. +(2) +These PSUs were granted under the 2016 Omnibus Incentive Plan. The number of PSUs that are eligible to vest will be determined, in part, based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three-year performance period ending March 31, 2023. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will also depend, in part, on the Company’s total stockholder return (“rTSR”) relative to the Russell 2000 over the three-year performance period. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. The final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2021, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and amounts shown at “target” represent one-third of the total “target” number of PSUs granted during fiscal 2021 at “target” levels. Named executive officers will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. The vesting of equity awards held by the named executive officers is subject to +49 +TABLE OF CONTENTS +each named executive officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(3) +These RSUs were granted under the 2016 Omnibus Incentive Plan and vest fifty-percent (50%) after two (2) years from the vesting commencement date, and fifty-percent (50%) after the third (3rd) year from the vesting commencement date, upon named executive officer’s completion of each year of continued service with the Company. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(4) +All options vest in four equal installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(5) +The dollar amounts shown represent the grant date fair value of equity awards granted during the applicable fiscal year determined in accordance with ASC 718. With respect to the PSUs granted during Fiscal 2021, the number of PSUs that are eligible to vest will be determined based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three-year performance period. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2021, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and so the grant date fair value of the PSUs included in this column for Fiscal 2021 represents the grant date fair value for one-third of the PSU award eligible to vest based on fiscal 2022 performance. For a discussion of valuation assumptions used in the calculations, see footnote (1) to the Summary Compensation Table and Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” on page 28 in Part II, Item 7 in the Annual Report. +50 +TABLE OF CONTENTS +Outstanding Equity Awards at 2021 Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2021. +Name +Option Awards (1) +Stock Awards +Number of +Securities +Underlying +Outstanding +Options (#) +Exercisable +Number of +Securities +Underlying +Outstanding +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Grant +Date +Option +Expiration +Date +Number +of Shares +or Units +of Stock +That have +not +Vested +Market Value +of Shares +or Units +of Stock +That Have +Not Vested (4) +Equity +Incentive +Plan Awards: +Number of +Unearned Shares, +Units or +Other Rights +That Have +Not Vested +Equity +Incentive +Plan Awards: +Market or +Payout +Value +of Unearned +Shares, +Units or +Other Rights +That Have +Not Vested +Joe Bergera +1,350,000 +— +$ +2.38 +09/23/15 +09/22/25 +150,000 +— +4.91 +03/03/17 +03/02/27 +187,500 +62,500 +5.52 +02/16/18 +02/15/28 +112,500 +112,500 +4.16 +12/10/18 +12/09/28 +62,500 +187,500 +5.10 +12/09/19 +12/08/29 +— +137,500 +4.80 +11/16/20 +11/15/30 +— +— +— +— +— +38,408 (2) +$ +236,977 (4) +— +— +38,408 (3) +236,977 (4) +Douglas L. Groves +50,000 +150,000 +4.92 +12/04/19 +12/04/29 +— +50,000 +4.80 +11/16/20 +11/15/30 +— +— +— +— +— +12,449 (2) +76,810 (4) +— +— +12,449 (3) +76,810 (4) +Todd Kreter +12,500 +— +1.87 +11/18/14 +11/17/24 +75,000 +— +2.37 +11/02/15 +11/01/25 +75,000 +— +4.91 +03/03/17 +03/02/27 +56,250 +18,750 +5.52 +02/16/18 +02/15/28 +30,000 +30,000 +4.16 +12/10/18 +03/02/27 +17,500 +52,500 +5.10 +12/09/19 +02/15/28 +— +35,000 +4.80 +11/16/20 +11/15/30 +— +— +— +— +— +8,714 (2) +51,933 (4) +— +— +— +— +— +8,714 (3) +51,933 (4) +Ramin Massoumi +75,000 +— +4.91 +03/03/17 +03/02/27 +56,250 +18,750 +5.52 +02/16/18 +02/15/28 +30,000 +30,000 +4.16 +12/10/18 +12/09/28 +17,500 +52,500 +5.10 +12/09/19 +12/08/29 +— +35,000 +4.80 +11/16/20 +11/15/30 +— +— +— +— +— +8,714 (2) +51,933 (4) +— +— +— +— +— +8,714 (3) +51,933 (4) +(1) +All options vest in four equal annual installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officers continued service with the +51 +TABLE OF CONTENTS +Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Change in Control” below. +(2) +Each RSU represents the right to receive one share of our common stock if vesting is satisfied. These RSUs were granted under the 2016 Omnibus Incentive Plan and vest fifty-percent (50%) after two (2) years from the vesting commencement date, and fifty-percent (50%) after the third (3rd) year from the vesting commencement date, upon named executive officer’s completion of each year of continued service with the Company. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. Vested shares are issued as soon as practicable after the applicable vesting date. +(3) +Each PSU represents the right to receive one share of our common stock if vesting is satisfied. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will depend, in part, on the Company’s average revenues per share and cash flow from operations performance during the three-year performance period and, in part, on the Company’s total stockholder return (“rTSR”) relative to the Russell 2000 over the three-year performance period. Executives will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. The PSUs are reflected in the table above at “target” performance levels. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(4) +The dollar value is based on the closing sales price of our common stock on the last business day of Fiscal 2021, $6.17. +Fiscal 2021 Option Exercises and Stock Vesting Table +The following table provides information regarding option exercises of awards held by the named executive officers during Fiscal 2021. +Name +Option Awards +Number of +Shares +Acquired on +Exercise +(#) +Value +Realized on +Exercise +($) (1) +Joe Bergera +— +$ +— +Douglas L. Groves +— +$ +— +Todd Kreter +— +$ +— +Ramin Massoumi +27,996 +$ +200,400 +(1) +Value realized is determined by multiplying (i) the amount by which the market price of a common share on the date of exercise exceeded the exercise price by (ii) the number of shares for which the options were exercised. +Non-Qualified Deferred Compensation for Fiscal 2021 +Deferred Compensation Plan. Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that +52 +TABLE OF CONTENTS +is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of nonemployee members of our Board of Directors. Key employees, including our executive officers, and our nonemployee directors who are notified regarding their eligibility to participate and delivered the DC Plan enrollment materials are eligible to participate in the DC Plan. Under the DC Plan, we will provide participants with the opportunity to make annual elections to defer up to 75% of their base salary, up to 100% of their annual bonus, and up to 100% of any RSU or PSU awards. Our nonemployee directors may elect to defer up to 100% of their eligible cash compensation and equity awards. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. +Elective deferrals of equity awards are credited to a bookkeeping account established in the name of the participant with respect to an equivalent number of shares of our common stock, and such credited shares are subject to the same vesting conditions as are applicable to the equity award subject to the election. The Company established a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on participants, and the assets held within this trust are subject to the claims of the Company’s creditors. +Under the DC Plan, we will be obligated to deliver on a future date deferred cash compensation credited to the participant’s account, adjusted for any positive or negative investment results from the investment alternatives selected by the participant under the DC Plan, or with respect to deferrals of equity awards, an issuance of shares of our common stock. These obligations are unfunded, unsecured general obligations of the Company and rank in parity with other unsecured and unsubordinated indebtedness of us, subject to the claims of our general creditors. However, deferrals of equity awards under the DC Plan are deemed rights to receive an issuance of our common stock and may not be deemed allocated to any investment fund. +A participant’s rights under the Plan are not transferable except upon death of the participant. +With respect to the portion of the bookkeeping account allocated to an investment fund, each account will be payable in cash. The portion of the bookkeeping account allocated to deferrals of equity awards will be payable in an issuance of shares of our common stock. +Payments will be distributed in connection with either the participant’s separation of service or a selected specified distribution date or dates, depending upon the distribution election made by the participant at the time of deferral. However, if a participant’s service with us terminates prior to the selected specified distribution date or dates, payment will instead be made or commence in connection with such separation from service. A participant’s account balance may be distributed in a lump sum or, if elected by a participant, in up to 15 substantially equal installments (up to 5 annual installments for any distributions in respect of equity award accounts); however, any distribution upon a separation from service prior to attaining age 55 will be paid in a lump sum, regardless of the payment timing elected. If a participant’s service terminates with us due to death, all of a participant’s accounts will become immediately payable in a single lump sum. In addition, participants may be entitled to receive payments through certain unforeseeable emergency withdrawals. Payments scheduled to be made under the Plan may be otherwise delayed or accelerated only upon the occurrence of certain specified events that comply with the requirements of Section 409A of the Code. +A committee appointed by our board of directors administers the Plan. We can amend or terminate the Plan at any time, but no such action shall unilaterally reduce a participant’s account balance without his or her consent prior to the date of such action. However, we may adopt any amendments to the Plan that we deem necessary or appropriate to preserve the intended tax treatment of the Plan benefits or to otherwise comply with the requirements of Section 409A of the Code and related guidance. +The following table shows the non-qualified deferred compensation activity for each named executive officer during Fiscal 2021. +53 +TABLE OF CONTENTS +Name +Executive +Contributions +in Last +Fiscal Year +($) (1) +Aggregate +Earnings +in Last +Fiscal +Year (2) +Aggregate +Withdrawals / +Distributions +($) +Aggregate +Balance at Last +Fiscal Year End +($) +Joe Bergera +$ +— +$ +— +$ +— +$ +— +Douglas L. Groves +43,077 +402 +— +43,479 +Todd Kreter +— +— +— +— +Ramin Massoumi +— +— +— +— +(1) +Amounts included in the Summary Compensation Table in the “Salary” and “Non-Equity Incentive Plan Compensation” columns for Fiscal 2021. +(2) +No above market or preferential earnings are provided under the DC Plan because the investment choices available under such plans are identical to the investment choices available in the 401(k) Plan, which is a qualified plan. Consequently, none of the earnings reported in this table are included in the Summary Compensation Table set forth above. +The DC Plan provides investment options amongst which participants make investment allocations that provide the basis on which gains and losses are attributed to account balances under the plan, and such options may change from time to time. The investment options under the DC Plan and their rates of return for the period from January 1, 2021 through March 31, 2021, which represents the period of time during which cash deferrals were first deferred under the DC Plan. +Name of Investment Option +Rate of Return (%) +AB Discovery Growth Fund I +1.57 % +AB Large Cap Growth Fund Class Z +1.13 % +American Balanced Fund Class R6 +3.82 % +American Century Midcap Val I +12.09 % +American EuroPacific Growth R6 +-0.43 % +American New Perspective +2.26 % +Dodge & Cox Stock Fund +15.86 % +Invesco Developing Markets Fund R6 +0.86 % +Janus Henderson Triton Fund I +0.52 % +JP Morgan Mid Cap Val Fund R6 +15.55 % +Principal Real Estate SEC Fund I +6.98 % +T. Rowe Price 2005 Retirement I +1.96 % +T. Rowe Price 2010 Retirement I +2.21 % +T. Rowe Price 2015 Retirement I +2.60 % +T. Rowe Price 2020 Retirement I +2.97 % +T. Rowe Price 2025 Retirement I +3.64 % +T. Rowe Price 2030 Retirement I +4.26 % +T. Rowe Price 2035 Retirement I +4.95 % +T. Rowe Price 2040 Retirement I +5.54 % +T. Rowe Price 2045 Retirement I +5.98 % +T. Rowe Price 2050 Retirement I +6.00 % +T. Rowe Price 2055 Retirement I +6.00 % +T. Rowe Price 2060 Retirement I +6.02 % +T. Rowe Price Retirement Bal I +2.26 % +Vanguard 500 Index Fund +6.18 % +54 +TABLE OF CONTENTS +Name of Investment Option +Rate of Return (%) +Vanguard Grow And Inc Fund +6.92 % +Vanguard Small Cap Index Fund +10.22 % +Vanguard Total Int Stock Index +3.94 % +Victory Sycamore Small Comp R6 +15.80 % +Fidelity Advisor Gov’t Income M +-3.52 % +Loomis Sayles Core Plus Cl N +-3.07 % +PIMCO Real Return Fund Cl Inst +-1.33 % +Templeton Global Bond Fund R6 +-2.73 % +Goldman Sachs Stable Value Ct +0.35 % +Potential Payments upon Termination of Employment and Change in Control +The Company does not have any employment agreements or change in control arrangements in effect with any of our named executive officers other than the agreements described below. In addition, our NEOs may be eligible for certain payments upon a termination or a change in control under the DC Plan, as further described above under “Non-Qualified Deferred Compensation for Fiscal 2021.” +Equity Award Vesting +The plan administrator of the 2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a termination of employment or upon a change in control, but our equity plans do not provide for any automatic “single trigger” acceleration of equity awards upon a change in control. +Options granted to our named executive officers are eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability, a pro-rata portion of the options shall vest on the date of such termination. In addition, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), in each case within eighteen (18) months following the effective date of a change in control, then such additional number of options shall vest as of the date of termination as is equal to the number of options as would have vested during the two (2) year period following the date of termination had the executive remained employed by us or our successor during such period. +RSUs granted to our named executive officers are eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability, a pro-rata portion of the RSUs shall vest on the date of such termination. In addition, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), in each case within eighteen (18) months following the effective date of a change in control, then such additional number of RSUs shall vest as of the date of termination as is equal to the number of RSUs as would have vested during the two (2) year period following the date of termination had the executive remained employed by us or our successor during such period. +PSUs granted to our named executive officers are also eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability prior to a change in control, a pro-rata portion of the PSUs shall vest on the date of such termination based on our actual performance relative to the performance metrics applicable to the PSUs through such date. Upon a change in control, a number of PSUs will remain eligible to vest on the last day of the three-year performance period as is determined based on our actual performance relative to the performance metrics applicable to the PSUs through the date of such change in control, subject to the executive’s continued employment through such date. However, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), or in the event of an executive’s termination due to death or permanent disability in each case within eighteen (18) months following the effective date of the change in control, then such additional number of PSUs shall vest +55 +TABLE OF CONTENTS +as of the date of termination as is equal to the number of PSUs as would have vested during the two (2) year period following the date of termination had the executive remained employed by us or our successor during such period. +Iteris, Inc. Executive Severance Plan +The Iteris, Inc. Executive Severance Plan (the “Severance Plan”) was adopted on February 5, 2018 and amended and restated effective June 4, 2019. Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Exchange, and who is not otherwise covered by an employment agreement that includes severance terms (the “Eligible Employees”), is eligible to receive severance payments under the Severance Plan upon certain qualifying terminations of employment. +The Severance Plan provides Eligible Employees with severance payments in the event that an Eligible Employee’s employment with the Company or its subsidiaries is terminated either (a) by the Company without Cause not in connection with a Change in Control (“Non-CIC Qualifying Termination”) or (b) if in connection with or within 12 months following a Change in Control, which, for Eligible Employees employed by that business, includes a divestiture of a material business, by the Eligible Employee for Good Reason (as such terms are defined in the Severance Plan) or by the Company without Cause (a “CIC Qualifying Termination”). +Non-CIC Qualifying Termination. Upon a Non-CIC Qualifying Termination, an Eligible Employee will receive the following: +• +A cash payment equal to the Eligible Employee’s annual base salary, payable in substantially equal installment payments over the one-year period following termination, in accordance with the Company’s normal payroll practices; and +• +Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination or until the Eligible Employee receives substantially similar medical coverage from another employer. +CIC Qualifying Termination. Upon a CIC Qualifying Termination, an Eligible Employee will receive the following: +• +A cash payment equal to the Eligible Employee’s annual base salary, payable in a lump sum on the next payroll date after the 61 st day following termination; and +• +Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination, or until the Eligible Employee receives substantially similar medical coverage from another employer. +The severance payments are subject to the Eligible Employee’s execution of a severance agreement within 60 days following termination that includes a release of claims and certain non-solicitation, confidentiality, and non-disparagement restrictions. +The Company may amend or terminate the Severance Plan at any time by providing at least 90-day advance written notice to each Eligible Employee, provided that no such amendment or termination that has the effect of reducing or diminishing the right of any Eligible Employee will be effective unless one year’s advance written notice is provided to Eligible Employees, and such amendment or termination will not be effective if a Change in Control occurs during the one-year notice period. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, 2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board. The agreement renews for successive one-year periods until September 2025 unless either we or Mr. Bergera provide written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +56 +TABLE OF CONTENTS +If Mr. Bergera’s employment with the Company is terminated without Cause (as such term is defined in the agreement) during the term of the agreement, Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are defined in the agreement) (such termination or resignation, a “CIC Termination”), Mr. Bergera will be entitled to receive (i) a lump sum payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the CIC Termination occurs, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination. In addition, upon termination of his employment due to death, Mr. Bergera’s estate or beneficiaries will be entitled to receive a lump sum payment in the aggregate equal to 50% of his then current base salary. +Potential Payments upon Termination of Employment and Change in Control Table +The following table illustrates an estimated amount of compensation or other benefits potentially payable to each of our named executive officers as of March 31, 2021 that could be triggered upon termination of such named executive officer’s employment under various scenarios. We have assumed that all salary payments or any expenses the executive may be due have been paid currently. The amounts shown assume that such termination (and in the case of a change in control, the change in control) was effective as of March 31, 2021, and, therefore, are estimates of the amounts that would have been paid to such named executive officers upon their termination. The value of equity award acceleration reflected in the table below was calculated using the closing price of $6.17 per share of our common stock on March 31, 2021. The value for option awards is calculated as the difference between the closing price of our common stock of $6.17 on March 31, 2021 and the exercise price per share of the award multiplied by the number of shares vesting. Actual amounts to be paid can only be determined at the time of such named executive officer’s termination from the Company. These benefits do not include any amounts with respect to fully vested benefits under the DC Plan, which are described above under “Non-Qualified Deferred Compensation for Fiscal 2021” or our 401(k) Plan. +No Change in Control +Change in Control +Termination +Without +Cause or for +Good Reason +($) +Death +($) (1) +Disability +($) (2) +Termination +Without +Cause or for +Good Reason +($) +Death +($) (1) +Disability +($) (2) +Joe Bergera +Cash Severance (3) +$ +752,500 +$ +215,000 +$ +143,333 +$ +860,000 +$ +215,000 +$ +107,500 +Medical Benefits (4) +13,048 +13,048 +4,349 +13,048 +13,048 +4,349 +Equity Award Acceleration (5) +— +$ +62,712 +$ +62,712 +6,850,080 +449,654 +449,654 +Estimated Total +$ +765,548 +$ +290,760 +$ +210,394 +$ +7,723,128 +$ +677,702 +$ +561,503 +Douglas L. Groves +Cash Severance (3) +$ +400,000 +— +— +$ +400,000 +— +— +Medical Benefits (4) +13,048 +— +— +13,048 +— +— +Equity Award Acceleration (5) +— +20,848 +20,848 +472,121 +149,468 +149,468 +Estimated Total +$ +413,048 +$ +20,848 +$ +20,848 +$ +885,169 +$ +149,468 +$ +149,468 +Todd Kreter +Cash Severance (3) +$ +290,000 +— +— +$ +290,000 +— +— +Medical Benefits (4) +7,761 +— +— +7,761 +— +— +Equity Award Acceleration (5) +— +14,777 +14,777 +832,981 +104,398 +104,398 +57 +TABLE OF CONTENTS +No Change in Control +Change in Control +Termination +Without +Cause or for +Good Reason +($) +Death +($) (1) +Disability +($) (2) +Termination +Without +Cause or for +Good Reason +($) +Death +($) (1) +Disability +($) (2) +Estimated Total +$ +297,761 +$ +14,777 +$ +14,777 +$ +1,130,742 +$ +104,398 +$ +104,398 +Ramin Massoumi +Cash Severance (3) +$ +280,000 +— +— +$ +280,000 +— +— +Medical Benefits (4) +13,048 +— +— +13,048 +— +— +Equity Award Acceleration (5) +— +14,777 +14,777 +494,249 +104,398 +104,398 +Estimated Total +$ +293,048 +$ +14,777 +$ +14,777 +$ +787,297 +$ +104,398 +$ +104,398 +(1) +Only Mr. Bergera is entitled to cash termination benefits upon death. Amount includes Mr. Bergera’s 50% of Mr. Bergera’s annual base salary payable under his employment agreement. Each named executive officer is also eligible for certain accelerated vesting of outstanding equity awards in the event of death or permanent disability, as described in the narrative preceding this table. +(2) +Only Mr. Bergera is entitled to cash termination benefits upon Disability (as defined in Mr. Bergera’s employment agreement). Amounts assume continuation of base salary and benefit continuation coverage by Mr. Bergera for a total of one hundred twenty (120) days. +(3) +Calculation of cash severance benefits for the various termination scenarios is described in the narrative preceding this table. Only Mr. Bergera is entitled to a pro-rated portion of his target bonus established by the Compensation Committee. +(4) +Calculated based on the premiums payable to elect benefit continuation coverage by the named executive officer pursuant to COBRA for twelve (12) months and for the actual level of group medical, dental and vision coverage in effect as of March 31, 2021. +(5) +Each named executive officer is also eligible for certain accelerated vesting of outstanding equity awards in the event of a termination without cause or resignation for good reason within 18 months following a change in control as described in the narrative preceding this table. The acceleration of outstanding PSUs held by our named executive officers was assumed to be at “target” levels for purposes of the foregoing tables. +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer. If it is ultimately determined that the director or officer is not entitled to indemnification, the director or officer is required to repay such advances. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +58 +TABLE OF CONTENTS +We have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +E quity C ompensation P lan I nformation +The following table summarizes information as of March 31, 2021 regarding shares of our common stock that may be issued under our equity compensation plans, including the 2007 Omnibus Incentive Plan, the 2016 Omnibus Incentive Plan, ESPP and the Inducement Plan. Other than the Inducement Plan, each of these plans has been approved by our stockholders. +Plan Category +(a) +Number of Securities to be +Issued Upon Exercise of +Outstanding Options, +Warrants and Rights +(b) +Weighted Average +Exercise Price of +Outstanding Options, +Warrants and Rights +(c) +Number of Securities +Remaining Available +for Future Issuance +Issuance Under Equity +Compensation Plans +(Excluding Securities +Reflected in Column (a)) +Equity compensation plans approved by +security holders +5,527,483 (1) +$ +3.76 +1,315,079 (2) +Equity compensation plans not approved +by security holders (3) +179,914 +$ +2.98 +120,086 +(1) +Includes 5,527,483 shares subject to outstanding stock option awards, 401,455 shares subject to outstanding RSU awards and 68,285 shares subject to outstanding PSUs (at “target” performance levels), as of March 31, 2021. +(2) +Includes 720,079 shares remaining available for issuance under the ESPP as of March 31, 2021, of which 720,079 shares were eligible to be purchased pursuant to the offering period in effect on such date. +(3) +On December 4, 2020, the Board of Directors approved the Inducement Plan in conjunction with the TrafficCast acquisition. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. +The Board initially reserved 300,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. No future awards will be issued under the Inducement Plan. +59 +TABLE OF CONTENTS +P roposal 4: R atification of S election O f I ndependent R egistered P ublic A ccounting F irm +The accounting firm of Deloitte & Touche LLP (“Deloitte”) has been engaged by our Audit Committee to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2022. Deloitte has been our principal independent registered public accounting firm since October 2015. Information regarding the services provided to us by Deloitte during Fiscal 2021 and Fiscal 2020 is set forth below under the heading entitled “Matters Related to Independent Registered Public Accounting Firm.” +We are asking our stockholders to ratify the selection by the Audit Committee of Deloitte as our independent registered public accounting firm to audit our consolidated financial statements for Fiscal 2022 and to perform other appropriate services. Although stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the appointment of Deloitte to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance and to provide a means by which our stockholders may communicate their opinion to the Audit Committee. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of the Company and our stockholders. +A representative of Deloitte is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Vote Required +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Deloitte as our independent registered public accounting firm for Fiscal 2022. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for Fiscal 2022 . +60 +TABLE OF CONTENTS +M atters R elated T o I ndependent R egistered P ublic A ccounting F irm +Fees Paid to Independent Registered Public Accounting Firm +The following table sets forth the fees we have paid to Deloitte in the following categories and amounts during Fiscal 2021 and Fiscal 2020: +Fee Category +Year Ended March 31, +2021 +2020 +Audit fees +$ +1,010,220 +$ +990,000 +Audit related fees +91,895 +107,000 +Tax fees +— +— +All other fees +— +— +Total fees +$ +1,102,115 +$ +1,097,000 +Audit Fees. Audit fees consist of fees billed for professional services rendered in connection with the audit of our overhead rate and the audit of our annual consolidated financial statements for the applicable fiscal year and review of our consolidated financial statements included in our quarterly reports on Form 10-Q, annual report on Form 10-K (and 10-K/A) and other regulatory filings for such fiscal year. +Audit Related Fees. Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reporting under “Audit Fees.” Audit related fees for Fiscal 2021 were related to the TrafficCast acquisition and the review of our registration statements on Form S-8 and Form S-3 and a subscription to Deloitte’s Accounting Research Tool. Audit related fees for Fiscal 2020 were related to the review of registration statements on Form S-3 and Form S-3/A, comfort letter services, and review of the transaction to sell the Company’s AWA segment to DTN. +Tax Fees. Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. There were no tax fees billed by Deloitte for Fiscal 2021 or Fiscal 2020. +All Other Fees. There were no fees were billed by Deloitte in Fiscal 2021 or Fiscal 2020 for any other services. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis, non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by Deloitte for Fiscal 2021 and Fiscal 2020. +The Audit Committee reviewed and discussed the services rendered by Deloitte during Fiscal 2021, as well as the fees paid for such services, and has determined that the provision of such services by Deloitte, and the fees paid for such services, were compatible with maintaining Deloitte’s independence. +Audit Committee Report +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2021 included in the Annual Report. +Our management is responsible for the Company’s financial reporting process, including its systems of internal control over financial reporting, and for the preparation of its financial statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles (“GAAP”) and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee these financial processes on behalf of the Board. +61 +TABLE OF CONTENTS +The members of the Audit Committee are not employees of Iteris and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct auditing or accounting reviews or procedures. Therefore, in performing the Audit Committee’s oversight role, the Audit Committee necessarily must rely on management’s representations that it has maintained appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations, and that the Company’s financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the representations of our independent registered public accounting firm included in its reports on the Company’s financial statements. +In this context, the Audit Committee hereby reports as follows: +1. The Audit Committee has reviewed and discussed our consolidated audited financial statements with our management. +2. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and SEC. +3. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence. +4. Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board, and the Board approved, that the consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2021 for filing with the SEC. +The information contained in the foregoing Audit Committee Report is not “soliciting material” and is not deemed filed with the SEC. Such report is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof, and irrespective of any general incorporation language in any such filing. +Submitted by the Audit Committee +of the Board of Directors: +Gerard M. Mooney +Laura L. Siegal +Dennis W. Zank (Chairman) +62 +TABLE OF CONTENTS +S tock O wnership of C ertain B eneficial O wners and M anagement +The following table sets forth, as of July 13, 2021, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Name and Address of Beneficial Owner (1) +Common Stock +Amount and Nature +of Beneficial +Ownership (2) +Percent of +Class (2) +Black Rock, Inc. (3) +3,073,101 +7.3 % +Royce & Associates, LP (4) +2,734,331 +6.5 +The Vanguard Group (5) +2,308,813 +5.5 +Cowen Prime Advisors (6) +2,140,092 +5.06 +Joe Bergera (7) +1,755,216 +4.25 +Douglas L. Groves (8) +65,555 +* +Todd Kreter (9) +262,190 +* +Ramin Massoumi (10) +240,921 +* +Anjali Joshi (11) +11,750 +* +Gerard M. Mooney (12) +47,557 +* +Luke P. Schneider (13) +10,878 +* +Laura L. Siegal (14) +42,416 +* +Thomas L. Thomas (15) +175,417 +* +Dennis W. Zank (16) +14,424 +* +All executive officers and directors as a group (10 persons) (17) +2,385,403 +5.64 % +* +Less than 1%. +(1) +The address of each of the directors and officers is 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705. +(2) +Based on 42,281,621 shares of common stock outstanding as of July 13, 2021. Shares of common stock subject to options or warrants which are exercisable within 60 days of July 13, 2021 deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) plan. +(3) +Pursuant to a Schedule 13G/A filed on January 29, 2021 with the SEC, BlackRock, Inc. reported that through the following subsidiaries, it has sole dispositive power with respect to 3,102,725 shares and sole voting power with respect to 3,073,101 shares: BlackRock Advisors, LLC, BlackRock Fund Advisors; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc. and BlackRock Investment Management, LLC. The address for BlackRock Inc. is 55 East 52nd Street, New York, NY 10005. +(4) +Pursuant to a Schedule 13G filed on January 27, 2021 with the SEC, Royce & Associates, LP reported through one or more investment companies or other managed accounts that are investment management clients of Royce & Associates, LP, an indirect majority owned subsidiary of Franklin Resources, Inc., +63 +TABLE OF CONTENTS +it has sole dispositive and voting power with respect to 2,734,331 shares. The address for Royce & Associates, LP is 745 Fifth Avenue, New York, NY 10151. +(5) +Pursuant to a Schedule 13G filed on February 10, 2021 with the SEC, The Vanguard Group, Inc. reported that it directly and through its wholly-owned subsidiary, Vanguard Fiduciary Trust Company, has shared voting power with respect to 80,065 shares, sole dispositive power with respect to 2,213,988 shares and shared dispositive power with respect to 94,825 shares. The address for The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, PA 19355. +(6) +Pursuant to a Schedule 13G filed on February 4, 2020 with the SEC, Cowen Prime Advisors, a division of Cowen Prime Services LLC, reported that, through its various clients, it has shared dispositive power with respect to 2,140,092 shares. The address for Cowen Prime Advisors is 599 Lexington Avenue, Floor 21, New York, NY 10022. +(7) +Consists of (i) 92,716 shares held directly by Mr. Bergera and (ii) 1,662,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 13, 2021. +(8) +Consists of (i) 10,000 shares held in a trust, of which Mr. Groves is a trustee, (ii) 5,555 shares held in the ESPP, and (iii) 50,000 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 13, 2021. +(9) +Consists of (i) 83,132 shares held directly by Mr. Kreter, (ii) 308 shares held in an individual retirement account by Mr. Kreter, and (iii) 178,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 13, 2021. +(10) +Consists of (i) 27,996 shares held directly by Mr. Massoumi, (ii) 31,624 shares held in a trust, of which Mr. Massoumi is a trustee, (iii) 2,551 shares are held in Mr. Massoumi’s 401(k) plan, and (iv) 178,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 13, 2021. +(11) +Consists of (i) 2,181 shares held directly by Ms. Joshi and (ii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(12) +Consists of (i) 37,988 shares held directly by Mr. Mooney and (ii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(13) +Consists of (i) 1,309 shares held directly by Mr. Schneider and (ii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(14) +Consists of (i) 32,847 shares held directly by Ms. Siegal and (ii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(15) +Consists of (i) 48,702 shares held directly by Mr. Thomas, (ii) 117,146 shares held by Mr. Thomas’s Trust, and (iii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(16) +Consists of (i) 4,855 shares held directly by Mr. Zank and (ii) 9,569 shares subject to RSUs that vest within 60 days after July 13, 2021. +(17) +Includes (i) 2,070,000 shares issuable upon exercise of options held by the executive officers and directors as a group that are currently exercisable or will become exercisable within 60 days after July 13, 2021 and (ii) 47,845 shares subject to RSUs held by the executive officers and directors as a group that vest within 60 days of July 13, 2021. +64 +TABLE OF CONTENTS +E nvironmental , S ocial , G overnance and R elated M atters +We believe that leadership in ethical, environmental, social and governance practices and related matters will have a positive impact on our business, employees, customers and communities we serve. Accordingly, we adopted policies and practices that help us to implement these standards. +Code of Ethics and Business Conduct +Our Board has adopted a Code of Ethics and Business Conduct (“Code of Ethics”), which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. We will also provide an electronic or paper copy of the Code of Ethics, free of charge, upon request made to our Corporate Secretary. If any substantive amendments are made to our Code of Ethics, or if any waiver (including any implicit waiver) of any provision of the Code of Ethics is granted that is required to be disclosed under the rules of the SEC, such amendment or waiver will be disclosed at the same location on our website, or, if required, in a current report on Form 8-K. +Environmental, Social and Governance Practices +Environmental, social and governance (“ESG”) practices are becoming increasingly important to our stockholders, customers, and employees and our Board supports Iteris in pursuing thriving communities. In June 2020, our Board adopted an Environmental Policy and Human Rights Policy to further our commitment to continually improve how Iteris operates. In November 2020, our Board ratified our Occupational Health and Safety Policy Statement to support safety practices and maintaining a healthy work environment. In December 2020, our Board ratified our Policy Statement Against Trafficking in Persons and Slavery to instill a climate of full compliance with laws concerning prohibitions of trafficking in persons, including implementing a standard annual mandatory training program on anti-slavery and human trafficking to employees. The full text of our Environmental Policy, Human Rights Policy, Occupational Health and Safety Policy, and Statement Against Trafficking in Persons and Slavery are available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +Supply Chain Responsibility +We are committed to advancing supply chain responsibility by reducing risk, improving product quality, and raising overall performance of our suppliers. In furtherance of this commitment, in December 2020 our Board ratified our Conflict Minerals Policy Statement to support preventing profits from the sale of tantalum, tin, tungsten, and gold from funding conflict in the Democratic Republic of the Congo and adjoining countries. The full text of our Conflict Minerals Policy Statement is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +Diversity and Inclusion +Consistent with our core values, we promote diversity and inclusion in every aspect of our business. We are an equal opportunity employer and make employment decisions on the basis of merit. We administer all phases of our employment practices without regard to race, religious creed, color, national origin, ancestry, disability, sex, gender, gender identity, gender expression, sexual orientation, transgender identity, age, military or veteran status, or any other consideration made unlawful by law. Additionally, as a contractor for the United States Government, we develop and implement an affirmative action plan to (1) assess our inclusion of women, members of minority groups, protected veterans, and individuals with disabilities into our workforce, (2) establish goals for increased inclusion and (3) implement strategies to reach those goals. In furtherance of these values, our Board has adopted the Diversity and Inclusion Policy to promote encouragement to develop our employees to their full potential and utilize their unique talents. The full text of our Diversity and Inclusion Policy is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +65 +TABLE OF CONTENTS +Investment in our Employees +There are several programs we implemented and maintain for the financial and educational well-being of our employees and their families. For example, we have an Employee Stock Purchase Plan (“ESPP”), which provides employees with the opportunity to share in the ownership of Iteris and its performance through the purchase of shares of the Company’s stock. ESPP allows eligible employees to accumulate contributions through after-tax payroll deductions to purchase shares of Iteris stock at a 5% discount. Our 401(k) plan has an 91.4% participation rate among eligible employees, with annual training and monthly educational sessions held at each Iteris location. Finally, we have developed and implemented the Iteris leadership development program which is facilitated by an independent management consulting firm. In Fiscal 2021, there were 15 graduates from the program and we anticipate a similar number of graduates in Fiscal 2022. +A dditional M atters +Certain Transactions with Related Persons +Since April 1, 2020, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Annual Report +A copy of our Annual Report (excluding the exhibits thereto) accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of the Annual Report and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +Delivery of Documents to Stockholders Sharing an Address +Some street name holders of our common stock may be “householding” our proxy statements and annual reports, which means that we will deliver only one copy of our proxy statement and annual report to multiple stockholders who share the same address (if they appear to be members of the same family), unless we have received instructions to the contrary. This procedure reduces our printing and mailing costs and related fees. Upon request, we will promptly deliver a separate copy of either document to you if you write us at our corporate offices at Iteris, Inc., 1700 Carnegie Avenue, Suite 100, Santa Ana, CA 92705, Attention: Corporate Secretary, Telephone: (949) 270-9400. You may also contact us or your Nominee if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Deadline for Receipt of Stockholder Proposals +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholder proposals may be eligible for inclusion in our proxy statement for the 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2022 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than March 31, 2022. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the proposal or nomination must be received by us on or between May 12, 2022 and June 11, +66 +TABLE OF CONTENTS +2022. If the date of the 2022 Annual Meeting of Stockholders is called for a date that is not within 30 days before or after the anniversary date of the 2021 Annual Meeting of Stockholders, then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents at the 2022 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our Corporate Secretary, at our principal executive offices at 1700 Carnegie Avenue, Suite 100, Santa Ana, California 92705. It is recommended that stockholders submitting proposals direct them to our Corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2021 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +Other Matters +The Board is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Santa Ana, California +July 27, 2021 +67 +TABLE OF CONTENTS +A ppendix A +I teris , I nc . +2016 O mnibus I ncentive P lan +(A mended and R estated E ffective S eptember 9, 2021) +A rticle 1 +G eneral P rovisions +1.1 +PURPOSE OF THE PLAN +This 2016 Omnibus Incentive Plan (the “ Plan ”) is intended to promote the interests of Iteris, Inc., a Delaware corporation, by providing eligible persons in the Corporation’s service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such service. +The Plan serves as the successor to the Corporation’s 2007 Omnibus Incentive Plan (the “ Predecessor Plan ”), and no further awards shall be made under the Predecessor Plan on or after the Original Plan Effective Date. All awards outstanding under the Predecessor Plan on the Original Plan Effective Date shall remain outstanding under the Predecessor Plan and shall be governed solely by the terms of the documents evidencing such award, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such awards. +Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. +1.2 +TYPES OF AWARDS +Awards may be made under the Plan in the form of (i) options, (ii) stock appreciation rights, (iii) stock awards, (iv) restricted stock units, (v) cash incentive awards and (vi) dividend equivalent rights. +1.3 +ADMINISTRATION OF THE PLAN +(a) The Compensation Committee shall have sole and exclusive authority to administer the Plan with respect to Section 16 Insiders. Administration of the Plan with respect to all other persons eligible to participate in the Plan may, at the Board’s discretion, be vested in the Compensation Committee or a Secondary Board Committee, or the Board may retain the power to administer those programs with respect to such persons. To the extent permitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the Plan with respect to one or more classes of eligible persons (other than Section 16 Insiders) to one or more officers of the Corporation. +(b) Members of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee and reassume all powers and authority previously delegated to such committee. +(c) Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full authority to determine (i) which eligible persons are to receive Awards under the Plan, (ii) the type, size, terms and conditions of the Awards to be made to each Participant, (iii) the time or times when those Awards are to be made, (iv) the number of shares or amount of payment to be covered by each such Award, (v) the time or times when the Award is to become exercisable, (vi) the status of an option for federal tax purposes, (vii) the maximum term for which an Award is to remain outstanding, (viii) the vesting and issuance schedules applicable to the shares which are the subject of the Award, (ix) the cash consideration (if any) payable for those shares and the form (cash or shares of Common Stock) in which the Award is to be settled, (x) the vesting schedule for a cash incentive award, and (xi) with respect to performance-based Awards, the performance objectives for each such Award, the amounts payable at designated levels of attained performance, any applicable service vesting requirements, and the payout schedule for each such Award. +(d) Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations +A-1 +TABLE OF CONTENTS +as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the provisions of the Plan and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Plan under its jurisdiction or any Award thereunder. +(e) Service as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee shall be liable for any act or omission made in good faith with respect to the Plan or any Award thereunder. +1.4 +ELIGIBILITY +(a) The persons eligible to participate in the Plan are as follows: +(i) Employees, +(ii) Non-Employee Directors and non-employee members of the board of any Parent or Subsidiary, and +(iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary) who can be granted an Award that is eligible to be registered on a Form S-8 Registration Statement. +1.5 +STOCK SUBJECT TO THE PLAN +(a) The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. Subject to the add back provisions of Section 1.5(h) and adjustment pursuant to Section 1.5(j), the number of shares reserved for issuance under the Plan shall be 9,263,602. The share reserve is comprised of (i) 3,400,108 shares, representing the share reserve available on the Original Plan Effective Date (after taking into account Awards granted under the Predecessor Plan after July 22, 2016 and prior to the Original Plan Effective Date), (ii) the 103,494 shares added to the Plan as a result of the expiration, cancellation, forfeiture or termination of Awards under the Predecessor Plan after the Original Plan Effective Date; (iii) the 2,400,000-share increase approved by the Board on August 6, 2018 and by the Company’s stockholders on October 11, 2018 at the 2018 Annual Stockholders Meeting; and (iv) the 3,360,000-share increase approved by the Board on July 15, 2021, subject to stockholder approval at the 2021 Annual Stockholders Meeting. +(b) Subject to adjustment pursuant to Section 1.5(j), the maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under the Plan shall be 10,000,000. +(c) The maximum number of shares of Common Stock for which options and stock appreciation rights that are settled in shares may be granted to any person under the Plan in any fiscal year shall not exceed 2,000,000 shares of Common Stock in the aggregate. +(d) The maximum number of shares of Common Stock for which Awards (other than options and stock appreciation rights that are settled in shares) may be granted to any person under the Plan in any fiscal year shall not exceed 2,000,000 shares of Common Stock (which limit shall refer to the maximum amount that can be earned) in the aggregate. +(e) During any fiscal year no Participant may be granted cash incentive awards under which a total of more than $3,000,000 may be earned for each twelve (12) months in the performance period. +(f) The maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards made to any Non-Employee Director under the Plan in any fiscal year, taken together with any cash payments (including the annual retainer and any other compensation) paid to such Non-Employee Director in respect of such fiscal year, shall not exceed $350,000 in total value. +A-2 +TABLE OF CONTENTS +(g) The number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section 1.5(a) shall be reduced on a one-for-one basis for each share of Common Stock subject to an option or stock appreciation right and by a fixed ratio of 1.52 shares of Common Stock for each share of Common Stock subject to a Full Value Award. +(h) Shares of Common Stock subject to outstanding Awards or awards granted under the Predecessor Plan that are outstanding s of the Restated Plan Effective Date shall be available for subsequent award and issuance under the Plan to the extent those Awards or Predecessor Plan awards expire, are forfeited or cancelled or terminate for any reason prior to the issuance of the shares of Common Stock subject to those Awards or Predecessor Plan awards. Any shares that again become available for Awards under the Plan pursuant to this Section shall be added as (i) one (1) share for every one (1) share subject to options or stock appreciation rights granted under the Plan and the Predecessor Plan, (ii) as 1.52 shares for every one (1) share subject to Awards other than options or stock appreciation rights granted under the Plan and the Predecessor Plan, and (iii) for each unvested share issued under the Plan and the Predecessor Plan for cash consideration not less than the Fair Market Value per share of Common Stock on the date of grant and subsequently repurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan and Predecessor Plan, as applicable, one share shall become available for subsequent award and issuance under the Plan. +(i) Should the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option under the Plan (or any options granted under the Predecessor Plan) be paid with shares of Common Stock (whether through the withholding of a portion of the otherwise issuable shares or through the tender of actual outstanding shares), then in each such case, the shares so tendered or withheld shall be added to the shares of Common Stock available for grant under the Plan on a one-for-one basis. Upon the exercise of any stock appreciation right under the Plan, the share reserve shall be reduced only by the net number of shares issued upon such exercise and not by the gross number of shares as to which such right is exercised. If shares of Common Stock are withheld by the Corporation, or if shares of Common Stock are tendered by the Participant, in either case, in satisfaction of the withholding taxes incurred in connection with the vesting or settlement of a Full Value Award (or an award other than a stock option or stock appreciation right that was granted under the Predecessor Plan), then in each such case the shares of Common Stock so tendered or withheld shall be added to the shares of Common Stock available for issuance under the Plan in accordance with the ratio described in Sections 1.5(h) above. +(j) Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation, reincorporation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted options and stock appreciation rights that are settled in shares under the Plan in any fiscal year, (iii) the maximum number and/or class of securities for which any one person may be granted Awards (other than options and stock appreciation rights that are settled in shares) under the Plan in any fiscal year, (iv) the maximum number and/or class of securities that may be issued pursuant to Incentive Options, (v) the number and/or class of securities and the exercise or base price per share in effect under each outstanding Award under the Plan and the consideration (if any) payable per share, and (vi) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under the Plan and the repurchase price payable per share. The adjustments shall be made in such manner as the Plan Administrator deems appropriate and such adjustments shall be final, binding and conclusive. In addition, in the event of a Change in Control, the provisions of Section 2.7 shall apply. +(k) Outstanding Awards granted pursuant to the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +(l) Substitute Awards shall not reduce the shares authorized for issuance under the Plan or the limitations on grants to a Participant under Section 1.5(c) or 1.5(d), nor shall shares subject to a terminated, +A-3 +TABLE OF CONTENTS +cancelled or forfeited Substitute Award be added to the shares available for issuance under the Plan as provided above. Additionally, in the event that a company acquired by the Company or any Subsidiary (or Parent) or with which the Company or any Subsidiary (or Parent) combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the shares authorized for issuance under the Plan (and shares subject to such Awards shall not be added to the shares available for issuance under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Non-Employee Directors prior to such acquisition or combination. For purposes of this section, “ Substitute Awards ” shall mean Awards granted or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary (or Parent) or with which the Company or any Subsidiary (or Parent) combines. +A rticle 2 +A wards +2.1 +OPTIONS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant Incentive Options and Non-Statutory Options evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. Each agreement evidencing an Incentive Option shall, in addition, be subject to the provisions of Section 2.1(f) below. +(b) Exercise Price . +(i) The exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date. +(ii) The exercise price shall be payable in one or more of the following forms as determined by the Plan Administrator and specified in the Award Agreement: +(A) cash or check made payable to the Corporation, +(B) shares of Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership) held for the requisite period (if any) necessary to avoid any resulting charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, +(C) shares of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with such withheld shares to be valued at Fair Market Value on the exercise date, or +(D) to the extent the option is exercised for vested shares of Common Stock, through a special sale and remittance procedure pursuant to which the Participant shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale. +A-4 +TABLE OF CONTENTS +Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. +(c) Exercise and Term of Options . Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the Award Agreement evidencing the option, subject to Section 2.9. However, no option shall have a term in excess of ten (10) years measured from the option grant date. +(d) Effect of Termination of Service . +(i) The following provisions shall govern the exercise of any options that are outstanding at the time of the Participant’s cessation of Service or death: +(A) Any option outstanding at the time of the Participant’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. +(B) Any option held by the Participant at the time of the Participant’s death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Participant’s estate or by the person or persons to whom the option is transferred pursuant to the Participant’s will or the laws of inheritance or by the Participant’s designated beneficiary or beneficiaries of that option. +(C) Should the Participant’s Service be terminated for Misconduct or should the Participant otherwise engage in Misconduct while holding one or more outstanding options, then all of those options shall terminate immediately and cease to be outstanding. +(D) During the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which the option is at the time exercisable. No additional shares shall vest under the option following the Participant’s cessation of Service except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not been exercised. +(ii) The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: +(A) extend the period of time for which the option is to remain exercisable following the Participant’s cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term; +(B) include an automatic extension provision whereby the specified post-Service exercise period in effect for any option shall automatically be extended by an additional period of time equal in duration to any interval within the specified post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension result in the continuation of such option beyond the expiration date of the term of that option; and/or +(C) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Participant’s cessation of Service but also with respect to one or more additional installments in which the Participant would have vested had the Participant continued in Service. +(e) Repurchase Rights . The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Participant exercise an option for unvested +A-5 +TABLE OF CONTENTS +shares and subsequently cease Service while such shares are unvested, the Corporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. +(f) Incentive Options . The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section 2.1(f), all the provisions of the Plan shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section 2.1(f). +(i) Eligibility . Incentive Options may only be granted to Employees. +(ii) Dollar Limitation . The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed to become first exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise provided under applicable law or regulation. +(iii) 10% Stockholder . If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. +2.2 +STOCK APPRECIATION RIGHTS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Types . Two types of stock appreciation rights shall be authorized for issuance under this Section 2.2: (i) tandem stock appreciation rights (“ Tandem Rights ”) and (ii) stand-alone stock appreciation rights (“ Stand-alone Rights ”). +(c) Tandem Rights . The following terms and conditions shall govern the grant and exercise of Tandem Rights. +(i) One or more Participants may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish, subject to Section 2.9, to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Participant is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. +(ii) Any distribution to which the Participant becomes entitled upon the exercise of a Tandem Right may be made in (i) shares of Common Stock valued at Fair Market Value on the option surrender date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award Agreement. +(d) Stand-Alone Rights . The following terms and conditions shall govern the grant and exercise of Stand-alone Rights: +A-6 +TABLE OF CONTENTS +(i) One or more Participants may be granted a Stand-alone Right not tied to any underlying option. The Stand-alone Right shall relate to a specified number of shares of Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish, subject to Section 2.9. In no event, however, may the Stand-alone Right have a maximum term in excess of ten (10) years measured from the grant date. +(ii) Upon exercise of the Stand-alone Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the aggregate base price in effect for those shares. +(iii) The number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date. +(iv) The distribution with respect to an exercised Stand-alone Right may be made in (i) shares of Common Stock valued at Fair Market Value on the exercise date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement. +(v) The holder of a Stand-alone Right shall have no stockholder rights with respect to the shares subject to the Stand-alone Right unless and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued upon the exercise of such Stand-alone Right. +(e) Exercise or Base Price . The exercise or base price per share shall be fixed by the Plan Administrator; provided, however, that such exercise or base price shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date. +(f) Post-Service Exercise . The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the Participant’s Service shall be substantially the same as those set forth in Section 2.1(d) for the options granted under the Plan, and the Plan Administrator’s discretionary authority under Section 2.1(d)(ii) shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights. +2.3 +STOCK AWARDS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock awards either as vested or unvested shares of Common Stock, through direct and immediate issuances. Each stock award shall be evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Consideration . Shares of Common Stock may be issued under a stock award for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: +(i) cash or check made payable to the Corporation, +(ii) past services rendered to the Corporation (or any Parent or Subsidiary); or +(iii) any other valid consideration under the State in which the Corporation is at the time incorporated. +(c) Vesting Provisions . +(i) Stock awards may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance as a bonus for Service rendered or may vest in one or more installments over the Participant’s period of Service and/or upon the attainment of specified performance objectives. The elements of the vesting schedule applicable to any stock award shall be determined by the Plan Administrator and incorporated into the Award Agreement. +A-7 +TABLE OF CONTENTS +(ii) The Plan Administrator shall also have the discretionary authority to structure one or more stock awards so that the shares of Common Stock subject to those Awards shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. +(iii) Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under a stock award or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent, the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation. +(iv) The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. +(v) Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. For the avoidance of doubt, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect to any stock Award that is subject to vesting shall be accumulated, subject to restrictions and risk of forfeiture to the same extent as the underlying Award, and shall be paid at the time such restrictions and risk of forfeiture lapse. Equitable adjustments to reflect each such transaction shall also be made by the Plan Administrator to the repurchase price payable per share by the Corporation for any unvested securities subject to its existing repurchase rights under the Plan; provided the aggregate repurchase price shall in each instance remain the same. +2.4 +RESTRICTED STOCK UNITS +(a) Authority . The Plan Administrator shall have the full power and authority, exercisable in its sole discretion, to grant restricted stock units evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Terms . Each restricted stock unit award shall entitle the Participant to receive the shares underlying that Award (or an amount based on the value of the shares) upon vesting or upon the expiration of a designated time period following the vesting of those Awards. Payment of shares underlying a restricted stock unit Award may be deferred for a period specified by the Plan Administrator at the time the restricted stock unit is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. Restricted stock units subject to performance vesting may also be structured so that the underlying shares are convertible into shares of Common Stock (or a payment based on the value of the shares), but the rate at which each share is to so convert shall be based on the attained level of performance for each applicable performance objective. +(c) Vesting Provisions . +(i) Restricted stock units may, in the discretion of the Plan Administrator, vest in one or more installments over the Participant’s period of Service or upon the attainment of specified performance objectives. +A-8 +TABLE OF CONTENTS +(ii) The Plan Administrator shall also have the discretionary authority to structure one or more restricted stock unit awards so that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable) upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. +(iii) Outstanding restricted stock units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding Awards of restricted stock units as to which the designated Performance Goals or Service requirements have not been attained or satisfied. +(d) Payment . Restricted stock units that vest may be settled in (i) cash, (ii) shares of Common stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole discretion. +2.5 +CASH INCENTIVE AWARDS +(a) The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant cash incentive awards. The Plan Administrator shall determine the terms and conditions applicable to cash incentive awards, including the criteria for the vesting and payment of cash incentive awards. Cash incentive awards shall be based on such measures as the Plan Administrator deems appropriate and need not relate to the value of shares of Common Stock. Cash incentive awards may, in the discretion of the Plan Administrator, vest in one or more installments over the Participant’s period of Service or upon the attainment of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by the Plan Administrator at the time the Award is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. +(b) The Plan Administrator shall also have the discretionary authority to structure one or more cash incentive awards so that the awards shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. +(c) Outstanding cash incentive awards units shall automatically terminate without any payment if the designated Performance Goals or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to make a payment under one or more outstanding cash incentive awards as to which the designated Performance Goals or Service requirements have not been attained or satisfied. +2.6 DIVIDEND EQUIVALENT RIGHTS +(a) Authority . The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant dividend equivalent rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided however, that the terms of each such agreement shall not be inconsistent with the terms specified below. +(b) Terms . The dividend equivalent rights may be granted as stand-alone awards or in tandem with other Awards made under the Plan, except dividend equivalent rights shall not be granted in connection with an option, stock appreciation right or cash incentive award. The term of each dividend equivalent right award shall be established by the Plan Administrator at the time of grant, but no such award shall have a term in excess of ten (10) years. +(c) Entitlement . Each dividend equivalent right shall represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of Common Stock), which is made per issued and outstanding share of Common Stock during the term the dividend equivalent right remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to whom a dividend equivalent right is granted, and that account shall +A-9 +TABLE OF CONTENTS +be credited per dividend equivalent right with each such dividend or distribution made per issued and outstanding share of Common Stock during the term of that dividend equivalent right remains outstanding. +(d) Timing of Payment . Payment of the amounts credited to such book account may be made to the Participant either concurrently with the actual dividend or distribution made per issued and outstanding share of Common Stock or may be deferred for a period specified by the Plan Administrator at the time the dividend equivalent right is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. In no event, however, shall any dividend equivalent right award made with respect to an Award subject to vesting conditions vest or become payable prior to the vesting of that Award (or the portion thereof to which the dividend equivalent right award relates) and shall accordingly be subject to cancellation and forfeiture to the same extent as the underlying Award. +(e) Form of Payment . Payment of the amounts due with respect to dividend equivalent rights may be made in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole discretion and set forth in the Award Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into which the cash dividend or distribution amounts are to be converted for purposes of the Participant’s book account may be based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an average of the Fair Market Value per share of Common Stock over a designated period, as determined by the Plan Administrator in its sole discretion. +2.7 +EFFECT OF CHANGE IN CONTROL +Unless otherwise provided in an Award Agreement, the following provisions shall apply with respect to Awards in the event of a Change in Control: +(a) In the event of a Change in Control, each outstanding Award, as determined by the Plan Administrator in its sole discretion, may be (i) assumed by the successor corporation (or parent thereof), (ii) canceled and substituted with an Award granted by the successor corporation (or parent thereof), (iii) otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, or (iv) replaced with a cash retention program of the Corporation or any successor corporation (or parent thereof) which preserves the spread existing on the unvested Award shares subject to the Award at the time of the Change in Control (the excess of the Fair Market Value of those shares over the aggregate purchase price payable for such shares) and, subject to Section 2.7(c) below, provides for subsequent payout of that spread in accordance with the same exercise/vesting schedule applicable to those unvested Award shares, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation subject to Code Section 409A. +(b) To the extent an outstanding Award is not assumed, substituted, continued or replaced in accordance with Section 2.7(a), such Award shall automatically vest in full immediately prior to the effective date of the Change in Control, unless the acceleration of such Award is subject to other limitations imposed by the Plan Administrator at the time of the grant of the Award. The Plan Administrator in its sole discretion shall have the authority to provide that to the extent any such Award, as so accelerated, remains unexercised and outstanding on the effective date of the Change in Control, such Award shall terminate and cease to be outstanding. The holder of such Award shall become entitled to receive, upon consummation of the Change in Control and subject to Section 2.7(c), a lump sum cash payment in an amount equal to the product of (i) number of shares of Common Stock subject to such Award and (ii) the excess of (a) the Fair Market Value per share of Common Stock on the date of the Change in Control over (b) the per share exercise price or purchase price in effect for such Award. However, any such Award shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, if the Fair Market Value per share of Common Stock on the date of such Change in Control is less than the per share exercise price or purchase price in effect for such Award. Notwithstanding the foregoing, if any Award is subject to a performance-vesting condition tied to the attainment of one or more specified Performance Goals, and such Award is not to be so assumed, substituted, continued, or replaced, that Award shall vest immediately prior to the effective date of the actual Change in Control transaction, based on actual performance as of the Change in Control, and the shares of Common Stock underlying the portion of the +A-10 +TABLE OF CONTENTS +Award that vests on such accelerated basis (if any) shall be issued in accordance with the applicable Award Agreement, unless such accelerated vesting is precluded by other limitations imposed in the Award Agreement. +(c) The Plan Administrator shall have the authority to provide that any escrow, holdback, earn-out or similar provisions in the definitive agreement effecting the Change in Control shall apply to any cash payment made pursuant to Section 2.7(a) or Section 2.7(b) to the same extent and in the same manner as such provisions apply to a holder of a share of Common Stock. +(d) Immediately following the consummation of the Change in Control, all outstanding Awards shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction. +(e) In the event of any Change in Control, the Plan Administrator in its sole discretion may determine that all outstanding repurchase rights (i) are to be assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) are to be terminated and the shares of Common Stock subject to those terminated rights are to immediately vest in full, unless such accelerated vesting is precluded by limitations imposed by the Plan Administrator at the time the repurchase right is issued. +(f) Each Award which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities into which the shares of Common Stock subject to that Award would have been converted in consummation of such Change in Control had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise or base price or cash consideration payable per share in effect under each outstanding Award, provided the aggregate exercise or base price or cash consideration in effect for such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities for which Incentive Options may be granted under the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted Awards under the Plan per calendar year and (v) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under the Plan and the repurchase price payable per share. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the outstanding Awards under the Plan and subject to the Plan Administrator’s approval, substitute, for the securities underlying those assumed Awards, one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction, provided such common stock is readily traded on an established U.S. securities exchange or market. +(g) The Plan Administrator shall have the discretion, exercisable either at the time an Award is granted or at any time while an Award remains outstanding, to structure such Award so that (i) it shall automatically accelerate and vest in full (and any repurchase rights of the Corporation with respect to the unvested shares subject to that Award shall immediately terminate) upon the occurrence of a Change in Control, whether or not such Award is to be assumed in the Change in Control or otherwise continued in effect or (ii) the shares subject to such Award will automatically vest on an accelerated basis should the Participant’s Service terminate by reason of an Involuntary Termination within a designated period following the effective date of any Change in Control in which the Award is assumed or otherwise continued in effect and the repurchase rights applicable to those shares do not otherwise terminate. +(h) The portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. +2.8 +REPRICING PROGRAMS +The Plan Administrator shall not have the discretionary authority, except pursuant to Section 1.5(j), to (i) implement cancellation/regrant programs pursuant to which outstanding options or stock appreciation +A-11 +TABLE OF CONTENTS +rights under the Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise or base price per share, (ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or base prices per share in excess of the then current Fair Market Value per share of Common Stock for consideration payable in cash, other Awards, or in equity securities of the Corporation (except in the event of a Change in Control) or (iii) reduce the exercise or base price in effect for outstanding options or stock appreciation rights under the Plan, in any case without stockholder approval. +2.9 +MINIMUM VESTING +Notwithstanding any other provision of the Plan to the contrary, but subject to Section 1.5(j), Section 2.7 and the last sentence of this Section 2.9, no option or stock appreciation right may vest over a period of less than one year from the date of grant of the award. Notwithstanding the foregoing, the minimum vesting requirement of this Section 2.9 shall not apply to (a) any Awards that result in the issuance of up to 5% of the available shares of Common Stock authorized for issuance under the Plan (the “ 5% Basket ”), (b) any Awards delivered in lieu of fully-vested cash-based awards under the Plan (or other fully-vested cash awards or payments), and (c) any awards to Non-Employee Directors for which the vesting period runs from the date of one annual meeting of the Company’s stockholders to the next annual meeting of the Company’s stockholders which is at least fifty (50) weeks after the immediately preceding year’s annual meeting. Nothing in this Section 2.9 precludes any Plan Administrator from taking action, in its sole discretion, to accelerate the vesting of any award in full or in part upon death or disability of the Participant, upon a Change in Control or upon a Participant’s termination of Service, and such vesting shall not count against the 5% Basket. +A rticle 3 +M iscellaneous +3.1 +DEFERRED COMPENSATION +(a) The Plan Administrator may, in its sole discretion, structure one or more Awards (other than options and stock appreciation rights) so that the Participants may be provided with an election to defer the compensation associated with those Awards for federal income tax purposes. Any such deferral opportunity shall comply with all applicable requirements of Code Section 409A. +(b) The Plan Administrator may implement a non-employee Board member retainer fee deferral program under the Plan so as to allow the non-employee Board members the opportunity to elect, prior to the start of each calendar year, to convert the Board and Board committee retainer fees to be earned for such year into restricted stock units under the Plan that will defer the issuance of the shares of Common Stock that vest under those restricted stock units until a permissible date or event under Code Section 409A. If such program is implemented, the Plan Administrator shall have the authority to establish such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible distribution events under Code Section 409A. +(c) To the extent the Corporation maintains one or more separate non-qualified deferred compensation arrangements which allow the Participants the opportunity to make notional investments of their deferred account balances in shares of Common Stock, the Plan Administrator may authorize the share reserve under the Plan to serve as the source of any shares of Common Stock that become payable under those deferred compensation arrangements. In such event, the share reserve under the Plan shall be reduced on a share-for-share basis for each share of Common Stock issued under the Plan in settlement of the deferred compensation owed under those separate arrangements. +3.2 TRANSFERABILITY OF AWARDS +The transferability of Awards granted under the Plan shall be governed by the following provisions: +(a) Incentive Options . During the lifetime of the Participant, Incentive Options shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant’s death. +A-12 +TABLE OF CONTENTS +(b) Other Awards . All other Awards shall be subject to the same limitation on transfer as Incentive Options, except that the Plan Administrator may structure one or more such Awards so that the Award may be assigned in whole or in part during the Participant’s lifetime to one or more Family Members of the Participant or to a trust established exclusively for the Participant and/or such Family Members, to the extent such assignment is in connection with the Participant’s estate plan or pursuant to a domestic relations order. The assigned portion of an Award may only be exercised (if applicable) by the person or persons who acquire a proprietary interest in the Award pursuant to the assignment. The terms applicable to the assigned portion of the Award shall be the same as those in effect for the Award immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. +(c) Beneficiary Designation . Notwithstanding the foregoing, a Participant may, to the extent permitted by the Plan Administrator, designate one or more persons as the beneficiary or beneficiaries of some or all of his or her outstanding Awards, and those Awards shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Awards. Such beneficiary or beneficiaries shall take the transferred Awards subject to all the terms and conditions of the applicable agreement evidencing each such transferred Award, including (without limitation) the limited time period during which the Award may be exercised (if applicable) following the Participant’s death. +3.3 +STOCKHOLDER RIGHTS +A Participant shall not have any of the rights of a stockholder with respect to shares of Common Stock covered by an Award until the Participant becomes the holder of record of such shares. However, a Participant may be granted the right to receive dividend equivalents under Section 2.6 with respect to one or more outstanding Awards. +3.4 +TAX WITHHOLDING +(a) The Corporation’s obligation to deliver shares of Common Stock upon the exercise, issuance or vesting of an Award under the Plan shall be subject to the satisfaction of all applicable tax withholding requirements. +(b) The Plan Administrator may, in its discretion, provide Participants to whom Awards are made under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such holders may become subject in connection with the issuance, exercise, vesting or settlement of those Awards or the issuance of shares of Common Stock thereunder. Such right may be provided to any such holder in either or both of the following formats: +(i) Stock Withholding : The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the issuance, exercise, vesting or settlement of such Award or the issuance of shares of Common Stock thereunder, a portion of those shares with an aggregate Fair Market Value at the time of delivery equal to the percentage of the Withholding Taxes based on the minimum required tax withholding rate for the Participant, or such other rate as determined by the Plan Administrator (provided, however, that in no event shall the withholding rate exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such Withholding Taxes (or such other rate as may be required to avoid the liability classification of the Award under generally accepted accounting principles in the United States of America); provided, further, that the number of shares of Common Stock withheld by the Corporation under this method shall be rounded up to the nearest whole Share to the extent rounding up to the nearest whole Share does not result in the liability classification of the Award under generally accepted accounting principles in the United States of America). +(ii) Stock Delivery : The election to deliver to the Corporation, at the time of the issuance, exercise, vesting or settlement of such Award, one or more shares of Common Stock previously acquired by such individual (other than in connection with the exercise, share issuance or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the individual +A-13 +TABLE OF CONTENTS +(provided, however, that in no event shall the withholding rate exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such Withholding Taxes (or such other rate as may be required to avoid the liability classification of the Award under generally accepted accounting principles in the United States of America); provided, further, that the number of shares of Common Stock withheld by the Corporation under this method shall be rounded up to the nearest whole Share to the extent rounding up to the nearest whole Share does not result in the liability classification of the Award under generally accepted accounting principles in the United States of America). +3.5 +SHARE ESCROW/LEGENDS +Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. +3.6 +EFFECTIVE DATE AND TERM OF THE PLAN +(a) The Plan originally became effective on the Original Plan Effective Date. This Plan is an amendment and restatement of the amended and restated Plan approved by the Board on August 6, 2018 and by the Company’s stockholders on October 11, 2018 at the 2018 Annual Stockholders Meeting (the “ Existing Plan ”). +(b) This amended and restated Plan was approved by the Board on July 15, 2021, subject to stockholder approval at the 2021 Annual Stockholder Meeting, and shall be effective as of the Restated Plan Effective Date. If this amended and restated Plan is not approved by the Company’s stockholders within twelve (12) months following the Board’s adoption of this amended and restated Plan, this amended and restated Plan will not become effective and the Existing Plan will continue in full force and effect in accordance with its terms. In no event shall any changes made pursuant to this amendment and restatement apply to any Award that was outstanding on November 2, 2017 and intended to qualify as performance — based compensation under Section 162(m) of the Code to the extent such change would constitute a material modification of the Award. +(c) The Plan shall terminate upon the earliest to occur of (i) the tenth anniversary of the date on which the Board approved this amended and restated Plan, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully vested shares, (iii) the termination of all outstanding Awards in connection with a Change in Control, or (iv) the termination of the Plan by the Board. Should the Plan terminate under subsection (iv) above, then all Awards outstanding at that time shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards. +(d) No Awards may be granted or awarded during any period of suspension or after termination of this Plan, and in no event may any Incentive Option be granted under this Plan after the tenth anniversary of the date on which the Board approved this amended and restated Plan. +3.7 +AMENDMENT OF THE PLAN +(a) The Board or the Compensation Committee shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, subject to stockholder approval to the extent required under applicable law or regulation or pursuant to the listing standards of the Stock Exchange on which the Common Stock is at the time primarily traded. However, no such amendment or modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under the Plan unless the Participant consents to such amendment or modification. +(b) The Compensation Committee shall have the discretionary authority to adopt and implement from time to time such addenda or subplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations of any foreign jurisdictions in which Awards are to be made under the Plan and/or to obtain favorable tax treatment in those foreign jurisdictions for the individuals to whom the Awards are made. +(c) Awards may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided no shares shall actually be issued +A-14 +TABLE OF CONTENTS +pursuant to those Awards until the number of shares of Common Stock available for issuance under the Plan is sufficiently increased by stockholder approval of an amendment of the Plan authorizing such increase. If such stockholder approval is not obtained within twelve (12) months after the date the first excess Award is made, then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding. +3.8 +USE OF PROCEEDS +Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. +3.9 +REGULATORY APPROVALS +(a) The implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock in connection with the issuance, exercise, vesting or settlement of any Award under the Plan shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of Common Stock issuable pursuant to those Awards. +(b) No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of applicable securities laws, and all applicable listing requirements of any Stock Exchange on which Common Stock is then listed for trading. +3.10 +NO EMPLOYMENT/SERVICE RIGHTS +Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause. +3.11 +RECOUPMENT +Participants shall be subject to any clawback, recoupment or other similar policy required by law or regulations or adopted by the Board as in effect from time to time and Awards and any cash, shares of Common Stock or other property or amounts due, paid or issued to a Participant shall be subject to the terms of such policy, as in effect from time to time. +A-15 +TABLE OF CONTENTS +A ppendix +The following definitions shall be in effect under the Plan: +(a) Award shall mean any of the following awards authorized for issuance or grant under the Plan: options, stock appreciation rights, stock awards, restricted stock units, cash incentive awards and dividend equivalents. +(b) Award Agreement shall mean the written agreement(s) (which may be in electronic form) between the Corporation and the Participant evidencing a particular Award made to that individual under the Plan, as such agreement(s) may be in effect from time to time. +(c) Board shall mean the Corporation’s Board of Directors. +(d) Change in Control shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Change in Control shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. +(ii) In the absence of any other Change in Control definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions: +(A) consummation of a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing at least fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, +(B) a sale, transfer or other disposition of all or substantially all of the Corporation’s assets, +(C) the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power of the Corporation’s securities (as measured in terms of the power to vote with respect to the election of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more of the Corporation’s existing stockholders, or +(D) a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members ceases to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period (“ Incumbent Directors ”) or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Incumbent Directors who were still in office at the time the Board approved such election or nomination; provided that any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent Directors will be considered an Incumbent Director. +(e) Code shall mean the Internal Revenue Code of 1986, as amended. +A-16 +TABLE OF CONTENTS +(f) Common Stock shall mean the Corporation’s Common Stock. +(g) Compensation Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members, each of whom is intended to qualify as a “non-employee director” (as defined in Rule 16b-3 under the Exchange Act) and an “independent director” under the rules of any securities exchange or automated quotation system on which the Common Stock is then listed, quoted or traded; provided that any action taken by the Compensation Committee shall be valid and effective, whether or not one or more members of the Compensation Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this definition or otherwise provided in the charter of the Compensation Committee. +(h) Corporation shall mean Iteris, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Iteris, Inc. +(i) Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. +(j) Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise. +(k) Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: +(i) If the Common stock is at the time traded on a Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on date in question on the Stock Exchange serving as the primary market for the Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange on which the Common Stock is then primarily traded. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. +(ii) If the Common Stock is at the time quoted on a national or regional securities exchange or market system (including over-the-counter markets and the Nasdaq Capital Market) determined by the Plan Administrator to be the primary market for the Common Stock, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is officially reported by such exchange or market system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price of a share of Common Stock on the last preceding date for which such quotation exists. +(l) Family Member shall mean, with respect to a particular Participant, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. +(m) Full Value Award means an Award other than an option or stock appreciation right with a per share purchase price lower than one hundred percent (100%) of Fair Market Value on the date of grant and that is settled by the issuance of shares of Common Stock. +(n) Good Reason shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Good Reason shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. +(ii) In the absence of any other Good Reason definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Good Reason shall mean an individual’s voluntary resignation following one or more of the following without the individual’s consent; +A-17 +TABLE OF CONTENTS +(A) a change in his or her position with the Corporation (or any Parent or Subsidiary) which materially reduces his or her duties, responsibilities or authority, (B) a material diminution in the duties, responsibilities or authority of the person to whom such individual reports, (C) a material reduction in such individual’s level of base compensation, with a reduction of more than fifteen percent (15%) to be deemed material for such purpose, or (D) a material relocation of such individual’s place of employment, with a relocation of more than fifty (50) miles to be deemed material for such purpose, provided, however, that a resignation for Good Reason may be effected only after (i) the individual provides written notice to the Corporation of the event or transaction constituting grounds for such resignation within sixty (60) days after the occurrence of that event or transaction, (ii) the Corporation fails to take the requisite remedial action with respect to such event or transaction within thirty (30) days after receipt of such notice, and (iii) the individual resigns within thirty (30) days after the expiration of the Corporation’s cure period set forth in subsection (ii). +(o) Incentive Option shall mean an option which satisfies the requirements of Code Section 422. +(p) Involuntary Termination shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Involuntary Termination shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. +(ii) In the absence of any other Involuntary Termination definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Involuntary Termination shall mean such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or such individual’s voluntary resignation for Good Reason. +(q) Misconduct shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Misconduct shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. +(ii) In the absence of any other Misconduct definition in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award Agreement), Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss any Participant or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct. +(r) 1934 Act shall mean the Securities Exchange Act of 1934, as amended. +(s) Non-Employee Director shall mean a non-Employee member of the Board. +(t) Non-Statutory Option shall mean an option not an Incentive Option. +(u) Original Plan Effective Date shall mean December 15, 2016, which is the date upon which the Plan was first approved by the Corporation’s stockholders. +(v) Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. +A-18 +TABLE OF CONTENTS +(w) Participant shall mean any eligible person who is granted an Award under the Plan. +(x) Permanent Disability shall mean the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. +(y) Performance Goals shall mean, without limitation, any of the following performance criteria upon which the vesting of one or more Awards under the Plan may be based: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, (xviii) market capitalization, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) implementation, completion or attainment of key projects, product sales or milestones, (xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation of strategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs; (xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforce management and succession planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); (xxxi) recruiting and maintaining personnel, employee retention, measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Corporation’s performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles (“ GAAP ”), in accordance with accounting principles established by the International Accounting Standards Board (“ IASB Principles ”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP or under IASB Principles. Each applicable Performance Goal may include a minimum threshold level of performance below which no Award will be earned, levels of performance at which specified portions of an Award will be earned and a maximum level of performance at which an Award will be fully earned. Each applicable Performance Goal may be structured at the time of the Award to provide for appropriate adjustment, which may be based on one or more of the following items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) the operations of any business acquired by the Corporation; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects of any corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Corporation) or reorganization; (H) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events; (I) acquisitions or divestitures; (J) change in the corporate structure or capital structure of the Corporation; (K) an event either not directly related to the operations of the Corporation, Parent, Subsidiary, division, business segment or business unit or not within the reasonable control of management; (L) foreign exchange gains and losses; (M) a change in the fiscal year of the Corporation; (N) the refinancing or repurchase of bank loans or debt securities; (O) unbudgeted capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares; (Q) conversion of some or all of convertible securities to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accounting changes in accordance with GAAP; (T) the effect of changes in other laws or regulatory rules affecting reported results; and (U) any other adjustment consistent with the operation of the Plan. +A-19 +TABLE OF CONTENTS +(z) Plan shall mean the Corporation’s amended and restated 2016 Equity Omnibus Plan, as set forth in this document. +(aa) Plan Administrator shall mean the particular entity, whether the Compensation Committee, the Board, the Secondary Board Committee or any delegate of the Board or the Compensation Committee authorized to administer the Plan with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under the Plan with respect to the persons under its jurisdiction. +(bb) Predecessor Plan shall mean the Corporation’s 2007 Omnibus Incentive Plan. +(cc) Restated Plan Effective Date shall mean September 9, 2021, which is the date upon which this amended and restated Plan was approved by the Corporation’s stockholders. +(dd) Secondary Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Plan with respect to eligible persons other than Section 16 Insiders. +(ee) Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. +(ff) Service shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: +(i) Service shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. +(ii) In the absence of any other definition of Service in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award Agreement), Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an Employee, a Non-Employee Director or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Award. For purposes of this particular definition of Service, a Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) the Participant no longer performs services in any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which the Participant is performing such services ceases to remain a Parent or Subsidiary of the Corporation, even though the Participant may subsequently continue to perform services for that entity. +(iii) Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that should such leave of absence exceed three (3) months, then for purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the Participant’s Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Participant is provided with the right to return to Service following such leave either by statute or by written contract. Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence. +(gg) Stand-alone Rights shall have the meaning set forth in Section 2.2. +(hh) Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange. +(ii) Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. +(jj) Tandem Rights shall have the meaning set forth in Section 2.2. +A-20 +TABLE OF CONTENTS +(kk) 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). +(ll) Withholding Taxes shall mean the applicable federal, state and foreign income and employment withholding taxes and other payments to which the holder of an Award under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award. +A-21 +TABLE OF CONTENTS +MMMMMMMMMMMM MMMMMMMMMMMMMM C123456789 000004ENDORSEMENT_LINE______________ SACKPACK_____________ 000000000.000000 ext000000000.000000 ext000000000.000000 ext 000000000.000000 ext000000000.000000 ext000000000.000000 ext MR A SAMPLE DESIGNATION (IF ANY) ADD 1ADD 2ADD 3ADD 4ADD 5ADD 6Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Your vote matters – here’s how to vote!You may vote online or by phone instead of mailing this card.OnlineGo to www.envisionreports.com/ITI or scan the QR code — login details are located in the shaded bar below.PhoneCall toll free 1-800-652-VOTE (8683) within the USA, US territories and CanadaSave paper, time and money! Sign up for electronic delivery at www.envisionreports.com/ITI 1.Election of Directors: q IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. qForAgainst AbstainForAgainst AbstainForAgainst Abstain+ 01- Joe Bergera 02- Anjali Joshi 03- Gerard M. Mooney ForAgainst AbstainForAgainst AbstainForAgainst Abstain 04- Laura L. Siegal 05- Thomas L. Thomas 06- Dennis W. Zank 2.To approve the amendment and restatement of the 2016 Omnibus Incentive Plan. ForAgainst Abstain 3.To approve, by advisory vote, the compensation of our named executive officers. ForAgainst Abstain 4.To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2022. ForAgainst Abstain Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box. C 1234567890J N T1 U P X5 0 4 8 5 0 MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 03HUQB +TABLE OF CONTENTS +The 2021 Annual Meeting of Stockholders of Iteris, Inc. will be held onThursday, September 9, 2021, at 2:00 p.m. Pacific Time virtually via the internet at meetings.computershare.com/MVTVFVH.To access the virtual meeting, you must have the information that is printed in the shaded bar located on the reverse side of this form or you may attend as a guest to listen to the Annual Meeting.Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders.The material is available at: www.envisionreports.com/ITIq IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q+Notice of 2021 Annual Meeting of StockholdersProxy Solicited by Board of Directors for Annual Meeting — September 9, 2021The undersigned stockholder of ITERIS, INC. (“Iteris” or the “Company”) hereby appoints JOE BERGERA and DOUG GROVES, and each of them, proxies of the undersigned, each with full power to act without the other and with power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held virtually via the internet at meetings.computershare.com/MVTVFVH, and at any adjournments or postponements thereof, and to vote all shares of common stock of the Company held of record by the undersigned as of the close of +business on July 13, 2021, with all the powers the undersigned would possess if personally present, in accordance with the instructions on this proxy.The undersigned hereby revokes any other proxy to vote at such Annual Meeting of Stockholders and hereby ratifies and confirms all that said proxies, and each of them, may lawfully do by virtue hereof.THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED OR, IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL 1 AND “FOR” EACH OF PROPOSALS 2, 3, AND 4, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.(Items to be voted appear on reverse side)Change of Address — Please print new address below.Comments — Please print your comments below. + \ No newline at end of file diff --git a/raw/proxies/0000350868/0001104659-21-096160/proxy_rpt.txt b/raw/proxies/0000350868/0001104659-21-096160/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4d59bd0d8f56cb663f2effd8c0d17e19086806c8 --- /dev/null +++ b/raw/proxies/0000350868/0001104659-21-096160/proxy_rpt.txt @@ -0,0 +1,2 @@ +Certain Transactions with Related Persons +Since April 1, 2020, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001628280-22-018993/proxy.txt b/raw/proxies/0000350868/0001628280-22-018993/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a71692619ee6880937ff521f6391dab45fa2b8b9 --- /dev/null +++ b/raw/proxies/0000350868/0001628280-22-018993/proxy.txt @@ -0,0 +1,1201 @@ +DEF 14A +1 +iti-20220908xdef14a1.htm +DEF 14A +Document +TABLE OF CONTENTS +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No.   ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ No fee required. +o Fee paid previously with preliminary materials. +o Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. +TABLE OF CONTENTS +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD SEPTEMBER 8, 2022 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 8, 2022 at 4:00 p.m. Central Time, held exclusively online by means of a live virtual webcast at meetnow.global/M67DS9X, for the following purposes, as more fully described in the proxy statement accompanying this notice: +a. To elect Joe Bergera, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank to the Board of Directors, each to hold such office until the next annual meeting of stockholders and until his or her successor is elected and qualified. +b. To conduct an advisory vote to approve the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +c. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2023. +d. To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements thereof. +All stockholders are cordially invited to attend the Annual Meeting virtually this year. There will be no physical in-person meeting location for the Annual Meeting. In light of the continued unpredictability of COVID-19, we have determined it is appropriate to continue to hold the Annual Meeting virtually. +All stockholders of record as of the close of business on July 12, 2022 are entitled to notice of and to vote during the Annual Meeting, and at any and all postponements or adjournments thereof. It is important that all of our stockholders be represented at our Annual Meeting. Whether you plan to attend the Annual Meeting virtually or not, we urge you to vote your shares by submitting your proxy as soon as possible. Submitting your proxy card or voting instruction form does not affect your right to vote during the Annual Meeting if you attend the Annual Meeting virtually. Also, if you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. +Austin, TX BY ORDER OF THE BOARD OF DIRECTORS +July 15, 2022 +Joe Bergera +Chief Executive Officer +YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY PROXY PRIOR TO THE MEETING. IF YOU CHOOSE TO VOTE BY MAIL, PLEASE DO SO PROMPTLY TO ENSURE YOUR PROXY ARRIVES IN SUFFICIENT TIME. +TABLE OF CONTENTS +TABLE OF CONTENTS +Page +Notice of the Annual Meeting of Stockholders +Questions and Answers About the Annual Meeting and Voting +1 +Proposal 1: Election of Directors +6 +Director Nominees +7 +Corporate Governance, Board Meetings and Committees +9 +Criteria for Director Candidate Qualifications +10 +Board Diversity +11 +Selection Process for Nomination of Director Candidat es +12 +Director Tenure and Refreshment +13 +Risk Oversight Role +14 +Director Compensation +15 +Compensation Committee Interlocks and Insider Participation +16 +Proposal 2: Advisory Vote Regarding Executive Compensation +18 +Executive Officers +19 +Executive Compensation and Other Information +20 +Executive Compensation +20 +Fiscal 202 2 Business Results Summary +20 +Fiscal 202 2 Executive Compensation Results Overview +20 +Characteristics of our Executive Compensation Program +21 +Impact of 20 21 Say-on-Pay Vote +22 +Compensation Philosophy and Objectives +22 +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +22 +Peer Groups +23 +Compensation Components and Structure +24 +Benefit Plans +27 +Incentive Compensation Clawback Policy +27 +Policy against Hedging and Pledging +28 +Compensation Risk Assessment +28 +Tax Deductibility of Executive Compensation +28 +Accounting for Stock-Based Compensation +28 +Compensation Committee Report +28 +Executive Compensation Tables +29 +Summary Compensation Table +30 +Fiscal 202 2 Grant of Plan-Based Awards Table +31 +Outstanding Equity Awards at 202 2 Fiscal Year End +34 +Fiscal 202 2 Option Exercises and Stock Vesting Table +35 +Potential Payments upon Termination of Employment and Change in Control +35 +Indemnification of Directors and Officers +39 +Equity Compensation Plan Information +41 +Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm +43 +Matters Related to Independent Registered Public Accounting Firm +44 +Fees Paid to Independent Registered Public Accounting Firm +44 +Audit Committee Pre-Approval Policies and Procedures +44 +Audit Committee Report +44 +Stock Ownership of Certain Beneficial Owners and Management +46 +Environmental, Social, Governance and Related Matters +48 +Additional Matters +49 +i +TABLE OF CONTENTS +Page +Transactions with Related Persons +50 +Annual Report +50 +Delivery of Documents to Stockholders Sharing an Address +50 +Deadline for Receipt of Stockholder Proposals +50 +Other Matters +51 +ii +TABLE OF CONTENTS +______________________ +P ROXY S TATEMENT +F OR THE 2022 A NNUAL M EETING OF S TOCKHOLDERS +OF I TERIS, I NC. TO BE H ELD ON S EPTEMBER 8, 2022 +______________________ +The Board of Directors (the “Board”) of Iteris, Inc., a Delaware corporation (sometimes referred to as “Iteris,” the “Company,” “we,” “us,” or “our”), is soliciting your proxy for the Company’s 2022 Annual Meeting of Stockholders and any and all adjournments or postponements of such meeting (the “Annual Meeting”). Due to the continued unpredictability of the coronavirus (“COVID- 19”) pandemic, for the safety of all of our stockholders, employees and their families, we have determined to hold the Annual Meeting in a live virtual-only meeting format, via the Internet, with no physical, in-person meeting. The Annual Meeting will be held at 4:00 p.m. Central Time on September 8, 2022, through the virtual meeting live webcast site located at meetnow.global/M67DS9X. At our Annual Meeting, stockholders will be able to attend and vote by visiting meetnow.global/M67DS9X. Stockholders who wish to submit questions at the Annual Meeting may do so in advance or during the Annual Meeting. You will find instructions for how to submit such questions in this proxy statement. The approximate date on which this proxy statement and the enclosed proxy materials are first being released to the Company’s stockholders is July 15, 2022. Our principal executive offices are located at 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746. +References in this proxy statement to fiscal years refer to the Company’s fiscal year ended March 31 of the referenced year. For example, “Fiscal 2021” refers to the fiscal year ended March 31, 2021, “Fiscal 2022” refers to the fiscal year ended March 31, 2022 and “Fiscal 2023” refers to the fiscal year ending March 31, 2023. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS +This Proxy Statement and our Annual Report (including our Annual Report on Form 10-K for the fiscal year ended March 31, 2022) (the “Annual Report”) is available on the Internet by accessing www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders. Information on this website does not constitute part of this Proxy Statement and shall not be deemed incorporated by reference therein. +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING +Who is soliciting this proxy and who will bear the cost of soliciting this Proxy Statement? +The enclosed proxy is being solicited by our Board of Directors. Iteris will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this proxy statement, the proxy card, and any additional material furnished to our stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and nominees holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, email or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us . +Where and when will the Annual Meeting take place? +The Annual Meeting will be held virtually, on Thursday, September 8, 2022, at 4:00 p.m., Central Time, via the Internet at meetnow.global/M67DS9X. Online check-in will begin at 3:30 p.m., Central Time, to allow time for online check-in procedures . We encourage you to access the online Annual Meeting prior to the start time. +The virtual Annual Meeting platform is fully supported across browsers (MS Edge, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most up-to-date version of applicable software and plugins. Note: Internet Explorer is not a supported browser. You should ensure that you have a strong Wi-Fi connection wherever you intend to participate in the Annual Meeting (see below question “What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website?” for technical support contact information). +1 +TABLE OF CONTENTS +How do I attend the virtual Annual Meeting on the Internet? +Registered Stockholders . If you are a registered stockholder of record (i.e., you hold your shares directly in your name through our transfer agent, Computershare), you do not need to register to attend the virtual Annual Meeting. Please follow the instructions on the notice or proxy card that you received. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Beneficial Stockholders . If you hold your shares through an intermediary, such as through a brokerage account or by a bank, trustee or other nominee (each a “Nominee”) and not in your name, then you are the beneficial owner of such shares. If you hold your shares beneficially, you must register in advance to attend the virtual Annual Meeting. +For beneficial stockholders to register to attend the virtual Annual Meeting you must submit proof of your proxy power (legal proxy) reflecting your Iteris holdings along with your name and email address to Computershare, by email or by mail as described below. You may need to contact your Nominee, such as your bank or broker, to obtain your legal proxy. Requests for registration must include your proof of your legal proxy, be labeled as “Legal Proxy,” and be received no later than 4:00 p.m., Central Time September 5, 2022 . +Through the contact information you provide to Computershare, you will receive from Computershare a confirmation of your registration with a control number that will allow you to login to the virtual Annual Meeting site as a stockholder. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Requests for registration to attend our virtual Annual Meeting should be directed to us at the following: +By email : +Forward the email from your broker, or attach an image of your legal proxy, to: +legalproxy@computershare.com +By mail : +Computershare +Iteris Legal Proxy +P.O. Box 43001 +Providence, RI 02940-3001 +Stockholders will be able to attend our Annual Meeting online and vote during the Annual Meeting electronically by visiting meetnow.global/M67DS9X via the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to ask questions and vote and submit your proxy in advance of the Annual Meeting by one of the methods described in this proxy statement. There will be a question- and-answer session at the end of the Annual Meeting. You can submit questions and comments by clicking the icon (illustrated below) located on the virtual Annual Meeting center website. +Guest Attendees. You do not need to be a registered stockholder of record or have legal proxy to attend this virtual Annual Meeting as a guest. You are invited to attend our virtual Annual Meeting as a “guest,” but such guest attendees will only be able to listen to the Annual Meeting. A guest attendee may not ask questions or vote at the Annual Meeting. If you attend as a guest attendee, please click “I am a guest” when accessing the virtual Annual Meeting link on the Internet. Please follow the instructions at the virtual Annual Meeting site (see above question “Where and when will the Annual Meeting take place?”). +Why a virtual Annual Meeting format? +We are utilizing the virtual meeting format to enhance stockholder access and encourage participation and communication with our management. We will continue to ensure that our stockholders are afforded the same rights and opportunities to participate as they would at an in-person meeting. We believe this format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, and equally, using any Internet-connected device from any location around the world +2 +TABLE OF CONTENTS +at no cost. We also believe a virtual meeting protects the health and safety of attendees and saves the Company’s and stockholders’ time and money . +What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website? +We will have technicians ready to assist you with any technical difficulties you may experience in accessing the virtual Annual Meeting. If you encounter any technical difficulties in accessing the virtual Annual Meeting during the check-in or meeting time, please call: +Tel # (Toll-free): 800-724-2416 +Tel # (Toll line): +1 781-575-2748 (International) +Who is entitled to vote at the Annual Meeting? +You are entitled to vote your shares of our common stock at the Annual Meeting if you owned the shares as of the close of business on July 12, 2022 (the “Record Date”). As of the Record Date, there were a total of 42,577,415 shares of our common stock outstanding and entitled to vote at the Annual Meeting. No shares of our preferred stock are currently outstanding. You are entitled to one vote for each share of common stock that you own . +What matters will be voted upon at the Annual Meeting and what are the Board of Directors’ recommendations for the proposals? +The only matters that we currently expect will be voted on at the Annual Meeting are the following proposals, and the Board’s recommendation to you regarding such proposals is set forth opposite each proposal below : +Proposals Board’s +Recommendation +1. Election of the Board of Directors. ✓ FOR each nominee +2. Approval, by advisory vote, of the compensation of our named executive +officers, as described in this proxy statement. +✓ FOR +3. Ratification of the appointment of Deloitte & Touche LLP as our independent +registered public accounting firm for the fiscal year ending March 31, 2023. +✓ FOR +The foregoing proposals are described in more detail in this proxy statement. +What if other matters come up at the Annual Meeting? +Other than the three items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If other matters are properly presented at the Annual Meeting, the persons designated in the proxy cards, Joe Bergera and Douglas L. Groves, will vote your shares in their discretion . +What constitutes a quorum for the Annual Meeting? +The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum for the transaction of business at such meeting. If you sign and return your proxy card or authorize a proxy to vote through the Internet or by telephone, your shares will be counted to determine whether we have a quorum even if you abstain or fail to vote as indicated in the proxy materials. If a quorum is not present at the scheduled time of the Annual Meeting, the Annual Meeting may be adjourned until a quorum is present. Both abstentions and broker non-votes (as described below) are counted for the purpose of determining the presence of a quorum . +What is the difference between holding shares as a stockholder of record and as a beneficial owner? +Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered to be the stockholder of record of such shares, and we are sending the notice and these proxy materials directly to you. If you are a stockholder of record, you should have received a proxy card with this proxy statement for you to use to vote your shares +Beneficial Owner. If your shares are held in a brokerage account or by a Nominee and not in your name, then you are considered the beneficial owner of such shares held in street name, and the notice and proxy materials are being forwarded to you on behalf of your Nominee. As the beneficial owner, you have the right to direct your Nominee how to vote your shares. Your Nominee has enclosed a voting instruction form with this proxy statement for you to use in directing the Nominee how to vote your shares. +3 +TABLE OF CONTENTS +Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the Nominee who holds your shares giving you the right to vote the shares at the Annual Meeting. If you are a beneficial owner of your shares and you wish to attend the virtual Annual Meeting, vote, and submit questions, you must register in advance (see above question — “How do I attend the virtual Annual Meeting on the Internet?” and see below questions “How do I vote my shares?” and “How will I be able to submit a question?”) . +How do I vote my shares? +You may vote your shares prior to the Annual Meeting in any one of the following three ways: (i) by mail, (ii) electronically over the Internet or (iii) by telephone. If you are a stockholder of record, you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet or by telephone as described on your proxy card. If you are a beneficial owner, in lieu of a proxy card, you should receive a voting instruction form from your Nominee by mail. The voting instruction form from your Nominee should indicate whether the Nominee has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. Stockholders who do not desire to vote over the Internet or by telephone may complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +Beneficial owners with shares held by a Nominee may vote their shares, in lieu of Nominee’s voting process, via the Internet only if you obtain a legal proxy from the Nominee that holds your shares giving you the right to vote the shares. Beneficial owners of shares held by a Nominee as of the Record Date will need to register in advance to vote and attend the virtual Annual Meeting (see above question — “How do I attend the virtual Annual Meeting on the Internet?”). If you are a stockholder of record or a beneficial owner that have obtained legal proxy (with a Computershare-provided control number), you may also vote your shares electronically during the Annual Meeting over the Internet only. To vote during the Annual Meeting, please go to meetnow.global/M67DS9X, at the time of the Annual Meeting (check-in will begin at 3:30 p.m., Central Time), have your control number available (which can be found on your proxy card form for stockholders of record or which is your Computershare-provided control number for beneficial owners) and follow the instructions to participate in the virtual Annual Meeting. We recommend that you vote your shares in advance as described above to ensure your vote will be counted if you later decide not to attend the Annual Meeting. +How will I be able to submit a question? +Stockholders of record and beneficial owners that have obtained legal proxy (with a Computershare-provided control number) may submit questions for the Annual Meeting in advance of and during the Annual Meeting by submitting them via the Annual Meeting center website (meetnow.global/M67DS9X) and entering your control number (found on your proxy card form if you are a stockholder of record and Computershare-provided control number if you are a beneficial owner that has obtained legal proxy). (see above question — “How do I attend the virtual Annual Meeting on the Internet?”). +All questions submitted in advance must be sent by 7:00 p.m., Central Time, on September 7, 2022. Stockholders will also be able to submit questions during the Annual Meeting. During the meeting, we will answer submitted questions. +No recording of the Annual Meeting is allowed, including audio and video recording. +Even if you plan on attending the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this proxy statement to ensure that your vote will be represented at the Annual Meeting. We reserve the right to eject an attendee or cut off speaking privileges for behavior likely to cause disruption or annoyance or for failure to comply with reasonable requests or the rules of conduct for the Annual Meeting, such as time limits applicable to attendees who are permitted to speak. +We will endeavor to answer as many questions submitted by shareholders as time permits. We reserve the right to edit profanity or other inappropriate language and to exclude questions regarding topics that are not pertinent to meeting matters or Company business. If we receive substantially similar questions, we may group such questions together and provide a single response to avoid repetition . +The Annual Meeting is a live webcast and will also be recorded. Starting the day following the Annual Meeting, you will be able to find the recording of this Annual Meeting on the Investor Relations section of our website at www.iteris.com +What are broker non-votes and how are broker non-votes treated? +Broker non-votes occur when shares held in street name by a Nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the Nominee does not receive voting instructions from the beneficial owner, and (ii) the Nominee lacks discretionary authority to vote the shares. +4 +TABLE OF CONTENTS +Broker non-votes will not be treated as shares present and entitled to vote for purposes of any matter requiring the affirmative vote of a majority or other proportion of the shares present and entitled to vote (even though the same shares are considered present for quorum purposes and may be entitled to vote on other matters). Thus, a broker non-vote will not affect the outcome of the voting on a proposal for which the minimum affirmative vote required for approval of the proposal is a plurality or a majority (or some other percentage) of (i) the votes actually cast, or (ii) the shares present and entitled to vote. +A Nominee only has discretionary authority to vote shares on a proposal that is considered a “routine” matter under applicable rules and related guidance. Proposal 3 for the ratification of the appointment of our independent registered public accounting firm is considered a “routine” matter and, accordingly, a Nominee has discretionary authority to vote shares on such proposal. The other proposals included in this proxy statement are considered “non-routine” matters. As such, a Nominee does not have discretionary authority to vote shares on such proposals. Accordingly, your shares may be voted on Proposal 3 if they are held in the name of a brokerage firm even if you do not provide the brokerage firm with voting instructions. Proposals 1 and 2 are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your brokerage firm, no vote for your shares will be cast with respect to these proposals and a broker non-vote will result for these shares . +What vote is required to elect a director? +For Proposal 1, you may vote “FOR” or “AGAINST” any director nominee or you may abstain from voting with respect to a director nominee’s election. In an uncontested director election, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee to be elected. As such, the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested director election (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. For purposes of the election of directors, abstentions and broker non-votes, if any, will be excluded from the vote and will not be counted in determining the outcome of a director’s election . +What happens if a majority of the votes cast are not voted in favor of a director nominee? +Pursuant to the procedures set forth in the Company’s bylaws, in the event that a nominee who is already a director of the Company does not receive a majority of the votes cast with respect to such nominee in an uncontested election of directors, such nominee is required to promptly tender his or her resignation to the Board for consideration. If a director’s resignation is not accepted, that director will continue to serve until our next annual meeting of stockholders and his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy . +What is the required vote for approval of Proposals 2 and 3? +For each of the other proposals, you may vote “FOR” or “AGAINST” the proposal or you may abstain from voting on the proposal. The approval of Proposals 2 and 3 will require the affirmative vote of a majority of the shares represented and entitled to vote at the Annual Meeting. For purposes of Proposals 2 and 3, broker non-votes will not affect the outcome of the voting on these proposals and abstentions will have the same effect as a vote against these proposals . +May I change my vote or revoke my proxy? +Yes. If you are a stockholder of record, there are several ways in which you may revoke your proxy or change your voting instructions before the time of voting at the Annual Meeting, as follows: +• Vote again by telephone or at the Internet website. +• Transmit a revised proxy card or voting instruction form that is dated later than the prior one. +• Vote electronically during the Annual Meeting, at the Internet website. +• Notify the Company’s Corporate Secretary in writing that a prior proxy is revoked. +If you are a beneficial owner of shares, your broker or Nominee should provide instructions explaining how you may change or revoke your voting instructions. +Please note that, in order to be counted, the revocation or change must be received by the Company prior to the close of the Annual Meeting on September 8, 2022. The latest-dated, timely, properly completed proxy that you submit to the Company, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for your shares and you subsequently submit a proxy card that is not properly signed and dated, then the previously recorded vote will stand. +5 +TABLE OF CONTENTS +Is cumulative voting permissible? +No. Cumulative voting is not permitted by our certificate of incorporation. +Will I have appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting? +No. You will not be entitled to appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting. +How will my shares be voted? +Any proxy that you submit and that is not revoked will be voted as you direct. If you are a stockholder of record and you indicate when voting through the Internet or by telephone that you wish to vote as recommended by our Board, or if you sign and return a proxy card without giving specific voting instructions, then the persons designated as proxy holders in the accompanying proxy card will vote your shares as follows: +• “FOR” the election of each of the persons nominated by the Board in Proposal 1. +• “FOR” the approval, by advisory vote, of the compensation of our named executive officers, as described in this proxy statement. +• “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the fiscal year ending March 31, 2023. +If you are a beneficial owner of shares of our common stock and your Nominee does not receive instructions from you about how your shares are to be voted, then your Nominee will have the discretion to vote your shares on the “routine” matter being considered at the Annual Meeting, but will not be able to vote your shares on the “non-routine” matters being considered at the Annual Meeting, meaning that broker non-votes will result for these matters. +In the event any director nominee declines or is unable to serve as a director at the time of the Annual Meeting (which is not anticipated), the persons named in the enclosed proxy card will vote for the election of such person or persons as may be designated by the present Board. The enclosed proxy grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting, as well as any procedural matters. We have not been notified by any stockholder of any intention to present a stockholder proposal at the Annual Meeting . +I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided instructions to the contrary. If you wish to receive a separate set of proxy materials now, please send your request to: Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746 , Attention: Corporate Secretary. A separate set of proxy materials will be sent promptly following receipt of your request. You may also contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Who will count the votes? +The inspector of election for the Annual Meeting, who is appointed by the Board, will count the votes. It is expected that a representative of our transfer agent will serve as the inspector of election. +P ROPOSAL 1: E LECTION OF D IRECTORS +Five persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee (the “NCG Committee”), our Board selected and approved the following persons as nominees for election at the Annual Meeting: Joe Bergera, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas and Dennis W. Zank. Each nominee is currently a member of our Board and has agreed to serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the nominees named above. +We have no reason to believe that any of the director nominees will be unwilling or unavailable to serve if elected as a director. In the event any of the director nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the proxy holders named in the enclosed proxy will exercise discretionary authority to vote for substitutes. +6 +TABLE OF CONTENTS +Voting Requirements +In May 2018, our Board approved an amendment to the Company’s bylaws to implement a majority voting requirement for uncontested elections of directors. As a result, in such elections, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee. This means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested election of directors (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. If the plurality voting standard applies, the available director seats will be filled with the candidates receiving the highest number of votes cast at such meeting. +Any director may resign at any time upon providing notice to the Company. Our Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to receive the requisite majority vote in an uncontested election must tender to the Board for its consideration his or her resignation from the Board and from all of the Board committees on which he or she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” each of the director nominees listed above and below. +Director Nominees +The table and narrative below set forth information as of July 12, 2022 regarding each director nominee, including the year they first became directors of Iteris, their business experience during at least the past five years, the public company boards on which they currently serve or have served on during the past five years, and certain other biographical information. The NCG Committee believes that these persons have qualifications, competencies, and diversity that are important to an effective board of directors, as further detailed in the “Director Qualifications Matrix” under "Corporate Governance, Board Meetings and Committees" below. +Name Age Current Position(s) with Iteris +J. Joseph (“Joe”) Bergera 58 Chief Executive Officer, President and Director +Gerard M. Mooney (1)(3) +68 Director +Thomas L. Thomas (2)(3)(4) +73 Chairman of the Board +Laura L. Siegal (1)(2) +59 Director +Dennis W. Zank (1)(5) +67 Director +_______________________ +(1) Current member of the Audit Committee. +(2) Current member of the Compensation Committee. +(3) Current member of the Nominating and Corporate Governance Committee. +(4) Our bylaws provide that our Chairman of the Board is also an ex-officio member of each of our Board committees. +J. Joseph (“Joe”) Bergera has served as our President and Chief Executive Officer and as a director since September 2015. Prior to joining us, Mr. Bergera served as Group Vice President, Software of Roper Technologies, Inc. (formerly, Roper Industries) since September 2011 and as President of iTradeNetwork, a Roper subsidiary, since August 2013. He was the Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011 and served in senior executive positions with Sage Software from 2004 to March 2011, most recently as Executive Vice President, Global CRM. Prior to Sage Software, Mr. Bergera held senior roles at Infovista, Astrolink, MicroStrategy, and American Management Systems (acquired by CGI, Inc.). Since June 2022, Mr. Bergera has served on the board of directors of the Intelligent Transportation Society of America. Mr. Bergera holds a B.A. degree in Government from Colby College, an M.B.A. from the Booth School of Business at the University of Chicago and an A.M. in Public Policy from the Harris School of Public Policy at the University of Chicago. The Board believes that Mr. Bergera’s extensive management and technology industry experience, as well as his knowledge of the transportation industry, qualify him to serve as a director. +Gerard M. Mooney has served as a director of Iteris since September 2013. Mr. Mooney retired from International Business Machines Corporation (“IBM”) in March 2014, after serving in a number of senior positions since 2000. Most recently, he served as the Vice President Strategy for IBM’s Public Sector from February 2012 until his retirement, as the General Manager, Global Smarter Cities for IBM from November 2011 to February 2012, and as the General Manager, Global Government and Education +7 +TABLE OF CONTENTS +for IBM from 2008 to November 2011. He served as Vice President of IBM’s Venture Capital Group from 2000 to 2008. Before joining IBM, Mr. Mooney held various management positions at Hewlett-Packard Company (“HP”) for six years, most recently as General Manager for New Business Initiatives related to technologies developed by HP Labs. Mr. Mooney joined HP from HP’s acquisition of Edge Emitter Technology (ETT), Inc., a development stage company commercializing a solid state print head device, where Mr. Mooney served as President. Mr. Mooney has extensive operational and financial experience across a broad range of technology-based companies, from start-ups to large public companies, and has considerable experience with the major customers in the intelligent transportation systems market. He previously served as a member of the board of directors of the Intelligent Transportation Society of America and is also active in the intelligent search technology, cognitive intelligence, AI, data mining and visualization tools industries. Mr. Mooney currently serves as a director of inno360 and cofounder of Swarm Intelligence LLC (formerly theinnovationexchange), which offers SaaS cognitive platforms. He received a B.A. degree in Philosophy from Mount Saint Mary’s College, an M.S. degree in Accounting from Georgetown University and an M.B.A. from Yale University. The Board believes that Mr. Mooney’s extensive management, financial and industry experience qualify him to serve as a director. +Laura L. Siegal has served as a director of Iteris since May 2018. Ms. Siegal is currently Chief Financial Officer of Integrated Polymer Solutions, an advanced materials company focused on engineered elastomers, signature materials and biomedical solutions, which she joined in May 2022. Prior to that, from June 2019 to April 2022, Ms. Siegal was Partner and Chief Financial Officer at Acorn Growth Companies, a private equity firm focused on aerospace, defense, intelligence and space investments. From July 2013 to June 2019, Ms. Siegal was the Chief Financial Officer and a member of the board of directors at NEOTech, a leading provider of high reliability electronic manufacturing solutions in the aerospace and defense, industrial and medical sectors. Prior to joining NEOTech, Ms. Siegal spent 13 years at Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), which develops and fields transformative, affordable systems, platforms and products for national security and communications needs. There Ms. Siegal held a number of financial management positions including Principal Accounting Officer, Vice President and Corporate Controller and Vice President of Finance and Treasurer. Since October 2019, Ms. Siegal has served as a director of Creation Technologies Ltd, a privately held company that provides end-to-end, scalable electronic manufacturing services to original equipment manufacturers and other companies around the world. Ms. Siegal is a Certified Public Accountant and received a B.A. degree in Economics from the University of California, San Diego. The Board believes that Ms. Siegal’s extensive financial expertise, experience in technology and public agency markets, and demonstrated success with mergers and acquisitions qualify her to serve as a director. +Thomas L. Thomas has served as a director of Iteris since 1999 and as our Chairman of the Board since 2016. Mr. Thomas is the managing partner of T2 Partners, a private management consulting and investment business which he founded in January 2011. In addition, Mr. Thomas served as the Executive Chairman and CEO of International Decision Systems, a provider of software and solutions for the equipment finance market, from September 2009 to January 2011. From 2004 to July 2008, Mr. Thomas was the President and Chief Operating Officer of Global Exchange Services, a provider of business-to-business EDI and supply chain management solutions. Prior to that, Mr. Thomas served as the President and CEO at several software, analytics and technology companies, including HAHT Commerce, Ajuba Solutions, and Vantive Corporation, and as the first Chief Information Officer for Dell Computer Corporation and 3Com Corporation. Earlier in his career, Mr. Thomas also held various senior executive management positions at Kraft General Foods, Sara Lee Corporation and W. R. Grace. From July 2017 to July 2019, Mr. Thomas served as Chairman of the Board of Directors of VIP Software Corporation, a provider of software solutions in the insurance industry. From 2012 to November 2021, Mr. Thomas served as a director of Accurate Group, which specializes in the appraisal and title services business where technology has been instrumental in redefining the transaction model for the industry. Accurate Group was acquired by eMerge Property Solutions in November 2021. He has also served on the board of directors of infoGroup, Inc. from January 2009 to July 2010, and served as a director on the boards of a wide range of technology companies, including ATL Products, Vantive Corporation, Interwoven, iManage, FrontRange Solutions, IDS International, and Quofore International. Mr. Thomas has been actively involved in the Executive in Residence initiative of the Executive MBA program at Bellarmine University since inception 3 years ago. Mr. Thomas holds a bachelor's degree in commerce and honorary doctor of humane letters degree from Bellarmine University, and, currently serves as a member of the Board of Trustees of Bellarmine University since 2002. The Board believes that Mr. Thomas’ extensive industry and Company experience, along with his financial expertise, qualify him to serve as a director. +Dennis W. Zank has served as a director of Iteris since January 2020. From January 2012 until stepping down in September 2018, Mr. Zank served as Chief Operating Officer of Raymond James Financial, Inc. (“RJF”), a leading diversified financial services company, responsible for domestic private client group businesses as well as many of RJF’s corporate, administrative and sales support departments. Prior to that, Mr. Zank served as President of Raymond James & Associates, a subsidiary of RJF, responsible for domestic employee channel private client business, from October 2002 to January 2012. Prior to that, Mr. Zank served in a number of financial and operational management positions with RJF and RJF subsidiaries, holding titles such as Executive Vice President of Operations and Administration, Sr. Vice President, Controller and Treasurer, since joining RJF in 1978. From 1996 to 2002, Mr. Zank served on the board of directors of RJF. From 2000 to 2006, Mr. Zank served on the board of directors of the Options Clearing Corporation. He also served on the board of directors of the National Securities Clearing Corporation, from 1994 to 1997. Mr. Zank has been actively involved in the Corporate Mentorship Program at the University of South Florida since inception over 25 years ago. Mr. Zank holds a bachelor’s degree in accounting from the University of South Florida and a M.B.A. from the University of Tampa. The Board believes that Mr. Zank’s extensive management, financial and industry experience qualify him to serve as a director . +8 +TABLE OF CONTENTS +Family Relationships +There are no family relationships among any of our directors or executive officers. +C ORPORATE G OVERNANCE , B OARD M EETINGS AND C OMMITTEES +Director Independence +Our policy is to have a majority of the directors qualify as “independent” under the standards established by The Nasdaq Stock Market (“Nasdaq”). The Board has determined that each of our directors, other than our Chief Executive Officer, Joe Bergera, satisfies the requirements for “independence” using the standards established by Nasdaq. +Board Structure +The Board does not have a policy regarding the separation of the roles of the CEO and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our company and stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The Board also meets regularly in executive sessions. +Board Meetings and Committees +We currently have several standing committees of the Board, including the Audit Committee, the Compensation Committee, and the NCG Committee. The Audit Committee, the Compensation Committee, and the NCG Committee each has a written charter that is reviewed annually and revised as appropriate. +A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During Fiscal 2022 the Board held thirteen formal meetings, the Audit Committee held four formal meetings; the Compensation Committee held four formal meetings; and the NCG Committee held two formal meetings. During Fiscal 2022, no director attended fewer t han 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of the standing committees of the Board on which such director served during that period. During Fiscal 2022, due to continued complications related to COVID-19 and in order to protect the safety of our employees and directors of the Board, the Board and various committees of the Board held many of their meetings virtually. +Audit Committee. The current members of our Audit Committee are Ms. Siegal and Messrs. Mooney and Zank. Mr. Zank serves as the Chairman of this committee. The Board has determined that each member of the Audit Committee is “independent” under the standards established by both the Nasdaq rules and the SEC rules regarding audit committee members. The Board has identified Mr. Zank as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the Company’s accounting and financial reporting processes, the audits of our financial statements and the integrity of the Company’s audited financial statements and other financial reports; (b) the performance of the Company’s internal accounting, internal auditing, and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent auditors, and (d) the portions of our Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews and approves or disapproves related party transactions identified in Item 404 of SEC Regulation S-K and makes recommendations to the full Board regarding the same. +The Audit Committee meets privately with our independent registered public accounting firm from time to time, and such firm has unrestricted access to, and reports directly to, the Audit Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2023 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Ms. Siegal and Messrs. Thomas and Zank. Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is “independent” under the standards established by both the Nasdaq rules and SEC rules regarding compensation committee members. +The primary purposes of the Compensation Committee are to (a) evaluate officer and director compensation policies, goals, plans and programs; (b) oversee compensation programs and policies for all employees as they relate to the Company’s risk +9 +TABLE OF CONTENTS +management; (c) determine the cash and non-cash compensation of our directors and “executive officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (d) review, and make recommendations to the Board with respect to the administration of, our equity-based and other incentive compensation plans for all employees; (e) evaluate the performance of our executive officers; (f) assist the Board in evaluating potential candidates for executive officer positions with the Company and oversee management succession planning; and (g) produce the committee report required by the applicable rules and regulations of the SEC and other regulatory bodies for inclusion in our annual proxy statements. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to each executive’s contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers and makes recommendations with respect to executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. The Compensation Committee retained Frederic W. Cook & Co., Inc., an independent compensation consultant (“FW Cook”), to advise on executive compensation and nonemployee director compensation . FW Cook did not provide any other services to us in Fiscal 2022 beyond its engagement as an advisor to the Compensation Committee on executive compensation matters and nonemployee director compensation . The Compensation Committee assessed the independence of FW Cook pursuant to SEC and Nasdaq rules and concluded that no conflict of interest existed that would have prevented FW Cook from serving as an independent consultant to the compensation committee currently or during Fiscal 2022. +Nominating and Corporate Governance Committee. The current members of the NCG Committee are Messrs. Mooney and Thomas. Until March 31, 2022 when she departed the Board, Anjali Joshi also served on the Nominating and Corporate Governance Committee. Mr. Mooney serves as the Chairman of this committee. The Board has determined that each member of the NCG Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the NCG Committee are to assist the Board in (a) establishing the minimum qualifications for director nominees; (b) identifying and evaluating director nominees; (c) recommending to the Board candidates for the Annual Meeting of Stockholders or to fill any vacancies on the Board; and (d) developing and assessing corporate governance policies and making recommendations related to such policies to the Board. +Criteria for Director Candidate Qualifications +Our NCG Committee applies the same standards in considering director candidates submitted by stockholders as it does in evaluating other candidates, including incumbent directors. The identification and selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, and will be significantly influenced by the particular needs of the Board from time to time. As a result, there is no specific set of minimum qualifications, qualities or skills that are necessary for a nominee to possess, other than those that are necessary to meet U.S. legal, regulatory and Nasdaq listing requirements and the provisions of our certificate of incorporation, bylaws and charters of the Board’s committees. However, the NCG Committee and the Board have identified the following skills and qualifications listed below as important criteria for membership on our Board: +Ø Board Experience—Experience serving on public company boards of directors. +Ø Data/Analytics—A demonstrated understanding of data and analytics, as well as the ability to commercialize the resulting processes, techniques and/or insights. +Ø Diversity—Representation of gender, racial, ethnic and/or other diverse perspectives that expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, governments and other stakeholders worldwide. +Ø Financial Sophistication—Past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. +Ø Growth/Value Creation—Demonstrated experience in entrepreneurial growth and/or other transformational operating models resulting in measurable increase in stockholder value. +Ø Mergers and Acquisitions (M&A)—Experience evaluating and leading acquisitions and other strategic transactions, with the ability to assess “build or buy” decisions, analyze the fit of a target with our strategy and culture, accurately value transactions, and evaluate operational integration plans. +10 +TABLE OF CONTENTS +Ø Operating Leadership—Experience as a chief executive officer, president, chief operating officer or general manager leading an organization our size or bigger. +Ø Product/Technology—Experience working in technology, resulting in knowledge of how to anticipate technological trends, generate disruptive innovation, and extend or create new business models. +Ø SaaS/IaaS—Experience in software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and/or subscription-based, software-enabled service delivery models. +Ø Sales and Marketing—Experience developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation. +Ø Smart Mobility—Experience related to the application of cloud computing, artificial intelligence, advanced sensors, advisory services and/or managed services to the transportation sector, including mobility-as-a-service, connected and automated vehicles and/or transportation infrastructure. +Director Qualifications Matrix +Board members should possess a combination of the skills, professional experience and diversity of viewpoints and backgrounds necessary to oversee the Company’s business. The following matrix presents how the NCG Committee maps our director qualifications to the director nominees and led to each nominee’s selection as a member of the Board. The NCG Committee routinely reviews this qualification matrix, modifies the matrix to reflect adjustments to our business strategy and/or market landscape, and evaluates whether it would be prudent to make any changes to the size or composition of our Board . +Board Diversity +The Company is committed to fostering an environment of diversity and inclusion, including among the members of its Board. Therefore, in considering director nominees, the NCG Committee considers candidates who represent a mix of backgrounds and a diversity of gender, race, ethnicity, age, background, professional experience and perspectives that enhance the quality of the deliberations and decisions of the Board, in the context of both the perceived needs of the structure of the Board and the Company's business and structure at that point in time. +11 +TABLE OF CONTENTS +Selection Process for Nomination of Director Candidates +The NCG Committee regularly reviews the composition of the Board, including the qualifications, expertise and characteristics that are represented in the current Board as well as the criteria it considers needed to support the operating requirements of the Company and our long-term strategy. In its search processes to add new directors to the Board, the NCG Committee may retain an independent search firm to identify and vet candidates. After an in-depth review of the candidates, the NCG Committee recommends candidates to the Board in accordance with its charter, our certificate of incorporation and bylaws and our criteria for director candidate qualifications described above. After careful review and consideration, the Board will nominate candidates for election, or re-election, at our annual meeting of stockholders. The Board may appoint a director to the Board during the course of the year to serve until the next meeting of stockholders. +12 +TABLE OF CONTENTS +Director Tenure and Refreshment +When recommending to the Board the slate of director nominees for election at our annual meeting of stockholders, the NCG Committee strives to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. The Board believes that refreshment is important to help ensure that Board composition is aligned with the needs of the Company as our business evolves over time, and that fresh viewpoints and perspectives are regularly considered. The Board also believes that over time directors develop an understanding of the Company and an ability to work effectively as a group. Because this provides significant value, a degree of continuity year-over-year is beneficial to stockholders and generally should be expected. All our directors are elected each year to hold office until the next annual meeting and until their successors are elected and qualified. Because tenure or age limits could cause the loss of experience or expertise important to the optimal operation of the Board, there are no absolute limits on the length of time that a director may serve. +Our director nominees have average tenure on our Board of approximately 8.75 years, and the following table shows the range of tenures of our director nominees, evidencing the Board refreshment we have undertaken in recent years: +Years of Tenure Directors +0–5 years 2 +6–9 years 2 +10+ years 1 +Stockholder Nomination of Director Candidates +The NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the NCG Committee Chair, care of our Corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock and entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if +13 +TABLE OF CONTENTS +elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by certain committees of the Board, as described in the table below. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing (including cyber security risks); and how these risks are being managed. +Audit Committee +• Focuses on financial risk of the Company +• Reviews internal controls and the Company’s financial statements with the CEO, CFO and the external and internal auditors. +• Oversees risks assessment and risk management (and its applicable processes) by management and our independent auditors relating to key financial, accounting and reporting policies. +• Oversees the selection, appointment, retention, compensation, evaluation and performance of the work of the Company’s independent auditors. +• Meets quarterly and on a "as-needed" basis with CEO, CFO and the Company’s external independent auditors. +Compensation Committee +• Oversees risks associated with our compensation policies and programs with respect to both executive compensation and compensation for all employees generally. +• Utilizes external independent compensation consultant to assist in designing and reviewing compensation policies and programs, including the potential risks created by the policies and programs. +• Assists Board in overseeing the Company’s executive management succession planning. +• Oversees the process for conducting the annual risk assessment of the Company’s compensation programs and policies, including retaining, from time to time, third party consultants to assess risk. See “Compensation Risk Assessment” below. +Nominating and Corporate Governance Committee +• Oversees risks relating to certain legal and regulatory compliance risks with respect to the Company’s corporate governance policies and standards. +• Oversees compliance and risks related to Board structure, directors and director nominations. +• Oversees risks related to compliance matters by reviewing on at least an annual basis issues and developments related to corporate governance. +• Oversees risks related to the Company’s compliance with applicable stock exchange listing standards and the Sarbanes-Oxley Act. +Changes in Nominating Procedures +There have not been any material changes to the procedures by which security holders may recommend nominees to our Board that were implemented since we last disclosed such procedures. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can submit a written request to Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, Texas 78746; Attention: Corporate Secretary. +14 +TABLE OF CONTENTS +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. Two of our then-current directors attended our 2021 annual mee ting of stockholders. +Policy against Hedging and Pledging +The Company has a policy strongly recommending against hedging or pledging in our equity securities by our officers, directors or employees. +D IRECTOR C OMPENSATION +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for nonemployee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are our employees are not compensated for their services as directors. To assist with the Compensation Committee’s review of the nonemployee Board member compensation in Fiscal 2022, the Compensation Committee engaged an independent compensation consultant, FW Cook, to perform a review of our nonemployee director compensation which includes an analysis of market trends and changes in the Company, best practices and FW Cook’s methodology in gathering peer data. +Board and Committee Retainers +The current annual cash compensation for nonemployee directors for Fiscal 2022 consisted of the following: +Position Annual +Retainer +Chairman of the Board $80,000 +Nonemployee Director (other than the Chairman) $40,000 +Additional current retainers for each nonemployee director who served on one or more Board committees in Fiscal 2022 were as follows: +Position Annual +Retainer +Audit Committee +Chair $20,000 +Member $10,000 +Compensation Committee +Chair $15,000 +Member $7,500 +Nominating and Corporate Governance Committee +Chair $10,000 +Member $5,000 +All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board and its committees, but they do not receive separate meeting fees. +Annual Equity Compensation +Nonemployee directors are also eligible to receive periodic restricted stock units (“RSUs”) under the Company’s equity incentive plan then in effect. Each nonemployee director shall be granted an annual RSU award upon approval of the grant by the Compensation Committee as soon as reasonably practicable following the annual meeting of stockholders at which such director is re-elected. The current annual RSU grant to directors is worth approximately $80,000 based on the closing price of the Company’s common stock on the RSU grant date. Each RSU entitles the holder to receive one share of the Company’s common stock upon vesting of such unit. Each annual RSU generally vests on the date of the first annual stockholder meeting following the date of grant. If a nonemployee director joins the Board in between annual stockholder meetings, such director will receive an RSU for a pro rata portion of the annual grant, which typically vests in full on the date of the first annual stockholder meeting following the date of grant. +15 +TABLE OF CONTENTS +2022 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2022 by each person who served as a nonemployee director during that year: +Name +Fees Earned +or Paid in +Cash ($) (1) +Stock +Awards ($) (2) +Total ($) +Anjali Joshi (3) +$42,240 $80,000 $122,240 +Gerard M. Mooney 53,462 80,000 133,462 +Laura L. Siegal 52,546 80,000 132,546 +Lucas (“Luke”) P. Schneider (4) +46,817 — 46,817 +Thomas L. Thomas 109,367 80,000 189,367 +Dennis W. Zank 59,529 80,000 139,529 +_______________________ +(1) Represents amounts earned by the directors based on the arrangements described above, which amounts have been prorated for directors who served on Board committees for less than a full term. +(2) The dollar amounts shown represent the grant date fair value of restricted stock unit awards granted in Fiscal 2022 determined in accordance with ASC 718. For a discussion of valuation assumptions used in the calculations, see Note 10 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2022. See also our discussion of stock-based compensation in Note 1 of Notes to Consolidated Financial Statements on page 52 in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2022. +For each director, the number of units was determined by dividing $80,000 by $5.47, the closing sales price of the Company’s common stock on the grant date. At the end of Fiscal 2021, the above-listed directors held no stock options. At the end of Fiscal 2022, the above listed directors held RSUs for the following number of shares of common stock: Ms. Joshi — 14,625; Mr. Mooney — 14,625; Ms. Siegal — 14,625; Mr. Thomas — 14,625; and Mr. Zank — 14,625. +(3) Ms. Joshi served as a director until March 31, 2022. +(4) Mr. Schneider served as a director until September 9, 2021. +Director and Management Stock Ownership Guidelines +Pursuant to stock ownership guidelines adopted by the Board in February 2016, each nonemployee member of the Board is required to own shares of the Company's common stock having a value equal to or greater than three times the annual cash Board retainer, which is currently set at $40,000 per year. Each director has until the later of (i) February 2021 and (ii) five years from the time he or she is elected to the Board, to meet the stock ownership guidelines. +Effective September 2020, the Company adopted additional stock ownership guidelines to align the interests of management with those of stockholders of the company. Under these guidelines, the CEO will be expected to own common stock of the Company having a value equal to or greater than three times his or her base salary and the other executive officers are expected to own common stock of the Company having a value equal to or greater than one times his or her base salary. Each executive has the goal of meeting this threshold by the later of (i) September 2025 and (ii) the fifth anniversary of his or her first employment as an executive officer. +All Company shares held by the director or executive officer, his or her related trusts and immediate family members, shares underlying restricted stock units or performance stock units, and 50% of the in-the- money value of vested stock options shall be included in the calculations. +As of March 31, 2022, each of our nonemployee directors were in compliance with our stock ownership guidelines or had additional time under the terms of the guidelines within which to fulfill the requirement. +Deferred Compensation Plan +Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act, or ERISA, and one for the benefit of nonemployee members of our Board. Under the DC Plan, our nonemployee directors may elect to defer up to 100% of any RSU awards and up +16 +TABLE OF CONTENTS +to 100% of their cash compensation for service as a director. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. For a description of the terms of the DC Plan, see “Executive Compensation and Other Information — Non-Qualified Deferred Compensation for Fiscal 2022” herein. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of the Board or Compensation Committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or Compensation Committee. No interlocking relationship exists between any member of the Board and any member of the Compensation Committee (or other committee performing equivalent functions) of any other company. +17 +TABLE OF CONTENTS +P ROPOSAL 2: A DVISORY V OTE R EGARDING E XECUTIVE C OMPENSATION +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. Commonly known as a “say-on-pay” vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation policies and programs and the compensation paid to the named executive officers. +We are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution at the Annual Meeting: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2022 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved.” +The Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company’s executive compensation policies and practices are effective in achieving the Company’s goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives’ interests with those of the stockholders. +The vote on this proposal is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. +Stockholder Approval +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. +18 +TABLE OF CONTENTS +E XECUTIVE O FFICERS +The table below sets forth certain information, as of July 12, 2022, regarding our executive officers. +Name Age Capacities in Which Served +Joe Bergera 58 Chief Executive Officer, President and Director +Douglas L. Groves 60 Chief Financial Officer, Senior Vice President of Finance and Secretary +Todd Kreter 62 Senior Vice President and Chief Technology Officer +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five years. The biography of Mr. Bergera appears earlier in this proxy statement. See “Proposal 1: Election of Directors.” +Douglas L. Groves has served as Senior Vice President and Chief Financial Officer since he joined on December 4, 2019. Mr. Groves has more than 30 years of unique and highly valuable experience. Most recently, he served as Vice President, Chief Financial Officer and Treasurer of Ducommun, Inc., through June 2019, having joined the company in January 2013. Through December 2012, he held the position of Corporate Vice President and Chief Information Officer at Beckman Coulter, following a series of financial roles at the company beginning in January 1998. Beckman Coulter was acquired by Danaher Corporation in February 2011. Prior to joining Beckman Coulter, Mr. Groves was corporate controller of a privately held civil engineering firm and senior auditor and consultant at Deloitte & Touche. Mr. Groves holds an M.B.A. from the University of Southern California and a B.S. degree in Accountancy from California State University, Long Beach. +Todd Kreter was appointed Senior Vice President and Chief Technology Officer on June 1, 2022. Prior to that, Mr. Kreter served as Senior Vice President and General Manager, Advanced Sensors Technologies. From May 2014 until May 31, 2022, he held the title of Senior Vice President and General Manager, Roadway Sensors. Mr. Kreter served as our Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +19 +TABLE OF CONTENTS +E XECUTIVE C OMPENSATION AND O THER I NFORMATION +Executive Compensation +The following is a summary of the compensation policies, plans and arrangements for our executive officers. This summary should be read in conjunction with the Summary Compensation Table and related disclosures set forth below. We are eligible to, and have chosen to, comply with the executive compensation disclosure rules applicable to a “smaller reporting company,” as defined in the applicable SEC rules, but we have voluntarily included additional disclosure about our executive compensation program to help our stockholders understand our executive compensation program. This section discusses the principles underlying our compensation policies for the officers named in the “Summary Compensation Table” below. We refer to these individuals as our “named executive officers” or “NEOs” for Fiscal 2022: +• Joe Bergera, our Chief Executive Officer, President and Director; +• Douglas L. Groves, our Chief Financial Officer, Senior Vice President of Finance and Secretary; +• Todd Kreter, currently our Senior Vice President and Chief Technology Officer, who served as our Senior Vice President & General Manager, Advanced Sensors Technologies during Fiscal 2022s; and +• Ramin Massoumi, our Senior Vice President & General Manager, Consulting Solutions, who served as such until December 31, 2021. +Fiscal 2022 Business Results Summary +We are a provider of smart mobility infrastructure management solutions. Municipalities, government agencies, and other transportation infrastructure providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. During another year of navigating the COVID-19 pandemic and the challenges it has brought to our everyday lives, we made progress across a range of financial and strategic dimensions in Fiscal 2022, despite significant global supply chain disruptions and associated materials price variances. Key financial results include: +• Fiscal 2022 total revenue of $133.6 million, up 14% year over year; +• Net loss from continuing operations of $6.9 million, or $(0.16) per share due to a second quarter noncash project write-off and increased costs related to global supply chain disruptions; +• Adjusted EBITDA (1) of $4.5 million, a $3.0 million decrease year over year due to global supply chain disruptions and associated increased costs; and +• Total net bookings for Fiscal 2022 of $155.4 million, up 28% year over year (2) . +_______________________ +(1) Adjusted EBITDA is adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, project loss reserves, and executive severance and transition costs. For more information, refer to Non-GAAP Financial Measures and to the Consolidated Financial Statements, included on page 28 in Part II, Item 7 of the Company’s Annual Report on Form 10-K for Fiscal 2022. +(2) Net bookings is an operational measure representing the total dollar value of all definitive contracts executed during the relevant period, net of cancellations of previously authorized contract funding. +Impacts of COVID-19 on Iteris +The COVID-19 pandemic has had an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and “stay-at-home” orders. In turn, the uncertainties caused by these events and actions created various disruptions to our vendors, our employees and customers and negatively affected customer sentiment in general. We did not experience any facility closures in Fiscal 2022, but we did experience supply chain disruptions and work delays on certain projects. Should such delays become protracted or worsen, the impacts of the COVID-19 pandemic could further impact our business, results of operations and financial condition. Given the uncertainties of the COVID-19 pandemic, the Company has taken certain actions to preserve its liquidity, manage cash flow and strengthen its financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, implementing restructuring activities, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts. +20 +TABLE OF CONTENTS +On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. For more information, refer to Note 6, Income Taxes, to the Consolidated Financial Statements, included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for Fiscal 2022. +Fiscal 2022 Executive Compensation Results Overview +The named executive officer compensation plan is composed of three elements: base salary, short-term annual incentive, and long-term equity incentives. The base salaries reflect the market for similar roles at similar companies. The short-term incentives program has specific targets tied to the Company’s annual financial performance. The long-term incentives consist of a mix between stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”). The inclusion of RSUs and PSUs in our long-term incentive program was new for Fiscal 2021, as the Company granted only stock options prior to Fiscal 2021. +Below is a summary of the results of our executive compensation program for Fiscal 2022: +• Base Salaries . In the first half of Fiscal 2022, after reviewing pay governance guidelines, receiving guidance from the Compensation Committee’s compensation consultant, FW Cook, reviewing prevailing compensation practices, evaluating recent Company performance, comparison to prior years’ payouts, and impacts of the COVID-19 pandemic, the Compensation Committee approved base salary increases for the named executive officers for Fiscal 2022. These increases averaged 3.2% for our named executive officers. +• Annual Incentives . Our named executive officers’ target bonuses for Fiscal 2022 remained generally unchanged from the target bonus levels in place during Fiscal 2021. Messrs. Bergera and Groves’ annual bonus performance metrics were Iteris revenue and Iteris Adjusted EBITDA. Because Messrs. Kreter and Massoumi led a business unit, Mr. Kreter for Advanced Sensors Technologies and Mr. Massoumi for Consulting Solutions, each had four metrics, including Iteris revenue, Iteris Adjusted EBITDA, their respective business unit revenue and business unit contribution margin. The annual cash performance bonuses for the named executive officers in Fiscal 2022 were earned at 56% of target for Mr. Bergera; 56% for Mr. Groves; and 67% for Mr. Kreter. Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021 and therefore was not eligible for a bonus for Fiscal 2022. The corporate bonus objectives for Messrs. Bergera and Groves paid out below target on both the Iteris revenue target and the Adjusted EBITDA metric. Mr. Kreter’s bonus paid out below target on both Advanced Sensors Technologies revenue and Advanced Sensors Technologies contribution margin metric (in addition to under performance against the Iteris revenue and Adjusted EBITDA). Individual performance against management performance objectives is also considered in determining the final annual bonus payouts. See “Fiscal 2022 Cash-Based Bonus Plan” table below for further details about results of our annual cash-based bonus program for Fiscal 2022. +• Long-Term Incentives . Commencing in Fiscal 2021, in response to stockholder feedback, the Company updated its long-term incentive compensation program to incorporate the use of PSUs for 25% of the long-term opportunity. The remaining portion consisted of 50% in stock options and 25% in RSUs. PSUs are earned based on the Company’s average revenues per share and cash flow from operations performance, as well as the Company’s total stockholder return (“rTSR”) relative to the Russell 2000. See “Fiscal 2022 Long-Term Incentive Awards” below for further details about updates to the executive compensation plan for Fiscal 2022. +Characteristics of our Executive Compensation Programs +Our executive compensation programs include a number of practices intended to align the interests of management and our stockholders. +21 +TABLE OF CONTENTS +What We Have What We Do Not Have +Ø We have approximately 68% of target direct compensation for the chief executive officer (and 53% of the other named executive officers) that is performance-based or is at-risk +Ø We have a performance-based long term incentive plan that utilizes PSUs, RSUs, and stock options +Ø We have a clawback policy for incentive compensation +Ø We have stock ownership guidelines for executive officers and directors +Ø We have an independent compensation consultant to advise our Compensation Committee +Ø We make ongoing stockholder outreach efforts to obtain input on our compensation practices +ü We do not provide 280G excise tax gross-ups +ü We do not provide any pension or supplemental retirement benefits +ü We do not provide for any “single trigger” equity vesting for equity awards +ü We prohibit repricing options without shareholder approval +ü We prohibit granting stock options with an exercise price below 100% of fair market value +ü We do not provide any perquisites +Impact of 2021 Say-on-Pay Vote +The most recent stockholder advisory vote on named executive officer compensation required under the SEC rules was held on September 9, 2021. Approximately 87.4% of the total votes cast on such proposal (which excluded broker non-votes) were in favor of the compensation of our named executive officers. Based on the Board’s commitment to continue to strengthen the compensation plan for the Company’s named executive officers, the Compensation Committee evaluated and modified elements of the Company’s compensation plan to better align management’s long-term incentive compensation with stockholder interests. Specifically, the Company determined that, commencing in Fiscal 2021, a portion of long-term incentive compensation will be granted in the form of PSUs, earned based on the achievement of certain financial performance and total stockholder return metrics. Prior to implementing these changes to our long-term incentive compensation, the Company invited several of its largest stockholders to provide comments on the proposed changes and ultimately finalized the plan structure taking into account investor feedback. +As the Company continues to grow and mature, the Compensation Committee will continue to make appropriate adjustments to our management team’s long-term incentive compensation. Currently, based on the voting preference of the Company’s stockholders, advisory votes on executive officer compensation will be conducted every year. The Compensation Committee will continue to take into account each such advisory vote in order to determine whether any subsequent changes to the Company’s executive compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes. +Compensation Philosophy and Objectives +Our executive compensation plans and arrangements are overseen and administered by our Compensation Committee, which is comprised entirely of independent directors as determined in accordance with applicable Nasdaq and SEC rules. Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our stockholders. Based on this philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• ensure that any cash incentive compensation programs for our named executive officers are aligned with our corporate strategies and business objectives by tying the potential payouts under such programs to the achievement of key strategic, financial and operational goals; and +• utilize long-term equity awards to align interests between our named executive officers and stockholders. +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review +22 +TABLE OF CONTENTS +each component of compensation as related but distinct. Although the Compensation Committee reviews total compensation, it has not adopted any formal guidelines for allocating total compensation between cash and equity compensation. We determine the appropriate level of each compensation component based in part, but not exclusively, on our retention goals and short-term and long-term objectives. +This review generally occurs in the first quarter of each fiscal year at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, reviews and approves any bonus awards and programs, establishes the performance objectives for our cash based bonus plan, and may grant equity compensation to the executive officers to ensure their interests are aligned with our stockholders and for retention. +In Fiscal 2022, the Compensation Committee retained the services of an independent compensation consulting firm, FW Cook, to advise on directors and named executive officer compensation. FW Cook provided the Compensation Committee with market data and analysis of our total direct compensation for such directors and named executive officer positions as compared with the competitive market. FW Cook reports only to the Compensation Committee and did not perform any other work for the Company during Fiscal 2022 beyond its services related to director and named executive officer compensation. As provided in its charter, the Compensation Committee has the authority to determine the scope of FW Cook’s services and may terminate their engagement at any time. +As part of the review process, our Chief Executive Officer provides our Compensation Committee with recommendations as to the base salary, cash bonus potential and long-term equity incentive awards for each of our executive officers other than himself based on that officer’s level of responsibility, individual performance and contribution to the attainment of our strategic corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer’s recommendations into consideration in setting named executive officer compensation, but retains complete discretionary authority to make all compensation-related decisions for our named executive officers. Our Compensation Committee makes its compensation decisions with respect to the Chief Executive Officer on the basis of relevant market data furnished by a variety of sources and its subjective assessment of individual performance and contributions to our overall corporate performance. Any decisions regarding our Chief Executive Officer’s compensation are made without such officer present. +Peer Groups +The Compensation Committee benchmarks our compensation programs to a peer group, which consists of publicly-traded technology companies in the applications software, systems software, and technology hardware industry categories, that are similar in size, as measured by revenues and market capitalization. +As of June 1, 2020, when the peer group was last assessed for Fiscal 2022, the peer revenues ranged from $44 million to $281 million, with a median of $139 million, which compared to Iteris’ revenues of $114 million. Market capitalization on July 1, 2020 for the peers ranged from $16 million to $1.1 billion, with a median of $191 million, which compared to Iteris’ market capitalization of $198 million. +The Fiscal 2022 peer group consisted of the following companies: +• Agilysys, Inc. +• AutoWeb, Inc. +• Clearfield, Inc. +• Digi International Inc. +• Digital Turbine, Inc. +• EMCORE Corporation +• Intevac, Inc. +• IntriCon Corporation +• KVH Industries, Inc. +• Majesco +• MobileIron, Inc. +• Napco Security Technologies, Inc. +• OneSpan Inc. +• PCTEL, Inc. +• Perceptron, Inc. +• RealNetworks, Inc. +• SeaChange International, Inc. +• Telenav, Inc. +• TransAct Technologies Incorporated +• Upland Software, Inc. +• Zix Corporation +_______________________ +23 +TABLE OF CONTENTS +The Compensation Committee evaluates our compensation program versus that of the peer companies with respect to both individual pay levels as well as the structure of the program. The Compensation Committee uses this data primarily to ensure that our executive compensation program as a whole is competitive. Market data is one of several factors that is used to evaluate compensation levels. Other factors may include individual and company performance, experience in the role, responsibility level, and internal equity. +Compensation Components and Structure +We utilize three main components in structuring compensation programs for our named executive officers: +Pay Component Rationale and Value to Stockholders +Base Salary +• Only fixed compensation element in the executive compensation program +• Recruit and retain executive talent and provide an element of economic security from year-to-year +• Reflects competitive market conditions +Performance-Based Cash Bonus +(Short-Term Incentive Program) +• Motivates achievement of strategic priorities for the fiscal year as measured by financial and operational metrics +• Diversified group of metrics to drive growth and stockholder value +Equity Incentive Awards +(Options, +RSUs and PSUs) (1) +• Encourages focus on long-term stockholder value creation (and PSUs link compensation to achievement of specified corporate financial performance objectives) +• Aligns to stockholders' interests +• Provides long-term retention incentive of our executive talent +_______________________ +(1) Historically, the long-term incentive compensation for our named executive officers was largely in the form of stock options. Commencing in Fiscal 2021, the long-term incentive compensation component for our named executive officers consist of stock options, RSUs and PSUs. See “Fiscal 2022 Long-Term Incentive Awards” below for further details about updates to the executive compensation plan for Fiscal 2022. +Our Compensation Committee allocates a substantial portion of each named executive officer’s total compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for its cash-based bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee determines the compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual’s performance and contribution to our financial performance and the other factors identified in the “Annual Review of Cash and Equity Compensation” section above to determine the appropriate level and balance of total compensation. We believe that this approach allows us to tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and responsibilities required of all of our named executive officers. Each named executive officer’s base salary level is typically reviewed on an annual basis and adjustments may be made to the individual’s base salary on the basis of his or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +24 +TABLE OF CONTENTS +In June 2021, the Compensation Committee reviewed the base salaries of the named executive officers and established the base salaries for such officers for Fiscal 2022 as set forth below: +Named Executive Officer Fiscal 2022 +Annual Base +Salary +Joe Bergera $445,000 +Douglas L. Groves 412,500 +Todd Kreter 300,000 +Ramin Massoumi (1) +287,500 +_______________________ +(1) Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. +Fiscal 2022 Cash-Based Bonus Plan (“2022 Bonus Plan”). Our named executive officers are eligible to receive an annual cash-based bonus under our 2022 Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals, which generally include the Company’s revenues and Adjusted EBITDA for the fiscal year, the revenues and contribution margin of such officer’s business unit, and personal objectives set for each officer (“MBOs”). We define “contribution margin” as the business unit’s adjusted operating income without corporate expense allocations. The adjusted operating income of each business unit is calculated on a non-GAAP basis to exclude amortization, depreciation, stock-based compensation, and goodwill impairment charge, if any. For Fiscal 2022 the Compensation Committee approved using Adjusted EBITDA as a corporate performance objective, which is adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, executive severance and transition costs, and fair value adjustment related to TrafficCast’s opening balance inventory. For more information, refer to Non-GAAP Financial Measures and to the Consolidated Financial Statements, included on page 28 in Part II, Item 7 of the Company’s Annual Report on Form 10-K for Fiscal 2022.” +The corporate and business unit performance targets and the actual achievement of such objectives for Fiscal 2022 were as follows: +Performance Components Threshold Target Maximum Actual % +Attained +Corporate Revenue $108,411 $135,514 $162,617 $133,572 99 % +Corporate Adjusted EBITDA 7,566 9,457 11,348 4,469 47 % +Advanced Sensors Technologies Revenue 52,493 65,616 78,739 64,070 98 % +Advanced Sensors Technologies Contribution Margin 20,071 25,089 30,106 21,250 85 % +_______________________ +Under the Fiscal 2022 plan, if performance is below the “Threshold” goal amounts shown above, no bonus would be payable for that particular objective. If performance exceeds the “Maximum” goal amounts above, the NEOs could earn up to a maximum of 200% of their target opportunity for that particular objective. The combined maximum potential payout of the defined bonus elements is 160%. When combined with the 20% for personal objectives, the total maximum payouts for NEOs are 180%. Payouts in between the Threshold and Maximum levels above would be determined using linear interpolation. +Mr. Bergera’s Fiscal 2022 MBOs included, among other things, achieving certain divestiture and post-divestiture integration objectives, and executing on other strategic transformation activities. The Compensation Committee determined Mr. Bergera successfully executed on his MBOs, resulting in a 90% payout of the MBO’s portion of his Fiscal 2022 annual bonus. +Mr. Groves’ Fiscal 2022 MBOs included certain strategic transformation initiatives, enhancing our investor communication, building capabilities in the accounting organization, attainment of certain expense reductions, and certain contributions to strategic financial planning for the Company. The Compensation Committee determined Mr. Groves successfully executed on his MBOs, and determined Mr. Groves earned 91.2% of the MBOs portion of his Fiscal 2022 annual bonus. +Mr. Kreter’s Fiscal 2022 MBOs included the development and enhancement of certain solutions, achievement of new customer and market development activities in the Advanced Sensors Technologies business unit, and achievement of certain +25 +TABLE OF CONTENTS +bookings targets. The Compensation Committee determined Mr. Kreter successfully executed on his MBOs, resulting in an 84.4% payout of the MBOs portion of his Fiscal 2022 annual bonus. +Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021 and did not receive any bonus under our 2022 Bonus Plan. +The Compensation Committee typically meets near the end of the first fiscal quarter of each year to evaluate each NEO’s achievement of their respective MBOs and annual bonuses are typically paid out as soon as practicable thereafter. +The performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2022 were as follows: +Named Executive Officer Performance +Objectives +Allocation (%) 2022 Target +Bonus ($) 2022 Actual +Bonus ($) % of Target +Awarded (%) +Joe Bergera $333,750 $186,900 56 % +Corporate Revenue 40 +Corporate Adjusted EBITDA 40 +MBOs 20 +Douglas L. Groves 206,250 116,013 56 % +Corporate Revenue 40 +Corporate Adjusted EBITDA 40 +MBOs 20 +Todd Kreter 165,000 110,413 67 % +Advanced Sensors Technologies Revenue 25 +Advanced Sensors Technologies Contribution Margin 25 +Corporate Revenue 15 +Corporate Adjusted EBITDA 15 +MBOs 15 +Cross Sell 5 +_______________________ +Equity Compensation. Our equity award program is one of our vehicles for offering long-term incentives to our named executive officers and providing an inducement for long-term retention. Our equity component also aligns the interests of our named executive officers with those of our stockholders and focuses their attention on the creation of stockholder value in the form of stock price appreciation. We believe that the equity-based compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our named executive officers and our stockholders. We have had no program, plan or practice pertaining to the timing of equity awards to named executive officers coinciding with the release of material non-public information. +Historically, to reward and retain our named executive officers in a manner that best aligns employees’ interests with stockholders’ interests, we have used stock options as the primary incentive vehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because executives are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time. The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined under our equity plan. Stock option awards generally vest in four equal annual installments over a four-year period, subject to continuous service through each vesting date. From time to time, our Compensation Committee may, however, determine that a different vesting schedule is appropriate. +Fiscal 2022 Long-Term Incentive Awards . Commencing with Fiscal 2021, in response to stockholder feedback and consultation with FW Cook, the Compensation Committee decided to rebalance management’s long-term incentive compensation to include a mix of stock options (50%), RSUs (25%), and PSUs (25%) (with percentages measured based on the awards’ grant date values, assuming target level achievement of applicable performance goals in the case of PSUs), as follows: +• 50% of the long-term incentive compensation for our named executive officers was granted in the form of stock options, which will vest in accordance with the standard four-year vesting schedule described above. +• 25% of the long-term incentive compensation for our named executive officers was granted in the form of RSUs, which will vest over three years, with 50% of such RSUs vesting on the second anniversary of the grant date and 50% of such +26 +TABLE OF CONTENTS +RSUs vesting on the third anniversary of the grant date. Each RSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. +• 25% of the long-term compensation for our named executive officers was granted in the form of PSUs. Each PSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. The number of PSUs that vest at the end of each three-year performance period will depend, in part, on the Company’s average revenues per share and cash flow from operations performance during the three-year performance period and, in part, on the Company’s rTSR relative to the Russell 2000 over the three-year performance period. Executives will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. +• Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. +For purposes of the PSUs granted in Fiscal 2022, the performance metrics for Fiscal 2022, the first year in the three-year performance period, were as follows: cash flow from operations — threshold, $5,840,000; target, $7,300,000; and maximum, $8,760,000, and revenues per share — threshold, $2.91; target, $3.23; and maximum, $3.55; Our actual performance for Fiscal 2022 for cash flow used in operations was $5,593,000, resulting in a 0% achievement compared to the target. Our actual performance for Fiscal 2022 for revenues per share was $3.16, resulting in a 98% achievement compared to the target. These achievement levels for Fiscal 2022 will be used to determine our average performance for the three-year performance period ending March 31, 2023 for purposes of determining the final vesting of the PSUs. +Typically, the Compensation Committee provides grant guidelines to our Chief Executive Officer, who in turn will make recommendations back to the Compensation Committee regarding the number of shares to be granted to our executive officers (other than himself). See “Fiscal 2022 Grant of Plan-Based Awards” table below for the Fiscal 2022 awards made to our named executive officers. +Benefit Plans +Section 401(k) Plan. We make available a tax-qualified retirement plan that provides eligible employees, including our executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Participants are able to defer a portion of their eligible compensation, subject to applicable annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). Pre-tax contributions are allocated to each participant’s individual account and may be invested in selected alternative investments according to the participant’s direction. We do currently make a matching contribution under the 401(k) plan up to a maximum of 4% of the employee’s base salary. Such matching contribution is at the discretion of the Board and is typically evaluated on an annual basis. +Health and Welfare Benefits. Our named executive officers are eligible to participate in all our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits. +Perquisites. We do not provide significant perquisites or personal benefits to our named executive officers. +Post-Employment Compensation +For a summary of the material terms and conditions of our post-employment compensation arrangements, see “— Potential Payments upon Termination or Change in Control” below. +Incentive Compensation Clawback Policy +In July 2020, the Board adopted a Clawback Policy (the “Clawback Policy”) to create and maintain a culture that emphasizes integrity and accountability, and that reinforces the Company’s pay-for-performance compensation philosophy. Under the Clawback Policy, the Compensation Committee may direct the Company to seek to recover incentive compensation awarded or paid to an executive officer or other employee of the Company deemed subject to the Clawback Policy (“covered persons”) for a fiscal period if the Company must subsequently restate its financial statements. +27 +TABLE OF CONTENTS +The Clawback Policy is in addition to any recovery rights provided under applicable law. The Board continues to monitor regulatory developments and intends to further review and revise the Clawback Policy, if necessary, to comply with any final regulations issued for the purpose of implementing the requirements of the Dodd-Frank Act. +Stock Ownership Guidelines +The Board has adopted stock ownership guidelines for the Company’s non-employee directors and executive officers. See “Director Compensation” above for a description of these guidelines. +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably likely to have a material adverse impact on our business or our financial condition. The following compensation design features help minimize the incentives for excessive risk-taking and keeps our named executive officers focused on the creation of long-term, sustainable value for our stockholders: +• Our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• To further ensure that the interests of our named executive officers are aligned with those of our stockholders, commencing with Fiscal 2021, a portion of executive officer long-term incentive compensation was awarded as equity subject to performance- and time-based vesting requirements. RSUs and PSUs will vest and settle over a three-year period, as applicable — in the case of RSUs, 50% vesting after two years and remaining vesting after completion of three years, and in the case of PSUs, cliff-vesting based on achievement of applicable performance goals at the end of a three-year performance period. +• A portion of each executive’s incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; +• Annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, discourages the taking of short-term risk at the expense of long-term performance; and +• Each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to manipulate. +Tax Deductibility of Executive Compensation +The Compensation Committee considers the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for “covered employees.” While we consider the tax deductibility of each element of executive compensation as a factor in our overall compensation program, the compensation committee, however, retains the discretion to approve compensation that may not qualify for the compensation deduction if, considering all applicable circumstances, it would be in our best interest for such compensation to be paid without regard to whether it may be tax deductible. +Accounting for Stock-Based Compensation +Under FASB ASC 718, we are required to estimate the grant date “fair value” for each grant of equity award using various assumptions. This calculation is performed for accounting purposes and reported in the compensation tables in this proxy statement, even though recipients may never realize any value from their awards. ASC 718 also requires us to recognize the compensation cost of stock-based awards in our income statements over the period that an employee is required to render service in exchange for the award. +Compensation Committee Report +The Compensation Committee has reviewed and discussed with management the discussion and analysis of the compensation of our named executive officers as disclosed in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board that the discussion and analysis be included in the Annual Report and this proxy statement. +28 +TABLE OF CONTENTS +Thomas L. Thomas (Chairman) +Laura L. Siegal +Dennis W. Zank +29 +TABLE OF CONTENTS +Executive Compensation Tables +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2022, 2021 and 2020 by (i) our Chief Executive Officer, and (ii) our other executive officers who were serving as executive officers as of March 31, 2022. The officers listed below are collectively referred to as the “named executive officers” or “NEOs” in this proxy statement. +Name and Principal Position Fiscal +Year +Salary (1) +Stock Awards (2) +Option +Awards (2) +Non-Equity +Incentive Plan +Compensation (3) +All Other +Compensation (4) +Total +Joe Bergera +Chief Executive Officer and President 2022 $443,706 $373,068 $260,000 $186,900 $20,846 $1,284,520 +2021 432,030 254,388 323,125 448,275 11,200 1,469,018 +2020 430,314 — 634,300 180,155 11,351 1,256,120 +Douglas L. Groves +Chief Financial Officer, +Senior Vice President of +Finance and Secretary 2022 411,586 152,637 130,000 116,013 13,846 824,082 +2021 401,947 82,723 117,500 280,000 11,200 893,370 +2020 121,617 (5) — 489,540 37,333 4,800 653,290 +Todd Kreter +Senior Vice President +and General Manager, Advanced Sensors 2022 300,154 113,071 97,500 110,413 15,168 636,306 +2021 291,690 57,715 82,250 232,462 11,200 675,317 +2020 295,890 — 177,604 103,895 11,187 588,576 +Ramin Massoumi (6) +Senior Vice President and +General Manager, Roadway +Sensors +2022 210,809 63,271 — — 136,861 (7) 410,941 +2021 280,785 57,715 82,250 149,959 11,200 581,909 +2020 279,688 — 177,604 136,531 10,262 604,084 +_______________________ +(1) For Fiscal 2021, Mr. Groves deferred a portion of his salary under the Company’s Non-Qualified Deferred Compensation Plan. For Fiscal 2022, Messrs. Bergera, Groves and Massoumi, each deferred a portion of their salaries under the Company’s Non-Qualified Deferred Compensation Plan. These amounts for Fiscal 2022 are reflected in the Non-Qualified Deferred Compensation Table and in the Salary column. +(2) The dollar amounts shown represent the grant date fair value of equity awards, including RSUs, PSUs, and stock options granted during the applicable fiscal year determined in accordance with ASC 718. +Under ASC 718, the grant date fair value of the stock options is determined pursuant to the Black-Scholes-Merton option pricing formula. The grant date fair value of the RSUs is based on the closing price per share of our common stock on the date of grant. The fair value of our performance stock unit awards is estimated on the grant date using a Monte Carlo simulation model. +With respect to the PSUs granted during Fiscal 2021 and Fiscal 2022, the number of PSUs that are eligible to vest will be determined, in part, based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three-year performance period, ending March 31, 2023 and 2024, respectively. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will also depend, in part, on the Company’s rTSR relative to the Russell 2000 over the three-year performance period. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. The final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2021 and Fiscal 2022, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and so the grant date fair value of the PSUs included in this column for Fiscal 2021 and Fiscal 2022 each represent the grant date fair value for one-third of the PSU award eligible to vest based on Fiscal 2023 performance. In accordance with ASC Topic 718, the grant date fair value of the PSUs was calculated using the Monte Carlo simulation which utilizes the stock volatility, dividend yield and market correlation of the Company and the Company’s peer group. For the PSU awards granted during Fiscal 2021, such inputs consisted of: +30 +TABLE OF CONTENTS +(a) an expected term that was based on the actual three-year term of the award; (b) a risk-free interest rate of 0.17% derived from the yield on U.S. government bonds of appropriate term from the U.S. Department of Treasury; (c) a dividend yield of 0.00% because we do not currently issue a dividend; (d) stock price volatility for Iteris of 55.48% based on an analysis of the historical stock price volatility of the Company and stock price volatility of 59.87% for the Russell 2000 Index based on the 2.75 years preceding the date of grant to conform to the term of the awards; and (e) initial TSR performance of 38.11% based on the actual historical TSR performance for the Company and the Russell 2000 Index. The valuation method resulted in each PSU being valued at $5.47 on June 30, 2020, the date of the grant, or 115.04% of the stock price on such date. The grant date fair values reflected in the table above for the NEOs reflect the one-third of the PSU award eligible to vest based on Fiscal 2021 performance, calculated by multiplying the $5.47 per share by one-third of the “target” number of PSUs. Assuming performance at the maximum level, the “maximum” grant date fair value of the one-third of the PSU award eligible to vest based on Fiscal 2021 performance, calculated by multiplying the $5.47 per share by one-third of the “maximum” number of PSUs, is as follows: $140,061 for Mr. Bergera; $45,397 for Mr. Groves; $31,777 for Mr. Kreter; and $31,777 for Mr. Massoumi. For the PSU awards granted during Fiscal 2022, such inputs consisted of: (a) an expected term that was based on the actual three-year term of the award; (b) a risk-free interest rate of 0.27% derived from the yield on U.S. government bonds of appropriate term from the U.S. Department of Treasury; (c) a dividend yield of 0.00% because we do not currently issue a dividend; (d) stock price volatility for Iteris of 56.82% based on an analysis of the historical stock price volatility of the Company and stock price volatility of 62.12% for the Russell 2000 Index based on the 2.81 years preceding the date of grant to conform to the term of the awards; and (e) initial TSR performance of 3.13% based on the actual historical TSR performance for the Company and the Russell 2000 Index. The valuation method resulted in each PSU being valued at $7.26 on June 10, 2021, the date of the grant, or 111.69% of the stock price on such date. The grant date fair values reflected in the table above for the NEOs reflect the one-third of the PSU award eligible to vest based on Fiscal 2022 performance, calculated by multiplying the $7.26 per share by one-third of the “target” number of PSUs. Assuming performance at the maximum level, the “maximum” grant date fair value of the one-third of the PSU award eligible to vest based on Fiscal 2022 performance, calculated by multiplying the $7.26 per share by one-third of the “maximum” number of PSUs, is as follows: $165,712 for Mr. Bergera; $60,258 for Mr. Groves; $42,181 for Mr. Kreter; and $42,181 for Mr. Massoumi. +For a discussion of valuation assumptions used in the calculations, see Note 10 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Annual Report on Form 10-K for Fiscal 2022. See also our discussion of stock-based compensation in Note 1 of Notes to Consolidated Financial Statements on page 52 in Part II, Item 8 in the Annual Report on Form 10-K for Fiscal 2022. +(3) The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established management objectives. These awards are discussed in further detail under “Fiscal 2022 Cash-Based Bonus Plan” above. +(4) Consists of 401(k) plan employer contributions paid by us. +(5) Mr. Groves was hired December 4, 2019 at an annual salary of $400,000. The Fiscal 2020 salary represents the amount earned by Mr. Groves from his hire date through the end of Fiscal 2020. +(6) Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. +(7) Consists of 401(k) plan employer contributions paid by us, as well as amounts paid pursuant to Mr. Massoumi's Severance Agreement (defined below), consisting of base salary of $70,770, COBRA reimbursement of $3,465, outplacement services of $2,500, and accrued paid time off of $46,777. See "Severance Agreement with Ramin Massoumi" under "Potential Payments upon Termination of Employment and Change in Control" below. +31 +TABLE OF CONTENTS +Fiscal 2022 Grant of Plan-Based Awards Table +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive compensation plan and our 2016 Omnibus Incentive Plan in Fiscal 2022, which constitute all of the plan-based awards granted to our named executive officers in Fiscal 2022. +Name Grant Date Description +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards (1) +Estimated Future Payouts Under +Equity Incentive Plan Awards (2) +All Other +Stock +Awards: +Number of +Shares of Stock or Units +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) (4) +Exercise +or Base +Price of +Option +Awards +($/share) +Grant Date +Fair Value +of Stock +and Option +Awards +($) (5) +Threshold +($) Target +($) Maximum +($) Threshold +($) Target +($) Maximum +($) +Joe Bergera 7/8/2022 Cash Bonus $ — $333,750 $600,750 $— $— $— $— $— $— $— +6/10/2021 PSU — — — — 11,413 22,826 — — — 82,858 +11/18/2021 RSU — — — — — — 24,900 +(3) +— — 124,500 +11/18/2021 Options — — — — — — — 100,000 5.00 260,320 +Douglas L. Groves 7/8/2022 Cash Bonus — 206,250 371,250 — — — — — — — +6/10/2021 PSU — — — — 4,150 8,300 — — — 30,129 +11/18/2021 RSU — — — — — — 12,450 +(3) +— — 62,250 +11/18/2021 Options — — — — — — — 50,000 5.00 130,160 +Todd Kreter 7/8/2022 Cash Bonus 165,000 297,000 — — — — — — — +6/10/2021 PSU — — — — 2,905 5,810 — — — 21,090 +11/18/2021 RSU — — — — — — 9,960 +(3) +— — 49,800 +11/18/2021 Options — — — — — — — 37,500 5.00 97,620 +Ramin Massoumi (6) +6/10/2021 PSU — — — — 2,905 5,810 — — — 21,090 +_______________________ +(1) Reflects the potential amount payable (not the actual amount payable) upon achievement of the management objectives described under the heading “Fiscal 2022 Cash-Based Bonus Plan” above. +(2) These PSUs were granted under the 2016 Omnibus Incentive Plan. The number of PSUs that are eligible to vest will be determined, in part, based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three- year performance period ending March 31, 2023. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will also depend, in part, on the Company’s rTSR relative to the Russell 2000 over the three-year performance period. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cashflow from operations objectives to be established by the Compensation Committee at the beginning of each year. The final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs . In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2022, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and amounts shown at “target” represent one-third of the total “target” number of PSUs granted during Fiscal 2022 at “target” levels. Named executive officers will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. T he vesting of equity awards held by the named executive officers is subject to each named executive officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +32 +TABLE OF CONTENTS +(3) These RSUs were granted under the 2016 Omnibus Incentive Plan and vest fifty-percent (50%) after two (2) years from the vesting commencement date, and fifty-percent (50%) after the third (3rd) year from the vesting commencement date, upon named executive officer’s completion of each year of continued service with the Company. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. +(4) All options vest in four equal installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Change in Control” below. +(5) The dollar amounts shown represent the grant date fair value of equity awards granted during the applicable fiscal year determined in accordance with ASC 718. With respect to the PSUs granted during Fiscal 2021 and Fiscal 2022, the number of PSUs that are eligible to vest will be determined based on average annual achievement relative to revenues per share and cash flow from operations objectives for each one-year period of the PSU awards’ three-year performance period. These revenues per share and cash flow from operations objectives will be set annually for each one-year performance period. In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2022, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and so the grant date fair value of the PSUs included in this column for Fiscal 2021 and Fiscal 2022 each represent the grant date fair value for one-third of the PSU award eligible to vest based on Fiscal 2021 performance and Fiscal 2022 performance, respectively. For a discussion of valuation assumptions used in the calculations, see footnote (1) to the Summary Compensation Table and Note 10 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2022. See also our discussion of stock-based compensation in Note 1 of Notes to Consolidated Financial Statements on page 52 in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2022. +(6) Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. Mr. Massoumi's PSUs were forfeited due to Mr. Massoumi's ceasing to serve as an employee of the Company. +33 +TABLE OF CONTENTS +Outstanding Equity Awards at 2022 Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2022. +Option Awards (1) +Stock Awards +Name Number of +Securities +Underlying +Outstanding +Options (#) +Exercisable Number of +Securities +Underlying +Outstanding +Options (#) +Unexercisable Option +Exercise +Price ($) Option +Grant +Date Option +Expiration +Date Number of Shares or Units of Stock That Have Not Vested +Market Value of Shares or Units of Stock That Have Not Vested (4) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested +J. Joseph (“Joe”) Bergera +Chief Executive Officer, President and Director +1,150,000 — $2.38 09/23/15 09/22/25 +150,000 — 4.91 03/03/17 03/02/27 +250,000 — 5.52 02/16/18 02/15/28 +168,750 56,250 4.16 12/10/18 12/09/28 +125,000 125,000 5.10 12/09/19 12/08/29 +34,375 103,125 4.80 11/16/20 11/15/30 +— 100,000 5.00 11/18/21 11/17/31 +63,308 (2) +188,658 (4) +72,646 (3) +216,485 (4) +Douglas L. Groves +Chief Financial Officer, Senior Vice President of Finance and Secretary +100,000 100,000 4.92 12/04/19 12/03/29 +12,500 37,500 4.80 11/16/20 11/15/30 +— 50,000 5.00 11/18/21 11/17/31 +24,899 (2) +74,199 (4) +24,899 (3) +74,199 (4) +Todd Kreter (2) +Senior Vice President and General Manager of Advanced Sensor Technologies +75,000 — 4.91 03/03/17 03/02/27 +75,000 — 5.52 02/16/18 02/15/28 +45,000 15,000 4.16 12/10/18 12/09/28 +35,000 35,000 5.10 12/09/19 12/08/29 +8,750 26,250 4.80 11/16/20 11/15/30 +— 37,500 5.00 11/18/21 11/17/31 +18,674 (2) +55,649 (4) +17,429 (3) +51,938 (4) +Ramin Massoumi (5) +Senior Vice President and General Manager, Consulting Solutions +75,000 — 4.91 03/03/17 03/02/27 +75,000 — 5.52 02/16/18 02/15/28 +44,999 15,001 4.16 12/10/18 12/09/28 +35,000 17,500 5.10 12/09/19 12/08/29 +8,750 8,750 4.80 11/16/20 11/15/30 +4,357 (2) +12,984 (4) +_______________________ +(1) All options vest in four equal annual installments following the date of grant. The vesting of equity awards held by the named executive officers is subject to each officers continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Change in Control” below. +34 +TABLE OF CONTENTS +(2) Each RSU represents the right to receive one share of our common stock if vesting is satisfied. These RSUs were granted under the 2016 Omnibus Incentive Plan and vest fifty-percent (50%) after two (2) years from the vesting commencement date, and fifty-percent (50%) after the third (3rd) year from the vesting commencement date, upon named executive officer’s completion of each year of continued service with the Company. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Changing in Control” below. Vested shares are issued as soon as practicable after the applicable vesting date. +(3) Each PSU represents the right to receive one share of our common stock if vesting is satisfied. The number of PSUs that vest at the end of the three-year performance period ending March 31, 2023 will depend, in part, on the Company’s average revenues per share and cash flow from operations performance during the three-year performance period and, in part, on the Company’s rTSR relative to the Russell 2000 over the three-year performance period. Executives will receive payment with respect to the PSUs, in the form of shares of the Company’s common stock, at the conclusion of the performance period, upon establishment of final performance results. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company’s rTSR relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the “target” number of PSUs. The PSUs are reflected in the table above at “target” performance levels. The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “Potential Payments upon Termination of Employment and Change in Control” below. +(4) The dollar value is based on the closing sales price of our common stock on the last business day of Fiscal 2022, $2.98. +(5) Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. Pursuant to his Severance Agreement (defined below), all of Mr. Massoumi's outstanding options will continue vesting for up to twelve (12) months from the date he ceased his employment with the Company in consideration of making himself available for consulting services during such period. See "Iteris, Inc. Executive Severance Plan" under "Potential Payments upon Termination of Employment and Change in Control" below. +Fiscal 2022 Option Exercises and Stock Vesting Table +The following table provides information regarding option exercises of awards held by the named executive officers during Fiscal 2022. +Option Awards +Name Number of Shares Acquired on Exercise (#) +Value Realized on Exercise ($) (1) +Joe Bergera 84,915 $393,306 +Douglas L. Groves — — +Todd Kreter 49,829 229,184 +Ramin Massoumi (2) +— — +(1) Value realized is determined by multiplying (i) the amount by which the market price of a common share on the date of exercise exceeded the exercise price by (ii) the number of shares for which the options were exercised. +(2) Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. +Non-Qualified Deferred Compensation for Fiscal 2022 +Deferred Compensation Plan. Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of nonemployee members of our Board of Directors. Key employees, including our executive officers, and our nonemployee directors who are notified regarding their eligibility to participate and delivered the DC Plan enrollment materials are eligible to participate in the DC Plan. Under the DC Plan, we will provide participants with the opportunity to make annual elections to defer up to 75% of their base salary, up to +35 +TABLE OF CONTENTS +100% of their annual bonus, and up to 100% of any RSU or PSU awards. Our nonemployee directors may elect to defer up to 100% of their eligible cash compensation and equity awards. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. +Elective deferrals of equity awards are credited to a bookkeeping account established in the name of the participant with respect to an equivalent number of shares of our common stock, and such credited shares are subject to the same vesting conditions as are applicable to the equity award subject to the election. The Company established a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on participants, and the assets held within this trust are subject to the claims of the Company’s creditors. +Under the DC Plan, we will be obligated to deliver on a future date deferred cash compensation credited to the participant’s account, adjusted for any positive or negative investment results from the investment alternatives selected by the participant under the DC Plan, or with respect to deferrals of equity awards, an issuance of shares of our common stock. These obligations are unfunded, unsecured general obligations of the Company and rank in parity with other unsecured and unsubordinated indebtedness of us, subject to the claims of our general creditors. However, deferrals of equity awards under the DC Plan are deemed rights to receive an issuance of our common stock and may not be deemed allocated to any investment fund. +A participant’s rights under the Plan are not transferable except upon death of the participant. +With respect to the portion of the bookkeeping account allocated to an investment fund, each account will be payable in cash. The portion of the bookkeeping account allocated to deferrals of equity awards will be payable in an issuance of shares of our common stock. +Payments will be distributed in connection with either the participant’s separation of service or a selected specified distribution date or dates, depending upon the distribution election made by the participant at the time of deferral. However, if a participant’s service with us terminates prior to the selected specified distribution date or dates, payment will instead be made or commence in connection with such separation from service. A participant’s account balance may be distributed in a lump sum or, if elected by a participant, in up to 15 substantially equal installments (up to 5 annual installments for any distributions in respect of equity award accounts); however, any distribution upon a separation from service prior to attaining age 55 will be paid in a lump sum, regardless of the payment timing elected. If a participant’s service terminates with us due to death, all of a participant’s accounts will become immediately payable in a single lump sum. In addition, participants may be entitled to receive payments through certain unforeseeable emergency withdrawals. Payments scheduled to be made under the Plan may be otherwise delayed or accelerated only upon the occurrence of certain specified events that comply with the requirements of Section 409A of the Code. +A committee appointed by our board of directors administers the Plan. We can amend or terminate the Plan at any time, but no such action shall unilaterally reduce a participant’s account balance without his or her consent prior to the date of such action. However, we may adopt any amendments to the Plan that we deem necessary or appropriate to preserve the intended tax treatment of the Plan benefits or to otherwise comply with the requirements of Section 409A of the Code and related guidance. +The following table shows the non-qualified deferred compensation activity for each named executive officer during Fiscal 2022. +Name +Executive Contributions in Last Fiscal Year ($) (1) +Aggregate Earnings in Last Fiscal Year (2) +Aggregate Withdrawals /Distributions ($) Aggregate Balance at Last Fiscal Year End ($) +Joe Bergera $89,655 $(534) $— $89,121 +Douglas L. Groves 426,995 (303) — 426,692 +Todd Kreter — — — — +Ramin Massoumi (3) +37,490 (540) — 36,950 +1. Amounts included in the Summary Compensation Table in the “Salary” and “Non-Equity Incentive Plan Compensation” columns for Fiscal 2022. +2. No above market or preferential earnings are provided under the DC Plan because the investment choices available under such plans are identical to the investment choices available in the 401(k) Plan, which is a qualified plan. Consequently, none of the earnings reported in this table are included in the Summary Compensation Table set forth above. +36 +TABLE OF CONTENTS +3. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. +The DC Plan provides investment options amongst which participants make investment allocations that provide the basis on which gains and losses are attributed to account balances under the plan, and such options may change from time to time. The investment options under the DC Plan and their rates of return for the period from April 1, 2021 through March 31, 2022, which represents the period of time during which cash deferrals were first deferred under the DC Plan. +Name of Investment Option Rate of Return (%) +AB Discovery Growth Fund I (18.19) % +AB Large Cap Growth Fund Class Z (12.59) % +American Balanced Fund Class R6 (3.94) % +American Century Midcap Val I 2.39 % +American EuroPacific Growth R6 (12.24) % +American New Perspective (9.96) % +Dodge & Cox Stock Fund 1.01 % +Invesco Developing Markets Fund R6 (15.68) % +Janus Henderson Triton Fund I (9.47) % +JP Morgan Mid Cap Val Fund R6 (0.96) % +Principal Real Estate SEC Fund I (5.19) % +T. Rowe Price 2005 Retirement I (4.53) % +T. Rowe Price 2010 Retirement I (4.75) % +T. Rowe Price 2015 Retirement I (4.82) % +T. Rowe Price 2020 Retirement I (4.98) % +T. Rowe Price 2025 Retirement I (5.37) % +T. Rowe Price 2030 Retirement I (5.92) % +T. Rowe Price 2035 Retirement I (6.28) % +T. Rowe Price 2040 Retirement I (6.60) % +T. Rowe Price 2045 Retirement I (6.75) % +T. Rowe Price 2050 Retirement I (6.76) % +T. Rowe Price 2055 Retirement I (6.74) % +T. Rowe Price 2060 Retirement I (6.74) % +T. Rowe Price Retirement Bal I (4.28) % +Vanguard 500 Index Fund (4.61) % +Vanguard Grow And Inc Fund (3.90) % +Vanguard Small Cap Index Fund (5.74) % +Vanguard Total Int Stock Index (6.08) % +Victory Sycamore Small Comp R6 (4.77) % +Fidelity Advisor Gov't Income M (5.51) % +Loomis Sayles Core Plus Cl N (5.36) % +PIMCO Real Return Fund Cl Inst (3.03) % +Templeton Global Bond Fund R6 1.14 % +Goldman Sachs Stable Value Ct 0.31 % +Potential Payments upon Termination of Employment and Change in Control +The Company does not have any employment agreements or change in control arrangements in effect with any of our named executive officers other than the agreements described below. In addition, our NEOs may be eligible for certain payments upon a +37 +TABLE OF CONTENTS +termination or a change in control under the DC Plan, as further described above under “Non-Qualified Deferred Compensation for Fiscal 2022.” +Equity Award Vesting +The plan administrator of the 2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a termination of employment or upon a change in control, but our equity plans do not provide for any automatic “single trigger” acceleration of equity awards upon a change in control. +Options granted to our named executive officers are eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability, a pro-rata portion of the options shall vest on the date of such termination. In addition, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), in each case within eighteen (18) months following the effective date of a change in control, then such additional number of options shall vest as of the date of termination as is equal to the number of options as would have vested during the two (2) year period following the date of termination had the executive remained employed by us or our successor during such period. +RSUs granted to our named executive officers are eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability, a pro-rata portion of the RSUs shall vest on the date of such termination. In addition, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), in each case within eighteen (18) months following the effective date of a change in control, then such additional number of RSUs shall vest as of the date of termination as is equal to the number of RSUs as would have vested during the two (2) year period following the date of termination had the executive remained employed by us or our successor during such period. +PSUs granted to our named executive officers are also eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability prior to a change in control, a pro-rata portion of the PSUs shall vest on the date of such termination based on our actual performance relative to the performance metrics applicable to the PSUs through such date. Upon a change in control, a number of PSUs will remain eligible to vest on the last day of the three-year performance period as is determined based on our actual performance relative to the performance metrics applicable to the PSUs through the date of such change in control, subject to the executive’s continued employment through such date. However, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), or in the event of an executive’s termination due to death or permanent disability in each case within eighteen (18) months following the effective date of the change in control, then such additional number of PSUs shall vest as of the date of termination as is equal to the number of PSUs as would have vested during the two-year period following the date of termination had the executive remained employed by us or our successor during such period. +Iteris, Inc. Executive Severance Plan +The Iteris, Inc. Executive Severance Plan (the “Severance Plan”) was adopted on February 5, 2018 and amended and restated effective on June 4, 2019 (the “Severance Plan”). Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Exchange Act, and who is not otherwise covered by an employment agreement that includes severance terms (the “Eligible Employees”), is eligible to receive severance payments under the Severance Plan upon certain qualifying terminations of employment. +The Severance Plan provides Eligible Employees with severance payments in the event that an Eligible Employee’s employment with the Company or its subsidiaries is terminated either (a) by the Company without Cause not in connection with a Change in Control (“Non-CIC Qualifying Termination”) or (b) if in connection with or within 12 months following a Change in Control, which, for Eligible Employees employed by that business, includes a divestiture of a material business, by the Eligible Employee for Good Reason (as such terms are defined in the Severance Plan) or by the Company without Cause (a “CIC Qualifying Termination”). +Non-CIC Qualifying Termination. Upon a Non-CIC Qualifying Termination, an Eligible Employee will receive the following: +• A cash payment equal to the Eligible Employee’s annual base salary, payable in substantially equal installment payments over the one-year period following termination, in accordance with the Company’s normal payroll practices; and +• Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination or until the Eligible Employee receives substantially similar medical coverage from another employer. +• CIC Qualifying Termination. Upon a CIC Qualifying Termination, an Eligible Employee will receive the following: +38 +TABLE OF CONTENTS +• A cash payment equal to the Eligible Employee’s annual base salary, payable in a lump sum on the next payroll date after the 61 st day following termination; and +• Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination, or until the Eligible Employee receives substantially similar medical coverage from another employer. +The severance payments are subject to the Eligible Employee’s execution of a severance agreement within 60 days following termination that includes a release of claims and certain non-solicitation, confidentiality, and non-disparagement restrictions. +The Company may amend or terminate the Severance Plan at any time by providing at least 90 days’ advance written notice to each Eligible Employee, provided that no such amendment or termination that has the effect of reducing or diminishing the right of any Eligible Employee will be effective unless one year’s advance written notice is provided to Eligible Employees, and such amendment or termination will not be effective if a Change in Control occurs during the one-year notice period. +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, 2015, pursuant to which Mr. Bergera will receive an annual base salary of $385,000, which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera will also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board. The agreement renews for successive one-year periods until September 2025 unless either we or Mr. Bergera provide written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +If Mr. Bergera’s employment with the Company is terminated without Cause (as such term is defined in the agreement) during the term of the agreement, Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are defined in the agreement) (such termination or resignation, a “CIC Termination”), Mr. Bergera will be entitled to receive (i) a lump sum payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the CIC Termination occurs, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the CIC Termination. In addition, upon termination of his employment due to death, Mr. Bergera’s estate or beneficiaries will be entitled to receive a lump sum payment in the aggregate equal to 50% of his then current base salary. +Severance Agreement with Ramin Massoumi +On December 30, 2021, in connection with Mr. Massoumi’s departure, the Company and Mr. Massoumi entered into a severance and release agreement (the “Severance Agreement”). Pursuant to the Severance Agreement, the Company agreed to pay to Mr. Massoumi a severance package consisting of the following (i) Mr. Massoumi’s base salary of currently approximately $287,500, less applicable taxes and withholding, paid in equal installments for a 12-month period in accordance with the Company’s normal payroll practices, (ii) COBRA premiums reimbursement for up to a 12-month period, and (iii) continued vesting of all outstanding Company equity awards for up to 12 months in consideration of making himself available for consulting services during such period. +39 +TABLE OF CONTENTS +Potential Payments upon Termination of Employment and Change in Control Table +The following table illustrates an estimated amount of compensation or other benefits potentially payable to each of our named executive officers as of March 31, 2022 that could be triggered upon termination of such named executive officer’s employment under various scenarios. We have assumed that all salary payments or any expenses the executive may be due have been paid currently. The amounts shown assume that such termination (and in the case of a change in control, the change in control) was effective as of March 31, 2022, and, therefore, are estimates of the amounts that would have been paid to such named executive officers upon their termination. The value of equity award acceleration reflected in the table below was calculated using the closing price of $2.98 per share of our common stock on March 31, 2022. The value for option awards is calculated as the difference between the closing price of our common stock of $2.98 on March 31, 2022 and the exercise price per share of the award multiplied by the number of shares vesting. Actual amounts to be paid can only be determined at the time of such named executive officer’s termination from the Company. These benefits do not include any amounts with respect to fully vested benefits under the DC Plan, which are described above under “Non-Qualified Deferred Compensation for Fiscal 2022” or our 401(k) Plan. +No Change in Control Change in Control +Termination Without Cause or for Good Reason ($) Death ($)(1) Disability ($)(2) Termination Without Cause or for Good Reason ($) +Death ($) (1) +Disability ($) (2) +Joe Bergera +Cash Severance (3) $778,750 $222,500 $111,250 $890,000 $222,500 $111,250 +Medical Benefits (4) 13,048 13,048 13,048 13,048 13,048 13,048 +Equity Award Acceleration (5) — 143,849 143,849 405,143 368,042 368,042 +Estimated Total $791,798 $379,397 $268,147 $1,308,191 $603,590 $492,340 +Douglas L. Groves +Cash Severance (3) $412,500 $— $— $412,500 $— $— +Medical Benefits (4) 13,858 — — 13,858 — — +Equity Award Acceleration (5) — 49,554 49,554 148,398 129,848 129,848 +Estimated Total $426,358 $49,554 $49,554 $574,756 $129,848 $129,848 +Todd Kreter +Cash Severance (3) $300,000 $— $— $300,000 $— $— +Medical Benefits (4) 8,231 — — 8,231 — — +Equity Award Acceleration (5) — 35,138 35,138 111,297 92,747 92,747 +Estimated Total $308,231 $35,138 $35,138 $419,528 $92,747 $92,747 +1. Only Mr. Bergera is entitled to cash termination benefits upon death. Amount includes 50% of Mr. Bergera’s annual base salary payable under his employment agreement. Each named executive officer is also eligible for certain accelerated vesting of outstanding equity awards in the event of death or permanent disability, as described in the narrative preceding this table. +2. Only Mr. Bergera is entitled to cash termination benefits upon Disability (as defined in Mr. Bergera’s employment agreement). Amounts assume continuation of base salary and benefit continuation coverage by Mr. Bergera for a total of one hundred twenty (120) days. +3. Calculation of cash severance benefits for the various termination scenarios is described in the narrative preceding this table. Only Mr. Bergera is entitled to a pro-rated portion of his target bonus established by the Compensation Committee. +4. Calculated based on the premiums payable to elect benefit continuation coverage by the named executive officer pursuant to COBRA for twelve (12) months and for the actual level of group medical, dental and vision coverage in effect as of March 31, 2022. +5. Each named executive officer is also eligible for certain accelerated vesting of outstanding equity awards in the event of a termination without cause or resignation for good reason within 18 months following a change in control as described in the narrative preceding this table. The acceleration of outstanding PSUs held by our named executive officers was assumed to be at “target” levels for purposes of the foregoing tables. +40 +TABLE OF CONTENTS +Indemnification of Directors and Officers +Under Section 145 of the Delaware General Corporation Law, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, and our bylaws require us to advance litigation expenses upon receipt of an undertaking by the director or officer. If it is ultimately determined that the director or officer is not entitled to indemnification, the director or officer is required to repay such advances. The bylaws further provide that rights conferred under such bylaws do not exclude any other right such persons may have or acquire under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. +Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. +We have entered into agreements to indemnify certain of our directors and officers in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things, indemnify such directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in the right of the Company, on account of services as a director or officer of Iteris, or as a director or officer of any other company or enterprise to which the person provides services at our request. +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information as of March 31, 2022 regarding shares of our common stock that may be issued under our equity compensation plans, including the 2007 Omnibus Incentive Plan, the 2016 Omnibus Incentive Plan, ESPP and the Inducement Plan. Other than the Inducement Plan, each of these plans has been approved by our stockholders. +Plan Category (a) +Number of Securities to be +Issued Upon Exercise of +Outstanding Options, +Warrants and Rights (b) +Weighted Average +Exercise Price of +Outstanding Options, +Warrants and Rights (c) +Number of Securities +Remaining Available +for Future Issuance +Issuance Under Equity +Compensation Plans +(Excluding Securities +Reflected in Column (a)) +Equity compensation plans approved by +security holders +6,310,782 +(1) +$ 4.08 3,891,780 +(2) +Equity compensation plans not approved by +security holders (3) +179,914 $ 2.98 120,086 +_______________________ +(1) Includes 5,847,269 shares subject to outstanding stock option awards, 429,084 shares subject to outstanding RSU awards and 114,974 shares subject to outstanding PSUs (at “target” performance levels), as of March 31, 2022. +(2) Includes 625,004 shares remaining available for issuance under the ESPP as of March 31, 2022, of which 625,004 shares were eligible to be purchased pursuant to the offering period in effect on such date. +(3) On December 4, 2020, the Board of Directors approved the Inducement Plan in conjunction with the TrafficCast acquisition. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. +The Board initially reserved 300,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board or any parent or +41 +TABLE OF CONTENTS +subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. No future awards will be issued under the Inducement Plan. +42 +TABLE OF CONTENTS +PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of Deloitte & Touche LLP (“Deloitte”) has been engaged by our Audit Committee to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2023. Deloitte has been our principal independent registered public accounting firm since October 2015. Information regarding the services provided to us by Deloitte during Fiscal 2022 and Fiscal 2021 is set forth below under the heading entitled “Matters Related to Independent Registered Public Accounting Firm.” +We are asking our stockholders to ratify the selection by the Audit Committee of Deloitte as our independent registered public accounting firm to audit our consolidated financial statements for Fiscal 2023 and to perform other appropriate services. Although stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the appointment of Deloitte to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance and to provide a means by which our stockholders may communicate their opinion to the Audit Committee. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of the Company and our stockholders. +A representative of Deloitte is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Vote Required +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Deloitte as our independent registered public accounting firm for Fiscal 2023. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for Fiscal 2023 . +43 +TABLE OF CONTENTS +M ATTERS R ELATED TO I NDEPENDENT R EGISTERED P UBLIC A CCOUNTING F IRM +Fees Paid to Independent Registered Public Accounting Firm +The following table sets forth the fees we have paid to Deloitte in the following categories and amounts during Fiscal 2022 and Fiscal 2021: +Year Ended March 31, +Fee Category 2022 2021 +Audit fees $1,028,214 $1,010,220 +Audit related fees 43,895 91,985 +Tax fees — — +All other fees — — +Total fees $1,072,109 $1,102,205 +Audit Fees. Audit fees consist of fees billed for professional services rendered in connection with the audit of our overhead rate and the audit of our annual consolidated financial statements for the applicable fiscal year and review of our consolidated financial statements included in our quarterly reports on Form 10-Q, Annual Report on Form 10-K (and 10-K/A) and other regulatory filings for such fiscal year. +Audit Related Fees. Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reporting under “Audit Fees.” Audit related fees for Fiscal 2022 were related to the review of our registration statements on Form S-3 and Form S-8 and a subscription to Deloitte’s Accounting Research Tool. Audit related fees for Fiscal 2021 were related to the TrafficCast acquisition and the review of our registration statements on Form S-8 and Form S-3 and a subscription to Deloitte’s Accounting Research Tool. +Tax Fees. Tax fees consist of fees were billed for professional services for tax compliance, tax advice and tax planning. There were no tax fees billed by Deloitte for Fiscal 2022 or Fiscal 2021. +All Other Fees. There were no fees billed by Deloitte in Fiscal 2022 or Fiscal 2021 for any other services. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis, non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by Deloitte for Fiscal 2022 and Fiscal 2021. +The Audit Committee reviewed and discussed the services rendered by Deloitte during Fiscal 2022, as well as the fees paid for such services, and has determined that the provision of such services by Deloitte, and the fees paid for such services, were compatible with maintaining Deloitte’s independence. +Audit Committee Report +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2022 i ncluded in the Annual Report. +Our management is responsible for the Company’s financial reporting process, including its systems of internal control over financial reporting, and for the preparation of its financial statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles (“GAAP”) and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee these financial processes on behalf of the Board. +The members of the Audit Committee are not employees of Iteris and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct auditing or accounting reviews or procedures. Therefore, in performing the Audit Committee’s oversight role, the Audit Committee necessarily must rely on management’s representations that it has maintained appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations, and that the Company’s financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the representations of our independent registered public accounting firm included in its reports on the Company’s financial statements. +44 +TABLE OF CONTENTS +In this context, the Audit Committee hereby reports as follows: +1. The Audit Committee has reviewed and discussed our consolidated audited financial statements with our management. +2. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). +3. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence. +4. Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board, and the Board approved, that the consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2022 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gerard M. Mooney +Laura L. Siegal +Dennis W. Zank (Chairman) +The information contained in the foregoing Audit Committee Report is not “soliciting material” and is not deemed filed with the SEC. Such report is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof, and irrespective of any general incorporation language in any such filing. +45 +TABLE OF CONTENTS +S TOCK O WNERSHIP OF C ERTAIN B ENEFICIAL O WNERS AND M ANAGEMENT +The following table sets forth, as of July 12, 2022, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner (1) +Amount and Nature +of Beneficial +Ownership (2) +Percent of +Class (2) +Samjo Capital, LLC, Samjo Management, LLC and Andrew N. Wiener (3) +2,534,000 6% +Cowen Prime Advisors LLC (4) +2,349,950 5.5 +Joe Bergera (5) +1,980,841 4.7 +Douglas L.Groves (6) +133,598 * +Todd Kreter (7) +272,361 * +Ramin Massoumi (8) +300,920 * +Gerard M. Mooney (9) +67,982 * +Laura L. Siegal (10) +57,041 * +Thomas L. Thomas (11) +205,042 +Dennis W. Zank (12) +39,049 +All executive officers and directors as a group (8 persons) (13) +3,056,834 7.2% +_______________________ +* Less than 1%. +(1) The address of each of the directors and officers is 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746 . +(2) Based on 42,577,415 shares of common stock outstanding as of July 12, 2022. Shares of common stock subject to options or warrants which are exercisable within 60 days of July 12, 2022 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) plan. +(3) Pursuant to a Schedule 13G filed on February 7, 2022 with the SEC, Samjo Capital, LLC reported that through the following beneficial owners the following voting power: (1) Samjo Capital, LLC has shared voting power with respect to 2,525,000 shares, (2) Samjo Management, LLC has shared voting power with respect to 2,525,000 shares, and (3) Andrew N. Wiener has shared voting power with respect to 2,525,000 shares, sole voting power with respect to 9,000 shares, and sole dispositive power with respect to 9,000 shares. Mr. Wiener is the sole Managing Member of Samjo Capital, LLC and Samjo Management, LLC. The address for Samjo Capital, LLC is 599 Lexington Avenue, 27th Floor, New York, NY 10022. +(4) Pursuant to a Schedule 13G filed on February 9, 2022 with the SEC, Cowen Prime Advisors LLC reported that, through its various clients, it has shared dispositive power with respect to 2,349,950. The address for Cowen Prime Advisors is 599 Lexington Avenue, Floor 21, New York, NY 10022. +(5) Consists of (i) 102,716 shares held directly by Mr. Bergera and (ii) 1,878,125 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 12, 2022. +(6) Consists of (i) 15,000 shares held in a trust, of which Mr. Groves is a trustee, (ii) 6,098 shares held in the ESPP, and (iii) 112,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 12, 2022. +(7) Consists of (i) 33,303 shares held directly by Mr. Kreter, (ii) 308 shares held in an individual retirement account by Mr. Kreter, and (iii) 238,750 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 12, 2022. +(8) Consists of (i) 27,996 shares held directly by Mr. Massoumi, (ii) 31,624 shares held in a trust, of which Mr. Massoumi is a trustee, (iii) 2,551 shares are held in Mr. Massoumi’s 401(k) plan, and (iv) 238,749 shares issuable upon exercise of options +46 +TABLE OF CONTENTS +that are currently exercisable or will become exercisable within 60 days after July 12, 2022. Mr. Massoumi ceased to serve as our Senior Vice President and General Manager, Consulting Solutions on December 31, 2021. +(9) Consists of (i) 53,357 shares held directly by Mr. Mooney and (ii) 14,625 shares subject to RSUs that vest within 60 days after July 12, 2022. +(10) Consists of (i) 42,416 shares held directly by Ms. Siegal and (ii) 14,625 shares subject to RSUs that vest within 60 days after July 12, 2022. +(11) Consists of (i) 73,271 shares held directly by Mr. Thomas, (ii) 117,146 shares held by Mr. Thomas’s Trust, and (iii) 14,625 shares subject to RSUs that vest within 60 days after July 12, 2022. +(12) Consists of (i) 24,424 shares held directly by Mr. Zank and (ii) 14,625 shares subject to RSUs that vest within 60 days after July 12, 2022. +(13) Includes (i) 2,468,124 shares issuable upon exercise of options held by the executive officers and directors as a group that are currently exercisable or will become exercisable within 60 days after July 12, 2022 and (ii) 58,500 shares subject to RSUs held by the executive officers and directors as a group that vest within 60 days of July 12, 2022. +47 +TABLE OF CONTENTS +E NVIRONMENTAL, S OCIAL, G OVERNANCE AND R ELATED M ATTERS +We believe that leadership in ethical, environmental, social, governance and related matters will have a positive impact on our business, employees, customers and communities we serve. Accordingly, we adopted policies that help us to implement these standards. +Code of Ethics and Business Conduct +Our Board has adopted a Code of Ethics and Business Conduct (“Code of Ethics”), which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. We will also provide an electronic or paper copy of the Code of Ethics, free of charge, upon request made to our Corporate Secretary. If any substantive amendments are made to our Code of Ethics, or if any waiver (including any implicit waiver) of any provision of the Code of Ethics is granted that is required to be disclosed under the rules of the SEC, such amendment or waiver will be disclosed at the same location on our website, or, if required, in a current report on Form 8-K. +In March 2022, our Board adopted updates to our Code of Ethics to empower our directors, officers and employees to be responsible for carrying out and monitoring compliance to our Code of Ethics by reporting known or suspected illegal or unethical behavior without retaliation. Directors and officers are to report such behaviors to the Chair of our Audit Committee and employees (not directors or officers) are to report such behaviors to our Board of Directors or appropriate management representative. Complaints, concerns or questions pertaining to accounting, internal accounting controls or auditing matters, or financial fraud, securities fraud or other securities law violations are to be reported to our Board of Directors or to members of our Audit Committee. Additional methods to anonymously report these behaviors is provided in our Code of Ethics, which is staffed by a third-party company operating 24 hours a day, 7 days a week. We have a policy of non-retaliation and abide by federal and state laws providing legal protection to certain types of whistleblowers. We believe our Code of Ethics help foster an ethical workplace and culture of integrity as well as promote the high standards of ethical conduct we value. +Environmental, Social and Governance Practices +Environmental, social and governance (“ESG”) practices are becoming increasingly important to our stockholders, customers, and employees and our Board supports Iteris in pursuing thriving communities. In June 2020, our Board adopted an Environmental Policy Statement and Human Rights Policy to further our commitment to continually improve how Iteris operates. In January 2022, our Board expanded the Environmental Policy Statement by ratifying its support of environmental goals of the United Nations Global Compact. In November 2020, our Board ratified our Occupational Health and Safety Policy Statement to support safety practices and maintaining a healthy work environment. In December 2020, our Board ratified our Policy Statement Against Trafficking in Persons and Slavery to instill a climate of full compliance with laws concerning prohibitions of trafficking in persons, including implementing a standard annual mandatory training program on anti-slavery and human trafficking to employees. In November 2021, our Board ratified updates to the Policy Statement Against Trafficking in Persons and Slavery by adding onboard and bi-annual training programs and awareness education and initiatives, including how to identify signs of violations of human rights, such as slavery and human trafficking. In addition to and among other updates, Iteris is committed to respecting the rights of all people, with a careful focus on marginalized or underrepresented groups, including women, people with disabilities, and racial or ethnic minorities. In addition to the foregoing, it is our intent to further our commitment by conducting regular climate risk assessments in support of disclosure, such as any potential various natural disasters. The full text of our Environmental Policy, Human Rights Policy, Occupational Health and Safety Policy, and Statement Against Trafficking in Persons and Slavery are available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +As a global leader in smart mobility infrastructure management, we work with public and private-sector partners to increase the efficiency of mobility, which has the benefit of reducing carbon emissions, all as part of our commitment to a cleaner, healthier and more sustainable future. By reducing delays and stops as part of traffic signal timing projects, improving the efficiency of public transit via signal priority programs, reducing time spent roadside for heavy-emitting commercial freight vehicles during inspection, to name just a few examples, our industry-leading portfolio of smart mobility infrastructure management solutions is currently helping cities and states to reduce their carbon footprint. In February 2022, we released a Sustainability White Paper to illustrate our commitment to the advancement of the transition to carbon-free mobility in our services and solutions. The full text of our Sustainability White Paper is available under the “Overview” heading on the Investor Relations section of our website at www.iteris.com. +48 +TABLE OF CONTENTS +In March 2022, we released our Fiscal 2022 ESG Report in response to feedback from our investors and other stakeholders. Our Fiscal 2022 ESG Report provides information about our key ESG principles, including environmental stewardship, social responsibility in people and culture, and excellence in corporate governance. The full text of our Fiscal 2022 ESG Report is available under the “Overview” heading on the Investor Relations section of our website at www.iteris.com. +Supply Chain Responsibility +We are committed to advancing supply chain responsibility by reducing risk, improving product quality, and raising overall performance of our suppliers. In furtherance of this commitment, in December 2020 our Board ratified our Conflict Minerals Policy Statement to support preventing profits from the sale of tantalum, tin, tungsten, and gold from funding conflict in the Democratic Republic of the Congo and adjoining countries. The full text of our Conflict Minerals Policy Statement is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +Diversity and Inclusion +Consistent with our core values, we promote diversity and inclusion in every aspect of our business. We are an equal opportunity employer and make employment decisions on the basis of merit. We are focused on being an employer of choice of all talent, where employees feel like they belong. We administer all phases of our employment practices without regard to race, ethnicity, religious creed, color, national origin, ancestry, disability, sex, gender, gender identity, gender expression, sexual orientation, transgender identity, age, military or veteran status, or any other consideration made unlawful by law. Additionally, as a contractor for the United States Government, we develop and implement an affirmative action plan to (1) assess our inclusion of women, members of minority groups, protected veterans, and individuals with disabilities into our workforce, (2) establish goals for increased inclusion and (3) implement strategies to reach those goals. In furtherance of these values, our Board has adopted the Diversity and Inclusion Policy to promote encourage, and develop our employees to their full potential and utilize their unique talents. The full text of our Diversity and Inclusion Policy is available under the “Corporate Governance” heading on the Investor Relations section of our website at www.iteris.com. +In furthering the Diversity and Inclusion Policy, we are committed to provide transparent disclosure with the goal to increasing gender and ethnic/racial diversity throughout the Company, including among our leadership ranks. The Company intends to continue monitoring women and racial and ethnic minorities in order to track its trend over time and enable our stockholders to track the progress that we make in advancing diversity in our workforce. At the conclusion of Fiscal 2022, women represented 30% of our total employee base and 27% of our management and executive employee base. Racial and ethnic minorities represented 40% of our total employee base and 36% of management and our executive employee base. +Investment in our Employees +There are several programs we implemented and maintain for the financial and educational well-being of our employees and their families. For example, we have an Employee Stock Purchase Plan (“ESPP”), which provides employees with the opportunity to share in the ownership of Iteris and its performance through the purchase of shares of the Company’s stock. ESPP allows eligible employees to accumulate contributions through after-tax payroll deductions to purchase shares of Iteris stock at a 5% discount. Our 401(k) plan has an 93.0% participation rate among eligible employees, with annual training and monthly educational sessions held at each Iteris location. +We continue to invest in employee development and engagement for the benefit of our employees and Iteris. For example, we offer a comprehensive training program that includes online, on-demand training; classroom-based technical training and certification; and classroom-based leadership training and individualized coaching. The leadership training and individualized coaching is facilitated by an independent management consulting firm. In Fiscal 2022, there were 15 graduates from the leadership training and coaching program, and we anticipate a similar number of graduates in Fiscal 2023. We track various metrics, including employee retention to measure the impact of our employee development and engagement programs. Therefore, we are voluntarily disclosing, and currently plan to continue to disclose going forward, the Company's turnover rate metric to routinely track and guide the Company's retention activities, as necessary. The Company's total turnover rate for Fiscal 2022 was 23.5% and the turnover rate of our professional staff was 18%. +49 +TABLE OF CONTENTS +A DDITIONAL M ATTERS +Certain Transactions with Related Persons +Since April 1, 2021, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Annual Report +A copy of our Annual Report, including our Annual Report on Form 10-K for Fiscal 2022, accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of our Annual Report on Form 10-K and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, Texas 78746. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +Delivery of Documents to Stockholders Sharing an Address +Some street name holders of our common stock may be “householding” our proxy statements and annual reports, which means that we will deliver only one copy of our proxy statement and annual report to multiple stockholders who share the same address (if they appear to be members of the same family), unless we have received instructions to the contrary. This procedure reduces our printing and mailing costs and related fees. Upon request, we will promptly deliver a separate copy of either document to you if you write us at our corporate offices at Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746, Attention: Corporate Secretary, Telephone: (512) 716-0808. You may also contact us or your Nominee if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Deadline for Receipt of Stockholder Proposals +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholder proposals may be eligible for inclusion in our proxy statement for the 2023 Annual Meeting of Stockholders (the “2023 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2023 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than March 17, 2023. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the proposal or nomination must be received by us on or between May 11, 2023 and June 10, 2023. If the date of the 2023 Annual Meeting of Stockholders is called for a date that is not within 30 days before or after the anniversary date of the 2022 Annual Meeting of Stockholders, then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +In addition, with respect to any proposal that a stockholder presents at the 2023 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our Corporate Secretary, at our principal executive offices at 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746. It is recommended that stockholders submitting proposals direct them to our Corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2022 Annual Meeting reserves the right to reject, rule out of order, or take other +50 +TABLE OF CONTENTS +appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +Other Matters +The Board is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Austin, Texas +July 15, 2022 +51 +TABLE OF CONTENTS +TABLE OF CONTENTS \ No newline at end of file diff --git a/raw/proxies/0000350868/0001628280-22-018993/proxy_rpt.txt b/raw/proxies/0000350868/0001628280-22-018993/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..60bce770b7b608c21daa2be5eb5f816b3d29f691 --- /dev/null +++ b/raw/proxies/0000350868/0001628280-22-018993/proxy_rpt.txt @@ -0,0 +1,2 @@ +Certain Transactions with Related Persons +Since April 1, 2021, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. \ No newline at end of file diff --git a/raw/proxies/0000350868/0001628280-23-026101/proxy.txt b/raw/proxies/0000350868/0001628280-23-026101/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ffe596f69e270f2bb69770050bc681ac18d51ca --- /dev/null +++ b/raw/proxies/0000350868/0001628280-23-026101/proxy.txt @@ -0,0 +1,1318 @@ +DEF 14A +1 +iti-20230907xdef14a.htm +DEF 14A +Document +TAB LE OF CONTENTS +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No.   ) +Filed by the Registrant ☒ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +☒ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material under §240.14a-12 +ITERIS, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +☒ No fee required. +o Fee paid previously with preliminary materials. +o Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. +TAB LE OF CONTENTS +NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS +OF ITERIS, INC. +TO BE HELD SEPTEMBER 7, 2023 +To the Stockholders of Iteris, Inc.: +NOTICE IS HEREBY GIVEN that the 2023 Annual Meeting of Stockholders (the “Annual Meeting”) of Iteris, Inc., a Delaware corporation, will be held on September 7, 2023 at 4:00 p.m. Central Time, held exclusively online by means of a live virtual webcast at meetnow.global/MD5FVCL, for the following purposes, as more fully described in the proxy statement accompanying this notice: +a. To elect Joe Bergera, Gary Hall, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas, Kimberly Valentine-Poska, and Dennis W. Zank to the Board of Directors, each to hold such office until the next annual meeting of stockholders and until his or her successor is elected and qualified. +b. To conduct an advisory vote to approve the compensation of our named executive officers, as described in the proxy statement accompanying this notice. +c. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2024. +d. To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements thereof. +All stockholders are cordially invited to attend the Annual Meeting which again will be held using only virtual communications this year. Based on our experience over the last three years, we have determined that a virtual meeting is most cost-effective for both Iteris and our shareholders. As a result, there will be no physical in-person meeting location for this Annual Meeting. +All stockholders of record as of the close of business on July 27, 2023 are entitled to notice of and to vote during the Annual Meeting, and at any and all postponements or adjournments thereof. It is important that all of our stockholders be represented at our Annual Meeting. Whether you plan to attend the Annual Meeting virtually or not, we urge you to vote your shares by submitting your proxy as soon as possible. Submitting your proxy card or voting instruction form does not affect your right to vote during the Annual Meeting if you attend the Annual Meeting virtually. Also, if you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. +Austin, TX BY ORDER OF THE BOARD OF DIRECTORS +July 28, 2023 +Joe Bergera +Chief Executive Officer +YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY PROXY PRIOR TO THE MEETING. IF YOU CHOOSE TO VOTE BY MAIL, PLEASE DO SO PROMPTLY TO ENSURE YOUR PROXY ARRIVES IN SUFFICIENT TIME. +TAB LE OF CONTENTS +TABLE OF CONTENTS +Page +Notice of the Annual Meeting of Stockholders +Questions and Answers About the Annual Meeting and Voting +1 +Proposal 1: Election of Directors +6 +Director Nominees +8 +Corporate Governance, Board Meetings and Committees +12 +Criteria for Director Candidate Qualifications +13 +Board Diversity +14 +Selection Process for Nomination of Director Candidates +15 +Director Tenure and Refreshment +16 +Risk Oversight Role +17 +Director Compensation +18 +Compensation Committee Interlocks and Insider Participation +19 +Proposal 2: Advisory Vote Regarding Executive Compensation +21 +Executive Officers +22 +Executive Compensation and Other Information +24 +Executive Compensation +24 +Fiscal 202 3 Business Results Summary +24 +Fiscal 202 3 Executive Compensation Results Overview +24 +Characteristics of our Executive Compensation Program +25 +Impact of 202 2 Say-on-Pay Vote +25 +Compensation Philosophy and Objectives +26 +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +26 +Peer Groups +26 +Compensation Components and Structure +28 +Benefit Plans +31 +Incentive Compensation Clawback Policy +32 +Policy against Hedging and Pledging +32 +Compensation Risk Assessment +32 +Accounting for Stock-Based Compensation +32 +Compensation Committee Report +32 +Executive Compensation Tables +33 +Summary Compensation Table +34 +Fiscal 202 3 Grant of Plan-Based Awards Table +35 +Outstanding Equity Awards at 202 3 Fiscal Year End +37 +Fiscal 202 3 Option Exercises and Stock Vesting Table +39 +Potential Payments upon Termination of Employment and Change in Control +39 +Equity Compensation Plan Information +43 +Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm +47 +Matters Related to Independent Registered Public Accounting Firm +48 +Fees Paid to Independent Registered Public Accounting Firm +48 +Audit Committee Pre-Approval Policies and Procedures +48 +Audit Committee Report +48 +Stock Ownership of Certain Beneficial Owners and Management +50 +Environmental, Social, Governance and Related Matters +52 +Additional Matters +53 +Transactions with Related Persons +54 +Annual Report +54 +i +TAB LE OF CONTENTS +Page +Delivery of Documents to Stockholders Sharing an Address +54 +Deadline for Receipt of Stockholder Proposals +54 +Other Matters +55 +ii +TAB LE OF CONTENTS +______________________ +P ROXY S TATEMENT +F OR THE 2023 A NNUAL M EETING OF S TOCKHOLDERS +OF I TERIS, I NC. TO BE H ELD ON S EPTEMBER 7 , 2023 +______________________ +The Board of Directors (the “Board”) of Iteris, Inc., a Delaware corporation (sometimes referred to as “Iteris,” the “Company,” “we,” “us,” or “our”), is soliciting your proxy for the Company’s 2023 Annual Meeting of Stockholders and any and all adjournments or postponements of such meeting (the “Annual Meeting”). Based on our experience over the last three years, we have determined that a virtual meeting is most cost-effective for both Iteris and our shareholders. Therefore, the Annual Meeting will be held at 4:00 p.m. Central Time on September 7, 2023, through the virtual meeting live webcast site located at meetnow.global/MD5FVCL. At our Annual Meeting, stockholders will be able to attend and vote by visiting meetnow.global/MD5FVCL. Stockholders who wish to submit questions at the Annual Meeting may do so in advance or during the Annual Meeting. You will find instructions for how to submit such questions in this proxy statement. The approximate date on which this proxy statement and the enclosed proxy materials are first being released to the Company’s stockholders is July 28, 2023. Our principal executive offices are located at 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746. +References in this proxy statement to fiscal years refer to the Company’s fiscal year ended March 31 of the referenced year. For example, “Fiscal 2022” refers to the fiscal year ended March 31, 2022, “Fiscal 2023” refers to the fiscal year ended March 31, 2023 and “Fiscal 2024” refers to the fiscal year ending March 31, 2024. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS +This Proxy Statement and our Annual Report (including our Annual Report on Form 10-K for the fiscal year ended March 31, 2023) (the “Annual Report”) is available on the Internet by accessing www.edocumentview.com/ITI, or at www.envisionreports.com/ITI for registered holders. Information on this website does not constitute part of this Proxy Statement and shall not be deemed incorporated by reference therein. +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING +Who is soliciting this proxy and who will bear the cost of soliciting this Proxy Statement? +The enclosed proxy is being solicited by our Board of Directors. Iteris will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this proxy statement, the proxy card, and any additional material furnished to our stockholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries, and nominees holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, email or any other means by our directors, officers, or employees. No additional compensation will be paid to these individuals for any such services. +In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, we estimate the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us . +Where and when will the Annual Meeting take place? +The Annual Meeting will be held virtually, on Thursday, September 7, 2023, at 4:00 p.m., Central Time, via the Internet at meetnow.global/MD5FVCL. Online check-in will begin at 3:30 p.m., Central Time, to allow time for online check-in procedures . We encourage you to access the online Annual Meeting prior to the start time. +The virtual Annual Meeting platform is fully supported across browsers (MS Edge, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most up-to-date version of applicable software and plugins. Note: Internet Explorer is not a supported browser. You should ensure that you have a strong Wi-Fi connection wherever you intend to participate in the Annual Meeting (see below question “What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website?” for technical support contact information). +1 +TAB LE OF CONTENTS +How do I attend the virtual Annual Meeting on the Internet? +Registered Stockholders . If you are a registered stockholder of record (i.e., you hold your shares directly in your name through our transfer agent, Computershare), you do not need to register to attend the virtual Annual Meeting. Please follow the instructions on the notice or proxy card that you received. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Beneficial Stockholders . If you hold your shares through an intermediary, such as through a brokerage account or by a bank, trustee or other nominee (each a “Nominee”) and not in your name, then you are the beneficial owner of such shares. If you hold your shares beneficially, you must register in advance to attend the virtual Annual Meeting. +For beneficial stockholders to register to attend the virtual Annual Meeting you must submit proof of your proxy power (legal proxy) reflecting your Iteris holdings along with your name and email address to Computershare, by email or by mail as described below. You may need to contact your Nominee, such as your bank or broker, to obtain your legal proxy. Requests for registration must include your proof of your legal proxy, be labeled as “Legal Proxy,” and be received no later than 4:00 p.m., Central Time September 4, 2023 . +Through the contact information you provide to Computershare, you will receive from Computershare a confirmation of your registration with a control number that will allow you to login to the virtual Annual Meeting site as a stockholder. You may submit any questions you would like to ask at the Annual Meeting in advance or during the Annual Meeting. You will find instructions for how to vote and submit such questions below in this proxy statement. +Requests for registration to attend our virtual Annual Meeting should be directed to us at the following: +By email : +Forward the email from your broker, or attach an image of your legal proxy, to: +legalproxy@computershare.com +By mail : +Computershare +Iteris Legal Proxy +P.O. Box 43001 +Providence, RI 02940-3001 +Stockholders will be able to attend our Annual Meeting online and vote during the Annual Meeting electronically by visiting meetnow.global/MD5FVCL via the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to ask questions and vote and submit your proxy in advance of the Annual Meeting by one of the methods described in this proxy statement. There will be a question- and-answer session at the end of the Annual Meeting. You can submit questions and comments by clicking the icon (illustrated below) located on the virtual Annual Meeting center website. +Guest Attendees. You do not need to be a registered stockholder of record or have legal proxy to attend this virtual Annual Meeting as a guest. You are invited to attend our virtual Annual Meeting as a “guest,” but such guest attendees will only be able to listen to the Annual Meeting. A guest attendee may not ask questions or vote at the Annual Meeting. If you attend as a guest attendee, please click “I am a guest” when accessing the virtual Annual Meeting link on the Internet. Please follow the instructions at the virtual Annual Meeting site (see above question “Where and when will the Annual Meeting take place?”). +Why a virtual Annual Meeting format? +We are utilizing a virtual meeting format to enhance stockholder access and encourage participation and communication with our management. We will continue to ensure that our stockholders are afforded the same rights and opportunities to participate as they would at an in-person meeting. We believe this format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, and equally, using any Internet-connected device from any location around the world at no cost. We also believe a virtual meeting saves the Company and stockholders time and money . +2 +TAB LE OF CONTENTS +What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website? +We will have technicians ready to assist you with any technical difficulties you may experience in accessing the virtual Annual Meeting. If you encounter any technical difficulties in accessing the virtual Annual Meeting during the check-in or meeting time, please call: +Tel # (Toll-free): 1 (888)-724-2416 +Tel # (Toll line): +1 781-575-2748 (International) +Who is entitled to vote at the Annual Meeting? +You are entitled to vote your shares of our common stock at the Annual Meeting if you owned the shares as of the close of business on July 27, 2023 (the “Record Date”). As of the Record Date, there were a total of 42,741,744 shares of our common stock outstanding and entitled to vote at the Annual Meeting. No shares of our preferred stock are currently outstanding. You are entitled to one vote for each share of common stock that you own . +What matters will be voted upon at the Annual Meeting and what are the Board of Directors’ recommendations for the proposals? +The only matters that we currently expect will be voted on at the Annual Meeting are the following proposals, and the Board’s recommendation to you regarding such proposals is set forth opposite each proposal below : +Proposals Board’s +Recommendation +1. Election of the Board of Directors. ✓ FOR each nominee +2. Approval, by advisory vote, of the compensation of our named executive +officers, as described in this proxy statement. +✓ FOR +3. Ratification of the appointment of Deloitte & Touche LLP as our independent +registered public accounting firm for the fiscal year ending March 31, 2024. +✓ FOR +The foregoing proposals are described in more detail in this proxy statement. +What if other matters come up at the Annual Meeting? +Other than the three items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If other matters are properly presented at the Annual Meeting, the persons designated in the proxy cards, Joe Bergera and Kerry A. Shiba, will vote your shares in their discretion . +What constitutes a quorum for the Annual Meeting? +The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum for the transaction of business at such meeting. If you sign and return your proxy card or authorize a proxy to vote through the Internet or by telephone, your shares will be counted to determine whether we have a quorum even if you abstain or fail to vote as indicated in the proxy materials. If a quorum is not present at the scheduled time of the Annual Meeting, the Annual Meeting may be adjourned until a quorum is present. Both abstentions and broker non-votes (as described below) are counted for the purpose of determining the presence of a quorum . +What is the difference between holding shares as a stockholder of record and as a beneficial owner? +Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered to be the stockholder of record of such shares, and we are sending the notice and these proxy materials directly to you. If you are a stockholder of record, you should have received a proxy card with this proxy statement for you to use to vote your shares. +Beneficial Owner. If your shares are held in a brokerage account or by a Nominee and not in your name, then you are considered the beneficial owner of such shares held in street name, and the notice and proxy materials are being forwarded to you on behalf of your Nominee. As the beneficial owner, you have the right to direct your Nominee how to vote your shares. Your Nominee has enclosed a voting instruction form with this proxy statement for you to use in directing the Nominee how to vote your shares. +Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the Nominee who holds your shares giving you the right to vote the shares at the Annual +3 +TAB LE OF CONTENTS +Meeting. If you are a beneficial owner of your shares and you wish to attend the virtual Annual Meeting, vote, and submit questions, you must register in advance (see above question — “How do I attend the virtual Annual Meeting on the Internet?” and see below questions “How do I vote my shares?” and “How will I be able to submit a question?”) . +How do I vote my shares? +You may vote your shares prior to the Annual Meeting in any one of the following three ways: (i) by mail, (ii) electronically over the Internet or (iii) by telephone. If you are a stockholder of record, you may vote by returning a completed proxy card in the enclosed postage-paid envelope or through the Internet or by telephone as described on your proxy card. If you are a beneficial owner, in lieu of a proxy card, you should receive a voting instruction form from your Nominee by mail. The voting instruction form from your Nominee should indicate whether the Nominee has a process for beneficial holders to vote over the Internet or by telephone. Stockholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. Stockholders who do not desire to vote over the Internet or by telephone may complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided. +Beneficial owners with shares held by a Nominee may vote their shares, in lieu of Nominee’s voting process, via the Internet only if you obtain a legal proxy from the Nominee that holds your shares giving you the right to vote the shares. Beneficial owners of shares held by a Nominee as of the Record Date will need to register in advance to vote and attend the virtual Annual Meeting (see above question — “How do I attend the virtual Annual Meeting on the Internet?”). If you are a stockholder of record or a beneficial owner that have obtained legal proxy (with a Computershare-provided control number), you may also vote your shares electronically during the Annual Meeting over the Internet only. To vote during the Annual Meeting, please go to meetnow.global/MD5FVCL, at the time of the Annual Meeting (check-in will begin at 3:30 p.m., Central Time), have your control number available (which can be found on your proxy card form for stockholders of record or which is your Computershare-provided control number for beneficial owners) and follow the instructions to participate in the virtual Annual Meeting. We recommend that you vote your shares in advance as described above to ensure your vote will be counted if you later decide not to attend the Annual Meeting. +How will I be able to submit a question? +Stockholders of record and beneficial owners that have obtained legal proxy (with a Computershare-provided control number) may submit questions for the Annual Meeting in advance of and during the Annual Meeting by submitting them via the Annual Meeting center website (meetnow.global/MD5FVCL) and entering your control number (found on your proxy card form if you are a stockholder of record and Computershare-provided control number if you are a beneficial owner that has obtained legal proxy). (see above question — “How do I attend the virtual Annual Meeting on the Internet?”). +No recording of the Annual Meeting is allowed, including audio and video recording. +Even if you plan on attending the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this proxy statement to ensure that your vote will be represented at the Annual Meeting. We reserve the right to eject an attendee or cut off speaking privileges for behavior likely to cause disruption or annoyance or for failure to comply with reasonable requests or the rules of conduct for the Annual Meeting, such as time limits applicable to attendees who are permitted to speak. +We will endeavor to answer as many questions submitted by stockholders as time permits. We reserve the right to edit profanity or other inappropriate language and to exclude questions regarding topics that are not pertinent to meeting matters or Company business. If we receive substantially similar questions, we may group such questions together and provide a single response to avoid repetition . +The Annual Meeting is a live webcast and will also be recorded. Starting the day following the Annual Meeting, you will be able to find the recording of this Annual Meeting on the Investor Relations section of our website at www.iteris.com +What are broker non-votes and how are broker non-votes treated? +Broker non-votes occur when shares held in street name by a Nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the Nominee does not receive voting instructions from the beneficial owner, and (ii) the Nominee lacks discretionary authority to vote the shares. +Broker non-votes will not be treated as shares represented and entitled to vote for purposes of any matter requiring the affirmative vote of a majority or other proportion of the shares represented and entitled to vote (even if the same shares are considered present for quorum purposes and may be entitled to vote on other matters). Thus, a broker non-vote will not affect the +4 +TAB LE OF CONTENTS +outcome of the voting on a proposal for which the minimum affirmative vote required for approval of the proposal is a plurality or a majority (or some other percentage) of (i) the votes actually cast, or (ii) the shares represented and entitled to vote. +A Nominee only has discretionary authority to vote shares on a proposal that is considered a “routine” matter under applicable rules and related guidance. Proposal 3 for the ratification of the appointment of our independent registered public accounting firm is considered a “routine” matter and, accordingly, a Nominee has discretionary authority to vote shares on such proposal. The other proposals included in this proxy statement are considered “non-routine” matters. As such, a Nominee does not have discretionary authority to vote shares on such proposals. Accordingly, your shares may be voted on Proposal 3 if they are held in the name of a brokerage firm even if you do not provide the brokerage firm with voting instructions. Proposals 1 and 2 are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your brokerage firm, no vote for your shares will be cast with respect to these proposals and a broker non-vote will result for these shares . +What vote is required to elect a director? +For Proposal 1, you may vote “FOR” or “AGAINST” any director nominee or you may abstain from voting with respect to a director nominee’s election. In an uncontested director election, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee to be elected. As such, the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. In a contested director election (i.e., where the number of nominees exceeds the number of directors to be elected), then each director nominee shall be elected by a plurality of the votes of shares properly represented and entitled to vote in such election at such meeting. For purposes of the election of directors, abstentions and broker non-votes, if any, will be excluded from the vote and will not be counted in determining the outcome of a director’s election . +What happens if a majority of the votes cast are not voted in favor of a director nominee? +Pursuant to the procedures set forth in the Company’s bylaws, in the event that a nominee who is already a director of the Company does not receive a majority of the votes cast with respect to such nominee in an uncontested election of directors, such nominee is required to promptly tender his or her resignation to the Board for consideration. If a director’s resignation is not accepted, that director will continue to serve until our next annual meeting of stockholders and his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy . +What is the required vote for approval of Proposals 2 and 3? +For each of the other proposals, you may vote “FOR” or “AGAINST” the proposal or you may abstain from voting on the proposal. The approval of Proposals 2 and 3 will require the affirmative vote of a majority of the shares represented and entitled to vote at the Annual Meeting. For purposes of Proposals 2 and 3, broker non-votes will not affect the outcome of the voting on these proposals and abstentions will have the same effect as a vote against these proposals . +May I change my vote or revoke my proxy? +Yes. If you are a stockholder of record, there are several ways in which you may revoke your proxy or change your voting instructions before the time of voting at the Annual Meeting, as follows: +• Vote again by telephone or at the Internet website. +• Transmit a revised proxy card or voting instruction form that is dated later than the prior one. +• Vote electronically during the Annual Meeting, at the Internet website. +• Notify the Company’s Corporate Secretary in writing that a prior proxy is revoked. +If you are a beneficial owner of shares, your broker or Nominee should provide instructions explaining how you may change or revoke your voting instructions. +Please note that, in order to be counted, the revocation or change must be received by the Company prior to the close of the Annual Meeting on September 7, 2023. The latest-dated, timely, properly completed proxy that you submit to the Company, whether by mail, telephone or the Internet, will count as your vote. If a vote has been recorded for your shares and you subsequently submit a proxy card that is not properly signed and dated, then the previously recorded vote will stand. +5 +TAB LE OF CONTENTS +Is cumulative voting permissible? +No. Cumulative voting is not permitted by our certificate of incorporation. +Will I have appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting? +No. You will not be entitled to appraisal or similar dissenters’ rights in connection with the proposals to be voted on at the Annual Meeting. +How will my shares be voted? +Any proxy that you submit and that is not revoked will be voted as you direct. If you are a stockholder of record and you indicate when voting through the Internet or by telephone that you wish to vote as recommended by our Board, or if you sign and return a proxy card without giving specific voting instructions, then the persons designated as proxy holders in the accompanying proxy card will vote your shares as follows: +• “FOR” the election of each of the persons nominated by the Board in Proposal 1. +• “FOR” the approval, by advisory vote, of the compensation of our named executive officers, as described in this proxy statement. +• “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the fiscal year ending March 31, 2024. +If you are a beneficial owner of shares of our common stock and your Nominee does not receive instructions from you about how your shares are to be voted, then your Nominee will have the discretion to vote your shares on the “routine” matter being considered at the Annual Meeting (Proposal 1), but will not be able to vote your shares on the “non-routine” matters being considered at the Annual Meeting (Proposal 2 and Proposal 3), meaning that broker non-votes will result for these matters. +In the event any director nominee declines or is unable to serve as a director at the time of the Annual Meeting (which is not anticipated), the persons named in the enclosed proxy card will vote for the election of such person or persons as may be designated by the present Board. The enclosed proxy grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting, as well as any procedural matters. We have not been notified by any stockholder of any intention to present a stockholder proposal at the Annual Meeting . +I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +If you share an address with another stockholder, you may receive only one set of proxy materials unless you have provided instructions to the contrary. If you wish to receive a separate set of proxy materials now, please send your request to: Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746 , Attention: Corporate Secretary or via email at proxymaterials@iteris.com or by calling (866) 641-4276. A separate set of proxy materials will be sent promptly following receipt of your written or oral request. You may also contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Who will count the votes? +The inspector of election for the Annual Meeting, who is appointed by the Board, will count the votes. It is expected that a representative of our transfer agent will serve as the inspector of election. +6 +TAB LE OF CONTENTS +P ROPOSAL 1: E LECTION OF D IRECTORS +Seven persons have been nominated for election at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of stockholders, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. On the recommendation of the Nominating and Corporate Governance Committee (the “NCG Committee”), our Board selected and approved the following persons as nominees for election at the Annual Meeting: Joe Bergera, Gary Hall, Gerard M. Mooney, Laura L. Siegal, Thomas L. Thomas, Kimberly Valentine-Poska and Dennis W. Zank. Each nominee is currently a member of our Board and has agreed to serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the nominees named above. +We have no reason to believe that any of the director nominees will be unwilling or unavailable to serve if elected as a director. In the event any of the director nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the proxy holders named in the enclosed proxy will exercise discretionary authority to vote for substitutes. +7 +TAB LE OF CONTENTS +Voting Requirements +In May 2018, our Board approved an amendment to the Company’s bylaws to implement a majority voting requirement for uncontested elections of directors. As a result, in such elections, a nominee must receive the affirmative vote of a majority of the votes cast with respect to that nominee. This means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast as “AGAINST” that nominee’s election. +Our Board has adopted a resignation policy, which requires that any incumbent director nominee who fails to receive the requisite majority vote in an uncontested election must tender to the Board for its consideration his or her resignation from the Board and from all of the Board committees on which he or she serves. The Board will then assess the appropriateness of such nominee continuing to serve as a director. In its discretion, the Board will decide whether or not to accept or reject the resignation. The policy also provides that any director who tenders his or her resignation will not participate in the Board action regarding the consideration of such resignation. +Recommendation of the Board of Directors +Our Board of Directors recommends a vote “FOR” each of the director nominees listed above and below. +Director Nominees +The table and narrative below set forth information as of July 27, 2023 regarding each director nominee, including the year they first became directors of Iteris, their business experience during at least the past five years, the public company boards on which they currently serve or have served on during the past five years, and certain other biographical information. The Nominating and Corporate Governance Committee believes that these persons have qualifications, competencies, and diversity that are important to an effective board of directors, as further detailed in the “Director Qualifications Matrix” under “Corporate Governance, Board Meetings and Committees” below. +Name Age Current Position(s) with Iteris +J. Joseph (“Joe”) Bergera 59 Chief Executive Officer, President and Director +Gary Hall 56 Director +Gerard M. Mooney (1)(3) +69 Director +Laura L. Siegal (1)(2) +60 Director +Thomas L. Thomas (2)(3)(4) +74 Chairman of the Board +Kimberly L. Valentine-Poska 57 Director +Dennis W. Zank (1)(2) +68 Director +_______________________ +(1) Current member of the Audit Committee. +(2) Current member of the Compensation Committee. +(3) Current member of the Nominating and Corporate Governance Committee. +(4) Our bylaws provide that our Chairman of the Board is also an ex-officio member of each of our Board committees. +J. Joseph (“Joe”) Bergera has served as our director, President and Chief Executive Officer since September 2015. Prior to joining Iteris, Mr. Bergera worked for Roper Technologies, Inc. (formerly, Roper Industries, Inc.), a diversified industrial technology company, concurrently serving as Group Vice President, Software, overseeing a portfolio of software entities from September 2011 to September 2015, and as President of iTrade Network, a Roper subsidiary, from August 2013 to September 2015. Earlier, Mr. Bergera worked as Executive Vice President and General Manager, Tax Solutions at CCH Wolters Kluwer from March 2011 to September 2011. From June 2004 to March 2011, he also served in senior executive positions with Sage Software, most recently as Executive Vice President and General Manager, where he managed the Company’s worldwide portfolio of customer relationship management (CRM) software products and was recognized for his leadership in technology innovation. Previous experience included working at InfoVista, a software company, as Senior Vice President, Worldwide Marketing, Astrolink (acquired by Liberty Media), a start-up communications platform, as Senior Vice President, Worldwide Marketing, and MicroStrategy, a publicly held business intelligence platform, as Director, Vertical and Channel Marketing. Mr. Bergera began his career at American Management Systems (acquired by CGI, Inc.), an information technology and business consulting services firm, where he was a Principal in the firm’s technology consulting practice. Since June 2022, Mr. Bergera has served as a member of the board of directors for the Intelligent Transportation Society of America. Educational experience includes receiving a B.A., Government from Colby College in 1986 and an M.B.A., Business Strategy from the University of +8 +TAB LE OF CONTENTS +Chicago in 1992. The Board believes that Mr. Bergera’s over 30 years of leadership experience in global technology companies, where he has led a range of strategic, product, and commercial activities to enhance enterprise value and operating performance, qualifies him to serve as a director. +Gary Hall has served as a director of Iteris since July 2023. Mr. Hall is currently a Partner and President of Infrastructure & Public Finance at Siebert Williams Shank & Co., LLC (“Siebert”), the nation’s largest minority-owned investment bank. Mr. Hall is a Principal and member of the Investment Committee for Clear Vision Fund, Siebert’s impact investment fund. Mr. Hall is currently also Partner at American Triple I Partners (“Triple I”), an infrastructure private equity firm that focuses on transportation, energy, knowledge and information systems, and smart city investments. Before joining Siebert in June 2013 and Triple I in February 2019, Mr. Hall was an investment banker with JPMorgan Securities LLC from April 2001 to June 2013, where Mr. Hall assisted state and local governments with accessing funding for capital improvements and/or refinancing existing debt portfolios. Mr. Hall also worked in the Mergers & Acquisitions Group of Banc One Capital Markets, Inc. assisting both middle-market companies and financial sponsor firms with strategic alternatives, including dispositions, acquisitions and capital raises. Prior to that, Mr. Hall was appointed a White House Fellowship and served as a Special Advisor to the Under Secretary of the Treasury for Domestic Finance in the U.S. Department of Treasury. He was also a corporate finance attorney with Gardner, Carton and Douglas (now Faegre Drinker), where he represented and counseled institutional and entrepreneurial clients on securities, mergers, acquisitions and complex commercial transactions. Before his career in law, he worked in the Office of the Mayor for the City of Chicago, including posts with the City’s Office of Budget and Management. Mr. Hall currently serves on the Board of Directors of the Securities Industry and Financial Markets Association (“SIFMA”) since November 2020, the Bay Area Council (Executive Committee) since July 2018, and is a Trustee for the National Recreation Foundation and the California Academy of Sciences. Mr. Hall also currently serves on the Financial Industry Regulatory Authority’s (FINRA) Fixed Income Advisory Committee since May 2021, the Milken Institute’s Public Finance Advisory Board (Executive Committee) since January 2021, and the National Association of State Treasurers’ (NAST) Corporate Affiliate Board since December 2022. From October 2014 to September 2019, Mr. Hall served on the Municipal Securities Rulemaking Board (MSRB), the self-regulatory organization that safeguards the $4 trillion municipal securities industry. He served as chairman of the MSRB from October 2018 to September 2019. Mr. Hall received a B.B.A. in Finance from Howard University and J.D. from the University of Notre Dame. The Board believes that Mr. Hall’s public service, financial experience, legal expertise, and nuanced market understanding qualify him to serve as a director. We found Mr. Hall through a thorough process focused on identifying and evaluating potential additional directors with his characteristics, led by an independent director search consultant selected by and reporting to our Nominating and Corporate Governance Committee. +Gerard M. Mooney has served as a director since September 2013. Mr. Mooney worked for International Business Machines Corporation (“IBM”) for 14 years before retiring to focus on his board work, most recently serving as General Manager of IBM’s Worldwide Government & Education Industry Segments (2008 to 2011), head of its Global Smarter Cities business profit center (2011 to 2012), representing $10 billion of revenue, and Vice President Strategy for IBM’s Public Sector (2012 to 2014). In addition to the aforementioned roles, he served IBM as V.P. Corporate Strategy Emerging Businesses and V.P. of IBM’s Venture Capital Group where he directed worldwide responsibilities for this growth and innovation program and led business development strategies working with venture capital firms, in addition to overseeing M&A activity. In this role he was recognized with the designation of being one of IBM’s “300 Up & Comers.” Prior to IBM, Mr. Mooney worked for Hewlett-Packard (1994 to 2000) in various senior roles, including as General Manager of its Education Division, General Manager of its New Venture Program, Manager of its Bioscience Products, Manager of Business Development and Manager of Electroluminescent Technology. He previously served as president for a joint venture between Westinghouse and Tokyo Electric, which resulted in a successful sale to Hewlett-Packard. Mr. Mooney’s professional career started with Westinghouse Electric in Corporate Development. He also served as a Commissioned Officer in the U.S. Coast Guard for eleven years. He is a former member of the board of directors for the Intelligent Transportation Society of America. He has an M.B.A. from Yale University, M.S. in Accounting from Georgetown University and a B.A. in Philosophy from Mount Saint Mary’s College. The Board believes that Mr. Mooney’s extensive financial and management experience, as well as his experience with emerging technologies, strategic initiatives, business development and operations within the technology, transportation and smart cities sectors qualify him to serve as a director. +Laura L. Siegal has served as a director of Iteris since May 2018. Since May 2022, Ms. Siegal has served as the Chief Financial Officer for Integrated Polymer Solutions, a private equity owned advanced materials and engineered components company serving the aerospace, defense, medical, semiconductor and robotics sectors. Previously she was a Partner and Chief Financial Officer for Acorn Growth Companies, a private equity firm investing in aerospace, defense and intelligence, from 2019 to 2022. From 2013 to 2019, Ms. Siegal served as Chief Financial Officer and a member of the board of directors for NEO Tech, an electronics contract manufacturer, where she was responsible for developing and implementing a growth strategy that significantly increased revenue and diversified the company’s markets from aerospace and defense to medical, industrial and aerospace and defense and expanded their locations from primarily California to a global operation with facilities across North America and China. Previously, Ms. Siegal worked for thirteen years with publicly traded Kratos Defense and Security Solutions, and held a number of financial management positions, most recently serving as Vice President, Corporate Controller and Principal Accounting Officer. Ms. Siegal played a financial role helping the company to pivot from its core business as a wireless telecommunications service provider with a $200 million revenue base, into an $850 million products and services company +9 +TAB LE OF CONTENTS +providing command, control, communication, computer, intelligence, surveillance and reconnaissance products to government and commercial customers. Ms. Siegal has a B.A. degree in Economics from University of California, San Diego and is licensed as a certified public accountant in California. She currently also serves on the board of Creation Technologies Ltd, a privately held global electronics manufacturing company serving the industrial technology, transportation, medical, and aerospace and defense markets. The Board believes that Ms. Siegal’s 30 years of experience growing technology companies ranging up to $1 billion, leadership experience as Chief Financial Officer of three companies, and demonstrated success in acquisitions of over 30 public and private companies, debt restructurings, integration and rationalization of global operations, and developing and deploying strategic initiatives qualify her to serve as a director. +Thomas L. Thomas has served as a director of Iteris since 1999 and Chairman of the Board since 2016. Mr. Thomas is the managing partner of T2 Partners, a private management consulting and investment business, which he founded in January 2011. Previously, he served as a director of Accurate Group from 2012 until 2021, which specializes in technology-driven appraisal management and title services. Prior to that, he served from 2009 until 2011 as Executive Chairman and Chief Executive Officer for International Decision Systems, an asset management finance and portfolio management software company. For four years prior, Mr. Thomas was President and Chief Operating Officer for Global Exchange Services (GSX), a provider of business-to-business EDI and supply chain solutions, where he was responsible for global operations and P&L operating in 40 countries. From 2000 until 2004, Mr. Thomas served as Chairman, President and Chief Executive Officer for HAHT Commerce, an enterprise software company, which was sold to Francisco Partners. Previously, Mr. Thomas was President and CEO of Ajuba, Inc, and led the development of this middleware technology company, which was sold to Interwoven, Inc. From 1998 to 2000, he was Chairman, President and Chief Executive Officer for Vantive Corporation, an enterprise software company, specializing in the development of customer relationship management (CRM), data analytic and sales force automation, where he led the successful sale of the company to PeopleSoft. Prior to that, Mr. Thomas worked for five years with 3Com Corporation, a global technology organization, as their first Senior Vice President and Chief Information Officer, where he led the development and installation of a global operating system integrating numerous global acquisitions, substantially enhancing shareholder value. He was also Senior Vice President of e-Business, where he led the development of the 3Com global e-business model and business unit, substantially growing its revenue. Mr. Thomas worked for Michael Dell at Dell Computer Corporation from 1993 until 1995 and was hired as their first Chief Information Officer, where he led the establishment of their scalable global order management, manufacturing and supply chain systems. From 1987 until 1993, Mr. Thomas was Vice President, Information Systems for Kraft Foodservice, a division of Kraft General Foods, one of the largest food companies in the U.S. From 1981 until 1987, Mr. Thomas was VP, MIS for Sara Lee Corporation. He began his career in 1969 with Humana, Inc. where he reached the role of Director, MIS. Mr. Thomas holds a B.S. in Commerce and Doctor of Humane letters degree from Bellarmine University, where he is the Chair Emeritus and has served as a member of the board of trustees since 2000. The Board believes that Mr. Thomas' extensive industry and Company experience, along with his financial expertise, qualify him to serve as a director. +Kimberly Valentine-Poska has served as a director of Iteris since July 2023. Currently, she serves as Managing Director for Global Capital Markets, Inc., a global middle-market investment bank. She joined the firm in 2017 when she was hired to establish and run the company’s Technology and Healthcare Practices for North America. From 2003 to 2016, Ms. Valentine-Poska was Partner and Founder of Valentine Properties, working with investors in the areas of real estate investment and financial services. Previously, Ms. Valentine-Poska worked for Deloitte & Touche LLP (“Deloitte”) from 1998 to 2003, where she served as a Partner and managed the Investment Banking Group in Los Angeles and Orange County, advising technology, software, and real estate companies on mergers and acquisitions, IPOs, and debt and equity financing. Prior to Deloitte, Ms. Valentine-Poska founded her own financial advisory firm, focused on technology and real estate, which she successfully sold after four years. In 2023, Ms. Valentine-Poska was recognized nationally by Opus Connect as one of the “Top 25 Women in M&A”. Currently, she serves on the Board of Directors of Empire Valuation Consultants, Inc., a New-York-based independent valuation firm, as well as the Advisory Board at the Carl R. Woese Institute for Genomic Biology, an interdisciplinary facility for genomics research at the University of Illinois at Urbana-Champaign. Additionally, Ms. Valentine-Poska has served on various nonprofit boards. Ms. Valentine-Poska has an M.B.A. from Harvard Business School and a B.S. from University of Southern California, where she graduated summa cum laude and Valedictorian. The Board believes that Ms. Valentine-Poska’s 30 years of experience in investment banking and financial services, and extensive experience advising technology and software companies, qualifies her to serve as a director. We found Ms. Valentine-Poska through a thorough process focused on identifying and evaluating potential additional directors with her characteristics, led by an independent director search consultant selected by and reporting to our Nominating and Corporate Governance Committee. +Dennis W. Zank has served as director of Iteris since January 2020. He possesses 45 years of experience in financial services, working for Raymond James Financial, Inc. (“Raymond James”). He most recently held the role of Chief Operating Officer (2012 to 2018), where he played a key role directing Raymond James to its prominent industry position. His immediate prior role was President of Raymond James & Associates (2002 to 2012), the parent company’s largest revenue segment. He joined the organization in 1978 and rose up the ranks to serve in multiple leadership positions including finance, treasury, operations, regulatory, sales, M&A, and strategy development during the company’s growth from $15 million in revenue to $12 billion in revenue. Mr. Zank currently serves in a financial advisory role at the company and he has also served on multiple committees and sub-committees at Raymond James during his tenure. Mr. Zank has also served as a former Board member of the Options Clearing Corporation (2000 to 2006) and the National Securities Clearing Corporation (1994 to 1997). He holds an +10 +TAB LE OF CONTENTS +M.B.A. from the University of Tampa and a B.S. in accounting from the University of South Florida. The Board believes that Mr. Zank’s extensive management, financial and industry experience, and his comprehensive understanding of the organization, qualify him to serve as a director. +11 +TAB LE OF CONTENTS +Family Relationships +There are no family relationships among any of our directors or executive officers. +C ORPORATE G OVERNANCE , B OARD M EETINGS AND C OMMITTEES +Director Independence +Our policy is to have a majority of the directors qualify as “independent” under the standards established by The Nasdaq Stock Market (“Nasdaq”). The Board has determined that each of our directors, other than our Chief Executive Officer, Joe Bergera, satisfies the requirements for “independence” using the standards established by Nasdaq. +Board Structure +The Board does not have a policy regarding the separation of the roles of the Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board from time to time. However, the Board has determined that having an independent director serve as the Chairman is currently in the best interest of our company and stockholders in recognition of the different demands and responsibilities of the roles and to emphasize the independence of the role of Chairman. The independent members of the Board also meet regularly in executive sessions. +Board Meetings and Committees +We currently have three standing committees of the Board, the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance (“NCG”) Committee. Each has a written charter that is reviewed annually and revised as appropriate. +A copy of each committee’s charter is available on the Investor Relations section of our website at www.iteris.com. +During Fiscal 2023 the Board held six formal meetings, the Audit Committee held four formal meetings, the Compensation Committee held four formal meetings; and the NCG Committee held three formal meetings. During Fiscal 2023, no director attended fewer t han 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of the standing committees of the Board on which such director served during that period. +Audit Committee. The current members of our Audit Committee are Ms. Siegal and Messrs. Mooney and Zank. Mr. Zank serves as the Chairman of this committee. The Board has determined that each member of the Audit Committee is “independent” under the standards established by both the Nasdaq rules and the SEC rules regarding audit committee members. The Board has identified Mr. Zank as the member of the Audit Committee who qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee. +The Audit Committee oversees on behalf of the Board (a) the conduct of the Company’s accounting and financial reporting processes, the audits of our financial statements and the integrity of the Company’s audited financial statements and other financial reports; (b) the performance of the Company’s internal accounting, internal auditing, and financial controls function; (c) the engagement, replacement, compensation, qualifications, independence and performance of our independent auditors, and (d) the portions of our Code of Ethics and Business Conduct and related policies regarding our accounting, internal accounting controls or auditing matters. The Audit Committee also reviews and approves or disapproves related party transactions identified in Item 404 of SEC Regulation S-K and makes recommendations to the full Board regarding the same. +The Audit Committee meets privately with our independent registered public accounting firm from time to time, and such firm has unrestricted access to, and reports directly to, the Audit Committee. The Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2024 and is recommending that our stockholders ratify this appointment at the Annual Meeting. +Compensation Committee. The current members of our Compensation Committee are Ms. Siegal and Messrs. Thomas and Zank. Mr. Thomas serves as the Chairman of this committee. The Board has determined that each member of the Compensation Committee is “independent” under the standards established by both the Nasdaq rules and SEC rules regarding compensation committee members. +The primary purposes of the Compensation Committee are to (a) evaluate officer and director compensation policies, goals, plans and programs; (b) oversee compensation programs and policies for all employees as they relate to the Company’s risk management; (c) determine the cash and non-cash compensation of our directors and “executive officers” as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (d) review, and make +12 +TAB LE OF CONTENTS +recommendations to the Board with respect to the administration of our equity-based and other incentive compensation plans for all employees; (e) evaluate the performance of our executive officers; (f) assist the Board in evaluating potential candidates for executive officer positions with the Company and oversee management succession planning; and (g) produce the committee report required by the applicable rules and regulations of the SEC and other regulatory bodies for inclusion in our annual proxy statements. +The Compensation Committee meets periodically to review and establish the salaries, bonuses and incentive plans for our executive officers. The Compensation Committee considers a number of factors in determining the compensation plans and elements for, and the amount of each compensation element paid to, our executive officers, including publicly available data from independent outside sources, our general business conditions and objectives, and the committee’s subjective determination with respect to each executive’s contributions to such objectives. To assist the committee in its review, our Chief Executive Officer provides to the Compensation Committee his evaluations of the other executive officers and makes recommendations with respect to executive compensation matters; however, the final decisions regarding the compensation of our executive officers are made by the Compensation Committee. The Compensation Committee retained Frederic W. Cook & Co., Inc., an independent compensation consultant (“FW Cook”), to advise on executive compensation and nonemployee director compensation . FW Cook did not provide any other services to us in Fiscal 2023 beyond its engagement as an advisor to the Compensation Committee on executive compensation matters and nonemployee director compensation . The Compensation Committee assessed the independence of FW Cook pursuant to SEC and Nasdaq rules and concluded that no conflict of interest existed that would have prevented FW Cook from serving as an independent consultant to the compensation committee currently or during Fiscal 2023. +Nominating and Corporate Governance Committee. The current members of the NCG Committee are Messrs. Mooney and Thomas. Mr. Mooney serves as the Chairman of this committee. The Board has determined that each member of the NCG Committee is “independent” under the standards established by Nasdaq. +The primary purposes of the NCG Committee are to assist the Board in (a) establishing the minimum qualifications for director nominees; (b) identifying and evaluating director nominees; (c) recommending to the Board candidates for the Annual Meeting of Stockholders or to fill any vacancies on the Board; and (d) developing and assessing corporate governance policies and making recommendations related to such policies to the Board. +Criteria for Director Candidate Qualifications +Our NCG Committee applies the same standards in considering director candidates submitted by stockholders as it does in evaluating other candidates, including incumbent directors. The identification and selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, and will be significantly influenced by the particular needs of the Board from time to time. As a result, there is no specific set of minimum qualifications, qualities or skills that are necessary for a nominee to possess, other than those that are necessary to meet U.S. legal, regulatory and Nasdaq listing requirements and the provisions of our certificate of incorporation, bylaws and charters of the Board’s committees. However, the NCG Committee and the Board have identified the following skills and qualifications listed below in alphabetical order as important criteria to consider for membership on our Board. In evaluating these skills and qualifications, we consider work done outside of the Company, as well as service with the Company if of sufficient duration, generally five years or more: +Ø Board Experience—Experience serving on public company boards of directors. +Ø Data/Analytics—A demonstrated understanding of data and analytics, as well as the ability to commercialize the resulting processes, techniques and/or insights. +Ø Diversity—Representation of gender, racial, ethnic and/or other diverse perspectives that expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, governments and other stakeholders worldwide. +Ø Financial Sophistication—Past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. +Ø Growth/Value Creation—Demonstrated experience in entrepreneurial growth and/or other transformational operating models resulting in measurable increase in stockholder value. +Ø Mergers and Acquisitions (M&A)—Experience evaluating and leading buy-and/or sell-side acquisitions and other strategic transactions, with the ability to assess “build or buy” decisions, analyze the fit of a target with our strategy and culture, accurately value transactions, and evaluate operational integration plans. +Ø Operating Leadership—Experience as a chief executive officer, president, chief operating officer or general manager leading an organization our size or bigger. +13 +TAB LE OF CONTENTS +Ø Product/Technology—Experience working in technology, resulting in knowledge of how to anticipate technological trends, generate disruptive innovation, and extend or create new business models. +Ø SaaS/IaaS—Experience in software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and/or subscription-based, software-enabled service delivery models. +Ø Sales and Marketing—Experience developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation. +Ø Smart Mobility—Experience related to the application of cloud computing, artificial intelligence, advanced sensors, advisory services and/or managed services to the transportation sector, including mobility-as-a-service, connected and automated vehicles and/or transportation infrastructure. +Director Qualifications Matrix +Board members should possess a combination of the skills, professional experience and diversity of viewpoints and backgrounds necessary to oversee the Company’s business. The following matrix presents how the NCG Committee maps our director qualifications (other than diversity, which is covered under “Board Diversity” below) to the director nominees and led to each nominee’s selection as a member of the Board. The NCG Committee routinely reviews this qualification matrix, modifies the matrix to reflect adjustments to our business strategy and/or market landscape, and evaluates whether it would be prudent to make any changes to the size or composition of our Board . +Qualification +Joe +Bergera +Gary +Hall +Gerard Mooney +Laura Siegal +Tom Thomas +Kimberly Valentine-Poska +Dennis Zank +Competencies & Expertise +Board Experience +√ √ √ √ √ +Data/Analytics +√ √ √ √ +Financial Sophistication +√ √ √ √ √ √ √ +Growth/Value Creation +√ √ √ √ √ √ √ +M & A +√ √ √ √ √ √ √ +Operating Leadership +√ √ √ +Product/Technology +√ √ √ √ √ +SaaS/IaaS +√ √ √ √ +Sales & Marketing +√ √ √ √ √ √ +Smart Mobility +√ √ √ +Board Diversity +The Company is committed to fostering an environment of diversity and inclusion, including among the members of its Board. Therefore, in considering director nominees, the NCG Committee considers candidates who represent a mix of backgrounds and a diversity of gender, race, ethnicity, age, background, professional experience and perspectives that enhance the quality of the deliberations and decisions of the Board, in the context of both the perceived needs of the structure of the Board and the Company's business and structure at that point in time. +14 +TAB LE OF CONTENTS +Selection Process for Nomination of Director Candidates +The NCG Committee regularly reviews the composition of the Board, including the qualifications, expertise and characteristics that are represented in the current Board as well as the criteria it considers needed to support the operating requirements of the Company and our long-term strategy. In its search processes to add new directors to the Board, the NCG Committee may retain an independent search firm to identify and evaluate candidates, which it did in our search that resulted in the recent additions of Mr. Hall and Ms. Valentine-Poska to our Board. After an in-depth review of the candidates, the NCG Committee recommends candidates to the Board in accordance with its charter, our certificate of incorporation and bylaws, our criteria for director candidate qualifications, and U.S. legal, regulatory and Nasdaq listing requirements described above. After careful review and consideration, the Board will nominate candidates for election, or re-election, at our annual meeting of stockholders. The Board may appoint a director to the Board during the course of the year to serve until the next meeting of stockholders. +15 +TAB LE OF CONTENTS +Director Tenure and Refreshment +When recommending to the Board the slate of director nominees for election at our annual meeting of stockholders, the NCG Committee strives to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. The Board believes that refreshment is important to help ensure that Board composition is aligned with the needs of the Company as our business evolves over time, and that fresh viewpoints and perspectives are regularly considered. The Board also believes that over time directors develop an understanding of the Company and an ability to work effectively as a group. Because this provides significant value, a degree of continuity year-over-year is beneficial to stockholders and generally should be expected. All our directors are elected each year to hold office until the next annual meeting and until their successors are elected and qualified. Because tenure or age limits could cause the loss of experience or expertise important to the optimal operation of the Board, there are no absolute limits on the length of time that a director may serve. +Our director nominees have average tenure on our Board of approximately 7 years, evidencing the Board refreshment we have undertaken in recent years. The following table shows the range of tenures of our director nominees: +Years of Tenure Directors +0–5 years 4 +6–9 years 2 +10+ years 1 +Stockholder Nomination of Director Candidates +The NCG Committee will consider candidates for directors recommended by our stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in our next proxy statement. This committee will evaluate such recommendations applying its regular nominee criteria. Eligible stockholders wishing to recommend a nominee must submit such recommendation in writing to the NCG Committee Chair, care of our Corporate Secretary, by the deadline for stockholder proposals set forth in our last proxy statement, specifying the following information: (a) the name and address of the nominee, (b) the name and address of the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of our stock and entitled to vote at the next annual meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) the nominee’s qualifications for membership on the Board, (e) all of the information that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, (f) a description of all direct or indirect arrangements or understandings between the nominating stockholder and the nominee and any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, (g) all other companies to which the nominee is being recommended as a nominee for director, and (h) a signed consent of the nominee to cooperate with reasonable background checks and personal interviews, and to serve as a director, if +16 +TAB LE OF CONTENTS +elected. In connection with its evaluation, the NCG Committee may request additional information from the candidate or the recommending stockholder, and may request an interview with the candidate. The NCG Committee has the discretion to decide which individuals to recommend for nomination as directors. +No candidates for director nominations were submitted to the NCG Committee by any stockholder in connection with the election of directors at the Annual Meeting. +Risk Oversight Role +The Board is responsible for overseeing our risk management, but its duties in this regard are supplemented by certain committees of the Board, as described in the table below. In connection with its responsibilities relating to risk assessment, our full Board periodically engages in discussions of the most significant risks that the Company is facing (including cyber security risks); and how these risks are being managed. +Audit Committee +• Focuses on financial risk of the Company. +• Reviews internal controls and the Company’s financial statements with the Chief Executive Officer, Chief Financial Officer and the external and internal auditors. +• Oversees risks assessment and risk management (and its applicable processes) by management and our independent auditors relating to key financial, accounting and reporting policies. +• Oversees the selection, appointment, retention, compensation, evaluation and performance of the work of the Company’s independent auditors. +• Meets quarterly and on an “as-needed” basis with Chief Executive Officer, Chief Financial Officer and the Company’s external independent auditors. +Compensation Committee +• Oversees risks associated with our compensation policies and programs with respect to both executive compensation and compensation for all employees generally. +• Utilizes external independent compensation consultant to assist in designing and reviewing compensation policies and programs, including the potential risks created by the policies and programs. +• Assists Board in overseeing the Company’s executive management succession planning. +• Oversees the process for conducting the annual risk assessment of the Company’s compensation programs and policies, including retaining, from time to time, third party consultants to assess risk. See “Compensation Risk Assessment” below. +Nominating and Corporate Governance Committee +• Oversees risks relating to certain legal and regulatory compliance risks with respect to the Company’s corporate governance policies and standards. +• Oversees compliance and risks related to Board structure, directors and director nominations. +• Oversees risks related to compliance matters by reviewing on at least an annual basis issues and developments related to corporate governance. +• Oversees risks related to the Company’s compliance with applicable stock exchange listing standards and the Sarbanes-Oxley Act. +Changes in Nominating Procedures +There have not been any material changes to the procedures by which security holders may recommend nominees to our Board that were implemented since we last disclosed such procedures. +Stockholder Communications +The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board, any committee of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from stockholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Stockholders who wish to communicate with the Board can submit a written request to Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, Texas 78746; Attention: Corporate Secretary or by email at proxymaterials@iteris.com. +17 +TAB LE OF CONTENTS +Annual Meeting Attendance +We do not have a formal policy regarding attendance by members of our Board at annual meetings of our stockholders; however, directors are encouraged to attend all such meetings. One of our then-current directors attended our 2022 annual mee ting of stockholders. +Policy against Hedging and Pledging +The Company has a policy that strongly discourages hedging or pledging in our equity securities by our officers, directors or employees. +D IRECTOR C OMPENSATION +Compensation of directors is determined by the Compensation Committee. The Compensation Committee has approved a compensation structure for nonemployee directors consisting of a cash retainer, an annual equity award and, for Board members serving on a committee, an additional cash retainer. Directors who are also employees of the Company are not compensated for their services as directors. To assist with the Compensation Committee’s review of the nonemployee Board member compensation in Fiscal 2023, the Compensation Committee engaged an independent compensation consultant, FW Cook, to perform a review of our nonemployee director compensation which includes an analysis of market trends and the appropriateness of the program with respect to our business characteristics. +Board and Committee Retainers +The current annual cash compensation for nonemployee directors for Fiscal 2023 consisted of the following: +Position Annual +Retainer +Chairman of the Board $80,000 +Nonemployee Director (other than the Chairman) $40,000 +Additional current retainers for each nonemployee director who served on one or more Board committees in Fiscal 2023 were as follows: +Position Annual +Retainer +Audit Committee +Chair $20,000 +Member $10,000 +Compensation Committee +Chair $15,000 +Member $7,500 +Nominating and Corporate Governance Committee +Chair $10,000 +Member $5,000 +All directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of our Board and its committees, but they do not receive separate meeting fees. +Annual Equity Compensation +Nonemployee directors are also eligible to receive periodic grants of restricted stock units (“RSUs”) under the Company’s equity incentive plan then in effect. Each nonemployee director shall be granted an annual RSU award upon approval of the grant by the Compensation Committee as soon as reasonably practicable following the annual meeting of stockholders at which such director is re-elected. The current annual RSU grant to directors is worth approximately $80,000 based on the closing price of the Company’s common stock on the RSU grant date. Each RSU entitles the holder to receive one share of the Company’s common stock upon vesting of such unit. Each annual RSU generally vests on the date of the first annual stockholder meeting following the date of grant. If a nonemployee director joins the Board in between annual stockholder meetings, generally such director will receive an RSU for a pro rata portion of the annual grant, which typically vests in full on the date of the first annual stockholder meeting following the date of grant. +18 +TAB LE OF CONTENTS +2023 Director Compensation Table +The following table sets forth a summary of the compensation earned in Fiscal 2023 by each person who served as a nonemployee director during that year: +Name +Fees Earned +or Paid in +Cash ($) (1) +Stock +Awards ($) (2) +Total ($) +Gerard M. Mooney $60,381 $80,000 $140,381 +Laura L. Siegal 57,500 80,000 137,500 +Thomas L. Thomas 110,627 80,000 190,627 +Dennis W. Zank 72,883 80,000 152,883 +_______________________ +(1) Represents amounts earned by the directors based on the arrangements described above, which amounts have been prorated for directors who served on Board committees for less than a full term. +(2) The dollar amounts shown represent the grant date fair value of RSUs granted in Fiscal 2023 determined in accordance with ASC 718. For a discussion of valuation assumptions used in the calculations, see Note 9 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2023. See also our discussion of stock-based compensation in Note 1 to the Financial Statements in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2023. +For each director, the number of units was determined by dividing $80,000 by $3.21, the closing sales price of the Company’s common stock on the grant date. At the end of Fiscal 2023, the above-listed directors held no stock options. At the end of Fiscal 2023, the above listed directors held RSUs for the following number of shares of common stock: Ms. Mooney— 24,922; Ms. Siegal — 24,922; Mr. Thomas — 24,922 and Mr. Zank — 24,922. +Director and Management Stock Ownership Guidelines +Pursuant to stock ownership guidelines originally adopted by the Board in February 2016 and amended in March 2023, each nonemployee director is required to own shares of the Company’s common stock having a value equal to or greater than five times the annual cash Board retainer, which is currently set at $40,000 per year. The revised guidelines require each nonemployee director to retain 100% of their equity compensation until the threshold is met and thereafter maintain such ownership at or above the threshold, which replaces the prior five-year time period to achieve compliance. The revised guidelines also give nonemployee directors the option to receive their annual cash board retainer in equity, which would be granted upfront at the annual meeting and vest when cash otherwise would have been paid. +Effective September 2020, the Company adopted additional stock ownership guidelines to align the interests of management with those of stockholders of the company. Under these guidelines, the Chief Executive Officer will be expected to own common stock of the Company having a value equal to or greater than three times his or her base salary and the other executive officers are expected to own common stock of the Company having a value equal to or greater than one times his or her base salary. Each executive has the goal of meeting this threshold by the later of (i) September 2025 and (ii) the fifth anniversary of his or her first employment as an executive officer. +All shares of Company capital stock held by the director or executive officer, his or her related trusts and immediate family members, and shares underlying restricted stock units or performance stock units(subject to repurchase or forfeiture restrictions that will lapse based solely on continued employment and/or the passage of time) shall be included in the calculations. +As of March 31, 2023, our most recent fiscal year end, each of our nonemployee directors and executive officers were in compliance with our stock ownership guidelines or had additional time under the terms of the stock ownership guidelines within which to fulfill the requirement. +Deferred Compensation Plan +Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act, or ERISA, and one for the benefit of nonemployee members of our Board. Under the DC Plan, our nonemployee directors may elect to defer up to 100% of any RSU awards and up to 100% of their cash compensation for service as a director. A participant is always 100% vested in his or her own elective cash +19 +TAB LE OF CONTENTS +deferrals and any earnings thereon. For a description of the terms of the DC Plan, see “Executive Compensation and Other Information — Non-Qualified Deferred Compensation for Fiscal 2023” herein. +Compensation Committee Interlocks and Insider Participation +None of our executive officers serves as a member of a board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or Compensation Committee. No interlocking relationship exists between any member of our Board and any member of a compensation committee (or other committee performing equivalent functions) of any other company. +20 +TAB LE OF CONTENTS +P ROPOSAL 2: A DVISORY V OTE R EGARDING E XECUTIVE C OMPENSATION +In accordance with Section 14A of the Exchange Act, stockholders have the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers. Commonly known as a “say-on-pay” vote, this proposal gives our stockholders the opportunity to express their views on our executive compensation policies and programs and the compensation paid to the named executive officers. +We are asking our stockholders to indicate their support of the compensation of our named executive officers, as described in this proxy statement by approving the following resolution at the Annual Meeting: +“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2023 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion, is hereby approved.” +The Board of Directors recommends a vote FOR approval of the advisory resolution because it believes that the Company’s executive compensation policies and practices are effective in achieving the Company’s goals of attracting, retaining, and motivating highly talented executives, rewarding sustained financial and operating performance, and aligning the executives’ interests with those of the stockholders. +The vote on this proposal is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. Although the vote is non-binding, the Board of Directors and the Compensation Committee will review and consider the voting results in future decisions regarding executive compensation. +Stockholder Approval +The affirmative vote of a majority of the common stock represented and entitled to vote at the Annual Meeting, will be required for approval of this proposal. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. +21 +TAB LE OF CONTENTS +E XECUTIVE O FFICERS +The table below sets forth certain information, as of July 27, 2023, regarding our executive officers. +Name Age Capacities in Which Served +Joe Bergera 59 Chief Executive Officer, President and Director +Kerry A. Shiba 68 Senior Vice President and Chief Financial Officer, Treasurer, and Secretary +Todd Kreter 63 Senior Vice President and Chief Technology Officer +William M. Cousins 52 Senior Vice President and Chief Product Officer +The following is a brief description of the capacities in which the above persons have served the Company and their business experience during at least the past five (5) years. The biography of Mr. Bergera appears earlier in this proxy statement. See “Proposal 1: Election of Directors.” +Kerry A. Shiba has served as Senior Vice President and Chief Financial Officer, Treasurer, and Secretary since he joined Iteris on February 3, 2023. Mr. Shiba has over 40 years of experience leading finance and accounting organizations for large-scale manufacturers and distributors. He has also played key roles in guiding strategy, including business acquisitions and divestitures, market focus and operating efficiency. Most recently, he served as Chief Financial Officer for Romeo Power, Inc. (NYSE: RMO) (“Romeo”), until a successful sale of the company to Romeo’s largest customer in August 2022. Romeo was a leading independent designer and producer of battery modules and packs primarily used in commercial electric vehicles. Prior to joining Romeo, Mr. Shiba served as Executive Vice President and Chief Financial Officer of Wesco Aircraft Holdings, Inc. (NYSE: WAIR) (“Wesco”), a distributor and service provider of aircraft hardware and chemicals, from 2017 to 2021, until a successful sale of the company to Platinum Equity. Before joining Wesco, Mr. Shiba served as Executive Vice President, Chief Financial Officer and Secretary of Superior Industries International, Inc. (NYSE: SUP) (“Superior”), the second largest global manufacturer of aluminum wheels for the automotive industry, from 2010 to 2017. Prior to Superior, Mr. Shiba served as Senior Vice President, Chief Financial and Restructuring Officer and President of the Original Equipment Business Unit at Remy International, Inc., a leading manufacturer of rotating electrical components for the automotive industry, from 2006 to 2008. Earlier in his career, Mr. Shiba served in various roles within the finance and accounting organizations at Kaiser Aluminum Corporation (NASDAQ: KALU) (“Kaiser Aluminum”), a leading producer of fabricated aluminum products for aerospace, general engineering, automotive and custom industrial applications, from 1998 to 2006. Mr. Shiba’s tenure at Kaiser Aluminum included service as Vice President and Controller, Fabricated Products Group from 1998 to 2002; Vice President and Treasurer from 2002 to 2004; and Vice President and Chief Financial Officer from 2004 to 2006. Prior to joining Kaiser Aluminum, he served in various roles within the finance and accounting organization at The BF Goodrich Company (“Goodrich”) from 1981 to 1998, concluding his career at Goodrich as the Vice President and Controller of Specialty Chemicals. Mr. Shiba began his career at Ernst & Ernst, now Ernst & Young, L.L.P., where he served on the audit staff, and later as a consultant, from 1978 to 1981. Mr. Shiba holds a B.A. degree in Accounting and Political Science from Baldwin Wallace College. +Todd Kreter has served as our Senior Vice President and Chief Technology Officer since June 1, 2022. In this capacity, he is responsible for all aspects of development for our sensors, software, and ClearMobility cloud. Prior to this role, Mr. Kreter held various leadership positions in our sensors line of business. Following a reorganization on April 1, 2021, Mr. Kreter assumed the title of Senior Vice President and General Manager, Advanced Sensors Technologies. From May 2014 to March 2021, he held the title of Senior Vice President and General Manager, Roadway Sensors. Mr. Kreter served as our Senior Vice President, Sensors Development and Operations from May 2009 to May 2014 and as Vice President of Engineering from November 2007 to May 2009. Prior to joining us, Mr. Kreter served in a number of executive positions at Quantum Corporation, most recently as the VP Global Services from 2004 to January 2007, where he managed the company’s worldwide customer service organization. Mr. Kreter holds a B.S. degree in Mechanical Engineering from California State University, Fullerton. +William M. Cousins has served as our Senior Vice President and Chief Product Officer since he joined Iteris in March 2022. In this role, he has a mandate to expand and manage our ClearMobility portfolio, including sensors, software and mobility data. Most recently, Mr. Cousins served as Vice President of Product Management at Zonar Systems, Inc. (“Zonar”), a wholly owned subsidiary of Continental AG (ETR: CON), a leader in smart fleet technology solutions. Upon joining Zonar in October 2018, Mr. Cousins was responsible for products, design, and automotive OEM solutions, and for shipping cutting-edge hardware devices to connect commercial vehicles to the cloud. Prior to joining Zonar, Mr. Cousins served in various roles within the product management organization of Nuance Communications, Inc. (NASDAQ: NUAN) (“Nuance”), a leading provider of conversational AI and cloud-based ambient clinical intelligence for healthcare providers, from 2012 to 2018, most recently serving as Senior Director Product Management. Nuance was acquired by Microsoft Corp in April 2021. Prior to Nuance, Mr. Cousins served as Executive Vice President of Product and Engineering of GridPoint, Inc., a leader in data-driven energy management and optimization solutions, from 2009 to 2012. Prior to that, Mr. Cousins served as Vice President Marketing and Product Management of Twisted Pair Solutions, a developer of unified group communications software for WAVE, a VoIP-based software application, from 2005 to 2009. Twisted Pair Solution was acquired by Motorola Solutions, Inc. (NYSE: MSI) in +22 +TAB LE OF CONTENTS +January 2014. Prior to that, Mr. Cousins held roles at public companies, such as Microsoft Corp, AT&T Wireless (NYSE: T), and TeleCommunication Systems, Inc. (a subsidiary to Comtech Telecommunications Corp. (NASDAQ: CMTL)). Mr. Cousins holds a B.A. degree at the University of Arizona and an M.B.A. from the Thunderbird School of Global Management (now Arizona State University). +23 +TAB LE OF CONTENTS +E XECUTIVE C OMPENSATION AND O THER I NFORMATION +Executive Compensation +The following is a summary of the compensation policies, plans and arrangements for our executive officers. This summary should be read in conjunction with the Summary Compensation Table and related disclosures set forth below. We are eligible to, and in some areas have chosen to, comply with the executive compensation disclosure rules applicable to a “smaller reporting company,” as defined in the applicable SEC rules, but we have voluntarily included additional disclosure to help our stockholders understand our executive compensation program. This section discusses the principles underlying our compensation policies for the officers named in the “Summary Compensation Table” below. We refer to these individuals as our “named executive officers” or “NEOs” for Fiscal 2023: +• Joe Bergera, our Chief Executive Officer, President and Director; +• Douglas L. Groves, who was our Chief Financial Officer, Senior Vice President of Finance and Secretary until February 2023; +• Kerry A. Shiba, our Senior Vice President and Chief Financial Officer, Treasurer, and Secretary since February 2023; +• Todd Kreter, our Senior Vice President and Chief Technology Officer; and +• William M. Cousins, our Senior Vice President and Chief Product Officer. +Fiscal 2023 Business Results Summary +We are a provider of smart mobility infrastructure management solutions. Municipalities, government agencies, and other transportation infrastructure providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. We continued to make progress across a range of financial and strategic dimensions in Fiscal 2023; however, the global supply chain issues had a significant, adverse impact on both our financial and operational performance. Key financial results for Fiscal 2023 include: +• Total revenue of $156.1 million, up 17% year over year; +• Net loss from continuing operations of $14.9 million, or $(0.35) per share, which is a $7.8 million, or $0.19 per share higher loss compared to the prior year, primarily due to global supply chain disruptions and associated cost increases; +• Adjusted EBITDA (1) loss of $6.6 million, a $11.1 million higher loss year over year due to global supply chain disruptions and associated higher costs; +• Total net bookings (2) of $170.3 million, up 9.6% year over year; and +• Ending backlog (3) of $114.2 million, up 14% year over year. +_______________________ +(1) We define Adjusted EBITDA as adjusted income (loss) from continuing operations before taxes, depreciation, amortization, interest expense, stock-based compensation expense, restructuring charges, project loss reserves, acquisition costs, acquisition fair value adjustments, and executive severance and transition costs. For more information, refer to “Non-GAAP Financial Measures” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for Fiscal 2023. +(2) We define net bookings as the total dollar value of all definitive contracts executed during the relevant period, net of cancellations of previously authorized contract funding. See footnote (3) below for important information about net bookings. +(3) We define backlog as future unearned revenue amounts believed to be firm that are to be earned under our existing agreements. Backlog does not represent the total contract award if a firm purchase order or task order has not yet been issued under the contract. Backlog is not included in deferred revenue on our balance sheets. Backlog includes net bookings but does not include announced orders for which definitive contracts have not been executed. We believe net bookings and backlog are useful operating metrics for investors, given their relevance to total orders, but there can be no assurances when, if ever, we will recognize revenue from net bookings or backlog. For more information, refer to “Backlog” starting on page 9 in Part I, Item 1 of the Company’s Annual Report on Form 10-K for Fiscal 2023. +24 +TAB LE OF CONTENTS +Fiscal 2023 Executive Compensation Results Overview +Our named executive officer compensation program is composed of three elements: base salary, short-term annual incentives, and long-term equity incentives. The base salaries reflect the market for similar roles at similar companies. The short-term incentives program has specific targets tied to the Company’s annual financial performance. The long-term incentives consist of a mix between stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”). +Below is a summary of the results of our executive compensation program for Fiscal 2023: +• Base Salaries . In the first half of Fiscal 2023, after reviewing pay governance guidelines, receiving guidance from independent compensation consultant, FW Cook, reviewing prevailing compensation practices, and evaluating recent Company performance and liquidity, the Compensation Committee did not authorize base salary increases for the named executive officers for Fiscal 2023. +• Annual Incentives . Our named executive officers’ target bonuses for Fiscal 2023 remained generally unchanged from the target bonus levels in place during Fiscal 2022. Messrs. Bergera and Groves’ annual bonus performance metrics were revenue and adjusted EBITDA. In addition to revenue and adjusted EBITDA, the annual bonus for Mr. Kreter and Cousins included metrics for hardware and software revenue, as well as hardware and software gross margins. Based on his offer of employment, Mr. Shiba, who joined the Company in February 2023, received a guaranteed pro-rated bonus in the amount of $30,000 for Fiscal 2023. +• Long-Term Incentives . Commencing in Fiscal 2021, in response to stockholder feedback, the Company updated its long-term incentive compensation program to incorporate the use of PSUs for 25% of the long-term opportunity. The remaining portion consisted of 50% in stock options and 25% in RSUs. PSUs are earned based on the Company’s average revenues per share and cash flow from operations performance, as well as the Company’s relative total stockholder return (“rTSR”) versus the Russell 2000. See “Fiscal 2023 Long-Term Incentive Awards” below for further details about updates to the executive compensation plan for Fiscal 2023. +Characteristics of our Executive Compensation Programs +Our executive compensation programs include a number of practices intended to align the interests of management and our stockholders. +What We Have What We Do Not Have +Ø We have approximately 68% of target direct compensation for the chief executive officer (and 53% of the other named executive officers) that is performance-based or is at-risk +Ø We have a performance-based long term incentive plan that utilizes PSUs, RSUs, and stock options +Ø We have a clawback policy for incentive compensation +Ø We have stock ownership guidelines for executive officers and directors +Ø We have an independent compensation consultant to advise our Compensation Committee +Ø We make ongoing stockholder outreach efforts to obtain input on our compensation practices +ü We do not provide 280G excise tax gross-ups +ü We do not provide any pension or supplemental defined retirement benefits +ü We do not provide for any “single trigger” equity vesting for equity awards +ü We prohibit repricing options without shareholder approval +ü We prohibit granting stock options with an exercise price below 100% of fair market value at the time of grant +ü We do not provide any perquisites +Impact of 2022 Say-on-Pay Vote +The most recent stockholder advisory vote on named executive officer compensation required under the SEC rules was held on September 18, 2022. Approximately 73.59% of the total votes cast on such proposal were in favor of the compensation of our named executive officers. +As the Company continues to grow and mature, the Compensation Committee will continue to make appropriate adjustments to our management team’s long-term incentive compensation. Currently, based on the voting preference of the Company’s stockholders, advisory votes on executive officer compensation will be conducted every year. The Compensation Committee will +25 +TAB LE OF CONTENTS +continue to take into account each such advisory vote in order to determine whether any subsequent changes to the Company’s executive compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes. +Compensation Philosophy and Objectives +Our executive compensation plans and arrangements are overseen and administered by our Compensation Committee, which is comprised entirely of independent directors as determined in accordance with applicable Nasdaq and SEC rules. Our philosophy is to provide our named executive officers with compensation that will motivate and retain them, provide them with meaningful incentives to achieve and exceed short-term and long-term corporate objectives set by our Compensation Committee, and align their long-term interests with those of our stockholders. Based on this philosophy, the compensation programs for our named executive officers are designed to achieve the following primary objectives: +• establish a compensation structure that is competitive enough to attract, retain and motivate outstanding executive talent; +• ensure cash incentive compensation for named executive officers is aligned to our corporate strategies and business objectives by tying payouts under such programs to achievement of key strategic, financial and operational goals; and +• utilize long-term equity awards to align interests between our named executive officers and stockholders. +Annual Review of Cash and Equity Compensation; Role of Compensation Consultant +We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers to ensure that compensation is structured appropriately to achieve our objectives. We review each component of compensation as related but distinct. Although the Compensation Committee reviews total compensation, it has not adopted any formal guidelines for allocating total compensation between cash and equity compensation. We determine the appropriate level of each compensation component based in part, but not exclusively, on our retention goals and short-term and long-term objectives. +This review generally occurs in the first quarter of each fiscal year, at which time the Compensation Committee establishes executive officer base salaries for the following fiscal year, reviews and approves any bonus awards and programs, establishes the performance objectives for our cash-based bonus plan, may grant equity compensation to the executive officers to ensure their interests are aligned with our stockholders and for retention, and establishes performance targets for any performance-based equity compensation. +In Fiscal 2023, the Compensation Committee retained the services of an independent compensation consulting firm, FW Cook, to provide advice regarding compensation for directors and named executive officers. FW Cook provided the Compensation Committee with market data and analysis of our compensation for directors and named executive officers as compared with the competitive market. FW Cook reports only to the Compensation Committee and did not perform any other work for the Company during Fiscal 2023 beyond its services related to director and named executive officer compensation. As provided in its charter, the Compensation Committee has the authority to determine the scope of FW Cook’s services and may terminate their engagement at any time. +As part of the review process, our Chief Executive Officer makes recommendations to the Compensation Committee regarding the base salary, cash bonus potential and long-term equity incentive awards for each of our executive officers other than himself based on each officer’s level of responsibility, individual performance and contribution to the attainment of our strategic corporate objectives and market data. Our Compensation Committee takes the Chief Executive Officer’s recommendations into consideration in setting named executive officer compensation, but retains complete discretionary authority to make all compensation-related decisions for our named executive officers. With respect to the Chief Executive Officer, the Compensation Committee makes compensation decisions based on relevant market data from a variety of sources and a subjective assessment of individual performance and contributions to our overall corporate performance. Any decisions regarding our Chief Executive Officer’s compensation are made without him present. +Peer Groups +The Compensation Committee benchmarks our compensation programs to a peer group, which consists of publicly-traded technology companies in the applications software, systems software, and technology hardware industry categories, that are similar in size, as measured by revenues and market capitalization. +The peer group used for Fiscal 2023 comparisons was originally developed in November 2021. Since then, the peer group has been modified annually to eliminate the three to seven companies that were acquired or became much larger or smaller, and add replacement companies that are closer to the Company in size. Nine of the 10 companies added over the last two years are +26 +TAB LE OF CONTENTS +considered peer companies by leading proxy advisory firm Institutional Shareholder Services (also known as ISS), and also in some cases by Glass-Lewis, another leading proxy advisory firm. +The criteria used to determine the Fiscal 2023 peer group were publicly-traded technology companies in the applications software, systems software, and technology hardware industry categories, which generally includes our competitors for labor and/or capital. The Fiscal 2023 peer group excludes “internet software and services” companies that fall within the broader software category and “semiconductor” companies that fall within the broader hardware category, as they are generally not relevant competitors. The peer group’s size ranges from 1/3 to 3 times Iteris in revenues and 1/4 to 4 times Iteris in market capitalization, where Iteris ideally would fall at the median in both metrics, and have broadly similar equity valuations relative to revenues. – In addition, the peer companies are generally headquartered in major metropolitan areas, reflecting similar cost of living as Iteris. +The Fiscal 2023 peer group consisted of the following companies: +• A10 Networks, Inc. +• Agilysys, Inc. +• American Software, Inc. +• Applied Optoelectronics, Inc. +• Aviat Networks, Inc. +• Clearfield, Inc. +• Digi International Inc. +• EMCORE Corporation +• Indentiv, Inc. +• Intevac, Inc. +• Intricon Corporation +• KVH Industries, Inc. +• Luna Innovations Incorporated +• Mitek Systems, Inc. +• Napco Security Technologies, Inc. +• PCTEL, Inc. +• PowerFleet, Inc. +• RealNetworks, Inc. +• Vishay Precision Group, Inc. +• Zix Corporation +_______________________ +The Compensation Committee evaluates our compensation program versus that of the peer companies with respect to both individual pay levels as well as the structure of the program. The Compensation Committee uses this data primarily to ensure that our executive compensation program as a whole is competitive. Market data is one of several factors that is used for evaluation. Other factors may include individual and company performance, experience in the role, responsibility level, and internal equity. +27 +TAB LE OF CONTENTS +Compensation Components and Structure +We utilize three main components in structuring compensation programs for our named executive officers: +Pay Component Rationale and Value to Stockholders +Base Salary +• Constitutes the only fixed compensation element in the executive compensation program +• Provides an element of economic security that is necessary to recruit and retain executive talent +• Reflects competitive market conditions +Performance-Based Cash Bonus +(Short-Term Incentive Program) +• Motivates achievement of strategic priorities for the fiscal year as measured by financial and operational metrics +• Provides diversified group of metrics to drive growth and stockholder value +Equity Incentive Awards +(Options, +RSUs and PSUs) +• Encourages focus on long-term stockholder value creation (e.g., PSUs link compensation to achievement of specified corporate performance objectives) +• Aligns to stockholders' interests +• Provides long-term retention incentive for our executive talent +Our Compensation Committee allocates a substantial portion of each named executive officer’s total compensation to performance and long-term incentive compensation as a result of the philosophy described above. While the Compensation Committee does establish specific performance criteria for its cash bonus plan each year, there is no formal pre-established policy for the allocation of compensation between cash and non-cash components or between short-term and long-term components, and there are no pre-established ratios between the compensation of our Chief Executive Officer and that of the other named executive officers. Instead, our Compensation Committee determines the compensation of each named executive officer annually based on its review of the market data, its subjective analysis of that individual’s performance and contribution to our financial performance and the other factors identified in the “Annual Review of Cash and Equity Compensation” section above to determine the appropriate level and balance of total compensation. We believe that this approach allows us to tailor compensation for each named executive officer to attract, retain and motivate that executive officer within the parameters of our compensation philosophy. +Base Salaries. Base salaries are set at levels that are intended to recognize the experience, skills, knowledge and responsibilities required of all of our named executive officers. Each named executive officer’s base salary is typically reviewed on an annual basis and adjustments (if any) may be made to the individual’s base salary based on his or her level of performance, the overall performance of the Company and the various compensation trends in our industry. +In June 2022, the Compensation Committee reviewed the base salaries of the named executive officers and did not authorize any base salary increases for its named executive officers, in part due to the impact of global supply chain constraints on the Company’s financial and operational performance. The following table presents the Fiscal 2023 base salaries for our named executive officers: +28 +TAB LE OF CONTENTS +Named Executive Officer Fiscal 2023 +Annual Base +Salary +Joe Bergera $445,000 +Douglas L. Groves (1) +412,500 +Kerry A. Shiba (2) +425,000 +Todd Kreter 300,000 +William M. Cousins 295,000 +_______________________ +(1) Mr. Groves ceased to serve as our Chief Financial officer, Senior Vice President of Finance and Secretary in February 2023. +(2) Mr. Shiba became our Senior Vice President and Chief Financial Officer, Treasurer, and Secretary in February 2023. +Fiscal 2023 Cash-Based Bonus Plan (“2023 Bonus Plan”). Our named executive officers are eligible to receive an annual cash-based bonus under our 2023 Bonus Plan. Each year, our Compensation Committee establishes the performance objectives to be attained and the target bonuses payable based on the level of attainment of the specified goals. For Fiscal 2023, Company revenues and adjusted EBITDA goals applied to all NEOs, and hardware and software revenue and gross margins were additional goals for Messrs. Kreter and Cousins. Additionally, the cash-based bonus for all our executive officers includes personal objectives developed by the Compensation Committee (sometimes referred to as “MBOs,” from “management by objectives”). +The corporate hardware and software performance targets and the actual achievement of such objectives for Fiscal 2023 were as follows: +Performance Components Threshold +($) Target +($) Maximum +($) Actual +($) +Attained +(%) +Total Company Revenue 137,025 152,250 228,375 156,052 102 % +Total Company Adjusted EBITDA 5,719 8,170 9,804 (6,626) (81) % +Hardware and Software Revenue 87,119 96,798 145,197 98,309 102 % +Hardware and Software Contribution Margin 22,964 32,805 39,366 22,885 70 % +Under the Fiscal 2023 plan, if performance is below the “Threshold” goal amounts shown above, no bonus would be payable for that particular objective. If performance exceeds the “Maximum” goal amounts above, the NEOs could earn up to a maximum of 200% of their target opportunity for that particular objective. The combined maximum potential payout of the defined bonus elements is 160%. When combined with the 20% for personal objectives, the total maximum payouts for NEOs are 180%. Payouts in between the Threshold and Maximum levels above would be determined using linear interpolation. +The Compensation Committee typically meets near the end of the first fiscal quarter of each year to evaluate each NEO’s achievement of their respective MBOs and annual bonuses are typically paid out as soon as practicable thereafter. +Mr. Bergera’s Fiscal 2023 MBOs included reorganizing the Company to better align operations with our platform-based strategy, mitigating the impacts of global supply chain constraints, accelerating the growth of annual recurring revenue, implementing various other operational improvements, and achieving certain investor relations goals. The Compensation Committee determined Mr. Bergera achieved 58% of his MBO objectives in Fiscal 2023. +Mr. Groves’ Fiscal 2023 MBOs included assuming responsibility for the Company’s manufacturing and supply chain organization with the goal of improving it, delivering against internal applications and cyber-security roadmaps, driving the implementation of various “Lean” process initiatives, implementing various other operational improvements, and achieving certain investor relations goals. The Compensation Committee determined Mr. Groves achieved 45% of the MBOs objectives in Fiscal 2023. +Mr. Kreter’s Fiscal 2023 MBOs included mitigating the impacts of global supply chain constraints, reorganizing the Company to better align operations with our platform-based strategy, and achieving various software and hardware roadmap milestones. The Compensation Committee determined Mr. Kreter achieved 81% of his MBO objectives in Fiscal 2023. +29 +TAB LE OF CONTENTS +Mr. Cousins’ Fiscal 2023 MBOs included restructuring his organization to accelerate execution of our platform-based strategy, accelerating adoption of SaaS and DaaS products, unifying our software and hardware roadmaps, and driving the market introduction of certain new product concepts. The Compensation Committee determined Mr. Cousins achieved 75% of his MBO objectives in Fiscal 2023. +The performance objectives, target bonus and actual bonus for each of our named executive officers for Fiscal 2023 were as follows: +Named Executive Officer Performance +Objectives +Allocation +(%) 2023 Target +Bonus +($) 2023 Actual +Bonus +($) % of Target +Awarded +(%) +Joe Bergera $356,000 $212,461 60 % +Total Company Revenue 40 +Total Company Adjusted EBITDA 40 +MBOs 20 +Douglas L. Groves 226,875 129,319 57 % +Total Company Revenue 40 +Total Company Adjusted EBITDA 40 +MBOs 20 +Kerry A. Shiba +(1) +30,000 30,000 100 % +Todd Kreter 180,000 115,560 64 % +Hardware and Software Revenue 25 +Hardware and Software Contribution Margin 25 +Total Company Revenue 15 +Total Company Adjusted EBITDA 15 +MBOs 20 +William Cousins 177,000 111,634 63 % +Hardware and Software Revenue 25 +Hardware and Software Contribution Margin 25 +Total Company Revenue 15 +Total Company Adjusted EBITDA 15 +MBOs 20 +_______________________ +(1) Mr. Shiba joined us in February 2023 and pursuant to his employment agreement, we paid him a small guaranteed bonus for his short tenure during Fiscal Year 2023. +Equity Compensation. Our equity award program provides a long-term incentive for our named executive officers, as well as provides an inducement for long-term retention. Additionally, our equity component aligns the interests of our named executive officers with those of our stockholders, by focusing their attention on the creation of stockholder value in the form of stock price appreciation. In other words, we believe equity-based compensation provides our named executive officers with a direct interest in our long-term performance and creates an ownership culture that establishes a mutuality of interests between our named executive officers and our stockholders. We have had no formal written program, plan or practice pertaining to the timing of equity awards to named executive officers coinciding with the release of material non-public information, but as a matter of good corporate governance, we avoid making grants at times when the award recipients would inappropriately benefit as a result of us having material non-public information. +Fiscal 2023 Long-Term Incentive Awards . In response to prior stockholder feedback and in consultation with FW Cook, the Compensation Committee balanced long-term incentive compensation to include a mix of stock options (50%), RSUs (25%), and PSUs (25%) with percentages measured in terms of the total grant value on the date of award, as described below: +• 50% of the long-term incentive compensation for our named executive officers was granted in the form of stock options, which will vest based on continued service to the Company over a standard four-year vesting schedule. +• 25% of the long-term incentive compensation for our named executive officers was granted in the form of RSUs, with 50% vesting on each of the second and third anniversaries of the grant date, based on continued service to the Company. Each RSU represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied. +• 25% of the long-term compensation for our named executive officers was granted in the form of PSUs that are earned based on performance over a three-year period. Between 0% and 160% of the PSUs will be eligible to vest based on +30 +TAB LE OF CONTENTS +annual revenues per share and cash flow from operations goals that are established by the Compensation Committee at the beginning of each year during the three-year performance period. In addition, the final PSU vesting will be subject to a modifier between .75x-1.25x based on the Company’s rTSR versus the Russell 2000 (the “rTSR modifier”) during the full three-year performance period, for a maximum achievement opportunity of 200% of the “target” number of PSUs. The PSUs will vest at the end of the three-year period subject to the achievement of performance goals. +For purposes of the PSUs granted for Fiscal 2023, the annual performance metrics were as follows: +• Cash flow from operations — threshold, $6,880,000; target, $8,600,000; and maximum, $10,320,000 +• Revenues per share — threshold, $3.14; target, $3.49; and maximum, $3.84 +Actual performance for Fiscal 2023 was as follows: +• Cash flow from operations was negative $4,507,000, resulting in a 0% achievement compared to the target; and +• Revenues per share was $3.68, resulting in a 105% achievement compared to the target. +The following table shows achievement levels for each of the performance periods in Fiscal 2021, Fiscal 2022, and Fiscal 2023, the achievement level of the rTSR modifier over this three-year period, and the resulting shares that vested during Fiscal 2023 from the PSU's originally awarded during Fiscal 2021. Awards made in Fiscal 2022 and Fiscal 2023 remain unvested until the third anniversary of their respective grant dates. +12 months ended March 31, +2021 2022 2023 Vested +Named Executive Officer Fiscal 2021 Award Target Shares Performance Component % Attained Shares % Attained Shares % Attained Shares 3-Year rTSR Modifier % Attained Shares +Cash Flow From Operations 160% - 0% - 0% - - - - +Revenues per Share 102% - 98% - 133% - - - - +Achievement % 131% - 49% - 67% - 75% 61.6% - +Joe Bergera 31,123 131% 13,590 49% 5,075 67% 6,899 75% 61.6% 19,173 +Douglas L. Groves 12,449 131% 5,437 49% 2,030 67% 2,760 75% 61.6% 7,670 +Kerry A. Shiba (1) +- - - - - - - - - - +Todd Kreter 8,714 131% 3,806 49% 1,421 67% 1,932 75% 61.6% 5,369 +William M. Cousins (1) +- - - - - - - - - - +(1) Messrs. Shiba and Cousins were not employed by the Company at the time of the Fiscal 2021 PSU award. +Benefit Plans +Section 401(k) Plan. We make available a tax-qualified retirement plan that provides eligible employees, including our executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Participants are able to defer a portion of their eligible compensation, subject to applicable annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). Pre-tax contributions are allocated to each participant’s individual account and may be invested in selected alternative investments according to the participant’s direction. We currently match contribution for all participants in the 401(k) plan up to a maximum of 4% of the employee’s base salary. Such matching contribution is at the discretion of the Board and is typically evaluated on an annual basis. +Health and Welfare Benefits. Our named executive officers are eligible to participate in all our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe our health and welfare benefits contribute to our ability to attract and retain a productive and focused workforce in a highly competitive labor market. +Perquisites. We do not provide significant perquisites or personal benefits to any named executive officers. +Post-Employment Compensation +For a summary of the material terms and conditions of our post-employment compensation arrangements, see “— Potential Payments upon Termination or Change in Control” below. +31 +TAB LE OF CONTENTS +Incentive Compensation Clawback Policy +In July 2020, the Board adopted a Clawback Policy, which it amended in July 2023 to comply with the final rules implementing requirements of the Dodd-Frank Act effective in October 2023 (the “Clawback Policy”). The Clawback Policy is designed to create and maintain a culture that emphasizes integrity and accountability, as well as reinforces the Company’s pay-for-performance compensation philosophy. Under the Clawback Policy, the Compensation Committee may direct the Company to seek to recover incentive compensation awarded or paid to an executive officer or other employee of the Company deemed subject to the Clawback Policy for a fiscal period if the Company must subsequently restate its financial statements. The Clawback Policy is in addition to any recovery rights provided under applicable law. +Stock Ownership Guidelines +The Board has adopted stock ownership guidelines for the Company’s non-employee directors and executive officers. See “ Director Compensation ” above for a description of these guidelines. +Compensation Risk Assessment +The Compensation Committee has evaluated our compensation programs and policies as generally applicable to our employees to ascertain any potential material risks that may be created by the compensation programs. The Compensation Committee concluded that our compensation policies and practices, taken as a whole, are not reasonably likely to have a material adverse impact on our business or our financial condition. The following features help minimize the incentives for excessive risk-taking and keep our named executive officers focused on the creation of long-term, sustainable value for our stockholders: +• our base pay programs consist of generally competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks; +• a portion of each executive’s incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time, which reduces any incentive to take risks that might increase short-term compensation at the expense of longer term results; +• annual equity awards have multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, discourages the taking of short-term risk at the expense of long-term performance; and +• each officer has multiple performance objectives, some of which relate to the Company as a whole, which is more difficult for an officer to manipulate. +Accounting for Stock-Based Compensation +Under FASB ASC 718, we are required to estimate the grant date “fair value” for each grant of equity award using various assumptions. This calculation is performed for accounting purposes and reported in the compensation tables in this proxy statement, even though recipients may never realize any value from their awards. ASC 718 also requires us to recognize the compensation cost of stock-based awards in our income statements over the period that an employee is required to render service in exchange for the award. +• Stock Options . Under ASC 718, the grant date fair value of the stock options is determined pursuant to the Black-Scholes-Merton option pricing formula. +• RSUs . The grant date fair value of the RSUs is based on the closing price per share of our common stock on the date of grant. +• PSUs . As the PSUs are based on separate measurements of the Company’s financial performance for each year in the three-year performance cycle, ASC Topic 718 requires the grant date fair value to be calculated for the portion of the total award related to performance in each year. Therefore, the value in the Summary Compensation Table for 2021 includes one-third of the 2021 PSU grant (based on the portion of the grant related to 2021 performance), the value for 2022 includes one-third of the 2021 PSU grant and one-third of the 2022 PSU grant (based on the portion of each grant related to 2022 performance), and the value for 2023 includes one-third of the 2021 PSU grant, one-third of the 2022 PSU grant, and one-third of the 2023 PSU grant (based on the portion of each grant related to 2023 performance). The grant date fair value of the PSUs was further calculated using the Monte Carlo simulation which utilizes the stock volatility, dividend yield and market correlation of the Company and the Russell 2000. +Compensation Committee Report +32 +TAB LE OF CONTENTS +The Compensation Committee has reviewed and discussed with management the compensation of our named executive officers as disclosed in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board that the discussion and analysis be included in the Annual Report and this proxy statement. +Thomas L. Thomas (Chairman) +Laura L. Siegal +Dennis W. Zank +33 +TAB LE OF CONTENTS +Executive Compensation Tables +Summary Compensation Table +The following table shows information regarding the compensation earned for the fiscal years ended March 31, 2023, 2022 and 2021 by our current named executive officers. +Name and Principal Position Fiscal +Year +Salary (1)(2) ($) +Bonus ($) +Stock Awards (3) ($) +Option +Awards (3) ($) +Non-Equity +Incentive Plan +Compensation (2)(4) ($) +All Other +Compensation (5) ($) +Total ($) +Joe Bergera +Chief Executive Officer and President 2023 445,000 — 218,504 247,386 212,461 18,128 1,141,479 +2022 445,000 — 373,068 260,000 186,900 20,846 1,285,814 +2021 430,000 — 254,388 323,125 448,275 11,200 1,466,988 +Douglas L. Groves +Chief Financial Officer, +Senior Vice President of Finance and Secretary (6) +2023 412,500 — 112,742 139,042 129,319 8,885 802,488 +2022 412,500 — 152,637 130,000 116,013 13,846 824,996 +2021 400,000 — 82,723 117,500 280,000 11,200 891,423 +Kerry A. Shiba +Senior Vice President and Chief Financial Officer, Treasurer, and Secretary (7) +2023 425,000 +30,000 (8) +124,999 125,001 — 654 705,654 +2022 — — — — — — — +2021 — — — — — — — +Todd Kreter +Senior Vice President +and General Manager, Advanced Sensors 2023 300,000 — 69,808 83,425 115,560 — 568,793 +2022 300,000 — 113,071 97,500 110,413 15,168 636,152 +2021 290,000 — 57,715 82,250 232,462 11,200 673,627 +William M. Cousins +Senior Vice President and +Chief Product Officer 2023 295,000 — 55,457 83,425 111,634 10,892 556,408 +2022 295,000 — 59,813 62,500 111,634 — 528,947 +2021 — — — — — — — +_______________________ +(1) Salary amounts reflect the amounts earned by the NEOs during the relevant fiscal year. +(2) Salary and Non-Equity Incentive Plan Compensation amounts include amounts deferred under the Company’s Non-Qualified Deferred Compensation Plan. See the Non-Qualified Deferred Compensation Table below. +(3) For an overall description of equity award programs, see the discussion above under the heading “ Fiscal 2023 Long-Term Incentive Awards .” The dollar amounts shown represent the grant date fair value of equity awards, including RSUs, PSUs, and stock options granted during the applicable fiscal year determined in accordance with ASC 718. For more information, see our discussion above under the heading “ Accounting for Stock-Based Compensation ” and our discussion of stock-based compensation in Notes 1 and 9 to our financial statements in Part II, Item 8 in our Annual Report on Form 10-K for Fiscal 2023. +Amounts for PSU awards are calculated at 100% of target level. For Fiscal 2023, the aggregate grant date fair value of the “maximum” number of PSUs eligible to vest based on Fiscal 2023 performance: $188,396 for Mr. Bergera; $85,751 for Mr. Groves; and $55,782 for Messrs. Kreter and Cousins. +(4) The amounts shown in this column constitute the cash bonuses paid to each named executive officer based on the attainment of certain pre-established performance and management objectives, except for Mr. Shiba who received a guaranteed pro-rated bonus based on his offer of employment. These awards are discussed in further detail under “ Fiscal 2023 Cash-Based Bonus Plan ” above. +(5) Consists of 401(k) plan employer contributions paid by us, which all employees are eligible to receive. +(6) Mr. Groves ceased serving as an executive officer in February 2023. Pursuant to his employment agreement, Mr. Groves continued to receive his base salary and all of his PSUs and outstanding options continued vesting through June 2, 2023, which is the date he ceased his employment with the Company. See “ Iteris, Inc. Executive Severance Plan "” under “ Potential Payments upon Termination of Employment and Change in Control ” below. +(7) Mr. Shiba joined our Company as our Senior Vice President and Chief Financial Officer, Treasurer, and Secretary in February 2023. +34 +TAB LE OF CONTENTS +(8) Pursuant to Mr. Shiba’s employment agreement, we paid him a small guaranteed bonus for his short tenure during Fiscal Year 2023. +35 +TAB LE OF CONTENTS +Fiscal 2023 Grant of Plan-Based Awards Table +The table below sets forth information with respect to awards granted to the named executive officers under our annual non-equity incentive compensation plan and our 2016 Omnibus Incentive Plan in Fiscal 2023, which constitute all the plan-based awards granted to our named executive officers in Fiscal 2023. +Name Grant Date Description +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards (1) +Estimated Future Payouts Under +Equity Incentive Plan Awards (2) +All Other +Stock +Awards: +Number of +Shares of Stock or Units +(#) All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) Exercise +or Base +Price of +Option +Awards +($/share) +Grant Date +Fair Value +of Stock +and Option +Awards +($) (3) +Threshold +($) Target +($) Maximum +($) Threshold +(#) Target +(#) Maximum +(#) +Joe Bergera 6/22/2022 Cash $ — $356,000 $640,800 — — — — — — — +7/14/2022 2023 PSU — — — — 13,029 26,058 — — — 40,260 +7/14/2022 2022 PSU — — — — 11,413 22,826 — — — 29,560 +7/14/2022 2021 PSU — — — — 10,374 20,748 — — — 24,379 +12/2/2022 RSU — — — — — — 39,714 +(3) +— — 124,305 +12/2/2022 Options — — — — — — — 137,284 3.13 247,386 +Douglas L. Groves 6/22/2022 Cash — 226,875 408,375 — — — — — — — +7/14/2022 2023 PSU — — — — 7,241 14,482 — — — 22,375 +7/14/2022 2022 PSU — — — — 4,150 8,300 — — — 10,749 +7/14/2022 2021 PSU — — — — 4,150 8,300 — — — 9,753 +12/2/2022 RSU — — — — — — 22,321 +(3) +— — 69,865 +12/2/2022 Options — — — — — — — 77,160 3.13 139,042 +Kerry A. Shiba 2/3/2023 RSU — — — — — — 27,964 — — 124,999 +2/3/2023 Options — — — — — — — 27,964 4.47 125,001 +Todd Kreter 6/22/2022 Cash — 180,000 324,000 — — — — — — — +7/14/2022 2023 PSU — — — — 4,382 8,764 — — — 13,540 +7/14/2022 2022 PSU — — — — 2,905 5,810 — — — 7,524 +7/14/2022 2021 PSU — — — — 2,905 5,810 — — — 6,827 +12/2/2022 RSU — — — — — — 13,392 +(3) +— — 41,917 +12/2/2022 Options — — — — — — — 46,296 3.13 83,425 +William M. Cousins 6/22/2022 Cash — 177,000 318,600 — — — — — — — +7/14/2022 2023 PSU — — — — 4,382 8,764 — — — 13,540 +12/2/2022 RSU — — — — — — 13,392 — — 41,917 +12/2/2022 Options — — — — — — — 46,296 3.13 83,425 +______________________ +(1) Reflects the potential amount payable (not the actual amount paid) upon achievement of the management objectives described under the heading “Fiscal 2023 Cash-Based Bonus Plan” above. +(2) In accordance with SEC rules and ASC 718, due to the annual setting of performance goals under the PSUs granted during Fiscal 2023, ASC 718 requires the grant date value to be calculated with respect to one-third of the total PSUs in each year of the three-year performance period. SEC rules require presentation that is consistent with ASC 718, and amounts shown at “target” represent one-third of the total “target” number of PSUs granted during Fiscal 2023 at “target” levels. As applicable, the separate rows for each named executive officer reflects one-third of the 2021 PSU grant, one-third of the 2022 PSU grant, and one-third of the 2023 PSU grant, each based on the portion of each grant related to 2023 performance. For an overall description of equity award programs, see the discussion above under the heading “ Fiscal 2023 Long-Term Incentive Awards .” +36 +TAB LE OF CONTENTS +(3) The dollar amounts shown represent the grant date fair values of stock and option awards granted in Fiscal 2023 determined in accordance with ASC 718. For a discussion of valuation assumptions used in the calculations, see Note 9 of Notes to Consolidated Financial Statements, included in Part II, Item 8 in the Company's Annual Report on Form 10-K for Fiscal 2023. +Outstanding Equity Awards at 2023 Fiscal Year End +The following table sets forth the outstanding equity awards held by each named executive officer as of March 31, 2023. For an overall description of equity award programs, see the discussion above under the heading “ Fiscal 2023 Long-Term Incentive Awards .” The vesting of equity awards held by the named executive officers is subject to each officer’s continued service with the Company, and is subject to acceleration under certain circumstances as discussed under the heading “ Potential Payments upon Termination of Employment and Changing in Control ” below. +37 +TAB LE OF CONTENTS +Option Awards (1) +Stock Awards +Name Number of +Securities +Underlying +Outstanding +Options Exercisable (#) Number of +Securities +Underlying +Outstanding +Options +Unexercisable (#) Option +Exercise +Price ($) Option +Grant +Date Option +Expiration +Date +Number of Shares or Units of Stock That Have Not Vested (#) (2) +Market Value of Shares or Units of Stock That Have Not Vested (#) (3) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (4) +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (3) +J. Joseph (“Joe”) Bergera +Chief Executive Officer, President and Director +1,350,000 — $2.38 09/23/15 09/22/25 +150,000 — 4.91 03/03/17 03/02/27 +250,000 — 5.52 02/16/18 02/15/28 +225,000 — 4.16 12/10/18 12/09/28 +187,500 62,500 5.10 12/09/19 12/08/29 +68,750 68,750 4.80 11/16/20 11/15/30 +25,000 75,000 5.00 11/18/21 11/17/31 +— 137,284 3.13 12/02/22 12/01/32 +103,022 483,173 +35,855 103,022 +Douglas L. Groves +Chief Financial Officer, Senior Vice President of Finance and Secretary (5) +150,000 50,000 4.92 12/04/19 12/03/29 +25,000 25,000 4.80 11/16/20 11/15/30 +12,500 37,500 5.00 11/18/21 11/17/31 +— 77,160 3.13 12/02/22 12/01/32 +47,220 221,462 +15,541 47,220 +Kerry A. Shiba +Senior Vice President and +Chief Financial Officer, Treasurer, and Secretary +— 27,964 4.47 02/03/23 02/02/33 +27,964 131,151 +— 27,964 +Todd Kreter +Senior Vice President and General Manager of Advanced Sensor Technologies +75,000 — 4.91 03/03/17 03/02/27 +75,000 — 5.52 02/16/18 02/15/28 +60,000 — 4.16 12/10/18 12/09/28 +52,500 17,500 5.10 12/09/19 12/08/29 +17,500 17,500 4.80 11/16/20 11/15/30 +9,375 28,125 5.00 11/18/21 11/17/31 +— 46,296 3.13 12/02/22 12/01/32 +32,066 150,390 +10,192 32,066 +William M. Cousins +Senior Vice President and +Chief Product Officer +15,625 46,875 3.19 03/21/22 03/20/32 +— 46,296 3.13 12/02/22 12/01/32 +32,142 150,746 +4,382 32,142 +_______________________ +(1) All options vest in four equal annual installments following the date of grant. +38 +TAB LE OF CONTENTS +(2) Each RSU represents the right to receive one share of our common stock if vesting is satisfied. These RSUs were granted under the 2016 Omnibus Incentive Plan and vest 50% after two years from the vesting commencement date, and 50% after the third year from the vesting commencement date, upon named executive officer’s completion of each year of continued service with the Company. +(3) The dollar value is based on the closing price of our common stock on the last business day of Fiscal 2023: $4.69. +(4) Each PSU represents the right to receive one share of our common stock if vesting is satisfied. The number of PSUs that vest at the end of the three-year performance period will depend on the Company's completion of performance objectives. +(5) Mr. Groves ceased to serve as our Chief Financial Officer, Senior Vice President of Finance and Secretary on February 3, 2023. Pursuant to his amended employment agreement, all of Mr. Grove's outstanding options continued vesting until June 2, 2023, which was the date he ceased his employment with the Company. +Fiscal 2023 Option Exercises and Stock Vested Table +The following table provides information regarding the shares acquired upon the vesting of restricted stock units and performance restricted stock units held by the named executive officers during Fiscal 2023. There were no option exercises by the named executive officers during Fiscal 2023. +Stock Awards +Name Number of Shares Acquired on Vesting (#) +Value Realized on Vesting ($) (1) +Joe Bergera 44,768 180,580 +Douglas L. Groves 16,452 67,636 +Kerry A. Shiba — — +Todd Kreter 11,516 47,344 +William M. Cousins — — +(1) Value realized is determined by multiplying (i) the market price of a common share on the date of vesting by (ii) the number of shares which vested. +Non-Qualified Deferred Compensation for Fiscal 2023 +Deferred Compensation Plan. Effective October 1, 2020, the Company adopted the Iteris, Inc. Non-Qualified Deferred Compensation Plan (the “DC Plan”). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of nonemployee members of our Board of Directors. Key employees, including our executive officers, and our nonemployee directors who are notified regarding their eligibility to participate and delivered the DC Plan enrollment materials are eligible to participate in the DC Plan. Under the DC Plan, we will provide participants with the opportunity to make annual elections to defer up to 75% of their base salary, up to 100% of their annual bonus, and up to 100% of any granted time-based restricted stock unit awards. Our nonemployee directors may elect to defer up to 100% of their eligible cash compensation and equity awards. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. +Elective deferrals of equity awards are credited to a bookkeeping account established in the name of the participant with respect to an equivalent number of shares of our common stock, and such credited shares are subject to the same vesting conditions as are applicable to the equity award subject to the election. The Company established a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on participants, and the assets held within this trust are subject to the claims of the Company’s creditors. +Under the DC Plan, we will be obligated to deliver on a future date deferred cash compensation credited to the participant’s account, adjusted for any positive or negative investment results from the investment alternatives selected by the participant under the DC Plan, or with respect to deferrals of equity awards, an issuance of shares of our common stock. These obligations are unfunded, unsecured general obligations of the Company and rank in parity with other unsecured and unsubordinated indebtedness of us, subject to the claims of our general creditors. However, deferrals of equity awards under the DC Plan are deemed rights to receive an issuance of our common stock and may not be deemed allocated to any investment fund. +A participant’s rights under the Plan are not transferable except upon death of the participant. +39 +TAB LE OF CONTENTS +With respect to the portion of the bookkeeping account allocated to an investment fund, each account will be payable in cash. The portion of the bookkeeping account allocated to deferrals of equity awards will be payable in an issuance of shares of our common stock. +Payments will be distributed in connection with either the participant’s separation of service or a selected specified distribution date or dates, depending upon the distribution election made by the participant at the time of deferral. However, if a participant’s service with us terminates prior to the selected specified distribution date or dates, payment will instead be made or commence in connection with such separation from service. A participant’s account balance may be distributed in a lump sum or, if elected by a participant, in up to 15 substantially equal installments (up to 5 annual installments for any distributions in respect of equity award accounts); however, any distribution upon a separation from service prior to attaining age 55 will be paid in a lump sum, regardless of the payment timing elected. If a participant’s service terminates with us due to death, all of a participant’s accounts will become immediately payable in a single lump sum. In addition, participants may be entitled to receive payments through certain unforeseeable emergency withdrawals. Payments scheduled to be made under the Plan may be otherwise delayed or accelerated only upon the occurrence of certain specified events that comply with the requirements of Section 409A of the Code. +A committee appointed by our board of directors administers the Plan. We can amend or terminate the Plan at any time, but no such action shall unilaterally reduce a participant’s account balance without his or her consent prior to the date of such action. However, we may adopt any amendments to the Plan that we deem necessary or appropriate to preserve the intended tax treatment of the Plan benefits or to otherwise comply with the requirements of Section 409A of the Code and related guidance. +The following table shows the non-qualified deferred compensation activity for each named executive officer during Fiscal 2023. +Name +Executive Contributions in Last Fiscal Year +($) (1) +Aggregate Earnings in Last Fiscal Year ($) (2) +Aggregate Withdrawals /Distributions +($) Aggregate Balance at Last Fiscal Year End ($) +Joe Bergera 37,380 — — 200,903 +Douglas L. Groves (3) +137,334 — (118,598) 476,770 +Kerry A. Shiba (4) +— — — — +Todd Kreter 22,093 — — 97,097 +William M. Cousins — — — — +(1) Amounts included in the Summary Compensation Table in the “Salary” and “Non-Equity Incentive Plan Compensation” columns for Fiscal 2023. +(2) No above market or preferential earnings are provided under the DC Plan because the investment choices available under such plans are identical to the investment choices available in the 401(k) Plan, which is a qualified plan. Consequently, none of the earnings reported in this table are included in the Summary Compensation Table set forth above. +(3) Mr. Groves ceased to serve as our Chief Financial officer, Senior Vice President of Finance and Secretary on February 3, 2023. +(4) Mr. Shiba started to serve as our Senior Vice President and Chief Financial Officer, Treasurer, and Secretary on February 3, 2023. +The DC Plan provides investment options amongst which participants make investment allocations that provide the basis on which gains and losses are attributed to account balances under the plan, and such options may change from time to time. +Potential Payments upon Termination of Employment and Change in Control +The Company does not have any employment agreements or change in control arrangements in effect with any of our named executive officers other than the agreements described below. In addition, upon a change in control, our NEOs may be eligible for payments of amounts deposited by them, and returns on those investments, under the DC Plan, as further described above under the heading “ Non-Qualified Deferred Compensation for Fiscal 2023 .” +Equity Award Vesting +40 +TAB LE OF CONTENTS +The plan administrator of the 2016 Omnibus Incentive Plan has the discretion to determine whether outstanding equity awards held by our NEOs are to vest upon a termination of employment or upon a change in control, but our equity plans do not provide for any automatic “single trigger” acceleration of equity awards upon a change in control. +Options and RSUs granted to our named executive officers are eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability, a pro rata portion of the options and RSUs shall vest on the date of such termination based on the amount of time elapsed in the vesting period. In addition, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason (each such term as defined in the 2016 Omnibus Incentive Plan), in each case within 18 months following the effective date of a change in control, then the executive will receive two years’ additional vesting of options and RSUs. +PSUs granted to our named executive officers are also eligible for accelerated vesting under certain circumstances. In the event of an executive’s termination due to death or permanent disability prior to a change in control, a pro rata portion of the PSUs shall vest on the date of such termination based on the amount of time elapsed in the performance period and our actual performance relative to the performance metrics applicable to the PSUs through such date. Upon a change in control, a number of PSUs will remain eligible to vest on the last day of the three-year performance period as is determined based on our actual performance relative to the performance metrics applicable to the PSUs through the date of such change in control, subject to the executive’s continued employment through such date. However, if an executive’s employment is terminated by us other than for misconduct or the executive resigns for good reason, or in the event of an executive’s termination due to death or permanent disability in each case within 18 months following the effective date of the change in control, then the executive will receive two years’ additional vesting of PSUs based on our actual performance relative to the performance metrics through the date of such termination. +Iteris, Inc. Executive Severance Plan +The Iteris, Inc. Executive Severance Plan was adopted on February 5, 2018 and amended and restated effective on June 4, 2019 (the “Severance Plan”). Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Exchange Act, and who is not otherwise covered by an employment agreement that includes severance terms (the “Eligible Employees”), is eligible to receive severance payments under the Severance Plan upon certain qualifying terminations of employment. Currently, that means Messrs. Shiba, Kreter and Cousins are covered. +The Severance Plan provides Eligible Employees with severance payments in the event that an Eligible Employee’s employment with the Company or its subsidiaries is terminated either (a) by the Company without Cause not in connection with a Change in Control (“Non-CIC Qualifying Termination”) or (b) if in connection with or within 12 months following a Change in Control, which, for Eligible Employees employed by that business, includes a divestiture of a material business, by the Eligible Employee for Good Reason or by the Company without Cause (a “CIC Qualifying Termination”). Capitalized terms not otherwise defined herein are defined in the Severance Plan. +Non-CIC Qualifying Termination. Upon a Non-CIC Qualifying Termination, an Eligible Employee will receive the following: +• the Eligible Employee’s annual base salary, payable in substantially equal installment payments over the one-year period following termination, in accordance with the Company’s normal payroll practices; and +• reimbursement for monthly COBRA premiums for the 12-month period following termination or until the Eligible Employee receives substantially similar medical coverage from another employer. +CIC Qualifying Termination. Upon a CIC Qualifying Termination, an Eligible Employee will receive the following: +• the Eligible Employee’s annual base salary, payable in a lump sum on the next payroll date after the 61 st day following termination; and +• reimbursement for the monthly COBRA premiums for the 12-month period following termination, or until the Eligible Employee receives substantially similar medical coverage from another employer. +The severance payments are subject to the Eligible Employee’s execution, within 60 days following termination, of a severance agreement that includes a release of claims and certain non-solicitation, confidentiality, and non-disparagement restrictions. +The Company may amend or terminate the Severance Plan at any time by providing at least 90 days’ advance written notice to each Eligible Employee, provided that no such amendment or termination that has the effect of reducing or diminishing the right of any Eligible Employee will be effective unless one year’s advance written notice is provided to Eligible Employees, and such amendment or termination will not be effective if a Change in Control occurs during the one-year notice period. +41 +TAB LE OF CONTENTS +Agreement with Joe Bergera +In connection with his hiring, we entered into an employment agreement with Joe Bergera, our Chief Executive Officer, dated September 8, 2015, pursuant to which Mr. Bergera receives an annual base salary (currently $463,000), which may be increased from time to time at the discretion of the Compensation Committee. Mr. Bergera is also be eligible to participate in our executive bonus plan as then in effect and his potential bonus for each year will be established annually by the Board or a committee of the Board. The agreement renews for successive one-year periods until September 2025 unless either we or Mr. Bergera provide written notice of non-renewal at least 30 days prior to the end of the initial term or renewal term, as applicable. +If Mr. Bergera’s employment with the Company is terminated without Cause (as such term is defined in the agreement) during the term of the agreement, Mr. Bergera will be entitled to receive (i) salary continuation payments for 12 months following his termination, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which his employment is terminated, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the termination. If Mr. Bergera is terminated without Cause or resigns for Good Reason within 12 months following a Change in Control (as such terms are defined in the agreement), Mr. Bergera will be entitled to receive (i) a lump sum payment equal to 125% of his base salary as then in effect, (ii) a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the termination occurs, and (iii) reimbursement for the cost of COBRA coverage for a period of up to 12 months following the termination. In addition, upon termination of his employment due to death, Mr. Bergera’s estate or beneficiaries will be entitled to receive a lump sum payment equal to 50% of his then current base salary. +Agreement with Douglas L. Groves +In connection with his hiring, we entered into an employment agreement with Douglas L. Groves, our former Chief Financial Officer, Senior Vice President of Finance and Secretary, dated December 15, 2019, which was amended effective February 3, 2023, when he stepped down from his position and assumed the role of senior advisor to the Company. Until June 2, 2023, Mr. Groves (i) continued his employment with the Company in the role of senior advisor, (ii) continued to receive his base salary and employee benefits, (iii) was eligible to receive his annual bonus under the Fiscal 2023 Bonus Plan; and (iv) PSUs and equity grants continued to vest, until his employment with Iteris terminated. +Agreement with Kerry A. Shiba +In connection with his hiring, we entered into an employment agreement with Kerry A. Shiba, our Senior Vice President and Chief Financial Officer, Secretary, and Treasurer, dated January 30, 2023, pursuant to which Mr. Shiba will receive an initial annual base salary of $425,000, which may be increased from time to time at the discretion of the Compensation Committee. Pursuant to his agreement, Mr. Shiba received a $30,000 bonus payment for the pro-rated portion of Fiscal 2023 that he served with the Company. Mr. Shiba is eligible to participate in our executive bonus plan with a target bonus of 55% of his annual base salary, based upon Company performance and achievement of individual goals and objectives. Mr. Shiba is also eligible to receive equity grants equal to approximately 60% of his annual base salary, as recommended by management and approved by the Compensation Committee, which will be awarded as part of the Company’s annual equity award cycle. +If Mr. Shiba’s employment with the Company is terminated without Cause or resigns for Good Reason within 6 months following a Change in Control (as such terms are defined in the Severance Plan) (such termination or resignation, a “CIC Qualifying Termination”), Mr. Shiba will be entitled to receive a lump sum payment equal to the pro-rated portion of his target bonus established by the Compensation Committee for the fiscal year in which the CIC Qualifying Termination occurs. +Potential Payments upon Termination of Employment and Change in Control Table +The following table illustrates an estimated amount of compensation or other benefits potentially payable to each of our named executive officers as of March 31, 2023 that would be triggered upon termination of such named executive officer’s employment under various scenarios. The amounts shown assume that such termination (and in the case of a change in control, the change in control) was effective as of March 31, 2023. The value of equity award acceleration reflected in the table below was calculated using the closing price on March 31, 2023 of $4.69 per share. The value for option awards is calculated as the difference between the closing price of our common stock of $4.69 on March 31, 2023 and the exercise price per share of the award multiplied by the number of shares vesting. Actual amounts to be paid can only be determined at the time of a named executive officer’s termination from the Company. These benefits do not include any amounts with respect to fully vested benefits under our 401(k) Plan, or under the DC Plan, which are described above under the heading “ Non-Qualified Deferred Compensation for Fiscal 2023 ”. +42 +TAB LE OF CONTENTS +No Change in Control +Change in Control +Termination Without Cause or for Good Reason ($) +Death ($) +Disability ($) +Termination Without Cause or for Good Reason ($) +Death ($) +Disability ($) +Joe Bergera +Cash Severance +$ 778,750 $ 222,500 $ 111,250 $ 890,000 $ 222,500 $ 111,250 +Medical Benefits (1) +29,573 29,573 29,573 29,573 29,573 29,573 +Equity Award Acceleration +— 446,470 446,470 973,025 821,505 821,505 +Estimated Total +$ 808,323 $ 698,543 $ 587,293 $ 1,892,598 $ 1,073,578 $ 962,328 +Kerry A. Shiba +Cash Severance +$ 425,000 $ — $ — $ 455,000 $ — $ — +Medical Benefits (1) +21,009 — — 21,009 — — +Equity Award Acceleration +— 6,707 6,707 131,151 65,576 65,576 +Estimated Total +$ 446,009 $ 6,707 $ 6,707 $ 577,160 $ 65,576 $ 65,576 +Todd Kreter +Cash Severance +$ 300,000 $ — $ — $ 300,000 $ — $ — +Medical Benefits (1) +17,563 — — 17,563 — — +Equity Award Acceleration +— 124,134 124,134 293,782 239,021 239,021 +Estimated Total +$ 317,563 $ 124,134 $ 124,134 $ 611,345 $ 239,021 $ 239,021 +William M. Cousins +Cash Severance +$ 295,000 $ — $ — $ 295,000 $ — $ — +Medical Benefits (1) +6,015 — — 6,015 — — +Equity Award Acceleration +— 42,333 42,333 212,396 137,023 137,023 +Estimated Total +$ 301,015 $ 42,333 $ 42,333 $ 513,411 $ 137,023 $ 137,023 +(1) Calculated based on the premiums payable to elect benefit continuation coverage by the named executive officer pursuant to COBRA for 12 months and for the actual level of group medical, dental and vision coverage in effect as of March 31, 2023. +Pay Versus Performance +In accordance with rules adopted by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Iteris is providing the following disclosure, as it applies to smaller reporting companies, regarding executive compensation for our principal executive officer (“PEO”) and non-PEO named executive officers (“non-PEO NEOs”) and Company performance for the fiscal years listed below. +Pay Versus Performance Table +As required by Item 402(v) of Regulation S-K, as adopted by the SEC, we are providing the following information regarding the relationship between executive compensation and our financial performance for each of the last three completed fiscal years. In determining the “compensation actually paid” to our NEOs, we are required to make various adjustments to amounts that have been reported in the Summary Compensation Table, as the SEC’s valuation methods for this section differ from those required in the Summary Compensation Table. The table below summarizes compensation values both previously reported in our Summary Compensation Table, as well as the adjusted values required in this section for Fiscal Years 2021, 2022 and 2023. Note that for our non-PEO NEOs compensation is reported as an average. +43 +TAB LE OF CONTENTS +Fiscal Year +Summary Compensation Table Total for PEO($) (1) +Compensation Actually Paid to PEO($) (1)(3) +Average +Summary Compensation +Table Total +for Non-PEO NEOs($) (2) +Average Compensation Actually Paid +to Non-PEO NEOs($) (2)(3) +Value of +Initial Fixed +$100 +Investment +based on +Total +Shareholder Return +($) +Net +Income +($ in thousands) +2023 1,141,479 1,747,658 658,336 893,645 54 (14,855) +2022 1,285,814 (734,931) 663,365 114,444 (54) (7,080) +2021 1,466,988 2,470,447 782,525 1,823,803 108 10,134 +(1) The PEO in each reporting year is Joe Bergera. The amounts reported as “Compensation Actually Paid to PEO” are computed in accordance with Item 402(v) of Regulation S-K but do not necessarily reflect the amount of compensation actually earned by, or paid to, our PEO in the applicable year. All computations involving shares that may be issued under awards subject to performance-based vesting under the Long-Term Incentive Plans for Fiscal Years 2021, 2022 and 2023 are based upon the value of performance-based shares at target, the same basis used in the Summary Compensation Table. The negative value for “Compensation Actually Paid to PEO” in 2022 reflects the decline in value of the equity awards granted to our PEO. +(2) The non-PEO NEOs for Fiscal 2023 are Douglas L. Groves, Kerry A. Shiba, Todd Kreter, and William M. Cousins. The non-PEO NEOs for Fiscal 2022 are Douglas L. Groves, Todd Kreter, and William M. Cousins. The amounts reported as “Average Compensation Actually Paid to Non-PEO NEOs” are computed in accordance with Item 402(v) of Regulation S-K but do not necessarily reflect the amount of compensation actually earned by, or paid to, our non-PEO NEOs individually or as a group in the applicable year. All computations involving shares that may be issued under awards subject to performance-based vesting under the Long-Term Incentive Plans for Fiscal Years 2021, 2022 and 2023 are based upon the value of performance-based shares at target, the same basis used in the Summary Compensation Table. +(3) The following table illustrates the adjustments to total compensation in the Summary Compensation Table by year to calculate Compensation Actually Paid: +Fiscal Year 2023 Fiscal Year 2022 Fiscal Year 2021 +PEO Average Non-PEO NEOs PEO Average Non-PEO NEOs PEO Average Non-PEO NEOs +Total Compensation from Summary Compensation Table $ 1,141,479 $ 658,336 $ 1,285,814 $ 663,365 $ 1,466,988 $ 782,525 +Adjustments for Equity Awards +Adjustment for grant date fair values in Summary Compensation Table (465,890) (198,474) (633,068) (205,174) (577,513) (170,094) +Fiscal year-end fair value of unvested awards granted in the current year 515,055 194,156 108,213 43,285 504,347 136,731 +Fiscal year-over-year differences of year-end fair values for unvested awards granted in previous years 480,461 227,671 (1,225,011) (332,705) 1,076,625 1,046,925 +Difference in fair values between prior fiscal year-end fair values and vest date fair values for awards granted in prior years which vested in the current year 76,553 11,956 (270,879) (52,985) — 27,716 +Awards granted in prior years that were forfeited or failed to meet the applicable vesting conditions during the covered fiscal year — — — (1,342) — — +Total Adjustments for Equity Award 606,179 235,309 (2,020,745) (548,921) 1,003,459 1,041,278 +Compensation Actually Paid (as calculated) $ 1,747,658 $ 893,645 $ (734,931) $ 114,444 $ 2,470,447 $ 1,823,803 +44 +TAB LE OF CONTENTS +Pay Versus Performance Graphical Description +The illustrations below provide a graphical description of “Compensation Actually Paid” (CAP) compared to both our cumulative “Total Shareholder Return” (TSR) and our net income (loss): +EQUITY COMPENSATION PLAN INFORMATION +The following table summarizes information as of March 31, 2023 regarding shares of our common stock that may be issued under our equity compensation plans, including the 2007 Omnibus Incentive Plan, the 2016 Omnibus Incentive Plan, ESPP and the Inducement Plan. Other than the Inducement Plan, each of these plans has been approved by our stockholders. +45 +TAB LE OF CONTENTS +Plan Category (a) +Number of Securities to be +Issued Upon Exercise of +Outstanding Options, +Warrants and Rights (b) +Weighted Average +Exercise Price of +Outstanding Options, +Warrants and Rights (c) +Number of Securities +Remaining Available +for Future Issuance +Issuance Under Equity +Compensation Plans +(Excluding Securities +Reflected in Column (a)) +Equity compensation plans approved by +security holders +6,868,380 +(1) +$ 4.04 2,098,285 +(2) +Equity compensation plans not approved by +security holders (3) +75,731 $ 4.69 224,269 +_______________________ +(1) Includes 6,287,505 shares subject to outstanding stock option awards, 497,434 shares subject to outstanding RSU awards and 83,441 shares subject to outstanding PSUs (at “target” performance levels), as of March 31, 2023. +(2) Includes 444,870 shares remaining available for issuance under the ESPP as of March 31, 2023, of which 444,870 shares were eligible to be purchased pursuant to the offering period in effect on such date. +(3) On December 4, 2020, the Board of Directors approved the Inducement Plan in conjunction with the TrafficCast acquisition. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. +The Board initially reserved 300,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. No future awards will be issued under the Inducement Plan. +46 +TAB LE OF CONTENTS +PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The accounting firm of Deloitte & Touche LLP (“Deloitte”) has been engaged by our Audit Committee to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2024. Deloitte has been our principal independent registered public accounting firm since October 2015. Information regarding the services provided to us by Deloitte during Fiscal 2023 and Fiscal 2022 is set forth below under the heading entitled “ Matters Related to Independent Registered Public Accounting Firm .” +We are asking our stockholders to ratify the selection by the Audit Committee of Deloitte as our independent registered public accounting firm to audit our consolidated financial statements for Fiscal 2024 and to perform other appropriate services. Although stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the appointment of Deloitte to our stockholders for ratification at the Annual Meeting as a matter of good corporate governance and to provide a means by which our stockholders may communicate their opinion to the Audit Committee. In the event that the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of the Company and our stockholders. +A representative of Deloitte is expected to be present at the Annual Meeting, and that representative will have the opportunity to make a brief presentation to the stockholders if he or she so desires and is expected to be available to respond to appropriate questions from stockholders. +Vote Required +The affirmative vote of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Deloitte as our independent registered public accounting firm for Fiscal 2024. +Recommendation of the Board of Directors +The Board of Directors recommends that the stockholders vote “FOR” the ratification and approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for Fiscal 2024 . +47 +TAB LE OF CONTENTS +M ATTERS R ELATED TO I NDEPENDENT R EGISTERED P UBLIC A CCOUNTING F IRM +Fees Paid to Independent Registered Public Accounting Firm +The following table sets forth the fees we have paid to Deloitte in the following categories and amounts during Fiscal 2023 and Fiscal 2022: +Year Ended March 31, +Fee Category 2023 2022 +Audit fees $1,184,829 $1,028,214 +Audit related fees 1,895 43,895 +Tax fees — — +All other fees — — +Total fees $1,186,724 $1,072,109 +Audit Fees. Audit fees consist of fees billed for professional services rendered in connection with the audit of our overhead rate and the audit of our annual consolidated financial statements for the applicable fiscal year and review of our consolidated financial statements included in our quarterly reports on Form 10-Q, Annual Report on Form 10-K (and 10-K/A) and other regulatory filings for such fiscal year. +Audit Related Fees. Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reporting under “Audit Fees.” Audit related fees for Fiscal 2023 were related to a subscription to Deloitte’s Accounting Research Tool. Audit related fees for Fiscal 2022 were related to the review of our registration statements on Form S-3 and Form S-8 and a subscription to Deloitte’s Accounting Research Tool. +Tax Fees. Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. There were no tax fees billed by Deloitte for Fiscal 2023 or Fiscal 2022. +All Other Fees. There were no fees billed by Deloitte in Fiscal 2023 or Fiscal 2022 for any other services. +Audit Committee Pre-Approval Policies and Procedures +All engagements for services by Deloitte or other independent registered public accountants are subject to prior approval by the Audit Committee; however, de minimis, non-audit services may instead be approved in accordance with applicable SEC rules. The prior approval of the Audit Committee was obtained for all services provided by Deloitte for Fiscal 2023 and Fiscal 2022. +The Audit Committee reviewed and discussed the services rendered by Deloitte during Fiscal 2023, as well as the fees paid for such services, and has determined that the provision of such services by Deloitte, and the fees paid for such services, were compatible with maintaining Deloitte’s independence. +Audit Committee Report +The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended March 31, 2023 i ncluded in the Annual Report. +Our management is responsible for the Company’s financial reporting process, including its systems of internal control over financial reporting, and for the preparation of its financial statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles (“GAAP”) and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee these financial processes on behalf of the Board. +The members of the Audit Committee are not employees of Iteris and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct auditing or accounting reviews or procedures. Therefore, in performing the Audit Committee’s oversight role, the Audit Committee necessarily must rely on management’s representations that it has maintained appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations, and that the Company’s financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the representations of our independent registered public accounting firm included in its reports on the Company’s financial statements. +48 +TAB LE OF CONTENTS +In this context, the Audit Committee hereby reports as follows: +1. The Audit Committee has reviewed and discussed our consolidated audited financial statements with our management. +2. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). +3. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence. +4. Based on the review and discussions referred to above in this report, the Audit Committee recommended to the Company’s Board, and the Board approved, that the consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2023 for filing with the SEC. +Submitted by the Audit Committee +of the Board of Directors: +Gerard M. Mooney +Laura L. Siegal +Dennis W. Zank (Chairman) +The information contained in the foregoing Audit Committee Report is not “soliciting material” and is not deemed filed with the SEC. Such report is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof, and irrespective of any general incorporation language in any such filing. +49 +TAB LE OF CONTENTS +S TOCK O WNERSHIP OF C ERTAIN B ENEFICIAL O WNERS AND M ANAGEMENT +The following table sets forth, as of July 27, 2023, the number and percentage ownership of our common stock by (i) all persons known to us to beneficially own more than 5% of the outstanding common stock, (ii) each of the named executive officers, (iii) each of our directors, and (iv) all of our current executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. +Common Stock +Name and Address of Beneficial Owner (1) +Amount and Nature +of Beneficial +Ownership +Percent of +Class (2) +Samjo Capital, LLC, Samjo Management, LLC and Andrew N. Wiener (3) +3,346,000 7.8% +Cowen Prime Advisors LLC (4) +2,349,950 5.5% +The Vanguard Group (5) +2,152,627 5.0% +Joe Bergera (6) +2,178,170 4.9% +Douglas L. Groves (7) +239,823 * +Kerry A. Shiba — * +Todd Kreter (8) +377,172 * +Will Cousins +— * +Gerard M. Mooney (9) +92,904 * +Gary Hall — * +Laura L. Siegal (10) +81,963 * +Thomas L. Thomas (11) +229,964 * +Kimberly Valentine-Poska — * +Dennis W. Zank (12) +63,971 * +All current executive officers and directors as a group (11 persons) (13) +3,263,967 7.4% +_______________________ +* Less than 1%. +(1) The address of each of the directors and officers is 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746 . +(2) Based on 42,741,744 shares of common stock outstanding as of July 27, 2023. Shares of common stock subject to options or warrants which are exercisable within 60 days of July 27, 2023 are deemed to be beneficially owned by the person holding such options or warrants for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage of any other person. Other than as described in the preceding sentence, shares issuable upon exercise of outstanding options and warrants are not deemed to be outstanding for purposes of this calculation. In addition to the shares held in the individual’s name, the number of shares indicated also includes shares held for the benefit of the named person under our 401(k) plan. +(3) Pursuant to a Schedule 13G/A filed on February 10, 2023 with the SEC, Samjo Capital, LLC reported that through the following beneficial owners the following voting power: (1) Samjo Capital, LLC has shared voting power with respect to 3,280,000 shares, (2) Samjo Management, LLC has shared voting power with respect to 3,280,000 shares, and (3) Andrew N. Wiener has shared voting power with respect to 3,280,000 shares, sole voting power with respect to 66,000 shares, and sole dispositive power with respect to 66,000 shares. Mr. Wiener is the sole Managing Member of Samjo Capital, LLC and Samjo Management, LLC. The address for Samjo Capital, LLC is 599 Lexington Avenue, 27th Floor, New York, NY 10022. +(4) Pursuant to a Schedule 13G filed on February 9, 2022 with the SEC, Cowen Prime Advisors LLC reported that, through its various clients, it has shared dispositive power with respect to 2,349,950. The address for Cowen Prime Advisors is 599 Lexington Avenue, Floor 21, New York, NY 10022. +(5) Pursuant to a Schedule 13G filed on February 9, 2023 with the SEC, The Vanguard Group reported that, through its various clients, it has shared dispositive power with respect to 2,152,627. The address for The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. +(6) Consists of (i) 121,920 shares held directly by Mr. Bergera and (ii) 2,056,250 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 27, 2023. +50 +TAB LE OF CONTENTS +(7) Consists of (i) 12,323 shares held directly by Mr. Groves; (ii) 15,000 shares held in a trust, of which Mr. Groves is a trustee, and (iii) 212,500 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 27, 2023. +(8) Consists of (i) 87,489 shares held directly by Mr. Kreter, (ii) 308 shares held in an individual retirement account by Mr. Kreter, and (iii) 289,375 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after July 27, 2023. +(9) Consists of (i) 67,982 shares held directly by Mr. Mooney and (ii) 24,922 shares subject to RSUs that vest within 60 days after July 27, 2023. +(10) Consists of (i) 57,041 shares held directly by Ms. Siegal and (ii) 24,922 shares subject to RSUs that vest within 60 days after July 27, 2023. +(11) Consists of (i) 87,896 shares held directly by Mr. Thomas, (ii) 117,146 shares held by Mr. Thomas’s Trust, and (iii) 24,922 shares subject to RSUs that vest within 60 days after July 27, 2023. +(12) Consists of (i) 39,049 shares held directly by Mr. Zank and (ii) 24,922 shares subject to RSUs that vest within 60 days after July 27, 2023. +(13) Includes (i) 2,558,125 shares issuable upon exercise of options held by the current executive officers and directors as a group that are currently exercisable or will become exercisable within 60 days after July 27, 2023 and (ii) 99,688 shares subject to RSUs held by the executive officers and directors as a group that vest within 60 days of July 27, 2023. +51 +TAB LE OF CONTENTS +E NVIRONMENTAL, S OCIAL, G OVERNANCE AND R ELATED M ATTERS +We believe that leadership in ethical, environmental, social, governance and related matters will have a positive impact on our business, employees, customers and communities we serve. Accordingly, we adopted policies that help us to implement these standards. +Code of Ethics and Business Conduct +Our Board has adopted a Code of Ethics and Business Conduct (“Code of Ethics”), which applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics is available under the “ Corporate Governance ” heading on the Investor Relations section of our website at www.iteris.com. We will also provide an electronic or paper copy of the Code of Ethics, free of charge, upon request made to our Corporate Secretary. If any substantive amendments are made to our Code of Ethics, or if any waiver (including any implicit waiver) of any provision of the Code of Ethics is granted that is required to be disclosed under the rules of the SEC, such amendment or waiver will be disclosed at the same location on our website, or, if required, in a current report on Form 8-K. +In March 2022, our Board adopted updates to our Code of Ethics to empower our directors, officers and employees to be responsible for carrying out and monitoring compliance to our Code of Ethics by reporting known or suspected illegal or unethical behavior without retaliation. Directors and officers are to report such behaviors to the Chair of our Audit Committee and employees (not directors or officers) are to report such behaviors to our Board of Directors or appropriate management representative. Complaints, concerns or questions pertaining to accounting, internal accounting controls or auditing matters, or financial fraud, securities fraud or other securities law violations are to be reported to our Board of Directors or to members of our Audit Committee. Additional methods to anonymously report these behaviors is provided in our Code of Ethics, which is staffed by a third-party company operating 24 hours a day, 7 days a week. We have a policy of non-retaliation and abide by federal and state laws providing legal protection to certain types of whistleblowers. We believe our Code of Ethics help foster an ethical workplace and culture of integrity as well as promote the high standards of ethical conduct we value. +Environmental, Social and Governance Practices +Environmental, social and governance (“ESG”) practices are becoming increasingly important to our stockholders, customers, and employees and our Board supports Iteris in pursuing thriving communities. In June 2020, our Board adopted an Environmental Policy Statement and Human Rights Policy to further our commitment to continually improve how Iteris operates. In January 2022, our Board expanded the Environmental Policy Statement by ratifying its support of environmental goals of the United Nations Global Compact. In November 2020, our Board ratified our Occupational Health and Safety Policy Statement to support safety practices and maintaining a healthy work environment. In December 2020, our Board ratified our Policy Statement Against Trafficking in Persons and Slavery to instill a climate of full compliance with laws concerning prohibitions of trafficking in persons, including implementing a standard annual mandatory training program on anti-slavery and human trafficking to employees. In November 2021, our Board ratified updates to the Policy Statement Against Trafficking in Persons and Slavery by adding onboarding and bi-annual training programs and awareness education and initiatives, including how to identify signs of violations of human rights, such as slavery and human trafficking. In addition to and among other updates, Iteris is committed to respecting the rights of all people, with a careful focus on marginalized or underrepresented groups, including women, people with disabilities, and racial or ethnic minorities. In addition to the foregoing, it is our intent to further our commitment by conducting regular climate risk assessments in support of disclosure, such as any potential various natural disasters. The full text of our Environmental Policy, Human Rights Policy, Occupational Health and Safety Policy, and Statement Against Trafficking in Persons and Slavery are available under the “ Corporate Governance ” heading on the Investor Relations section of our website at www.iteris.com. +As a global leader in smart mobility infrastructure management, we work with public and private-sector partners to increase the efficiency of mobility, which has the benefit of reducing carbon emissions, all as part of our commitment to a cleaner, healthier and more sustainable future. By reducing delays and stops as part of traffic signal timing projects, improving the efficiency of public transit via signal priority programs, reducing time spent roadside for heavy-emitting commercial freight vehicles during inspection, to name just a few examples, our industry-leading portfolio of smart mobility infrastructure management solutions is currently helping cities and states to reduce their carbon footprint. In February 2022, we released a Sustainability White Paper to illustrate our commitment to the advancement of the transition to carbon-free mobility in our services and solutions. The full text of our Sustainability White Paper is available under the “ Overview ” heading on the Investor Relations section of our website at www.iteris.com. +52 +TAB LE OF CONTENTS +In August 2022, we released our Fiscal 2022 ESG Report in response to feedback from our investors and other stakeholders. Our Fiscal 2022 ESG Report provides information about our key ESG principles, including environmental stewardship, social responsibility in people and culture, and excellence in corporate governance. The full text of our Fiscal 2022 ESG Report, as well as current updates, are available under the “ Overview ” heading on the Investor Relations section of our website at www.iteris.com. +Supply Chain Responsibility +We are committed to advancing supply chain responsibility by reducing risk, improving product quality, and raising overall performance of our suppliers. In furtherance of this commitment, in December 2020 our Board ratified our Conflict Minerals Policy Statement to support preventing profits from the sale of tantalum, tin, tungsten, and gold from funding conflict in the Democratic Republic of the Congo and adjoining countries. The full text of our Conflict Minerals Policy Statement is available under the “ Corporate Governance ” heading on the Investor Relations section of our website at www.iteris.com. +Diversity and Inclusion +Consistent with our core values, we promote diversity and inclusion in every aspect of our business. We are an equal opportunity employer and make employment decisions on the basis of merit. We are focused on being an employer of choice of all talent, where employees feel like they belong. We administer all phases of our employment practices without regard to race, ethnicity, religious creed, color, national origin, ancestry, disability, sex, gender, gender identity, gender expression, sexual orientation, transgender identity, age, military or veteran status, or any other consideration made unlawful by law. Additionally, as a contractor for the United States Government, we develop and implement an annual action plan to (1) assess our inclusion of women, members of minority groups, protected veterans, and individuals with disabilities into our workforce, (2) establish goals for increased inclusion and (3) implement strategies to reach those goals. In furtherance of these values, our Board has adopted the Diversity and Inclusion Policy to promote, encourage, and develop our employees to their full potential and utilize their unique talents. The full text of our Diversity and Inclusion Policy is available under the “ Corporate Governance ” heading on the Investor Relations section of our website at www.iteris.com. +In furthering the Diversity and Inclusion Policy, we are committed to provide transparent disclosure with the goal to increasing gender and ethnic/racial diversity throughout the Company, including among our leadership ranks. The Company intends to continue monitoring women and racial and ethnic minorities in order to track its trend over time and enable our stockholders to track the progress that we make in advancing diversity in our workforce. At the conclusion of Fiscal 2023, women represented 29% of our total employee base and 25% of our management and executive employee base. Racial and ethnic minorities represented 39% of our total employee base and 29% of management and our executive employee base. +Investment in our Employees +There are several programs we implemented and maintain for the financial and educational well-being of our employees and their families. For example, we have an Employee Stock Purchase Plan (“ESPP”), which provides employees with the opportunity to share in the ownership of Iteris and its performance through the purchase of shares of the Company’s stock. ESPP allows eligible employees to accumulate contributions through after-tax payroll deductions to purchase shares of Iteris stock at a 5% discount. Our 401(k) plan has an 93.0% participation rate among eligible employees, with annual training and monthly educational sessions held at each Iteris location. +We continue to invest in employee development and engagement for the benefit of our employees and Iteris. For example, we offer a comprehensive training program that includes online, on-demand training; classroom-based technical training and certification; and classroom-based leadership training and individualized coaching. The leadership training and individualized coaching is facilitated by an independent management consulting firm. In Fiscal 2022, there were 15 graduates from the leadership training and coaching program, and we anticipate a similar number of graduates in Fiscal 2023. We track various metrics, including employee retention to measure the impact of our employee development and engagement programs. Therefore, we are voluntarily disclosing, and currently plan to continue to disclose going forward, the Company’s turnover rate metric to routinely track and guide the Company’s retention activities, as necessary. The Company’s total turnover rate for Fiscal 2022 was 23.5% and the turnover rate of our professional staff was 18%. +53 +TAB LE OF CONTENTS +A DDITIONAL M ATTERS +Certain Transactions with Related Persons +Since April 1, 2022, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. +Delinquent Section 16(a) Reports +The members of our Board of Directors, our executive officers, and persons who hold more than 10% of our outstanding common stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which requires them to file reports with respect to their ownership of our common stock and their transactions in such common stock. +Based solely upon our review of the Section 16(a) reports in our records for fiscal year 2023 transactions in our common stock, we believe that during the fiscal year 2023 and prior fiscal years our officers, directors and greater than 10% owners timely filed all reports they were required to file under Section 16(a), except for Messrs. Mooney, Thomas, Zank and Ms. Siegal, who filed Forms 4 on September 14, 2022 reporting the vesting of a previously reported restricted stock unit on September 8, 2022. +Annual Report +A copy of our Annual Report, including our Annual Report on Form 10-K for Fiscal 2023, accompanies the proxy materials being mailed to all stockholders. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Stockholders may obtain a copy of our Annual Report on Form 10-K and any of our other filings with the SEC, without charge, by writing to Investor Relations, Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, Texas 78746. The Annual Report (including the exhibits thereto) is also available on the SEC’s website at www.sec.gov. +Delivery of Documents to Stockholders Sharing an Address +Some street name holders of our common stock may be “householding” our proxy statements and annual reports, which means that we will deliver only one copy of our proxy statement and annual report to multiple stockholders who share the same address (if they appear to be members of the same family), unless we have received oral or written instructions to the contrary. This procedure reduces our printing and mailing costs and related fees. Upon request, we will promptly deliver a separate copy of either document to you if you write us at our corporate offices at Iteris, Inc., 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746, Attention: Corporate Secretary, via email at proxymaterials@iteris.com or by telephone: (866) 641-4276. You may also contact us or your Nominee if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future. +Deadline for Receipt of Stockholder Proposals +Stockholders may present proposals for action at a future meeting or nominate persons for the election of directors only if they comply with the requirements of the proxy rules established by the SEC and our bylaws. Pursuant to Rule 14a-8 of the Exchange Act, some stockholder proposals may be eligible for inclusion in our proxy statement for the 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”). Stockholder proposals that are intended to be presented at our 2024 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must be received by us not later than April 2, 2024. +If a stockholder wishes to submit a proposal which is not intended to be included in our proxy statement under Rule 14a-8 of the Exchange Act, or wishes to nominate a person as a candidate for election to the Board, the proposal or nomination must be received by us on or between May 10, 2024 and June 10, 2024. If the date of the 2024 Annual Meeting of Stockholders is called for a date that is not within 30 days before or after the anniversary date of the 2023 Annual Meeting of Stockholders, then the stockholder must submit any such proposal or nomination not later than the close of business of the 10th day following the earlier of (i) the day on which the notice of the meeting was mailed or (ii) public disclosure of the date of such meeting is first made. Stockholders are advised to review our bylaws which contain these advance notice requirements with respect to advance notice of stockholder proposals and director nominations. +54 +TAB LE OF CONTENTS +In addition, with respect to any proposal that a stockholder presents at the 2024 Annual Meeting that is not submitted for inclusion in our proxy materials pursuant to Rule 14a-8 under the Exchange Act, the proxy solicited by the Board for such annual meeting will confer discretionary voting authority to vote on such stockholder proposal to the extent permitted under Rule 14a-4 under the Exchange Act. In addition to satisfying the foregoing requirements, to comply with the “universal proxy rules,” stockholders who intend to solicit proxies in support of director nominees at the 2024 Annual Meeting must include the additional information required by Rule 14a-19(b) under the Exchange Act. +Stockholder proposals must be in writing and should be addressed to our Corporate Secretary, at our principal executive offices at 1250 S. Capital of Texas Hwy., Bldg. 1, Suite 330, Austin, TX 78746. It is recommended that stockholders submitting proposals direct them to our Corporate Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The presiding officer of the 2023 Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our bylaws and conditions established by the SEC. +Other Matters +The Board is not aware of any other matter which will be presented for action at the Annual Meeting other than the matters set forth in this proxy statement. If any other matter requiring a vote of the stockholders arise, it is intended that the proxy holders will vote the shares they represent as the Board may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy card. +THE BOARD OF DIRECTORS OF +ITERIS, INC. +Austin, Texas +July 28, 2023 +55 +TAB LE OF CONTENTS +TAB LE OF CONTENTS \ No newline at end of file diff --git a/raw/proxies/0000350868/0001628280-23-026101/proxy_rpt.txt b/raw/proxies/0000350868/0001628280-23-026101/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..fa6a4896486b13dbe559faa96790e5dced5b96c3 --- /dev/null +++ b/raw/proxies/0000350868/0001628280-23-026101/proxy_rpt.txt @@ -0,0 +1,2 @@ +Certain Transactions with Related Persons +Since April 1, 2022, other than the agreements and transactions described in “Executive Compensation and Other Matters” above, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two fiscal years and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-15-000074/proxy.txt b/raw/proxies/0000719733/0000719733-15-000074/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1c41017e4a925e175bbbc5dec403405f100f0cdf --- /dev/null +++ b/raw/proxies/0000719733/0000719733-15-000074/proxy.txt @@ -0,0 +1,1062 @@ +DEF 14A +1 +proxy2015.htm +DEF 14A +DEF 14A +September 18, 2015 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 22, 2015, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 22, 2015 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Thursday, October 22, 2015, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. To elect five directors of the Company to hold office until the next Annual Meeting +of Shareholders and until their successors are elected and have qualified; +2. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein; and +3. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2016; and +4. +To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 2, 2015 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 18, 2015 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 22, 2015. The Proxy Statement and 2015 Annual Report to Shareholders are available at: www.edocumentview.com/kttc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 22, 2015 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Ronald F. Klawitter, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 18, 2015. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 2, 2015 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,706,706 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2016. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the five nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) matters 2 and 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2 or 3 since neither represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers or (matter 2) no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 3).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Five directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The five nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2015 Annual Meeting attended the 2014 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 65, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, Inc. since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates, age 56, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 63, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +3 +Yacov A. Shamash , age 65, has been a director of the Company since 1989. He has been the Dean of Engineering and Applied Sciences at the State University of New York campus at Stony Brook since 1992. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc. and Softheon. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. Dr. Shamash has also served on the Board of one other public corporation, Netsmart Tech., Inc., during the past five years. +Patrick Sweeney , age 80, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Aimware, Info. Mosaic, and Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met seven times during fiscal 2015. During fiscal 2015, each director attended 100% of the Board of Directors meetings and at least 94% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer and Mr. Klawitter, the Company’s former Executive Vice President of Administration, CFO and Treasurer. Mr. Klawitter retired as Executive Vice President of Administration, CFO and Treasurer on July 29, 2015. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +4 +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At three of the four regular meetings of the Board of Directors held during fiscal year 2015, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +5 +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com . +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met nine times during fiscal 2015. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met six times during fiscal 2015. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met one time during fiscal 2015. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +6 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +7 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Royce & Associates, LLC +745 Fifth Avenue +New York, NY 10151 +1,282,016 +(2),(3) +12.2% +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +879,544 +(4),(5) +8.3% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +789,745 +(6),(7) +7.5 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +5,390 +** +Yacov A. Shamash +40,896 +(8) +** +Patrick Sweeney +75,103 +** +Craig D. Gates +206,236 +(9) +1.9% +Ronald F. Klawitter +188,575 +(10) +1.8% +Douglas G. Burkhardt +86,161 +(11) +** +Philip S. Hochberg +26,701 +(12) +** +Brett R. Larsen +11,789 +(13) +** +All officers and directors as a group +(12 persons) +714,974 +6.7% +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +8 +1. +Percentage beneficially owned is based on 10,706,706 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2015. +3. +Royce & Associates, LLC is a registered investment advisor. +4. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2015. +5. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2015. +7. +Tieton Capital Management LLC is a registered investment advisor. +8. +Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +9. +Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,458 shares) as of June 30, 2015. +10. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (17,867 shares) as of June 30, 2015, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +11. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2015. +12. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (4,273 shares) as of June 30, 2015 and 100 shares owned directly by Mr. Hochberg’s son. +13. +Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (1,337 shares) as of June 30, 2015. +9 +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive officers for fiscal year 2015 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Ronald F. Klawitter, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Brett R. Larsen, Vice President of Finance & Controller +The compensation for the named executive officers currently consists of four elements - base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and performance-based long-term equity incentives in the form of SARS - that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for Fiscal 2015 remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for the named executive officers for fiscal 2015 remained the same as the prior year. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long term performance based awards (SARS) for fiscal 2015 for the named executive officers remained the same as the prior year. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable Nasdaq listing standards. +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive officers. +10 +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the largest portion at risk for the most senior executives. Pay “at risk” for the CEO is 64.4%. “At risk” pay is slightly lower for the other named executive officers. +Executive +Pay “At Risk” +Craig D. Gates, President & Chief Executive Officer +64.4% +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +61.4% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +57.6% +Philip S. Hochberg, Executive Vice President Business Development +57.7% +Brett R. Larsen, Vice President Finance & Controller +41.3% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive officers for fiscal year 2015. +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation Committee has engaged Milliman, Inc. (“Milliman”), an independent executive compensation consultant, to review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and recommendations on competitive market practices and specific compensation decisions. Milliman has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. During fiscal 2015, Milliman provided no assistance to management in evaluating the competitiveness of compensation for personnel other than executive officers. +The Committee takes into consideration multiple factors for purposes of developing competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. With the assistance of Milliman, the Compensation Committee identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a business level). The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being number of employees and enterprise value, as well as, revenue and net income. +11 +Following this process, the Compensation Committee selected the following peer group for compensation decisions, all of which are electronics manufacturing organizations comparable to the Company in business space and profitability. This peer group was used in fiscal 2014 with no changes for fiscal 2015: +CTS Corporation +Mercury Computer Systems, Inc. +Methode Electronics, Inc. +Planar Systems, Inc. +Pulse Electronics Corporation +Radisys Corporation +Richardson Electronic, Ltd. +Ducommun +Fabrinet +IPG Photonics Corporation +Multi-Fineline Electronix, Inc. +Sypris Solutions, Inc. +TTM Technologies +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each executive officer to their counterparts in similar positions with the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are targeted to pay at the market median when performance meets expectations. +The Compensation Committee supplements the peer group analysis with published compensation data on all executives. Published compensation data is focused on a similar labor talent for Key Tronic executives, including organizations in the electronics manufacturing industry with annual revenues close to that of Key Tronic’s. In addition, the Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each executive other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +12 +Principal Elements of Compensation +The principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +In July 2014 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of some salaries, the Compensation Committee determined that base salaries should increase somewhat in fiscal year 2015. As a result, the named executive officers’ base salaries for fiscal 2015 were as follows: +Name and Position +2014 Base Salary +2015 Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +500,280 +$ +535,300 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +$ +312,120 +$ +321,484 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +270,400 +$ +278,512 +Philip S. Hochberg, Executive Vice President Business Development +$ +266,400 +$ +275,724 +Brett R. Larsen, Vice President Finance & Controller +$ +205,153 +$ +205,153 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +The Compensation Committee has established a cash incentive program for the Company’s named executive officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are appropriate based on a subjective assessment of the executive’s position and ability to directly impact Company performance, and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies in the Company peer group identified above. Bonuses under the fiscal year 2015 cash annual incentive program were paid out in August 2015 only if the executive officer was employed by the Company on the payment date. +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit before taxes (PBT). Performance for fiscal year 2015 was measured based on the Company’s profit before taxes. +13 +For fiscal year 2015 performance, the target bonus opportunities (as a % of base salary) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +5% +50% +75% +34% +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +4% +40% +60% +27% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +4% +40% +60% +27% +Philip S. Hochberg, Executive Vice President Business Development +4% +40% +60% +27% +Brett R. Larsen, Vice President Finance & Controller +3.5 +% +35% +52.5% +24% +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to peer group companies and return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to provide the most appropriate measures of long-term financial performance. Having a goal of revenue growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents management to make sure that revenue growth is profitable. +14 +The table below contains the target award levels for each named executive officer for the three year period ending at the end of fiscal year 2015. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$137,500 +$275,000 +$412,500 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +$82,500 +$165,000 +$247,500 +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +$50,000 +$100,000 +$150,000 +Philip S. Hochberg, Executive Vice President Business Development +$50,000 +$100,000 +$150,000 +Brett R. Larsen, Vice President Finance & Controller +$20,000 +$40,000 +$60 000 +Long-Term Equity Incentive Compensation. In fiscal years 2013, 2014 and 2015 the named executive officers received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan. These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over the vesting period compared to the weighted average ROIC of a selected group of peer companies over the same period has reached 90% or more of the ROIC of the peer group average. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the Compensation Committee. +The stock appreciation rights are designed to link executives’ interests with those of the Company’s shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +SARS awards are outlined in the table below for the past three fiscal years. +Executive +2013 (1) +2014 (2) +2015 (3) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +50,000 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +25,000 +25,000 +25,000 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +20,000 +Philip S. Hochberg, Executive Vice President Business Development +20,000 +20,000 +20,000 +Brett R. Larsen, Vice President Finance & Controller +10,000 +10,000 +10,000 +(1) +The grant date fair values of the 2013 SARS awards were, $130,000, $65,000, $52,000, $52,000 and $26,000, respectively. +(2) +The grant date fair values of the 2014 SARS awards were, $233,500, $116,750, $93,400, $93,400, and $46,700, respectively. +(3) +The grant date fair values of the 2015 SARS awards were, $152,000, $76,000, $60,800, $60,800, and $30,400, respectively. +15 +Other Benefits . The named executive officers are also entitled to participate in the Company’s benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +Post-Termination Protection and Payments +The Company has entered into employment agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully vested if they are not assumed by the successor entity. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption, and the Compensation Committee generally considers the limitations imposed by Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. +16 +The Compensation Committee takes risk into account in establishing and reviewing the Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s performance-based annual cash bonuses are generally based on annual results, the amounts of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives is both appropriate and responsive to the goal of improving shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K. +Respectfully submitted by the Compensation Committee: +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +17 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2013-2015 +The following table sets forth information concerning compensation for services rendered to the Company by the Chief Executive Officer, or the CEO, the Executive Vice President - Chief Financial Officer, and the Company’s next three most highly compensated executive officers for fiscal years 2013, 2014 and 2015 by each of the named executive officers. Collectively, these are the “named executive officers.” +Name and Principal Position +Year +Salary ($) +Bonus +($) +Option/SAR Awards +($)(1) +Non-Equity Incentive Plan Compensation ($)(2) +All Other Compensation ($) (3) +Total ($) +Craig D. Gates, +2015 +540,687 +— +152,000 +588,499 +10,600 +1,291,786 +President & Chief +2014 +504,637 +— +233,500 +690,050 +10,200 +1,438,387 +Executive Officer +2013 +469,272 +— +185,500 +752,694 +10,000 +1,417,466 +Ronald F. Klawitter, +2015 +321,484 +— +76,000 +330,076 +10,400 +737,960 +Executive Vice President, +2014 +312,356 +— +116,750 +384,936 +10,200 +824,242 +Chief Financial Officer +2013 +306,000 +— +92,750 +418,698 +10,000 +827,448 +Douglas G. Burkhardt, +2015 +277,888 +— +60,800 +222,801 +10,400 +571,889 +Executive Vice +2014 +269,600 +— +93,400 +268,624 +10,400 +642,024 +President, Operations +2013 +256,692 +— +74,200 +312,486 +10,000 +653,378 +Philip S. Hochberg, +2015 +268,552 +— +60,800 +220,243 +10,400 +559,995 +Executive Vice President, +2014 +263,977 +— +93,400 +176,150 +10,200 +543,727 +Business Development +2013 +245,850 +— +74,200 +215,623 +10,000 +545,673 +Brett R. Larsen, +2015 +205,153 +— +30,400 +107,849 +4,143 +347,545 +VP Finance & Controller +2014 +190,996 +— +46,700 +133,533 +8,392 +379,621 +2013 +175,000 +— +37,100 +156,928 +10,000 +379,028 +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2015 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) +Represents Company matching payments in fiscal years 2015, 2014 and 2013 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Gates a service award in the amount of $200 in fiscal year 2015 and for Mr. Burkhardt a service award in the amount of $200 in fiscal year 2014. +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +18 +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2015 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2015, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2015. The Outstanding Equity Awards at 2015 Fiscal Year-End and Option Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Klawitter, Burkhardt, Hochberg and Larsen at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2015 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2015 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated +Future Payouts Under Equity Incentive Plan Awards (#) +Exercise or Base Price of Option/ +SAR +Awards +($/Sh) +Grant Date Fair Value of Stock +And +Option/ +SAR +Awards +($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +10/30/14 (1) +07/31/14 (2) +07/31/14 (3) +27,034 +150,000 +270,344 +300,000 +405,515 +450,000 +50,000 +- +- +7.94 +- +- +152,000 +- +- +Ronald F. Klawitter +10/30/14 (1) +07/31/14 (2) +07/31/14 (3) +12,859 +90,000 +128,593 +180,000 +192,890 +270,000 +25,000 +- +- +7.94 +- +- +76,000 +- +- +Douglas G. Burkhardt +10/30/14 (1) +07/31/14 (2) +07/31/14 (3) +11,116 +55,000 +111,155 +110,000 +166,732 +165,000 +20,000 +- +- +7.94 +- +- +60,800 +- +- +Philip S. Hochberg +10/30/14 (1) +07/31/14 (2) +07/31/14 (3) +10,742 +55,000 +107,421 +110,000 +161,131 +165,000 +20,000 +- +- +7.94 +- +- +60,800 +- +- +Brett R. Larsen +10/30/14 (1) +07/31/14 (2) +07/31/14 (3) +7,180 +25,000 +71,804 +50,000 +107,705 +75,000 +10,000 +- +- +7.94 +- +- +30,400 +- +- +19 +(1) +Represents stock appreciation rights awards during fiscal year 2015 under the 2010 Incentive Compensation Plan. The 2010 Incentive Compensation Plan is discussed under the caption “Long-Term Equity Incentive Compensation” beginning on page 15. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2015. For actual payouts earned for fiscal year 2015 see the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 13. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2015-2017 performance cycle. The Long-Term Incentive Plan is discussed under the caption “Long-Term Cash Incentive Compensation” beginning on page 14. Payouts under the Long-Term Incentive Plan for the 2015-2017 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +20 +Outstanding Equity Awards at Fiscal 2015 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of June 27, 2015. +Option/SAR Awards +Name +Grant Date +Equity +Incentive Plan +Awards +Number of +Securities +Underlying +Unexercised +Exercisable +Options/SARS +(#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Unearned Options/SARS +(#)(1) +Option/SAR Exercise/Base Price ($) +Option/SAR Expiration Date +Craig D. Gates +10/30/14 +07/31/13 +07/26/12 +07/27/11 +50,000 +50,000 +50,000 +50,000 +7.94 +11.34 +7.45 +4.40 +10/30/19 +07/31/18 +07/26/19 +07/27/16 +Ronald F. Klawitter +10/30/14 +07/31/13 +07/26/12 +07/27/11 +25,000 +25,000 +25,000 +25,000 +7.94 +11.34 +7.45 +4.40 +10/30/19 +07/31/18 +07/26/19 +07/27/16 +Douglas G. Burkhardt +10/30/14 +07/31/13 +07/26/12 +07/27/11 +20,000 +20,000 +20,000 +20,000 +7.94 +11.34 +7.45 +4.40 +10/30/19 +07/31/18 +07/26/19 +07/27/16 +Philip S. Hochberg +10/30/14 +07/31/13 +07/26/12 +01/26/12 +07/27/11 +15,000 +10,000 +20,000 +20,000 +20,000 +7.94 +11.34 +7.45 +6.30 +4.40 +10/30/19 +07/31/18 +07/26/17 +01/26/17 +07/27/16 +Brett R. Larsen +10/30/14 +07/31/13 +07/26/12 +07/27/11 +10,000 +10,000 +10,000 +10,000 +7.94 +11.34 +7.45 +4.40 +10/30/19 +07/21/18 +07/26/19 +07/27/16 +(1) +Stock appreciation rights that vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +21 +Option/SAR Exercises and Stock Vested-Fiscal Year 2015 +The following table presents information regarding the exercise during fiscal year 2015 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name +Number of Shares +Acquired on +Exercise +(#) +Value Realized +on Exercise +($) +Craig D. Gates +52,897 +906,000 +Ronald F. Klawitter +26,497 +453,000 +Doug G. Burkhardt +17,618 +302,000 +Philip S. Hochberg +10,661 +185,400 +Brett R. Larsen +10,452 +181,800 +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 27, 2015. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +22 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance +($)(1) +Continuation of +Health/Life +Benefits($)(2) +Cash-Out +of Accrued +and +Earned +Vacation($) +Total($) +Craig D. Gates +535,300 +— +21,104 +556,404 +Ronald F. Klawitter +321,484 +— +49,459 +370,943 +Douglas G. Burkhardt +278,512 +— +13,256 +291,768 +Philip S. Hochberg +275,724 +— +4,724 +280,448 +Brett R. Larsen +205,153 +— +22,473 +227,626 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 27, 2015) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance +($)(1) +Continuation +of Health/Life +Benefits($)(2) +Cash-Out +of Accrued +and +Unpaid +Paid Time Off($) +Equity +Acceleration +($)(3) +Non-Equity Acceleration +($)(4) +Total($) +Craig D. Gates +1,070,599 +— +21,104 +296,500 +600,000 +1,988,203 +Ronald F. Klawitter +642,968 +— +49,459 +148,250 +360,000 +1,200,677 +Douglas G. Burkhardt +557,024 +— +13,256 +118,600 +220,000 +908,880 +Philip S. Hochberg +551,448 +— +4,724 +118,600 +220,000 +894,722 +Brett R. Larsen +410,306 +— +22,473 +59,300 +100,000 +592,079 +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the previous table. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $10.66 (the closing price of the Company’s common stock on the last trading day of fiscal 2015) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +23 +4. +This amount represents the target value of the unvested portion of the executive's long term cash incentive plan awards (described beginning on page 14) that would have accelerated if the executive's employment terminated upon a change in control of the Company on June 27, 2015 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2015 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or Paid in Cash ($) +Option/SAR Awards ($)(1) +Non-Equity Incentive Plan Compensation ($)(2) +All Other Compensation ($) +Total ($) +James R. Bean +56,520 +22,800 +21,999 +— +101,319 +Yacov A. Shamash +55,052 +22,800 +21,999 +— +99,851 +Patrick Sweeney +69,961 +22,800 +21,999 +— +114,760 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation right granted to the Company’s non-employee directors during fiscal year 2015 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2015 Annual Report . +(2) +Reflects payout of long term performance unit awards for the three year performance period that ended in fiscal year 2015. +24 +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of June 27, 2015. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of 06/27/2015 +Number of Unvested Restricted Shares/Units as of 06/27/2015 +James. R. Bean +27,500 +— +Yacov A. Shamash +27,500 +— +Patrick Sweeney +27,500 +— +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +36,000 +Chairman of the Board +48,938 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +25 +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of three members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 27, 2015. +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to Statement of Auditing Standards No. 61, (“Codification of Statements on Auditing Standards, AU § 380”), as amended. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +26 +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 27, 2015, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Yacov A. Shamash, Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended June 27, 2015 and June 28, 2014: +FY 2015 +FY 2014 +Audit Fees (1) +$ +337,600 +$ +331,251 +Audit Related Fees (2) +13,000 +12,750 +Tax Fees (3) +106,104 +87,883 +All Other Fees +— +— +Total +$ +456,704 +$ +431,884 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +(3) +Tax fees for fiscal years 2015 and 2014 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal year 2015 also included fees for BDO performing a study relating to research and development tax credits. +27 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending July 2, 2016. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2016 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2016 Annual Meeting must be received by the Secretary at the address above no later than May 23, 2016. In addition, any shareholder who intends to present a proposal at the 2016 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 31, 2016 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2015 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended June 27, 2015 all the Reporting Persons complied with all applicable filing requirements. +28 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson Inc. to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson Inc. in connection with such services to be approximately $15,000, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 18, 2015 +29 +30 +31 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-15-000074/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-15-000074/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2d75a5ee4d4e2f50bd78cf893036b3892ad5787d --- /dev/null +++ b/raw/proxies/0000719733/0000719733-15-000074/proxy_rpt.txt @@ -0,0 +1,5 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +7 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-16-000167/proxy.txt b/raw/proxies/0000719733/0000719733-16-000167/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5cae67673c71e1c6ffb9491aee648ca0d5a04114 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-16-000167/proxy.txt @@ -0,0 +1,1147 @@ +DEF 14A +1 +proxy2016.htm +DEF 14A +Document +September 22, 2016 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Friday, October 28, 2016, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 28, 2016 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company”) will be held on Friday, October 28, 2016, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216 (the “Annual Meeting”), for the following purposes: +1. To elect five directors of the Company to hold office until the next Annual Meeting +of Shareholders and until their successors are elected and have qualified; +2. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein; and +3. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2017; and +4. +To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 8, 2016 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 22, 2016 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 28, 2016. The Proxy Statement and 2016 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Friday, October 28, 2016 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 22, 2016. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 8, 2016 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,756,018 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2017. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the five nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) matters 2 and 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2 or 3 since neither represents a vote cast. +1 +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote “uninstructed” shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers or (matter 2) no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 3).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +PROPOSAL 1 +ELECTION OF DIRECTORS +Five directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The five nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2016 Annual Meeting attended the 2015 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 66, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, Inc. since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates, age 57, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +2 +Ronald F. Klawitter , age 64, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 66, has been a director of the Company since 1989. He is the Vice President for Economic Development at Stony Brook University, and was the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon and Advanced Convergence Group. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 81, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Aimware, Info. Mosaic, and Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2016. During fiscal 2016, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer and Mr. Klawitter, the Company’s former Executive Vice President of Administration, CFO and Treasurer. Mr. Klawitter retired as Executive Vice President of Administration, CFO and Treasurer on July 29, 2015 and retired as an employee of the Company on December 11, 2015. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +3 +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At each of the four regular meetings of the Board of Directors held during fiscal year 2016, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com . +4 +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met seven times during fiscal 2016. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2016. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met one time during fiscal 2016. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +5 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +6 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +900,600 +(2),(3) +8.41 +% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +684,838 +(4),(5) +6.39 +% +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 +589,825 +(6),(7) +5.51 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +6,786 +** +Ronald F. Klawitter +196,144 +(8) +1.8 +% +Yacov A. Shamash +42,326 +(9) +** +Patrick Sweeney +77,410 +** +Craig D. Gates +221,786 +(10) +2.1 +% +Brett R. Larsen +15,014 +(11) +** +Douglas G. Burkhardt +92,419 +(12) +** +Philip S. Hochberg +30,772 +(13) +** +Duane D. Mackleit +20,452 +(14) +** +All officers and directors as a group +(12 persons) +764,457 +7.1 +% +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. +Percentage beneficially owned is based on 10,756,018 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2016. +7 +3. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +4. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2016. +5. +Tieton Capital Management LLC is a registered investment advisor. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2016. +7. +Morgan Stanley Wealth Management is a registered investment advisor. +8. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (17,867 shares) as of June 30, 2016, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. +Includes 1,100 shares owned directly by Dr. Shamash's daughter. +10. +Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,458 shares) as of June 30, 2016. +11. +Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (1,337 shares) as of June 30, 2016. +12. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2016. +13. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (4,444 shares) as of June 30, 2016 and 100 shares owned directly by Mr. Hochberg’s son. +14. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company's 401(k) Retirement Savings Plan (11,338 shares) as of June 30, 2016. +8 +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive officers for fiscal year 2016 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Brett R. Larsen, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Duane D. Mackleit, Vice President of Program Management +The compensation for the named executive officers currently consists of four elements - base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and performance-based long-term equity incentives in the form of SARS - that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for fiscal 2016 were increased for Mr. Gates due to relative position to market and for Mr. Larsen on his promotion to Executive Vice President and CFO. Target award opportunities for fiscal 2016 for the other named executive officers remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for fiscal 2016 were increased for Mr. Gates due to relative position to market and for Mr. Larsen on his promotion to Executive Vice President and CFO. Target award opportunities for the other named executive officers for fiscal 2016 remained the same as the prior year. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long term performance based awards (SARS) for fiscal 2016 for the named executive officers remained the same as the prior year. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable Nasdaq listing standards. +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive officers. +9 +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the largest portion at risk for the most senior executives. Target “at risk” compensation for the CEO is 66%. “At risk” compensation is targeted slightly lower for the other named executive officers. +Executive +Target +“At Risk” Compensation +Craig D. Gates, President & Chief Executive Officer +66% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +46% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +50% +Philip S. Hochberg, Executive Vice President Business Development +51% +Duane D. Mackleit, Vice President of Program Management +41% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive officers for fiscal year 2016. +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation Committee has engaged Cardwell Consulting, Inc. (“Cardwell”), an independent executive compensation consultant, to review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and recommendations on competitive market practices and specific compensation decisions. Cardwell has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. During fiscal 2016, Cardwell provided no assistance to management in evaluating the competitiveness of compensation for personnel other than executive officers. +10 +The Committee takes into consideration multiple factors for purposes of developing competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. With the assistance of Cardwell, the Compensation Committee identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a business level). The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being number of employees and enterprise value, as well as, revenue and net income. +Following this process, the Compensation Committee selected the following peer group for compensation decisions, all of which are electronics manufacturing organizations comparable to the Company in business space and profitability. This peer group was used in fiscal 2015 with one change for fiscal 2016 as Pulse Electronics Corporation was eliminated from this year's peer group. +CTS Corporation +Mercury Computer Systems, Inc. +Methode Electronics, Inc. +Planar Systems, Inc. +Richardson Electronic, Ltd. +Radisys Corporation +Fabrinet +Ducommun +Multi-Fineline Electronix, Inc. +IPG Photonics Corporation +TTM Technologies +Sypris Solutions, Inc. +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each executive officer to their counterparts in similar positions with the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are targeted to pay at the market median when performance meets expectations. +The Compensation Committee supplements the peer group analysis with published compensation data on all executives. Published compensation data is focused on a similar labor talent for Key Tronic executives, including organizations in the electronics manufacturing industry with annual revenues close to that of Key Tronic’s. In addition, the Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each executive other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +11 +Principal Elements of Compensation +The principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +In July 2015 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of some salaries, the Compensation Committee determined that base salaries should increase somewhat in fiscal year 2016. As a result, the named executive officers’ base salaries for fiscal 2016 were as follows: +Name and Position +2015 +Base Salary +2016 +Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +535,300 +$ +535,300 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$ +205,153 +$ +280,000 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +278,512 +$ +288,260 +Philip S. Hochberg, Executive Vice President Business Development +$ +275,724 +$ +283,995 +Duane D. Mackleit, Vice President of Program Management +$ +243,251 +$ +251,765 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +The Compensation Committee has established a cash incentive program for the Company’s named executive officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are appropriate based on a subjective assessment of the executive’s position and ability to directly impact Company performance, and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies in the Company peer group identified above. Bonuses under the fiscal year 2016 cash annual incentive program were paid out in August 2016 only if the executive officer was employed by the Company on the payment date. +12 +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit before taxes (PBT). Performance for fiscal year 2016 was measured based on the Company’s profit before taxes. +For fiscal year 2016 performance, the target bonus opportunities (as a % of base salary) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +10 +% +100 +% +150 +% +62 +% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +4 +% +40 +% +60 +% +25 +% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +4 +% +40 +% +60 +% +25 +% +Philip S. Hochberg, Executive Vice President Business Development +4 +% +40 +% +60 +% +25 +% +Duane D. Mackleit, Vice President of Program Management +3.5 +% +35 +% +52.5 +% +22 +% +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to industry peer group companies and return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to provide the most appropriate measures of long-term financial performance. Having a goal of revenue growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents management to make sure that revenue growth is profitable. +13 +The table below contains the target award levels for each named executive officer for the three year period ending at the end of fiscal year 2016. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$150,000 +$300,000 +$450,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$25,000 +$50,000 +$75,000 +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +$55,000 +$110,000 +$165,000 +Philip S. Hochberg, Executive Vice President Business Development +$55,000 +$110,000 +$165,000 +Duane D. Mackleit, Vice President of Program Management +$25,000 +$50,000 +$75,000 +Long-Term Equity Incentive Compensation. In fiscal years 2014, 2015 and 2016 the named executive officers received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan. These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over the vesting period compared to the weighted average ROIC of a selected group of industry peer companies over the same period has reached 90% or more of the ROIC of the peer group average. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the Compensation Committee. +The stock appreciation rights are designed to link executives’ interests with those of the Company’s shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +SARS awards are outlined in the table below for the past three fiscal years. +Executive +2014 (1) +2015 (2) +2016 (3) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +50,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +10,000 +10,000 +20,000 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +20,000 +Philip S. Hochberg, Executive Vice President Business Development +20,000 +20,000 +20,000 +Duane D. Mackleit, Vice President of Program Management +10,000 +10,000 +10,000 +(1) +The grant date fair values of the 2014 SARS awards were, $233,500, $46,700, $93,400, $93,400, and $46,700, respectively. +(2) +The grant date fair values of the 2015 SARS awards were, $152,000, $30,400, $60,800, $60,800, and $30,400, respectively. +(3) +The grant date fair values of the 2016 SARS awards were, $182,500, $73,000, $73,000, $73,000, and $36,500, respectively. +14 +Other Benefits . The named executive officers are also entitled to participate in the Company’s benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +Post-Termination Protection and Payments +The Company has entered into employment agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully vested if they are not assumed by the successor entity. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption, and the Compensation Committee generally considers the limitations imposed by Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. +15 +The Compensation Committee takes risk into account in establishing and reviewing the Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s performance-based annual cash bonuses are generally based on annual results, the amounts of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives is both appropriate and responsive to the goal of improving shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K. +Respectfully submitted by the Compensation Committee: +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +16 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2014-2016 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, the Company’s next three most highly compensated executive officers and former Executive Vice President and Chief Financial Officer for fiscal years 2014, 2015 and 2016. Collectively, these officers are the “named executive officers.” +Name and Principal Position +Year +Salary ($) +Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, +2016 +530,625 +— +182,500 +672,325 +10,600 +1,396,050 +President & Chief +2015 +540,687 +— +152,000 +588,499 +10,600 +1,291,786 +Executive Officer +2014 +504,637 +— +233,500 +690,050 +10,200 +1,438,387 +Brett R. Larsen, +2016 +273,539 +— +73,000 +124,936 +9,770 +481,245 +Executive Vice President, +2015 +205,153 +— +30,400 +107,849 +4,143 +347,545 +Chief Financial Officer +2014 +190,996 +— +46,700 +133,533 +8,392 +379,621 +Douglas G. Burkhardt, +2016 +281,531 +— +73,000 +195,921 +10,600 +561,052 +Executive Vice +2015 +277,888 +— +60,800 +222,801 +10,400 +571,889 +President, Operations +2014 +269,600 +— +93,400 +268,624 +10,400 +642,024 +Philip S. Hochberg, +2016 +276,726 +— +73,000 +194,606 +10,702 +555,034 +Executive Vice President, +2015 +268,552 +— +60,800 +220,243 +10,400 +559,995 +Business Development +2014 +263,977 +— +93,400 +176,150 +10,200 +543,727 +Duane D. Mackleit, +2016 +246,427 +— +36,500 +110,644 +10,600 +404,171 +Vice President of +Program Management (4) +Ronald F. Klawitter, Former +2016 +148,377 +— +27,375 +171,921 +10,600 +358,273 +Former Executive Vice +2015 +321,484 +— +76,000 +330,076 +10,400 +737,960 +President, Chief +Financial Officer (5) +2014 +312,356 +— +116,750 +384,936 +10,200 +824,242 +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2016 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) +Represents Company matching payments in fiscal years 2016, 2015 and 2014 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Hochberg a service award in the amount of $102 in fiscal year 2016, for Mr. Gates a service award in the amount of $200 in fiscal year 2015 and for Mr. Burkhardt a service award in the amount of $200 in fiscal year 2014. +17 +4) +Compensation data for 2015 and 2014 for Mr. Mackleit is not included since he was not a named executive officer prior to fiscal year 2016. +5) +Mr. Klawitter retired as Executive Vice President, CFO and Treasurer of the Company in July 2015 and retired as an employee of the Company in December 2015. +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2016 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2016, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2016. The Outstanding Equity Awards at 2016 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen, Burkhardt, Hochberg and Mackleit at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +18 +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2016 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2016 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards (#) +Exercise or Base Price of +Option/SAR Awards ($/Sh) +Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +07/29/15 (1) +07/29/15 (2) +07/29/15 (3) +53,530 +150,000 +535,300 +300,000 +802,950 +450,000 +50,000 +- +- +10.26 +- +- +182,500 +- +- +Brett R. Larsen +07/29/15 (1) +07/29/15 (2) +07/29/15 (3) +11,200 +55,000 +112,000 +110,000 +168,000 +165,000 +20,000 +- +- +10.26 +- +- +73,000 +- +- +Douglas G. Burkhardt +07/29/15 (1) +07/29/15 (2) +07/29/15 (3) +11,140 +55,000 +111,405 +110,000 +167,107 +165,000 +20,000 +- +- +10.26 +- +- +73,000 +- +- +Philip S. Hochberg +07/29/15 (1) +07/29/15 (2) +07/29/15 (3) +11,029 +55,000 +110,290 +110,000 +165,434 +165,000 +20,000 +- +- +10.26 +- +- +73,000 +- +- +Duane D. Mackleit +07/29/15 (1) +07/29/15 (2) +07/29/15 (3) +8,514 +25,000 +85,138 +50,000 +127,707 +75,000 +10,000 +- +- +10.26 +- +- +36,500 +- +- +Ronald F. Klawitter +07/29/15 (1) +07/29/15 (3) +10,000 +20,000 +30,000 +7,500 +- +10.26 +- +27,375 +- +(1) +Represents stock appreciation rights awards during fiscal year 2016 under the 2010 Incentive Compensation Plan. The 2010 Incentive Compensation Plan is discussed under the caption “Long-Term Equity Incentive Compensation” beginning on page 14. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2016. For actual payouts earned for fiscal year 2016 see the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 12. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2016-2018 performance cycle. The Long-Term Incentive Plan is discussed under the caption “Long-Term Cash Incentive Compensation” beginning on page 13. Payouts under the Long-Term Incentive Plan for the 2016-2018 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +19 +Outstanding Equity Awards at Fiscal 2016 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of July 2, 2016. +Option/SAR Awards +Name +Grant Date +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Exercisable Options/SARS (#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options/SARS (#) (1) +Option/SAR +Exercise/Base Price ($) +Option/SAR +Expiration Date +Craig D. Gates +07/29/15 +10/30/14 +07/31/13 +07/26/12 +07/27/11 +50,000 +50,000 +50,000 +50,000 +50,000 +10.26 +7.94 +11.34 +7.45 +4.40 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +07/27/16 +Brett R. Larsen +07/29/15 +10/30/14 +07/31/13 +07/26/12 +10,000 +20,000 +10,000 +10,000 +10.26 +7.94 +11.34 +7.45 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Douglas G. Burkhardt +07/29/15 +10/30/14 +07/31/13 +07/26/12 +07/27/11 +20,000 +20,000 +20,000 +20,000 +20,000 +10.26 +7.94 +11.34 +7.45 +4.40 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +07/27/16 +Philip S. Hochberg +07/29/15 +10/30/14 +07/31/13 +07/26/12 +01/26/12 +20,000 +15,000 +20,000 +20,000 +20,000 +10.26 +7.94 +11.34 +7.45 +6.30 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +01/26/17 +Duane D. Mackleit +07/29/15 +10/30/14 +07/31/13 +07/26/12 +07/27/11 +10,000 +7,000 +10,000 +10,000 +10,000 +10.26 +7.94 +11.34 +7.45 +4.40 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +07/27/16 +Ronald F. Klawitter +07/29/15 +10/30/14 +07/31/13 +07/26/12 +25,000 +7,500 +25,000 +25,000 +10.26 +7.94 +11.34 +7.45 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +(1) +Stock appreciation rights that vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +20 +Option/SAR Exercises and Stock Vested-Fiscal Year 2016 +The following table presents information regarding the exercise during fiscal year 2016 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name +Number of Shares +Acquired on Exercise (#) +Value Realized +on Exercise ($) +Craig D. Gates +— +— +Brett R. Larsen +3,225 +22,149 +Doug G. Burkhardt +— +— +Philip S. Hochberg +3,900 +31,360 +Duane D. Mackleit +— +— +Ronald F. Klawitter +7,569 +45,989 +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on July 2, 2016. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +21 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Craig D. Gates +535,300 +— +41,135 +576,435 +Brett R. Larsen +280,000 +— +14,855 +294,855 +Douglas G. Burkhardt +288,259 +— +18,432 +306,691 +Philip S. Hochberg +283,995 +— +25,618 +309,613 +Duane D. Mackleit +251,764 +— +33,891 +285,655 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of July 2, 2016) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates +1,070,600 +— +41,135 +— +600,000 +1,711,735 +Brett R. Larsen +560,000 +— +14,855 +— +160,000 +734,855 +Douglas G. Burkhardt +576,518 +— +18,432 +— +220,000 +814,950 +Philip S. Hochberg +567,990 +— +25,618 +16,350 +220,000 +829,958 +Duane D. Mackleit +503,528 +— +33,891 +— +100,000 +637,419 +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the previous table. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $7.39 (the closing price of the Company’s common stock on the last trading day of fiscal 2016) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +22 +4. +This amount represents the target value of the unvested portion of the executive's long term cash incentive plan awards (described beginning on page 13) that would have accelerated if the executive's employment terminated upon a change in control of the Company on July 2, 2016. +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2016 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2)(3) +All Other +Compensation ($) +Total ($) +James R. Bean +52,102 +27,375 +22,923 +— +102,400 +Ronald F. Klawitter +13,785 +27,375 +— +— +41,160 +Yacov A. Shamash +51,001 +27,375 +22,923 +— +101,299 +Patrick Sweeney +65,136 +27,375 +22,923 +— +115,434 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2016 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2016 Annual Report . +(2) +Reflects payout of long term incentive plan awards for the three year performance period that ended in fiscal year 2016. +(3) +Mr. Klawitter became a non-employee director in December 2015 when he retired as an employee of the Company. Non-Equity Incentive Plan Compensation paid to Mr. Klawitter for fiscal 2016 is reported in the Summary Compensation Table on page 17. +23 +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of July 2, 2016. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of 07/02/2016 +Number of Unvested Restricted +Shares/Units as of 07/02/2016 +James. R. Bean +30,000 +— +Ronald F. Klawitter +82,500 +— +Patrick Sweeney +35,000 +— +Yacov A. Shamash +35,000 +— +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +40,000 +Chairman of the Board +54,375 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +24 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of three members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP (“BDO”), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended July 2, 2016. +25 +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to PCAOB Auditing Standard No. 16, Communications with Audit Committees. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended July 2, 2016, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Yacov A. Shamash, Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended July 2, 2016 and June 27, 2015: +FY 2016 +FY 2015 +Audit Fees (1) +$ +394,500 +$ +421,850 +Audit Related Fees (2) +13,500 +13,500 +Tax Fees (3) +120,150 +107,464 +All Other Fees +— +— +Total +$ +528,150 +$ +542,814 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +(3) +Tax fees for fiscal years 2016 and 2015 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2016 and 2015 also included fees for BDO performing a study relating to research and development tax credits. +26 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP (“BDO ” ) as the Company's independent registered public accounting firm for the fiscal year ending July 1, 2017. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2017 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2017 Annual Meeting must be received by the Secretary at the address above no later than May 22, 2017. In addition, any shareholder who intends to present a proposal at the 2017 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 30, 2017 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2016 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, “ Reporting Persons ” ) to file reports of ownership and changes in ownership with the Securities and Exchange Commission ( “ SEC ” ) and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended July 2, 2016 all the Reporting Persons complied with all applicable filing requirements. +27 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $15,000, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 22, 2016 +28 +29 +30 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-16-000167/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-16-000167/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dfde333ac1ff0b50f22df05f324a9cc77bbe251b --- /dev/null +++ b/raw/proxies/0000719733/0000719733-16-000167/proxy_rpt.txt @@ -0,0 +1,5 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +6 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-17-000030/proxy.txt b/raw/proxies/0000719733/0000719733-17-000030/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a5b09610d24ba59dcdef8c5d449fe1dc8020888c --- /dev/null +++ b/raw/proxies/0000719733/0000719733-17-000030/proxy.txt @@ -0,0 +1,1101 @@ +DEF 14A +1 +proxy2017.htm +DEF 14A +Document +September 21, 2017 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Friday, October 27, 2017, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 27, 2017 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Friday, October 27, 2017, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. To elect five directors of the Company to hold office until the next Annual Meeting +of Shareholders and until their successors are elected and have qualified; +2. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein; and +3. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2018; and +4. +To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 7, 2017 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 21, 2017 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 27, 2017. The Proxy Statement and 2017 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Friday, October 27, 2017 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 21, 2017. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 7, 2017 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,759,680 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2018. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the five nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) matters 2 and 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2 or 3 since neither represents a vote cast. +1 +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers or (matter 2) no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 3).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +PROPOSAL 1 +ELECTION OF DIRECTORS +Five directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The five nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2016 Annual Meeting, except Mr. Bean, attended the 2016 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 67, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, LLC since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates, age 58, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +2 +Ronald F. Klawitter , age 65, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 67, has been a director of the Company since 1989. He is the Vice President for Economic Development at Stony Brook University, and was the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon, Advanced Convergence Group and Comtech Telecommunications Corp. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 82, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Aimware, Photo Machining Inc., Gotcha Covered LTD and Kleen Envoy. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2017. During fiscal 2017, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer and Mr. Klawitter, the Company’s former Executive Vice President of Administration, CFO and Treasurer. Mr. Klawitter retired as Executive Vice President of Administration, CFO and Treasurer on July 29, 2015 and retired as an employee of the Company on December 11, 2015. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +3 +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At each of the four regular meetings of the Board of Directors held during fiscal year 2017, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +4 +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com . +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met seven times during fiscal 2017. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2017. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met one time during fiscal 2017. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +5 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +6 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +905,027 +(2),(3) +8.41 +% +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 +901,708 +(4),(5) +8.38 +% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +572,567 +(6),(7) +5.32 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +6,786 +** +Ronald F. Klawitter +196,144 +(8) +1.82 +% +Yacov A. Shamash +42,326 +(9) +** +Patrick Sweeney +77,410 +** +Craig D. Gates +221,786 +(10) +2.06 +% +Brett R. Larsen +15,014 +(11) +** +Douglas G. Burkhardt +92,419 +(12) +** +Philip S. Hochberg +33,283 +(13) +** +Duane D. Mackleit +20,452 +(14) +** +All officers and directors as a group +(14 persons) +771,566 +7.17 +% +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. +Percentage beneficially owned is based on 10,759,680 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2017. +3. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +4. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2017. +7 +5. Morgan Stanley Wealth Management is a registered investment advisor. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2017. +7. +Tieton Capital Management LLC is a registered investment advisor. +8. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (17,867 shares) as of June 30, 2017, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. +Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10. +Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,458 shares) as of June 30, 2017. +11. +Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (1,337 shares) as of June 30, 2017. +12. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2017. +13. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (4,735 shares) as of June 30, 2017 and 100 shares owned directly by Mr. Hochberg’s son. +14. +Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (11,338 shares) as of June 30, 2017. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive officers for fiscal year 2017 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Brett R. Larsen, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Duane D. Mackleit, Vice President of Program Management +8 +The compensation for the named executive officers currently consists of four elements - base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and performance-based long-term equity incentives in the form of SARS - that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for fiscal 2017 for all named executive officers remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for fiscal 2017 for named executive officers remained the same as the prior year, with the exception of the EVP Administration, CFO & Treasurer. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long-term performance based awards (SARS) for fiscal 2017 for named executive officers remained the same as the prior year, with the exception of the EVP Administration, CFO & Treasurer. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable NASDAQ listing standards. +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive officers. +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the largest portion at risk for the most senior executives. Target “at risk” compensation for the CEO is 63%. “At risk” compensation is targeted slightly lower for the other named executive officers. +Executive +Target +“At Risk” Compensation +Craig D. Gates, President & Chief Executive Officer +63% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +42% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +48% +Philip S. Hochberg, Executive Vice President Business Development +48% +Duane D. Mackleit, Vice President of Program Management +39% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive officers for fiscal year 2017. +9 +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation Committee has engaged Milliman, Inc. (“Millliman”), an independent compensation consultant, to review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and recommendations on competitive market practices and specific compensation decisions. Milliman has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. During fiscal 2017, Milliman provided no assistance to management in evaluating the competitiveness of compensation for personnel other than executive officers. +The Committee takes into consideration multiple factors for purposes of developing competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. With the assistance of Milliman, the Compensation Committee identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a business level). The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being revenue and number of employees, as well as, enterprise value and net income. +Following this process, the Compensation Committee selected the following peer group for compensation decisions, all of which are electronics manufacturing organizations comparable to the Company in business space and profitability. This peer group is similar to the 2016 peer group with exclusions and additions to create a larger group that is more representative of the Company’s relevant labor market. +Cabot Microelectronics Corp. +KEMET Corporation +Coherent, Inc. +Kimball Electronics, Inc. +CTS Corporation +Materion Corp. +Ducommun Inc. +Mercury Computer Systems Inc. +Entegris, Inc. +Methode Electronics Inc. +Extreme Networks, Inc. +Oclaro, Inc. +Fabrinet +Radysis Corp. +IPG Photonics Corp. +Richardson Electronics Ltd. +10 +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each executive officer to their counterparts in similar positions within the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are targeted to pay at the market median when performance meets expectations. +The Compensation Committee supplements the peer group analysis with published compensation data on all executives. Published compensation data is focused on similar labor talent for the Company’s executives, including organizations in the electronics manufacturing industry with annual revenues close to that of the Company. In addition, the Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each executive other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +Principal Elements of Compensation +The principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +In July 2016 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of some salaries, the Compensation Committee determined that base salaries should increase somewhat in fiscal year 2017. As a result, the named executive officers’ base salaries for fiscal 2017 were as follows: +Name and Position +2016 +Base Salary +2017 +Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +535,300 +$ +620,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$ +280,000 +$ +319,000 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +288,260 +$ +296,908 +Philip S. Hochberg, Executive Vice President Business Development +$ +283,995 +$ +292,515 +Duane D. Mackleit, Vice President of Program Management +$ +251,765 +$ +260,576 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +11 +The Compensation Committee has established a cash incentive program for the Company’s named executive officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are appropriate based on a subjective assessment of the executive’s position and ability to directly impact Company performance, and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies in the Company’s peer group identified above. Bonuses under the fiscal year 2017 cash annual incentive program were paid out in August 2017 only if the executive officer was employed by the Company on the payment date. +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit before taxes (PBT). Performance for fiscal year 2017 was measured based on the Company’s PBT. +For fiscal year 2017 performance, the target bonus opportunities (as a % of base salary) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +10 +% +100 +% +150 +% +67 +% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +4 +% +40 +% +60 +% +26 +% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +4 +% +40 +% +60 +% +26 +% +Philip S. Hochberg, Executive Vice President Business Development +4 +% +40 +% +60 +% +26 +% +Duane D. Mackleit, Vice President of Program Management +3.5 +% +35 +% +52.5 +% +23 +% +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to industry peer group companies and return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to provide the most appropriate measures of long-term financial performance. Having a goal of revenue growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents management to make sure that revenue growth is profitable. +The table below contains the target award levels for each named executive officer for the three-year period ending at the end of fiscal year 2017. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$150,000 +$300,000 +$450,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$25,000 +$50,000 +$75,000 +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +$55,000 +$110,000 +$165,000 +Philip S. Hochberg, Executive Vice President Business Development +$55,000 +$110,000 +$165,000 +Duane D. Mackleit, Vice President of Program Management +$25,000 +$50,000 +$75,000 +12 +Long-Term Equity Incentive Compensation . In fiscal years 2015, 2016 and 2017 the named executive officers received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan, as amended and restated October 23, 2014 (“2010 Incentive Plan”). These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over the vesting period compared to the weighted average ROIC of a selected group of industry peer companies over the same period has reached 90% or more of the ROIC of the peer group average. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the Compensation Committee. +The stock appreciation rights are designed to link executives’ interests with those of the Company’s shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +SARS awards are outlined in the table below for the past three fiscal years. +Executive +2015 (1) +2016 (2) +2017 (3) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +50,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +10,000 +20,000 +22,500 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +20,000 +Philip S. Hochberg, Executive Vice President Business Development +20,000 +20,000 +20,000 +Duane D. Mackleit, Vice President of Program Management +10,000 +10,000 +10,000 +(1) +The grant date fair values of the 2015 SARS awards were, $152,000, $30,400, $60,800, $60,800, and $30,400, respectively. +(2) +The grant date fair values of the 2016 SARS awards were, $182,500, $73,000, $73,000, $73,000, and $36,500, respectively. +(3) +The grant date fair values of the 2017 SARS awards were, $121,000, $54,450, $48,400, $48,400 and $24,200, respectively. +Other Benefits . The named executive officers are also entitled to participate in the Company’s benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +13 +Post-Termination Protection and Payments +The Company has entered into employment agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully vested if they are not assumed by the successor entity. +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption, and the Compensation Committee generally considers the limitations imposed by Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. +The Compensation Committee takes risk into account in establishing and reviewing the Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s performance-based annual cash bonuses are generally based on annual results, the amounts of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +14 +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives is both appropriate and responsive to the goal of improving shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and the 2017 Proxy Statement. +Respectfully submitted by the Compensation Committee: +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +15 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2015-2017 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next three most highly compensated executive officers. Collectively, these officers are the “named executive officers.” +Name and Principal Position +Year +Salary ($) +Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, +2017 +646,064 +— +121,000 +736,076 +10,600 +1,513,740 +President & Chief +2016 +530,625 +— +182,500 +672,325 +10,600 +1,396,050 +Executive Officer +2015 +540,687 +— +152,000 +588,499 +10,600 +1,291,786 +Brett R. Larsen, +2017 +316,000 +— +54,450 +137,363 +7,487 +515,300 +Executive Vice President, +2016 +273,539 +— +73,000 +124,936 +9,770 +481,245 +Chief Financial Officer +2015 +205,153 +— +30,400 +107,849 +4,143 +347,545 +Douglas G. Burkhardt, +2017 +291,919 +— +48,400 +194,910 +10,600 +545,829 +Executive Vice +2016 +281,531 +— +73,000 +195,921 +10,600 +561,052 +President, Operations +2015 +277,888 +— +60,800 +222,801 +10,400 +571,889 +Philip S. Hochberg, +2017 +285,634 +— +48,400 +193,238 +10,600 +537,872 +Executive Vice President, +2016 +276,726 +— +73,000 +194,606 +10,702 +555,034 +Business Development +2015 +268,552 +— +60,800 +220,243 +10,400 +559,995 +Duane D. Mackleit, +2017 +255,493 +— +24,200 +112,769 +10,600 +403,062 +Vice President of +2016 +246,427 +— +36,500 +110,644 +10,600 +404,171 +Program Management (4) +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2017 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) +Represents Company matching payments in fiscal years 2017, 2016 and 2015 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Mackleit a service award in the amount of $232 in fiscal year 2017, for Mr. Hochberg a service award in the amount of $102 in fiscal year 2016, and for Mr. Gates a service award in the amount of $200 in fiscal year 2015. +4) +Compensation data for 2015 for Mr. Mackleit is not included since he was not a named executive officer prior to fiscal year 2016. +16 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2017 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2017, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2017. The Outstanding Equity Awards at 2017 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen, Burkhardt, Hochberg and Mackleit at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +17 +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2017 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2017 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards (#) +Exercise or Base Price of +Option/SAR Awards ($/Sh) +Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +07/26/16 (1) +07/26/16 (2) +07/26/16 (3) +53,530 +150,000 +535,300 +300,000 +802,950 +450,000 +50,000 +- +- +8.18 +- +- +121,000 +- +- +Brett R. Larsen +07/26/16 (1) +07/26/16 (2) +07/26/16 (3) +11,200 +65,000 +112,000 +130,000 +168,000 +195,000 +22,500 +- +- +8.18 +- +- +54,450 +- +- +Douglas G. Burkhardt +07/26/16 (1) +07/26/16 (2) +07/26/16 (3) +11,530 +55,000 +115,304 +110,000 +172,956 +165,000 +20,000 +- +- +8.18 +- +- +48,400 +- +- +Philip S. Hochberg +07/26/16 (1) +07/26/16 (2) +07/26/16 (3) +11,360 +55,000 +113,598 +110,000 +170,397 +165,000 +20,000 +- +- +8.18 +- +- +48,400 +- +- +Duane D. Mackleit +07/26/16 (1) +07/26/16 (2) +07/26/16 (3) +8,812 +25,000 +88,118 +50,000 +132,176 +75,000 +10,000 +- +- +8.18 +- +- +24,200 +- +- +(1) +Represents stock appreciation rights awards during fiscal year 2017 under the 2010 Incentive Compensation Plan. The 2010 Incentive Compensation Plan is discussed under the caption “Long-Term Equity Incentive Compensation” beginning on page 14. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2017. For actual payouts earned for fiscal year 2017 see the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 12. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2017-2019 performance cycle. The Long-Term Incentive Plan is discussed under the caption “Long-Term Cash Incentive Compensation” beginning on page 13. Payouts under the Long-Term Incentive Plan for the 2017-2019 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +18 +Outstanding Equity Awards at Fiscal 2017 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of July 1, 2017. +Option/SAR Awards +Name +Grant Date +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Exercisable Options/SARS (#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options/SARS (#) (1) +Option/SAR +Exercise/Base Price ($) +Option/SAR +Expiration Date +Craig D. Gates +07/26/16 +07/29/15 +10/30/14 +07/31/13 +07/26/12 +50,000 +50,000 +50,000 +50,000 +50,000 +8.18 +10.26 +7.94 +11.34 +7.45 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Brett R. Larsen +07/26/16 +07/29/15 +10/30/14 +07/31/13 +07/26/12 +10,000 +10,000 +22,500 +20,000 +10,000 +8.18 +10.26 +7.94 +11.34 +7.45 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Douglas G. Burkhardt +07/26/16 +07/29/15 +10/30/14 +07/31/13 +07/26/12 +20,000 +20,000 +20,000 +20,000 +20,000 +8.18 +10.26 +7.94 +11.34 +7.45 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Philip S. Hochberg +07/26/16 +07/29/15 +10/30/14 +07/31/13 +07/26/12 +20,000 +20,000 +20,000 +20,000 +20,000 +8.18 +10.26 +7.94 +11.34 +7.45 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Duane D. Mackleit +07/26/16 +07/29/15 +10/30/14 +07/31/13 +07/26/12 +10,000 +10,000 +10,000 +10,000 +10,000 +8.18 +10.26 +7.94 +11.34 +7.45 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +(1) +Stock appreciation rights that vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +19 +Option/SAR Exercises and Stock Vested-Fiscal Year 2017 +The following table presents information regarding the exercise during fiscal year 2017 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name +Number of Shares +Acquired on Exercise (#) +Value Realized +on Exercise ($) +Craig D. Gates +15,550 +123,623 +Brett R. Larsen +— +— +Doug G. Burkhardt +6,258 +49,751 +Philip S. Hochberg +2,220 +17,760 +Duane D. Mackleit +2,204 +17,522 +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on July 1, 2017. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +20 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Craig D. Gates +620,000 +— +43,817 +663,817 +Brett R. Larsen +319,000 +— +12,094 +331,094 +Douglas G. Burkhardt +296,908 +— +16,130 +313,038 +Philip S. Hochberg +292,515 +— +15,138 +307,653 +Duane D. Mackleit +260,576 +— +39,086 +299,662 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of July 1, 2017) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates +1,240,000 +— +43,817 +— +600,000 +1,883,817 +Brett R. Larsen +638,000 +— +12,094 +— +240,000 +890,094 +Douglas G. Burkhardt +593,816 +— +16,130 +— +220,000 +829,946 +Philip S. Hochberg +585,030 +— +15,138 +— +220,000 +820,168 +Duane D. Mackleit +521,152 +— +39,086 +— +100,000 +660,238 +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the previous table. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $7.08 (the closing price of the Company’s common stock on the last trading day of fiscal 2017) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +21 +4. +This amount represents the target value of the unvested portion of the executive's long term cash incentive plan awards (described beginning on page 13) that would have accelerated if the executive's employment terminated upon a change in control of the Company on July 1, 2017 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2017 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2)(3) +All Other +Compensation ($) +Total ($) +James R. Bean +54,736 +18,150 +21,318 +— +94,204 +Ronald F. Klawitter +45,800 +18,150 +95,930 +— +159,880 +Yacov A. Shamash +53,635 +18,150 +21,318 +— +93,103 +Patrick Sweeney +69,216 +18,150 +21,318 +— +108,684 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2017 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2017 Annual Report . +(2) +Reflects payout of long term incentive plan awards for the three year performance period that ended in fiscal year 2017. +(3) +Mr. Klawitter became a non-employee director in December 2015 when he retired as an employee of the Company. Non-Equity Incentive Plan Compensation paid to Mr. Klawitter for fiscal 2017 represents the portion of the 2015-2017 LTIP award earned by Mr. Klawitter as an employee of the Company. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of July 1, 2017. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of 07/01/2017 +Number of Unvested Restricted +Shares/Units as of 07/01/2017 +James. R. Bean +37,500 +— +Ronald F. Klawitter +90,000 +— +Patrick Sweeney +37,500 +— +Yacov A. Shamash +37,500 +— +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +22 +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +40,000 +Chairman of the Board +54,375 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +23 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of three members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended July 1, 2017. +24 +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to PCAOB Auditing Standard No. 16, Communications with Audit Committees. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended July 1, 2017, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Yacov A. Shamash, Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended July 1, 2017 and July 2, 2016: +FY 2017 +FY 2016 +Audit Fees (1) +$ +396,500 +$ +394,500 +Audit Related Fees (2) +13,500 +13,500 +Tax Fees (3) +97,500 +120,150 +All Other Fees +— +— +Total +$ +507,500 +$ +528,150 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +(3) +Tax fees for fiscal years 2017 and 2016 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2017 and 2016 also included fees for BDO performing a study relating to research and development tax credits. +25 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2018. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2018 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2018 Annual Meeting must be received by the Secretary at the address above no later than May 21, 2018. In addition, any shareholder who intends to present a proposal at the 2018 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 29, 2018 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2017 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended July 1, 2017 all the Reporting Persons complied with all applicable filing requirements. +26 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $15,500, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington +By Order of the Board of Directors, +September 21, 2017 +Kathleen L. Nemeth +Secretary +27 +28 +29 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-17-000030/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-17-000030/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dfde333ac1ff0b50f22df05f324a9cc77bbe251b --- /dev/null +++ b/raw/proxies/0000719733/0000719733-17-000030/proxy_rpt.txt @@ -0,0 +1,5 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +6 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-18-000056/proxy.txt b/raw/proxies/0000719733/0000719733-18-000056/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b77032496da322f6fb1fbd5f4cce562c52d922dd --- /dev/null +++ b/raw/proxies/0000719733/0000719733-18-000056/proxy.txt @@ -0,0 +1,1113 @@ +DEF 14A +1 +proxy2018.htm +DEF 14A +Document +September 20, 2018 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Friday, October 26, 2018, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 26, 2018 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Friday, October 26, 2018, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. +To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein; and +3. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2019; and +4. +To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 6, 2018 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 20, 2018 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 26, 2018. The Proxy Statement and 2018 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Friday, October 26, 2018 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 20, 2018. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 6, 2018 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,759,680 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2019. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) matters 2 and 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2 or 3 since neither represents a vote cast. +1 +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers or (matter 2) no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 3).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2017 Annual Meeting attended the 2017 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 68, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, LLC since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates , age 59, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +2 +Ronald F. Klawitter , age 66, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 54, has not previously been a director of the Company. Dr. Kulkarni has been President and Chief Executive Officer of CyberOptics Corporation since February 2014. He served as Executive Chairman of CyberOptics Corporation from September 2013 to February 2014 and served as CyberOptics Corporation’s lead director from December 2012 until his election as Executive Chairman. From January 2013 to February 2014, Dr. Kulkarni served as Chief Executive Officer of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in simulation of hot gases and plasma used in the semiconductor industry ("Prism"). Prior to being employed by Prism, he held various positions with Imation Corporation ("Imation"), including Chief Technology Officer and Senior Vice President, OEM/Emerging Business and Vice President, Global Commercial Business, R&D and Manufacturing. Prior to his employment with Imation, Dr. Kulkarni held various research management positions with 3M Corporation and IBM. Dr. Kulkarni received his B.S. in chemical engineering from IIT - Bombay, India (where he was first in his class), and went on to obtain a master's degree and a Ph.D. in chemical engineering from the Massachusetts Institute of Technology, where he did his thesis work on disilane surface decomposition, which is used in the manufacture of semiconductors. He has won a number of awards for commercializing technologies he and others have developed in the electronics industry. Dr. Kulkarni has significant expertise in management of technology-focused entities and in commercialization of technologies in the electronics, computer and semiconductor industries. The Board of Directors has concluded that based upon Dr. Kulkarni’s business and technology expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 68, has been a director of the Company since 1989. He is the Vice President for Economic Development at Stony Brook University, and was the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 83, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc., Gotcha Covered LTD and Kleen Envoy. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +3 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2018. During fiscal 2018, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer and Mr. Klawitter, the Company’s former Executive Vice President of Administration, CFO and Treasurer. Mr. Klawitter retired as Executive Vice President of Administration, CFO and Treasurer on July 29, 2015 and retired as an employee of the Company on December 11, 2015. +The Board of Directors has determined that the relationship between the Company and CyberOptics Corporation (“CyberOptics”), for which Dr. Kulkarni serves as President and Chief Executive Officer and a director, would not impair Dr. Kulkarni’s independence because the transactions (described in this Proxy Statement under “Related Person Transactions”) between the Company and CyberOptics are immaterial to the gross revenues of CyberOptics and the relationship between the Company and CyberOptics had no unique characteristics that would interfere with Dr. Kulkarni’s exercise of independent judgement in carrying out his responsibilities as a director of the Company. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At each of the four regular meetings of the Board of Directors held during fiscal year 2018, the independent directors met separately in executive session without management present. +4 +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met nine times during fiscal 2018 . The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +5 +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2018 . The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met one time during fiscal 2018. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +6 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 +914,474 +(2),(3) +8.50 +% +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +880,656 +(4),(5) +8.18 +% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +657,032 +(6),(7) +6.11 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +6,786 +** +Ronald F. Klawitter +196,103 +(8) +1.82 +% +Yacov A. Shamash +42,326 +(9) +** +Patrick Sweeney +77,410 +** +Craig D. Gates +221,770 +(10) +2.01 +% +Brett R. Larsen +15,011 +(11) +** +Douglas G. Burkhardt +92,418 +(12) +** +Philip S. Hochberg +33,272 +(13) +** +Duane D. Mackleit +20,452 +(14) +** +All officers and directors as a group +(14 persons) +758,436 +7.05 +% +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. +Percentage beneficially owned is based on 10,759,680 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2018. +3. Morgan Stanley Wealth Management is a registered investment advisor. +4. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2018. +7 +5. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2018. +7. +Tieton Capital Management LLC is a registered investment advisor. +8. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (17,826 shares) as of June 30, 2018, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. +Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10. +Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,441 shares) as of June 30, 2018. +11. +Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (1,334 shares) as of June 30, 2018. +12. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2018. +13. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (4,724 shares) as of June 30, 2018 and 100 shares owned directly by Mr. Hochberg’s son. +14. +Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (11,313 shares) as of June 30, 2018. +8 +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive officers for fiscal year 2018 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Brett R. Larsen, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Duane D. Mackleit, Vice President of Program Management +The compensation for the named executive officers currently consists of four elements - base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and performance-based long-term equity incentives in the form of SARS - that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for fiscal 2018 for all named executive officers remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for fiscal 2018 for named executive officers remained the same as the prior year, with the exception of the EVP Administration, CFO & Treasurer. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long-term performance based awards (SARS) for fiscal 2018 for named executive officers remained the same as the prior year. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable NASDAQ listing standards. +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive officers. +9 +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the largest portion at risk for the most senior executives. Target “at risk” compensation for the CEO is 62%. “At risk” compensation is targeted slightly lower for the other named executive officers. +Executive +Target +“At Risk” Compensation +Craig D. Gates, President & Chief Executive Officer +62% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +51% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +50% +Philip S. Hochberg, Executive Vice President Business Development +50% +Duane D. Mackleit, Vice President of Program Management +38% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive officers for fiscal year 2018. +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation Committee has engaged Milliman, Inc. (“Millliman”), an independent compensation consultant, to periodically review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and recommendations on competitive market practices and specific compensation decisions. Milliman has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. During fiscal 2018, Milliman provided no assistance to management in evaluating the competitiveness of compensation for non-executive officer personnel. +The Committee takes into consideration multiple factors for purposes of developing competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. With the assistance of Milliman, the Compensation Committee identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a business level). +10 +The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being revenue and number of employees, as well as, enterprise value and net income. +Following this process, the Compensation Committee selected the following peer group for compensation decisions, all of which are electronics manufacturing organizations comparable to the Company in business space and profitability. This peer group is the same as the 2017 peer group. +Cabot Microelectronics Corp. +KEMET Corporation +Coherent, Inc. +Kimball Electronics, Inc. +CTS Corporation +Materion Corp. +Ducommun Inc. +Mercury Computer Systems Inc. +Entegris, Inc. +Methode Electronics Inc. +Extreme Networks, Inc. +Oclaro, Inc. +Fabrinet +Radysis Corp. +IPG Photonics Corp. +Richardson Electronics Ltd. +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each executive officer to their counterparts in similar positions within the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are targeted to pay at the market median when performance meets expectations. +The Compensation Committee supplements the peer group analysis with published compensation data on all executive officers. Published compensation data is focused on similar labor talent for the Company’s executives, including organizations in the electronics manufacturing industry with annual revenues close to that of the Company. In addition, the Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each executive officer other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +Principal Elements of Compensation +The principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +11 +In July 2017 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of some salaries, the Compensation Committee determined that base salaries should increase somewhat in fiscal year 2018. As a result, the named executive officers’ base salaries for fiscal 2018 were as follows: +Name and Position +2017 +Base Salary +2018 +Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +620,000 +$ +620,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$ +319,000 +$ +349,000 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +296,908 +$ +305,815 +Philip S. Hochberg, Executive Vice President Business Development +$ +292,515 +$ +301,291 +Duane D. Mackleit, Vice President of Program Management +$ +260,576 +$ +269,696 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +The Compensation Committee has established a cash incentive program for the Company’s named executive officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are appropriate based on a subjective assessment of the executive’s position and ability to directly impact Company performance, and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies in the Company’s peer group identified above. Bonuses under the fiscal year 2018 cash annual incentive program were paid out in August 2018 only if the executive officer was employed by the Company on the payment date. +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit before taxes (PBT). Performance for fiscal year 2018 was measured based on the Company’s PBT. +For fiscal year 2018 performance, the target bonus opportunities (as a % of base salary) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +10 +% +100 +% +150 +% +— +% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +6 +% +60 +% +90 +% +— +% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +5 +% +50 +% +75 +% +— +% +Philip S. Hochberg, Executive Vice President Business Development +5 +% +50 +% +75 +% +— +% +Duane D. Mackleit, Vice President of Program Management +3.5 +% +35 +% +52.5 +% +— +% +12 +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to industry peer group companies and return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to provide the most appropriate measures of long-term financial performance. Having a goal of revenue growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents management to make sure that revenue growth is profitable. +The table below contains the target award levels for each named executive officer for the three-year period ending at the end of fiscal year 2018. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$150,000 +$300,000 +$450,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$55,000 +$110,000 +$165,000 +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +$55,000 +$110,000 +$165,000 +Philip S. Hochberg, Executive Vice President Business Development +$55,000 +$110,000 +$165,000 +Duane D. Mackleit, Vice President of Program Management +$25,000 +$50,000 +$75,000 +13 +Long-Term Equity Incentive Compensation . In fiscal years 2016, 2017 and 2018 the named executive officers received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan, as amended and restated October 23, 2014 (“2010 Incentive Plan”). These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over the vesting period compared to the weighted average ROIC of a selected group of industry peer companies over the same period has reached 90% or more of the ROIC of the peer group average. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the Compensation Committee. +The SARS are designed to link executives’ interests with those of the Company’s shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +SARS awards are outlined in the table below for the past three fiscal years. +Executive +2016 (1) +2017 (2) +2018 (3) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +50,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +20,000 +22,500 +22,500 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +20,000 +Philip S. Hochberg, Executive Vice President Business Development +20,000 +20,000 +20,000 +Duane D. Mackleit, Vice President of Program Management +10,000 +10,000 +10,000 +(1) +The grant date fair values of the 2016 SARS awards were, $182,500, $73,000, $73,000, $73,000, and $36,500, respectively. +(2) +The grant date fair values of the 2017 SARS awards were, $121,000, $54,450, $48,400, $48,400 and $24,200, respectively. +(3) +The grant date fair values of the 2018 SARS awards were, $94,500, $42,525, $37,800, $37,800, and $18,900, respectively. +Other Benefits . The named executive officers are also entitled to participate in the Company’s benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +14 +Post-Termination Protection and Payments +The Company has entered into employment agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully vested if they are not assumed by the successor entity. +Tax Deductibility of Pay +For taxable years beginning prior to January 1, 2018, Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption. Effective for tax years beginning after December 31, 2017, the $1 million annual deduction limit will apply to all our named executive officers, including our chief financial officer, and the exemption for qualified performance-based compensation will no longer be available. As a result, compensation paid to each of our named executive officers in any taxable year in excess of $1 million will not be deductible unless it qualifies for the transition relief applicable to certain compensation arrangements in place as of November 2, 2017, including certain stock appreciation rights and incentive awards granted prior to such date. Because of the absence of formal guidance under the transition relief provisions, though, we cannot guarantee that any compensation arrangements intended to qualify for the exemption under Section 162(m) will actually receive such treatment. The Compensation Committee generally considers the limitations imposed by Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. +15 +The Compensation Committee takes risk into account in establishing and reviewing the Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s performance-based annual cash bonuses are generally based on annual results, the amounts of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives is both appropriate and responsive to the goal of improving shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and the 2018 Proxy Statement. +Respectfully submitted by the Compensation Committee: +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +16 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2016-2018 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next three most highly compensated executive officers. Collectively, these officers are the “named executive officers.” +Name and Principal Position +Year +Salary ($) +Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, +2018 +620,000 +— +94,500 +225,000 +58,492 +997,992 +President & Chief +2017 +646,064 +— +121,000 +736,076 +10,600 +1,513,740 +Executive Officer +2016 +530,625 +— +182,500 +672,325 +10,600 +1,396,050 +Brett R. Larsen, +2018 +346,692 +— +42,525 +82,500 +37,646 +509,363 +Executive Vice President, +2017 +316,000 +— +54,450 +137,363 +7,487 +515,300 +Chief Financial Officer +2016 +273,539 +— +73,000 +124,936 +9,770 +481,245 +Douglas G. Burkhardt, +2018 +300,676 +— +37,800 +82,500 +33,982 +454,958 +Executive Vice +2017 +291,919 +— +48,400 +194,910 +10,600 +545,829 +President, Operations +2016 +281,531 +— +73,000 +195,921 +10,600 +561,052 +Philip S. Hochberg, +2018 +293,203 +— +37,800 +82,500 +34,623 +448,126 +Executive Vice President, +2017 +285,634 +— +48,400 +193,238 +10,600 +537,872 +Business Development +2016 +276,726 +— +73,000 +194,606 +10,702 +555,034 +Duane D. Mackleit, +2018 +260,576 +— +18,900 +37,500 +30,844 +347,820 +Vice President of +2017 +255,493 +— +24,200 +112,769 +10,600 +403,062 +Program Management (4) +2016 +246,427 +— +36,500 +110,644 +10,600 +404,171 +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2018 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. No annual cash incentive compensation was paid for fiscal year 2018. +3) +Includes payment for accrued vacation in the amount of $47,692 for Mr. Gates, $26,846 for Mr. Larsen, $23,182 for Mr. Burkhardt, $23,839 for Mr. Hochberg and $20,044 for Mr. Mackleit. Also includes matching payments in fiscal years 2018, 2017 and 2016 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Mackleit a service award in the amount of $232 in fiscal year 2017 and for Mr. Hochberg a service award in the amount of $102 in fiscal year 2016. +17 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2018 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2018, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2018. The Outstanding Equity Awards at 2018 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen, Burkhardt, Hochberg and Mackleit at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +18 +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2018 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2018 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards (#) +Exercise or Base Price of +Option/SAR Awards ($/Sh) +Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +07/28/17 (1) +07/28/17 (2) +07/28/17 (3) +62,000 +150,000 +620,000 +300,000 +930,000 +450,000 +50,000 +- +- +7.26 +- +- +94,500 +- +- +Brett R. Larsen +07/28/17 (1) +07/28/17 (2) +07/28/17 (3) +19,140 +72,500 +191,400 +145,000 +287,100 +217,500 +22,500 +- +- +7.26 +- +- +42,525 +- +- +Douglas G. Burkhardt +07/28/17 (1) +07/28/17 (2) +07/28/17 (3) +14,845 +55,000 +148,454 +110,000 +222,681 +165,000 +20,000 +- +- +7.26 +- +- +48,400 +- +- +Philip S. Hochberg +07/28/17 (1) +07/28/17 (2) +07/28/17 (3) +14,626 +55,000 +146,258 +110,000 +219,386 +165,000 +20,000 +- +- +7.26 +- +- +48,400 +- +- +Duane D. Mackleit +07/28/17 (1) +07/28/17 (2) +07/28/17 (3) +9,120 +25,000 +91,202 +50,000 +136,802 +75,000 +10,000 +- +- +7.26 +- +- +24,200 +- +- +(1) +Represents stock appreciation rights awards during fiscal year 2017 under the 2010 Incentive Compensation Plan. The 2010 Incentive Compensation Plan is discussed under the caption “Long-Term Equity Incentive Compensation” beginning on page 14. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2017. For actual payouts earned for fiscal year 2017 see the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 12. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2017-2019 performance cycle. The Long-Term Incentive Plan is discussed under the caption “Long-Term Cash Incentive Compensation” beginning on page 13. Payouts under the Long-Term Incentive Plan for the 2017-2019 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +19 +Outstanding Equity Awards at Fiscal 2018 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of June 30, 2018. +Option/SAR Awards +Name +Grant Date +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Exercisable Options/SARS (#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options/SARS (#) (1) +Option/SAR +Exercise/Base Price ($) +Option/SAR +Expiration Date +Craig D. Gates +07/28/17 +07/26/16 +07/29/15 +10/31/14 +07/31/13 +50,000 +50,000 +50,000 +50,000 +50,000 +7.26 +8.18 +10.26 +7.94 +11.34 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +Brett R. Larsen +07/28/17 +07/26/16 +07/29/15 +10/31/14 +07/31/13 +10,000 +10,000 +22,500 +20,000 +10,000 +7.26 +8.18 +10.26 +7.94 +11.34 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +Douglas G. Burkhardt +07/28/17 +07/26/16 +07/29/15 +10/31/14 +07/31/13 +20,000 +20,000 +20,000 +20,000 +20,000 +7.26 +8.18 +10.26 +7.94 +11.34 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Philip S. Hochberg +07/28/17 +07/26/16 +07/29/15 +10/31/14 +07/31/13 +20,000 +20,000 +20,000 +20,000 +20,000 +7.26 +8.18 +10.26 +7.94 +11.34 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +Duane D. Mackleit +07/28/17 +07/26/16 +07/29/15 +10/31/14 +07/31/13 +10,000 +10,000 +10,000 +10,000 +10,000 +7.26 +8.18 +10.26 +7.94 +11.34 +07/26/21 +07/29/20 +10/30/19 +07/31/18 +07/26/17 +(1) +Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +20 +Option/SAR Exercises and Stock Vested-Fiscal Year 2018 +The following table presents information regarding the exercise during fiscal year 2018 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name +Number of Shares +Acquired on Exercise (#) +Value Realized +on Exercise ($) +Craig D. Gates +— +— +Brett R. Larsen +— +— +Doug G. Burkhardt +— +— +Philip S. Hochberg +— +— +Duane D. Mackleit +— +— +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 30, 2018. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +21 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Craig D. Gates +620,000 +— +— +620,000 +Brett R. Larsen +349,600 +— +— +349,600 +Douglas G. Burkhardt +305,815 +— +— +305,815 +Philip S. Hochberg +301,291 +— +— +301,291 +Duane D. Mackleit +269,696 +— +— +269,696 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 30, 2018) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates +1,240,000 +— +— +— +600,000 +1,840,000 +Brett R. Larsen +638,000 +— +— +— +240,000 +878,000 +Douglas G. Burkhardt +611,630 +— +— +— +220,000 +831,630 +Philip S. Hochberg +602,582 +— +— +— +220,000 +822,582 +Duane D. Mackleit +539,393 +— +— +— +100,000 +639,393 +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the previous table. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $7.08 (the closing price of the Company’s common stock on the last trading day of fiscal 2018) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +22 +4. +This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards (described beginning on page 13) that would have accelerated if the executive’s employment terminated upon a change in control of the Company on June 30, 2018. +Pay Ratio Disclosure +As required by Item 402(u) of Regulation S-K, the following information is provided with respect to the relationship of the annual total compensation of the median employee and the annual total compensation of the CEO. The pay ration was calculated in a manner consistent with Item 402(u) of Regulation S-K and based upon reasonable judgement and assumptions. +For fiscal year 2018, the annual total compensation of the Company’s median employee was $5,817 and the annual total compensation of the Company’s CEO was $997,992. The ratio of the total annual compensation of the Company’s CEO to the median of the annual total compensation of employees was 172 to 1. “The median employee” was identified and the median employee’s total annual compensation was calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The total annual compensation of the Company’s CEO is the amount reported in the “Total” column of the fiscal year 2018 Summary Compensation Table included in this Proxy Statement on page 17. +The SEC rules for identifying the “median employee” and calculating the pay ratio based on the median employee’s total annual compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and make reasonable estimates and assumptions that reflect a company’s compensation practices. Therefore pay ratios reported by other companies may not be comparable to the Company’s pay ration reported above, since other companies may have different employment and compensation practices and may utilize different methodologies, estimates and assumptions. +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2018 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2)(3) +All Other +Compensation ($) +Total ($) +James R. Bean +62,403 +14,715 +15,000 +— +92,118 +Ronald F. Klawitter +46,800 +14,715 +15,000 +— +76,515 +Yacov A. Shamash +57,501 +14,715 +15,000 +— +87,216 +Patrick Sweeney +73,076 +14,715 +15,000 +— +102,791 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2018 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2018 Annual Report . +(2) +Reflects payout of long term incentive plan awards for the three year performance period that ended in fiscal year 2018. +23 +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of June 30, 2018. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of 06/30/2018 +Number of Unvested Restricted +Shares/Units as of 06/30/2018 +James. R. Bean +37,500 +— +Ronald F. Klawitter +72,500 +— +Patrick Sweeney +37,500 +— +Yacov A. Shamash +37,500 +— +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +40,000 +Chairman of the Board +54,375 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +24 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +25 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of three members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 30, 2018. +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to PCAOB Auditing Standard No. 16, Communications with Audit Committees. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 30, 2018, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Yacov A. Shamash, Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended June 30, 2018 and July 1, 2017: +FY 2018 +FY 2017 +Audit Fees (1) +$ +409,500 +$ +396,500 +Audit Related Fees (2) +13,500 +13,500 +Tax Fees (3) +97,500 +97,500 +All Other Fees +— +— +Total +$ +520,500 +$ +507,500 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +(3) +Tax fees for fiscal years 2018 and 2017 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2018 and 2017 also included fees for BDO performing a study relating to research and development tax credits. +26 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending June 29, 2019. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2019 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2018 Annual Meeting must be received by the Secretary at the address above no later than May 20, 2019. In addition, any shareholder who intends to present a proposal at the 2018 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 28, 2019 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2018 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended June 30, 2018 all the Reporting Persons complied with all applicable filing requirements. +27 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $15,500, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington +By Order of the Board of Directors, +September 20, 2018 +Kathleen L. Nemeth +Secretary +28 +29 +30 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-18-000056/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-18-000056/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c13d9a30a53090342a57becdbc52720cd39f17d4 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-18-000056/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +6 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-19-000065/proxy.txt b/raw/proxies/0000719733/0000719733-19-000065/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..509787a802d1a5ad3901eeb380077c767204355a --- /dev/null +++ b/raw/proxies/0000719733/0000719733-19-000065/proxy.txt @@ -0,0 +1,1133 @@ +DEF 14A +1 +proxy2019.htm +DEF 14A +Document +September 29, 2019 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Friday, October 25, 2019, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 25, 2019 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Friday, October 25, 2019, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. +To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” and “Executive Compensation” herein; and +3. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2020; and +4. +To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 5, 2019 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 19, 2019 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 25, 2019. The Proxy Statement and 2019 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Friday, October 25, 2019 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 19, 2019. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 5, 2019 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,759,680 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers, FOR the option of once every three years as the preferred frequency for an advisory vote on executive compensation, and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2020. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors, (ii) matters 2 and 4 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it, and (iii) on proposal 3 the frequency receiving the greatest number of votes cast will be approved. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2, 3 or 4 since none represents a vote cast. +1 +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers (matter 2) or the advisory vote on the frequency of an advisory vote on executive compensation (proposal 3), no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 4).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2018 Annual Meeting attended the 2018 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 69, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, LLC since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates , age 60, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +2 +Ronald F. Klawitter , age 67, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 55, has been a director of the Company since October 2018. Dr. Kulkarni has been President and Chief Executive Officer of CyberOptics Corporation since February 2014. He served as Executive Chairman of CyberOptics Corporation from September 2013 to February 2014 and served as CyberOptics Corporation’s lead director from December 2012 until his election as Executive Chairman. From January 2013 to February 2014, Dr. Kulkarni served as Chief Executive Officer of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in simulation of hot gases and plasma used in the semiconductor industry ("Prism"). Prior to being employed by Prism, he held various positions with Imation Corporation ("Imation"), including Chief Technology Officer and Senior Vice President, OEM/Emerging Business and Vice President, Global Commercial Business, R&D and Manufacturing. Prior to his employment with Imation, Dr. Kulkarni held various research management positions with 3M Corporation and IBM. Dr. Kulkarni received his B.S. in chemical engineering from IIT - Bombay, India (where he was first in his class), and went on to obtain a master's degree and a Ph.D. in chemical engineering from the Massachusetts Institute of Technology, where he did his thesis work on disilane surface decomposition, which is used in the manufacture of semiconductors. He has won a number of awards for commercializing technologies he and others have developed in the electronics industry. Dr. Kulkarni has significant expertise in management of technology-focused entities and in commercialization of technologies in the electronics, computer and semiconductor industries. The Board of Directors has concluded that based upon Dr. Kulkarni’s business and technology expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 69, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group, Comtech Telecommunications Corp. and Gold Coast Bank. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 84, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc., Gotcha Covered LTD and Kleen Envoy. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +3 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2019. During fiscal 2019, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer. +The Board of Directors has determined that the relationship between the Company and CyberOptics Corporation (“CyberOptics”), for which Dr. Kulkarni serves as President and Chief Executive Officer and a director, does not impair Dr. Kulkarni’s independence because the transactions (described in this Proxy Statement under “Related Person Transactions”) between the Company and CyberOptics are immaterial to the gross revenues of CyberOptics and the relationship between the Company and CyberOptics has no unique characteristics that interfere with Dr. Kulkarni’s exercise of independent judgement in carrying out his responsibilities as a director of the Company. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At each of the four regular meetings of the Board of Directors held during fiscal year 2019, the independent directors met separately in executive session without management present. +4 +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met nine times during fiscal 2019. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2019. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and +5 +other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met one time during fiscal 2019. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal year 2019, the Company had no transactions with CyberOptics. During fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +6 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 +1,076,497 +(2),(3) +10.00 +% +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +889,014 +(4),(5) +8.3 +% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +867,241 +(6),(7) +8.1 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +6,786 +** +Ronald F. Klawitter +195,368 +(8) +1.82 +% +Subodh K. Kulkarni +1,000 +** +Yacov A. Shamash +42,326 +(9) +** +Patrick Sweeney +77,410 +** +Craig D. Gates +221,758 +(10) +2.1 +% +Brett R. Larsen +15,099 +(11) +** +Douglas G. Burkhardt +92,418 +(12) +** +Philip S. Hochberg +33,265 +(13) +** +Duane D. Mackleit +20,409 +(14) +** +All officers and directors as a group +(15 persons) +754,526 +7.01 +% +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. +Percentage beneficially owned is based on 10,759,680 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2019. +3. +Morgan Stanley Wealth Management is a registered investment advisor. +4. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2019. +7 +5. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2019. +7. +Tieton Capital Management LLC is a registered investment advisor. +8. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (17,091 shares) as of June 30, 2019, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. +Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10. +Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,429 shares) as of June 30, 2019. +11. +Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (1,332 shares) as of June 30, 2019. +12. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2019. +13. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (4,717 shares) as of June 30, 2019 and 100 shares owned directly by Mr. Hochberg’s son. +14. +Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (11,295 shares) as of June 30, 2019. +8 +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive officers for fiscal year 2019 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Brett R. Larsen, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Duane D. Mackleit, Vice President of Program Management +The compensation for the named executive officers currently consists of four elements - base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and performance-based long-term equity incentives in the form of SARS - that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for fiscal 2019 for all named executive officers remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for fiscal 2019 for named executive officers remained the same as the prior year. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long-term performance based awards (SARS) for fiscal 2019 for named executive officers remained the same as the prior year. +The Compensation Committee of the Board of Directors (the “Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable NASDAQ listing standards. +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive officers. +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the largest portion at risk for the most senior executives. Target “at risk” compensation for the CEO is 63%. “At risk” compensation is targeted slightly lower for the other named executive officers. +9 +Executive +Target +“At Risk” Compensation +Craig D. Gates, President & Chief Executive Officer +63% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +54% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +48% +Philip S. Hochberg, Executive Vice President Business Development +51% +Duane D. Mackleit, Vice President of Program Management +39% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive officers for fiscal year 2019. +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation Committee, from time to time, engages an independent compensation consultant, to periodically review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and recommendations on competitive market practices and specific compensation decisions. The independent compensation consultant has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. During fiscal 2019, the independent compensation consultant provided no assistance to management in evaluating the competitiveness of compensation for non-executive officer personnel. +The Committee takes into consideration multiple factors for purposes of developing competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. The Compensation Committee has identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a business level). The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being revenue and number of employees, as well as, enterprise value and net income. +10 +Following this process, the Compensation Committee selected the following peer group for compensation decisions, all of which are electronics manufacturing organizations comparable to the Company in business space and profitability. This peer group is the same as the 2018 peer group. +Cabot Microelectronics Corp. +KEMET Corporation +Coherent, Inc. +Kimball Electronics, Inc. +CTS Corporation +Materion Corp. +Ducommun Inc. +Mercury Computer Systems Inc. +Entegris, Inc. +Methode Electronics Inc. +Extreme Networks, Inc. +Oclaro, Inc. +Fabrinet +Radysis Corp. +IPG Photonics Corp. +Richardson Electronics Ltd. +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each executive officer to their counterparts in similar positions within the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are targeted to pay at the market median when performance meets expectations. +The Compensation Committee supplements the peer group analysis with published compensation data on all executive officers. Published compensation data is focused on similar labor talent for the Company’s executives, including organizations in the electronics manufacturing industry with annual revenues close to that of the Company. In addition, the Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each executive officer other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +Principal Elements of Compensation +The principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +In July 2018 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of some salaries, the Compensation Committee determined that base salaries should increase somewhat in fiscal year 2019 As a result, the named executive officers’ base salaries for fiscal 2019 were as follows: +11 +Name and Position +2018 +Base Salary +2019 +Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +620,000 +$ +620,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$ +349,000 +$ +361,215 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +305,815 +$ +348,629 +Philip S. Hochberg, Executive Vice President Business Development +$ +301,291 +$ +310,330 +Duane D. Mackleit, Vice President of Program Management +$ +269,696 +$ +269,696 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +The Compensation Committee has established a cash incentive program for the Company’s named executive officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are appropriate based on a subjective assessment of the executive’s position and ability to directly impact Company performance, and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies in the Company’s peer group identified above. Bonuses under the fiscal year 2019 cash annual incentive program were paid out in August 2019 only if the executive officer was employed by the Company on the payment date. +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit before taxes (PBT). Performance for fiscal year 2019 was measured based on the Company’s PBT. +For fiscal year 2019 performance, the target bonus opportunities (as a % of base salary) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +10 +% +100 +% +150 +% +— +% +Brett R. Larsen, Executive Vice President, Chief Financial Officer +6 +% +60 +% +90 +% +— +% +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +5 +% +50 +% +75 +% +— +% +Philip S. Hochberg, Executive Vice President Business Development +5 +% +50 +% +75 +% +— +% +Duane D. Mackleit, Vice President of Program Management +3.5 +% +35 +% +52.5 +% +— +% +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to industry peer group companies and return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to +12 +provide the most appropriate measures of long-term financial performance. Having a goal of revenue growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents management to make sure that revenue growth is profitable. +The table below contains the target award levels for each named executive officer for the three-year period ending at the end of fiscal year 2019. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$150,000 +$300,000 +$450,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +$55,000 +$110,000 +$165,000 +Douglas G. Burkhardt, Executive Vice President, Worldwide Operations +$55,000 +$110,000 +$165,000 +Philip S. Hochberg, Executive Vice President Business Development +$55,000 +$110,000 +$165,000 +Duane D. Mackleit, Vice President of Program Management +$25,000 +$50,000 +$75,000 +Long-Term Equity Incentive Compensation . In fiscal years 2017, 2018 and 2019 the named executive officers received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan, as amended and restated October 23, 2014 (“2010 Incentive Plan”). These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over the vesting period compared to the weighted average ROIC of a selected group of industry peer companies over the same period has reached 90% or more of the ROIC of the peer group average. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the Compensation Committee. +The SARS are designed to link executives’ interests with those of the Company’s shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +SARS awards are outlined in the table below for the past three fiscal years. +Executive +2017 (1) +2018 (2) +2019 (3) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +25,000 +Brett R. Larsen, Executive Vice President, Chief Financial Officer +22,500 +22,500 +11,250 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +10,000 +Philip S. Hochberg, Executive Vice President Business Development +20,000 +20,000 +10,000 +Duane D. Mackleit, Vice President of Program Management +10,000 +10,000 +5,000 +(1) +The grant date fair values of the 2017 SARS awards were, $121,000, $54,450, $48,400, $48,400 and $24,200, respectively. +(2) +The grant date fair values of the 2018 SARS awards were, $94,500, $42,525, $37,800, $37,800, and $18,900, respectively. +(3) +The grant date fair values of the 2019 SARS awards were, $31,000, $13,950, $12,400, $12,400, and $6,200, respectively. +Other Benefits . The named executive officers are also entitled to participate in the Company’s benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +13 +Post-Termination Protection and Payments +The Company has entered into employment agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully vested if they are not assumed by the successor entity. +Tax Deductibility of Pay +For taxable years beginning prior to January 1, 2018, Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption. Effective for tax years beginning after December 31, 2017, the $1 million annual deduction limit will apply to all our named executive officers, including our chief financial officer, and the exemption for qualified performance-based compensation will no longer be available. As a result, compensation paid to each of our named executive officers in any taxable year in excess of $1 million will not be deductible unless it qualifies for the transition relief applicable to certain compensation arrangements in place as of November 2, 2017, including certain stock appreciation rights and incentive awards granted prior to such date. Because of the absence of formal guidance under the transition relief provisions, though, we cannot guarantee that any compensation arrangements intended to qualify for the exemption under Section 162(m) will actually receive such treatment. The Compensation Committee generally considers the limitations imposed by Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. +The Compensation Committee takes risk into account in establishing and reviewing the Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s performance-based annual cash bonuses are generally based on annual results, the amounts of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the +14 +Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives is both appropriate and responsive to the goal of improving shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and the 2019 Proxy Statement. +Respectfully submitted by the Compensation Committee: +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +15 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2017-2019 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next three most highly compensated executive officers. Collectively, these officers are the “named executive officers.” +Name and Principal Position +Year +Salary ($) +Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, +2019 +620,000 +— +31,000 +— +34,846 +685,846 +President & Chief +2018 +620,000 +— +94,500 +225,000 +58,492 +997,992 +Executive Officer +2017 +646,064 +— +121,000 +736,076 +10,600 +1,513,740 +Brett R. Larsen, +2019 +359,806 +— +13,950 +— +24,423 +398,179 +Executive Vice President, +2018 +346,692 +— +42,525 +82,500 +37,646 +509,363 +Chief Financial Officer +2017 +316,000 +— +54,450 +137,363 +7,487 +515,300 +Douglas G. Burkhardt, +2019 +340,395 +— +12,400 +— +22,762 +375,557 +Executive Vice +2018 +300,676 +— +37,800 +82,500 +33,982 +454,958 +President, Operations +2017 +291,919 +— +48,400 +194,910 +10,600 +545,829 +Philip S. Hochberg, +2019 +301,291 +— +12,400 +— +22,307 +335,998 +Executive Vice President, +2018 +293,203 +— +37,800 +82,500 +34,623 +448,126 +Business Development +2017 +285,634 +— +48,400 +193,238 +10,600 +537,872 +Duane D. Mackleit, +2019 +273,555 +— +6,200 +— +21,373 +301,128 +Vice President of +2018 +260,576 +— +18,900 +37,500 +30,844 +347,820 +Program Management (4) +2017 +255,493 +— +24,200 +112,769 +10,600 +403,062 +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2019 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. No annual cash incentive compensation or long term cash incentive compensation was paid for fiscal year 2019. +3) +Includes for fiscal year 2019 payment for accrued vacation in the amount of $23,846 for Mr. Gates, $13,423 for Mr. Larsen, $11,762 for Mr. Burkhardt, $11,588 for Mr. Hochberg and $10,373 for Mr. Mackleit. Includes for fiscal year 2018 payment for accrued vacation in the amount of 47,692 for Mr. Gates, $26,846 for Mr. Larsen, $23,182 for Mr. Burkhardt, $23,839 for Mr. Hochberg and $20,044 for Mr. Mackleit. Also includes matching payments in fiscal years 2019, 2018 and 2017 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Mackleit a service award in the amount of $232 in fiscal year 2017. +16 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2019 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2019, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2019. The Outstanding Equity Awards at 2019 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen, Burkhardt, Hochberg and Mackleit at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +17 +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2019 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2019 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards (#) +Exercise or Base Price of +Option/SAR Awards ($/Sh) +Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +07/27/18 (1) +07/27/18 (2) +07/27/18 (3) +62,000 +150,000 +620,000 +300,000 +930,000 +450,000 +50,000 +- +- +7.26 +- +- +94,500 +- +- +Brett R. Larsen +07/27/18 (1) +07/27/18 (2) +07/27/18 (3) +19,140 +72,500 +191,400 +145,000 +287,100 +217,500 +22,500 +- +- +7.26 +- +- +42,525 +- +- +Douglas G. Burkhardt +07/27/18 (1) +07/27/18 (2) +07/27/18 (3) +14,845 +55,000 +148,454 +110,000 +222,681 +165,000 +20,000 +- +- +7.26 +- +- +37,800 +- +- +Philip S. Hochberg +07/27/18 (1) +07/27/18 (2) +07/27/18 (3) +14,626 +55,000 +146,258 +110,000 +219,386 +165,000 +20,000 +- +- +7.26 +- +- +37,800 +- +- +Duane D. Mackleit +07/27/18 (1) +07/27/18 (2) +07/27/18 (3) +9,120 +25,000 +91,202 +50,000 +136,802 +75,000 +10,000 +- +- +7.26 +- +- +18,900 +- +- +(1) +Represents stock appreciation rights awards during fiscal year 2019 under the 2010 Incentive Plan. The 2010 Incentive Plan is discussed under the caption “Long-Term Equity Incentive Compensation” beginning on page 14. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2019. For actual payouts, if any, earned for fiscal year 2019 see the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 12. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2019-2021 performance cycle. The Long-Term Incentive Plan is discussed under the caption “Long-Term Cash Incentive Compensation” beginning on page 13. Payouts under the Long-Term Incentive Plan for the 2019-2021 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +18 +Outstanding Equity Awards at Fiscal 2019 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of June 29, 2019. +Option/SAR Awards +Name +Grant Date +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Exercisable Options/SARS (#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options/SARS (#) (1) +Option/SAR +Exercise/Base Price ($) +Option/SAR +Expiration Date +Craig D. Gates +07/27/18 +07/28/17 +07/26/16 +07/29/15 +10/31/14 +50,000 +50,000 +25,000 +50,000 +50,000 +8.17 +7.26 +8.18 +10.26 +8.22 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +Brett R. Larsen +07/27/18 +07/28/17 +07/26/16 +07/29/15 +10/31/14 +20,000 +10,000 +11,250 +22,500 +22,500 +8.17 +7.26 +8.18 +10.26 +8.22 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +Douglas G. Burkhardt +07/27/18 +07/28/17 +07/26/16 +07/29/15 +10/31/14 +20,000 +20,000 +10,000 +20,000 +20,000 +8.17 +7.26 +8.18 +10.26 +8.22 +07/28/23 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +Philip S. Hochberg +07/27/18 +07/28/17 +07/26/16 +07/29/15 +10/31/14 +20,000 +20,000 +10,000 +20,000 +20,000 +8.17 +7.26 +8.18 +10.26 +8.22 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +Duane D. Mackleit +07/27/18 +07/28/17 +07/26/16 +07/29/15 +10/31/14 +10,000 +10,000 +5,000 +10,000 +10,000 +8.17 +7.26 +8.18 +10.26 +8.22 +07/28/23 +07/28/22 +07/26/21 +07/29/20 +10/30/19 +(1) +Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +19 +Option/SAR Exercises and Stock Vested-Fiscal Year 2019 +The following table presents information regarding the exercise during fiscal year 2019 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name +Number of Shares +Acquired on Exercise (#) +Value Realized +on Exercise ($) +Craig D. Gates +— +— +Brett R. Larsen +— +— +Doug G. Burkhardt +— +— +Philip S. Hochberg +— +— +Duane D. Mackleit +— +— +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 29, 2019. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +20 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Craig D. Gates +620,000 +— +— +620,000 +Brett R. Larsen +361,215 +— +— +361,215 +Douglas G. Burkhardt +348,629 +— +— +348,629 +Philip S. Hochberg +310,330 +— +— +310,330 +Duane D. Mackleit +269,696 +— +— +269,696 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 29, 2019) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates +1,240,000 +— +— +— +400,000 +1,640,000 +Brett R. Larsen +722,430 +— +— +— +190,000 +912,430 +Douglas G. Burkhardt +697,258 +— +— +— +150,000 +847,258 +Philip S. Hochberg +620,660 +— +— +— +150,000 +770,660 +Duane D. Mackleit +539,393 +— +— +— +70,000 +609,393 +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the previous table. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $4.98 (the closing price of the Company’s common stock on the last trading day of fiscal 2019) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. +This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards (described beginning on page 13) that would have accelerated if the executive’s employment terminated upon a change in control of the Company on June 29, 2019. +21 +Pay Ratio Disclosure +As required by Item 402(u) of Regulation S-K, the following information is provided with respect to the relationship of the annual total compensation of the median employee and the annual total compensation of the CEO. The pay ration was calculated in a manner consistent with Item 402(u) of Regulation S-K and based upon reasonable judgement and assumptions. +For fiscal year 2019, the annual total compensation of the Company’s median employee was $9,174 and the annual total compensation of the Company’s CEO was $685,846. The ratio of the total annual compensation of the Company’s CEO to the median of the annual total compensation of employees was 75 to 1. “The median employee” was identified and the median employee’s total annual compensation was calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The total annual compensation of the Company’s CEO is the amount reported in the “Total” column of the fiscal year 2019 Summary Compensation Table included in this Proxy Statement on page 17. +The SEC rules for identifying the “median employee” and calculating the pay ratio based on the median employee’s total annual compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and make reasonable estimates and assumptions that reflect a company’s compensation practices. Therefore pay ratios reported by other companies may not be comparable to the Company’s pay ration reported above, since other companies may have different employment and compensation practices and may utilize different methodologies, estimates and assumptions. +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2019 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2)(3) +All Other +Compensation ($) +Total ($) +James R. Bean +58,837 +8,513 +— +— +67,350 +Ronald F. Klawitter +49,300 +8,513 +— +— +57,813 +Subodh K. Kulkarni +29,800 +7,567 +— +— +37,367 +Yacov A. Shamash +56,635 +8,513 +— +— +65,148 +Patrick Sweeney +71,576 +8,513 +— +— +80,089 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2019 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2019 Annual Report . +(2) +Reflects payout, if any, of long term incentive plan awards for the three year performance period that ended in fiscal year 2019. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of June 29, 2019. +22 +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of 06/29/2019 +Number of Unvested Restricted +Shares/Units as of 06/29/2019 +James. R. Bean +33,750 +— +Ronald F. Klawitter +51,250 +— +Patrick Sweeney +33,750 +— +Yacov A. Shamash +33,750 +— +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +40,000 +Chairman of the Board +54,375 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +23 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +24 +PROPOSAL 3 +ADVISORY VOTE ON THE FUTURE FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires we provide shareholders with the opportunity to vote on a non-binding, advisory basis, for their preference as to how frequently to vote on future advisory votes on the compensation of our named executive officers as disclosed in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +Shareholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two, or three years. If no preference is indicated, shares will be voted in accordance with the Board of Directors recommendation. The Board of Directors has determined that an advisory vote on executive compensation that occurs once every three years is the most appropriate alternative for the Company and therefore the Board recommends that you vote for a three year interval for the advisory vote on executive compensation. In determining to recommend that shareholders vote for a frequency of once every three years, the Board considered how an advisory vote at this frequency will provide our shareholders with sufficient time to evaluate the effectiveness of our overall compensation objectives and philosophy and compensation process in the context of our long term business results for the corresponding period, while avoiding over-emphasis on short-term variations in compensation and business results. An advisory vote occurring once every three years will also permit our shareholders to observe and evaluate the impact of any changes to our compensation objectives and philosophy and compensation process which have occurred since the last advisory vote on executive compensation. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The Board of Directors and the Compensation Committee will take into account the outcome of the vote; however, when considering the frequency of future advisory votes on executive compensation, the Board of Directors may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the most votes cast by our shareholders. +The proxy card provides shareholders with the opportunity to choose among three options (holding the vote once every one, two or three years) and therefore, shareholders will not be voting to approve or disapprove the recommendation of the Board of Directors. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE OPTION OF ONCE EVERY THREE YEARS AS THE PREFERRED FREQUENCY FOR ADVISORY VOTES ON EXECUTIVE COMPENSATION. +25 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 29, 2019. +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to PCAOB Auditing Standard No. 16, Communications with Audit Committees. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 30, 2019, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash, and Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended June 29, 2019 and June 30, 2018: +FY 2019 +FY 2018 +Audit Fees (1) +$ +363,000 +$ +409,500 +Audit Related Fees (2) +19,000 +13,500 +Tax Fees (3) +97,500 +97,500 +All Other Fees +— +— +Total +$ +479,500 +$ +520,500 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +(3) +Tax fees for fiscal years 2019 and 2018 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2019 and 2018 also included fees for BDO performing a study relating to research and development tax credits. +26 +PROPOSAL 4 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending June 27, 2020. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2020 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2020 Annual Meeting must be received by the Secretary at the address above no later than May 28, 2020. In addition, any shareholder who intends to present a proposal at the 2020 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 26, 2020 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2019 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended June 29, 2019 all the Reporting Persons complied with all applicable filing requirements. +27 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $16,500, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington +By Order of the Board of Directors, +September 19, 2019 +Kathleen L. Nemeth +Secretary +28 +29 +30 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-19-000065/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-19-000065/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7d8b3231f42bc0d6a37460b033cd88e6ecde5701 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-19-000065/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal year 2019, the Company had no transactions with CyberOptics. During fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +6 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-20-000062/proxy.txt b/raw/proxies/0000719733/0000719733-20-000062/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f88c3e97c042cceb211bdfbede3c2a1ff6d53341 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-20-000062/proxy.txt @@ -0,0 +1,461 @@ +DEF 14A +1 +proxy2020ng.htm +DEF 14A +Document +September 17, 2020 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Friday, October 23, 2020, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 23, 2020 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Friday, October 23, 2020, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; and +3. To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2021; and +4. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 3, 2020 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 17, 2020 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 23, 2020. The Proxy Statement and 2020 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Friday, October 23, 2020 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 17, 2020. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 3, 2020 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,759,680 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below, FOR approval of compensation of the Company’s named executive officers, FOR the option of once every three years as the preferred frequency for an advisory vote on executive compensation, and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2021. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors, (ii) matters 2 and 4 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it, and (iii) on proposal 3 the frequency receiving the greatest number of votes cast will be approved. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2, 3 or 4 since none represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1), the advisory vote to approve the compensation of the Company’s named executive officers (matter 2) or the advisory vote on the frequency of an advisory vote on executive compensation (proposal 3), no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 4).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2019 Annual Meeting attended the 2019 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 70, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, LLC since November 1999. Preco Electronics, LLC was acquired by Sensata Technologies, Inc in 2020. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig D. Gates , age 61, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 68, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +3 +Dr. Subodh K. Kulkarni , age 56, has been a director of the Company since October 2018. Dr. Kulkarni has been President and Chief Executive Officer of CyberOptics Corporation since February 2014. He served as Executive Chairman of CyberOptics Corporation from September 2013 to February 2014 and served as CyberOptics Corporation’s lead director from December 2012 until his election as Executive Chairman. From January 2013 to February 2014, Dr. Kulkarni served as Chief Executive Officer of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in simulation of hot gases and plasma used in the semiconductor industry ("Prism"). Prior to being employed by Prism, he held various positions with Imation Corporation ("Imation"), including Chief Technology Officer and Senior Vice President, OEM/Emerging Business and Vice President, Global Commercial Business, R&D and Manufacturing. Prior to his employment with Imation, Dr. Kulkarni held various research management positions with 3M Corporation and IBM. Dr. Kulkarni received his B.S. in chemical engineering from IIT - Bombay, India (where he was first in his class), and went on to obtain a master's degree and a Ph.D. in chemical engineering from the Massachusetts Institute of Technology, where he did his thesis work on disilane surface decomposition, which is used in the manufacture of semiconductors. He has won a number of awards for commercializing technologies he and others have developed in the electronics industry. Dr. Kulkarni has significant expertise in management of technology-focused entities and in commercialization of technologies in the electronics, computer and semiconductor industries. The Board of Directors has concluded that based upon Dr. Kulkarni’s business and technology expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 70, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp.. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 85, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +4 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2020. During fiscal 2020, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer. +The Board of Directors has determined that the relationship between the Company and CyberOptics Corporation (“CyberOptics”), for which Dr. Kulkarni serves as President and Chief Executive Officer and a director, does not impair Dr. Kulkarni’s independence because the transactions (described in this Proxy Statement under “Related Person Transactions”) between the Company and CyberOptics are immaterial to the gross revenues of CyberOptics and the relationship between the Company and CyberOptics has no unique characteristics that interfere with Dr. Kulkarni’s exercise of independent judgement in carrying out his responsibilities as a director of the Company. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At each of the four regular meetings of the Board of Directors held during fiscal year 2020, the independent directors met separately in executive session without management present. +5 +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met nine times during fiscal 2020. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +6 +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2020. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met one time during fiscal 2020. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal years 2020 and 2019, the Company had no transactions with CyberOptics. During fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +7 +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 1,228,046 +(2),(3) +11.4 % +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 861,161 +(4),(5) +8.0 % +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 860414 +(6),(7) +8.0 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 6,786 ** +Ronald F. Klawitter 194,760 (8) 1.8 % +Subodh K. Kulkarni 1,000 ** +Yacov A. Shamash 42,326 (9) ** +Patrick Sweeney 77,410 ** +Craig D. Gates 221,758 (10) 2.1 % +Brett R. Larsen 34,118 (11) ** +Mark R. Courtney 2,342 (12) ** +Philip S. Hochberg 69,368 (13) ** +Chad T. Orebaugh 4,345 ** +Duane D. Mackleit 47,004 (14) ** +David H. Knaggs 4,469 ** +All officers and directors as a group +(14 persons) 750,693 7 % +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,759,680 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2020. +3. Morgan Stanley Wealth Management is a registered investment advisor. +4. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2020. +8 +5. Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +6. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2020. +7. Tieton Capital Management LLC is a registered investment advisor. +8. Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (16,483 shares) as of June 30, 2012, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10. Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,418 shares) as of June 30, 2020. +11. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (20,441 shares) as of June 30, 2020. +12. Represents 2,342 shares of Common Stock allocated to Mr. Courtney as a participant in the Company’s 401(k) Retirement Savings Plan as of June 30, 2020. +13. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,820 shares) as of June 30, 2020 and 100 shares owned directly by Mr. Hochberg’s son. +14. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (37,890 shares) as of June 30, 2020. +9 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2018-2020 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next three most highly compensated executive officers. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary ($) Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, 2020 650,842 — 30,750 791,461 11,217 1,484,270 +President & Chief 2019 620,000 — 31,000 — 34,846 685,846 +Executive Officer 2018 620,000 — 94,500 225,000 58,492 997,992 +Brett R. Larsen, 2020 369,968 — 13,838 294,981 11,000 689,787 +Executive Vice President, 2019 359,806 — 13,950 — 24,423 398,179 +Chief Financial Officer 2018 346,692 — 42,525 82,500 37,646 509,363 +Philip S. Hochberg, 2020 310,688 — 12,300 211,929 11,000 545,917 +Executive Vice President, 2019 301,291 — 12,400 — 22,307 335,998 +Business Development 2018 293,203 — 37,800 82,500 34,623 448,126 +1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2020 Annual Report. +2) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. No annual cash incentive compensation or long term cash incentive compensation was paid for fiscal year 2019. +3) Includes for fiscal year 2019 payment for accrued vacation in the amount of $23,846 for Mr. Gates, $13,423 for Mr. Larsen and $11,588 for Mr. Hochberg. Includes for fiscal year 2018 payment for accrued vacation in the amount of $47,692 for Mr. Gates, $26,846 for Mr. Larsen, $23,839 for Mr. Hochberg. Also includes matching payments in fiscal years 2020, 2019 and 2018 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Gates a service award in the amount of $215.15 in fiscal year 2020. +10 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2020 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2020, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2020. The Outstanding Equity Awards at 2020 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen and Hochberg at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +11 +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2020 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2020 to each of the named executive officers. +Name Grant Date Estimated Future Payouts +Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under +Equity Incentive Plan Awards (#) Exercise or Base Price of +Option/SAR Awards ($/Sh) Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) Target +($) Maximum +($) +Craig D. Gates +07/26/19 (1) +07/26/19 (2) +07/26/19 (3) +52,000 +200,000 +520,000 +400,000 +780,000 +600,000 50,000 +- +- 4.93 +- +- 246,500 +- +- +Brett R. Larsen +07/26/19 (1) +07/26/19 (2) +07/26/19 (3) +21,673 +95,000 216,279 +190,000 +325,014 +285,000 22,500 +- +- 4.93 +- +- 110,925 +- +- +Philip S. Hochberg +07/26/19 (1) +07/26/19 (2) +07/26/19 (3) +15,516 +75,000 +155,516 +150,000 +232,747 +112,500 10,000 +- +- 4.93 +- +- 49,300 +- +- +(1) Represents stock appreciation rights awards during fiscal year 2020 under the 2010 Incentive Plan. +(2) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2020. For actual payouts, if any, earned for fiscal year 2020 see the Summary Compensation Table. +(3) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2020-2022 performance cycle. Payouts under the Long-Term Incentive Plan for the 2020-2022 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +12 +Outstanding Equity Awards at Fiscal 2020 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of June 27, 2020. +Option/SAR Awards +Name Grant Date +Equity Incentive Plan Awards +Number of Securities Underlying Unexercised Exercisable Options/SARS (#) (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options/SARS (#) (1) +Option/SAR +Exercise/Base Price ($) Option/SAR +Expiration Date +Craig D. Gates 07/26/19 +07/27/18 +07/28/17 +07/26/16 +07/29/15 +50,000 +50,000 +25,000 +25,000 +50,000 +4.93 +8.17 +7.26 +8.18 +10.26 07/26/24 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +Brett R. Larsen 07/26/19 +07/27/18 +07/28/17 +07/26/16 +07/29/15 +22,500 +20,000 +11,250 +11,250 +22,500 +4.93 +8.17 +7.26 +8.18 +10.26 07/26/24 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +Philip S. Hochberg 07/26/19 +07/27/18 +07/28/17 +07/26/16 +07/29/15 +20,000 +20,000 +10,000 +10,000 +20,000 +4.93 +8.17 +7.26 +8.18 +10.26 07/26/24 +07/27/23 +07/28/22 +07/26/21 +07/29/20 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +13 +Option/SAR Exercises and Stock Vested-Fiscal Year 2020 +The following table presents information regarding the exercise during fiscal year 2020 of stock appreciation rights awards previously granted by the Company to the named executive officers. +Option/SAR Awards +Name Number of Shares +Acquired on Exercise (#) Value Realized +on Exercise ($) +Craig D. Gates — — +Brett R. Larsen — — +Philip S. Hochberg — — +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 27, 2020. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +14 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) Total ($) +Craig D. Gates 630,000 — — 630,000 +Brett R. Larsen 369,968 — — 369,968 +Philip S. Hochberg 310,668 — — 310,668 +1. This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 27, 2020) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates 1,260,000 — — — 400,000 1,660,000 +Brett R. Larsen 739,936 — — — 190,000 929,936 +Philip S. Hochberg 621,376 — — — 150,000 771,376 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $5.26 (the closing price of the Company’s common stock on the last trading day of fiscal 2020) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on June 27, 2020. +15 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2020 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2)(3) +All Other +Compensation ($) Total ($) +James R. Bean 57,970 4,613 10,000 — 72,583 +Ronald F. Klawitter 51,800 4,613 10,000 — 66,413 +Subodh K. Kulkarni 51,300 4,613 10,000 — 65,913 +Yacov A. Shamash 56,135 4,613 10,000 — 70,748 +Patrick Sweeney 72,076 4,613 10,000 — 86,689 +(1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2020 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2020 Annual Report . +(2) Reflects payout, if any, of long term incentive plan awards for the three year performance period that ended in fiscal year 2020. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of June 27, 2020. +Director Number of Shares Subject to Outstanding Options/SAR Awards as of 06/27/2020 Number of Unvested Restricted +Shares/Units as of 06/27/2020 +James. R. Bean 30,000 — +Ronald F. Klawitter 30,000 — +Patrick Sweeney 30,000 — +Subodh K. Kulkarni 3,750 — +Yacov A. Shamash 30,000 — +16 +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman $ 40,000 +Chairman of the Board 54,375 +Board Meeting Fees +Board Member, other than Chairman $ 1,700 +Chairman of the Board 2,550 +Committee Meeting Fees +Committee Member, other than Chairman $ 1,000 +Committee Chairman 1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +17 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 27, 2020. +18 +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed pursuant to PCAOB Auditing Standard No. 16, Communications with Audit Committees. BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 27, 2020, for filing with the Securities and Exchange Commission. +The Audit Committee: James R. Bean (Chairman), Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash, and Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended June 27, 2020 and June 29, 2019: +FY 2020 FY 2019 +Audit Fees (1) +$ 363,000 $ 363,000 +Audit Related Fees (2) +19,000 19,000 +Tax Fees (3) +130,500 97,500 +All Other Fees — — +Total $ 512,500 $ 479,500 +a. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +a. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +a. Tax fees for fiscal years 2020 and 2019 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2020 and 2019 also included fees for BDO performing a study relating to research and development tax credits. +19 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending July 3, 2021. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2021 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2021 Annual Meeting must be received by the Secretary at the address above no later than May 27, 2021. In addition, any shareholder who intends to present a proposal at the 2021 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 25, 2021 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2020 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended June 27, 2020 all the Reporting Persons complied with all applicable filing requirements. +20 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $8,500, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +September 17, 2020 Kathleen L. Nemeth +Secretary +21 +22 +23 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-20-000062/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-20-000062/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d1ddd1a1801f59b5b63c6f8232a9f8846d103611 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-20-000062/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal years 2020 and 2019, the Company had no transactions with CyberOptics. During fiscal year 2018, the Company purchased surface mount technology inspection equipment from CyberOptics. The purchases by the Company during fiscal year 2018 totaled $159,600. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +7 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-21-000107/proxy.txt b/raw/proxies/0000719733/0000719733-21-000107/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b4e925f5b7d12dd20ab3a97ab551bb1fa209ee8c --- /dev/null +++ b/raw/proxies/0000719733/0000719733-21-000107/proxy.txt @@ -0,0 +1,534 @@ +DEF 14A +1 +proxy2021.htm +DEF 14A +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a‑12 +Key Tronic Corporation +(Name of Registrant as Specified In Its Charter) +N/A +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +September 23, 2021 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 28, 2021, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 28, 2021 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the "Company") will be held on Thursday, October 28, 2021, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the "Annual Meeting"), for the following purposes: +1. To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; and +3. To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2022; and +4. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company's Common Stock at the close of business on September 9, 2021 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Anthony G. Voorhees +Secretary +Spokane Valley, Washington +September 23, 2021 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 28, 2021. The Proxy Statement and 2021 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the "Company"), to the holders of outstanding shares of Common Stock, no par value, of the Company ("Common Stock") in connection with the solicitation of proxies by the Board of Directors of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 28, 2021 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the "Annual Meeting"). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy are first being mailed to shareholders on or about September 23, 2021. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 9, 2021 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,761,871 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of each of the nominees for director named below, FOR approval of compensation of the Company’s named executive officers, and FOR the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for fiscal year 2022. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company's Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors, and (ii) matters 2 and 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker non-vote will have no effect on matters 2 or 3 since none represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain circumstances and on certain proposals. Under current regulations, brokers can not vote "uninstructed" shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your record holder how to vote in the election of directors (matter 1) or the advisory vote to approve the compensation of the Company’s named executive officers (matter 2). Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 3).When a broker votes a client’s shares on some but not all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of voting on non-discretionary matters. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the Amended and Restated By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2020 Annual Meeting attended the 2020 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 71, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of Preco Electronics, LLC since November 1999. Preco Electronics, LLC was acquired by Sensata Technologies, Inc in 2020. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the Company. +Craig D. Gates , age 62, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 69, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +3 +Dr. Subodh K. Kulkarni , age 57, has been a director of the Company since October 2018. Dr. Kulkarni has been President and Chief Executive Officer of CyberOptics Corporation since February 2014. He served as Executive Chairman of CyberOptics Corporation from September 2013 to February 2014 and served as CyberOptics Corporation’s lead director from December 2012 until his election as Executive Chairman. From January 2013 to February 2014, Dr. Kulkarni served as Chief Executive Officer of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in simulation of hot gases and plasma used in the semiconductor industry ("Prism"). Prior to being employed by Prism, he held various positions with Imation Corporation ("Imation"), including Chief Technology Officer and Senior Vice President, OEM/Emerging Business and Vice President, Global Commercial Business, R&D and Manufacturing. Prior to his employment with Imation, Dr. Kulkarni held various research management positions with 3M Corporation and IBM. Dr. Kulkarni received his B.S. in chemical engineering from IIT - Bombay, India (where he was first in his class), and went on to obtain a master's degree and a Ph.D. in chemical engineering from the Massachusetts Institute of Technology, where he did his thesis work on disilane surface decomposition, which is used in the manufacture of semiconductors. He has won a number of awards for commercializing technologies he and others have developed in the electronics industry. Dr. Kulkarni has significant expertise in management of technology-focused entities and in commercialization of technologies in the electronics, computer and semiconductor industries. The Board of Directors has concluded that based upon Dr. Kulkarni’s business and technology expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 71, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp.. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 86, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +4 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company's Board of Directors met four times during fiscal 2021. During fiscal 2021, each director attended 100% of the Board of Directors meetings and 93% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for Mr. Gates, the Company’s President and Chief Executive Officer. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +The Board of Directors also monitors the independence of Compensation and Administration Committee members under rules of the SEC and NASDAQ listing standards that are applicable to compensation committee members. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At three of the four regular meetings of the Board of Directors held during fiscal year 2021, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +5 +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company at the address above, together with biographical information and references, not less than ten days nor more than fifty days prior to the annual meeting. Assuming that appropriate biographical information and references are provided for candidates recommended by shareholders, the Governance and Nominating Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Governance and Nominating Committee recommends, and the Board approves, such person. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met nine times during fiscal 2021. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +6 +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met four times during fiscal 2021. The Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met one time during fiscal 2021. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal years 2021 and 2020, the Company had no transactions with CyberOptics or any other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +7 +BENEFICIAL OWNERSHIP OF SECURITIES +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley Wealth Management +999 3rd Avenue, Suite 4500 +Seattle, WA 98104 1,268,985 +(2),(3) +11.8 % +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 854,653 +(4),(5) +7.9 % +Dimensional Fund Advisors, L.P. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 851,527 +(6),(7) +7.9 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 6,786 ** +Ronald F. Klawitter 194,733 +(8) +1.8 % +Subodh K. Kulkarni 1,000 ** +Yacov A. Shamash 42,326 +(9) +** +Patrick Sweeney 77,410 ** +Craig D. Gates 221,735 +(10) +2.1 % +Brett R. Larsen 34,084 +(11) +** +Mark R. Courtney 2,338 +(12) +** +Philip S. Hochberg 69,300 +(13) +** +Chad T. Orebaugh 4,765 +(14) +** +Duane D. Mackleit 48,386 +(15) +** +David H. Knaggs 4,634 +(16) +** +Thomas E. Despres 11,262 +(17) +** +All officers and directors as a group +(13 persons) 718,759 6.7 % +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,761,871 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2021. +3. Morgan Stanley Wealth Management is a registered investment advisor. +4. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2021. +8 +5. Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +6. Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2021. +7. Tieton Capital Management LLC is a registered investment advisor. +8. Includes Common Stock allocated to Mr. Klawitter as a participant in the Company's 401(k) Retirement Savings Plan (16,456 shares) as of June 30, 2021, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10. Includes Common Stock allocated to Mr. Gates as a participant in the Company's 401(k) Retirement Savings Plan (7,406 shares) as of June 30, 2021. +11. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (20,407 shares) as of June 30, 2021. +12. Represents 2,338 shares of Common Stock allocated to Mr. Courtney as a participant in the Company’s 401(k) Retirement Savings Plan as of June 30, 2021. +13. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,752 shares) as of June 30, 2021 and 100 shares owned directly by Mr. Hochberg’s son. +14. Includes Common Stock allocated to Mr. Orebaugh as a participant in the Company’s 401(k) Retirement Savings Plan (4,765 shares) as of June 30, 2021. +15. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (39,272 shares) as of June 30, 2021. +16. Includes Common Stock allocated to Mr. Knaggs as a participant in the Company’s 401(k) Retirement Savings Plan (4,634 shares) as of June 30, 2021. +17. Includes Common Stock allocated to Mr. Despres as a participant in the Company’s 401(k) Retirement Savings Plan (11,262 shares) as of June 30, 2021. +9 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2019-2021 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next most highly compensated executive officer. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary ($) Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, 2021 684,775 — 58,000 871,244 20,242 1,634,261 +President & Chief 2020 650,842 — 30,750 791,461 11,217 1,484,270 +Executive Officer 2019 620,000 — 31,000 — 34,846 685,846 +Brett R. Larsen, 2021 398,954 — 26,100 353,097 12,648 790,799 +Executive Vice President, 2020 369,968 — 13,838 294,981 11,000 689,787 +Chief Financial Officer 2019 359,806 — 13,950 — 24,423 398,179 +Philip S. Hochberg, 2021 333,224 — 23,200 263,635 12,908 632,967 +Executive Vice President, 2020 310,688 — 12,300 211,929 11,000 545,917 +Business Development 2019 301,291 — 12,400 — 22,307 335,998 +1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2021 Annual Report. +2) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. No annual cash incentive compensation or long term cash incentive compensation was paid for fiscal year 2019. +3) Includes for fiscal year 2021 payment for retro pay in the amount of $8,842 for Mr. Gates, $1,146 for Mr. Larsen, and $1,291 for Mr. Hochberg. Also includes for Mr. Larsen a service award in the amount of $102.41 and Mr. Hochberg a service award in the amount of $217.17 in fiscal year 2021. Includes in fiscal year 2020, a service award for Mr. Gates in the amount of $215.15. Includes for fiscal year 2019 payment for accrued vacation in the amount of $23,846 for Mr. Gates, $13,423 for Mr. Larsen and $11,588 for Mr. Hochberg. Also includes matching payments in fiscal years 2021, 2020 and 2019 under the Company’s 401(k) Retirement Savings Plan. +10 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2021 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2021, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2021. The Outstanding Equity Awards at 2021 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen and Hochberg at the time each employee was first elected an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee's base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +11 +Grants of Plan- Based Award-Fiscal Year 2021 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2021 to each of the named executive officers. +Name Grant Date Estimated Future Payouts +Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under +Equity Incentive Plan Awards (#) Exercise or Base Price of +Option/SAR Awards ($/Sh) Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) Target +($) Maximum +($) +Craig D. Gates +07/23/20 (1) +07/23/20 (2) +07/23/20 (3) +52,000 +200,000 +520,000 +400,000 +780,000 +600,000 25,000 +- +- 6.94 +- +- 173,500 +- +- +Brett R. Larsen +07/23/20 (1) +07/23/20 (2) +07/23/20 (3) +21,673 +95,000 216,279 +190,000 +325,014 +285,000 11,250 +- +- 6.94 +- +- 78,075 +- +- +Philip S. Hochberg +07/23/20 (1) +07/23/20 (2) +07/23/20 (3) +15,516 +75,000 +155,516 +150,000 +232,747 +225,000 10,000 +- +- 6.94 +- +- 69,400 +- +- +(1) Represents stock appreciation rights (SARS) awards during fiscal year 2021 under the 2010 Incentive Plan. SARS represent the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted (the closing price for the Common Stock on the date of grant). +(2) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2021. For actual payouts, if any, earned for fiscal year 2021 see the Summary Compensation Table. +(3) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2021-2023 performance cycle. Payouts under the Long-Term Incentive Plan for the 2021-2023 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +12 +Outstanding Equity Awards at Fiscal 2021 Year-End +The following table presents information regarding the outstanding stock appreciation rights awards held by each of the Company’s named executive officers as of July 3, 2021. No named executive officer has any other form of equity award outstanding. +Option Awards +Name Grant Date +Number of Securities Underlying Unexercised Options (#) Exercisable (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options (#) (1) +Option +Exercise/Base Price ($) Option +Expiration Date +Craig D. Gates 07/23/20 +07/26/19 +07/27/18 +07/28/17 +07/26/16 +50,000 +50,000 +25,000 +25,000 +25,000 +6.94 +4.93 +8.17 +7.26 +8.18 07/23/25 +07/26/24 +07/27/23 +07/28/22 +07/26/21 +Brett R. Larsen 07/23/20 +07/26/19 +07/27/18 +07/28/17 +07/26/16 +22,500 +22,500 +11,250 +11,250 +11,250 +6.94 +4.93 +8.17 +7.26 +8.18 07/23/25 +07/26/24 +07/27/23 +07/28/22 +07/26/21 +Philip S. Hochberg 07/23/20 +07/26/19 +07/27/18 +07/28/17 +07/26/16 +20,000 +20,000 +10,000 +10,000 +10,000 +6.94 +4.93 +8.17 +7.26 +8.18 07/23/25 +07/26/24 +07/27/23 +07/28/22 +07/26/21 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +13 +Option/SAR Exercises and Stock Vested-Fiscal Year 2021 +During fiscal year 2021, none of the named executive officers exercised any stock appreciation rights awards. +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on July 3, 2021. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +14 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) Total ($) +Craig D. Gates 685,000 — — 685,000 +Brett R. Larsen 398,954 — — 398,954 +Philip S. Hochberg 333,224 — — 333,224 +1. This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of July 3, 2021) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates 1,370,000 — — — 400,000 1,770,000 +Brett R. Larsen 797,908 — — — 190,000 987,908 +Philip S. Hochberg 666,448 — — — 150,000 816,448 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $6.55 (the closing price of the Company’s common stock on the last trading day of fiscal 2021) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on July 3, 2021. +15 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2021 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2) +All Other +Compensation ($) Total ($) +James R. Bean 59,153 8,700 10,000 — 77,853 +Ronald F. Klawitter 52,630 8,700 10,000 — 71,330 +Subodh K. Kulkarni 53,850 8,700 — — 62,550 +Yacov A. Shamash 56,818 8,700 10,000 — 75,518 +Patrick Sweeney 74,901 8,700 10,000 — 93,601 +(1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2021 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2021 Annual Report . +(2) Reflects payout, if any, of long term incentive plan awards for the three year performance period that ended in fiscal year 2021. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of July 3, 2021. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of July 3, 2021 +Number of Unvested Restricted +Shares/Units as of July 3, 2021 +James. R. Bean 26,250 — +Ronald F. Klawitter 26,250 — +Patrick Sweeney 26,250 — +Subodh K. Kulkarni 7,500 — +Yacov A. Shamash 26,250 — +16 +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors received annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman $ 40,000 +Chairman of the Board 54,375 +Board Meeting Fees +Board Member, other than Chairman $ 1,700 +Chairman of the Board 2,550 +Committee Meeting Fees +Committee Member, other than Chairman $ 1,000 +Committee Chairman 1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +17 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Executive Compensation” section of this proxy statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2021 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +18 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the NASDAQ Marketplace Rules and that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and reviewed and discussed the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended July 3, 2021 with the Company’s management and BDO USA, LLP ("BDO"), the Company’s independent registered public accounting firm. +The Audit Committee has reviewed and discussed with BDO the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the +Securities and Exchange Commission (“SEC”) . BDO has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from BDO as required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence . The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended July 3, 2021, for filing with the Securities and Exchange Commission. The foregoing report has been approved by all members of the Audit Committee. +James R. Bean (Chairman) +Ronald F. Klawitter +Subodh K. Kulkarni +Yacov A. Shamash +Patrick Sweeney +19 +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by BDO for professional services in the named categories for the fiscal years ended July 3, 2021 and June 27, 2020: +FY 2021 FY 2020 +Audit Fees (1) +$ 536,466 $ 363,000 +Audit Related Fees (2) +20,000 19,000 +Tax Fees (3) +123,350 130,500 +All Other Fees — — +Total $ 679,816 $ 512,500 +1. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +2. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +3. Tax fees for fiscal years 2021 and 2020 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2021 and 2020 also included fees for BDO performing a study relating to research and development tax credits. +20 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm for the fiscal year ending July 3, 2021. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2022 must submit their proposals in writing to Anthony G. Voorhees, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2022 Annual Meeting must be received by the Secretary at the address above no later than May 26, 2022. In addition, any shareholder who intends to present a proposal at the 2022 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by August 9, 2022 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2021 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronicems.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended July 3, 2021 all the Reporting Persons complied with all applicable filing requirements, except that one report with one transaction for each of Mr. Bean, Mr. Courtney, Mr. Gates, Mr. Hochberg, Mr. Larsen, Mr. Klawitter, Mr. Knaggs, Dr. Kulkarni, Mr. Mackleit, Mr. Orebaugh, Mr. Shamash and Mr. Sweeney was not filed on a timely basis, in each case due to an administrative error. +21 +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $9,250, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +September 23, 2021 Anthony G. Voorhees +Secretary +22 +23 +24 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-21-000107/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-21-000107/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dfad36213192bcca8618025dd1175fdad74a4a0c --- /dev/null +++ b/raw/proxies/0000719733/0000719733-21-000107/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During the fiscal years 2021 and 2020, the Company had no transactions with CyberOptics or any other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +7 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-22-000064/proxy.txt b/raw/proxies/0000719733/0000719733-22-000064/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..919941473a4b1733e3c0db93c69a0af0defea582 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-22-000064/proxy.txt @@ -0,0 +1,537 @@ +DEF 14A +1 +proxy2022.htm +DEF 14A +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a‑12 +Key Tronic Corporation +(Name of Registrant as Specified In Its Charter) +N/A +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +September 22, 2022 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 27, 2022, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 27, 2022 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company”) will be held on Thursday, October 27, 2022, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the “Annual Meeting”), for the following purposes: +1. To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; and +3. To ratify the appointment of Moss Adams LLP as independent registered public accounting firm for fiscal year 2023; and +4. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company’s Common Stock at the close of business on September 8, 2022 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Anthony G. Voorhees +Secretary +Spokane Valley, Washington +September 22, 2022 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 27, 2022. The Proxy Statement and 2022 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement (the “Proxy Statement”) the and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board of Directors” or the “Board”) from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 27, 2022 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting”). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This Proxy Statement and the enclosed proxy card are first being mailed to shareholders on or about September 22, 2022. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 8, 2022 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,761,871 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxy cards returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of each of the nominees for director named below (“Proposal 1”), FOR approval of compensation of the Company’s named executive officers (“Proposal 2”), and FOR the ratification of the appointment of Moss Adams, LLP as the Company ’ s independent registered public accounting firm for fiscal year 2023 (“Proposal 3”). Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy card bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each proposal presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company’s Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors, and (ii) Proposal 2 and Proposal 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, an abstention from voting or a broker non-vote (as described below) will have the practical effect of voting against the nominee. An abstention from voting or a broker non-vote will have no effect on Proposal 2 or Proposal 3 since none represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. If you hold shares in street name and, you do not return the voting instruction form, your broker, trustee or nominee (collectively referred to as “brokers”) may vote your shares in certain circumstances and on certain routine proposals. Brokers cannot vote “uninstructed” shares in non-routine matters, such as director elections and executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of directors (Proposal 1) or the advisory vote to approve the compensation of the Company’s named executive officers (Proposal 2) your shares will not be voted. Brokers have discretion to vote uninstructed shares on ratification of the appointment of the independent registered public accounting firm (Proposal 3).When a broker cannot vote shares, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting and will have the effect described in the preceding paragraph. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the Amended and Restated By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. +Board Diversity +The Board believes the current nominees embody a diverse range of viewpoints, backgrounds and skills, including with respect to tenure and race/ethnicity. In accordance with Nasdaq’s new Board Diversity Rules, the following Board Diversity Matrix provides certain information regarding the composition of our Board as of July 2, 2022, Each of the categories listed in the table has the meaning as it is used in Nasdaq Rule 5605(f). +Board Diversity Matrix +Total Number of Directors 6 +Female Male Non-Binary Did Not Disclose Gender +Part I: Gender Identity +Directors 0 6 0 0 +Part II: Demographic Background +African American or Black 0 0 0 0 +Alaskan Native or Native American 0 0 0 0 +Asian 0 1 0 0 +Hispanic or Latinx 0 0 0 0 +Native Hawaiian or Pacific Islander 0 0 0 0 +White 0 3 0 0 +Two or More Races or Ethnicities 0 2 0 0 +LGBTQ+ 0 +Did Not Disclose Demographic Background 1 +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 72, has been a director of the Company since October 2006. Mr. Bean served as President and CEO of Preco Electronics, LLC from November 1999 to March 2020. From May 1997 to 1999 he held various management positions in Boise with Preco Electronics, LLC. Since the sale of the company, he has continued as a general management consultant to the acquiring company, Sensata Technologies. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and financial expertise, current and prior senior management positions and education that he should serve as a director of the Company. +3 +Craig D. Gates , age 63, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 70, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 58, has been a director of the Company since October 2018. Dr. Kulkarni has been President and Chief Executive Officer of CyberOptics Corporation since February 2014. He served as Executive Chairman of CyberOptics Corporation from September 2013 to February 2014 and served as CyberOptics Corporation’s lead director from December 2012 until his election as Executive Chairman. From January 2013 to February 2014, Dr. Kulkarni served as Chief Executive Officer of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in simulation of hot gases and plasma used in the semiconductor industry (“Prism”). Prior to being employed by Prism, he held various positions with Imation Corporation (“Imation”), including Chief Technology Officer and Senior Vice President, OEM/Emerging Business and Vice President, Global Commercial Business, R&D and Manufacturing. Prior to his employment with Imation, Dr. Kulkarni held various research management positions with 3M Corporation and IBM. Dr. Kulkarni received his B.S. in chemical engineering from IIT - Bombay, India (where he was first in his class), and went on to obtain a master's degree and a Ph.D. in chemical engineering from the Massachusetts Institute of Technology, where he did his thesis work on disilane surface decomposition, which is used in the manufacture of semiconductors. He has won a number of awards for commercializing technologies he and others have developed in the electronics industry. Dr. Kulkarni has significant expertise in management of technology-focused entities and in commercialization of technologies in the electronics, computer and semiconductor industries. The Board of Directors has concluded that based upon Dr. Kulkarni’s business and technology expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 72, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp.. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 87, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco’s Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +4 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company’s Board of Directors met four times during fiscal 2022. During fiscal 2022, each director attended 100% of the Board of Directors meetings and 93% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2021 Annual Meeting attended the 2021 Annual meeting. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Listing Rules (the “Nasdaq Rules”), except for Mr. Gates, the Company’s President and Chief Executive Officer. +The Board of Directors has determined that the relationship between the Company and CyberOptics Corporation (“CyberOptics”), for which Dr. Kulkarni serves as President and Chief Executive Officer and a director, does not impair Dr. Kulkarni’s independence because the transactions (described in this Proxy Statement under “Related Person Transactions”) between the Company and CyberOptics are immaterial to the gross revenues of CyberOptics and the relationship between the Company and CyberOptics has no unique characteristics that interfere with Dr. Kulkarni’s exercise of independent judgement in carrying out his responsibilities as a director of the Company. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the Nasdaq Rules; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules. +The Board of Directors has determined that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +The Board of Directors also monitors the independence of Compensation and Administration Committee members under rules of the SEC and Nasdaq Rules that are applicable to compensation committee members. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At all four regular meetings of the Board of Directors held during fiscal year 2022, the independent directors met separately in executive session without management present. +5 +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. The Company does not have any practices or policies regarding hedging. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company at the address above, together with biographical information and references, not less than ten days nor more than fifty days prior to the annual meeting. Assuming that appropriate biographical information and references are provided for candidates recommended by shareholders, the Governance and Nominating Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Governance and Nominating Committee recommends, and the Board approves, such person. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met nine times during fiscal 2022. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +6 +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2022. The Compensation Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and recommends to the Board of Directors to approve the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Compensation Committee considers the Chief Executive Officer’s recommendations on compensation for executive officers and other key employees (other than his own compensation). The Compensation Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Compensation Committee also has the authority to engage and oversee an external independent compensation consultant to assist it by providing information, analysis and other advice relating to the Company’s compensation program. During fiscal year 2022, the Compensation Committee engaged Milliman, Inc. (“Milliman”), a national compensation consulting firm, to serve as its compensation consultant to advise on executive and director compensation matters, including competitive market pay practices for the Company’s executive officers and directors, and with data analysis and selection of the compensation peer group. The terms of Milliman’s engagement include reporting directly to the Compensation Committee. Milliman also coordinated with the Company’s management for data collection and information market comparisons for our executive officers. During fiscal year 2022, Milliman did not provide any other consulting or other services to us. +The Compensation Committee has evaluated its relationship with Milliman to ensure that it believes that such firm is independent from management. This process included a review of the services that Milliman provided, the quality of those services and the fees associated with those services provided during fiscal year 2022. Based on this review, as well as consideration of the factors affecting independence set forth in Rule 10C-1(b)(4) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 5605(d)(3)(D) of the Nasdaq Rules, and such other factors as were deemed relevant under the circumstances, the Compensation Committee has determined that no conflict of interest was raised as a result of the work performed by Milliman. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met one time during fiscal 2022. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +7 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2022, the Company purchased surface mount technology inspection equipment and raw materials from CyberOptics. The purchases by the Company during fiscal year 2022 totaled $382,000. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +During the fiscal year 2021, the Company had no transactions with CyberOptics or any other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +8 +BENEFICIAL OWNERSHIP OF SECURITIES +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name and Address of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley 1,738,773 +(2) +16.2 % +Dimensional Fund Advisors LP 789,868 +(3) +7.3 % +Tieton Capital Management 796,644 +(4) +7.4 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 6,786 ** +Ronald F. Klawitter 194,697 +(5) +1.8 % +Subodh K. Kulkarni 1,000 ** +Yacov A. Shamash 42,326 +(6) +** +Patrick Sweeney 77,410 ** +Craig D. Gates 221,719 +(7) +2.1 % +Brett R. Larsen 34,039 +(8) +** +Mark R. Courtney 2,333 +(9) +** +Philip S. Hochberg 69,111 +(10) +** +Chad T. Orebaugh 5,562 +(11) +** +Duane D. Mackleit 50,231 +(12) +** +David H. Knaggs 4,916 +(13) +** +All officers and directors as a group +(12 persons) 710,130 6.6 % +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,761,871 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based solely on a Schedule 13G/A filed with the SEC on February 10, 2022 by Morgan Stanley and Morgan Stanley Smith Barney LLC (collectively, “Morgan Stanley”). The address for Moran Stanley is 1585 Broadway, New York, NY 10036. +3. Based solely on a Schedule 13G/A filed with the SEC on February 8, 2022. The address for Dimensional Fund Advisors LP is 6300 Bee Cave Road, Building One, Austin, TX 78746. +4. Based solely on a Schedule 13G/A filed with the SEC on January 19, 2022. The address for Tieton Capital Management is 4700 Tieton Drive, Suite C, Yakima, WA 98908. +5. Includes Common Stock allocated to Mr. Klawitter as a participant in the Company’s 401(k) Retirement Savings Plan (16,420 shares) as of June 30, 2022, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9 +6. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +7. Includes Common Stock allocated to Mr. Gates as a participant in the Company’s 401(k) Retirement Savings Plan (7,390 shares) as of June 30, 2022. +8. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (20,362 shares) as of June 30, 2022. +9. Includes Common Stock allocated to Mr. Courtney as a participant in the Company’s 401(k) Retirement Savings Plan (2,333 shares) as of June 30, 2022. +10. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,663 shares) as of June 30, 2022. +11. Includes Common Stock allocated to Mr. Orebaugh as a participant in the Company’s 401(k) Retirement Savings Plan (5,562 shares) as of June 30, 2022. +12. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (41,117 shares) as of June 30, 2022. +13. Includes Common Stock allocated to Mr. Knaggs as a participant in the Company’s 401(k) Retirement Savings Plan (4,916 shares) as of June 30, 2022. +10 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2020-2022 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next most highly compensated executive officer. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary ($) Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, 2022 799,549 — 68,250 511,711 11,600 1,391,110 +President & Chief 2021 684,775 — 58,000 871,244 20,242 1,634,261 +Executive Officer 2020 650,842 — 30,750 791,461 11,217 1,484,270 +Brett R. Larsen, 2022 430,485 — 30,713 165,306 11,600 638,104 +Executive Vice President, 2021 398,954 — 26,100 353,097 12,648 790,799 +Chief Financial Officer 2020 369,968 — 13,838 294,981 11,000 689,787 +Philip S. Hochberg, 2022 346,006 — 27,300 110,722 11,600 495,628 +Executive Vice President, 2021 333,224 — 23,200 263,635 12,908 632,967 +Business Development 2020 310,688 — 12,300 211,929 11,000 545,917 +1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2022 Annual Report. +2) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) Includes for fiscal year 2021 payment for retro pay in the amount of $8,842 for Mr. Gates, $1,146 for Mr. Larsen, and $1,291 for Mr. Hochberg. Also includes for Mr. Larsen a service award in the amount of $102.41 and Mr. Hochberg a service award in the amount of $217.17 in fiscal year 2021. Includes in fiscal year 2020, a service award for Mr. Gates in the amount of $215.15. +11 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2022 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2022, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2022. The Outstanding Equity Awards at 2022 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen and Hochberg at the time each employee was first appointed an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and non-competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +12 +Grants of Plan- Based Award-Fiscal Year 2022 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2022 to each of the named executive officers. +Name Grant Date Estimated Future Payouts +Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under +Equity Incentive Plan Awards (#) Exercise or Base Price of +Option/SAR Awards ($/Sh) Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) Target +($) Maximum +($) +Craig D. Gates +08/09/21 (1) +08/09/21 (2) +08/09/21 (3) +64,414 +200,000 +664,144 +400,000 +996,216 +600,000 25,000 +- +- 7.17 +- +- 179,250 +- +- +Brett R. Larsen +08/09/21 (1) +08/09/21 (2) +08/09/21 (3) +23,216 +95,000 251,507 +190,000 +377,261 +285,000 11,250 +- +- 7.17 +- +- 80,663 +- +- +Philip S. Hochberg +08/09/21 (1) +08/09/21 (2) +08/09/21 (3) +16,541 +75,000 +165,413 +150,000 +248,120 +225,000 10,000 +- +- 7.17 +- +- 71,700 +- +- +(1) Represents stock appreciation rights (SARS) awards during fiscal year 2022 under the 2010 Incentive Plan. SARS represent the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted (the closing price for the Common Stock on the date of grant). +(2) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2022. For actual payouts, if any, earned for fiscal year 2022 see the Summary Compensation Table. +(3) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2022-2024 performance cycle. Payouts under the Long-Term Incentive Plan for the 2022-2024 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +13 +Outstanding Equity Awards at Fiscal 2022 Year-End +The following table presents information regarding the outstanding stock appreciation rights awards held by each of the Company’s named executive officers as of July 2, 2022. No named executive officer has any other form of equity award outstanding. +Option Awards +Name Grant Date +Number of Securities Underlying Unexercised Options (#) Exercisable (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options (#) (1) +Option +Exercise/Base Price ($) Option +Expiration Date +Craig D. Gates 08/09/21 +07/23/20 +07/26/19 +07/27/18 +07/28/17 +25,000 +50,000 +25,000 +25,000 +25,000 +7.17 +6.94 +4.93 +8.17 +7.26 08/09/26 +07/23/25 +07/26/24 +07/27/23 +07/28/22 +Brett R. Larsen 08/09/21 +07/23/20 +07/26/19 +07/27/18 +07/28/17 +11,250 +22,500 +11,250 +11,250 +11,250 +7.17 +6.94 +4.93 +8.17 +7.26 08/09/26 +07/23/25 +07/26/24 +07/27/23 +07/28/22 +Philip S. Hochberg 08/09/21 +07/23/20 +07/26/19 +07/27/18 +07/28/17 +10,000 +20,000 +10,000 +10,000 +10,000 +7.17 +6.94 +4.93 +8.17 +7.26 08/09/26 +07/23/25 +07/26/24 +07/27/23 +07/28/22 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +Option/SAR Exercises and Stock Vested-Fiscal Year 2022 +During fiscal year 2022, none of the named executive officers exercised any stock appreciation rights awards. +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on July 2, 2022. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +14 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) Total ($) +Craig D. Gates 799,549 — — 799,549 +Brett R. Larsen 430,485 — — 430,485 +Philip S. Hochberg 346,006 — — 346,006 +1. This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of July 2, 2022) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates 1,599,098 — — — 400,000 1,999,098 +Brett R. Larsen 860,970 — — — 190,000 1,050,970 +Philip S. Hochberg 692,012 — — — 150,000 842,012 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $4.27 (the closing price of the Company’s common stock on the last trading day of fiscal 2022) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on July 2, 2022. +15 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2022 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2) +All Other +Compensation ($) Total ($) +James R. Bean 57,117 8,700 35,378 — 101,195 +Ronald F. Klawitter 56,750 8,700 35,378 — 100,828 +Subodh K. Kulkarni 56,750 8,700 26,534 — 91,984 +Yacov A. Shamash 56,750 8,700 35,378 — 100,828 +Patrick Sweeney 68,000 8,700 35,378 — 112,078 +(1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2022 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2022 Annual Report . +(2) Reflects payout, if any, of long term incentive plan awards for the three year performance period that ended in fiscal year 2022. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of July 2, 2022. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of July 2, 2022 +Number of Unvested Restricted +Shares/Units as of July 2, 2022 +James. R. Bean 22,500 — +Ronald F. Klawitter 22,500 — +Patrick Sweeney 22,500 — +Subodh K. Kulkarni 11,250 — +Yacov A. Shamash 22,500 — +16 +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors received annual retainers for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman $ 75,000 +Chairman of the Board 90,000 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +17 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Exchange Act, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. +As described in greater detail in the “Executive Compensation” section of this Proxy Statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. To the extent there is a significant vote against our named executive officers compensation as disclosed in this Proxy Statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2022 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +18 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable Nasdaq Rules and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules and that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and reviewed and discussed the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended July 2, 2022 with the Company’s management and Moss Adams, LLP (“Moss Adams”), the Company’s independent registered public accounting firm. +The Audit Committee has reviewed and discussed with Moss Adams the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the +Securities and Exchange Commission (“SEC”) . Moss Adams has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from Moss Adams as required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence . The Audit Committee discussed with Moss Adams that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by Moss Adams are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended July 2, 2022, for filing with the SEC. The foregoing report has been approved by all members of the Audit Committee. +James R. Bean (Chairman) +Ronald F. Klawitter +Subodh K. Kulkarni +Yacov A. Shamash +Patrick Sweeney +19 +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by Moss Adams for professional services in the named categories for the fiscal year ended July 2, 2022 and by BDO USA, LLP (“BDO”) for professional services in the named categories for the fiscal year ended July 3, 2021: +FY 2022 FY 2021 +Audit Fees (1) +$ 398,876 $ 536,466 +Audit Related Fees (2) +— 20,000 +Tax Fees (3) +— 123,350 +All Other Fees — — +Total $ 398,876 $ 679,816 +1. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +2. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +3. Tax fees for fiscal years 2021 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2021 also included fees for BDO performing a study relating to research and development tax credits. +Dismissal of Independent Registered Public Accounting Firm +On November 23, 2021, the Company, upon the recommendation of the Audit Committee, dismissed BDO as the Company’s independent registered public accounting firm. BDO served as the Company’s independent registered public accounting firm since 2003. +During the fiscal years ended July 3, 2021 and June 27, 2020 and the subsequent interim period through November 23, 2021, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. +Additionally, during the fiscal years ended July 3, 2021 and June 27, 2020 and the subsequent interim period through November 23, 2021, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K except for the following event that has been remediated as described in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2022: BDO advised the Company of a material weakness in internal controls over financial reporting related to the design and operating effectiveness of certain controls over the accounting for inventory as well as the Company’s monitoring activities as it pertains to accounting for inventory at its domestic facilities. The Audit Committee discussed the subject matter of this event with BDO, and the Company has authorized BDO to respond fully to inquiries from any successor auditing firm with regard to the event and the remediation of the event . +The audit reports of BDO on the consolidated financial statements of the Company as of and for the fiscal years ended July 3, 2021 and June 27, 2020 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. +BDO has provided the Company with a copy of its letter addressed to the SEC stating that BDO agrees with the disclosures made by the Company in response to Item 304(a) of Regulation S-K. A copy of BDO’s letter is filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2021. +20 +Engagement of New Independent Registered Public Accounting Firm +On November 30, 2021, the Company engaged Moss Adams as the Company’s independent registered public accounting firm for the Company’s fiscal year ending July 2, 2022. The appointment was approved by the Audit Committee. +During the Company’s two most recent fiscal years ended July 3, 2021 and June 27, 2020, and during the subsequent interim period through November 30, 2021, neither the Company nor anyone on its behalf consulted with Moss Adams regarding any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). +21 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained Moss Adams, LLP (“Moss Adams”) as the Company’s independent registered public accounting firm for the fiscal year ending July 1, 2023. Representatives of Moss Adams are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of Moss Adams as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2023 must submit their proposals in writing to Anthony G. Voorhees, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Exchange Act, proposals submitted for inclusion in our proxy statement for the 2023 Annual Meeting must be received by the Secretary at the address above no later than May 25, 2023. In addition, any shareholder who intends to present a proposal at the 2023 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by August 8, 2023 or such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. In addition, to comply with the universal proxy rules (once effective), shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than August 28, 2023. +OTHER MATTERS +Annual Report on Form 10-K +The 2022 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +22 +Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership with the SEC and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5 were required, the Company believes that with respect to the fiscal year ended July 2, 2022 all the Reporting Persons complied with all applicable filing requirements. +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies and provide related advice and informational support. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $10,000, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +September 22, 2022 Anthony G. Voorhees +Secretary +23 +24 +25 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-22-000064/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-22-000064/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..05efd4920056eacc1b92160645acd90e1115896e --- /dev/null +++ b/raw/proxies/0000719733/0000719733-22-000064/proxy_rpt.txt @@ -0,0 +1,7 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2022, the Company purchased surface mount technology inspection equipment and raw materials from CyberOptics. The purchases by the Company during fiscal year 2022 totaled $382,000. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +During the fiscal year 2021, the Company had no transactions with CyberOptics or any other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +8 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-23-000034/proxy.txt b/raw/proxies/0000719733/0000719733-23-000034/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7ec34be5287e4b0edd98a5292474e75cfe57adb6 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-23-000034/proxy.txt @@ -0,0 +1,579 @@ +DEF 14A +1 +proxy2023.htm +DEF 14A +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a‑12 +Key Tronic Corporation +(Name of Registrant as Specified In Its Charter) +N/A +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +September 29, 2023 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 26, 2023, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 26, 2023 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company”) will be held on Thursday, October 26, 2023, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the “Annual Meeting”), for the following purposes: +1. To elect six directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; and +3. To ratify the appointment of Moss Adams LLP as independent registered public accounting firm for fiscal year 2024; and +4. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company’s Common Stock at the close of business o n September 7, 2023 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. E ven if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +John Theiss +Secretary +Spokane Valley, Washington +September 29, 2023 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON October 26, 2023. The Proxy Statement and 2023 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement (the “Proxy Statement”) and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board of Directors” or the “Board”) from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 26, 2023 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting”). The proxies appoint Craig D. Gates and Brett R. Larsen, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This Proxy Statement and the enclosed proxy card are first being mailed to shareholders on or about September 29, 2023. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 7, 2023 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,761,871 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxy cards returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of each of the nominees for director named below (“Proposal 1”), FOR approval of compensation of the Company’s named executive officers (“Proposal 2”), and FOR the ratification of the appointment of Moss Adams, LLP as the Company ’ s independent registered public accounting firm for fiscal year 2024 (“Proposal 3”). Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy card bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each proposal presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company’s Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the six nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors, and (ii) Proposal 2 and Proposal 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, an abstention from voting or a broker non-vote (as described below) will have the practical effect of voting against the nominee. An abstention from voting or a broker non-vote will have no effect on Proposal 2 or Proposal 3 since neither represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. If you hold shares in street name and you do not return the voting instruction form, your broker, trustee or nominee (collectively referred to as “brokers”) may vote your shares in certain circumstances and on certain routine proposals. Brokers cannot vote “uninstructed” shares in non-routine matters, such as director elections and executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of directors (Proposal 1) or the advisory vote to approve the compensation of the Company’s named executive officers (Proposal 2) your shares will not be voted. Brokers have discretion to vote uninstructed shares on ratification of the appointment of the independent registered public accounting firm (Proposal 3).When a broker cannot vote shares, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting and will have the effect described in the preceding paragraph. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Six directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The six n ominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the Amended and Restated By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. +Board Diversity +The Board believes the current nominees embody a diverse range of viewpoints, backgrounds and skills, including with respect to tenure and race/ethnicity. In accordance with Nasdaq’s new Board Diversity Rules, the following Board Diversity Matrix provides certain information regarding the composition of our Board as of July 1, 2023, Each of the categories listed in the table has the meaning as it is used in Nasdaq Rule 5605(f). +Board Diversity Matrix +Total Number of Directors 6 +Female Male Non-Binary Did Not Disclose Gender +Part I: Gender Identity +Directors 0 6 0 0 +Part II: Demographic Background +African American or Black 0 0 0 0 +Alaskan Native or Native American 0 0 0 0 +Asian 0 1 0 0 +Hispanic or Latinx 0 0 0 0 +Native Hawaiian or Pacific Islander 0 0 0 0 +White 0 3 0 0 +Two or More Races or Ethnicities 0 2 0 0 +LGBTQ+ 0 +Did Not Disclose Demographic Background 1 +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +James R. Bean , age 73, has been a director of the Company since October 2006. Mr. Bean served as President and CEO of Preco Electronics, LLC from November 1999 to March 2020. From May 1997 to 1999 he held various management positions in Boise with Preco Electronics, LLC, which was sold to Sensata Technologies in March 2020. Mr. Bean remained with Sensata until his retirement in November 2022. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean's business and financial expertise, current and prior senior management experience and education that he should serve as a director of the Company. +3 +Craig D. Gates , age 64, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 71, has been a director of the Company since October 2009 and formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 59, has been a director of the Company since October 2018. Dr. Kulkarni has served as President and Chief Executive Officer at Rigetti Computing, Inc. since December 2022. Dr. Kulkarni is a seasoned public company CEO with thirty-plus years of experience in the semiconductor industry and a track record of success in scaling and commercializing cutting-edge technologies. Prior to joining Rigetti, Dr. Kulkarni was President, CEO, and member of the Board of CyberOptics Corporation, a developer and manufacturer of high precision sensors and inspection systems for the semiconductor and electronics industry. He held these roles from 2014 until CyberOptics was acquired by Nordson Corporation in November 2022. Prior to CyberOptics, Dr. Kulkarni was CEO of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in the semiconductor industry. Earlier in his career, he held additional leadership positions, including Chief Technology Officer and Senior Vice President of OEM/Emerging business, global commercial business, R&D and manufacturing at Imation, a global scalable storage and data security company. Dr. Kulkarni began his career in research and management positions with 3M Corporation and IBM. He received his B.S. in chemical engineering from the Indian Institute of Technology, Mumbai, and later obtained a M.S. and Ph.D. in chemical engineering from MIT. Dr. Kulkarni currently serves as Chairman of the Board for Prism Computational Sciences. +Yacov A. Shamash , age 73, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp.. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +Patrick Sweeney , age 88, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco’s Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Photo Machining Inc. The Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the +4 +Company. The Company’s Board of Directors met five times du ring fiscal 2023. During fiscal 2023, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2022 Annual Meeting attended the 2022 Annual meeting. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Listing Rules (the “Nasdaq Rules”), except for Mr. Gates, the Company’s President and Chief Executive Officer. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the Nasdaq Rules; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules. +The Board of Directors has determined that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney, members of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +The Board of Directors also monitors the independence of Compensation and Administration Committee members under rules of the SEC and Nasdaq Rules that are applicable to compensation committee members. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Succession Planning +The Board of Directors is charged with monitoring and overseeing the process of planning for CEO and senior management succession. The Board of Directors identifies the qualities and characteristics it believes are necessary for an effective CEO and senior management and periodically reviews the development and progression of internal candidates against these standards. +Executive Sessions +At three of the four regular meetings of the Board of Directors held during fiscal year 2023, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +5 +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. The Company does not have any practices or policies regarding hedging. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, the executive officer would not have received such bonus or other compensation or portion thereof. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the Secretary and submitted to the Board of Directors or a Board member. In October 2022, the SEC adopted a final version of a new clawback rule. The Company intends to take action to comply with this rule consistent with the timing of its implementation. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company at the address above, together with biographical information and references, not less than ten days nor more than fifty days prior to the annual meeting. Assuming that appropriate biographical information and references are provided for candidates recommended by shareholders, the Governance and Nominating Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Governance and Nominating Committee recommends, and the Board approves, such person. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met nine times during fiscal 2023. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +6 +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met six times during fiscal 2023. The Compensation Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and recommends to the Board of Directors to approve the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Compensation Committee considers the Chief Executive Officer’s recommendations on compensation for executive officers and other key employees (other than his own compensation). The Compensation Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Compensation Committee also has the authority to engage and oversee an external independent compensation consultant to assist it by providing information, analysis and other advice relating to the Company’s compensation program. During fiscal year 2023, the Compensation Committee engaged Milliman, Inc. (“Milliman”), a national compensation consulting firm, to serve as its compensation consultant to advise on executive and director compensation matters, including competitive market pay practices for the Company’s executive officers and directors, and with data analysis and selection of the compensation peer group. The terms of Milliman’s engagement include reporting directly to the Compensation Committee. Milliman also coordinated with the Company’s management for data collection and information market comparisons for our executive officers. During fiscal year 2023, Milliman did not provide any other consulting or other services to us. +The Compensation Committee has evaluated its relationship with Milliman to ensure that it believes that such firm is independent from management. This process included a review of the services that Milliman provided, the quality of those services and the fees associated with those services provided during fiscal year 2023. Based on this review, as well as consideration of the factors affecting independence set forth in Rule 10C-1(b)(4) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 5605(d)(3)(D) of the Nasdaq Rules, and such other factors as were deemed relevant under the circumstances, the Compensation Committee has determined that no conflict of interest was raised as a result of the work performed by Milliman. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Klawitter, Kulkarni, Shamash and Sweeney met one time during fiscal 2023. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +7 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2023, the Company had no Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +During fiscal year 2022, the Company purchased surface mount technology inspection equipment and raw materials from CyberOptics. The purchases by the Company during fiscal year 2022 totaled $382,000. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +8 +BENEFICIAL OWNERSHIP OF SECURITIES +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name and Address of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley 1,928,160 +(2) +17.9 % +Dimensional Fund Advisors LP 807,603 +(3) +7.5 % +Tieton Capital Management 742,950 +(4) +6.9 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 6,786 ** +Ronald F. Klawitter 194,697 +(5) +1.8 % +Subodh K. Kulkarni 1,000 ** +Yacov A. Shamash 42,326 +(6) +** +Patrick Sweeney 77,410 ** +Craig D. Gates 221,719 +(7) +2.1 % +Brett R. Larsen 34,039 +(8) +** +Mark R. Courtney 2,333 +(9) +** +Philip S. Hochberg 69,111 +(10) +** +Chad T. Orebaugh 5,562 +(11) +** +Duane D. Mackleit 50,231 +(12) +** +David H. Knaggs 4,916 +(13) +** +All officers and directors as a group +(12 persons) 712,912 6.6 % +_____________ +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,761,871 s hares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based solely on a Schedule 13G/A filed with the SEC on February 9, 2023 by Morgan Stanley and Morgan Stanley Smith Barney LLC (collectively, “Morgan Stanley”). The address for Morgan Stanley is 1585 Broadway, New York, NY 10036. +3. Based solely on a Schedule 13G/A filed with the SEC on February 2, 2023. The address for Dimensional Fund Advisors LP is 6300 Bee Cave Road, Building One, Austin, TX 78746. +4. Based solely on a Schedule 13G/A filed with the SEC on January 25, 2023. The address for Tieton Capital Management is 4700 Tieton Drive, Suite C, Yakima, WA 98908. +5. Includes Common Stock allocated to Mr. Klawitter as a participant in the Company’s 401(k) Retirement Savings Plan (16,384 shares) as of July 1, 2023, 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +9 +6. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +7. Includes Common Stock allocated to Mr. Gates as a participant in the Company’s 401(k) Retirement Savings Plan (7,373 shares) as of July 1, 2023. +8. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (20,318 shares) as of July 1, 2023. +9. Includes Common Stock allocated to Mr. Courtney as a participant in the Company’s 401(k) Retirement Savings Plan (2,328 shares) as of July 1, 2023. +10. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,573 shares) as of July 1, 2023. +11. Includes Common Stock allocated to Mr. Orebaugh as a participant in the Company’s 401(k) Retirement Savings Plan (6,201 shares) as of July 1, 2023. +12. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (43,160 shares) as of July 1, 2023. +13. Includes Common Stock allocated to Mr. Knaggs as a participant in the Company’s 401(k) Retirement Savings Plan (5,207 shares) as of July 1, 2023. +10 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2021-2023 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next most highly compensated executive officer. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary ($) Bonus ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, 2023 905,367 — 52,250 543,220 12,200 1,513,037 +President & Chief 2022 799,549 — 68,250 511,711 11,600 1,391,110 +Executive Officer 2021 684,775 — 58,000 871,244 20,242 1,634,261 +Brett R. Larsen, 2023 475,952 — 23,513 199,900 12,200 711,565 +Executive Vice President, 2022 430,485 — 30,713 165,306 11,600 638,104 +Chief Financial Officer 2021 398,954 — 26,100 353,097 12,648 790,799 +Philip S. Hochberg, 2023 384,522 — 20,900 126,892 14,339 546,653 +Executive Vice President, 2022 346,006 — 27,300 110,722 11,600 495,628 +Business Development 2021 333,224 — 23,200 263,635 12,908 632,967 +1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2023 Annual Report. Assuming the highest level of performance is achieved for the SARS granted during the 2023 fiscal year, the maximum value of such awards at the grant date would be $127,500 for Mr. Gates, $57,535 for Mr. Larsen and $51,000 for Mr. Hochberg. +2) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) Includes for fiscal year 2023 payment for retro pay in the amount of $2,139 for Mr. Hochberg. Included for fiscal year 2021 payment for retro pay in the amount of $8,842 for Mr. Gates, $1,146 for Mr. Larsen, and $1,291 for Mr. Hochberg. Also includes for Mr. Hochberg a service award in the amount of $217.17 in fiscal year 2021. +11 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2023 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2023, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year 2023. The Outstanding Equity Awards at 2023 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +Description of Employment Agreements-Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Larsen and Hochberg at the time each employee was first appointed an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and non-competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +12 +Grants of Plan- Based Award-Fiscal Year 2023 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2023 to each of the named executive officers. +Name Grant Date Estimated Future Payouts +Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under +Equity Incentive Plan Awards (#) Exercise or Base Price of +Option/SAR Awards ($/Sh) Grant Date Fair Value of Stock +And Option/SAR Awards ($) +Threshold +($) Target +($) Maximum +($) +Craig D. Gates +07/29/22 (1) +07/29/22 (2) +07/29/22 (3) +87,906 +200,000 +879,060 +400,000 +1,318,590 +600,000 25,000 +- +- 5.10 +- +- 52,250 +- +- +Brett R. Larsen +07/29/22 (1) +07/29/22 (2) +07/29/22 (3) +32,285 +95,000 322,850 +190,000 484,275 +285,000 11,250 +- +- 5.10 +- +- 23,513 +- +- +Philip S. Hochberg +07/29/22 (1) +07/29/22 (2) +07/29/22 (3) +19,119 +75,000 +191,191 +150,000 +260,715 +225,000 10,000 +- +- 5.10 +- +- 20,900 +- +- +(1) Represents stock appreciation rights (SARS) awards during fiscal year 2023 under the 2010 Incentive Plan. SARS represent the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted (the closing price for the Common Stock on the date of grant). +(2) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2023. For actual payouts, if any, earned for fiscal year 2023 see the Summary Compensation Table. +(3) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2023-2025 performance cycle. Payouts under the Long-Term Incentive Plan for the 2023-2025 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +13 +Outstanding Equity Awards at Fiscal 2023 Year-End +The following table presents information regarding the outstanding stock appreciation rights awards held by each of the Company’s named executive officers as of July 1, 2023. No named executive officer has any other form of equity award outstanding. +Option Awards +Name Grant Date +Number of Securities Underlying Unexercised Options (#) Exercisable (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options (#) (1) +Option +Exercise/Base Price ($) Option +Expiration Date +Craig D. Gates 07/29/22 +08/09/21 +07/23/20 +07/26/19 +07/27/18 +25,000 +25,000 +25,000 +25,000 +25,000 +5.10 +7.17 +6.94 +4.93 +8.17 07/29/27 +08/09/26 +07/23/25 +07/26/24 +07/27/23 +Brett R. Larsen 07/29/22 +08/09/21 +07/23/20 +07/26/19 +07/27/18 +11,250 +11,250 +11,250 +11,250 +11,250 +5.10 +7.17 +6.94 +4.93 +8.17 07/29/27 +08/09/26 +07/23/25 +07/26/24 +07/27/23 +Philip S. Hochberg 07/29/22 +08/09/21 +07/23/20 +07/26/19 +07/27/18 +10,000 +10,000 +10,000 +10,000 +10,000 +5.10 +7.17 +6.94 +4.93 +8.17 07/29/27 +08/09/26 +07/23/25 +07/26/24 +07/27/23 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +Option/SAR Exercises and Stock Vested-Fiscal Year 2023 +During fiscal year 2023, none of the named executive officers exercised any stock appreciation rights awards. +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on July 1, 2023. The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +14 +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) Total ($) +Craig D. Gates 905,367 — — 905,367 +Brett R. Larsen 475,952 — — 475,952 +Philip S. Hochberg 384,522 — — 384,522 +1. This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of July 1, 2023) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates 1,810,734 — — 14,250 400,000 2,224,984 +Brett R. Larsen 951,904 — — 6,413 190,000 1,148,317 +Philip S. Hochberg 769,044 — — 5,700 150,000 924,744 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $5.67 (the closing price of the Company’s common stock on the last trading day of fiscal 2023) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on July 1, 2023. +15 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2023 to members of the Board of Directors who are not also employees of the Company (referred to herein as “non-employee directors”). +Name Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) (2) +All Other +Compensation ($) Total ($) +James R. Bean 79,500 7,838 — — 87,338 +Ronald F. Klawitter 79,500 7,838 — — 87,338 +Subodh K. Kulkarni 79,500 7,838 — — 87,338 +Yacov A. Shamash 79,500 7,838 — — 87,338 +Patrick Sweeney 95,400 7,838 — — 103,238 +(1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights granted to the Company’s non-employee directors during fiscal year 2023 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 - “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2023 Annual Report . +(2) Amounts reflect any payout of long term performance unit awards for the three year performance period that ended in fiscal year 2023, pursuant to the long term cash incentive program. +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of July 1, 2023. +Director +Number of Shares Subject to Outstanding Options/SAR Awards as of July 1, 2023 +Number of Unvested Restricted +Shares/Units as of July 1, 2023 +James. R. Bean 18,750 — +Ronald F. Klawitter 18,750 — +Patrick Sweeney 18,750 — +Subodh K. Kulkarni 15,000 — +Yacov A. Shamash 18,750 — +Pay Versus Performance +As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between “compensation actually paid” to our CEO as principal executive officer (or “PEO) and to our other NEOs and certain metrics of financial performance of the Company. The following table shows the total compensation for our NEOs for the past two fiscal years as set forth in the Summary Compensation Table, the “Compensation Actually Paid” (or “CAP”) to our CEO as PEO, and, on an average basis, our other NEOs, and our total shareholder return. CAP figures do not reflect the actual amount of compensation earned by or paid to our NEOs during the applicable year as significant portions of this compensation depends on the achievement of performance criteria in subsequent fiscal periods. +16 +Year (1) +Summary compensation table total for PEO (2) +Compensation actually paid to PEO (3) +Average summary compensation table total for non-PEO named executive officers (2) +Average compensation actually paid to non-PEO named executive officers (3) +Value of initial fixed $100 investment based on: +Total shareholder return (4) +Net income +2023 +$1,513,037 $1,542,537 $629,109 $641,647 $86.56 $5,156,736 +2022 +$1,391,110 $1,346,860 $566,866 $548,060 $67.33 $3,377,205 +1. Mr. Gates served as the Company’s Chief Executive Officer for the entirety of 2022 and 2023. Our non-PEO NEOs for 2022 and 2023 included Messrs. Larsen and Hochberg. +2. Amounts reported in this column represent the total compensation reported in the Summary Compensation Table for the applicable year. +3. To calculate “Compensation Actually Paid” under SEC disclosure rules, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. Reconciliations of the adjustments for Messrs. Gates, Larsen and Hochberg are set forth in the tables below. +PEO +NEOs - Average +2023 +2022 +2023 +2022 +Less grant date fair value of current year SARs +$(52,250) $(68,250) $(22,206) $(29,006) +Year-end fair value of current year SARs +$63,250 $52,250 $26,881 $22,206 +Year-over-year change in fair value of unvested SARs +$22,000 $(32,000) $9,350 $(13,600) +Change in fair value at vesting (from prior fiscal year end) of SARs granted in prior years for which vesting conditions were satisfied during current year $(3,500) $3,750 $(1,488) $1,594 +Less fair value as of prior fiscal year end of SARs granted in prior years that failed to meet vesting conditions during current year $— $— $— $— +Dividends paid +$— $— $— $— +Total Adjustments $29,500 $(44,250) $12,537 $(18,806) ++ +4. Pursuant to rules of the SEC, the comparison assumes $100 was invested on July 1, 2021. Historic stock price performance is not necessarily indicative of future stock price performance. +Relationship Between Pay and Performance +We believe the “Compensation Actually Paid” in each of the years reported above and over the multi-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to the result of our stock performance. +Relationship between “Compensation Actually Paid” to the PEO and Average Other NEOs and the Company’s Cumulative TSR and Net Income. “Compensation Actually Paid” to the PEO and Average Other NEOs aligned with the trend in the Company’s Cumulative TSR and Net Income. This is generally because “Compensation Actually Paid” is influenced by year-over-year changes in stock prices due to the fact that a portion of the PEO’s and each +17 +NEO’s compensation is equity-based and because base salary is influenced by year-over-year changes in revenues, which in turn effects net income. +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, as amended and restated October 23, 2014, the Company’s non-employee directors receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting Fees . In addition, non-employee directors received annual retainers for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman $ 81,000 +Chairman of the Board 97,200 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +18 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Exchange Act, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. +As described in greater detail in the “Executive Compensation” section of this Proxy Statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. To the extent there is a significant vote against our named executive officers compensation as disclosed in this Proxy Statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2023 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +19 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable Nasdaq Rules and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules and that James R. Bean, Ronald F. Klawitter, Subodh K. Kulkarni, Yacov A. Shamash and Patrick Sweeney each have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and reviewed and discussed the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended July 1, 2023 with the Company’s management and Moss Adams, LLP (“Moss Adams”), the Company’s independent registered public accounting firm. +The Audit Committee has reviewed and discussed with Moss Adams the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the +Securities and Exchange Commission (“SEC”) . Moss Adams has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from Moss Adams as required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence . The Audit Committee discussed with Moss Adams that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by Moss Adams are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended July 1, 2023, for filing with the SEC. The foregoing report has been approved by all members of the Audit Committee. +James R. Bean (Chairman) +Ronald F. Klawitter +Subodh K. Kulkarni +Yacov A. Shamash +Patrick Sweeney +20 +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by Moss Adams for professional services in the named categories for the fiscal years ended July 1, 2023 and July 2, 2022: +FY 2023 FY 2022 +Audit Fees (1) +$ 510,258 $ 548,876 +Audit Related Fees (2) +28,875 26,250 +Tax Fees (3) +143,766 187,899 +All Other Fees — — +Total $ 682,899 $ 763,025 +1. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +2. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +3. Tax fees for fiscal years 2022 and 2023 consisted of professional services provided for domestic income tax planning and compliance and the review of foreign tax returns and consultation on foreign tax matters. Tax fees for fiscal years 2022 and 2023 also included fees for performing a study relating to research and development tax credits. +Dismissal of Independent Registered Public Accounting Firm +On November 23, 2021, the Company, upon the recommendation of the Audit Committee, dismissed BDO as the Company’s independent registered public accounting firm. BDO served as the Company’s independent registered public accounting firm since 2003. +During the fiscal years ended July 3, 2021 and June 27, 2020 and the subsequent interim period through November 23, 2021, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. +Additionally, during the fiscal years ended July 3, 2021 and June 27, 2020 and the subsequent interim period through November 23, 2021, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K except for the following event that has been remediated as described in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2022: BDO advised the Company of a material weakness in internal controls over financial reporting related to the design and operating effectiveness of certain controls over the accounting for inventory as well as the Company’s monitoring activities as it pertains to accounting for inventory at its domestic facilities. The Audit Committee discussed the subject matter of this event with BDO, and the Company has authorized BDO to respond fully to inquiries from any successor auditing firm with regard to the event and the remediation of the event . +The audit reports of BDO on the consolidated financial statements of the Company as of and for the fiscal years ended July 3, 2021 and June 27, 2020 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. +BDO has provided the Company with a copy of its letter addressed to the SEC stating that BDO agrees with the disclosures made by the Company in response to Item 304(a) of Regulation S-K. A copy of BDO’s letter is filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2021. +21 +Engagement of New Independent Registered Public Accounting Firm +On November 30, 2021, the Company engaged Moss Adams as the Company’s independent registered public accounting firm for the Company’s fiscal year ending July 2, 2022. The appointment was approved by the Audit Committee. +During the Company’s two most recent fiscal years ended July 3, 2021 and June 27, 2020, and during the subsequent interim period through November 30, 2021, neither the Company nor anyone on its behalf consulted with Moss Adams regarding any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). +22 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained Moss Adams, LLP (“Moss Adams”) as the Company’s independent registered public accounting firm for the fiscal year ending June 29, 2024. Representatives of Moss Adams are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of Moss Adams as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2024 must submit their proposals in writing to John Theiss, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) of the Exchange Act, proposals submitted for inclusion in our proxy statement for the 2024 Annual Meeting must be received by the Secretary at the address above no later than May 24, 2024. In addition, any shareholder who intends to present a proposal at the 2024 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by August 7, 2024 o r such proposal will be considered untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. In addition, to comply with the universal proxy rules (once effective), shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than August 27, 2024. +OTHER MATTERS +Annual Report on Form 10-K +The 2023 Annual Report on Form 10-K (including exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +23 +Delinquent Section 16(a) Reports. Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership with the SEC and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5 were required, the Company believes that with respect to the fiscal year ended July 1, 2023 all the Reporting Persons complied with all applicable filing requirements. +Solicitation Expenses . The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies and provide related advice and informational support. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $11,000, plus reimbursement of out of pocket expenses. +Other Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +September 29, 2023 John Theiss +Secretary +24 +25 +26 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-23-000034/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-23-000034/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ccb0158bf4be6c99e50cfb88df715c568465e5ce --- /dev/null +++ b/raw/proxies/0000719733/0000719733-23-000034/proxy_rpt.txt @@ -0,0 +1,7 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2023, the Company had no Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +During fiscal year 2022, the Company purchased surface mount technology inspection equipment and raw materials from CyberOptics. The purchases by the Company during fiscal year 2022 totaled $382,000. These transactions were conducted at arm’s length in the ordinary course of business of the Company and CyberOptics, and the terms of purchase were no more favorable to the Company than purchases by unaffiliated parties from CyberOptics. +8 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-24-000119/proxy.txt b/raw/proxies/0000719733/0000719733-24-000119/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c2c9935c20effa0ad7336bfcd5a65ad8887b5198 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-24-000119/proxy.txt @@ -0,0 +1,955 @@ +ktcc-20241028 +0000719733 DEF 14A FALSE 0000719733 2023-07-02 2024-06-29 0000719733 2024-10-09 2023-07-02 2024-06-29 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material under §240.14a‑12 +Key Tronic Corporation +(Name of Registrant as Specified In Its Charter) +N/A +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +October 28, 2024 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Monday, November 25, 2024, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Brett R. Larsen, President and Chief Executive Officer +2 +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held November 25, 2024 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company”) will be held on Monday, November 25, 2024, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the “Annual Meeting”), for the following purposes: +1. To elect seven directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; +3. To ratify the appointment of Moss Adams LLP as independent registered public accounting firm for fiscal year 2025; +4. To approve and ratify the Key Tronic Corporation 2024 Incentive Plan; and +5. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company’s Common Stock at the close of business o n October 23, 2024 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. E ven if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +John Theiss +Secretary +Spokane Valley, Washington +October 28, 2024 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON November 25, 2024. The Proxy Statement and 2024 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement (the “Proxy Statement”) and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board of Directors” or the “Board”) from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Monday, November 25, 2024 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting”). The proxies appoint Brett R. Larsen and Anthony G. Voorhees, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This Proxy Statement and the enclosed proxy card are first being mailed to shareholders on or about November 1, 2024. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on October 23, 2024 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,761,871 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxy cards returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of each of the nominees for director named below (“Proposal 1”), FOR the approval of compensation of the Company’s named executive officers (“Proposal 2”), FOR the ratification of the appointment of Moss Adams, LLP as the Company ’ s independent registered public accounting firm for fiscal year 2025 (“Proposal 3”), and FOR the approval and ratification of the Key Tronic Corporation 2024 Incentive Plan (“Proposal 4”). Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy card bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each proposal presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company’s Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the seven nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) Proposal 2, Proposal 3, and Proposal 4 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, an abstention from voting or a broker non-vote (as described below) will have the practical effect of voting against the nominee. An abstention from voting or a broker non-vote will have no effect on Proposal 2, Proposal 3, or Proposal 4 since neither represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. If you hold shares in street name and you do not return the voting instruction form, your broker, trustee or nominee (collectively referred to as “brokers”) may vote your shares in certain circumstances and on certain routine proposals. Brokers cannot vote “uninstructed” shares in non-routine matters, such as director elections and executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of directors (Proposal 1), the advisory vote to approve the compensation of the Company’s named executive officers (Proposal 2), or the vote to approve and ratify the Key Tronic Corporation 2024 Incentive Plan (Proposal 4), your shares will not be voted. Brokers have discretion to vote uninstructed shares on the ratification of the appointment of the independent registered public accounting firm (Proposal 3).When a broker cannot vote shares, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting and will have the effect described in the preceding paragraph. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Seven directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The seven n ominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the Amended and Restated By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. +Board Diversity +The Board believes the current nominees embody a diverse range of viewpoints, backgrounds and skills, including with respect to tenure and race/ethnicity. In accordance with Nasdaq’s Board Diversity Rules, the following Board Diversity Matrix provides certain information regarding the composition of our Board as of June 29, 2024, Each of the categories listed in the table has the meaning as it is used in Nasdaq Rule 5605(f). +Board Diversity Matrix +Total Number of Directors 6 +Female Male Non-Binary Did Not Disclose Gender +Part I: Gender Identity +Directors 1 4 0 1 +Part II: Demographic Background +African American or Black 0 0 0 0 +Alaskan Native or Native American 0 0 0 0 +Asian 0 1 0 0 +Hispanic or Latinx 0 0 0 0 +Native Hawaiian or Pacific Islander 0 0 0 0 +White 1 2 0 0 +Two or More Races or Ethnicities 0 0 0 0 +LGBTQ+ 0 +Did Not Disclose Demographic Background 2 +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +Cheryl Beranek , age 61, has been a director of the Company since January 2004. Ms. Beranek is the President, Chief Executive Officer and a director of Clearfield, Inc., a publicly held company that designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks. Ms. Beranek was a member of the board of directors of publicly-traded CyberOptics Corporation, a developer and manufacturer of high precision sensors and inspection systems for the semiconductor and electronics industry, from May 2020 until its acquisition in November 2022. Ms. Beranek holds a Bachelor of Science degree from Southwest Minnesota State University and a Master of Science degree from North Dakota State University. The Board of Directors has concluded that based upon Ms. Beranek’s senior management experience, service on companies’ boards and education that she should serve as a director of the Company. +3 +James R. Bean , age 74, has been a director of the Company since October 2006. Mr. Bean served as President and CEO of Preco Electronics, LLC from November 1999 to March 2020. From May 1997 to 1999 he held various management positions in Boise with Preco Electronics, LLC, which was sold to Sensata Technologies in March 2020. Mr. Bean remained with Sensata until his retirement in November 2022. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean's business and financial expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Craig D. Gates , age 65, has been a director of the Company since July 2009 and formerly served as President and CEO of the Company from April 2009 through June 2024. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 72, has been a director of the Company since October 2009 and Chair of the Board since January 2024. Mr. Klawitter formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015 and Vice President of Finance, Secretary and Treasurer since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 60, has been a director of the Company since October 2018. Dr. Kulkarni has served as President and Chief Executive Officer at Rigetti Computing, Inc. since December 2022. Dr. Kulkarni is a seasoned public company CEO with thirty-plus years of experience in the semiconductor industry and a track record of success in scaling and commercializing cutting-edge technologies. Prior to joining Rigetti, Dr. Kulkarni was President, CEO, and member of the Board of CyberOptics Corporation, a developer and manufacturer of high precision sensors and inspection systems for the semiconductor and electronics industry. He held these roles from 2014 until CyberOptics was acquired by Nordson Corporation in November 2022. Prior to CyberOptics, Dr. Kulkarni was CEO of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in the semiconductor industry. Earlier in his career, he held additional leadership positions, including Chief Technology Officer and Senior Vice President of OEM/Emerging business, global commercial business, R&D and manufacturing at Imation, a global scalable storage and data security company. Dr. Kulkarni began his career in research and management positions with 3M Corporation and IBM. He received his B.S. in chemical engineering from the Indian Institute of Technology, Mumbai, and later obtained a M.S. and Ph.D. in chemical engineering from MIT. Dr. Kulkarni currently serves as Chairman of the Board for Prism Computational Sciences. The Board of Directors has concluded that based upon Dr. Kulkarni’s current and prior senior management and financial experience, service on companies’ boards and education that he should serve as a director of the Company. +Brett R. Larsen , age 51, has served as served as President and CEO of the Company since June 30, 2024. Previously he was Executive Vice President of Administration, Chief Financial Officer, and Treasurer since July 2015 and Vice President of Finance and Controller from February 2010 to July 2015. He was Chief Financial Officer of FLSmidth Spokane, Inc. from December 2008 to February 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr. Larsen served as Manager of Financial Reporting of Key Tronic Corporation. From 2002 to May 2004, Mr. Larsen was an audit manager for the public accounting firm BDO USA, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr. Larsen has a Bachelor of Science degree in Accounting and a Masters degree in Accounting from Brigham Young University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Larsen’s business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +4 +Yacov A. Shamash , age 74, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +5 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company’s Board of Directors met five times du ring fiscal 2024. During fiscal 2024, each director attended 100% of t he Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he or she served on the Board or committee. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2023 Annual Meeting attended the 2023 Annual Meeting. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Listing Rules (the “Nasdaq Rules”), except for Mr. Gates, the Company’s former President and Chief Executive Officer, and Mr. Larsen, the Company’s current President and Chief Executive Officer, who is a nominee for director. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the Nasdaq Rules; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules. +The Board of Directors has determined that all members of the Audit Committee have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +The Board of Directors also monitors the independence of Compensation and Administration Committee members under rules of the SEC and Nasdaq Rules that are applicable to compensation committee members. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chair of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chair of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairs of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Succession Planning +The Board of Directors is charged with monitoring and overseeing the process of planning for senior management succession. The Board of Directors identifies the qualities and characteristics it believes are necessary for effective senior management and periodically reviews the development and progression of internal candidates against these standards. +6 +Executive Sessions +At three of the five meetings of the Board of Directors held during fiscal year 2024, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy/Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales and buying or selling put or call options. The Company does not have any practices or policies regarding hedging. +Clawback Policy +The Company has adopted an Incentive Compensation Recovery Policy (the “Clawback Policy”) that complies with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the NASDAQ listing standards. The Clawback Policy applies to the Company’s current and former executive officers, as defined in Rule 10D-1 under the Exchange Act. Under the Clawback Policy, the Company must recover erroneously awarded incentive-based compensation on a pre-tax basis, subject to limited exceptions, in the event the Company is required to prepare an accounting restatement, regardless of whether an executive officer engaged in any misconduct or is otherwise at fault. The Clawback Policy applies to incentive-based compensation received by an executive officer during the three completed fiscal years immediately preceding the date it is determined that the Company is required to prepare an accounting restatement. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company at the address above, together with biographical information and references, not less than ten days nor more than fifty days prior to the annual meeting. Assuming that appropriate biographical information and references are provided for candidates recommended by shareholders, the Governance and Nominating Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Governance and Nominating Committee recommends, and the Board approves, such person. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chair), Klawitter, Kulkarni and Shamash and Ms. Beranek, met nine times during fiscal 2024. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s +7 +independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chair), Bean and Kulkarni and Ms. Beranek met six times during fiscal 2024. The Compensation Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and recommends to the Board of Directors to approve the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Compensation Committee considers the Chief Executive Officer’s recommendations on compensation for executive officers and other key employees (other than his own compensation). The Compensation Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Compensation Committee also has the authority to engage and oversee an external independent compensation consultant to assist it by providing information, analysis and other advice relating to the Company’s compensation program. During fiscal year 2024, the Company engaged both Total Compensation Solutions, LLC (“TCS”), and Milliman, Inc. (“Milliman”), each a national compensation consulting firm, to serve as its compensation consultant to advise on executive and director compensation matters, including competitive market pay practices for the Company’s executive officers and directors, and with data analysis and selection of the compensation peer group. During fiscal year 2024, neither of TCS or Milliman provided any other consulting or other services to us. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chair), Klawitter, Kulkarni and Shamash and Ms. Beranek met two times during fiscal 2024. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. +Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +8 +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy for the approval or ratification of Interested Transactions with Related Parties, which was amended in October 2023. The policy supplements the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of the Company, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) an immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parent, stepparent, child, stepchild, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any person (other than a tenant or employee) sharing the household of such person. +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2024, the Company had no Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +9 +BENEFICIAL OWNERSHIP OF SECURITIES +The following table provides certain information that has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name and Address of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley 1,876,640 +(2) +17.4 % +Dimensional Fund Advisors LP 778,885 +(3) +7.2 % +Tieton Capital Management 621,151 +(4) +5.8 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 6,786 ** +Ronald F. Klawitter 194,661 +(5) +1.8 % +Subodh K. Kulkarni 1,000 ** +Yacov A. Shamash 42,326 +(6) +** +Cheryl Beranek 2,000 ** +Craig D. Gates 221,702 +(7) +2.1 % +Brett R. Larsen 35,955 +(8) +** +Mark R. Courtney 2,328 +(9) +** +Philip S. Hochberg 69,021 +(10) +** +Chad T. Orebaugh 7,398 +(11) +** +Duane D. Mackleit 55,474 +(12) +** +David H. Knaggs 5,719 +(13) +** +Anthony G. Voorhees 7,648 +(14) +** +All officers and directors as a group +(13 persons) +652,018 6.1 % +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,761,871 s hares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based solely on a Schedule 13G/A filed with the SEC on February 8, 2024 by Morgan Stanley and Morgan Stanley Smith Barney LLC (collectively, “Morgan Stanley”). The address for Morgan Stanley is 1585 Broadway, New York, NY 10036. +3. Based solely on a Schedule 13G/A filed with the SEC on February 9, 2024. The address for Dimensional Fund Advisors LP is 6300 Bee Cave Road, Building One, Austin, TX 78746. +4. Based solely on a Schedule 13G/A filed with the SEC on February 1, 2024. The address for Tieton Capital Management is 4700 Tieton Drive, Suite C, Yakima, WA 98908. +5. Includes Common Stock allocated to Mr. Klawitter as a participant in the Company’s 401(k) Retirement Savings Plan (16,384 shares), 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +6. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +10 +7. Includes Common Stock allocated to Mr. Gates as a participant in the Company’s 401(k) Retirement Savings Plan (7,373 shares). +8. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (22,278 shares). +9. Includes Common Stock allocated to Mr. Courtney as a participant in the Company’s 401(k) Retirement Savings Plan (2,328 shares). +10. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,573 shares). +11. Includes Common Stock allocated to Mr. Orebaugh as a participant in the Company’s 401(k) Retirement Savings Plan (7,398 shares). +12. Includes Common Stock allocated to Mr. Mackleit as a participant in the Company’s 401(k) Retirement Savings Plan (46,360 shares). +13. Includes Common Stock allocated to Mr. Knaggs as a participant in the Company’s 401(k) Retirement Savings Plan (5,719 shares). +14. Includes Common Stock allocated to Mr. Voorhees as a participant in the Company’s 401(k) Retirement Savings Plan (5,990 shares) and 431 shares owned in an IRA account. +11 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2022-2024 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next most highly compensated executive officer for fiscal years 2022 through 2024, to the extent such persons served in such capacities during such period. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary ($) Bonus ($) +Option/ SAR +Awards ($) (1) +Non-Equity Incentive Plan +Compensation ($) (2) +All Other +Compensation ($) (3) +Total ($) +Craig D. Gates, 2024 879,070 — — — 13,200 892,270 +President & Chief 2023 905,367 — 52,250 543,220 12,200 1,513,037 +Executive Officer 2022 799,549 — 68,250 511,711 11,600 1,391,110 +Brett R. Larsen, 2024 593,917 — — — 18,969 612,886 +Executive Vice President, 2023 475,952 — 23,513 199,900 12,200 711,565 +Chief Financial Officer 2022 430,485 — 30,713 165,306 11,600 638,104 +Philip S. Hochberg, 2024 389,870 — — — 16,088 405,958 +Executive Vice President of 2023 384,522 — 20,900 126,892 14,339 546,653 +Customer Relations and Integration 2022 346,006 — 27,300 110,722 11,600 495,628 +1) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 – “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2024 Annual Report. +2) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) Includes for fiscal year 2024 payment for retro pay in the amount of $2,888 for Mr. Hochberg and $5,769 for Mr. Larsen. Includes for fiscal year 2023 payment for retro pay in the amount of $2,139 for Mr. Hochberg. +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of stock appreciation rights and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2024 provides information regarding the long-term incentives awarded to the named executive officers in fiscal year 2024. The Outstanding Equity Awards at 2024 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +12 +In fiscal year 2024, the Compensation Committee evaluated the long-term incentive structure of the Company’s executive and director compensation program and determined to cease grants of stock appreciation rights. Beginning in fiscal year 2025, the Compensation Committee replaced the stock appreciation rights with restricted stock units (RSUs) as the long-term equity incentive element of executive compensation. The RSUs will vest in equal annual installments over a three year period with a portion of the RSUs subject to time-based vesting and a portion of the RSUs subject to performance-based vesting only to the extent the Company’s annual EBITDA in such year meets or exceeds a threshold amount. For the President and CEO, 60% of the RSUs will be subject to performance-based vesting and for all other executive officers, 50% of the RSUs will be subject to performance-based vesting. +Analysis of Recovery under Clawback Policy +Based on a conclusion made by the Audit Committee on October 9, 2024 , the Company’s 2024 Annual Report included restated consolidated financial statements as of and for the years ended July 1, 2023 and July 2, 2022, restated unaudited consolidated statements of operations for the quarters ended March 30, 2024, December 30, 2023, September 30, 2023, April 1, 2023, December 31, 2022, October 1, 2022, April 2, 2022, January 1, 2022, and October 2, 2021 and revised unaudited consolidated balance sheets as of March 30, 2024, December 30, 2023 and September 30, 2023 (collectively, the “Restatement”). +As a result of the Restatement, the Compensation and Administration Committee evaluated whether there was any erroneously awarded compensation subject to recovery under the Company’s Clawback Policy. Because the covered executives did not receive any incentive-based compensation on or after October 2, 2023, the Compensation and Administration Committee concluded that no recovery of erroneously awarded compensation was required pursuant to our Clawback Policy. +Description of Employment Agreements +The Company entered into employment contracts with Messrs. Gates, Larsen and Hochberg at the time each employee was first appointed an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and non-competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +On June 20, 2024, the Company entered into an agreement with Mr. Gates (the “Consulting Agreement”), pursuant to which he will provide certain consulting services to the Company following his retirement on June 29, 2024. The Consulting Agreement provides for a term beginning on June 30, 2024 and ending on June 30, 2026 and payments of $10,000 per month. Mr. Gates’ long-term incentive plan awards under the Company’s amended and restated long-term incentive plan shall continue to vest and remain outstanding, providing for a pro rata portion of the value, if any, when vested in accordance with the terms of the plan. In addition, Mr. Gates’ existing Stock Appreciation Rights awards under the Company’s amended and restated 2010 incentive plan shall continue to vest and remain outstanding in accordance with the terms of the plan. +13 +Grants of Plan-Based Awards-Fiscal Year 2024 +The following table sets forth information concerning individual grants of non-equity incentive plan awards made during fiscal year 2024 to each of the named executive officers. As noted above, the Compensation Committee did not grant any equity incentive plan awards in fiscal year 2024. +Estimated Future Payouts Under Non-Equity Incentive Plan Awards +Name Grant Date Threshold ($) Target ($) Maximum ($) +Craig D. Gates +08/10/23 (1) +08/10/23 (2) +87,907 +200,000 +879,070 +400,000 +1,318,605 +600,000 +Brett R. Larsen +08/10/23 (1) +08/10/23 (2) +32,286 +125,000 +322,858 +250,000 +484,286 +375,000 +Philip S. Hochberg +08/10/23 (1) +08/10/23 (2) +20,649 +75,000 +206,487 +150,000 +309,730 +225,000 +(1) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2024. For actual payouts, if any, earned for fiscal year 2024 see the Summary Compensation Table. +(2) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2024-2026 performance cycle. Payouts under the Long-Term Incentive Plan for the 2024-2026 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +Outstanding Equity Awards at Fiscal 2024 Year-End +The following table presents information regarding the outstanding stock appreciation rights (SARs) awards held by each of the Company’s named executive officers as of June 29, 2024. No named executive officer has any other form of equity award outstanding, except for the RSUs granted on September 3, 2024 and disclosed in our Current Report on Form 8-K, filed with the SEC on September 9, 2024. +Option/SAR Awards +Name Grant Date +Number of Securities Underlying Unexercised Options (SARs) (#) Exercisable (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options (SARs) (#) (1) +Option (SAR) +Exercise/Base Price ($) +Option (SAR) +Expiration Date +Craig D. Gates +07/29/22 +08/09/21 +07/26/19 +(2) +25,000 +25,000 +25,000 +5.10 +7.17 +4.93 +07/29/27 +08/09/26 +07/26/24 +Brett R. Larsen +07/29/22 +08/09/21 +07/26/19 +(2) +11,250 +11,250 +11,250 +5.10 +7.17 +4.93 +07/29/27 +08/09/26 +07/26/24 +Philip S. Hochberg +07/29/22 +08/09/21 +07/26/19 +(2) +10,000 +10,000 +10,000 +5.10 +7.17 +4.93 +07/29/27 +08/09/26 +07/26/24 +14 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +(2) The awards granted on August 9, 2021 did not vest and were no longer outstanding as of August 9, 2024. +Option/SAR Exercises and Stock Vested-Fiscal Year 2024 +During fiscal year 2024, none of the named executive officers exercised any stock appreciation rights awards. +Pension Benefits +None of the named executive officers are covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers are covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 29, 2024. As previously disclosed, Mr. Gates retired as the Company’s President and Chief Executive Officer, on June 29, 2024. +The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Craig D. Gates +879,070 +— +— +879,070 +Brett R. Larsen +593,917 +— +— +593,917 +Philip S. Hochberg +389,870 +— +— +389,870 +1. This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 29, 2024) would be paid by the executive and the Company will not reimburse the executive for these premiums. +15 +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Craig D. Gates 1,758,140 — — — 400,000 2,158,140 +Brett R. Larsen 1,187,834 — — — 250,000 1,437,834 +Philip S. Hochberg 779,740 — — — 150,000 929,740 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $4.05 (the closing price of the Company’s common stock on the last trading day of fiscal 2024) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on June 29, 2024. +16 +Pay Versus Performance +As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between “compensation actually paid” to our CEO as principal executive officer (or “PEO”) and to our other NEOs and certain metrics of financial performance of the Company. The following table shows the total compensation for our NEOs for the past two fiscal years as set forth in the Summary Compensation Table, the “Compensation Actually Paid” (or “CAP”) to our CEO as PEO, and, on an average basis, our other NEOs, and our total shareholder return. CAP figures do not reflect the actual amount of compensation earned by or paid to our NEOs during the applicable year as significant portions of this compensation depends on the achievement of performance criteria in subsequent fiscal periods. +Year (1) +Summary compensation table total for PEO (2) +Compensation actually paid to PEO (3) +Average summary compensation table total for non-PEO named executive officers (2) +Average compensation actually paid to non-PEO named executive officers (3) +Value of initial fixed $100 investment based on: +Total shareholder return (4) +Net income (loss) +2024 (1) +$892,270 $778,520 $509,422 $461,078 $61.83 $(2,787,296) +2023 (1) +$1,513,037 $1,542,537 $629,109 $641,647 $86.56 $5,156,736 +2022 (1) +$1,391,110 $1,346,860 $566,866 $548,060 $67.33 $3,377,205 +1. Mr. Gates served as the Company’s Chief Executive Officer for the entirety of 2022, 2023 and 2024. Our non-PEO NEOs for 2022, 2023 and 2024 included Messrs. Larsen and Hochberg. +2. Amounts reported in this column represent the total compensation reported in the Summary Compensation Table for the applicable year. +3. To calculate “Compensation Actually Paid” under SEC disclosure rules, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. Reconciliations of the adjustments for Messrs. Gates, Larsen and Hochberg are set forth in the tables below. +PEO NEOs - Average +2024 2024 +Less grant date fair value of current year SARs — — +Year-end fair value of current year SARs — — +Year-over-year change in fair value of unvested SARs $(50,500) $(21,463) +Change in fair value at vesting (from prior fiscal year end) of SARs granted in prior years for which vesting conditions were satisfied during current year — — +Less fair value as of prior fiscal year end of SARs granted in prior years that failed to meet vesting conditions during current year $(63,250) $(26,881) +Dividends paid — — +Total Adjustments $(113,750) $(48,344) +4. Pursuant to rules of the SEC, the comparison assumes $100 was invested on July 1, 2021. Historic stock price performance is not necessarily indicative of future stock price performance. +17 +Relationship Between Pay and Performance +We believe the “Compensation Actually Paid” in each of the years reported above and over the multi-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to the result of our stock performance. +Relationship between “Compensation Actually Paid” to the PEO and Average Other NEOs and the Company’s Cumulative TSR and Net Income. “Compensation Actually Paid” to the PEO and Average Other NEOs aligned with the trend in the Company’s Cumulative TSR and Net Income. This is generally because “Compensation Actually Paid” is influenced by year-over-year changes in stock prices due to the fact that a portion of the PEO’s and each NEO’s compensation is equity-based and because base salary is influenced by year-over-year changes in revenues, which in turn effects net income. +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid during fiscal year 2024 to members of the Board of Directors who were not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Option/SAR +Awards ($) +Non-Equity Incentive +Plan Compensation ($) +All Other +Compensation ($) +Total ($) +James R. Bean 81,000 — — — 81,000 +Ronald F. Klawitter 84,330 — — — 84,330 +Subodh K. Kulkarni 81,000 — — — 81,000 +Yacov A. Shamash 81,000 — — — 81,000 +Cheryl Beranek 20,250 — — — 20,250 +Patrick Sweeney 72,900 — — — 72,900 +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the Company’s non-employee directors as of June 29, 2024. As noted above, the Compensation Committee did not grant any equity incentive plan awards in fiscal year 2024. +Director Number of Shares Subject to Outstanding Options/SAR Awards as of June 29, 2024 +James. R. Bean 15,000 +Ronald F. Klawitter 15,000 +Cheryl Beranek — +Subodh K. Kulkarni 15,000 +Yacov A. Shamash 15,000 +18 +Non-Employee Director Compensation +Retainers and Meeting Fees . Non-employee directors received annual retainers for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chair $81,000 +Chair of the Board $97,200 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +Equity Grants. Under the Company’s 2024 Incentive Plan, subject to approval by the shareholders at the Annual Meeting, the Company’s non-employee directors may receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +19 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Exchange Act, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. +As described in greater detail in the “Executive Compensation” section of this Proxy Statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. To the extent there is a significant vote against our named executive officers compensation as disclosed in this Proxy Statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +20 +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable Nasdaq Rules and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules and that all Audit Committee members have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and reviewed and discussed the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 29, 2024 with the Company’s management and Moss Adams, LLP (“Moss Adams”), the Company’s independent registered public accounting firm. +The Audit Committee has reviewed and discussed with Moss Adams the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission (“SEC”) . Moss Adams has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from Moss Adams as required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence . The Audit Committee discussed with Moss Adams that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by Moss Adams are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 29, 2024, for filing with the SEC. The foregoing report has been approved by all members of the Audit Committee. +James R. Bean (Chair) +Cheryl Beranek +Ronald F. Klawitter +Subodh K. Kulkarni +Yacov A. Shamash +21 +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by Moss Adams for professional services in the named categories for the fiscal years ended June 29, 2024 and July 1, 2023: +FY 2024 FY 2023 +Audit Fees (1) +$ 763,751 $ 510,258 +Audit Related Fees (2) +29,400 28,875 +Tax Fees — — +All Other Fees — — +Total $ 793,151 $ 539,133 +1. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +2. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +22 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained Moss Adams, LLP (“Moss Adams”) as the Company’s independent registered public accounting firm for the fiscal year ending June 28, 2025. Representatives of Moss Adams are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of Moss Adams as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +23 +PROPOSAL 4 +APPROVAL AND RATIFICATION OF THE 2024 INCENTIVE PLAN +Overview +Our Board of Directors, our Compensation Committee and our management all believe that the effective use of stock-based long-term incentive compensation is vital to our continued ability to recruit, hire and retain the individuals required to successfully execute our business plans and achieve strong performance in the future by providing a direct link between compensation and long-term shareholder value creation. The Key Tronic Corporation 2010 Incentive Plan, originally adopted on April 22, 2010 and approved by the Company’s shareholders on October 21, 2010, and subsequently amended and restated on April 24, 2014 and approved by the Company’s shareholders on October 23, 2014 (the “Prior Plan”) expired on October 23, 2024. The Board, upon the recommendation of the Compensation Committee, approved the Key Tronic Corporation 2024 Incentive Plan (the “2024 Plan”) on October 24, 2024, subject to the approval of our shareholders. +If approved by shareholders at the meeting, the 2024 Plan will become effective on the date of such approval (the “Effective Date”) and no additional grants will be made under the Prior Plan. If not approved by shareholders, the Prior Plan will otherwise remain in effect in accordance with its terms, including that the Prior Plan terminated with respect to any new awards effective as of October 23, 2024. In such event, the Company will no longer be able to grant equity awards to its key employees, officers, directors, and consultants, which our Board of Directors believes would negatively impact the retention of such individuals and negatively affect the ability of the Company to adequately recruit, incentivize, and retain talent. +Accordingly, the Board of Directors recommends that our shareholders approve the 2024 Plan, the material terms of which are as described below. +Key Features of the 2024 Plan +The 2024 Plan is intended to be the successor to the Prior Plan. The 2024 Plan contains substantially the same terms as the Prior Plan, but the following key changes have been made to the 2024 Plan that enhance our commitment to our shareholders’ long-term interests and sound corporate governance: +• No Dividend or Dividend Equivalent Rights on Unearned or Unvested Awards . Under the 2024 Plan, we have added that no dividends or dividend equivalents may be paid in respect of unvested or unearned awards, unless and until such awards become vested or earned. No dividends or dividend equivalents are payable in respect of stock options or stock appreciation rights. +• Removed Share “Recycling” on Net Exercise or Net Settlement . The 2024 Plan no longer includes a provision that allows for the re-issuance of shares used to pay stock option exercise prices or stock appreciation right base prices, or shares that are withheld to pay a participant’s tax withholding obligation. +• Minimum Vesting Period . Generally, no portion of an award under the 2024 Plan may vest over a period of not less than one year from the vesting commencement date set forth in the applicable award agreement unless (1) the shares with respect to the award granted do not exceed five percent (5%) of the aggregate number of shares reserved under the 2024 Plan, (2) the award is granted in lieu of an equivalent amount of salary, bonus or other cash compensation that has already been earned, (3) the award is granted to a non-employee director and vests on the earlier of the one-year anniversary of the grant date and the next annual stockholders’ meeting (so long as such meeting is within 50 weeks after the prior year’s meeting), (4) the participant experiences a “qualifying termination” (as defined below) upon or following the consummation of a “change in control” (as defined below), or (5) the participant’s continuous service is terminated due to death or disability. +24 +• Treatment on a Change in Control . If an unvested award is not assumed, continued or substituted by an acquirer in connection with a change in control, time-based awards will become fully vested and performance-based awards will vest at target levels of performance, measured as of the end of a shortened performance period ending on the date of the change in control. If an unvested award is assumed, continued or substituted in connection with a change in control, such awards will vest on an accelerated basis only if, in connection with or within two years following such change in control, a participant experiences a qualifying termination. Any assumed, continued or substituted awards subject to performance goals will be deemed earned assuming that the applicable performance goal was achieved at target levels (measured as of the end of a shortened performance period deemed to end as of such change in control), but the vesting of such awards will remain subject to the applicable participant’s continued employment or service through the last day of the original performance period. +Key Data +The following table includes information regarding our outstanding awards and shares of Common Stock available for future awards under the Prior Plan as of September 28, 2024: +2010 Incentive Plan +Total shares of Common Stock underlying outstanding SARs 136,250 +Total unvested SARs outstanding 136,250 +Weighted average exercise price of outstanding SARs $ 5.10 +Weighted average remaining contractual life of outstanding SARs 2.8 years +Total shares of Common Stock available for grant +1,018,265 (1) +(1) These shares are no longer available for grant under the Prior Plan effective as of October 23, 2024. +In setting the number of proposed shares authorized for issuance under the 2024 Plan, the Compensation Committee and the Board considered a number of factors, including shares available under the Prior Plan, the “burn rate” or how long the shares available (assuming the approval by the shareholders of this proposal) are expected to last, historical equity award granting practices, impact of equity awards under the Prior Plan, and expected value transfer and dilution. +Our fully diluted overhang rate measures the total number of shares under all outstanding plan awards plus the number of shares authorized for future plan awards, as a percentage of the fully diluted number of shares of Common Stock outstanding. It measures the potential dilutive effect of outstanding equity awards and future awards available for grant. If the 2024 Plan is approved by our shareholders, as of September 28, 2024, our fully diluted overhang rate would be 13.89%, based on the number of shares of Common Stock outstanding. +Overhang +(a) Share reserve in 2024 Plan subject to shareholder approval 1,600,000 +(b) Shares underlying awards outstanding under the Prior Plan 136,250 +(c) Total shares, underlying or available for awards (a + b) 1,736,250 +(d) Total shares of common stock outstanding 10,761,871 +(e) Fully diluted overhang ((c/(c+d)) 13.89 % +Our three-year average annual burn rate under the Prior Plan was 0.96% from fiscal 2022 to fiscal 2024. The following table shows our burn rate and dilution percentages over the past three years: +25 +Key Equity Metrics 2022 2023 2024 +Burn Rate(1) 1.53% 1.35% 0.00% +Dilution(2) 7.05% 5.82% 3.60% +_______________________________________________________________________________ +(1) Burn rate is calculated by dividing the number of shares of Common Stock subject to awards granted during the fiscal year by the weighted average number of shares outstanding during the fiscal year. +(2) Dilution is calculated by dividing the number of shares of Common Stock subject to awards outstanding at the end of the fiscal year by the number of shares outstanding at the end of the fiscal year. +SUMMARY OF THE 2024 PLAN +The description of the 2024 Plan set forth below is a summary and does not purport to be a complete description, and it is qualified in its entirety by reference to the full text of the 2024 Plan, which is set forth in Appendix A . +Purpose +The purpose of the 2024 Plan is to attract, retain and motivate our employees, officers and directors by providing them with the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts with the long-term interests of our shareholders. The 2024 Plan also allows us to provide the same opportunity to consultants, agents, advisors and independent contractors. +Administration +The Board of Directors or the Compensation Committee administers the 2024 Plan. The Board may delegate administration of the 2024 Plan in accordance with its terms. References to the “Committee” below are, as applicable, to the Board, the Compensation Committee, or other delegate, including a senior executive officer of the Company authorized by the Board or Compensation Committee to make grants to certain eligible employees of the Company. +Eligibility +Awards may be granted under the 2024 Plan to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its subsidiaries and affiliates. As of September 28, 2024, approximately 1,050 employees, including seven executive officers, and six non-employee directors would have been eligible to receive awards under the 2024 Plan if it were effective on such date. +Number of Shares +The proposed number of shares of Common Stock to be authorized for issuance under the 2024 Plan is 1,600,000 shares, which is equal to the sum of (i) 581,735 and (ii) 1,018,265 authorized shares that were available for issuance and not issued or subject to outstanding awards under the Prior Plan as of September 28, 2024, which ceased to be set aside or reserved for issuance pursuant to the Prior Plan effective as of October 23, 2024 and shall be set aside and reserved for issuance pursuant to the 2024 Plan. The shares of Common Stock issuable under the 2024 Plan will consist of authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares. +If an award granted under the 2024 Plan lapses, expires, terminates, is settled in cash or is canceled prior to issuance of the underlying shares or if shares or shares of Common Stock are issued under the 2024 Plan and subsequently forfeited to or otherwise reacquired by the Company, the undelivered shares subject to such awards and the forfeited or reacquired shares will again be available for issuance pursuant to the 2024 Plan. +Any shares of Common Stock tendered by a participant or retained or withheld by the Company as full or partial payment of the exercise or purchase price of an award or to satisfy tax withholding obligations in connection with an award will not be available for issuance under the 2024 Plan. +Awards granted in assumption of or substitution for previously granted awards in acquisition transactions will not reduce the number of shares authorized for issuance under the 2024 Plan. +26 +In the event of any stock dividend, stock split, spin-off, recapitalization, merger, consolidation, combination or exchange of shares, distribution to shareholders other than a normal cash dividend or other change in our corporate or capital structure that results in our outstanding common stock being exchanged for a different number or kind of securities; new, different or additional securities being received by holders of our Common Stock; or an extraordinary cash dividend, then the Committee will make proportional adjustments to (a) the maximum number and kind of securities available for issuance under the 2024 Plan, and (b) the number and kind of securities that are subject to any outstanding award and/or the per share price of such securities. +The closing price of our Common Stock, as reported on the NASDAQ Global Market (“NASDAQ”) on September 28, 2024, was $5.87 per share. +Types of Awards +The 2024 Plan permits the grant of any or all of the following types of awards. +Stock Options . The Committee may grant nonqualified stock options that are not intended to qualify as incentive stock options under Code Section 422. The Committee sets option exercise prices and terms, except that the exercise price of stock options granted under the 2024 Plan must be at least 100% of the fair market value of the Common Stock on the date of grant, other than in the case of options granted in connection with assuming or substituting options in acquisition transactions or options that meet all the requirements for options that are considered “deferred compensation” within the meaning of Code Section 409A. At the time of grant, the Committee determines when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed ten years. Unless the Committee otherwise determines, fair market value means, as of a given date, the closing price of our Common Stock during regular session trading on NASDAQ. +Stock Appreciation Rights (SARs) . The Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2024 Plan (a “tandem SAR”) or on a stand-alone basis (a “freestanding SAR”). SARs are the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted. Exercise of a tandem SAR will result in the reduction of the number of shares underlying the related option to the extent of the SAR exercised. The term of a freestanding SAR cannot be more than ten years, and the term of a tandem SAR will not exceed the term of the related option. +Stock Awards, Restricted Stock and Restricted Stock Units . The Committee may grant awards of shares of Common Stock, or awards designated in units of Common Stock, under the 2024 Plan. These awards may be made subject to repurchase or forfeiture restrictions at the Committee’s discretion. The restrictions may be based on continuous employment or service with us or the achievement of specified performance criteria, as determined by the Committee. +Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to awards of restricted stock or restricted stock units, as applicable, or upon the release from any terms, conditions and restrictions on restricted stock or restricted stock units, as determined by the Committee, (a) the shares of restricted stock covered by each award of restricted stock shall become freely transferable, subject to the terms and conditions of the 2024 Plan, the applicable award agreement, and applicable securities laws, and (b) restricted stock units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock. +Performance Awards . The Committee may grant performance awards in the form of performance shares or performance units. Performance shares are units valued by reference to a designated number of shares of Common Stock, and performance units are units valued by reference to a designated amount of cash. Either may be payable in stock or cash, or a combination of stock and cash, upon the attainment of performance criteria and other terms and conditions as established by the Committee. +Other Stock or Cash-Based Awards . The Committee may grant other incentives denominated in cash or in shares of Common Stock, which incentives may be paid by delivery of such property as the Committee +27 +may determine, including, without limitation, cash, shares of Common Stock, or any combination thereof, subject to the terms of the 2024 Plan and any other terms and conditions determined by the Committee. +Recoupment +Awards granted under the 2024 Plan will be subject to the applicable requirements of: (a) the Company’s Clawback Policy, (b) Section 954 of the Dodd-Frank Act regarding recovery of erroneously awarded compensation and any implementing rules and regulations thereunder, (c) similar compensation recovery requirements under the laws of any other jurisdiction, (d) any compensation recovery policies adopted by the Company to implement any such requirements, and (e) any other compensation recovery policies as may be adopted from time to time by the Company, all to the extent determined by the Committee in its discretion to be applicable. In the event that an award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such award, subject to applicable law. +Repricing +Without shareholder approval, the Committee may not (a) lower the exercise price or grant price of an option or SAR, respectively, after it is granted, except in connection with certain specified adjustments, (b) take any other action that is treated as a repricing under generally accepted accounting principles, or (c) cancel an option or SAR when its exercise price or grant price exceeds the fair market value of the underlying Common Stock, in exchange for cash or another option, SAR, restricted stock, restricted stock unit or other equity award, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. +Change in Control +Under the 2024 Plan, unless otherwise provided in the instrument evidencing an award or in a written employment, services or other agreement between the participant and us, in the event of a change in control: +• +All outstanding awards, other than performance shares, performance units or other awards that are subject to vesting based on the achievement of specified performance goals, will become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions will lapse, immediately prior to the change in control, and such awards will terminate at the effective time of the change in control; provided, however, that if and to the extent that the acquirer converts, assumes, substitutes for or replaces outstanding awards, then the vesting restrictions and/or forfeiture provisions applicable to such awards will not be accelerated or lapse (and all such vesting restrictions and/or forfeiture provisions will continue with respect to any shares of the acquirer or other consideration that may be received with respect to such awards), unless the participant experiences a qualifying termination following the change in control. +28 +• +All performance shares, performance units or other awards that are subject to vesting based on the achievement of specified performance goals that are earned and outstanding as of the date of the change in control and for which the payout level has been determined will be payable in full in accordance with the payout schedule pursuant to the instrument evidencing the award. With respect to any remaining outstanding performance shares, performance units or other awards that are subject to vesting based on the achievement of specified performance goals for which the payout level has not been determined and are assumed, continued or substituted in connection with such change in control, then (i) such awards will be deemed earned assuming that the applicable performance goals were achieved at target levels, measured as of the end of a shortened performance period ending as of the date of such change in control, and (ii) all vesting restrictions and/or forfeiture provisions applicable to such awards (other than the performance goals) will not be accelerated or lapse, such that the vesting of such awards will remain subject to the participant’s continued employment through the end of the original performance period, unless the participant experiences a qualifying termination following the change in control. Outstanding performance shares, performance units or other awards that are not assumed, continued or substituted in connection with the change in control will vest immediately prior to such change in control, and will be deemed earned at target levels and prorated based on the shortened performance period. +• In the event of certain reorganizations, mergers or consolidations, the Committee may in its discretion instead provide that a participant’s outstanding awards will be cashed out. +Definition of Change in Control . Unless the Committee determines otherwise with respect to an award at the time it is granted or unless otherwise defined for purposes of an award in a written employment, services or other agreement between a participant and us, a change in control of the Company generally means the occurrence of any of the following events: +• an acquisition by any individual, entity or group of beneficial ownership of 40% or more of either (i) the then outstanding shares of Common Stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (excluding generally any acquisition directly from the Company, any acquisition by the Company, any acquisition by any employee benefit plan of the Company or an affiliate, or the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company pursuant to which certain requirements are met); +• a change in the composition of the Board during a two-year period such that the incumbent Board members as of the beginning of the two-year period cease to constitute at least a majority of the Board (not including directors whose election, or nomination for election by shareholders, was approved by a majority of the incumbent Board); +• consummation of certain reorganizations, mergers or consolidations or other disposition of all or substantially all of the assets of the Company; or +• consummation of a complete liquidation or dissolution of the Company. +Definition of Qualifying Termination . A qualifying termination generally means a participant’s termination of service by the Company (other than for “cause” (as defined in the 2024 Plan)) or, if provided for in the applicable award, by a participant’s resignation for “good reason” (as defined in the applicable award), in each case, at any time following the change in control up to and including the second anniversary of such change in control. +Amendment and Termination +The Board or the Compensation Committee may amend the 2024 Plan or any outstanding award, except that if any applicable statute, rule or regulation requires shareholder approval for an amendment to the 2024 Plan, then to the extent so required, shareholder approval will be obtained. The Board or the Compensation +29 +Committee may also suspend or terminate all or any portion of the 2024 Plan at any time. No amendment, suspension or termination of the 2024 Plan or the amendment of any outstanding award may, without a participant’s consent, materially adversely affect any rights under any outstanding award. +The Board may also amend the 2024 Plan or any outstanding award without a participant’s consent to the extent the Board deems necessary or advisable to comply with, or take into account, changes in applicable tax laws, securities laws, accounting rules or other applicable law, rule or regulation. +Unless sooner terminated by the Board or Compensation Committee, the 2024 Plan will terminate on November 25, 2034, which is ten years after the date of shareholder approval of the 2024 Plan at the Annual Meeting. +Federal Income Tax Information +The following is a brief summary of the U.S. federal income tax consequences of the 2024 Plan generally applicable to us and to participants in the 2024 Plan who are subject to U.S. federal taxes. The summary is based on the U.S. Internal Revenue Code of 1986, as amended, applicable Treasury Regulations and administrative and judicial interpretations thereof, each as in effect on the date of this proxy statement, and is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does not purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax consequences or the consequences of any state, local or foreign tax laws. +Stock Options +A participant generally will not recognize taxable income upon the grant or vesting of a nonqualified stock option with an exercise price at least equal to the fair market value of the Common Stock on the date of grant and no additional deferral feature. When a nonqualified stock option is exercised, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the option on the date of exercise and the option exercise price. When a participant sells the shares, the participant will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price. Special rules apply if a participant uses shares of Common Stock already held by the participant to pay the exercise price. +Stock Appreciation Rights +A participant generally will not recognize taxable income upon the grant or vesting of an SAR with a grant price at least equal to the fair market value of the Common Stock on the date of grant and no additional deferral feature. Upon the exercise of an SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the SAR on the date of exercise and the grant price of the SAR. +Unrestricted Stock Awards +Upon receipt of an unrestricted stock award, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid by the participant with respect to the shares. +Restricted Stock Awards, Restricted Stock Units, Performance Shares and Performance Units +A participant generally will not have taxable income upon the grant of restricted stock, restricted stock units, performance shares or performance units. Instead, the participant will recognize ordinary income at the time of vesting or payout equal to the fair market value (on the vesting or payout date) of the shares or +30 +cash received minus any amount paid. For restricted stock only, a participant may instead elect to be taxed at the time of grant. +Tax Consequences to the Company +In the foregoing cases, we generally will be entitled to a deduction at the same time and in the same amount as a participant recognizes ordinary income, subject to certain limitations imposed under the Code. +Code Section 409A +We intend that awards granted under the 2024 Plan comply with, or otherwise be exempt from, Code Section 409A, but make no representation or warranty to that effect. +Code Section 162(m) +Section 162(m) of the Code, or Section 162(m), generally disallows public companies a tax deduction for federal income tax purposes for compensation in excess of $1 million paid to their chief executive officer, chief financial officer, and any employee who is among the three highest compensated executive officers for the taxable year (other than the chief executive officer and chief financial officer), regardless of whether the executive officer is serving at the end of the public company’s taxable year and regardless of whether the executive officer’s compensation is subject to disclosure for the last completed fiscal year under the applicable SEC rules (a “Covered Employee”). In addition, once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment. Awards granted pursuant to the 2024 Plan to Covered Employees will be subject to the $1 million annual deduction limitation. +Tax Withholding +We are authorized to deduct or withhold from any award granted or payment due under the 2024 Plan, or require a participant to remit to us, the amount of any withholding taxes due in respect of the award or payment and to take such other action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to issue any shares of Common Stock or otherwise settle an award under the 2024 Plan until all tax withholding obligations are satisfied. +Plan Benefits +New Plan Benefits +All awards to employees, officers, directors and consultants under the 2024 Plan are made at the discretion of the Committee. Therefore, the benefits and amounts that will be received or allocated under the 2024 Plan are not determinable at this time. The Company did not grant any equity incentive plan awards in fiscal year 2024. However, please refer to the description of grants made under the Prior Plan to our named executive officers in fiscal year 2023 described in the “Grants of Plan-Based Awards-Fiscal Year 2024” table. Outstanding awards made under the Prior Plan to our non-employee directors are described in “Director Compensation.” +31 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information, as of June 29, 2024, concerning securities authorized for issuance under the Company’s equity compensation plans. +Plan Category Number of +Securities to Be +Issued Upon +Exercise of +Outstanding +Options, +Warrants, and +Rights +(a) Weighted- +average Exercise +Price of +Outstanding +Options, +Warrants, and +Rights +(b) Number of +Securities +Remaining +Available for +Future Issuance +Under Equity +Compensation +Plans (excluding +securities +reflected in +column (a) +(c)) +Equity compensation plans approved by security holders (1) +387,500 $ +5.78 +1,091,834 +Equity compensation plans not approved by security holders +— — — +Total +387,500 +$ +5.78 +1,091,834 +(1) +Included are the 1,479,334 shares of Common Stock subject to the Prior Plan, the issuance of which were approved by the shareholders at the 2010 and 2014 Annual Meetings. Not included are the additional 581,735 shares subject to the 2024 Plan, subject to shareholder approval at the 2024 Annual Meeting. See “Proposal 4—Approval of the Key Tronic Corporation 2024 Incentive Plan—Summary of the 2024 Plan” for further information about the 2024 Plan. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL AND RATIFICATION OF THE 2024 INCENTIVE PLAN +32 +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2025 must submit their proposals in writing to John Theiss, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. +Under Rule 14a-8(e) of the Exchange Act, proposals submitted for inclusion in our proxy statement for the 2025 Annual Meeting must be received by the Secretary at the address above no later than July 4, 2025. In addition, any shareholder who intends to present a proposal at the 2025 Annual Meeting without inclusion of such proposal in our proxy materials must provide us written notice of such proposal in the manner set forth above by October 11, 2025 o r such proposal will be considered untimely. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement that complies with Rule 14a-4(c)(2). We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. In addition, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than September 26, 2025. +OTHER MATTERS +Annual Report on Form 10-K +The 2024 Annual Report on Form 10-K (including exhibits), which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership with the SEC and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5 were required, the Company believes that with respect to the fiscal year ended June 29, 2024 all the Reporting Persons complied with all applicable filing requirements. +Solicitation Expenses +The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies and provide related advice and informational support. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $12,500, plus reimbursement of out of pocket expenses. +33 +Other Business +The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +October 28, 2024 John Theiss +Secretary +34 +APPENDIX A +KEY TRONIC CORPORATION +2024 INCENTIVE PLAN +1. PURPOSE +The purpose of the Key Tronic Corporation 2024 Incentive Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company’s shareholders. The Plan has been approved by the Board and shall become effective upon approval by Company’s shareholders on November 25, 2024 (the “ Effective Date ”). +The Plan succeeds the Prior Plan for Awards granted on or after the Effective Date and no additional awards may be made under the Prior Plan on or after the Effective Date. The adoption and effectiveness of the Plan will not affect the terms or conditions of any awards granted under the Prior Plan prior to the Effective Date. +2. DEFINITIONS +Certain capitalized terms used in the Plan have the meanings set forth in Appendix A . +3. ADMINISTRATION +3.1. Administration of the Plan +3.1.1. The Plan shall be administered by the Board or the Compensation Committee, which shall be composed of two or more directors and satisfy the requirements of the applicable stock exchange listing standards. For purposes of any Awards to Participants who are subject to Section 16 of the Exchange Act, the Compensation Committee means all of the members of the Compensation Committee who are “non-employee directors” within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act or any successor definition adopted by the Securities and Exchange Commission. Awards to Non-Employee Directors shall be made by the Board upon recommendation of the Compensation Committee. +3.1.2. Notwithstanding the foregoing, the Board may delegate concurrent responsibility for administering the Plan, including with respect to designated classes of Eligible Persons, to different committees consisting of one or more members of the Board, subject to such limitations as the Board deems appropriate, except with respect to Awards granted to Participants who are subject to Section 16 of the Exchange Act. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board or the Compensation Committee may authorize one or more senior executive officers of the Company to grant Awards to designated classes of Eligible Persons, within limits specifically prescribed by the Board or the Compensation Committee; provided, however, that no such officer shall have or obtain authority to grant Awards to himself or herself or to any Participants who are subject to Section 16 of the Exchange Act. +1 +3.1.3. All references in the Plan to the “ Committee ” shall be, as applicable, to the Board, the Compensation Committee or any other committee or any officer to whom authority has been delegated to administer the Plan. +3.2. Administration and Interpretation by Committee +3.2.1. Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a Committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (vii) amend, modify, suspend, discontinue or terminate the Plan, waive any restrictions or conditions applicable to any Award or amend or modify the terms and conditions of any outstanding Award; (viii) interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (ix) establish such rules, regulations and subplans as it shall deem appropriate for the proper administration and operation of the Plan; (x) delegate ministerial duties to such of the Company’s employees as it so determines; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. +3.2.2. In no event, however, shall the Committee have the right, without shareholder approval, to (i) lower the exercise or grant price of an Option or SAR, respectively, after it is granted, except in connection with adjustments provided in Section 14.1 ; (ii) take any other action that is treated as a repricing under generally accepted accounting principles; or (iii) cancel an Option or SAR at a time when its exercise or grant price exceeds the Fair Market Value of the underlying Common Stock in exchange for cash or another option, stock appreciation right, restricted stock, restricted stock unit or other equity award, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. +3.2.3. The effect on the vesting of an Award of a Company-approved leave of absence or a Participant’s reduction in hours of employment or service shall be determined by the Committee, whose determination shall be final. +3.2.4. Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any shareholder and any Eligible Person. A majority of the members of the Committee may determine its actions. +4. SHARES SUBJECT TO THE PLAN +4.1. Authorized Number of Shares +Subject to adjustment from time to time as provided in Section 14.1 , the total number of shares of Common Stock reserved and available for Awards granted under the Plan shall be equal to 1,600,000 shares, which is equal to the sum of (i) 581,735 shares and (ii) 1,018,265 authorized shares available for issuance and not issued or subject to outstanding awards under the Prior Plan as of October 24, 2024, which shares shall cease to be set aside or reserved for issuance pursuant to the Prior +2 +Plan effective on the Effective Date and shall instead be set aside and reserved for issuance pursuant to the Plan. Shares of Common Stock issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares. +4.2. Share Usage +4.2.1. Other than with respect to a Substitute Award, if any Award lapses, expires, terminates, is settled in cash or is canceled prior to the issuance of the full number of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the undelivered shares subject to such Awards and the forfeited or reacquired shares shall again be available for issuance under the Plan. Any shares of Common Stock tendered by a Participant or retained or withheld by the Company as full or partial payment to the Company for the exercise or purchase price of an Award or to satisfy tax withholding obligations in connection with an Award shall not again be available for issuance under the Plan. The number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject to or paid with respect to an Award. +4.2.2. The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company. +4.2.3. Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Substitute Awards under the Plan. Substitute Awards shall not reduce the number of shares authorized for issuance under the Plan. In the event that an Acquired Entity has shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Compensation Committee, the shares available for grant pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of common stock of the entities that are parties to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock authorized for issuance under the Plan; provided, however, that Awards using such available shares shall not be made after the date that awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to individuals who were not employees or directors of the Company or a Related Company prior to such acquisition or combination. In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger or consolidation or statutory share exchange is completed is approved by the Board and that agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be the action of the Committee without any further action by the Committee, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be Participants. +4.2.4. Notwithstanding any other provisions of this Section 4.2 to the contrary, the maximum number of shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate share number stated in Section 4.1 above, subject to adjustment as provided in Section 14.1 below. +5. ELIGIBILITY +3 +An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities. +6. AWARDS +6.1. Form, Grant and Settlement of Awards +The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone or in addition to or in tandem with any other type of Award. Any Award settlement may be subject to such conditions, restrictions and contingencies as the Committee shall determine. +6.2. Evidence of Awards +Awards granted under the Plan shall be evidenced by a written, including an electronic, instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan. +6.3. Minimum Vesting Requirements +No portion of an Award may vest prior to the one (1) year anniversary of the vesting commencement date set forth in the applicable Award (which may be the date of commencement of employment or service, in the case of a grant made in connection with a Participant’s commencement of employment or service) unless (i) the Award involves a number of shares of Common Stock that, in the aggregate with all other applicable Awards, does not exceed five percent (5%) of the aggregate number of shares of Common Stock that may be delivered in connection with Awards under Section 4.1 , (ii) the Award is granted in payment of or in exchange for an equivalent amount of salary, bonus or other earned cash compensation (including a Performance Unit), (iii) the Award is granted to Non-Employee Directors and vests on the earlier of the one-year anniversary of the date on which the Award was granted and the next annual meeting of shareholders (so long as such next annual meeting of shareholders is at least 50 weeks after the immediately preceding year’s annual meeting of shareholders), (iv) the Participant’s Qualifying Termination upon or following the consummation of a Change in Control, or (v) the Participant’s Termination of Services is by the Company due to death or Disability. +6.4. Dividends and Distributions +Participants may, if the Committee so determines other than with respect to Options or Stock Appreciation Rights, be credited with dividends or dividend equivalents for dividends paid with respect to shares of Common Stock underlying an Award in a manner determined by the Committee in its sole discretion; provided, however, that any such credited dividends or dividend equivalents shall accrue and be paid only to the extent the Awards becomes vested or payable. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Restricted Stock Units. Notwithstanding the foregoing, the right to any dividends or dividend equivalents declared and paid on +4 +Restricted Stock or Restricted Stock Units must comply with or qualify for an exemption under Section 409A. +7. OPTIONS +7.1. Grant of Options +The Committee may grant Options, which may be designated as Incentive Stock Options or Nonqualified Stock Options. +7.2. Option Exercise Price +Options shall be granted with an exercise price per share not less than 100% of the Fair Market Value of the Common Stock on the Grant Date (and not less than the minimum exercise price required by Section 422 of the Code with respect to Incentive Stock Options), except in the case of Substitute Awards. +7.3. Term of Options +Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date. For Incentive Stock Options, the maximum term shall be as specified in Section 7.7(d) below. +7.4. Exercise of Options +7.4.1. The Committee shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable. +7.4.2. To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery of a properly executed stock option exercise agreement or notice to the Company or a brokerage firm designated or approved by the Company, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement or notice, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in Section 7.5 . An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee. +7.5. Payment of Exercise Price +The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid before the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee for that purchase, which forms may include: +7.5.1. cash; +7.5.2. check or wire transfer; +5 +7.5.3. having the Company withhold shares of Common Stock that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; +7.5.4. tendering (either actually or, so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; +7.5.5. so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or +7.5.6. such other consideration as the Committee may permit. +7.6. Effect of Termination of Service +7.6.1. The Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time. +7.6.2. If the exercise of the Option following a Participant’s Termination of Service, but while the Option is otherwise exercisable, would be prohibited solely because the issuance of Common Stock would violate the registration requirements under the Securities Act or similar requirements under the laws of any state or foreign jurisdiction, then the Option shall remain exercisable until the earlier of (i) the Option Expiration Date and (ii) the expiration of a period of three months (or such longer period of time as determined by the Committee in its sole discretion) after the Participant’s Termination of Service during which the exercise of the Option would not be in violation of such Securities Act or other requirements. +7.7. Incentive Stock Option Limitations +Notwithstanding any other provision of the Plan to the contrary, the terms and conditions of any Incentive Stock Options shall in addition comply in all respects with Section 422 of the Code, or any successor provision, and any applicable regulations thereunder, including, to the extent required thereunder, the following: +7.7.1. To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which a Participant’s Incentive Stock Options become exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the Participant holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. +6 +7.7.2. Individuals who are not employees of the Company or one of its parent or subsidiary corporations may not be granted Incentive Stock Options. +7.7.3. Incentive Stock Options shall be granted with an exercise price per share not less than 100% of the Fair Market Value of the Common Stock on the Grant Date, and in the case of an Incentive Stock Option granted to a Participant who owns more than 10% of the total combined voting power of all classes of the stock of the Company or of its parent or subsidiary corporations (a “ Ten Percent Shareholder ”), shall be granted with an exercise price per share not less than 110% of the Fair Market Value of the Common Stock on the Grant Date. The determination of more than 10% ownership shall be made in accordance with Section 422 of the Code. +7.7.4. Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Incentive Stock Option shall not exceed ten years, and in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, shall not exceed five years. +7.7.5. An Option designated as an Incentive Stock Option shall cease to qualify for favorable tax treatment as an Incentive Stock Option to the extent it is exercised (if permitted by the terms of the Option) (i) more than three months after the date of a Participant’s termination of employment if termination was for reasons other than death or disability, (ii) more than one year after the date of a Participant’s termination of employment if termination was by reason of disability, or (iii) more than six months following the first day of a Participant’s leave of absence that exceeds three months, unless the Participant’s reemployment rights are guaranteed by statute or contract. +7.7.6. In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Participant must hold the shares acquired upon the exercise of an Incentive Stock Option for two years after the Grant Date and one year after the date of exercise. A Participant may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Participant shall give the Company prompt notice of any disposition of shares acquired on the exercise of an Incentive Stock Option prior to the expiration of such holding periods. +7.7.7. For the purposes of this Section 7.7 , “ disability ,” “ parent corporation ” and “ subsidiary corporation ” shall have the meanings attributed to those terms for purposes of Section 422 of the Code. +7.7.8. If the shareholders of the Company do not approve the Plan within twelve months after the Board’s adoption of the Plan (or the Board’s adoption of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code) Incentive Stock Options granted under the Plan after the date of the Board’s adoption (or approval) will be treated as Nonqualified Stock Options. No Incentive Stock Options may be granted more than ten years after the earlier of the approval by the Board or the shareholders of the Plan (or any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code). +7.7.9. In interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an “incentive stock option” within the meaning of Section 422 of the Code. If the shareholders of the Company do not approve the Plan within twelve months after the Board’s adoption of the Plan, any Incentive Stock Options granted under the Plan will be treated as Nonqualified Stock Options. +8. STOCK APPRECIATION RIGHTS +7 +8.1. Grant of Stock Appreciation Rights +The Committee may grant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Committee shall determine in its sole discretion. A SAR may be granted in tandem with an Option (a “tandem SAR”) or alone (“freestanding SAR”). The grant price of a tandem SAR shall be equal to the exercise price of the related Option. The grant price of a freestanding SAR shall be established in accordance with procedures for Options set forth in Section 7.2 . A SAR may be exercised upon such terms and conditions and for such term as the Committee determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the maximum term of a freestanding SAR shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable. An SAR agreement may provide for an automatic exercise of the SAR subject to any applicable requirements. +8.2. Payment of SAR Amount +Upon the exercise of an SAR, a Participant shall be entitled to receive payment in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Committee as set forth in the instrument evidencing the Award, the payment upon exercise of an SAR may be in cash, in shares, in some combination thereof or in any other manner approved by the Committee in its sole discretion. +9. STOCK AWARDS, RESTRICTED STOCK AND RESTRICTED STOCK UNITS +9.1. Grant of Stock Awards, Restricted Stock and Restricted Stock Units +The Committee may grant Stock Awards, Restricted Stock and Restricted Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be based on continuous employment or service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award. +9.2. Vesting of Restricted Stock and Restricted Stock Units +Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Awards of Restricted Stock or Restricted Stock Units, as applicable, or upon a Participant’s release from any terms, conditions and restrictions on Restricted Stock or Restricted Stock Units, as determined by the Committee, (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant subject to the terms and conditions of the Plan, the instrument evidencing the Award, and applicable securities laws, and (b) Restricted Stock Units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock. +10. PERFORMANCE AWARDS +10.1. Performance Shares +8 +The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit valued by reference to a designated number of shares of Common Stock, the value of which may be paid to the Participant by delivery of shares of Common Stock or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of Performance Measures, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. +10.2. Performance Units +The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of Performance Measures, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. +11. OTHER STOCK OR CASH-BASED AWARDS +Subject to the terms of the Plan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives denominated in cash or in shares of Common Stock under the Plan, which incentives may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, or any combination thereof, subject to the terms and conditions specified by the Committee. +12. WITHHOLDING +12.1.1. The Company or any Related Company may require the Participant to pay to the Company or a Related Company, as applicable, the amount of (a) any taxes that the Company or any Related Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award (“tax withholding obligations”) and (b) any amounts due from the Participant to the Company or to any Related Company (“other obligations”). Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied. +12.1.2. The Committee may permit or require a Participant to satisfy all or part of the Participant’s tax withholding obligations and other obligations by (i) paying cash to the Company or a Related Company, as applicable, (ii) having the Company or a Related Company, as applicable, withhold an amount from any cash amounts otherwise due or to become due from the Company or a Related Company, as applicable, to the Participant, (iii) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other +9 +obligations, or (iv) tendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding obligations and other obligations. The value of the shares so withheld or tendered may not exceed the employer’s maximum required tax withholding rate or such other applicable rate as may be approved by the Committee so long as such withholding does not result in adverse treatment for financial accounting purposes. +13. ASSIGNABILITY +No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent that the Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant’s death. During a Participant’s lifetime, an Award may be exercised only by the Participant. Notwithstanding the foregoing, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award without consideration subject to such terms and conditions as the Committee shall specify. +14. ADJUSTMENTS +14.1. Adjustment of Shares +14.1.1. In the event that, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, statutory share exchange, distribution to shareholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure results in (i) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or (ii) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, or (iii) in the event of an extraordinary cash dividend, then the Committee shall make proportional adjustments in (A) the maximum number and kind of securities available for issuance under the Plan; (B) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2(d) ; and (C) the number and kind of securities that are subject to any outstanding Award and/or the per share price of such securities. The determination by the Committee, as to the terms of any of the foregoing adjustments, shall be conclusive and binding. +14.1.2. Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards. Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Company Transaction shall not be governed by this Section 14.1 but shall be governed by Section 14.2 or Section 14.3 , respectively. +14.2. Dissolution or Liquidation +To the extent not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company. To the extent a vesting condition, forfeiture provision or repurchase right +10 +applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation. +14.3. Change in Control +Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, in the event of a Change in Control: +14.3.1. All outstanding Awards, other than Performance Shares, Performance Units and other Awards that are subject to vesting based on the achievement of specified Performance Measures, shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change in Control and shall terminate at the effective time of the Change in Control; provided, however, that if and to the extent that the Successor Company in the Change in Control converts, assumes, substitutes for or replaces such an Award, then the vesting restrictions and/or forfeiture provisions applicable to such Award shall not be accelerated or lapse (and all such vesting restrictions and/or forfeiture provisions shall continue with respect to any shares of the Successor Company or other consideration that may be received with respect to such Award), unless the Participant experiences a Qualifying Termination following the Change in Control. +14.3.2. For the purposes of Section 14.3(a) , an Award shall be considered converted, assumed, substituted for or replaced by the Successor Company if, following the Company Transaction, the Award confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Company Transaction, the consideration (whether stock, cash or other securities or property) received in the Company Transaction by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Company Transaction is not solely common stock of the Successor Company, the Committee may, with the consent of the Successor Company, provide for the consideration to be received pursuant to the Award, for each share of Common Stock subject thereto, to be solely common stock of the Successor Company substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Company Transaction. The determination of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding. +14.3.3. All Performance Shares, Performance Units or other Awards that are subject to vesting based on the achievement of specified Performance Measures that are earned and outstanding as of the date the Change in Control is determined to have occurred and for which the payout level has been determined shall be payable in full in accordance with the payout schedule pursuant to the instrument evidencing the Award. With respect to any remaining outstanding Performance Shares, Performance Units or other Awards that are subject to vesting based on the achievement of specified Performance Measures for which the payout level has not been determined (x) if and to the extent that the Successor Company in the Change in Control converts, assumes, substitutes for or replaces such an Award, then (i) such Award shall be deemed earned assuming that the applicable Performance Measures were achieved at target levels, measured as of the end of shortened performance periods deemed to end as of the date of such Change in Control, and (ii) all vesting restrictions and/or forfeiture provisions applicable to such Award (other than the Performance Measures) shall not be accelerated or lapse, such that the vesting of such Award shall remain subject to the Participant’s continued employment or service with the Successor +11 +Company through the end of the original performance period, unless the Participant experiences a Qualifying Termination following the Change in Control, and (y) if and to the extent that such Award is not converted, assumed, substituted for or replaced by the Successor Company in the Change in Control, then such Award shall vest immediately prior to such Change in Control, and shall be deemed earned in the same manner described in clause (x)(i), prorated based on the number of days in the original performance periods elapsed as of the date of such Change in Control. +14.3.4. Notwithstanding the foregoing, the Committee, in its sole discretion, may instead provide, in the event of a Change in Control that is a Company Transaction, that a Participant’s outstanding Awards shall terminate upon or immediately prior to such Company Transaction and that such Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (x) the value of the per share consideration received by holders of Common Stock in the Company Transaction or, in the event the Company Transaction is one of the transactions listed under subsection (c) in the definition of Company Transaction or otherwise does not result in direct receipt of consideration by holders of Common Stock, the value of the deemed per share consideration received, in each case as determined by the Committee in its sole discretion, multiplied by the number of shares of Common Stock subject to such outstanding Awards (to the extent then vested and exercisable or whether or not then vested and exercisable, as determined by the Committee in its sole discretion) exceeds (y) if applicable, the respective aggregate exercise price or grant price for such Awards. +14.3.5. For the avoidance of doubt, nothing in this Section 14.3 requires all outstanding Awards to be treated similarly, and the Committee need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different actions with respect to the vested and unvested portions of an Award. +14.3.6. The conversion, assumption, substitution or replacement of any Award pursuant to Section 14.3(a) or Section 14.3(c) above shall comply with (i) Treasury Regulation Section 1.409A-1(b)(5)(v)(D), to the extent that such Award is an Nonqualified Stock Option, and without limitation of Section 17.9 below, and (ii) Section 424(a) of the Code, to the extent that such Award is an Incentive Stock Option. +14.4. Further Adjustment of Awards +Subject to Sections 14.2 and 14.3 , the Committee shall have the discretion, exercisable at any time before a sale, merger, consolidation, statutory share exchange, reorganization, liquidation, dissolution or change in control of the Company, as defined by the Committee, to take such further action as it determines to be necessary or advisable with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Committee may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants. The Committee may take such action before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, statutory share exchange, reorganization, liquidation, dissolution or change in control that is the reason for such action. +12 +14.5. No Limitations +The grant of Awards shall in no way affect the Company’s right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +14.6. Fractional Shares +In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment, and any fractional shares resulting from such adjustment shall be disregarded. +14.7. Section 409A +Notwithstanding any other provision of the Plan to the contrary, (a) any adjustments made pursuant to Section 14 t o Awards that are considered “deferred compensation” within the meaning of Section 409A shall be made in compliance with the requirements of Section 409A and (b) any adjustments made pursuant to Section 14 to Awards that are not considered “deferred compensation” subject to Section 409A shall be made in such a manner as to ensure that after such adjustment the Awards either (i) continue not to be subject to Section 409A or (ii) comply with the requirements of Section 409A. +15. RECOVERY OF COMPENSATION +Notwithstanding any other provision of the Plan to the contrary, Awards granted under the Plan shall be subject to the applicable requirements of: (a) the Company’s incentive compensation recovery policy as it may be amended from time to time, (b) Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations thereunder, (c) similar compensation recovery requirements under the laws of any other jurisdiction, (d) any compensation recovery policies adopted by the Company to implement any such requirements, and (e) any other compensation recovery policies as may be adopted from time to time by the Company, all to the extent determined by the Committee in its discretion to be applicable to a Participant. In the event that an Award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such Award, subject to applicable law. +16. AMENDMENT AND TERMINATION +16.1. Amendment, Suspension or Termination +The Board or the Compensation Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, shareholder approval shall be required for any amendment to the Plan. Subject to Section 16.3 , the Committee may amend the terms of any outstanding Award, prospectively or retroactively. +16.2. Term of the Plan +Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously +13 +granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan’s terms and conditions. +16.3. Consent of Participant +The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant’s consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a “modification” that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to Section 16 shall not be subject to these restrictions. +Subject to Section 16 , but notwithstanding any other provision of the Plan to the contrary, the Board shall have broad authority to amend the Plan or any outstanding Award without the consent of the Participant to the extent the Board deems necessary or advisable to comply with, or take into account, changes in applicable tax laws, securities laws, accounting rules or other applicable law, rule or regulation. +17. GENERAL +17.1. No Individual Rights +No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan. Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause. +17.2. Issuance of Shares +17.2.1. Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company’s counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity. +17.2.2. The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. +17.2.3. As a condition to the exercise of an Option or any other receipt of Common Stock pursuant to an Award under the Plan, the Company may require (a) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant’s own account and without any present intention to sell or distribute such shares and +14 +(b) such other action or agreement by the Participant as may from time to time be necessary to comply with federal, state and foreign securities laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration. The Committee may also require the Participant to execute and deliver to the Company a purchase agreement or such other agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the shares. +17.2.4. To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. +17.3. Indemnification +Each person who is or shall have been a member of the Board or a member of another committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3 , shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company’s approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person, unless such loss, cost, liability or expense is a result of such person’s own willful misconduct or except as expressly provided by statute; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person’s own behalf. +The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company’s articles of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify or hold harmless. +17.4. No Rights as a Shareholder +Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award or Restricted Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award. +17.5. Corporate Action Constituting Grant of Awards +Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Committee, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records ( e . g ., Committee consents, resolutions or minutes) documenting the corporate action constituting the grant +15 +contain terms ( e .g., exercise price, vesting schedule or number of shares of Common Stock) that are inconsistent with those in the Award as a result of a clerical error in connection with the preparation of the Award, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award. +17.6. Non-Exempt Employees +If an Option is granted to an employee of the Company or any Related Company in the United States who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will not be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option (although the Option may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (1) if such employee dies or suffers a Disability, (2) upon a Company Transaction in which such Option is not assumed, continued, or substituted, (3) upon a Change in Control, or (4) upon the Participant’s Retirement, the vested portion of any Options held by such employee may be exercised earlier than six (6) months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Award will be exempt from such employee’s regular rate of pay, the provisions of this Section 17.5 will apply to all Awards. +17.7. Data Privacy +As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 17.5 by and among, as applicable, the Company and a Related Company for the exclusive purpose of implementing, administering, and managing the Plan and Awards and the Participant’s participation in the Plan. In furtherance of such implementation, administration, and management, the Company and any Related Company may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or a Related Company, and details of all Awards (“data”). In addition to transferring data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, the Company and any Related Company may each transfer data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan. Recipients of data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and transfer data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, including any requisite transfer of such data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Common Stock. Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the Participant’s participation in the Plan. A Participant may, at any time, view data held by the Company with respect to such Participant, request additional information about the storage and processing of the data with respect to such Participant, recommend any necessary corrections to data with respect to the Participant, or refuse or withdraw the consents herein in writing, in +16 +any case without cost, by contacting his or her local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent, Participants may contact a human resources representative. +17.8. Other Agreements +Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of shares of Common Stock under an Award, that the Participant execute lock-up, shareholder or other agreements, as it may reasonably determine in its sole and absolute discretion. +17.9. Section 409A +17.9.1. The Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the exclusion applicable to stock options, stock appreciation rights and certain other equity-based compensation under Treasury Regulation Section 1.409A-1(b)(5), or otherwise. To the extent Section 409A is applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions. +17.9.2. Without limiting the generality of the foregoing, and notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A applies, all references in the Plan or any Award granted under the Plan to the termination of the Participant’s employment or service are intended to mean the Participant’s “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code. In addition, if the Participant is a “specified employee,” within the meaning of Section 409A, then to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A, amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant’s “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code, shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant’s death, the Participant’s estate) in a lump sum on the first business day after the earlier of the date that is six months following the Participant’s separation from service or the Participant’s death. +17.9.3. Notwithstanding any other provision of the Plan to the contrary, the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or complies with Section 409A; provided, however, that the Committee makes no undertaking to preclude Section 409A from applying to Awards granted under the Plan. +17.9.4. While the Awards granted hereunder are intended to be structured in a manner to avoid the imposition of any penalty taxes under Sections 409A, in no event whatsoever shall the +17 +Company or any Related Company be liable for any additional tax, interest, or penalties that may be imposed on a Participant as a result of Section 409A or any damages for failing to comply with Section 409A or any similar state or local laws (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A). +17.10. Participants in Other Countries or Jurisdictions +Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan. +17.11. Change in Time Commitment +In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company or any Related Company is reduced (for example, and without limitation, if the Participant is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (i) make a corresponding reduction in the number of shares of Common Stock subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (ii) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended. +17.12. No Trust or Fund +The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company. +17.13. Relationship to Other Benefits +No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company or any Related Company except as otherwise specifically provided in such other plan. +17.14. Successors +All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company. +18 +17.15. Severability +If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. +17.16. Gender; Titles and Headings +Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control. +17.17. Choice of Law and Venue +The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of law. Participants irrevocably consent to the nonexclusive jurisdiction and venue of the state and federal courts located in the State of Washington. +17.18. Legal Requirements +The granting of Awards and the issuance of shares of Common Stock under the Plan are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. +19 +APPENDIX A +DEFINITIONS +As used in the Plan, +“ Acquired Entity ” means any entity acquired by the Company or a Related Company or with which the Company or a Related Company merges or combines. +“ Award ” means any Option, Stock Appreciation Right, Stock Award, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, cash-based award or other incentive payable in cash or in shares of Common Stock as may be designated by the Committee from time to time. +“ Board ” means the Board of Directors of the Company. +“ Cause ” unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means: (a) indictment or conviction of a felony or misdemeanor involving moral turpitude; (b) engaging in illegal business practices or other practices contrary to the written policies of the Company; (c) misappropriation of assets of the Company; (d) continual or repeated insobriety or drug use; (e) continual or repeated absence for reasons other than disability or sickness, (f) fraud; (g) embezzlement; or (h) violation of the Company’s written conflict of interest policies, in each case as determined by the Committee, whose determination shall be conclusive and binding. If, subsequent to a Participant’s Termination of Service for any reason other than by the Company or a Related Company for Cause, it is discovered that such Participant’s Termination of Service could have been characterized as for Cause, such Participant’s Termination of Service shall, at the discretion of the Committee, be deemed to have been for Cause for all purposes under the Plan, and such Participant shall be required to repay or return to the Company or Related Company, as applicable, all amounts and benefits received by him or her in respect of any Award following such Termination of Service that would have been forfeited under the Plan had such Termination of Service been originally characterized by the Company or Related Company, as applicable, as being for Cause. +“ Change in Control ” unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means the occurrence of any of the following events: +(a) an acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (1) the then-outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or (2) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the security being so converted was not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Related Company, or (iv) any acquisition by any Entity pursuant to a transaction that meets the conditions of clauses (i), (ii) and (iii) set forth in the definition of Company Transaction; +A-1 +(b) a change in the composition of the Board during any two-year period such that the individuals who, as of the beginning of such two-year period, constitute the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the beginning of the two-year period, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an Entity other than the Board shall not be considered a member of the Incumbent Board; or +(c) consummation of a Company Transaction. +Notwithstanding the foregoing, with respect to the payment of any amount that constitutes a deferral of compensation subject to Section 409A payable upon a Change in Control, a Change in Control shall not be deemed to have occurred, unless the Change in Control constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code. +“ Code ” means the Internal Revenue Code of 1986, as amended from time to time. +“ Committee ” has the meaning set forth in Section 3.1 . +“ Common Stock ” means the common stock, no par value, of the Company. +“ Company ” means Key Tronic Corporation, a Washington corporation. +“ Company Transaction ” unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means consummation of: +(a) a merger or consolidation of the Company with or into any other company; +(b) a statutory share exchange pursuant to which the Company’s outstanding shares are acquired or a sale in one transaction or a series of transactions undertaken with a common purpose of all or substantially all of the Company’s outstanding voting securities; or +(c) a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common purpose of all or substantially all of the Company’s assets, +excluding, however, in each case, a transaction pursuant to which +(i) the Entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction will beneficially own, directly or indirectly, at least 50% of the outstanding shares of common stock, and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, of the Successor Company in substantially the same proportions as their ownership, +A-2 +immediately prior to such Company Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities; +(ii) no Entity (other than the Company, any employee benefit plan (or related trust) of the Company, a Related Company or a Successor Company) will beneficially own, directly or indirectly, 40% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to vote generally in the election of directors unless such ownership resulted solely from ownership of securities of the Company prior to the Company Transaction; and +(iii) individuals who were members of the Incumbent Board will, immediately after the consummation of the Company Transaction, constitute at least a majority of the members of the board of directors of the Successor Company. +Where a series of transactions undertaken with a common purpose is deemed to be a Company Transaction, the date of such Company Transaction shall be the date on which the last of such transactions is consummated. +“ Compensation Committee ” means the Compensation and Administration Committee of the Board or any duly authorized subcommittee thereof. +“ Disability ” means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or a Related Company and such agreement provides for a definition of Disability, the definition therein contained, or, (ii) if no such agreement exists, a period of disability during which a Participant qualifies for benefits under the Company’s then-current long-term disability plan or, in the case of a Participant who is not an employee of the Company, means a period of disability during which such Participant, if he or she were an employee of the Company, would qualify for benefits under the Company’s then-current long-term disability plan. +“ Eligible Person ” means any person eligible to receive an Award as set forth in Section 5 . +“ Entity ” means any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act). +“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time. +“ Fair Market Value ” means the closing price for the Common Stock on any given date during regular trading, or if not trading on that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Committee in good faith using such methods or procedures as it may establish. To the extent applicable, Fair Market Value shall be determined in accordance with Section 409A. The Committee may vary its determination of the Fair Market Value as provided in this paragraph depending on whether Fair Market Value is in reference to the grant, exercise, vesting, settlement or payout of an Award and, for Awards subject to Section 409A, as provided in Section 409A. +“ Grant Date ” means the later of (a) the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee and (b) the date on which all conditions precedent to an Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date. +A-3 +“ Incumbent Board ” has the meaning set forth in the definition of “Change in Control.” +“ Incentive Stock Option ” means an Option granted with the intention that it qualify as an “incentive stock option” as that term is defined for purposes of Section 422 of the Code or any successor provision. +“ Non-Employee Director ” means any member of the Board who is not an employee of the Company. +“ Nonqualified Stock Option ” means an Option other than an Incentive Stock Option. +“ Option ” means a right to purchase Common Stock granted under Section 7 . +“ Option Expiration Date ” means the last day of the maximum term of an Option. +“ Outstanding Company Common Stock ” has the meaning set forth in the definition of “Change in Control.” +“ Outstanding Company Voting Securities ” has the meaning set forth in the definition of “Change in Control.” +“ Parent Company ” means a company or other entity that, as a result of a Company Transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries. +“ Participant ” means any Eligible Person to whom an Award is granted. +“ Performance Award ” means an Award of Performance Shares or Performance Units granted under Section 10 . +“ Performance Measures ” means any measures of performance established by the Committee in connection with the grant of an Award. Performance measures may include, but are not limited to, one of or any combination of the following performance measures for the Company as a whole or any business unit of the Company, as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or excluding depreciation, amortization, items that are unusual in nature or infrequently occurring or both, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; total shareholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; or customer satisfaction, employee satisfaction, services performance, subscriber, cash management or asset management metrics. Such performance measures also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Measures described above relative to the performance of other corporations. +The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occur during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law or rate on deferred tax liabilities, accounting principles, or other laws or provisions affecting reported results, (iv) any reorganization and restructuring programs, (v) items that are unusual in nature or infrequently occurring or both, that the Company identifies in its audited financial statements, including notes to the financial statements, or the Management’s Discussion and Analysis section of the Company’s periodic reports, +A-4 +(vi) acquisitions or divestitures, (vii) foreign exchange gains and losses, (viii) gains and losses on asset sales or dispositions, (ix) accruals for historic environmental obligations, (x) uninsured catastrophic property losses, and (xi) impairments. +“ Performance Share ” means an Award of units denominated in shares of Common Stock granted under Section 10.1 . +“ Performance Unit ” means an Award of units denominated in cash or property other than shares of Common Stock granted under Section 10.2 . +“ Plan ” means this Key Tronic Corporation 2024 Incentive Plan, as amended from time to time. +“ Prior Plan ” means the Key Tronic Corporation 2010 Incentive Plan, originally adopted on April 22, 2010 and approved by the Company’s shareholders on October 21, 2010, and subsequently amended and restated on April 24, 2014 and approved by the Company’s shareholders on October 23, 2014. +“ Qualifying Termination ” means a Participant’s Termination of Service by the Company (other than for Cause or on account of the Participant’s death or Disability) or, if so provided in the applicable Award, that is due to the Participant’s resignation for “good reason” (as defined in the applicable Award), in each case, at any time following the Change in Control up to and including the second (2 nd ) anniversary of such Change in Control. +“ Related Company ” means any entity that is directly or indirectly controlled by, in control of or under common control with the Company. +“ Restricted Stock ” means shares of Common Stock granted under Section 9 , the rights of ownership of which are subject to restrictions prescribed by the Committee. +“ Restricted Stock Unit ” means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant not experience a Termination of Service for a specified period of time), granted under Section 9 . +“ Retirement ” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means “Retirement” as defined for purposes of the Plan by the Committee or, if not so defined, means Termination of Service on or after the later of (i) the date a Participant attains age 65 and (ii) the fifth anniversary of the date the Participant commenced employment or a service relationship with the Company. +“ Section 409A ” means Section 409A of the Code. +“ Securities Act ” means the Securities Act of 1933, as amended from time to time. +“ Stock Appreciation Right ” or “ SAR ” means a right granted under Section 8.1 to receive the excess of the Fair Market Value of a specified number of shares of Common Stock over the grant price. +“ Stock Award ” means an Award of shares of Common Stock granted under Section 9 , the rights of ownership of which are not subject to restrictions prescribed by the Committee. +A-5 +“ Substitute Awards ” means Awards granted or shares of Common Stock issued by the Company in substitution or exchange for awards previously granted by an Acquired Entity as contemplated by NASDAQ Listing Rule 5635(c) and IM-5635-1, or other applicable stock exchange rules, and their respective successor rules and listing exchange promulgations. +“ Successor Company ” means the surviving company, the successor company or Parent Company, as applicable, in connection with a Company Transaction. +“ Termination of Service ” means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement. Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Company’s chief human resources officer or other person performing that function or, with respect to directors and executive officers, by the Compensation Committee, whose determination shall be conclusive and binding. Transfer of a Participant’s employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an Award. Unless the Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant’s employment or service relationship is with an entity that has ceased to be a Related Company. Unless the Committee determines otherwise, a Participant’s change in status from an employee of the Company or a Related Company to a Non-Employee Director, consultant, advisor or independent contractor of the Company or a Related Company or a change in status from a Non-Employee Director, consultant, advisor or independent contractor of the Company or a Related Company to an employee of the Company or a Related Company shall not be considered a Termination of Service. +A-6 +35 +36 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-24-000119/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-24-000119/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..417455fc774db82ba250dc35de1972723d08a994 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-24-000119/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy for the approval or ratification of Interested Transactions with Related Parties, which was amended in October 2023. The policy supplements the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of the Company, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) an immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parent, stepparent, child, stepchild, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any person (other than a tenant or employee) sharing the household of such person. +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2024, the Company had no Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +9 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-25-000090/proxy.txt b/raw/proxies/0000719733/0000719733-25-000090/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..ec6f3e063b35b4bdf31c9dba895a062dfb46b4fb --- /dev/null +++ b/raw/proxies/0000719733/0000719733-25-000090/proxy.txt @@ -0,0 +1,544 @@ +ktcc-20250916 +0000719733 DEF 14A FALSE iso4217:USD 0000719733 2024-06-30 2025-06-28 0000719733 ktcc:LarsenMember 2024-06-30 2025-06-28 0000719733 ktcc:GatesMember 2023-07-02 2024-06-29 0000719733 ktcc:GatesMember 2022-07-03 2023-07-01 0000719733 ecd:EqtyAwrdsInSummryCompstnTblForAplblYrMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:EqtyAwrdsInSummryCompstnTblForAplblYrMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:YrEndFrValOfEqtyAwrdsGrntdInCvrdYrOutsdngAndUnvstdMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:YrEndFrValOfEqtyAwrdsGrntdInCvrdYrOutsdngAndUnvstdMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:VstngDtFrValOfEqtyAwrdsGrntdAndVstdInCvrdYrMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:VstngDtFrValOfEqtyAwrdsGrntdAndVstdInCvrdYrMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:ChngInFrValAsOfVstngDtOfPrrYrEqtyAwrdsVstdInCvrdYrMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:ChngInFrValAsOfVstngDtOfPrrYrEqtyAwrdsVstdInCvrdYrMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:FrValAsOfPrrYrEndOfEqtyAwrdsGrntdInPrrYrsFldVstngCondsDrngCvrdYrMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:FrValAsOfPrrYrEndOfEqtyAwrdsGrntdInPrrYrsFldVstngCondsDrngCvrdYrMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:DvddsOrOthrErngsPdOnEqtyAwrdsNtOthrwsRflctdInTtlCompForCvrdYrMember ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:DvddsOrOthrErngsPdOnEqtyAwrdsNtOthrwsRflctdInTtlCompForCvrdYrMember ecd:NonPeoNeoMember 2024-06-30 2025-06-28 0000719733 ecd:PeoMember 2024-06-30 2025-06-28 0000719733 ecd:NonPeoNeoMember 2024-06-30 2025-06-28 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2)) +x Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material under §240.14a‑12 +Key Tronic Corporation +(Name of Registrant as Specified In Its Charter) +N/A +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x No fee required. +o Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o Fee paid previously with preliminary materials. +o Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +September 16, 2025 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 23, 2025, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Brett R. Larsen, President and Chief Executive Officer +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 23, 2025 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company”) will be held on Thursday, October 23, 2025, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216 (the “Annual Meeting”), for the following purposes: +1. To elect seven directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Executive Compensation” herein; +3. To ratify the appointment of Baker Tilly US, LLP as independent registered public accounting firm for fiscal year 2026; and +4. To transact such other business as may properly come before the meeting and any +adjournments or postponements thereof. +Record holders of the Company’s Common Stock at the close of business o n September 9, 2025 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. E ven if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +John Theiss +Secretary +Spokane Valley, Washington +September 16, 2025 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON October 23, 2025. The Proxy Statement and 2025 Annual Report to Shareholders are available at: www.edocumentview.com/ktcc. +PROXY STATEMENT +_______________________________________________________________ +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement (the “Proxy Statement”) and the enclosed proxy card are being furnished by Key Tronic Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board of Directors” or the “Board”) from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 23, 2025 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting”). The proxies appoint Brett R. Larsen and Anthony G. Voorhees, each of them and their substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This Proxy Statement and the enclosed proxy card are first being mailed to shareholders on or about September 25, 2025. +Record Date, Proxies, Revocation +Record holders of the Common Stock at the close of business on September 9, 2025 (the “Record Date”) are entitled to notice of and to vote at the Annual Meetin g. As of the Record Date, 10,773,774 shares of Common Stock were issued and outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxy cards returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of each of the nominees for director named below (“Proposal 1”), FOR the approval of compensation of the Company’s named executive officers (“Proposal 2”), and FOR the ratification of the appointment of Baker Tilly US, LLP as the Company ’ s independent registered public accounting firm for fiscal year 2026 (“Proposal 3”). Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a completed, signed proxy card bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +1 +Voting +Each share of Common Stock outstanding is entitled to one vote on each proposal presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company’s Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at a meeting: (i) the seven nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and (ii) Proposal 2 and Proposal 3 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, an abstention from voting or a broker non-vote (as described below) will have the practical effect of voting against the nominee. An abstention from voting or a broker non-vote will have no effect on Proposal 2 and Proposal 3 since neither represents a vote cast. +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual meeting, your shares will not be voted. If you hold shares in street name and you do not return the voting instruction form, your broker, trustee or nominee (collectively referred to as “brokers”) may vote your shares in certain circumstances and on certain routine proposals. Brokers cannot vote “uninstructed” shares in non-routine matters, such as director elections and executive compensation matters. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of directors (Proposal 1) or the advisory vote to approve the compensation of the Company’s named executive officers (Proposal 2), your shares will not be voted. Brokers have discretion to vote uninstructed shares on the ratification of the appointment of the independent registered public accounting firm (Proposal 3).When a broker cannot vote shares, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting and will have the effect described in the preceding paragraph. +2 +PROPOSAL 1 +ELECTION OF DIRECTORS +Seven directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The seven n ominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the Amended and Restated By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a nominee or as a director if elected. +The following information has been provided to the Company with respect to the nominees for election to the Board of Directors: +Cheryl Beranek , age 62, has been a director of the Company since January 2024. Ms. Beranek is the President, Chief Executive Officer and a director of Clearfield, Inc., a publicly held company that designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks. Ms. Beranek was a member of the board of directors of publicly-traded CyberOptics Corporation, a developer and manufacturer of high precision sensors and inspection systems for the semiconductor and electronics industry, from May 2020 until its acquisition in November 2022. Ms. Beranek holds a B.S. from Southwest Minnesota State University and a M.S. from North Dakota State University. The Board of Directors has concluded that based upon Ms. Beranek’s senior management experience, service on companies’ boards and education that she should serve as a director of the Company. +James R. Bean , age 75, has been a director of the Company since October 2006. Mr. Bean served as President and CEO of Preco Electronics, LLC from November 1999 to March 2020. From May 1997 to 1999 he held various management positions in Boise with Preco Electronics, LLC, which was sold to Sensata Technologies in March 2020. Mr. Bean remained with Sensata until his retirement in November 2022. Previously he held various management positions in manufacturing operations with Sun Microsystems, Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean's business and financial expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Craig D. Gates , age 66, has been a director of the Company since July 2009 and formerly served as President and CEO of the Company from April 2009 through June 2024. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a B.S. in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. The Board of Directors has concluded that based upon Mr. Gates’ business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Ronald F. Klawitter , age 73, has been a director of the Company since October 2009 and Chair of the Board since January 2024. Mr. Klawitter formerly served as Executive Vice President of Administration, CFO and Treasurer of the Company from July 1997 through July 2015 and Vice President of Finance, Secretary and Treasurer since October 1995. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a B.A. from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and +3 +financial expertise, current and prior management experience and education that he should serve as a director of the Company. +Dr. Subodh K. Kulkarni , age 61, has been a director of the Company since October 2018. Dr. Kulkarni has served as President and Chief Executive Officer at Rigetti Computing, Inc. since December 2022. Dr. Kulkarni is a seasoned public company CEO with thirty-plus years of experience in the semiconductor industry and a track record of success in scaling and commercializing cutting-edge technologies. Prior to joining Rigetti, Dr. Kulkarni was President, CEO, and member of the Board of CyberOptics Corporation, a developer and manufacturer of high precision sensors and inspection systems for the semiconductor and electronics industry. He held these roles from 2014 until CyberOptics was acquired by Nordson Corporation in November 2022. Prior to CyberOptics, Dr. Kulkarni was CEO of Prism Computational Sciences, a developer of software tools for scientific and commercial applications in the semiconductor industry. Earlier in his career, he held additional leadership positions, including Chief Technology Officer and Senior Vice President of OEM/Emerging business, global commercial business, R&D and manufacturing at Imation, a global scalable storage and data security company. Dr. Kulkarni began his career in research and management positions with 3M Corporation and IBM. He received his B.S. in chemical engineering from the Indian Institute of Technology, Mumbai, and later obtained a M.S. and Ph.D. in chemical engineering from MIT. Dr. Kulkarni currently serves as Chairman of the Board for Prism Computational Sciences. The Board of Directors has concluded that based upon Dr. Kulkarni’s current and prior senior management and financial experience, service on companies’ boards and education that he should serve as a director of the Company. +Brett R. Larsen , age 52, has served as President and CEO of the Company since June 30, 2024. Previously he was Executive Vice President of Administration, Chief Financial Officer, and Treasurer since July 2015 and Vice President of Finance and Controller from February 2010 to July 2015. He was Chief Financial Officer of FLSmidth Spokane, Inc. from December 2008 to February 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr. Larsen served as Manager of Financial Reporting of Key Tronic Corporation. From 2002 to May 2004, Mr. Larsen was an audit manager for the public accounting firm BDO USA, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr. Larsen has a B.S. in Accounting and a M.S. in Accounting from Brigham Young University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Larsen’s business expertise, current and prior senior management experience and education that he should serve as a director of the Company. +Yacov A. Shamash , age 75, has been a director of the Company since 1989. He is a Professor of Electrical and Computer Engineering at Stony Brook University and was the Vice President of Economic Development from 2001 - 2019 and the Dean of Engineering and Applied Sciences at the campus from 1992 to 2015. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA Sciences, Inc., Softheon Inc., Advanced Convergence Group and Comtech Telecommunications Corp. He received a B.S in electrical engineering and later a PhD in Control Systems from the Imperial College of Science and Technology, London. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +4 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company’s Board of Directors met seven times du ring fiscal 2025. During fiscal 2025, each director attended at least 85% of t he Board of Directors meetings and at least 84% of the meetings of committees of the Board of Directors on which the director served during the time he or she served on the Board or committee. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2025 Annual Meeting attended the 2024 Annual Meeting. +Directors’ Independence +The Board of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Listing Rules (the “Nasdaq Rules”), except for Mr. Gates, the Company’s former President and Chief Executive Officer, and Mr. Larsen, the Company’s current President and Chief Executive Officer, who are nominees for director. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the Nasdaq Rules; (2) meet the requirements of the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules. +The Board of Directors has determined that all members of the Audit Committee have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +The Board of Directors also monitors the independence of Compensation and Administration Committee members under rules of the SEC and Nasdaq Rules that are applicable to compensation committee members. All members of the Compensation and Administration Committee are independent directors within the meaning of the Nasdaq rules. In addition, all members of the Compensation and Administration Committee qualify as "non-employee directors" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chair of the Board should be separated based upon its judgment of the structure which best meets the current needs of the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chair of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to financial reporting, internal controls, cyber security risk, and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairs of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +5 +Succession Planning +The Board of Directors is charged with monitoring and overseeing the process of planning for senior management succession. The Board of Directors identifies the qualities and characteristics it believes are necessary for effective senior management and periodically reviews the development and progression of internal candidates against these standards. +Executive Sessions +At two of the five meetings of the Board of Directors held during fiscal year 2025, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy /Prohibition of Speculative Transactions +The Board of Directors has adopted a written policy on Insider Trading which applies to all directors, officers and employees of the Company, as well as members of such persons’ immediate families and households (other than household employees) and such persons’ controlled entities. The policy prohibits all covered persons from engaging in transactions in securities, whether issued by us or another company, when in possession of material non-public information related to the company, or from conveying material non-public information to others. The policy also prohibits engaging in short-term speculative transactions involving the Company’s securities, short sales, transactions involving publicly traded options or other derivatives, such as trading in puts or calls, and hedging transactions with respect to Company securities. The policy further prohibits holding Company securities in a margin account or pledging Company securities as collateral for a loan. We believe our policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and Nasdaq listing standards. A copy of our Insider Trading Policy was filed as Exhibit 19.1 to our Annual Report on Form 10-K for the fiscal year ended June 28, 2025. +Clawback Policy +The Company has adopted an Incentive Compensation Recovery Policy (the “Clawback Policy”) that complies with Section 10D of the Exchange Act, and the Nasdaq listing standards. The Clawback Policy applies to the Company’s current and former executive officers, as defined in Rule 10D-1 under the Exchange Act. Under the Clawback Policy, the Company must recover erroneously awarded incentive-based compensation on a pre-tax basis, subject to limited exceptions, in the event the Company is required to prepare an accounting restatement, regardless of whether an executive officer engaged in any misconduct or is otherwise at fault. The Clawback Policy applies to incentive-based compensation received by an executive officer during the three completed fiscal years immediately preceding the date it is determined that the Company is required to prepare an accounting restatement. +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the Secretary and submitted to the Board of Directors or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company at the address above, together with biographical information and references, not earlier than the 120th day and not later than the 90th day prior to +6 +the first anniversary of the preceding year’s annual meeting. Assuming that appropriate biographical information and references are provided for candidates recommended by shareholders, the Governance and Nominating Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. No person recommended by a shareholder will become a nominee for director and be included in a proxy statement unless the Governance and Nominating Committee recommends, and the Board approves, such person. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s website at www.keytronic.com. +The Audit Committee , which currently consists of Messrs. Bean (Chair), Klawitter, Kulkarni and Shamash and Ms. Beranek, met 12 times during fiscal 2025. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting, cyber security and legal compliance; selects and appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee (“Compensation Committee”) which currently consists of Messrs. Shamash (Chair), Bean and Kulkarni and Ms. Beranek met five times during fiscal 2025. The Compensation Committee establishes and reviews annually the Company’s general compensation policies applicable to the Company’s executive officers and other key employees, reviews and recommends to the Board of Directors to approve the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board regarding changes to existing compensation plans. The Compensation Committee considers the Chief Executive Officer’s recommendations on compensation for executive officers and other key employees (other than his own compensation). The Compensation Committee administers the Company’s incentive compensation plans including determining the individuals to receive awards and the terms of such awards. +The Compensation Committee also has the authority to engage and oversee an external independent compensation consultant to assist it by providing information, analysis and other advice relating to the Company’s compensation program. During fiscal year 2025, the Company engaged both Total Compensation Solutions, LLC (“TCS”), and Milliman, Inc. (“Milliman”), each a national compensation consulting firm, to serve as its compensation consultant to advise on executive and director compensation matters, including competitive market pay practices for the Company’s executive officers and directors, and with data analysis and selection of the compensation peer group. During fiscal year 2025, neither of TCS or Milliman provided any other consulting or other services to us. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chair), Klawitter, Kulkarni and Shamash and Ms. Beranek met two times during fiscal 2025. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum qualifications which must be met by a potential director nominee. Each potential nominee is considered on a case by case basis. Potential +7 +nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. +Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy for the approval or ratification of Interested Transactions with Related Parties, which was amended in October 2023. The policy supplements the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of the Company, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) an immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parent, stepparent, child, stepchild, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any person (other than a tenant or employee) sharing the household of such person. +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2025, the Company entered into an agreement with Craig Gates pursuant to which he will provide certain consulting services to the Company following his retirement. The Consulting Agreement provides for a term beginning on June 30, 2024 and ending on June 30, 2026 and payments of $10,000 per month. There were no other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +8 +BENEFICIAL OWNERSHIP OF SECURITIES +The following table provides certain information that has been furnished to the Company regarding beneficial ownership of the Common Stock as of the Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of the Company named in the Summary Compensation table; and (iv) all officers and directors of the Company as a group. +Name and Address of +Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent of Class (1) +MORE THAN 5% SHAREHOLDERS +Morgan Stanley 1,726,280 +(2) +16.0 % +Dimensional Fund Advisors LP 778,885 +(3) +7.2 % +Tieton Capital Management 749,083 +(4) +7.0 % +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean 15,655 ** +Ronald F. Klawitter 203,530 +(5) +1.9 % +Subodh K. Kulkarni 9,869 ** +Yacov A. Shamash 51,195 +(6) +** +Cheryl Beranek 10,869 ** +Craig D. Gates 315,570 2.9 % +Brett R. Larsen 58,629 (7) ** +Philip S. Hochberg 72,608 (8) ** +Anthony G. Voorhees 20,862 (9) ** +All officers and directors as a group +(13 persons) +851,735 7.9 % +* Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** Less than 1%. +1. Percentage beneficially owned is based on 10,773,774 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +2. Based solely on a Schedule 13G/A filed with the SEC on February 4, 2025 by Morgan Stanley and Morgan Stanley Smith Barney LLC (collectively, “Morgan Stanley”). The address for Morgan Stanley is 1585 Broadway, New York, NY 10036. +3. Based solely on a Schedule 13G/A filed with the SEC on February 9, 2024. The address for Dimensional Fund Advisors LP is 6300 Bee Cave Road, Building One, Austin, TX 78746. +9 +4. Based solely on a Schedule 13G/A filed with the SEC on February 11, 2025. The address for Tieton Capital Management is 4700 Tieton Drive, Suite C, Yakima, WA 98908. +5. Includes 1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +6. Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +7. Includes Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan (39,378 shares). +8. Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (40,574 shares). +9. Includes Common Stock allocated to Mr. Voorhees as a participant in the Company’s 401(k) Retirement Savings Plan (15,965 shares) and 431 shares owned in an IRA account. +10 +EXECUTIVE COMPENSATION +Summary Compensation Table-Fiscal Years 2023-2025 +The following table sets forth information concerning compensation for services rendered to the Company by the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer and the Company’s next most highly compensated executive officer for fiscal years 2023 through 2025, to the extent such persons served in such capacities during such period. Collectively, these officers are the “named executive officers.” +Name and Principal Position Year Salary +($) Bonus +($) +Stock +Awards +($) (1) +Option/ SAR +Awards ($) (2) +Non-Equity Incentive +Plan +Compensation ($) (3) +All +Other +Compensation +($) +Total +($) +Brett R. Larsen 2025 790,770 2,048 249,994 — — 13,800 1,056,612 +President & Chief 2024 599,686 — — — — 13,200 612,886 +Executive Officer (4) +2023 475,952 — — 23,513 199,900 12,200 711,565 +Anthony G. Voorhees 2025 380,558 — 124,999 — — 9,536 515,092 +Executive Vice President of Administration , +Chief Financial Officer and Treasurer +Philip S. Hochberg, 2025 425,572 — 124,999 — — 13,800 564,371 +Executive Vice President of 2024 392,758 — — — — 13,200 405,958 +Customer Relations and Integration 2023 386,661 — — 20,900 126,892 12,200 546,653 +1) The amounts reported in the “Stock Awards” column reflect the aggregate grant date fair value of restricted stock unit (RSU) awards granted to Messrs. Larsen, Voorhees, and Hochberg under the 2010 Incentive Plan, calculated in accordance with ASC Topic 718. The amounts shown are based on the probable outcome of such awards on the date of grant, which was achievement at target level. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 7 – “Stock-Based Compensation and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2025 Annual Report. +2) The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 7 – “Stock-Based Compensation and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2025 Annual Report. +3) Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and (b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +4) Mr. Larsen became the Company’s Chief Executive Officer effective June 30, 2024. Amounts reported for Mr. Larsen for 2023 and 2024 relate to his previous role as Executive Vice President of Administration, Chief Financial Officer, and Treasurer. +11 +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives, and the payout of annual and long term cash incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in fiscal year 2025 provides information regarding the long-term incentives awarded to the named executive officers in fiscal year 2025. The Outstanding Equity Awards at 2025 Fiscal Year-End and Option/SAR Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment and/or a change in control of the Company. +In fiscal year 2024, the Compensation Committee evaluated the long-term incentive structure of the Company’s executive and director compensation program and determined to cease grants of stock appreciation rights. Beginning in fiscal year 2025, the Compensation Committee replaced the stock appreciation rights with restricted stock units (RSUs) as the long-term equity incentive element of executive compensation. The RSUs granted to executive officers will vest in equal annual installments over a three year period with a portion of the RSUs subject to time-based vesting and a portion of the RSUs subject to performance-based vesting only to the extent the Company’s annual EBITDA in such year meets or exceeds a threshold amount. For the President and CEO, 60% of the RSUs will be subject to performance-based vesting and for all other executive officers, 50% of the RSUs will be subject to performance-based vesting. RSU awards made during fiscal year 2025 were made under the Key Tronic Corporation 2010 Incentive Plan (the “2010 Plan”). The Company’s shareholders approved the Key Tronic Corporation 2024 Incentive Plan (the “2024 Plan”) on November 25, 2024. No further grants of awards will be made under the 2010 Plan. +On May 12, 2025, the Company announced that its executive leadership team has agreed to a voluntary 10% temporary reduction in their base salaries, including with respect to the base salaries of Messrs. Larsen, Voorhees, and Hochberg, effective May 18, 2025. Such reduction in salary, which does not modify other rights under any agreements or impact annual and long-term incentives or benefit eligibility, is reflected in the amounts reported for 2025 in the “Salary” column of the Summary Compensation Table. +Description of Employment Agreements +The Company entered into employment contracts with Messrs. Larsen, Voorhees and Hochberg at the time each employee was first appointed an officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and non-competition provisions. Each of the employment contracts provides that the Company may terminate employment at any time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay employee's base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with Internal Revenue Code Section 409A. +12 +Grants of Plan-Based Awards-Fiscal Year 2025 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards made during fiscal year 2025 to each of the named executive officers. +Name Grant +Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated +Future Payouts +Under +Equity +Incentive +Plan Awards (#) +All Other +Stock +Awards: +Number of Shares +of +Stock or Units (#) +Grant Date +Fair Value +of +Stock Awards ($) +Threshold +($) +Target +($) +Maximum +($) +Brett R. Larsen +(1) +(2) +(3) +80,000 +200,000 +800,000 +400,000 +1,200,000 +600,000 +33,259 22,172 249,994 +Anthony G Voorhees +(1) +(2) +(3) +26,950 +95,000 +269,500 +190,000 +404,250 +285,000 +13,858 13,858 124,999 +Philip S. Hochberg +(1) +(2) +(3) +27,594 +95,000 +275,942 +190,000 +413,912 +285,000 +13,858 13,858 124,999 +(1) Represents restricted stock unit (RSU) awards during fiscal year 2025 under the 2010 Incentive Plan. Both performance-based and time-based awards are included in the share amounts and the value represents the fair value as of the date of grant. +(2) Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2025. For actual payouts, if any, earned for fiscal year 2025 see the Summary Compensation Table. +(3) Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2025-2027 performance cycle. Payouts under the Long-Term Incentive Plan for the 2025-2027 performance cycle are dependent upon the achievement of goals for three years sales growth compared to peer group companies and return on invested capital. +13 +Outstanding Equity Awards at Fiscal 2025 Year-End +The following tables present information regarding the outstanding RSU and stock appreciation rights (SARs) awards held by each of the Company’s named executive officers as of June 28, 2025. +Option/SAR Awards +Name Grant Date +Number of Securities Underlying Unexercised Options (SARs) (#) Exercisable (1) +Equity Incentive Plan Awards +Number of Securities Underlying +Unexercised Unearned +Options (SARs) (#) (1) +Option (SAR) +Exercise/Base Price ($) +Option (SAR) +Expiration Date +Brett R. Larsen +07/29/22 +(2) +11,250 5.10 +07/29/27 +Anthony G. Voorhees +07/29/22 +(2) 5,000 5.10 +07/29/27 +Philip S. Hochberg +07/29/22 +(2) +10,000 5.10 +07/29/27 +(1) Stock appreciation rights vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon the achievement of goals for three year’s return on invested capital compared to peer group companies. +(2) The awards granted on July 29, 2022 did not vest and were no longer outstanding as of July 29, 2025. +Stock Awards +Name Grant Date +Number of shares or units of stock that have not vested +(#) +Market value of shares of units of stock that have not vested +($) +Equity +incentive +plan awards: Number of +unearned +shares, units or other rights that have not vested +(#) +Equity +incentive +plan awards: Market or payout value of +unearned +shares, units or other rights that have not vested +($) +Brett R. Larsen +9/3/2024 +22,172 60,530 22,173 60,532 +Anthony G. Voorhees +9/3/2024 +13,858 37,832 9,239 25,222 +Philip S. Hochberg +9/3/2024 +13,858 37,832 9,239 25,222 +Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Non-Public Information +We do not grant equity awards in anticipation of the release of material nonpublic information and we do not time the release of material nonpublic information based on equity award grant dates or for the purpose of affecting the value of executive compensation. In addition, we do not take material nonpublic information into account when +14 +determining the timing and terms of such awards. In fiscal year 2025, we did not grant new awards of stock options or SARs to our NEOs during the time period outlined in Item 402(x) of Regulation S-K. +Option/SAR Exercises and Stock Vested-Fiscal Year 2025 +During fiscal year 2025, none of the named executive officers exercised any stock appreciation rights awards or vested in any stock award. +Pension Benefits +None of the named executive officers are covered by a pension plan. +Non-qualified Deferred Compensation +None of the named executive officers are covered by a defined benefit plan or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees a 401(k) plan and life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 28, 2025. +The first table presents the benefits the executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in control. +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance ($) (1) +Continuation of +Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and +Earned Vacation ($) +Total ($) +Brett R. Larsen +720,000 +— +— +720,000 +Anthony G. Voorhees +346,500 +— +— +346,500 +Philip S. Hochberg +390,260 +— +— +390,260 +1. This amount represents 12 months of the executive’s base salary after voluntary salary reductions that occurred in fiscal year 2025. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 12 month severance period. +2. The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent that such dependents were receiving health benefits as of June 28, 2025) would be paid by the executive and the Company will not reimburse the executive for these premiums. +15 +Change of Control Severance Benefits +Name +Cash +Severance ($) (1) +Continuation +of Health/Life +Benefits ($) (2) +Cash-Out of +Accrued and Unpaid +Paid Time Off ($) +Equity +Acceleration ($) (3) +Non-Equity +Acceleration ($) (4) +Total ($) +Brett R. Larsen 1,440,000 — — 151,327 840,000 2,431,327 +Anthony G. Voorhees 693,000 — — 75,665 330,000 1,098,665 +Philip S. Hochberg 780,520 — — 75,665 490,000 1,346,185 +1. For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. See footnote (2) to the previous table. +3. This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $2.73 (the closing price of the Company’s common stock on the last trading day of fiscal 2025) exceeds the base price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. There was no intrinsic value as of June 28, 2025 based on the exercise price of outstanding SARS. This also includes the value of RSUs granted under the 2010 Plan that were unvested as of June 28, 2025 that would have accelerated on a termination of the executive’s employment as described above. This value is calculated based on the closing price of $2.73. Under the terms of the RSU grant, if an acquirer converts, assumes, substitutes for or replaces outstanding RSU awards, then the vesting restrictions and/or forfeiture provisions applicable to such awards will not be accelerated or lapse, in which case the amount payable upon a change in control would be $0. +4. This amount represents the target value of the unvested portion of the executive’s long term cash incentive plan awards that would have accelerated if the executive’s employment terminated upon a change in control of the Company on June 28, 2025. +16 +Pay Versus Performance +As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between “compensation actually paid” to our CEO as principal executive officer (or “PEO”) and to our other NEOs and certain metrics of financial performance of the Company. The following table shows the total compensation for our NEOs for the past two fiscal years as set forth in the Summary Compensation Table, the “Compensation Actually Paid” (or “CAP”) to our CEO as PEO, and, on an average basis, our other NEOs, and our total shareholder return. CAP figures do not reflect the actual amount of compensation earned by or paid to our NEOs during the applicable year as significant portions of this compensation depends on the achievement of performance criteria in subsequent fiscal periods. +Year (1) +Summary compensation table total for PEO (2) +Compensation actually paid to PEO (3) +Average summary compensation table total for non-PEO named executive officers (2) +Average compensation actually paid to non-PEO named executive officers (3) +Value of initial fixed $100 investment based on: +Total shareholder return (4) +Net income (loss) +2025 (1) +$ 1,056,612 $ 893,480 $ 539,732 $ 454,988 $ 63.93 $( 8,318,230 ) +2024 (1) +$ 892,270 $ 778,520 $ 509,422 $ 461,078 $ 94.85 $( 2,787,296 ) +2023 (1) +$ 1,513,037 $ 1,542,537 $ 629,109 $ 641,647 $ 132.79 $ 5,156,736 +1. Mr. Gates served as the Company’s Chief Executive Officer for the entirety of 2023 and 2024. Effective as of the beginning of fiscal year 2025, Mr. Larsen succeeded Mr. Gates as Chief Executive Officer. Our non-PEO NEOs for 2023 and 2024 included Messrs. Larsen and Hochberg. Our non-PEO NEOs for 2025 included Messrs. Voorhees and Hochberg. +2. Amounts reported in this column represent the total compensation reported in the Summary Compensation Table for the applicable year. +3. To calculate “Compensation Actually Paid” under SEC disclosure rules, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. Reconciliations of the adjustments for Messrs. Larsen, Voorhees and Hochberg for 2025 are set forth in the tables below. +17 +PEO NEOs - Average +2025 2025 +Decrease for amounts reported under the "Stock Awards" column in the Summary Compensation Table $( 249,994 ) $( 124,999 ) +Add fair value as of the end of the covered fiscal year of all awards granted during the covered fiscal year that are outstanding and unvested as of the end of the covered fiscal year $ 121,062 $ 63,055 +Year-over-year change in fair value of unvested awards $( 17,100 ) $( 11,400 ) +Change in fair value at vesting (from prior fiscal year end) of awards granted in prior years for which vesting conditions were satisfied during current year $ — $ — +Less fair value as of prior fiscal year end of awards granted in prior years that failed to meet vesting conditions during current year $( 17,100 ) $( 11,400 ) +Dividends paid $ — $ — +Total Adjustments $( 163,132 ) $( 84,744 ) +4. Pursuant to rules of the SEC, the comparison assumes $100 was invested on July 1, 2022. Historic stock price performance is not necessarily indicative of future stock price performance. +Relationship Between Pay and Performance +We believe the “Compensation Actually Paid” in each of the years reported above and over the multi-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to the result of our stock performance. +Relationship between “Compensation Actually Paid” to the PEO and Average Other NEOs and the Company’s Cumulative TSR and Net Income. “Compensation Actually Paid” to the PEO and Average Other NEOs aligned with the trend in the Company’s Cumulative TSR and Net Income. This is generally because “Compensation Actually Paid” is influenced by year-over-year changes in stock prices due to the fact that a portion of the PEO’s and each NEO’s compensation is equity-based and because base salary is influenced by year-over-year changes in revenues, which in turn effects net income. +18 +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid during fiscal year 2025 to members of the Board of Directors who were not also employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned or +Paid in Cash ($) +Stock +Awards ($) (1) +Non-Equity Incentive +Plan Compensation ($) +All Other +Compensation ($) (2) +Total ($) +Craig D. Gates 60,750 40,000 — 120,000 220,750 +James R. Bean 81,000 40,000 — — 121,000 +Ronald F. Klawitter 97,200 40,000 — — 137,200 +Subodh K. Kulkarni 81,000 40,000 — — 121,000 +Yacov A. Shamash 81,000 40,000 — — 121,000 +Cheryl Beranek 81,000 40,000 — — 121,000 +1. The amount reported in the “Stock Awards” column reflect a grant on September 3, 2024 of 8,869 RSUs under the Company’s 2010 Plan to each non-employee director. As described above, in fiscal year 2024, the Compensation Committee evaluated the long-term incentive structure of the Company’s executive and director compensation program and determined to cease grants of stock appreciation rights. Beginning in fiscal year 2025, the Compensation Committee replaced the stock appreciation rights with restricted stock units (RSUs) as a component of non-employee director compensation. The non-employee director RSUs will vest on the first anniversary of the grant date of the awards. The table below presents the number of outstanding and unexercised and unvested RSU awards held by each of the Company’s non-employee directors as of June 28, 2025. +2. Represents payments of $10,000 per month related to the consulting agreement between the Company and Mr. Gates, as detailed further in the related persons transaction section. +Director +Number of Shares Subject to Outstanding RSU/Options/SAR Awards as of June 28, 2025 +Craig D. Gates 8,869 +James. R. Bean 8,869 +Ronald F. Klawitter 8,869 +Cheryl Beranek 8,869 +Subodh K. Kulkarni 8,869 +Yacov A. Shamash 8,869 +19 +Non-Employee Director Compensation +Retainers and Meeting Fees . Non-employee directors received annual retainers for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chair $ 81,000 +Chair of the Board 97,200 +Effective May 18, 2025, the Board of Directors elected to take a voluntary 10% temporary reduction in the amount of the annual cash retainer payable to each non-employee director of the Company. +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee meetings, as well as other Board-related travel expenses. +Equity Grants. Under the Company’s 2024 Incentive Plan, the Company’s non-employee directors may receive awards, subject to the non-employee director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +20 +PROPOSAL 2 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS +The Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Exchange Act, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. +As described in greater detail in the “Executive Compensation” section of this Proxy Statement the Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation Committee. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. To the extent there is a significant vote against our named executive officers compensation as disclosed in this Proxy Statement, the Compensation Committee will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2025 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure. +21 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors consists of five members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable Nasdaq Rules and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement, as required by the Nasdaq Rules and that all Audit Committee members have the requisite attributes of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. The Audit Committee has met and reviewed and discussed the Company’s financial statements contained in the Annual Report on Form 10-K for the fiscal year ended June 28, 2025 with the Company’s management and Baker Tilly US, LLP (“Baker Tilly”), the Company’s independent registered public accounting firm. +The Audit Committee has reviewed and discussed with Baker Tilly the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission (“SEC”) . Baker Tilly has submitted to the Audit Committee and the Committee has reviewed the written disclosures and letter from Baker Tilly as required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence . The Audit Committee discussed with Baker Tilly that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence. All services to be provided by Baker Tilly are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2025, for filing with the SEC. The foregoing report has been approved by all members of the Audit Committee. +James R. Bean (Chair) +Cheryl Beranek +Ronald F. Klawitter +Subodh K. Kulkarni +Yacov A. Shamash +22 +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the Company by Baker Tilly (formerly Moss Adams LLP) for professional services in the named categories for the fiscal years ended June 28, 2025 and June 29, 2024: +FY 2025 FY 2024 +Audit Fees (1) +$ 717,592 $ 763,751 +Audit Related Fees (2) +— +29,400 +Tax Fees +— +— +All Other Fees +— +— +Total $ 717,592 +$793,151 793,151 +1. Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the Company’s 2025 Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +2. Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation matters. +23 +PROPOSAL 3 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained Baker Tilly US, LLP (“Baker Tilly”) as the Company’s independent registered public accounting firm for the fiscal year ending June 27, 2026. The Company's prior independent auditor, Moss Adams LLP, merged with Baker Tilly on June 3, 2025 with the combined firms continuing to operate under the Baker Tilly name. Representatives of Baker Tilly are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the event that ratification of this appointment of Baker Tilly as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF BAKER TILLY US, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +24 +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at the Annual Meeting of Shareholders to be held in 2026 must submit their proposals in writing to John Theiss, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road - Upper Level, Spokane Valley, Washington 99216. +Under Rule 14a-8(e) of the Exchange Act, proposals submitted for inclusion in our proxy statement for the 2026 Annual Meeting must be received by the Secretary at the address above no later than May 19, 2026. In addition, any shareholder who intends to present a proposal at the 2026 Annual Meeting without inclusion of such proposal in our proxy materials must provide us written notice of such proposal in the manner set forth above by no earlier than June 25, 2026 and no later than July 25, 2026 o r such proposal will be considered untimely. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in its proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (2) the proponent does not issue a proxy statement that complies with Rule 14a-4(c)(2). We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. In addition, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than August 24, 2026. +OTHER MATTERS +Annual Report on Form 10-K +The 2025 Annual Report on Form 10-K (including exhibits), which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our Form 10-K by contacting Investor Relations at (509) 927-5500, investorrelations@keytronic.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership with the SEC and NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5 were required, the Company believes that with respect to the fiscal year ended June 28, 2025 all the Reporting Persons complied with all applicable filing requirements. +Solicitation Expenses +The expense of printing and mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and +25 +nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson LLP to aid in the solicitation of proxies and provide related advice and informational support. We currently estimate the fees payable to Georgeson LLP in connection with such services to be approximately $12,500, plus reimbursement of out of pocket expenses. +Other Business +The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in respect thereof in accordance with the judgment of the persons voting the proxies. +Spokane Valley, Washington By Order of the Board of Directors, +September 16, 2025 John Theiss +Secretary +26 +35 +36 \ No newline at end of file diff --git a/raw/proxies/0000719733/0000719733-25-000090/proxy_rpt.txt b/raw/proxies/0000719733/0000719733-25-000090/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4ba0b8e1883457bf1d87900a7fdf32a122280622 --- /dev/null +++ b/raw/proxies/0000719733/0000719733-25-000090/proxy_rpt.txt @@ -0,0 +1,6 @@ +Related Person Transactions +In April 2007, the Board of Directors adopted a written policy for the approval or ratification of Interested Transactions with Related Parties, which was amended in October 2023. The policy supplements the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of the Company, (b) greater than 5 percent beneficial owner of the Company’s Common Stock, or (c) an immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parent, stepparent, child, stepchild, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and any person (other than a tenant or employee) sharing the household of such person. +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. +During fiscal year 2025, the Company entered into an agreement with Craig Gates pursuant to which he will provide certain consulting services to the Company following his retirement. The Consulting Agreement provides for a term beginning on June 30, 2024 and ending on June 30, 2026 and payments of $10,000 per month. There were no other Interested Transactions required to be disclosed pursuant to the SEC’s related persons disclosure. +8 \ No newline at end of file diff --git a/raw/proxies/0000719733/0001193125-14-341259/proxy.txt b/raw/proxies/0000719733/0001193125-14-341259/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7d9180bf13e3c90644c050f39571cad68ad4a097 --- /dev/null +++ b/raw/proxies/0000719733/0001193125-14-341259/proxy.txt @@ -0,0 +1,2607 @@ +DEF 14A +1 +d776728ddef14a.htm +DEF 14A +DEF 14A +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant ¨ +Check the appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional Materials +¨ +Soliciting Material Under Rule 14a-12 +KEY TRONIC CORPORATION +(Name of Registrant as Specified in Its Charter) +(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) +Payment of Filing +Fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials. +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +September 19, 2014 +Dear Shareholder: +The attached Notice of Annual Meeting of Shareholders and Proxy Statement +relates to the Annual Meeting of Shareholders of Key Tronic Corporation, a Washington corporation (the “Company” or “Key Tronic”), to be held on Thursday, October 23, 2014, at 10:00 a.m. Pacific Time at the principal +executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216. +Whether or not you will attend +the Annual Meeting in person and regardless of the number of shares you own, we request that you complete, sign, date and return the enclosed proxy card promptly in the accompanying postage-prepaid envelope. You may, of course, attend the Annual +Meeting and vote in person, even if you previously have returned your proxy card. +Sincerely, +Craig D. Gates +President and Chief Executive Officer +Member of the Board of Directors +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To Be Held October 23, 2014 +To the Shareholders of KEY TRONIC CORPORATION: +The Annual Meeting of Shareholders of Key Tronic +Corporation, a Washington corporation (the “Company”) will be held on Thursday, October 23, 2014, at 10:00 a.m. Pacific Time at the principal executive offices of the Company, 4424 N. Sullivan Road – Upper Level, Spokane Valley, +Washington 99216 (the “Annual Meeting”), for the following purposes: +1. +To elect five directors of the Company to hold office until the next Annual Meeting of Shareholders and until their successors are elected and have qualified; +2. +To approve the Key Tronic Corporation Amended and Restated 2010 Incentive Plan; and +3. +To hold an advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in “Compensation Discussion and Analysis” +and “Executive Compensation” herein; and +4. +To ratify the appointment of BDO USA, LLP as independent registered public accounting firm for fiscal year 2014; and +5. +To transact such other business as may properly come before the meeting and any adjournments or postponements thereof. +Record holders of the Company’s Common Stock at the close of business on September 3, 2014 are entitled to notice of and to vote at the Annual +Meeting and any adjournments or postponements thereof. Even if you will attend the Annual Meeting, please complete, sign, date and return the enclosed proxy to the Company in the enclosed postage-prepaid envelope in order to ensure that your shares +will be voted at the Annual Meeting. You may vote your shares in person at the Annual Meeting even if you previously have returned your proxy card to the Company. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 19, 2014 +YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE +ENCLOSED CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF +PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 23, 2014. The Proxy Statement and 2014 Annual Report to Shareholders are available at: www.edocumentview.com/kttc. +PROXY STATEMENT +INTRODUCTION +General +The preceding Notice of Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy card are being furnished by Key Tronic +Corporation, a Washington corporation (the “Company”), to the holders of outstanding shares of Common Stock, no par value, of the Company (“Common Stock”) in connection with the solicitation of proxies by the Board of Directors +of the Company from holders of such shares. The proxies are to be used at the Annual Meeting of Shareholders of the Company to be held on Thursday, October 23, 2014 at 10:00 a.m. Pacific Time at the principal executive offices of the Company, +4424 N. Sullivan Road – Upper Level, Spokane Valley, Washington 99216, and any adjournments or postponements thereof (the “Annual Meeting”). The proxies appoint Craig D. Gates and Ronald F. Klawitter, each of them and their +substitutes, as proxy to vote all shares represented at the Annual Meeting pursuant to this proxy solicitation. This proxy statement and the enclosed form of proxy were first mailed to shareholders on or about September 19, 2014. +Record Date, Proxies, Revocation +Record +holders of the Common Stock at the close of business on September 3, 2014 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 10,551,680 shares of Common Stock were issued and +outstanding. A proxy card for use at the Annual Meeting is enclosed with this Proxy Statement. All completed, signed and dated proxies returned to the Company will be voted at the Annual Meeting in accordance with the instructions thereon. If no +instructions are given on an otherwise signed and dated proxy card, the proxy will be voted FOR the election of nominees for director named below and FOR the ratification of the appointment of BDO USA, LLP as the Company’s independent +registered public accounting firm for fiscal year 2015. Any proxy may be revoked at any time before it has been voted by giving written notice of revocation to the Secretary of the Company at the address set forth above; by delivering a +completed, signed proxy bearing a date later than any earlier proxy; or by voting shares in person at the Annual Meeting. The mere presence at the Annual Meeting of the shareholder who has given a proxy will not revoke such proxy. +Voting +Each share of Common Stock +outstanding is entitled to one vote on each matter presented for a vote of the shareholders at the Annual Meeting. Under applicable law and the Company’s Restated Articles of Incorporation and Amended and Restated By-Laws, if a quorum exists at +a meeting: (i) the five nominees for election as directors who receive the greatest number of votes cast for the election of directors by the shares present in person or represented by proxy and entitled to vote shall be elected directors and +(ii) matters 2, 3 and 4 listed in the accompanying Notice of Annual Meeting of Shareholders will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it. In the election of directors, any +action other than a vote for a nominee will have the practical effect of voting against the nominee. An abstention from voting or a broker nonvote will have no effect on matters 2, 3 or 4 since neither represents a vote cast. +-1- +If you are a stockholder of record and do not submit your vote by proxy or vote in person at the annual +meeting, your shares will not be voted. However, if you hold shares beneficially in street name, the result may be different. If you do not return the voting instruction form, your broker, trustee or nominee may vote your shares in certain +circumstances and on certain proposals. Under current regulations, brokers can not vote “uninstructed” shares in director elections or on executive compensation matters. Thus, if you hold your shares in street name and you do not instruct +your record holder how to vote in the election of directors (matter 1), approval of the Amended and Restated 2010 incentive Plan (matter 2), or the advisory vote to approve the compensation of the Company’s named executive officers or (matter +3) no votes will be cast on your behalf. Discretionary voting by brokers is permitted in the ratification of the appointment of the independent registered public accounting firm (matter 4).When a broker votes a client’s shares on some but not +all of the proposals at a meeting, the missing votes are referred to as “broker non-votes.” Those shares will be included in determining the presence of a quorum at the meeting, but are not considered “present” for purposes of +voting on non-discretionary matters. +PROPOSAL 1 +ELECTION OF DIRECTORS +Five directors are to be elected at the Annual Meeting to serve +until the next Annual Meeting of Shareholders and until their respective successors have been elected and have qualified. The five nominees receiving the highest number of affirmative votes will be elected as directors. In the event any nominee is +unable or unwilling to serve as a nominee or director, the proxies may be voted for the balance of those nominees named and for any substitute nominee designated by the present Board of Directors or the proxy holders to fill such vacancy, or for the +balance of those nominees named without nomination of a substitute, or the size of the Board of Directors may be reduced in accordance with the By-Laws of the Company. The Board of Directors has no reason to believe that any of the persons named +will be unable or unwilling to serve as a nominee or as a director if elected. It is the Company’s policy that nominees for election at the Annual Meeting attend the Annual Meeting. All nominees for election at the 2014 Annual Meeting attended +the 2013 Annual meeting. +The following information has been provided to the Company with respect to the nominees for election to the Board of +Directors: +James R. Bean , age 64, has been a director of the Company since October 2006. Mr. Bean has been President and CEO of +Preco Electronics, Inc. since November 1999. From May 1997 to 1999 he held various management positions in Boise, Idaho with Preco Electronics, Inc. Previously he held various management positions in manufacturing operations with Sun Microsystems, +Inc., Apple Computer, Inc. and National Semiconductor, Inc. Mr. Bean is a graduate of New Mexico State University with a B.S. in Industrial Engineering. The Board of Directors has concluded that based upon Mr. Bean’s business and +financial expertise, current and prior senior management positions and education that he should serve as a director of the company. +Craig +D. Gates, age 55, has been a director of the Company since July 2009 and has been President and CEO of the Company since April 2009. Previously he was Executive Vice President of Marketing, Engineering and Sales since July 1997. He served as +Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October 1994. From 1991 to October 1994, Mr. Gates served as Director of Operations, +Electronics for the Microswitch Division of Honeywell Inc. From 1982 to 1991, Mr. Gates held various engineering and management positions within the Microswitch Division. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering +and a Masters in Business Administration from the University of Illinois, Urbana. Mr. Gates also serves on the Board of Directors of CyberOptics Corporation. The Board of Directors has concluded that based upon Mr. Gates’ business +expertise, current and prior senior management experience and education that he should serve as a director of the Company. +-2- +Ronald F. Klawitter , age 62, has been a director of the Company since October 2009 and has been +Executive Vice President of Administration, CFO and Treasurer of the Company since July 1997. Previously he was Vice President of Finance, Secretary and Treasurer of the Company since October 1995. He was Acting Secretary from November 1994 to +October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. He has a Bachelor of Arts +degree from Wittenberg University and is a Certified Public Accountant. The Board of Directors has concluded that based upon Mr. Klawitter’s business and financial expertise, current and prior management experience and education that he +should serve as a director of the Company. +Yacov A. Shamash , age 64, has been a director of the Company since 1989. He has been the +Dean of Engineering and Applied Sciences at the State University of New York campus at Stony Brook since 1992. Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital +Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department at Washington State University from 1985 until 1992. Dr. Shamash also serves on the Board of Directors of Applied DNA +Sciences, Inc. and Softheon. The Board of Directors has concluded that based upon Dr. Shamash’s professional and management experience, service on public companies’ boards and education that he should serve as a director of the +Company. Dr. Shamash has also served on the Board of one other public corporation, Netsmart Tech., Inc., during the past five years. +Patrick Sweeney , age 79, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 +through 1995 and formerly served as Hadco’s Vice President/Chief Financial Officer and Vice President of Operations. Prior to that Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and +also served as Managing Director of Ireland for Digital Equipment Corporation and as Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Aimware, Info. Mosaic, and Photo Machining Inc. The +Board of Directors has concluded that based upon Mr. Sweeney’s business and financial expertise, senior management experience, service on public companies’ boards and education that he should serve as a director of the Company. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS +Board Meetings +All directors hold office until the next Annual Meeting of Shareholders and +until their successors have been elected and have qualified. There are no family relationships among any of the directors or executive officers of the Company. The Company’s Board of Directors met five times during fiscal 2014. During fiscal +2014, each director attended 100% of the Board of Directors meetings and 100% of the meetings of committees of the Board of Directors on which the director served during the time he served on the Board or committee. +Directors’ Independence +The Board +of Directors has determined that all members of the Company’s Board of Directors are “independent directors” within the meaning of the applicable Nasdaq Global Select Market (“NASDAQ”) listing standards, except for +Mr. Gates, the Company’s President and Chief Executive Officer and Mr. Klawitter, the Company’s Executive Vice President of Administration, CFO and Treasurer. +The Board of Directors also has determined that all members of the Audit Committee (1) meet the definition of independence contained in the NASDAQ listing standards; (2) meet the requirements of +the Securities and Exchange Commission (“SEC”) Rule 10A-3(b)(1); (3) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any +-3- +time during the past three years; and (4) are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow +statement, as required by the NASDAQ Marketplace Rules. +The Board of Directors has determined that James R. Bean and Patrick Sweeney, members +of the Audit Committee, each has the requisite attributes of an “audit committee financial expert” as defined by SEC regulations and that such attributes were acquired through relevant education and/or experience. +Board Leadership Structure and Role in Risk Oversight +The Board of Directors determines whether the roles of Chief Executive Officer and Chairman of the Board should be separated based upon its judgment of the structure which best meets the current needs of +the Company and promotes the most effective communication between the Board and management. The Board currently separates the role of Chief Executive Officer and Chairman of the Board. +The Board oversees the Company’s risk directly and through its committees. The Board is assisted by its Audit Committee in performing its risk management oversight responsibilities with respect to +financial reporting, internal controls and legal and regulatory requirements. The Board is assisted by its Compensation and Administration Committee in performing its risk management oversight responsibilities with respect to risk relating to +compensation programs and policies. The Board, with the assistance of its Governance and Nominating Committee, oversees risk management with respect to Board membership, structure and organization. +The Chairmen of the three Board Committees report to the Board on committee meetings at regular meetings of the Board of Directors. Management has the +day to day responsibility for risk management and members of management make regular reports to the Board and its committees on identification, monitoring and mitigation of material risks. +Executive Sessions +At two of the four regular meetings of the Board of Directors held +during fiscal year 2014, the independent directors met separately in executive session without management present. +Code of Conduct +The Board of Directors has adopted a written Code of Conduct which applies to all directors, officers and employees of the Company. The +Code of Conduct is available on the Company’s website at www.keytronic.com. The Company intends to disclose on its website any amendments to or waivers of the Code of Conduct. +Insider Trading Policy +The Board of Directors has adopted a written policy on Insider +Trading which applies to all directors, officers and employees of the Company. The policy prohibits directors, officers and employees from engaging in short-term speculative transactions involving the Company’s securities, including short sales +and buying or selling put or call options. +Recoupment Policy +The Board of Directors has adopted a written Recoupment Policy which provides that in the event of a restatement of the Company’s consolidated financial statements, the Company shall have the right +to recoup from any executive officer any portion of any bonus or other equity or non-equity incentive compensation received by the executive officer the grant of which was tied to the achievement of one or more specific performance targets, with +respect to the period for which such financial statements are restated, regardless of whether the executive officer engaged in any misconduct or was at fault or responsible in any way for causing the restatement, if, as a result of such restatement, +the executive officer would not have received such bonus or other compensation or portion thereof. +-4- +Shareholder Communications +Shareholders of Key Tronic Corporation may send written communications to the Board of Directors or any of its members by certified mail only, addressed to the Board of Directors or any member, c/o +General Counsel & Secretary, Key Tronic Corporation, 4424 N. Sullivan Road, Spokane Valley, WA 99216. All such shareholder communications will be compiled by the General Counsel & Secretary and submitted to the Board of Directors +or a Board member. +Nominations to the Board +The Governance and Nominating Committee will consider written proposals from shareholders for directors to be elected at the annual meeting which are submitted to the Secretary of the Company, together +with biographical information and references, at least six months prior to the annual meeting. +Board Committees +The Board of Directors has three standing committees: the Audit Committee, the Compensation and Administration Committee, and the Governance and +Nominating Committee. The committees each have written charters approved by the Board. The charters of the Audit Committee, the Compensation and Administration Committee and the Governance and Nominating Committee are available on the Company’s +website at www.keytronic.com . +The Audit Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met +eight times during fiscal 2014. The Audit Committee monitors the integrity of the Company’s financial statements, financial reporting processes and systems of internal controls regarding finance, accounting and legal compliance; selects and +appoints the Company’s independent registered public accounting firm, pre-approves all audit and non-audit services to be provided to the Company by the Company’s independent registered public accounting firm, and establishes the fees and +other compensation to be paid to the independent registered public accounting firm; monitors the qualifications, independence and performance of the Company’s independent registered public accounting firm; and establishes procedures for the +receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls or auditing matters, and provides an avenue of communication among +the Board, the independent registered public accounting firm and management. +The Compensation and Administration Committee +(“Compensation Committee”) which currently consists of Messrs. Shamash (Chairman), Bean and Sweeney, met five times during fiscal 2014. The Committee establishes and reviews annually the Company’s general compensation policies +applicable to the Company’s executive officers and other key employees, reviews and approves the level of compensation awarded to the Company’s Chief Executive Officer and other officers and key management employees, prepares and delivers +annually to the Board a report disclosing compensation policies applicable to the Company’s executive officers and the basis for the Chief Executive Officer’s compensation during the last fiscal year and makes recommendations to the Board +regarding changes to existing compensation plans. The Committee administers the Company’s incentive compensation plans and stock option plans, including determining the individuals to receive awards and options and the terms of such awards and +options. +The Governance and Nominating Committee , which currently consists of Messrs. Bean (Chairman), Shamash and Sweeney met one +time during fiscal 2014. The Committee makes recommendations to the Board regarding corporate governance, recommends for selection by the Board nominees for election as Directors and makes recommendations to the Board with respect to the structure +and composition of the Board. The Committee evaluates potential director nominees based upon a number of criteria, including the potential nominee’s skills, relevant experience and independence. The Committee has no specific minimum +qualifications which must be met by a potential director nominee. Each potential nominee is +-5- +considered on a case by case basis. Potential nominees may be identified to the Committee by members of the Board, officers of the Company, shareholders or other persons. The Committee evaluates +each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although the Company does not have a policy regarding diversity, the Governance and Nominating Committee does take into consideration +the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. The Company has not paid any third party a fee to assist in identifying +and evaluating potential director nominees. The Committee has not rejected any potential nominee recommended within the preceding year by a beneficial owner of more than 5% of the Company’s Common Stock. +Related Person Transactions +In April +2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an +“Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount +involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a +less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was +(since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater +than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, +mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will +take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the +Related Party’s interest in the Transaction. +-6- +PRINCIPAL SHAREHOLDERS AND SECURITY +OWNERSHIP OF MANAGEMENT +The following table provides certain information which has been furnished to the Company regarding beneficial ownership of the Common Stock as of the +Record Date, with respect to (i) each person known by the Company to own beneficially more than 5% of the Company’s Common Stock; (ii) each director and nominee for director of the Company; (iii) each of the executive officers of +the Company named in the Summary Compensation table; and (iv) all directors and executive officers of the Company as a group. +Name of Beneficial Owner* +Number of Shares +Beneficially Owned (1) +Percent +of +Class (1) +MORE THAN 5% SHAREHOLDERS +Royce & Associates, LLC +745 Fifth Avenue +New York, NY 10151 +1,316,625 +(2),(3) +12.48 +% +Tieton Capital Management LLC +4700 Tieton Drive, Suite C +Yakima, WA 98908 +893,505 +(4),(5) +8.47 +% +Dimensional Fund Advisors, Inc. +1299 Ocean Avenue, Suite 650 +Santa Monica, CA 90401 +880,499 +(6),(7) +8.34 +% +DIRECTORS AND EXECUTIVE OFFICERS +James R. Bean +0 +** +Yacov A. Shamash +40,896 +(8) +** +Patrick Sweeney +75,103 +** +Craig D. Gates +153,339 +(9) +1.45 +% +Ronald F. Klawitter +162,078 +(10) +1.54 +% +Douglas G. Burkhardt +68,543 +(11) +** +Philip S. Hochberg +12,614 +(12) +** +Brett R. Larsen +1,044 +(13) +** +All officers and directors as a group +(12 persons) +560,216 +5.31 +% +* +Unless otherwise noted, the address for each named shareholder is in care of the Company at its principal executive offices. +** +Less than 1%. +1. +Percentage beneficially owned is based on 10,551,680 shares of Common Stock outstanding on the Record Date. A person or group of persons is deemed to beneficially own +as of the record date any shares which such person or group of persons has the right to acquire within 60 days after the record date. In computing the percentage of outstanding shares held by each person or group of persons, any shares which such +person or persons have the right to acquire within 60 days after the record date are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. +-7- +2. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2014. +3. +Royce & Associates, LLC is a registered investment advisor. +4. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2014. +5. +Tieton Capital Management LLC is a registered investment advisor. +6. +Based on Form 13F filed with the Securities and Exchange Commission, dated June 30, 2014. +7. +Dimensional Fund Advisors, Inc. (“DFA”), a registered investor advisor, is deemed to have beneficial ownership of these shares all of which are held in +portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles +for qualified employee benefit plans, for all of which DFA serves as investment manager. DFA disclaims beneficial ownership of all shares. +8. +Includes 1,100 shares owned directly by Dr. Shamash’s daughter. +9. +Includes Common Stock allocated to Mr. Gates as a participant in the Company’s 401(k) Retirement Savings Plan (7,458 shares) as of June 30, 2014. +10. +Includes Common Stock allocated to Mr. Klawitter as a participant in the Company’s 401(k) Retirement Savings Plan (17,867 shares) as of June 30, 2014, +1,600 shares owned directly by Mr. Klawitter’s daughter and 4,200 shares owned directly by Mr. Klawitter’s son. +11. +Includes Common Stock allocated to Mr. Burkhardt as a participant in the Company’s 401(k) Retirement Savings Plan (176 shares) as of June 30, 2014. +12. +Includes Common Stock allocated to Mr. Hochberg as a participant in the Company’s 401(k) Retirement Savings Plan (847 shares) as of June 30, 2014 and 100 +shares owned directly by Mr. Hochberg’s son. +13. +Represents Common Stock allocated to Mr. Larsen as a participant in the Company’s 401(k) Retirement Savings Plan as of June 30, 2014. +PROPOSAL 2 +APPROVAL OF THE KEY TRONIC CORPORATION +2010 INCENTIVE PLAN, AS AMENDED +AND RESTATED +Overview +Our Board of Directors, our Compensation Committee and our management all believe that the effective use of stock-based long-term incentive compensation +is vital to our continued ability to recruit, hire and retain the individuals required to successfully execute our business plans and achieve strong performance in the future by providing a direct link between compensation and long-term shareholder +value creation. Accordingly, we request that shareholders approve this proposal to approve the Key Tronic 2010 Incentive Plan, as amended and restated (the “2010 Plan”), enabling the continued use of the 2010 Plan for equity and other +incentive awards. +-8- +The 2010 Plan was first approved by shareholders at our annual meeting in 2010. On April 24, 2014, our +Board of Directors, upon the recommendation of the Compensation Committee, approved the amendment and restatement of the 2010 Plan, subject to approval of our shareholders. We are requesting that shareholders approve the 2010 Plan as amended and +restated to include the following aspects: +• +Increase in the Number of Shares Authorized for Issuance Under the 2010 Plan . The proposal seeks to increase the number of shares of our Common +Stock authorized for issuance by 1,000,000 shares. +• +Tax Deductibility of Certain Awards . Approval of the material terms of the performance goals for performance-based awards under the 2010 Plan as +amended and restated will provide us with the flexibility to grant awards that qualify as “performance-based” compensation pursuant to Code Section 162(m). As discussed below, by approving the 2010 Plan as amended and restated, +shareholders also will be approving the material terms of the performance goals for performance-based awards under the 2010 Plan. +• +Revision in Certain Award Limitations . The 2010 Plan contains an increase to $2,000,000 of the annual limitation on cash-based awards intended +to be performance-based under Code Section 162(m). +• +Extension of the Expiration Date of the 2010 Plan . The 2010 Plan is currently scheduled to expire in 2020, and we are requesting an extension to +2024. In the event that the required votes to approve the 2010 Plan as amended and restated are not obtained, the amendment and restatement of the 2010 Plan will not become effective and the Company will continue to make grants of awards +pursuant to the terms of the 2010 Plan as currently in effect and subject to applicable law. +• +Cash Dividend Adjustment. Proportional adjustment to 2010 Plan share and award numbers for changes in the company’s corporate or capital +structure will now include adjustment in the event of a cash dividend that has a material effect on the price of issued shares. +• +Recoupment; Limitation on Dividend Payment . The 2010 Plan specifically provides that awards are subject to any Company recoupment policy and +that no dividends or dividend equivalents shall be paid with respect to an award that vests based on the achievement of performance goals until the award vests. +In addition, the 2010 Plan as amended and restated makes certain other clarifying and other changes to the terms of the 2010 Plan. +Background +The proposal contemplates increasing the total number of shares authorized for +issuance under the 2010 Plan from 1,200,000 to 2,200,000. Currently, the 2010 Plan is the Company’s only equity incentive plan under which the Company can issue equity awards. +• +As of August 31, 2014, approximately 1,060,998 shares of our Common Stock were subject to outstanding equity awards under the 2010 plan and 69,002 +shares of our Common Stock were available for future awards under the 2010 Plan. If the proposal is approved, 1,000,000 shares will be added to the 2010 Plan. As a result, after giving effect to this proposal, as of August 31, 2014, +1,069,002 shares of our Common Stock would have been available for future awards under the 2010 Plan. +• +Our three-year average annual equity grant rate, or “burn rate” (total granted divided by Common Stock outstanding), was 2.35% from fiscal +2012 to fiscal 2014. We granted 216,666, 210,666 and 213,166 shares and share equivalents in fiscal 2012, 2013 and 2014, respectively. +-9- +In setting the number of proposed additional shares issuable under the 2010 Plan, the Compensation Committee +and the Board considered a number of factors, including shares currently available under the 2010 Plan and how long the shares available (both currently and assuming the approval by the shareholders of this proposal) are expected to last, historical +equity award granting practices, impact of equity awards under the Plan, and expected value transfer and dilution. The proposed increase in the number of shares under the 2010 Plan is not required or intended to cover awards previously made under +the 2010 Plan. As such, no new plan benefits have been granted to date, and future awards under the 2010 Plan are not yet determinable. For additional information on historical and expected future share usage, see “—Plan Benefits” +beginning on page 15. +Section 162(m) +The 2010 Plan has been structured so that awards made under it may constitute “performance-based” compensation within the meaning of Section 162(m). In general, Section 162(m) permits +companies to deduct compensation in excess of $1 million paid in any one year to the Company’s chief executive officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s chief +financial officer) only to the extent that such compensation qualifies as performance- based. As part of this requirement, the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by +shareholders at least every five years. For purposes of Section 162(m), the material terms include (a) the individuals eligible to receive compensation upon achievement of performance goals, (b) a description of the business criteria +on which the performance goals may be based, and (c) the maximum amount of compensation that can be paid to an individual upon attainment of the performance goals. The Company’s shareholders last approved the material terms of performance +goals for awards under the 2010 Plan at our annual meeting in 2010. The material terms of the performance goals remain unchanged from the 2010 Plan as originally approved by shareholders in 2010, except that the maximum dollar value payable with +respect to performance units or other cash-based performance awards granted to an individual during a calendar year under the plan is increased from $1,000,000 to $2,000,000. It is our intention that shareholder approval of this proposal will +satisfy the shareholder approval requirement of Section 162(m) for purposes of future awards made under the 2010 Plan. Even if shareholders approve the proposal, however, the Internal Revenue Service may determine that particular awards issued +under the 2010 Plan do not satisfy the requirements of Section 162(m), and nothing in this proposal precludes the Company from granting awards that do not satisfy these requirements. See “Compensation Discussion & +Analysis—Additional Considerations—Limitations on Deductibility of Compensation” on page 24. +SUMMARY OF +THE 2010 PLAN +A copy of the 2010 Plan as amended and restated is attached to this Proxy Statement as Appendix A and is +incorporated herein by reference. The description of the 2010 Plan set forth below is a summary and does not purport to be a complete description, and it is qualified in its entirety by reference to the text of the 2010 Plan as amended and +restated, which is set forth in Appendix A . See Appendix A for more detailed information. +Purpose +The purpose of the 2010 Plan is to attract, retain and motivate our employees, officers and directors by providing them with the opportunity to acquire a +proprietary interest in the Company and to align their interests and efforts with the long-term interests of our shareholders. The 2010 Plan also allows us to provide the same opportunity to consultants, agents, advisors and independent contractors. +Administration +The Board of +Directors or the Compensation Committee administers the 2010 Plan. The Board may delegate administration of the 2010 Plan in accordance with its terms. References to the “Committee” below are, as applicable, to the Board, the Compensation +Committee, or other delegate, including a senior executive officer of the Company authorized by the Board or Compensation Committee to make grants to certain eligible employees of the Company. +-10- +Eligibility +Awards may be granted under the 2010 Plan to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its subsidiaries and affiliates. As of +August 31, 2014, approximately fourteen employees, including eight executive officers, and three non-employee directors were eligible to receive awards under the 2010 Plan. +Number of Shares +The number of shares of Common Stock authorized for issuance under the +2010 Plan as amended and restated is 2,200,000. The shares of Common Stock issuable under the 2010 Plan consist of authorized and unissued shares. Shares of Common Stock covered by an award granted under the 2010 Plan will not be counted as used +unless and until they are issued and delivered to a participant. +The following shares will be available again for issuance under the 2010 +Plan: +• +shares subject to awards that lapse, expire, terminate or are canceled prior to issuance of the underlying shares; +• +shares subject to awards that are subsequently forfeited to or otherwise reacquired by us; +• +shares withheld by or tendered to us as payment for the purchase price of an award or to satisfy tax withholding obligations related to an award; and +• +shares related to an award that is settled in cash or in another manner where some or all of the shares covered by the award are not issued. +Awards granted in assumption of or substitution for previously granted awards in acquisition transactions will not reduce +the number of shares authorized for issuance under the 2010 Plan. +In the event of any stock dividend, stock split, spin-off, +recapitalization, merger, consolidation, combination or exchange of shares, distribution to shareholders other than a normal cash dividend or other change in our corporate or capital structure results in our outstanding common stock being exchanged +for a different number or kind of securities; new, different or additional securities being received by holders of our common stock; or a cash dividend that has a material effect on the price of issued shares, then the Committee will make +proportional adjustments to the maximum number and kind of securities (a) available for issuance under the 2010 Plan, (b) issuable as incentive stock options, (c) issuable to certain individuals subject to Code Section 162(m), +and (d) that are subject to any outstanding award, including the per share price of such securities. +The closing price of our Common +Stock, as reported on the NASDAQ Global Market (“NASDAQ”) on August 29, 2014, was $10.97 per share. +Types of Awards +The 2010 Plan permits the grant of any or all of the following types of awards. +Stock Options . The Committee may grant nonqualified stock options that are not intended to qualify as incentive stock options under Code Section 422. The Committee sets option exercise +prices and terms, except that the exercise price of stock options granted under the 2010 Plan must be at least 100% of the fair market value of the Common Stock on the date of grant, other than in the case of options granted in connection with +assuming or substituting options in acquisition transactions or options that meet all the requirements for options that are considered “deferred compensation” within the meaning of Code Section 409A. At the time of grant, the +Committee determines when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed ten years. Unless the Committee otherwise determines, fair market value means, as of a given date, the closing price +of our Common Stock during regular session trading on NASDAQ. +-11- +Stock Appreciation Rights (SARs) . The Committee may grant SARs as a right in tandem with the +number of shares underlying stock options granted under the 2010 Plan or on a stand-alone basis. SARs are the right to receive payment per share of an exercised SAR in stock or cash, or a combination of stock and cash, equal to the excess of the +share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted. Exercise of an SAR issued in tandem with stock options will result in the reduction of the number of shares underlying the related SAR +to the extent of the SAR exercised. The term of a stand-alone SAR cannot be more than ten years, and the term of a tandem SAR will not exceed the term of the related option. +Stock Awards, Restricted Stock and Stock Units . The Committee may grant awards of shares of Common Stock, or awards designated in units of Common Stock, under the 2010 Plan. These awards may +be made subject to repurchase or forfeiture restrictions at the Committee’s discretion. The restrictions may be based on continuous service with us or the achievement of specified performance criteria, as determined by the Committee. +Performance Awards . The Committee may grant performance awards in the form of performance shares or performance units. +Performance shares are units valued by reference to a designated number of shares of Common Stock, and performance units are units valued by reference to a designated amount of cash. Either may be payable in stock or cash, or a combination of stock +and cash, upon the attainment of performance criteria and other terms and conditions as established by the Committee. +Other Stock or +Cash-Based Awards . The Committee may grant other incentives payable in cash or in shares of Common Stock, subject to the terms of the 2010 Plan and any other terms and conditions determined by the Committee. +Recoupment +Awards granted under the +Plan will be subject to the applicable requirements of the Company’s incentive compensation recovery policy and Section 954 of the Dodd-Frank Act regarding recovery of erroneously awarded compensation and any implementing rules and +regulations. +Repricing +Without shareholder approval, the Committee may not (a) lower the price of an option or SAR after it is granted, except in connection with certain +specified adjustments, (b) take any other action that is treated as a repricing under generally accepted accounting principles, or (c) cancel an option or SAR when its exercise price exceeds the fair market value of the underlying Common +Stock, in exchange for cash or another option, SAR, restricted stock or other equity award, unless the cancellation and exchange occurs in connection with a merger, acquisition or similar corporate transaction. +Performance-Based Compensation Under Code Section 162(m) +Performance Goals and Criteria . Under Code Section 162(m), we are generally prohibited from deducting for U.S. federal income tax purposes compensation paid to our chief executive +officer and our three other most highly compensated executive officers (other than the chief financial officer) in excess of $1 million per person in any year. However, compensation that qualifies as performance-based is excluded for purposes +of calculating the amount of compensation subject to the $1 million limit. +If the Committee intends to qualify an award under the 2010 +Plan as “performance-based compensation” under Code Section 162(m), the performance goals selected by the Committee may be based on the attainment of specified levels of one, or any combination, of the following performance criteria +for the Company as a whole or any business unit, as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book +value per share; operating income (including or excluding depreciation, amortization, extraordinary items, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or +economic value added; stock price appreciation; total shareholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; revenue growth rate; or customer satisfaction, +employee satisfaction, services performance, subscriber, cash management or asset management metrics. +-12- +The performance goals also may be based on the achievement of specified levels of performance for the +Company as a whole or any business unit or applicable affiliate under one or more of the performance goals described above relative to the performance of other corporations. +The Committee may provide in any award that any evaluation of performance may include or exclude any of the following events that occur during a performance period: asset write-downs; litigation or claim +judgments or settlements; the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; extraordinary nonrecurring items as described in Accounting +Standards Codification 225-20 or in Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company’s annual report to shareholders for the applicable year; acquisitions or divestitures; +foreign exchange gains and losses; and gains and losses on asset sales. +Adjustments and Certification . The Committee may adjust +the amount payable pursuant to an award under the 2010 Plan that is intended to qualify as “performance-based compensation” under Code Section 162(m) downward but not upward. The Committee may not waive the achievement of performance +goals related to an award except in the case of a participant’s death or disability. Code Section 162(m) requires that the Committee certify that performance goals were achieved before the payment of the “performance-based +compensation.” +Limitations . Subject to certain adjustments, participants who are granted awards intended to qualify as +“performance-based compensation” under Code Section 162(m) may not be granted awards in any calendar year, other than performance units, with respect to more than 600,000 shares for options or SARs and 300,000 shares for restricted +stock, restricted stock units, performance shares or other stock-based awards. The maximum dollar value payable to any participant with respect to performance units or any other awards payable in cash that are intended to qualify as +“performance-based compensation” cannot exceed $2,000,000 in any calendar year. +Change of Control +Under the 2010 Plan, unless otherwise provided in the instrument evidencing an award or in a written employment, services or other agreement between the +participant and us, in the event of a change of control: +• +All outstanding awards, other than performance shares, performance units or other awards that are subject to vesting based on the achievement of +specified performance goals, will become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions will lapse, immediately prior to the change of control, and such awards will terminate at the effective time +of the change of control. However, upon certain changes of control, such as certain reorganizations, mergers or consolidations, any such awards that vest based on continuous service will become fully and immediately exercisable, and all applicable +restrictions or forfeiture provisions will lapse, only if and to the extent such awards are not converted, assumed, substituted for or replaced by a successor company. +• +All performance shares, performance units or other awards that are subject to vesting based on the achievement of specified performance goals will be +payable based on targeted performance being attained as of the effective date of the change of control. +• +In the event of certain reorganizations, mergers or consolidations, the Committee may in its discretion instead provide that a participant’s +outstanding awards will be cashed out. +Definition of Change of Control . Unless the Committee determines +otherwise with respect to an award at the time it is granted or unless otherwise defined for purposes of an award in a written employment, +-13- +services or other agreement between a participant and us, a change of control of the Company generally means the occurrence of any of the following events: +• +an acquisition by any individual, entity or group of beneficial ownership of 40% or more of either (a) the then outstanding shares of Common Stock +or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (excluding generally any acquisition directly from the Company, any acquisition by the Company, +any acquisition by any employee benefit plan of the Company or an affiliate, or the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company pursuant to which +certain requirements are met); +• +a change in the composition of the Board during a two-year period such that the incumbent Board members as of the beginning of the two-year period +cease to constitute at least a majority of the Board (not including directors whose election, or nomination for election by shareholders, was approved by a majority of the incumbent Board); +• +consummation of certain reorganizations, mergers or consolidations or other disposition of all or substantially all of the assets of the Company; or +• +consummation of a complete liquidation or dissolution of the Company. +Amendment and Termination +The Board or the Compensation Committee may amend the 2010 Plan, +except that if any applicable statute, rule or regulation requires shareholder approval for an amendment to the 2010 Plan, then to the extent so required, shareholder approval will be obtained. The Board or the Compensation Committee may also +suspend or terminate all or any portion of the 2010 Plan at any time, but any suspension or termination may not, without a participant’s consent, materially adversely affect any rights under any outstanding award. Unless sooner terminated by +the Board or Compensation Committee, the 2010 Plan will terminate ten years after the date of shareholder approval of the 2010 Plan as amended and restated at the Annual Meeting. +Federal Income Tax Information +The following is a brief summary of the U.S. federal income +tax consequences of the 2010 Plan generally applicable to us and to participants in the 2010 Plan who are subject to U.S. federal taxes. The summary is based on the U.S. Internal Revenue Code of 1986, as amended, applicable Treasury Regulations and +administrative and judicial interpretations thereof, each as in effect on the date of this proxy statement, and is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does not +purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax consequences or the consequences of any state, local or foreign tax laws. +Stock Options +A participant +generally will not recognize taxable income upon the grant or vesting of a nonqualified stock option with an exercise price at least equal to the fair market value of the Common Stock on the date of grant and no additional deferral feature. When a +nonqualified stock option is exercised, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the option on the date of exercise and +the option exercise price. When a participant sells the shares, the participant will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax +basis of the shares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price. Special rules apply if a participant uses shares of Common Stock +already held by the participant to pay the exercise price. +-14- +Stock Appreciation Rights +A participant generally will not recognize taxable income upon the grant or vesting of an SAR with a grant price at least equal to the fair market value of the Common Stock on the date of grant and no +additional deferral feature. Upon the exercise of an SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the SAR on the date +of exercise and the grant price of the SAR. +Unrestricted Stock Awards +Upon receipt of an unrestricted stock award, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the shares at such +time over the amount, if any, paid by the participant with respect to the shares. +Restricted Stock Awards, Restricted Stock Units, +Performance Shares and Performance Units +A participant generally will not have taxable income upon the grant of restricted stock, +restricted stock units, performance shares or performance units. Instead, the participant will recognize ordinary income at the time of vesting or payout equal to the fair market value (on the vesting or payout date) of the shares or cash received +minus any amount paid. For restricted stock only, a participant may instead elect to be taxed at the time of grant. +Tax Consequences to +the Company +In the foregoing cases, we generally will be entitled to a deduction at the same time and in the same amount as a +participant recognizes ordinary income, subject to certain limitations imposed under the Code. +Code Section 409A +We intend that awards granted under the 2010 Plan comply with, or otherwise be exempt from, Code Section 409A, but make no +representation or warranty to that effect. +Tax Withholding +We are authorized to deduct or withhold from any award granted or payment due under the 2010 Plan, or require a participant to remit to us, the amount of any withholding taxes due in respect of the award +or payment and to take such other action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to issue any shares of Common Stock or otherwise settle an award under the 2010 Plan until +all tax withholding obligations are satisfied. +Plan Benefits +New Plan Benefits +All awards to employees, officers, directors and consultants +under the 2010 Plan are made at the discretion of the Committee. Therefore, the benefits and amounts that will be received or allocated under the 2010 Plan are not determinable at this time. However, please refer to the description of grants made to +our named executive officers in the last fiscal year described in the “Fiscal Year 2014 Grants of Plan-Based Awards” table. Grants made to our non-employee directors in the last fiscal year are described in “Director +Compensation.” +Existing Plan Benefits +The following table shows the number of equity awards, including any awards that were subsequently cancelled or surrendered for taxes, that the Company has awarded, as of August 31, 2014, to the +following individuals and groups: +-15- +Name and Position +Number of Shares +Covered by Awards +Craig D. Gates +300,000 +Ronald F. Klawitter +150,000 +Douglas G. Burkhardt +110,000 +Philip S. Hochberg +95,000 +Brett R. Larsen +60,000 +All eight current executive officers as a group +852,000 +All three current non-employee directors as a group +75,000 +All current employees as a group (excluding executive officers) +133,998 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information, as of September 3, 2014, concerning securities authorized for issuance under the Company’s equity compensation plans. +Plan Category +Number of +Securities to Be +Issued Upon +Exercise of +Outstanding +Options, +Warrants, +and +Rights +(a) +Weighted- +average Exercise +Price of +Outstanding +Options, +Warrants, +and +Rights +(b) +Number of +Securities +Remaining +Available for +Future Issuance +Under +Equity +Compensation +Plans (excluding +securities +reflected in +column (a) +(c) +Equity compensation plans approved by security holders (1) +1,065,928 +$ +7.01 +— +Equity compensation plans not approved by security holders +— +— +— +Total +1,065,928 +$ +7.01 +— +(1) +Included are the 1,200,000 shares currently subject to the 2010 Plan, the issuance of which were approved by the shareholders at the 2010 Annual +Meeting. Not included are the additional 1,000,000 shares subject to the 2010 Plan as amended and restated, subject to shareholder approval at the 2014 Annual Meeting. See “Proposal 2—Approval of the Key Tronic Corporation 2010 +Incentive Plan, as Amended and Restated” for further information about the 2010 Plan. +-16- +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE KEY TRONIC CORPORATION +2010 INCENTIVE PLAN, AS AMENDED AND RESTATED. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Executive Summary +This Compensation +Discussion and Analysis explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the executives identified as named executive officers in the Summary Compensation Table. The named executive +officers for fiscal 2014 were: +• +Craig D. Gates, President & Chief Executive Officer +• +Ronald F. Klawitter, Executive Vice President of Administration, CFO & Treasurer +• +Douglas G. Burkhardt, Executive Vice President of Worldwide Operations +• +Philip S. Hochberg, Executive Vice President of Business Development +• +Brett R. Larsen, Vice President of Finance & Controller +The compensation for the named executive officers currently consists of four elements—base salaries, performance-based annual cash incentives, performance-based long-term cash incentive and +performance-based long-term equity incentives in the form of SARS—that are designed to reward performance in a simple and straightforward manner. Our executive compensation program is aligned with our business strategy and culture to attract +and retain top talent, reward business results and individual performance, and most importantly, maximize shareholder returns. Our total compensation program for the named executive officers is highly incentive-based and competitive in the +marketplace, with Company performance determining a significant portion of total compensation. +• +Base Salaries . Base salaries were modified to maintain a competitive position as compared to the organization’s targeted labor market. +These increases were predicated on individual performance, tenure with the organization, and relative position to the market. +• +Performance-Based Annual Cash Incentive Pla n. Target award opportunities for Fiscal 2014 remained the same as the prior year. +• +Performance-Based Long-Term Cash Incentive Plan . Target award opportunities for the named executive officers for fiscal 2014 remained the same +as the prior year. +• +Performance Based Long-Term Equity Incentive Plan . Equity based long term performance based awards (SARS) for fiscal 2014 for the named +executive officers remained the same as the prior year +The Compensation Committee of the Board of Directors (the +“Committee”) is comprised of three members, Yacov A. Shamash (Chairman), James R. Bean, and Patrick Sweeney, each of whom is an independent director under applicable Nasdaq listing standards. +-17- +The Committee oversees the Board’s responsibilities relating to the compensation of the Company’s +Chief Executive Officer and other named executive officers. In discharging this responsibility, the Compensation Committee evaluates and approves the Company’s compensation plans, policies and programs as they affect the named executive +officers. +The named executive officers have substantial portions of their compensation at risk for annual and long-term performance, with the +largest portion at risk for the most senior executives. Pay “at risk” for the CEO is 66.3%. “At risk” pay is slightly lower for the other named executive officers. +Executive +Pay “At Risk” +Craig D. Gates, President & Chief Executive Officer +66.3% +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +56.6% +Douglas G. Burkhardt, Executive Vice President, Operations +52.7% +Philip S. Hochberg, Executive Vice President Business Development +47.4% +Brett R. Larsen, Vice President Finance & Controller +43.6% +This discussion describes and analyzes the compensation program for the named executive officers. First, it covers the +Company’s compensation objectives and philosophy, the cornerstone of which is pay for performance. Next, it reviews the process the Compensation Committee follows in deciding how to compensate the named executive officers and provides a brief +overview of the principal components of the Company’s compensation program, including a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Company’s named executive +officers for fiscal year 2014. +Compensation Objectives and Philosophy +The Company believes that compensation of its executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives. The Company attempts to align the +interests of its shareholders and management by integrating compensation with the Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends +to offer a total compensation package competitive with companies in our industry sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. +The elements of compensation for the named executive officers include base salaries, annual cash incentives, long-term cash incentives and long-term +equity incentives as well as severance benefits in connection with certain terminations of employment and additional benefits which are available to all other U.S. employees, including a 401(k) plan, health and welfare programs, and life insurance. +In general, base salaries and other benefit programs, and severance and other termination benefits are primarily intended to attract and retain highly qualified executives as they provide predictable compensation levels that reward executives for +their continued service. Annual cash incentives are primarily intended to motivate executives to achieve specific tactical and operating objectives, while long-term cash and equity incentives are primarily intended to align executives’ +long-term interests with those of the Company’s shareholders. These elements of total compensation are targeted to pay at market median when performance meets expectations. +-18- +Compensation Process +As part of its process for determining the compensation for the named executive officers, the Compensation Committee considers competitive market data. As authorized by its charter, the Compensation +Committee has engaged Milliman, Inc. (“Milliman”), an independent executive compensation consultant, to review the Company’s compensation plans, policies and programs that affect executive officers and to provide advice and +recommendations on competitive market practices and specific compensation decisions. Milliman has worked directly with the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects +for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. To date, Milliman has provided limited assistance to management in evaluating the competitiveness of +compensation for personnel other than executive officers. +The Committee takes into consideration multiple factors for purposes of developing +competitive market data for analyzing executive compensation. These factors include a combination of both published executive salary surveys as well as an evaluation of peer organizations and their publicly disclosed compensation information. With +the assistance of Milliman, the Compensation Committee identified a group of peer organizations with which the Company competes for executive talent (which may or may not be the same organizations that the company competes with directly on a +business level). The peer companies were identified based on the following criteria: industry type, organization size/complexity, with the best indicators of organization size in the Company’s industry being number of employees and enterprise +value, as well as, revenue and net income. +Following this process, the Compensation Committee selected the following peer group for +compensation decisions, all of which are electronics manufacturing organizations somewhat larger than the Company but comparable to the Company in business space and profitability. This peer group was used in fiscal 2013 with no changes for fiscal +2014: +CTS Corporation +Mercury Computer Systems, Inc. +Methode Electronics, Inc. +Planar Systems, Inc. +Pulse Electronics Corporation +Radisys Corporation +Richardson Electronic, Ltd. +Ducommun +Fabrinet +IPG Photonics Corporation +Multi-Fineline Electronix, Inc. +Sypris Solutions, Inc. +TTM Technologies +To ensure we have the information necessary to set appropriate compensation levels, we collect data comparing each +executive officer to their counterparts in similar positions with the peer group companies. The Compensation Committee does not base its decisions on targeting compensation levels to specific benchmarks against the peer group, instead, the +Compensation Committee refers to the peer group compensation data as background information regarding competitive pay levels and also considers the other factors identified below in making its decisions. The elements of total compensation are +targeted to pay at the market median when performance meets expectations. +-19- +The Compensation Committee supplements the peer group analysis with published compensation data on all +executives. Published compensation data is focused on a similar labor talent for Key Tronic executives, including organizations in the electronics manufacturing industry with annual revenues close to that of Key Tronic’s. In addition, the +Compensation Committee considers the value of each item of compensation, both separately and in the aggregate, in light of Company performance, each executive officer’s position within the Company, the executive officer’s performance +history and potential for future advancement, and, with respect to long-term cash and equity incentive compensation, the value of existing vested and unvested outstanding cash and equity awards. +The Compensation Committee also considers the recommendations of the Company’s chief executive officer with respect to the compensation for each +executive other than himself. In setting compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to the Company and its executive officers, the accounting consequences and the impact on shareholder +dilution. The Compensation Committee does not assign a specific weight to these factors and none of these factors by itself will compel a particular compensation decision. Instead, this information is used generally by the Compensation Committee to +help inform its decision-making process. Except as noted below, such decisions by the Compensation Committee are subjective, made in the exercise of the Compensation Committee’s independent business judgment. +Principal Elements of Compensation +The +principal elements of compensation for the Company’s executive officers are described below: +Base Salaries . Base salaries, +including merit-based salary increases, for the named executive officers are established based on the scope of their respective responsibilities, competitive market salaries and general levels of market increases in salaries, individual performance, +achievement of the Company’s corporate and strategic goals and changes in job duties and responsibilities. +In July +2014 the Compensation Committee reviewed the base salaries of the named executive officers and determined that they are generally competitive with the market (50 th percentile) when compared to the Company’s peer group and other market data. Given the competitive position of +some salaries, the Compensation Committee determined that base salaries should increase somewhat in 2014. As a result, the named executive officers’ base salaries for fiscal 2014 were as follows: +Name and Position +2013 Base Salary +2014 Base Salary +Craig D. Gates, President & Chief Executive Officer +$ +471,960 +$ +500,280 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +$ +306,000 +$ +312,120 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +260,000 +$ +270,400 +Philip S. Hochberg, Executive Vice President Business Development +$ +257,400 +$ +266,400 +Brett R. Larsen, Vice President Finance & Controller +$ +183,500 +$ +205,153 +Annual Cash Incentive Compensation . Annual cash incentives for the Company’s executive officers are +designed to reward performance for achieving key corporate goals, which the Company believes should increase shareholder value. In general, the annual incentive awards for executive officers are determined based on achievement of performance +objectives for profit before taxes established by the Compensation Committee for the fiscal year. Profit Before Tax is an appropriate goal for calculating short-term incentive because it is the best measure of operating performance and should yield +the best result for shareholders. Having the entire management team with the same goal will prevent having conflicting goals between different functions of the Company. +-20- +The Compensation Committee has established a cash incentive program for the Company’s named executive +officers, including minimum, target and maximum bonus opportunities for each executive as well as performance goals that need to be achieved in order for the executives to receive such bonuses. Minimum, target and maximum bonus opportunities under +the program are determined by reference to a percentage of the executive officer’s base salary. These minimum, target and maximum bonus levels are consistent with the levels established in previous years by the Compensation Committee and are +appropriate based on a subjective assessment of the executive’s position and ability to directly impact and responsibility for the Company’s performance, and its subjective assessment of general compensation practices in place at companies +in the Company peer group identified above. Bonuses under the fiscal year 2014 cash annual incentive program were paid out in August 2014 only if the executive officer was employed by the Company on the payment date. +The annual cash incentive program focuses on key metrics for a given year. Most often the Company uses a single company-wide financial element: profit +before taxes (PBT). Performance for fiscal year 2014 was measured based on the Company’s profit before taxes. For fiscal 2014 the Committee established a stretch goal component for achieving over and above the maximum annual incentive +compensation goal. The payout does not begin until profit exceeds five times incentive expenses. No amounts were earned under the stretch goal by participants in the fiscal year 2014 Incentive Compensation Plan. +For fiscal year 2014 performance, the target bonus opportunities (as a % of base salary paid) were: +Name and Position +Minimum +Target +Maximum +Actual +Craig D. Gates, President & Chief Executive Officer +5 +% +50 +% +75 +% +55 +% +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +4 +% +40 +% +60 +% +44 +% +Douglas G. Burkhardt, Executive Vice President, Operations +4 +% +40 +% +60 +% +44 +% +Philip S. Hochberg, Executive Vice President Business Development +4 +% +40 +% +60 +% +44 +% +Brett R. Larsen, Vice President Finance & Controller +3.5 +% +35 +% +52.5 +% +38.5 +% +Long-Term Cash Incentive Compensation . The Compensation Committee awards long-term cash incentive +compensation to the Company’s executive officers to align their interests with those of the Company’s shareholders, to provide additional incentives to the Company’s executive officers to improve the long-term performance of the +Company’s common stock and achieve the Company’s corporate goals and strategic objectives and to retain the Company’s executive officers. +The Company’s current practice is primarily to grant long-term cash incentive awards to the named executive officers in the form of performance units at the start of each fiscal year. These units +will have a future value tied directly to the achievement of Board determined and approved goals for a three-year period. At the end of each three-year period, the cash value of these units will be paid to the executive officer at a value set by the +Board, upon the recommendation of the Compensation Committee, at the beginning of the three-year period based on goal achievement as measured at the end of the three-year period. The goals consist of sales growth compared to peer group companies and +return on invested capital. Revenue growth compared to the industry and Return on Invested Capital (“ROIC”) combine to provide the most appropriate measures of long-term financial performance. Having a goal of revenue +-21- +growth compared to the industry incents management to gain market share. Having a goal of ROIC above the Company’s weighted average cost of capital builds shareholder value and incents +management to make sure that revenue growth is profitable. +The table below contains the target award levels for each named executive officer +for the three year period ending at the end of fiscal year 2014. +Name and Position +Minimum Award +Target Award +Maximum Award +Craig D. Gates, President & Chief Executive Officer +$ +137,500 +$ +275,000 +$ +412,500 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +$ +82,500 +$ +165,000 +$ +247,500 +Douglas G. Burkhardt, Executive Vice President, Operations +$ +50,000 +$ +100,000 +$ +150,000 +Philip S. Hochberg, Executive Vice President Business Development +$ +20,000 +$ +40,000 +$ +60,000 +Brett R. Larsen, Vice President Finance & Controller +$ +20,000 +$ +40,000 +$ +60 000 +Long-Term Equity Incentive Compensation . In fiscal years 2012, 2013 and 2014 the named executive officers +received grants of stock appreciation rights (“SARS”) under the 2010 Incentive Plan. These stock appreciation rights vest on the third anniversary of the grant date to the extent the Company’s return on invested capital (ROIC) over +the vesting period compared to the weighted average ROIC of a selected group of peer companies over the same period has reached 90% or more of the ROIC of the peer group average. At 90% of the ROIC of the peer group average, 50% of the SARS vest. At +110% of the ROIC of the peer group average, 100% of the SARS vest. These rights have a five year term. Payment upon exercise of a stock appreciation right may be in cash, in shares, in some combination thereof or in any other manner approved by the +Compensation Committee. +The stock appreciation rights are designed to link executives’ interests with those of the Company’s +shareholders as the shares’ value is based on the increase in key financial metrics, to provide a long-term retention incentive for the vesting period and, awards are subject to performance-based vesting requirements, to provide further +incentives for executives to achieve goals considered critical to the Company’s success. The Committee has determined that ROIC is the key measure for aligning executive’s performance with the long-term shareholder interests. +In determining the size of the Company’s long-term equity incentive awards, the Compensation Committee reviews competitive market data for similar +positions in the Company’s peer companies, the executive officer’s performance history and/or potential for future responsibility and promotion, the chief executive officer’s recommendations (with respect to executives other than +himself) and the value of existing vested and unvested outstanding cash and equity awards. The relative weight given to each of these factors will vary from individual to individual at the Compensation Committee’s discretion and adjustments may +be made as the Compensation Committee deems reasonable to attract candidates in the competitive environment for highly qualified employees in which the Company operates. +-22- +The number of SARS awards are outlined in the table below for the past three fiscal years. +Executive +2012 (1) +2013 (3) +2014 (4) +Craig D. Gates, President & Chief Executive Officer +50,000 +50,000 +50,000 +Ronald F. Klawitter, Executive Vice President, Chief Financial Officer +25,000 +25,000 +25,000 +Douglas G. Burkhardt, Executive Vice President, Operations +20,000 +20,000 +20,000 +Philip S. Hochberg, Executive Vice President Business Development +25,000 +(2) +20,000 +20,000 +Brett R. Larsen, Vice President Finance & Controller +10,000 +10,000 +10,000 +(1) +The grant data fair values of the 2012 SARS awards for Messrs. Gates, Klawitter, Burkhardt, Hochberg and Larsen were, $110,000, $55,000, $44,000, $55,000 and $22,000, +respectively. +(2) +Includes 15,000 SARS awarded to Mr. Hochberg in 2012 as a result of his promotion from vice president to executive vice president. +(3) +The grant date fair values of the 2013 SARS awards for Messrs. Gates, Klawitter, Burkhardt, Hochberg and Larsen were, $130,000, $65,000, $52,000, $65,000 and $26,000, +respectively. +(4) +The grant date fair values of the 2014 SARS awards for Messrs. Gates, Klawitter, Burkhardt, Hochberg and Larsen were, $$233,500, 116,750, $93,400, $93,400, and $46,700, +respectively. +Other Benefits . The named executive officers are also entitled to participate in the Company’s +benefit programs which are available to all of the Company’s U.S. employees, including company-sponsored health, welfare, 401(k), and disability and life insurance. +Post-Termination Protection and Payments +The Company has entered into employment +agreements with each of the named executive officers. The Compensation Committee believes these agreements are important in attracting and retaining key executive officers. Under these agreements, the executive would be entitled to severance +benefits in the event of a termination of the executive’s employment by the Company without cause or by the executive for good reason. The Company has determined that it is appropriate to provide each named executive officer with severance +benefits under these circumstances in light of his position with the Company and as part of his overall compensation package. The severance benefits for each named executive officer are generally determined as if he continued to remain employed by +the Company for 12 months following his actual termination date or 24 months following termination upon a change of control. Because the Company believes that a termination by an executive for good reason (or constructive termination) is +conceptually the same as an actual termination by the Company without cause, the Company believes it is appropriate to provide severance benefits following such a constructive termination of the executive’s employment. Monthly base salary +payments will terminate immediately upon the executive’s employment by a third party at a base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a monthly base salary +by a third party lower than that being paid by the Company, the Company will continue to pay the difference for the remainder of the severance period. +If a change in control of the Company occurs, outstanding long-term cash incentive awards and SARS awards, including awards held by the Company’s named executive officers, will generally become fully +vested if they are not assumed by the successor entity. +-23- +Tax Deductibility of Pay +Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to the Company’s chief executive +officer and certain other executive officers. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. In general, awards granted under the Company’s annual cash incentive plan, +long-term cash incentive plan and SARS granted under the 2010 Incentive Plan are intended to comply with the applicable requirements for this exemption, and the Compensation Committee generally considers the limitations imposed by +Section 162(m) among other factors in making its compensation decisions. However, the Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to the Company’s success, even +where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of the Company’s executive compensation program as part of its primary objective of +ensuring that compensation paid to the Company’s executive officers is reasonable, performance-based and consistent with the Company’s goals and the goals of the Company’s shareholders. +Risk Considerations +The Compensation +Committee has reviewed the Company’s compensation programs to determine whether they encourage unnecessary or excessive risk taking and has concluded that they do not. The Compensation Committee believes that the design of the Company’s +annual cash, long-term cash and long-term equity incentives provides an effective and appropriate mix of incentives to help ensure the Company’s performance is focused on long-term shareholder value creation and does not encourage the taking of +short-term risks at the expense of long-term results. +The Compensation Committee takes risk into account in establishing and reviewing the +Company’s executive compensation arrangements and believes that they do not encourage unnecessary or excessive risk-taking behaviors. Base salaries are fixed in amount and thus do not encourage risk-taking. While the Company’s +performance-based annual cash bonuses are generally based on annual results, the amount of such bonuses represent only a portion of each individual’s overall total compensation opportunities. The Compensation Committee believes that the annual +incentive program appropriately balances risk and the desire to focus executives on specific annual goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk-taking. Finally, a significant portion of +the compensation provided to the Company’s executive officers is in the form of long term cash and equity based awards that further align executives’ interests with those of shareholders. The Compensation Committee believes that these +awards do not encourage unnecessary or excessive risk-taking since the ultimate value of the equity based awards is tied to the Company’s stock price, and grants are generally subject to long-term vesting schedules and a two year retention +requirement after exercise to help ensure that executives always have significant value tied to long-term stock price performance. Also, annual cash incentive compensation and long term cash and equity incentive compensation payments are subject to +the Company’s Recoupment Policy, described under the caption “Recoupment Policy”. +Summary +The Compensation Committee believes that the Company’s compensation philosophy and programs are designed to foster a performance-oriented culture +that aligns executives’ interests with those of the Company’s shareholders. The Compensation Committee believes that the compensation of the Company’s executives’ is both appropriate and responsive to the goal of improving +shareholder value. +Compensation Committee Report +The Compensation Committee reviewed this Compensation Discussion and Analysis and discussed its contents with Company management. Based on this review and discussions, the Compensation Committee has +recommended to the Board that this Compensation Discussion and Analysis be included in the Annual Report on Form 10-K. +Respectfully submitted +by the Compensation Committee: +-24- +Yacov A. Shamash, Chair +James R. Bean +Patrick Sweeney +Compensation Committee Interlocks and Insider Participation +The directors listed at the end of the Compensation Committee Report above were each members of the Compensation Committee during all of +fiscal year 2014. No director who served on the Compensation Committee during fiscal year 2014 is or has been an executive officer of the Company or had any relationships requiring disclosure by the Company under the SEC’s rules requiring +disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, +any executive officer of which served as a member of the Board or the Compensation Committee during fiscal year 2014. +-25- +EXECUTIVE COMPENSATION +Summary Compensation Table—Fiscal Years 2012-2014 +The following table sets forth +information concerning compensation for services rendered to the Company by the Chief Executive Officer, or the CEO, the Executive Vice President - Chief Financial Officer, and the Company’s next three most highly compensated executive officers +for fiscal years 2012, 2013 and 2014 by each of the named executive officers. Collectively, these are the “named executive officers.” +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option/SAR +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +($) (2) +All +Other +Compensation +($) (3) +Total +($) +Craig D. Gates, +President & Chief Executive Officer +2014 +2013 +2012 +504,637 +469,272 +445,068 +0 +0 +0 +233,500 +185,500 +110,000 +690,050 +752,694 +702,750 +10,200 +10,000 +26,600 +1,438,387 +1,417,466 +1,284,418 +Ronald F. Klawitter, +Executive Vice President, Chief Financial Officer +2014 +2013 +2012 +312,356 +306,000 +300,000 +0 +0 +0 +116,750 +92,750 +55,000 +384,936 +418,698 +405,000 +10,200 +10,000 +26,600 +824,242 +827,448 +786,600 +Douglas G. Burkhardt, +Executive Vice President, Operations +2014 +2013 +2012 +269,600 +256,692 +215,842 +0 +0 +0 +93,400 +74,200 +44,000 +268,624 +312,486 +219,505 +10,400 +10,000 +99,138 +642,024 +653,378 +578,485 +Philip S. Hochberg, +Executive Vice President Business Development +2014 +2013 +2012 +263,977 +245,850 +209,250 +0 +0 +0 +93,400 +74,200 +68,200 +176,150 +215,623 +162,176 +10,200 +10,000 +8,288 +543,727 +545,673 +447,914 +Brett R. Larsen, +VP Finance & Controller +2014 +2013 +2012 +190,996 +175,000 +162,000 +0 +0 +0 +46,700 +37,100 +22,000 +133,533 +156,928 +132,330 +8,392 +10,000 +9,036 +379,621 +379,028 +325,366 +1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation rights, or SARS, granted to the +named executive officers during the fiscal year. These values have been determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion +of the assumptions and methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 7 – “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the +Company’s 2014 Annual Report. +2) +Amounts reflect (a) annual cash incentive compensation, which is based on performance during the relevant fiscal year, pursuant to the annual incentive program and +(b) any payout of long term performance unit awards for the three year performance period that ended in the relevant fiscal year, pursuant to the long term cash incentive program. +3) +Represents Company matching payments in fiscal years 2014, 2013 and 2012 under the Company’s 401(k) Retirement Savings Plan. Also includes for Mr. Gates value +realized on the exercise of stock options in the amount of $16,800 in fiscal year 2012, for Mr. Klawitter value realized on the exercise of stock options in the amount of $16,800 in fiscal year 2012 and for Mr. Burkhardt value realized on +the exercise of stock options in the amount of $89,338 in fiscal year 2012 and a service award in the amount of $200 in fiscal year 2014. +-26- +Compensation of Named Executive Officers +The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to the Company’s named executive officers for the fiscal years indicated above. +The primary elements of each named executive officer’s total compensation reported in the table are base salary, long term equity incentives consisting of awards of stock appreciation rights and the payout of annual and long term cash +incentives. Named executive officers also received the other benefits listed in the “All Other Compensation” column of the Summary Compensation Table, as further described in the footnotes to the table. +The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards in +fiscal year 2014 table and the accompanying description of the material terms of the equity awards granted in fiscal year 2014, provides information regarding the long-term equity incentives awarded to the named executive officers in fiscal year +2014. The Outstanding Equity Awards at 2014 Fiscal Year-End and Option Exercises and Stock Vested tables provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their +equity awards. The “Potential Payments Upon Termination or Change in Control” section provides information on the benefits the named executive officers may be entitled to receive in connection with certain terminations of their employment +and/or a change in control of the Company. +Description of Employment Agreements—Cash Compensation +The Company entered into employment contracts with Messrs. Gates, Klawitter, Burkhardt, Hochberg and Larsen at the time each employee was first elected an +officer of the Company. Each of the employment contracts imposes upon the employee standard nondisclosure, confidentiality and no competition provisions. Each of the employment contracts provides that the Company may terminate employment at any +time. The employment contracts provide that upon termination of employment by the Company, other than for cause, the Company shall continue to pay employee’s base salary in effect prior to termination for a period of one year after termination. +The employment contracts also provide that upon termination by the employee in the event the Company changes the substantive responsibilities and duties of the employee in such a way as to constitute a demotion, the Company shall continue to pay +employee’s base salary in effect prior to termination for a period of one year after termination. The contracts provide that upon termination of employment by the Company after a change of control, other than for cause, the Company shall +continue to pay employee’s base salary in effect prior to termination for a period of two years after termination. The contracts condition the payment of severance upon execution of a release of claims and include provisions to comply with +Internal Revenue Code Section 409A. +-27- +GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2014 +The following table sets forth information concerning individual grants of non-equity incentive plan awards and grants of equity incentive plan awards +made during fiscal year 2014 to each of the named executive officers. +Name +Grant Date +Estimated Future Payouts +Under Non-Equity Incentive Plan Awards +Estimated +Future +Payouts +Under +Equity +Incentive +Plan Awards +(#) +Exercise or +Base Price of +Option/ SAR +Awards +($/Sh) +Grant Date +Fair Value of +Stock +And +Option/ SAR +Awards +($) +Threshold +($) +Target +($) +Maximum +($) +Craig D. Gates +07/31/13 +07/31/13 +07/31/13 +(1) +(2) +(3) +23,598 +150,000 +235,980 +300,000 +353,970 +450,000 +50,000 +— +— +11.34 +— +— +233,500 +— +— +Ronald F. Klawitter +07/31/13 +07/31/13 +07/31/13 +(1) +(2) +(3) +12,240 +90,000 +122,400 +180,000 +183,600 +270,000 +25,000 +— +— +11.34 +— +— +116,750 +— +— +Douglas G. Burkhardt +07/31/13 +07/31/13 +07/31/13 +(1) +(2) +(3) +10,400 +55,000 +104,000 +110,000 +156,000 +165,000 +20,000 +— +— +11.34 +— +— +93,400 +— +— +Philip S. Hochberg +07/31/13 +07/31/13 +07/31/13 +(1) +(2) +(3) +10,296 +55,000 +102,960 +110,000 +154,440 +165,000 +20,000 +— +— +11.34 +— +— +93,400 +— +— +Brett R. Larsen +07/31/13 +07/31/13 +07/31/13 +(1) +(2) +(3) +6,423 +25,000 +64,225 +50,000 +96,338 +75,000 +10,000 +— +— +11.34 +— +— +46,700 +— +— +(1) +Represents stock appreciation rights awards during fiscal year 2014 under the 2010 Incentive Compensation Plan. The 2010 Incentive Compensation Plan is discussed under +the caption “Long-Term Equity Incentive Compensation” beginning on page 22. +(2) +Represents threshold, target and maximum payouts under the annual Incentive Compensation Plan for fiscal year 2014. For actual payouts earned for fiscal year 2014 see +the Summary Compensation Table. The Incentive Compensation Plan is discussed under the caption “Annual Cash Incentive Compensation” beginning on page 20. +(3) +Represents threshold, target and maximum payouts under the Long-Term Incentive Plan for the 2014-2016 performance cycle. The Long-Term Incentive Plan is discussed under +the caption “Long-Term Cash Incentive Compensation” beginning on page 21. Payouts under the Long-Term Incentive Plan for the 2014-2016 performance cycle are dependent upon the achievement of goals for three years sales growth compared to +peer group companies and return on invested capital. +-28- +Outstanding Equity Awards at Fiscal 2014 Year-End +The following table presents information regarding the outstanding equity awards held by each of the Company’s named executive officers as of +June 28, 2014. +Option/SAR Awards +Name +Grant +Date +Equity +Incentive Plan +Awards +Number of +Securities +Underlying +Unexercised +Exercisable +Options/SARS +(#) (1) +Equity +Incentive +Plan +Awards +Number of +Securities +Underlying +Unexercised +Unearned +Options/SARS +(#) (1) +Option/SAR +Exercise/Base +Price ($) +Option/SAR +Expiration +Date +Craig D. Gates +07/31/13 +07/26/12 +07/27/11 +05/14/10 +150,000 +50,000 +50,000 +50,000 +11.34 +7.45 +4.40 +5.89 +07/31/18 +07/26/19 +07/27/16 +05/14/15 +Ronald F. Klawitter +07/31/13 +07/26/12 +07/27/11 +05/14/10 +75,000 +25,000 +25,000 +25,000 +11.34 +7.45 +4.40 +5.89 +07/31/18 +07/26/19 +07/27/16 +05/14/15 +Douglas G. Burkhardt +07/31/13 +07/26/12 +07/27/11 +05/14/10 +50,000 +20,000 +20,000 +20,000 +11.34 +7.45 +4.40 +5.89 +07/31/18 +07/26/19 +07/27/16 +05/14/15 +Philip S. Hochberg +07/31/13 +07/26/12 +01/26/12 +07/27/11 +05/14/10 +30,000 +20,000 +20,000 +15,000 +10,000 +11.34 +7.45 +6.30 +4.40 +5.89 +07/31/18 +07/26/17 +01/26/17 +07/27/16 +05/14/15 +Brett R. Larsen +07/31/13 +07/26/12 +07/27/11 +05/14/10 +30,000 +10,000 +10,000 +10,000 +11.34 +7.45 +4.40 +5.89 +07/21/18 +07/26/19 +07/27/16 +05/14/15 +(1) +Stock appreciation rights that vest on the third anniversary of the grant date and have a five year term. Payouts under the stock appreciation rights are dependent upon +the achievement of goals for three year’s return on invested capital compared to peer group companies. +-29- +Option/SAR Exercises and Stock Vested—Fiscal Year 2014 +The following table presents information regarding the exercise during fiscal year 2014 of stock appreciation rights awards previously granted by the +Company to the named executive officers. No executive officer exercised any stock appreciation rights during fiscal 2014. No executive officer holds stock awards. +Option/SAR Awards +Name +Number of Shares +Acquired on +Exercise +(#) +Value Realized +on Exercise +($) +Craig D. Gates +0 +— +Ronald F. Klawitter +0 +— +Doug G. Burkhardt +0 +— +Philip S. Hochberg +0 +— +Brett R. Larsen +0 +— +Pension Benefits +None of the named executive officers is covered by a pension plan. +Non-qualified Deferred +Compensation +None of the named executive officers is covered by a defined benefit plan or other plan that provides for the deferral of +compensation on a basis that is not tax-qualified. +Other Benefits +The Company offers the named executive officers and all other U.S. employees life insurance, disability, medical and dental plans for which the named executive officers are charged the same rate as all +other employees. +Potential Payments upon Termination or Change in Control +The following section describes the benefits that may become payable to the named executive officers in connection with a termination of their employment and/or a change in control of the Company. +Quantification of Severance and Change in Control Benefits . The tables below quantify the benefits that would have been payable to +each of the named executive officers if the executive’s employment had terminated under the circumstances described above and/or a change in control of the Company had occurred on June 28, 2014. The first table presents the benefits the +executive would have received if such a termination had occurred outside of the context of a change in control. The second table presents the benefits the executive would have received if such a termination occurred in connection with a change in +control. +-30- +Severance Benefits (Outside of Change of Control) +Name +Cash +Severance +($)(1) +Continuation of +Health/Life +Benefits($)(2) +Cash-Out +of Accrued +and +Earned +Vacation($) +Total($) +Craig D. Gates +500,280 +0 +18,219 +518,499 +Ronald F. Klawitter +312,120 +0 +52,221 +364,341 +Douglas G. Burkhardt +270,400 +0 +22,490 +292,890 +Philip S. Hochberg +266,400 +0 +2,515 +268,915 +Brett R. Larsen +205,153 +0 +9,553 +214,706 +1. +This amount represents 12 months of the executive’s base salary. Monthly base salary payments will terminate immediately upon the executive’s employment by a +third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower than that being paid by the Company, the Company will +continue to pay the difference for the remainder of the 12 month severance period. +2. +The premiums that would be charged to continue health coverage for the applicable period pursuant to COBRA for the executive and his eligible dependents (to the extent +that such dependents were receiving health benefits as of June 28, 2014) would be paid by the executive and the Company will not reimburse the executive for these premiums. +Change of Control Severance Benefits +Name +Cash +Severance +($)(1) +Continuation +of +Health +Benefits($)(2) +Cash-Out +of Accrued +and +Unpaid +Paid +Time +Off($) +Equity +Acceleration +($)(3) +Section +280G +Gross-Up +($)(4) +Total($) +Craig D. Gates +1,000,560 +0 +18,219 +442,500 +— +1,461,279 +Ronald F. Klawitter +624,240 +0 +52,221 +221,250 +— +897,711 +Douglas G. Burkhardt +540,800 +0 +22,490 +177,000 +— +740,290 +Philip S. Hochberg +532,800 +0 +2,515 +178,250 +— +713,565 +Brett R. Larsen +410,306 +0 +9,553 +88,500 +— +508,359 +-31- +1. +For each of the named executive officers, this amount represents the sum of 24 months of the executive’s base salary. Monthly base salary payments will terminate +immediately upon the executive’s employment by a third party at a monthly base salary equal to or greater than the monthly base salary then being paid the executive by the Company. If the executive is paid a base salary by a third party lower +than that being paid by the Company, the Company will continue to pay the difference for the remainder of the 24 month severance period. +2. +See footnote (2) to the table above. +3. +This amount represents the intrinsic value of the unvested portions of the executive’s stock appreciation rights (SARS) awards that would have accelerated on a +termination of the executive’s employment as described above. This value is calculated by multiplying the amount by which $10.73 (the closing price of the Company’s common stock on the last trading day of fiscal 2014) exceeds the base +price of the SARS by the number of SARS subject to the accelerated portion of the SARS. Each executive would have been entitled to full acceleration of his then-outstanding equity awards on such a termination. +4. +The severance agreements for each of the named executive officers do not provide for a Section 280G gross-up payment. +DIRECTOR COMPENSATION +Non-Employee Director Compensation Table +The following table presents information regarding the compensation paid for fiscal year 2014 to members of the Board of Directors who are not also +employees of the Company (referred to herein as “non-employee directors”). +Name +Fees Earned +or Paid +in +Cash +($) +Option/SAR +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All Other +Compensation +($) +Total +($) +James R. Bean +53,803 +35,025 +15,000 +0 +103,828 +Yacov A. Shamash +52,335 +35,025 +15,000 +0 +102,360 +Patrick Sweeney +67,327 +35,025 +15,000 +0 +117,352 +(1) +The amounts reported in the “Option/SAR Awards” column reflect the fair value on the grant date of the stock appreciation right granted to the Company’s +non-employee directors during fiscal year 2014 as determined under generally accepted accounting principles used to calculate the value of equity awards for purposes of the Company’s financial statements. For a discussion of the assumptions and +methodologies used to calculate the amounts reported above, please see the discussion of equity awards contained in Note 8 – “Stock Option and Benefit Plans” to the Consolidated Financial Statements in the Company’s 2014 Annual +Report . +(2) +Reflects payout of long term performance unit awards for the three year performance period that ended in fiscal year 2014. +-32- +The table below presents the number of outstanding and unexercised options/SAR awards held by each of the +Company’s non-employee directors as of June 28, 2014. +Director +Number of Shares +Subject to Outstanding +Options/SAR Awards +as of 06/28/2014 +Number of Unvested +Restricted Shares/Units +as of 06/28/2014 +James. R. Bean +35,000 +— +Yacov A. Shamash (1) +24,930 +— +Patrick Sweeney +20,000 +— +(1) +Includes 4,930 option shares granted pursuant to the 1990 Stock Option Plan for Non-Employee Directors. No further awards can be issued under this Plan. +Non-Employee Director Compensation +Equity Grants. Under the Company’s 2010 Incentive Plan, as approved by the shareholders in October 2010, the Company’s non-employee directors receive awards, subject to the non-employee +director’s continued service to the Company through the vesting date. +Long-Term Incentive Plan Awards. Under the Company’s +Long-Term Incentive Plan, non-employee directors receive long term non-equity incentive compensation awards. +Retainers and Meeting +Fees . In addition, non-employee directors receive annual retainers and fees for attending Board and committee meetings as set forth in the following table: +Annual Cash Retainer +Board Member, other than Chairman +$ +36,000 +Chairman of the Board +48,938 +Board Meeting Fees +Board Member, other than Chairman +$ +1,700 +Chairman of the Board +2,550 +Committee Meeting Fees +Committee Member, other than Chairman +$ +1,000 +Committee Chairman +1,733 +All non-employee directors are also reimbursed for their expenses incurred in attending Board meetings and committee +meetings, as well as other Board-related travel expenses. +PROPOSAL 3 +ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED +EXECUTIVE OFFICERS +The +Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934, which requires that we provide our shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the +compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. +As described in greater detail in the “Compensation Discussion and Analysis” section of this proxy statement the Company believes that compensation of its executive officers should encourage +creation of +-33- +shareholder value and achievement of strategic corporate objectives. The Company attempts to align the interest of its shareholders and management by integrating compensation with the +Company’s short-term and long-term corporate strategic and financial objectives. In order to attract and retain the most qualified personnel, the Company intends to offer a total compensation package competitive with companies in our industry +sector, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance, while at the same time avoiding the encouragement of unnecessary or excessive risk taking. +This vote is advisory, which means that the vote on executive compensation is not binding on the Company, our Board of Directors or the Compensation +Committee of the Board of Directors. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in +accordance with the compensation disclosure rules of the Securities and Exchange Commission. To the extent there is a significant vote against our named executive officers compensation as disclosed in this proxy statement, the Compensation Committee +will evaluate whether any actions are necessary to address our shareholders concerns. +Therefore, we ask our shareholders to vote on the +following resolution at the Annual Meeting: +RESOLVED, that the Company’s shareholders approve, on an advisory basis, the +compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2014 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the +Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure. +THE BOARD OF DIRECTORS +RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT. +AUDIT COMMITTEE REPORT +The Audit Committee of the Company’s Board of Directors +consists of three members. The Board of Directors has determined that all Audit Committee members meet the definition of independence within the meaning of the applicable NASDAQ listing standards and that Patrick Sweeney has the requisite attributes +of an “audit committee financial expert” as defined by SEC regulations. The Audit Committee operates under a written charter adopted by the Board of Directors which is reviewed and reassessed for adequacy annually by the Audit Committee. +The Audit Committee has met and discussed with the Company’s management and BDO USA, LLP (“BDO”), the Company’s independent registered public accounting firm, the Company’s financial statements contained in the Annual Report +on Form 10-K for the fiscal year ended June 28, 2014. +The Audit Committee has reviewed and discussed with BDO the matters required to be +discussed pursuant to Statement of Auditing Standards No. 61, (“Codification of Statements on Auditing Standards, AU § 380”), as amended. BDO has submitted to the Audit Committee and the Committee has reviewed the written +disclosures and letter from BDO as required under applicable independence standards for auditors of public companies. The Audit Committee discussed with BDO that firm’s independence. The Audit Committee has considered whether the provision of +non-audit services is compatible with maintaining the principal auditor’s independence. All services to be provided by BDO are pre-approved by the Audit Committee or are pre-approved by a member of the Audit Committee and later ratified by the +Committee. +Based upon the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited +financial statements be included in the Company’s Annual Report on Form 10K for the fiscal year ended June 28, 2014, for filing with the Securities and Exchange Commission. +-34- +The Audit Committee: James R. Bean (Chairman), Yacov A. Shamash, Patrick Sweeney +Principal Accountant Fees and Services. The following chart shows the aggregate audit and non-audit fees billed or expected to be billed to the +Company by BDO for professional services in the named categories for the fiscal years ended June 28, 2014 and June 29, 2013: +FY 2014 +FY 2013 +Audit Fees (1) +$ +331,251 +$ +317,450 +Audit Related Fees (2) +12,750 +13,000 +Tax Fees (3) +87,883 +71,963 +All Other Fees +— +— +Total +$ +431,884 +$ +402,413 +(1) +Audit fees consisted of professional services provided in connection with the audit of the Company’s consolidated financial statements included in the +Company’s Annual Report on Form 10-K, review of the interim consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, review of documents filed with the SEC and statutory audits. +(2) +Audit related fees consisted of professional services provided in connection with the audit of the Company’s 401(k) Retirement Savings Plan and other consultation +matters. +(3) +Tax fees for fiscal years 2014 and 2013 consisted of professional services provided for the review of foreign tax returns and consultation on foreign tax matters. Tax +fees for fiscal year 2014 also included fees for BDO performing a study relating to research and development tax credits. +PROPOSAL 4 +RATIFICATION OF APPOINTMENT OF AUDITORS +The Audit Committee has retained BDO USA, LLP (“BDO”) as the Company’s independent registered public accounting firm for the fiscal year +ending June 27, 2015. Representatives of BDO are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. In the +event that ratification of this appointment of BDO as the Company’s registered public accounting firm is not approved by a majority of the shares of Common Stock voting at the Annual Meeting in person or by proxy, the Audit Committee will +review its future selection of its registered public accounting firm. +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE +FOR +RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SHAREHOLDER PROPOSALS +Eligible shareholders who wish to present proposals for action at +the Annual Meeting of Shareholders to be held in 2015 must submit their proposals in writing to Kathleen L. Nemeth, Secretary, Key Tronic Corporation, 4424 N. Sullivan Road—Upper Level, Spokane Valley, Washington 99216. Under Rule 14a-8(e) +of the Securities Exchange Act of 1934, proposals submitted for inclusion in our proxy statement for the 2015 Annual Meeting must be received by the Secretary at the address above no later than May 22, 2015. In addition, any shareholder who +intends to present a proposal at the 2015 Annual Meeting without inclusion of such proposal in our proxy materials must provide us notice of such proposal in the manner set forth above by July 31, 2015 or such proposal will be considered +untimely. For such proposals that are untimely, the Company retains discretion to vote proxies it receives. For such proposals that are timely, the Company retains discretion to vote proxies it receives provided that (1) the Company includes in +its Proxy Statement advice on the nature of the proposal and how it intends to exercise its voting discretion and +-35- +(2) the proponent does not issue a proxy statement. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with +these and other applicable requirements. +OTHER MATTERS +Annual Report on Form 10-K +The 2014 Annual Report on Form 10-K (including +exhibits), as amended, which we refer to as our “Form 10-K,” is available by accessing the Company’s website at www.keytronic.com or the SEC’s website at www.sec.gov. Stockholders may request a free copy of our +Form 10-K by contacting Investor Relations at StreetConnect, (206) 729-3625, ktcc@stct.com. We will furnish any exhibit to our Form 10-K if specifically requested to do so. +Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and +directors and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”) and +NASDAQ. +Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms which they file. +Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons that no Forms 5’s were required, the Company believes that with respect to the fiscal year ended June 28, 2014 all +the Reporting Persons complied with all applicable filing requirements. +Solicitation Expenses . The expense of printing and +mailing proxy material will be borne by the Company. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, executive officers and other employees of the Company by personal interview, telephone or +facsimile. No additional compensation will be paid for such solicitation. The Company will request brokers and nominees who hold stock in their names to furnish proxy material to beneficial owners of the shares and will reimburse such brokers and +nominees for their reasonable expenses incurred in forwarding solicitation material to such beneficial owners. In addition, we have retained Georgeson Inc. to aid in the solicitation of proxies. We currently estimate the fees payable to Georgeson +Inc. in connection with such services to be approximately $15,000, plus reimbursement of out of pocket expenses. +Other +Business . The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the enclosed form will be voted in +respect thereof in accordance with the judgment of the persons voting the proxies. +By Order of the Board of Directors, +Kathleen L. Nemeth +Secretary +Spokane Valley, Washington +September 19, 2014 +-36- +APPENDIX A +KEY TRONIC CORPORATION +AMENDED AND RESTATED 2010 INCENTIVE PLAN +KEY TRONIC CORPORATION +2010 INCENTIVE PLAN +(As Amended and Restated Effective +, 2014) +SECTION 1. PURPOSE +The purpose of the +Key Tronic Corporation 2010 Incentive Plan, as amended and restated, is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its Related Companies by providing +them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company’s shareholders. +SECTION 2. DEFINITIONS +Certain capitalized terms used in the Plan have the meanings set +forth in Appendix A. +SECTION 3. ADMINISTRATION +3.1 +Administration of the Plan +(a) The Plan +shall be administered by the Board or the Compensation Committee, which shall be composed of two or more directors, each of whom is a “non-employee director” within the meaning of Rule 16b-3(b)(3) +promulgated under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission; an “outside director” within the meaning of Section 162(m) of the Code; or any successor provision thereto; and an +“independent director” as defined under the applicable stock exchange listing standards. +(b) Notwithstanding the foregoing, the +Board may delegate concurrent responsibility for administering the Plan, including with respect to designated classes of Eligible Persons, to different committees consisting of two or more members of the Board, subject to such limitations as the +Board deems appropriate, except with respect to grants of Awards to Participants who are subject to Section 16 of the Exchange Act or Awards granted pursuant to Section 15 of the Plan. Members of any committee shall serve for such term as +the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board may authorize one or more senior executive officers of the Company to grant Awards to designated classes of Eligible +Persons, within limits specifically prescribed by the Board; provided, however, that no such officer shall have or obtain authority to grant Awards to himself or herself or to any person subject to Section 16 of the Exchange Act. +(c) All references in the Plan to the “ Committee ” shall be, as applicable, to the Board, the Compensation Committee or any other +committee or any officer to whom authority has been delegated to administer the Plan. +A-1 +3.2 +Administration and Interpretation by Committee +(a) Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders +or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted +under the Plan; (ii) determine the type or types of Award to be granted to each Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the +terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of +Common Stock or other property or canceled or suspended; (vii) interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (viii) establish such rules, regulations +and subplans as it shall deem appropriate for the proper administration and operation of the Plan; (ix) delegate ministerial duties to such of the Company’s employees as it so determines; and (x) make any other determination and take +any other action that the Committee deems necessary or desirable for administration of the Plan. +(b) In no event, however, shall the +Committee have the right, without shareholder approval, to (i) lower the price of an Option after it is granted, except in connection with adjustments provided in Section 14.1; (ii) take any other action that is treated as a repricing +under generally accepted accounting principles; or (iii) cancel an Option at a time when its strike price exceeds the Fair Market Value of the underlying stock, in exchange for cash or another option, restricted stock, or other equity award, +unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. +(c) +The effect on the vesting of an Award of a Company-approved leave of absence or a Participant’s reduction in hours of employment or service shall be determined by the Compensation Committee, whose determination shall be final. +(d) Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any shareholder and any +Eligible Person. A majority of the members of the Committee may determine its actions. +SECTION 4. SHARES SUBJECT TO THE PLAN +4.1 +Authorized Number of Shares +Subject to +adjustment from time to time as provided in Section 14.1, a maximum of 2,200,000 shares of Common Stock shall be available for issuance under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares. +4.2 +Share Usage +(a) Shares of Common Stock +covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant. If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common +Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the shares subject to such Awards and the forfeited or reacquired shares shall again be available for issuance under the Plan. +Any shares of Common Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award, or +(ii) covered by an Award that is settled in cash, or in a manner such that some or all of the shares of Common Stock covered by the Award are not issued, shall be available for Awards under the Plan. The number of shares of Common Stock +available for issuance under the Plan +A-2 +shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject to or +paid with respect to an Award. +(b) The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or +as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company. +(c) Notwithstanding +any other provision of the Plan to the contrary, the Committee may grant Substitute Awards under the Plan. Substitute Awards shall not reduce the number of shares authorized for issuance under the Plan. In the event that an Acquired Entity has +shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Compensation Committee, the shares available for grant +pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to +holders of common stock of the entities that are parties to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock authorized for issuance under the Plan; provided, however, +that Awards using such available shares shall not be made after the date that awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to individuals who were not +employees or directors of the Company or a Related Company prior to such acquisition or combination. In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger or consolidation or statutory share +exchange is completed is approved by the Board and that agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be the action of +the Committee without any further action by the Committee, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be +Participants. +SECTION 5. ELIGIBILITY +An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, +advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company’s securities in a +capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities. +SECTION 6. AWARDS +6.1 +Form, Grant and Settlement of Awards +The +Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone or in addition to or in tandem with any other type of Award. Any Award +settlement may be subject to such conditions, restrictions and contingencies as the Committee shall determine. +6.2 +Evidence of Awards +Awards granted under +the Plan shall be evidenced by a written, including an electronic, instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan. +A-3 +6.3 +Dividends and Distributions +Participants +may, if the Committee so determines, be credited with dividends or dividend equivalents paid with respect to shares of Common Stock underlying an Award in a manner determined by the Committee in its sole discretion. The Committee may apply any +restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, +Restricted Stock or Stock Units. Notwithstanding the foregoing: (a) the right to any dividends or dividend equivalents declared and paid on the number of shares underlying an Option or a Stock Appreciation Right may not be contingent, directly +or indirectly, on the exercise of the Option or Stock Appreciation Right, and must comply with or qualify for an exemption under Section 409A; (b) any dividends or dividend equivalents declared and paid on Restricted Stock must comply with +or qualify for an exemption under Section; and (c) if any Award for which dividends or dividend equivalents have been granted has its vesting, payment or grant dependent on the achievement of one or more performance goals, then the dividends or +dividend equivalents shall accrue and be paid only to the extent the Award becomes vested or payable. +SECTION 7. OPTIONS +7.1 +Grant of Options +The Committee may grant +Options, which shall be nonqualified stock options that are not intended to qualify as “incentive stock options” as that term is defined for purposes of Section 422 of the Code or any successor provision. +7.2 +Option Exercise Price +Options shall be +granted with an exercise price per share not less than 100% of the Fair Market Value of the Common Stock on the Grant Date, except in the case of Substitute Awards. Notwithstanding the foregoing, the Committee may grant nonqualified stock options +with an exercise price per share of less than the Fair Market Value of the Common Stock on the Grant Date if the Option meets all the requirements for Awards that are considered “deferred compensation” within the meaning of +Section 409A. +7.3 +Term of Options +Subject to earlier +termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date. +7.4 +Exercise of Options +(a) The Committee +shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Committee at any time. +(b) To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery +to or as directed or approved by the Company of a properly executed stock option exercise agreement or notice, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the +Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement or notice, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in +Section 7.5. An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee. +A-4 +7.5 +Payment of Exercise Price +The exercise +price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid before the Company +will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee for that purchase, which forms may include: +(a) cash; +(b) check or wire transfer; +(c) having the Company withhold shares of Common Stock that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares +being purchased under the Option; +(d) tendering (either actually or, so long as the Common Stock is registered under Section 12(b) or +12(g) of the Exchange Act, by attestation) shares of Common Stock owned by the Participant that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; +(e) so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a +properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price and +any withholding tax obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or +(f) such other consideration as the Committee may permit. +7.6 +Effect of Termination of Service +(a) The +Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be +waived or modified by the Committee at any time. +(b) If the exercise of the Option following a Participant’s Termination of Service, but +while the Option is otherwise exercisable, would be prohibited solely because the issuance of Common Stock would violate the registration requirements under the Securities Act or similar requirements under the laws of any state or foreign +jurisdiction, then the Option shall remain exercisable until the earlier of (i) the Option Expiration Date and (ii) the expiration of a period of three months (or such longer period of time as determined by the Committee in its sole +discretion) after the Participant’s Termination of Service during which the exercise of the Option would not be in violation of such Securities Act or other requirements. +SECTION 8. STOCK APPRECIATION RIGHTS +8.1 +Grant of Stock Appreciation Rights +The +Committee may grant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Committee shall determine in its sole discretion. An SAR may be granted in tandem with an Option or alone (“freestanding”). The +grant price of a tandem SAR shall be equal to the exercise price of the related Option. The grant price of a freestanding SAR shall be established in accordance with procedures for Options set forth in Section 7.2. An SAR may be exercised upon +such terms and conditions and for such term as the Committee determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the +A-5 +maximum term of a freestanding SAR shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be +exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its +related Option is then exercisable. +8.2 +Payment of SAR Amount +Upon the exercise +of an SAR, a Participant shall be entitled to receive payment in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the +number of shares with respect to which the SAR is exercised. At the discretion of the Committee as set forth in the instrument evidencing the Award, the payment upon exercise of an SAR may be in cash, in shares, in some combination thereof or in any +other manner approved by the Committee in its sole discretion. +8.3 +Waiver of Restrictions +The Committee, in +its sole discretion, may waive any other terms, conditions or restrictions on any SAR under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate. +SECTION 9. STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS +9 .1 +Grant of Stock Awards, Restricted Stock and Stock Units +The Committee may grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be based on continuous +service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award. +9.2 +Vesting of Restricted Stock and Stock Units +Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant’s release from any terms, conditions and restrictions +of Restricted Stock or Stock Units, as determined by the Committee, (a) the shares covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in shares of Common Stock +or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock. Any fractional shares subject to such Awards shall be paid to the Participant in cash. +9.3 +Waiver of Restrictions +The Committee, in +its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem +appropriate. +SECTION 10. PERFORMANCE AWARDS +10.1 +Performance Shares +The Committee may +grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit +valued by reference to a designated number of +A-6 +shares of Common Stock, the value of which may be paid to the Participant by delivery of shares of Common Stock or, if set forth in the instrument evidencing the Award, of such property as the +Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified +by the Committee. Notwithstanding the foregoing, the amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. +10.2 +Performance Units +The Committee may +grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued +by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, +other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. Notwithstanding the foregoing, the amount to be paid under an Award of +Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. +SECTION 11. OTHER STOCK OR CASH-BASED AWARDS +Subject to the terms of the Plan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives payable in cash or in shares of Common Stock under the +Plan. +SECTION 12. WITHHOLDING +The Company may require the Participant to pay to the Company or a Related Company, as applicable, the amount of (a) any taxes that the Company or a +Related Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award (“tax withholding obligations”) and (b) any amounts due from the Participant to the +Company or to any Related Company (“other obligations”). Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan +until such tax withholding obligations and other obligations are satisfied. +The Committee may permit or require a Participant to satisfy all +or part of the Participant’s tax withholding obligations and other obligations by (a) paying cash to the Company or a Related Company, (b) having the Company or the Related Company, as applicable, withhold an amount from any cash +amounts otherwise due or to become due from the Company or a Related Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case +of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, or (d) surrendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding +obligations and other obligations. The value of the shares so withheld or surrendered may not exceed the employer’s minimum required tax withholding rate. +SECTION 13. ASSIGNABILITY +No Award or interest in an Award may be sold, assigned, pledged +(as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent +and distribution, except to the extent that the Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant’s death. During a Participant’s +lifetime, an Award may be exercised only by the Participant. +A-7 +Notwithstanding the foregoing, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award without consideration subject to such terms and conditions as the +Committee shall specify. +SECTION 14. ADJUSTMENTS +14.1 +Adjustment of Shares +(a) In the event, +at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, statutory share exchange, distribution to shareholders +other than a normal cash dividend, or other change in the Company’s corporate or capital structure results in (i) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for +a different number or kind of securities of the Company or (ii) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, or (iii) in the event of the declaration +of a dividend payable in cash that has a material effect on the price of issued shares, then the Committee shall make proportional adjustments in (A) the maximum number and kind of securities available for issuance under the Plan; (B) the +maximum numbers and kind of securities set forth in Section 15.3; and (C) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities. The determination by the Committee, as to the +terms of any of the foregoing adjustments, shall be conclusive and binding. +(b) The adjustments described in Section 14.1, if any, and +any determinations or interpretations made by the Committee as to whether any adjustment shall be made, including any determination of whether a distribution is other than a normal cash dividend or is a cash dividend that will have a material effect +on the price of issued shares, and the terms of any of the foregoing adjustments, shall be conclusive and binding. +(c) Notwithstanding the +foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or +warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards. +Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Company Transaction shall not be governed by this Section 14.1 but shall be governed by Section 14.2 or Section 14.3, respectively. +14.2 +Dissolution or Liquidation +To the extent +not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company. To the extent a vesting condition, forfeiture +provision or repurchase right applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation. +14.3 +Change in Control +Notwithstanding any +other provision of the Plan to the contrary, unless the Committee shall determine otherwise in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, +in the event of a Change in Control: +(a) All outstanding Awards, other than Performance Shares, Performance Units and other Awards that are +subject to vesting based on the achievement of specified performance goals, shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change in Control and +shall terminate at the effective time of the Change in Control; provided, +A-8 +however, that with respect to a Change in Control that is a Company Transaction in which such Awards could be converted, assumed, substituted for or replaced by the Successor Company, such Awards +shall become fully and immediately vested and exercisable, and all applicable restrictions or forfeiture provisions shall lapse, only if and to the extent such Awards are not converted, assumed, substituted for or replaced by the Successor Company. +If and to the extent that the Successor Company converts, assumes, substitutes for or replaces an Award, the vesting restrictions and/or forfeiture provisions applicable to such Award shall not be accelerated or lapse, and all such vesting +restrictions and/or forfeiture provisions shall continue with respect to any shares of the Successor Company or other consideration that may be received with respect to such Award. +(b) For the purposes of Section 14.3(a), an Award shall be considered converted, assumed, substituted for or replaced by the Successor Company if, following the Company Transaction, the Award confers +the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Company Transaction, the consideration (whether stock, cash or other securities or property) received in the Company Transaction by +holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, +that if such consideration received in the Company Transaction is not solely common stock of the Successor Company, the Committee may, with the consent of the Successor Company, provide for the consideration to be received pursuant to the Award, for +each share of Common Stock subject thereto, to be solely common stock of the Successor Company substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Company Transaction. The determination +of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding. +(c) All Performance Shares or Performance Units or other Awards that are subject to vesting based on the achievement of specified performance goals that +are earned and outstanding as of the date the Change in Control is determined to have occurred and for which the payout level has been determined shall be payable in full in accordance with the payout schedule pursuant to the instrument evidencing +the Award. Any remaining outstanding Performance Shares or Performance Units or other Awards that are subject to vesting based on the achievement of specified performance goals (including any applicable performance period) for which the payout level +has not been determined shall be prorated at the target payout level up to and including the date of such Change in Control and shall be payable in full at the target level in accordance with the payout schedule pursuant to the instrument evidencing +the Award. +(d) Notwithstanding the foregoing, the Committee, in its sole discretion, may instead provide, in the event of a Change in Control +that is a Company Transaction, that a Participant’s outstanding Awards shall terminate upon or immediately prior to such Company Transaction and that such Participant shall receive, in exchange therefor, a cash payment equal to the amount (if +any) by which (x) the value of the per share consideration received by holders of Common Stock in the Company Transaction or, in the event the Company Transaction is one of the transactions listed under subsection (c) in the definition of +Company Transaction or otherwise does not result in direct receipt of consideration by holders of Common Stock, the value of the deemed per share consideration received, in each case as determined by the Committee in its sole discretion, multiplied +by the number of shares of Common Stock subject to such outstanding Awards (to the extent then vested and exercisable or whether or not then vested and exercisable, as determined by the Committee in its sole discretion) exceeds (y) if +applicable, the respective aggregate exercise price or grant price for such Awards. +(e) For the avoidance of doubt, nothing in this +Section 14.3 requires all outstanding Awards to be treated similarly. +14.4 +Further Adjustment of Awards +Subject to +Sections 14.2 and 14.3, the Committee shall have the discretion, exercisable at any time before a sale, merger, consolidation, statutory share exchange, reorganization, liquidation, dissolution or change of control of the Company, as defined by +the Committee, to take such further action as it determines to be +A-9 +necessary or advisable with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or +restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Committee may take such actions with respect to all Participants, to certain categories of +Participants or only to individual Participants. The Committee may take such action before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, statutory +share exchange, reorganization, liquidation, dissolution or change of control that is the reason for such action. +14.5 +No Limitations +The grant of Awards shall +in no way affect the Company’s right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. +14.6 +Fractional Shares +In the event of any +adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment, and any fractional shares resulting from such adjustment shall be disregarded. +14.7 +Section 409A +Notwithstanding any +other provision of the Plan to the contrary, (a) any adjustments made pursuant to this Section 14 to Awards that are considered “deferred compensation” within the meaning of Section 409A shall be made in compliance with the +requirements of Section 409A and (b) any adjustments made pursuant to this Section 14 to Awards that are not considered “deferred compensation” subject to Section 409A shall be made in such a manner as to ensure that +after such adjustment the Awards either (i) continue not to be subject to Section 409A or (ii) comply with the requirements of Section 409A. +SECTION 15. CODE SECTION 162(m) PROVISIONS +Notwithstanding any other provision of the Plan +to the contrary, if the Committee determines, at the time Awards are granted to a Participant who is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered +Employee, then the Committee may provide that this Section 15 is applicable to such Award. +15.1 +Performance Criteria +(a) If an Award is +subject to this Section 15, then the lapsing of restrictions thereon and the distribution of cash, shares of Common Stock or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective +performance goals established by the Committee, which shall be based on the attainment of specified levels of one of or any combination of the following “performance criteria” for the Company as a whole or any business unit of the Company, +as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or +excluding depreciation, amortization, extraordinary items, restructuring charges or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; +total shareholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; revenue growth rate; or customer satisfaction, employee satisfaction, services performance, +subscriber, cash management or asset management metrics (together, the “ Performance Criteria ”). +(b) Such performance +goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Criteria described above relative to the +performance of other corporations. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, +and the regulations thereunder. +A-10 +(c) The Committee may provide, at the time it establishes performance goals for any such Award, that any +evaluation of performance shall include or exclude any one or more of the following events that occurs during a performance period: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes +in tax laws, accounting principles, or other laws or provisions affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in Accounting Standards Codification 225-20 +and/or in Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company’s annual report to shareholders for the applicable year; (vi) acquisitions or divestitures; (vii) foreign +exchange gains and losses; and (viii) gains and losses on asset sales. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that satisfies the requirements for +“performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto. +15.2 +Compensation Committee Certification; Adjustment of Awards +(a) After the completion of each performance period, the Compensation Committee shall certify the extent to which any performance goal established under this Section 15 has been satisfied, and the +amount payable as a result thereof, prior to payment, settlement or vesting, as applicable, of any Award subject to this Section 15. +(b) +Notwithstanding any provision of the Plan other than Section 14, with respect to any Award that is subject to this Section 15, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the +Committee may not waive the achievement of the applicable performance goals except in the case of the death or Disability of the Covered Employee. +15.3 +Limitations +Subject to adjustment from +time to time as provided in Section 14.1, no Covered Employee may be granted Awards other than Performance Units or other cash-based awards subject to this Section 15 in the aggregate in any calendar year period with respect to more than +the following: (a) 600,000 shares for Options or SARs; (b) 300,000 shares for Restricted Stock, Restricted Stock Units or Performance Shares; and (c) 300,000 shares for other stock-based Awards. The maximum dollar value payable with +respect to Performance Units or other awards payable in cash subject to this Section 15 granted to any Covered Employee in the aggregate in any one calendar year is $2,000,000. +The Committee shall have the power to impose such other restrictions on Awards subject to this Section 15 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements +for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto. +SECTION 16. RECOVERY OF COMPENSATION +Notwithstanding any other provision of the Plan to the contrary, Awards granted under the Plan shall be subject to the applicable requirements of: +(a) the Company’s incentive compensation recovery policy as it may be amended from time to time, (b) Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded +compensation) and any implementing rules and regulations thereunder, (c) similar applicable requirements under the laws of any other jurisdiction, (d) any compensation recovery policies adopted by the Company to implement any such +requirements, and (e) any other compensation recovery policies as may be adopted from time to time by the Company, all to the extent determined by the Committee in its discretion to be applicable to a Participant. +A-11 +SECTION 17. AMENDMENT AND TERMINATION +17.1 +Amendment, Suspension or Termination +The +Board or the Compensation Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or +stock exchange rule, shareholder approval shall be required for any amendment to the Plan; and provided, further, that any amendment that requires shareholder approval may be made only by the Board. Subject to Section 17.3, the Committee may +amend the terms of any outstanding Award, prospectively or retroactively. +17.2 +Term of the Plan +Unless sooner +terminated as provided herein, the Plan shall terminate ten years from the Restatement Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their +applicable terms and conditions and the Plan’s terms and conditions. +17.3 +Consent of Participant +The amendment, +suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant’s consent, materially adversely affect any rights under any Award theretofore granted to the Participant +under the Plan. Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions. +SECTION 18. GENERAL +18.1 +No Individual Rights +No individual or +Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan. Furthermore, nothing in the Plan or any Award granted under the Plan shall be +deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of +the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause. +18.2 +Issuance of Shares +(a) Notwithstanding +any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company’s counsel, such +issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities +exchange or similar entity. +(b) The Company shall be under no obligation to any Participant to register for offering or resale or to qualify +for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in +effect any such registrations or qualifications if made. +(c) As a condition to the exercise of an Option or any other receipt of Common Stock +pursuant to an Award under the Plan, the Company may require (a) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant’s own +A-12 +account and without any present intention to sell or distribute such shares and (b) such other action or agreement by the Participant as may from time to time be necessary to comply with +federal, state and foreign securities laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be +pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to +ensure exemption from registration. The Committee may also require the Participant to execute and deliver to the Company a purchase agreement or such other agreement as may be in use by the Company at such time that describes certain terms and +conditions applicable to the shares. +(d) To the extent the Plan or any instrument evidencing an Award provides for issuance of stock +certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. +18.3 +Indemnification +Each person who is or +shall have been a member of the Board, the Compensation Committee or another committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3, shall be indemnified and held harmless by +the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in +which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company’s approval, or paid by such person in +satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person +undertakes to handle and defend it on such person’s own behalf, unless such loss, cost, liability or expense is a result of such person’s own willful misconduct or except as expressly provided by statute. +The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the +Company’s articles of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify or hold harmless. +18.4 +No Rights as a Shareholder +Unless +otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award or Restricted Stock Award, shall entitle the Participant to any cash dividend, +voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award. +18.5 +Compliance with Laws and Regulations +The +Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation +Section 1.409A-1(b)(4), the exclusion applicable to stock options, stock appreciation rights and certain other equity-based compensation under Treasury Regulation Section 1.409A-1(b)(5), or otherwise. To the extent Section 409A is +applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding +any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the +generality of the foregoing, and notwithstanding any other provision of the Plan or any +A-13 +Award granted under the Plan to the contrary, with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A applies, all references in +the Plan or any Award granted under the Plan to the termination of the Participant’s employment or service are intended to mean the Participant’s “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of +the Code. In addition, if the Participant is a “specified employee,” within the meaning of Section 409A, then to the extent necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A, +amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant’s “separation from service,” within the meaning of +Section 409A(a)(2)(A)(i) of the Code, shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant’s death, the Participant’s estate) in a +lump sum on the first business day after the earlier of the date that is six months following the Participant’s separation from service or the Participant’s death. Notwithstanding any other provision of the Plan to the contrary, the +Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption +from or complies with Section 409A; provided, however, that the Committee makes no representations that Awards granted under the Plan shall be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A +from applying to Awards granted under the Plan. +18.6 +Participants in Other Countries or Jurisdictions +Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of +the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with +provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such +countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan. +18.7 +No Trust or Fund +The Plan is intended to +constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred +amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company. +18.8 +Successors +All obligations of the +Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all +the business and/or assets of the Company. +18.9 +Severability +If any provision of the +Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed +amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such +jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. +A-14 +18.10 Choice +of Law and Venue +The Plan, all Awards +granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of +conflicts of law. Participants irrevocably consent to the nonexclusive jurisdiction and venue of the state and federal courts located in the State of Washington. +18.11 Legal +Requirements +The granting of Awards and +the issuance of shares of Common Stock under the Plan are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. +A-15 +APPENDIX A +DEFINITIONS +As used in +the Plan, +“ Acquired Entity ” means any entity acquired by the Company or a Related Company or with which the Company +or a Related Company merges or combines. +“ Award ” means any Option, Stock Appreciation Right, Stock Award, Restricted +Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or other incentive payable in cash or in shares of Common Stock as may be designated by the Committee from time to time. +“ Board ” means the Board of Directors of the Company. +“ Cause ,” unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related +Company, means: (a) conviction of a felony or misdemeanor involving moral turpitude; (b) engaging in illegal business practices or other practices contrary to the written policies of the Company; (c) misappropriation of assets of the +Company; (d) continual or repeated insobriety or drug use; (e) continual or repeated absence for reasons other than disability or sickness, (f) fraud; (g) embezzlement; or (h) violation of the Company’s written conflict +of interest policies, in each case as determined by the Committee, whose determination shall be conclusive and binding. +“ Change in +Control ,” unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the +Participant and the Company or a Related Company, means the occurrence of any of the following events: +(a) an acquisition by any Entity of +beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (1) the then-outstanding shares of common stock of the Company (the “ Outstanding Company Common +Stock ”) or (2) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); +provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the security being +so converted was not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by +the Company or any Related Company, or (iv) any acquisition by any Entity pursuant to a transaction that meets the conditions of clauses (i), (ii) and (iii) set forth in the definition of Company Transaction; +(b) a change in the composition of the Board during any two-year period such that the individuals who, as of the beginning of such two-year period, +constitute the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board +subsequent to the beginning of the two-year period, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also +members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of +office occurs as a result of or in connection with an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an Entity other +than the Board shall not be considered a member of the Incumbent Board; or +A-16 +(c) consummation of a Company Transaction. +“ Code ” means the Internal Revenue Code of 1986, as amended from time to time. +“ Committee ” has the meaning set forth in Section 3.1. +“ Common Stock ” means the common stock, no par value, of the Company. +“ Company ” means Key Tronic Corporation, a Washington corporation. +“ Company Transaction ,” unless the Committee determines otherwise with respect to an Award at the time the Award is granted or +unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company or a Related Company, means consummation of: +(a) a merger or consolidation of the Company with or into any other company; +(b) a statutory +share exchange pursuant to which the Company’s outstanding shares are acquired or a sale in one transaction or a series of transactions undertaken with a common purpose of all or substantially all of the Company’s outstanding voting +securities; or +(c) a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common +purpose of all or substantially all of the Company’s assets, +excluding, however, in each case, a transaction pursuant to which +(i) the Entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately +prior to such Company Transaction will beneficially own, directly or indirectly, at least 50% of the outstanding shares of common stock, and the combined voting power of the then-outstanding voting securities entitled to vote generally in the +election of directors, of the Successor Company in substantially the same proportions as their ownership, immediately prior to such Company Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities; +(ii) no Entity (other than the Company, any employee benefit plan (or related trust) of the Company, a Related Company or a Successor Company) will +beneficially own, directly or indirectly, 40% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to vote +generally in the election of directors unless such ownership resulted solely from ownership of securities of the Company prior to the Company Transaction; and +(iii) individuals who were members of the Incumbent Board will, immediately after the consummation of the Company Transaction, constitute at least a majority of the members of the board of directors of +the Successor Company. +Where a series of transactions undertaken with a common purpose is deemed to be a Company Transaction, the date of +such Company Transaction shall be the date on which the last of such transactions is consummated. +“ Compensation +Committee ” means the Compensation and Administration Committee of the Board or any duly authorized subcommittee thereof. +“ Covered Employee ” means a “covered employee” as that term is defined for purposes of Section 162(m)(3) of the +Code or any successor provision. +A-17 +“ Disability ,” unless otherwise defined by the Committee from time to time for +purposes of the Plan, means a period of disability during which a Participant qualifies for benefits under the Company’s then-current long-term disability plan or, in the case of a Participant who is not an employee of the Company, means a +period of disability during which such Participant, if he or she were an employee of the Company, would qualify for benefits under the Company’s then-current long-term disability plan. +“ Eligible Person ” means any person eligible to receive an Award as set forth in Section 5. +“ Entity ” means any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act). +“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time. +“ Fair Market Value ” means the closing price for the Common Stock on any given date during regular trading, or if not trading on +that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Committee using such methods or procedures as it may establish. +“ Grant Date ” means the later of (a) the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the +Committee and (b) the date on which all conditions precedent to an Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date. +“ Incumbent Board ” has the meaning set forth in the definition of “Change in Control.” +“ Option ” means a right to purchase Common Stock granted under Section 7. +“ Option Expiration Date ” means the last day of the maximum term of an Option. +“ Outstanding Company Common Stock ” has the meaning set forth in the definition of “Change in Control.” +“ Outstanding Company Voting Securities ” has the meaning set forth in the definition of “Change in Control.” +“ Parent Company ” means a company or other entity that, as a result of a Company Transaction, owns the Company or all or +substantially all of the Company’s assets either directly or through one or more subsidiaries. +“ Participant ” +means any Eligible Person to whom an Award is granted. +“ Performance Award ” means an Award of Performance Shares or +Performance Units granted under Section 10. +“ Performance Criteria ” has the meaning set forth in Section 15.1. +“ Performance Share ” means an Award of units denominated in shares of Common Stock granted under Section 10.1. +“ Performance Unit ” means an Award of units denominated in cash or property other than shares of Common Stock granted +under Section 10.2. +“ Plan ” means the Key Tronic Corporation 2010 Incentive Plan (As Amended and Restated +Effective , 2014). +A-18 +“ Related Company ” means any entity that is directly or indirectly controlled by, in +control of or under common control with the Company. +“ Restatement Effective Date ” means the date the Plan as amended +and restated is approved by shareholders entitled to vote at the 2014 annual meeting of shareholders of the Company (including any adjournments or postponements thereof). +“ Restricted Stock ” means an Award of shares of Common Stock granted under Section 9, the rights of ownership of which are subject to restrictions prescribed by the Committee. +“ Restricted Stock Unit ” means a Stock Unit subject to restrictions prescribed by the Committee. +“ Retirement ,” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other +agreement between the Participant and the Company or a Related Company, means “Retirement” as defined for purposes of the Plan by the Committee or, if not so defined, means Termination of Service on or after the later of (i) the date +a Participant attains age 65 and (ii) the fifth anniversary of the date the Participant commenced employment or a service relationship with the Company. +“ Section 409A ” means Section 409A of the Code. +“ Securities Act ” means the Securities Act of 1933, as amended from time to time. +“ Stock Appreciation Right ” or “ SAR ” means a right granted under Section 8.1 to receive the excess of +the Fair Market Value of a specified number of shares of Common Stock over the grant price. +“ Stock Appreciation Right Expiration +Date ” means the last day of the maximum term of a Stock Appreciation Right. +“ Stock Award ” means an Award +of shares of Common Stock granted under Section 9, the rights of ownership of which are not subject to restrictions prescribed by the Committee. +“ Stock Unit ” means an Award denominated in units of Common Stock granted under Section 9. +“ Substitute Awards ” means Awards granted or shares of Common Stock issued by the Company in substitution or exchange for awards previously granted by an Acquired Entity. +“ Successor Company ” means the surviving company, the successor company or Parent Company, as applicable, in +connection with a Company Transaction. +“ Termination of Service ” means a termination of employment or service +relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement. Any question as to whether and when there has been a Termination of Service for the purposes +of an Award and the cause of such Termination of Service shall be determined by the Company’s chief human resources officer or other person performing that function or, with respect to directors and executive officers, by the Compensation +Committee, whose determination shall be conclusive and binding. Transfer of a Participant’s employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an +Award. Unless the Compensation Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant’s employment or service relationship is with an entity that has ceased to be a Related Company. A +Participant’s change in status from an employee of the Company or a Related Company to a nonemployee director, consultant, advisor or independent contractor of the Company or a Related Company or a change in status from a nonemployee director, +consultant, advisor or independent contractor of the Company or a Related Company to an employee of the Company or a Related Company, shall not be considered a Termination of Service. +A-19 +“ Vesting Commencement Date ” means the Grant Date or such other date selected by the +Committee as the date from which an Award begins to vest. +A-20 +Key Tronic Corporation +IMPORTANT ANNUAL MEETING +INFORMATION +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write +outside the designated areas. +x +Annual Meeting Proxy Card +q PLEASE FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, FOR Proposal 2, FOR Proposal 3 and FOR Proposal +4. +1. +Election of Directors: +01 - James R. Bean +02 - Craig D. Gates +03 - Ronald F. Klawitter ++ +04 - Yacov A. Shamash +05 - Patrick Sweeney +¨ +Mark here to vote FOR all nominees +¨ +Mark here to WITHHOLD vote from all nominees +¨ +For All EXCEPT - To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +For +Against +Abstain +For +Against +Abstain +2. +Approve the Key Tronic Corporation Amended and Restated 2010 Incentive Plan. +¨ +¨ +¨ +3. +Advisory vote to approve the compensation of the Company’s named executive officers as disclosed in “Compensation Discussion and Analysis” and +“Executive Compensation” in the Proxy Statement. +¨ +¨ +¨ +4. +Ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for fiscal year 2015. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print your new address below. +Comments — Please print your comments below. +Meeting Attendance +Mark the box to the right if you plan to attend the Annual Meeting. +¨ +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +¢ +1 U P X ++ +01WDHA +If you are not an Internet user and wish to contact Key Tronic Corporation, you may use one of the +following methods: +Call: 877-277-9953 Write: Key Tronic Corporation, c/o Computershare, P.O. Box 43078, Providence, RI +02940-3078 +Attention Internet Users! +You can now access your stockholder information on the following secure Internet site: www.computershare.com/investor +Step 1: Register ( 1st time users only ) +Click on “Create Login” in the blue box and follow the instructions. +Step 2: Log In ( Returning users ) +Enter your User ID and Password and click the Login button. +Step 3: View your account details and perform multiple transactions, such as: +• View account balances +• View transaction history +• View payment history +• View stock quotes +• Change your address +• View electronic stockholder communications +• Buy or sell shares +• Check replacements +q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +Proxy — Key Tronic Corporation +Notice of 2014 Annual Meeting of Shareholders 4424 N. Sullivan Road, Spokane Valley, Washington 99216 +Proxy Solicited by Board of Directors for Annual Meeting – October 23, 2014 +Craig D. Gates and Ronald F. Klawitter, or either of them, each with the power of substitution, are hereby authorized to represent and vote all shares of the undersigned, with all the powers which the +undersigned would possess if personally present, at the Annual Meeting of Shareholders of Key Tronic Corporation to be held on Thursday, October 23, 2014, and any adjournment or postponement thereof. +Shares represented by this proxy will be voted as directed by the shareholder. If no such directions are indicated, the Proxies will have authority to +vote FOR Item 1, FOR Item 2, FOR Item 3, and FOR Item 4. +In their discretion, the Proxies are authorized to vote +upon such other business as may properly come before the meeting. +(Items to be voted appear on reverse side.) +Key Tronic Corporation +IMPORTANT ANNUAL MEETING +INFORMATION +Using a black ink pen, mark your votes with an X as shown in this example. Please do not write +outside the designated areas. +x +Annual Meeting Proxy Card +q PLEASE FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +A +Proposals — The Board of Directors recommends a vote FOR all the nominees listed, FOR Proposal 2, FOR Proposal 3 and FOR Proposal +4. +1. +Election of Directors: +01 - James R. Bean +02 - Craig D. Gates +03 - Ronald F. Klawitter ++ +04 - Yacov A. Shamash +05 - Patrick Sweeney +¨ +Mark here to vote FOR all nominees +¨ +Mark here to WITHHOLD vote from all nominees +¨ +For All EXCEPT - To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +For +Against +Abstain +For +Against +Abstain +2. +Approve the Key Tronic Corporation Amended and Restated 2010 Incentive Plan. +¨ +¨ +¨ +3. +Advisory vote to approve the compensation of the Company’s named executive officers as disclosed in “Compensation Discussion and Analysis” and +“Executive Compensation” in the Proxy Statement. +¨ +¨ +¨ +4. +Ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for fiscal year 2015. +¨ +¨ +¨ +B +Non-Voting Items +Change of Address — Please print your new address below. +Comments — Please print your comments below. +Meeting Attendance +Mark the box to the right if you plan to attend the Annual Meeting. +¨ +C +Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, corporate officer, trustee, guardian, or custodian, please give full title. +Date (mm/dd/yyyy) — Please print date below. +Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. +/ / +¢ +1 U P X ++ +01WDJA +Key Tronic Corporation +4424 N. Sullivan Road, Spokane Valley, WA 99216 +As a participant in the Key Tronic 401(k) Retirement Savings Plan (the “Plan”), you have the right to direct JP Morgan Chase Bank, N.A. (the “Plan Trustee”), to vote the shares of +Common Stock of Key Tronic Corporation (the “Company”) represented by your interest attributable to such shares held in the KTC Stock Fund under the Plan at the Annual Meeting of Shareholders of Key Tronic Corporation to be held on +October 23, 2014. +For your information, copies of the Notice of Annual Meeting, Proxy Statement, and Annual Report are enclosed. In +addition, a postage paid return envelope addressed to Computershare is enclosed for your use in returning your completed, signed, and dated proxy card to the Plan Trustee. +The Plan Trustee will hold your voting instructions in confidence and will not divulge or release specific information regarding your instructions to any person, including officers or employees of the +Company, except to the extent required by law. +If your completed proxy card is not received by October 10, 2014 the Administrative +Committee for the Plan will direct the Plan Trustee to vote your shares. The Trustee will be directed to vote all such unvoted shares in the same proportion as the voted shares received. +q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE +ENCLOSED ENVELOPE. q +Proxy — Key Tronic Corporation +Notice of 2014 Annual Meeting of Shareholders 4424 N. Sullivan Road, Spokane Valley, Washington 99216 +Proxy Solicited by Board of Directors for Annual Meeting – October 23, 2014 +Craig D. Gates and Ronald F. Klawitter, or either of them, each with the power of substitution, are hereby authorized to represent and vote all shares of the undersigned, with all the powers which the +undersigned would possess if personally present, at the Annual Meeting of Shareholders of Key Tronic Corporation to be held on Thursday, October 23, 2014, and any adjournment or postponement thereof. +Shares represented by this proxy will be voted as directed by the shareholder. If no such directions are indicated, the Proxies will have authority to +vote FOR Item 1, FOR Item 2, FOR Item 3, and FOR Item 4. +In their discretion, the Proxies are authorized to vote +upon such other business as may properly come before the meeting. +(Items to be voted appear on reverse side.) \ No newline at end of file diff --git a/raw/proxies/0000719733/0001193125-14-341259/proxy_rpt.txt b/raw/proxies/0000719733/0001193125-14-341259/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0109d8991d1fb5400548678fca7ea73cc3e4274b --- /dev/null +++ b/raw/proxies/0000719733/0001193125-14-341259/proxy_rpt.txt @@ -0,0 +1,14 @@ +Related Person Transactions +In April +2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an +“Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount +involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a +less than 10 percent beneficial owner of another entity). +The policy defines a “Related Party” as any (a) person who is or was +(since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater +than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, +mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). +The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will +take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the +Related Party’s interest in the Transaction. +-6- \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-20-000039/proxy.txt b/raw/proxies/0000893538/0000893538-20-000039/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..af483dd6758adc1ab52e01d7ae546564446e1fa3 --- /dev/null +++ b/raw/proxies/0000893538/0000893538-20-000039/proxy.txt @@ -0,0 +1,1777 @@ +DEF 14A +1 +def14a-proxyforthe2020annu.htm +DEF 14A +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) Title of each class of securities to which transaction applies: +(2) Aggregate number of securities to which transaction applies: +(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) Proposed maximum aggregate value of transaction: +(5) Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +(2) Form, Schedule or Registration Statement No.: +(3) Filing Party: +(4) Date Filed: +2020 +Proxy Statement +Notice of Annual Meeting of Stockholders +May 27, 2020 +Denver, Colorado +. +Dear Fellow SM Energy Stockholder, +On behalf of our Board of Directors, I want to wish you well in the midst of this COVID-19 pandemic. Our country and industry have once again been called upon to demonstrate their resilience, and I have no doubt we will again rise to the challenge. Rest assured that our Board and management remain focused on the safety and health of our employees and communities, and the long-term successful execution of our business plan. I thank you for your continued support of SM Energy and I am pleased to invite you to participate in SM Energy’s virtual 2020 Annual Meeting of Stockholders. We appreciate the opportunity to update you on the matters discussed in our Proxy Statement, including our executive compensation philosophy and practices, environmental, social and governance focus, and stockholder outreach efforts. We recognize that our industry is facing unprecedented disruption. As a result, our Board of Directors and Compensation Committee will be continuously monitoring and evaluating the Company’s compensation programs and will consider necessary adjustments to the design of such programs in response to evolving industry conditions, as described further in the Compensation Discussion and Analysis. +Our Purpose and Commitment to Sustainable +Business Practices +At SM Energy, our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to our nation’s energy security and prosperity, and having a positive impact in the communities where we live and work. Our long-term vision remains to create and sustainably grow value for all of our stockholders, while recognizing the interests of all stakeholders. Our Board plays an active role in overseeing our sustainability efforts, which are described in our Corporate Responsibility Report available on our website. This report includes discussion of our philosophy and approach to creating stockholder value, operating our assets responsibly, protecting the environment and the health and safety of our employees, contractors and neighbors, and investing in the future of our company through the development of our people. +SM Energy’s Strategic Transformation and +2019 Performance +Facing a difficult commodity price environment, starting in 2016 and culminating in 2019, our Board and management team successfully completed a strategic transformation of our business involving the transition of our asset portfolio through the divestiture of non-core assets and the strategic acquisition and development of top tier assets. With this transformation, the Company reduced and aligned general and administrative costs by closing offices and reducing staff associated with divested assets and redundant functions. Our focused and high quality asset base allowed us in 2019 to expand operating margins and further strengthen our balance sheet. We achieved a positive difference between our net cash provided by operating activities and our net cash used in investing activities in the fourth quarter of 2019, we grew Midland Basin production by 25% for the full year 2019, and we achieved capital efficiencies through continued well design optimization and lowered costs. +Responding to Investor Feedback +Our Board is committed to maintaining an open and continuous dialogue with our stockholders and other stakeholders. In 2018, we initiated an expanded stockholder engagement effort to solicit input, respond to questions and ensure that our Board has the information required to understand and address stockholder concerns. In 2019, we continued this effort by contacting stockholders owning a majority of our outstanding shares, and talking with those who requested a meeting to discuss our progress and provide their input. Our Board welcomed the viewpoints and candid feedback shared by our stockholders, and we have continued to refine our short and long-term incentive programs to establish appropriate incentives and more closely align our executive compensation program with our investors’ experience. +Board Composition +The members of our Board of Directors are your elected representatives and we seek to represent your long-term interests. Your directors bring a diverse range of experience, fresh perspectives, independence, institutional knowledge and industry and other expertise. This year’s nominees reflect the diligent work of our Nominating and Corporate Governance Committee to provide a slate of directors that meets such criteria. +We Ask for Your Support +We value your input and take seriously the trust that you have placed in us through your continued investment in SM Energy. Your vote is important to us. We ask for your continued support as we work to deliver value for all stockholders amidst the turmoil impacting our financial markets, communities and businesses. +Sincerely, +William D. Sullivan +Chairman of the Board +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To All Stockholders: +The 2020 Annual Meeting of Stockholders of SM Energy Company (the “Annual Meeting”) is to be held via the internet through a virtual web conference at http://www.viewproxy.com/sm-energy/2020 , on Wednesday, May 27, 2020, at 3:30 p.m. local time. +The meeting is being convened to: +1. elect nine individuals to our Board of Directors to serve until the next annual meeting of our stockholders and until their respective successors are elected and qualified, or until their earlier resignation or removal; +2. hold an advisory vote to approve the compensation of our named executive officers; +3. ratify the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2020; +4. consider and approve an amendment to our Restated Certificate of Incorporation to authorize a reverse stock split of our outstanding shares of common stock, at a reverse stock split ratio ranging between 1-for-5 and 1-for-20, and a proportionate reduction in the number of authorized shares of our common stock, with an exact ratio as may be determined by our Board in its sole discretion at a later date (the “Reverse Stock Split”); and +5. transact such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Our Board of Directors (the “Board”) is using this Proxy Statement to solicit proxies for use at the Annual Meeting, and has fixed the close of business on April 6, 2020 as the record date (the “Record Date”) for determining stockholders entitled to receive notice of, to participate in, and to vote at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. We are furnishing our proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, to the majority of our stockholders via the Internet. Accordingly, on or about April 17, 2020, a Notice of Internet Availability of Proxy Materials (the “Notice”) will be mailed by intermediaries to our stockholders as of the Record Date, containing instructions on how to access the proxy materials via the Internet or request proxy materials in printed form, and how to vote your shares. +You will be able to participate in the Annual Meeting online, vote your shares electronically and submit questions online during the Annual Meeting. Given the health and safety concerns presented by COVID-19, we have adopted this online format to allow us to continue to proceed with the Annual Meeting, while mitigating the health and safety risks to participants, expand access to the Annual Meeting, improve communications and lower the cost to our stockholders, the Company and the environment. To participate in the virtual Annual Meeting, you must first register at http://www.viewproxy.com/sm-energy/2020 by 11:59 p.m. (EDT) on May 21, 2020. You will need to enter your name, phone number, email and virtual control number (included in your Notice, on your proxy card or on any additional voting instructions accompanying these proxy materials). We recommend that you log in a few minutes before the Annual Meeting to ensure you are logged in when the meeting starts. +Participation in the Annual Meeting will be restricted to stockholders of record and holders of our shares in street name as of the Record Date, and our guests. +Your vote is important. Regardless of whether you plan to participate in the meeting, we encourage you to vote by using the internet instructions provided in the Notice or the proxy card. If the Proxy Statement and a proxy card are mailed to you, please complete, sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the recommendations of our Board of Directors. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 27, 2020. The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2020 Annual Meeting of Stockholders, and the Form 10-K for the fiscal year ended December 31, 2019, are available at http://www.viewproxy.com/sm-energy/2020. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel +and Corporate Secretary +Denver, Colorado +April 17, 2020 +(This page has been left blank intentionally.) +TABLE OF CONTENTS +PROXY STATEMENT SUMMARY +1 +DIRECTOR COMPENSATION +49 +General +49 +CORPORATE GOVERNANCE +4 +2019 Director Compensation +50 +Overview +4 +Board and Committee Independence +4 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +Board Leadership Structure +4 +AND MANAGEMENT +51 +Stockholder Engagement and Feedback +5 +Common Stock +51 +Corporate Responsibility and Sustainability +5 +Restricted Stock Units and Performance Share Units +52 +Board and Committee Meetings +6 +Committee Functions +6 +REPORT OF THE AUDIT COMMITTEE +53 +Risk Oversight +8 +Audit Committee Pre-Approval Policy and Procedures +54 +Director Nominations and Qualifications +8 +2019 Annual Report +54 +Communications with our Board with our Board +10 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +54 +PROPOSAL 1—ELECTION OF DIRECTORS +11 +Director Nominee Core Competencies and Composition Highlights +12 +PROPOSAL 3—RATIFICATION OF THE APPOINTMENT OF +Director Nominees +13 +ERNST & YOUNG LLP AS OUR INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +55 +INFORMATION ABOUT OUR EXECUTIVE OFFICERS +18 +PROPOSAL 4—APPROVAL OF AN AMENDMENT TO OUR +COMPENSATION DISCUSSION AND ANALYSIS +20 +RESTATED CERTIFICATE OF INCORPORATION TO +CD&A Focus and Response to Market Disruption +20 +AUTHORIZE THE REVERSE STOCK SPLIT AND A +Section 1—Aligning Strategy With Stockholder Value Creation— +PROPORTIONATE REDUCTION IN THE NUMBER OF +Objectives of Our Executive Compensation Program +21 +AUTHORIZED SHARES OF OUR COMMON STOCK +56 +Section 2— 2019 Business Results and Select Executive +Compensation Decisions +22 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +66 +Section 3—Competitive Positioning—Selection and Purpose of +Policies and Procedures on Transactions with Related Persons +66 +Our Comparative Peer Group +24 +Transactions with Related Persons +66 +Section 4—Primary Elements of Compensation and Select +Compensation Committee Interlocks and Insider Participation +66 +Executive Compensation Decisions +26 +Section 5—Compensation Determination Process +33 +VOTING, ATTENDANCE AND OTHER MATTERS +67 +Section 6—Other Compensation Matters +35 +Who Can Vote +67 +Compensation Committee Report +38 +Quorum +67 +How to Vote +67 +EXECUTIVE COMPENSATION TABLES +39 +Differences Between Stockholders of Record and Street Name +Summary Compensation Table +39 +Holders +68 +Grants of Plan-Based Awards +41 +Admission to the Annual Meeting +68 +Outstanding Equity Awards +42 +Annual Meeting Webcast +68 +Stock Vested +43 +Submitting Questions at the Annual Meeting +68 +Pension Benefits +43 +If the Virtual Annual Meeting Experiences Technical Difficulties +68 +Non-Qualified Deferred Compensation +44 +Voting Requirements; Vote Treatment +69 +Potential Payments Upon Termination or Change of Control +44 +Stockholders Sharing the Same Address +70 +Equity Compensation Plans +46 +Revoking a Proxy +70 +Payment of Proxy Solicitation Costs +70 +PROPOSAL 2—ADVISORY VOTE ON EXECUTIVE +Stockholder Proposals for the 2021 Annual Meeting +COMPENSATION +47 +of Stockholders +71 +Other Available Information +72 +PROXY STATEMENT SUMMARY +Presented below is certain summary information that is detailed elsewhere in this 2020 Proxy Statement (this “Proxy Statement”) and is intended to assist you in evaluating the matters to be voted on at the Annual Meeting. This summary does not contain all of the information you should consider, and we encourage you to read this Proxy Statement in its entirety prior to voting. For more information regarding the 2019 financial and operational performance of SM Energy Company (sometimes referred to herein as “we,” “us,” “our,” or “the Company”), please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. +Annual Meeting Information +DATE & TIME PLACE RECORD DATE VOTING +Wednesday, May 27, 2020 +3:30 p.m. Mountain Time +Via the Internet +Stockholders must register at +http://www.viewproxy.com/sm- +energy/2020 by 11:59 p.m. +(EDT) on May 21, 2020 +April 6, 2020 +Only stockholders of record at +the close of business on the +Record Date may vote at the +Annual Meeting +Proposals and Voting Recommendations +Voting Recommendation Page +Proposal 1: +Election of the nine directors named in this Proxy Statement, each to serve until the next annual meeting of stockholders and until their respective successors are elected and qualified, or until their earlier resignation or removal. +FOR each nominee +11 +Proposal 2: Advisory vote to approve executive compensation of our named executive officers. FOR +47 +Proposal 3: +Ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2020. +FOR +55 +Proposal 4: +Approval of an amendment to our Restated Certificate of Incorporation to authorize the Reverse Stock Split and a proportionate reduction in the number of authorized shares of our common stock. +FOR +56 +How to Vote Your Shares +ONLINE CALL MAIL +Vote online prior to or during the +Annual Meeting per the instructions +on your proxy card or voting +instruction card. +Vote by phone by calling the +applicable phone number on your +proxy card or voting instruction +card. +If you have received a printed +version of these proxy materials, +vote by signing, dating, and +returning your proxy card by mail. +We strongly encourage you to vote. For more information about voting your shares, see “ Voting, Attendance, and Other Matters ” contained in this Proxy Statement. +Business Strategy Execution +During 2019, we completed our strategic transformation, which commenced in 2016 through a series of strategic asset acquisitions and divestitures. For the fourth quarter of 2019, we achieved an important milestone by generating a positive difference between our net cash provided by operating activities and our net cash used in investing activities. Our financial, operational, and environmental, health, and safety (“EHS”) execution in 2019 was outstanding. We achieved our objectives in important industry metrics, including a 25% increase in +1 +production volumes from our Midland Basin assets, key top-quartile benchmarks for EHS performance, and proving up additional investment opportunities on our existing acreage positions. +2019 Operational and Financial Highlights +MIDLAND BASIN PRODUCTION +á 25% +over 2018 +NET CASH PROVIDED +BY OPERATING ACTIVITIES +EXCEEDED +NET CASH USED IN +INVESTING ACTIVITIES +(Fourth Quarter 2019) +NET RESERVE +ADDITIONS +á 101.5 +MMBOE before revisions +Corporate Governance Best Practices +Our active, independent and diverse Board of Directors is focused on adherence to our core values and the integration of our strategic objectives with our corporate responsibilities. We continue to separate the roles of our Chairman of the Board and our Chief Executive Officer, and our non-classified Board remains focused on oversight of environmental, social and governance (“ESG”) matters, risk management, and cybersecurity. Our non-management directors are independent and appropriately tenured to provide an effective balance of fresh perspectives and experience. +DIRECTOR INDEPENDENCE DIRECTOR TENURE DIRECTOR DIVERSITY +Eight of nine director nominees are independent. +Our director nominees provide an effective balance of fresh perspectives and experience. +Our Board is committed to achieving a diverse and broadly inclusive membership, with four of nine director nominees being gender or ethnically diverse. +* As of December 31, 2019; for purposes of this chart, a full year of credit is given for the year in which the respective directors are appointed. +Our executive compensation program is designed to align executive pay with Company performance and incentivize the creation of positive stockholder returns throughout industry cycles. We seek to provide competitive total compensation opportunities in order to retain talented leaders, link realized compensation to short-term and long-term performance, and design financially efficient programs that discourage excessive risk taking. The primary elements of our executive compensation program include a fixed base salary targeted at the median of our comparative peer group, an annual cash incentive opportunity linked to achievement of annual individual performance goals and corporate performance metrics, and a long-term equity-based compensation opportunity allocated between restricted stock units (“RSUs”) vesting ratably over a three-year period and performance share units (“PSUs”) tied to Company performance against our peer group over a three-year period. +2 +Despite excellent execution of our business plan in 2019, as a result of the challenging commodity price environment and in an effort to align executive compensation with our stockholder experience, the Compensation Committee of the Board (the “Compensation Committee”) exercised negative discretion with respect to 2019 executive and director compensation as follows: +• reduced the value of our Named Executive Officers ’ 2019 Long-Term Incentive Plan (“LTIP”) awards to 70% of target value; +• reduced our CEO ’ s annual cash incentive award for 2019 by 13%; and +• reduced equity-based retainer fees to our non-employee directors from $180,000 value to $126,000, a reduction of 30%. +Stockholder Engagement +Our Board remains committed to maintaining an open dialogue with our stockholders and other stakeholders concerning our business strategy, governance practices, executive compensation program, commitment to sustainability and other matters of importance. As part of this commitment, our Board and management team initiated an expanded stockholder engagement effort in 2018 to solicit input, answer questions and ensure that our Board has the information required to understand and address matters of importance to our stockholders. In early 2019, our Board and management team continued this outreach commitment, contacting stockholders owning a majority of our outstanding shares, many of which expressed their satisfaction with our strategy, governance and executive compensation practices. For more information about our efforts to engage with and receive feedback from our stockholders, please see “ Stockholder Engagement and Feedback ” contained in this Proxy Statement. +Commitment to Our Core Values and ESG Initiatives: Our Culture +Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to the energy security and prosperity of our nation, and having a positive impact in the communities where we live and work. Our long-term vision for the Company is to sustainably grow value for all of our stockholders. We believe that in order to accomplish this vision, we must be a premier operator of top tier assets. We are committed to honoring our core values, including conducting our business with ethics and integrity and in compliance with applicable laws and regulations. +Our Corporate Responsibility Report, which is available on our website at www.sm-energy.com , describes our philosophy and approach to operating our business in a manner responsive to all of our stakeholders, while creating stockholder value and responsibly operating our assets to protect the environment and the health and safety of our employees, contractors and neighbors, all consistent with our core values. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +3 +CORPORATE GOVERNANCE +Overview +Our Board believes that sound corporate governance principles foster the ethical behavior and integrity due to all of our stakeholders. The framework for our corporate governance principles is established by the charters for the committees of our Board, our Corporate Governance Guidelines, our Financial Code of Ethics (the “Financial Code”) and our Code of Business Conduct and Conflict of Interest Policy (the “Code of Conduct”), each of which have been adopted and are regularly reviewed by our Board. A complete copy of these documents is available on our website or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. Our Board regularly reviews corporate governance developments and modifies our committee charters, governance policies and related documents, as appropriate. +The Financial Code establishes ethical standards and principles relating to certain financial compliance and disclosure matters and applies to our principal executive officer, principal financial officer, principal accounting officer and controller, as well as persons performing similar functions and other officers and employees identified by our Chief Financial Officer. The Financial Code requires that any exception or waiver thereto be made only by the Audit Committee of our Board (the “Audit Committee”) as required by law, SEC rules and regulations, and New York Stock Exchange (“NYSE”) rules, and that it be disclosed on our website at www.sm-energy.com within two business days after such exception or waiver. To date, the Audit Committee has not granted any exception or waiver of the Financial Code. +Board and Committee Independence +With the exception of our Chief Executive Officer, our Board is comprised entirely of independent directors, each of whom has been determined by the Board to not have any material relationship with us other than as a director and stockholder. In reviewing and making its determination as to the independence of its members, our Board considered past employment, remuneration, and any other relationship with us, as well as the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE’s Listed Company Manual. The Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee (the “NCG Committee”) of our Board are each comprised solely of independent directors under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Our Corporate Governance Guidelines require our Board to annually determine whether to keep the roles of Chief Executive Officer (sometimes referred to herein as “CEO”) and Chairman of the Board separate, or whether to permit one person to serve in both capacities. Our NCG Committee annually evaluates our leadership structure and makes a recommendation to our Board. While recognizing that different board leadership structures may be appropriate at different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has, since 2007, determined that it is in the best interests of our stockholders to separate the roles of CEO and Chairman of the Board. +Under this structure, the Chairman of the Board is responsible for providing leadership to the Board, facilitating communications among the directors, setting the Board meeting agenda in consultation with our Chief Executive Officer, presiding at meetings and executive sessions of our Board meetings, and serving as a liaison between our management and directors, while allowing our CEO to focus on leading the Company. +Our Board is not classified, and all directors are elected annually by our stockholders. A number of our independent directors have served in senior management roles with other companies in the oil and gas industry or are currently serving or have served as directors of other public companies. The specific experiences, qualifications, attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are described in each director’s biographical information. We believe that the independent and experienced directors that make up our Board, the specific experiences and skills that they provide, and the overall leadership of the Board by the Chairman, are beneficial to our stockholders and other stakeholders. +4 +Stockholder Engagement and Feedback +Our Board is committed to maintaining an open dialogue with our stockholders to receive ongoing feedback on our business strategy, governance practices, executive compensation program, corporate responsibility commitment and other matters of importance to our stakeholders. Representatives of our Board and management regularly engage with stockholders through conference attendance, telephone calls and one-on-one meetings. As we have executed our strategic transformation over the past several years, our Board has been actively engaged in ensuring that our governance, compensation and ESG practices remain aligned with our changing business and that our practices meet or exceed the expectations of our Board and stakeholders. Investor feedback through conversations and proxy voting has been an important reference point for discussion and decision-making on those topics. +In 2018, our Board and management team initiated an extensive stockholder engagement effort focused on executive compensation and other governance issues to solicit input, answer questions and ensure that our Board has the information required to more fully understand and address stockholder concerns. As part of this engagement effort, we communicated with stockholders owning approximately 75% of our outstanding shares. Based on the constructive discussions and valuable feedback that we received from our 2018 stockholder outreach campaign and, notwithstanding the overwhelming support we received in our latest advisory vote on executive compensation, we continued our engagement efforts in 2019. In 2019, we contacted stockholders owning a majority of our outstanding shares seeking to engage and discuss matters of importance to them. A significant number of our stockholders declined our invitation to meet, indicating to us that they were satisfied with our current compensation and other governance practices and that a meeting was not necessary. The feedback that we received from discussions with our stockholders, which were led by the Chairman of our Board, Mr. Sullivan, and from discussions held throughout the year with a broader group of investors by our management, indicated that our stockholders desired enhanced ESG reporting. As a result, we are expanding our ESG disclosures and access to relevant information on our website at www.sm-energy.com . Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +All feedback from our engagement with our stockholders is shared with and discussed by our full Board. In addition to the ESG initiatives discussed above, we have made a variety of other changes that are important to our stockholders, including modifications to our executive compensation program and increasing disclosure relating to our Board’s risk oversight processes. We would like to take this opportunity to thank our stockholders for sharing their valuable feedback and recognizing our successful efforts to implement this feedback into our business strategy, governance practices, executive compensation programs, and sustainability focus. +Corporate Responsibility and Sustainability +At SM Energy, we accept that our stakeholders trust us to conduct business in a way that is consistent with our reputation of operating in a responsible and ethical manner that will serve to protect our employees, contractors and neighbors, and the lands on which we operate, while supporting the communities in which we live and work. We recognize that operating in this industry is a privilege and we take that seriously. We manage our business in a way that minimizes risk to our communities and promotes social, environmental, human and economic benefits, while continuously striving to be a good steward of natural resources. For more information on our corporate responsibility and ESG efforts, please see our Corporate Responsibility Report on our website at www.sm-energy.com under the “ Corporate Responsibility ” link. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +5 +Board and Committee Meetings +Our Board met nine times during 2019. Our non-management directors routinely meet in executive session immediately after regularly scheduled meetings of the Board or as otherwise deemed necessary, and met five times during 2019. No director attended less than 75% of meetings of the Board and the Committees upon which such director serves, and the majority of our directors participated in 100% of our Board meetings and 100% of the meetings of the committees on which he or she serves. It is our policy that each director is expected to attend each annual meeting of stockholders, and each director then serving on our Board did attend the 2019 Annual Meeting of Stockholders. The following table identifies the members of each committee as of March 1, 2019, as well as the number of meetings held in 2019 and our directors’ other public company board service: +Committee Members +Other +Boards (2) +Name of Director (1) +A C E G +Carla J. Bailo n 0 +Larry W. Bickle n n 0 +Stephen R. Brand u n 0 +Loren M. Leiker n n n 1 +Javan D. Ottoson n 0 +Ramiro G. Peru n n 1 +Julio M. Quintana n u 2 +Rose M. Robeson u n n 2 +William D. Sullivan (3) +u 2 +Meetings Held in 2019 6 9 0 3 +A Audit Committee +E Executive Committee +u Chair +C Compensation Committee +G Nominating and Corporate Governance Committee +n Member +____________________________ +(1) All independent, except Mr. Ottoson, our CEO. +(2) Number of other public company boards on which such director serves. +(3) If reelected, Mr. Sullivan is expected to continue to serve as Chairman of our Board of Directors immediately following the 2020 Annual Meeting. +Committee Functions +AUDIT COMMITTEE +Members: Roles and Responsibilities: +Rose M. Robeson (chair) +Carla J. Bailo +Larry W. Bickle +Loren M. Leiker +Ramiro G. Peru +Meetings Held in 2019: 6 +The Board has determined that each member of the Audit Committee is independent under the standards of independence established by SEC rules and regulations and the NYSE listing standards. +The Board has determined that all members of the Audit Committee are financially literate, and that Ms. Bailo, Mr. Bickle, Mr. Peru and Ms. Robeson are “audit committee financial experts” as defined by the SEC. +The Audit Committee assists our Board in fulfilling its responsibilities for oversight of our financial reporting and internal control processes. +Furthermore, the Audit Committee fulfills the following roles and responsibilities: +• sole responsibility for the engagement and discharge of our independent registered public accounting firm; +• reviews our quarterly and annual financial results; +• reviews the audit plan and the results of the audit with our independent auditors +• reviews the independence of our auditors and approves the audit fees to be paid; +• assesses the scope and adequacy of our system of internal accounting controls; and +• reviews our financial risk management policies. +The Audit Committee also has oversight responsibility for our internal audit function, Financial Risk Management Committee, cybersecurity risk and business continuity functions, and any related party transactions. +Pursuant to the Audit Committee charter, members are prohibited from serving on more than three audit committees of public companies (one of which is ours), and no Audit Committee member currently serves on more than three such committees. +For more information see the “ Report of the Audit Committee ” contained in this Proxy Statement. +6 +COMPENSATION COMMITTEE +Members: Roles and Responsibilities: +Stephen R. Brand (chair) +Larry W. Bickle +Ramiro G. Peru +Julio M. Quintana +Meetings Held in 2019: 9 +The Board has determined that each member of the Compensation Committee is independent under the standards of independence established by SEC rules and regulations and the NYSE listing standards. +The Compensation Committee’s primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. +Furthermore, The Compensation Committee also approves and/or recommends to the Board: +• the compensation arrangements for our CEO, other members of senior management and our directors; +• compensation plans in which our officers and directors are eligible to participate; and +• the granting of equity-based compensation or other benefits under compensation plans. +The “ Compensation Discussion and Analysis ” section of this Proxy Statement describes these responsibilities and the manner in which they are discharged. +NOMINATING AND CORPORATE GOVERNANCE COMMITTEE +Members: Roles and Responsibilities: +Julio M. Quintana (Chair) +Stephen R. Brand +Loren M. Leiker +Rose M. Robeson +Meetings Held in 2019: 3 +The Board has determined that each member of the Nominating and Corporate Governance Committee is independent under the Standards of Independence established by SEC rules and regulations and the NYSE listing standards. +The NCG Committee’s primary functions are to: +• recommend individuals to be elected to the Board; +• evaluate and plan for management succession; +• review the structure and composition of all committees of the Board; and +• oversee all of the Company’s corporate governance functions, including the Board and committee self-evaluation process. +Director Nominees: In identifying and recommending potential director nominees to the Board, the NCG Committee considers such factors as character, judgment, diversity, age, expertise, industry experience, length of service, independence, and other board commitments. Our Board and the NCG Committee believes that maintaining a balanced and diverse membership contributes to stronger board dynamics and culture. +Succession Planning: The NCG Committee is also charged with oversight of succession planning for the Company’s CEO and other executive officers. In fulfilling this responsibility, NCG Committee is committed to ensuring that an effective process is in place to provide continuity of executive leadership into the future. At least annually, the NCG Committee reviews CEO and senior leadership succession and development and discusses with our CEO emergency and expected succession planning for senior leadership positions. Our CEO and each senior executive annually provides recommendations of potential successors to the NCG Committee. +Board and Committee Evaluations: As has been the case for many years, under the direction of the NCG Committee, our Board and each of its committees (other than the Executive Committee) separately evaluated its performance during 2019 using a written questionnaire, which is subject to annual review for changes in best practices and relevance. The Executive Committee did not complete an evaluation due to its unique, limited purpose and infrequent meeting schedule. The NCG Committee then reviewed and discussed the evaluations with the Board. +For additional information on the functions performed by the NCG Committee, see “ Director Nominations and Qualifications ” below. +Executive Committee +The Executive Committee has the authority to act on behalf of our Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are not in conflict with our Restated Certificate of Incorporation, our Amended and Restated By-Laws (our “By-Laws”), applicable laws, regulations, or rules or the listing standards of the NYSE. The Executive Committee did not meet in 2019. +7 +There are no arrangements or understandings between any director and any other person pursuant to which a director was or is to be elected. +Risk Oversight +While our Board oversees our risk management processes, with particular focus on the most significant risks we face, management is responsible for day-to-day risk management. Additionally, the Board has delegated oversight of certain risks to its committees with relevant subject matter expertise, as described below. We believe this division of responsibilities is the most effective approach for evaluating and addressing the risks we face, and that our current Board leadership structure, with Mr. Sullivan serving as the Chairman of our Board and Mr. Ottoson serving as our CEO, supports this approach by facilitating communication between management and our Board regarding risk management processes. We also believe that this design places our Board in a better position to evaluate the performance of management, more efficiently facilitates communication of the views of the independent directors, and contributes to effective corporate governance. +We have an Enterprise Risk Management Committee (the “ERM Committee”) comprised of our CEO, Executive Vice President and Chief Financial Officer, Executive Vice President and General Counsel, Executive Vice President and Chief Operating Officer, and such other employees appointed from time to time by our CEO. This committee meets regularly to update our enterprise risk management process and plan (the “ERM Plan”), utilizing the Committee of Sponsoring Organizations of the Treadway Commission’s Enterprise Risk Management framework, and incorporating information gathered during our business strategy sessions. The ERM Committee keeps minutes of its meetings and regularly reports its activities to our Board. We document risk prevention or mitigation steps for the material risks identified based upon projected likelihood and impact of any occurrence of the particular risk. The ERM Plan is reviewed with our Board annually. +We also have a Financial Risk Management Committee (the “FRM Committee”) comprised of our CEO, Executive Vice President and Chief Financial Officer, Executive Vice President and Chief Operating Officer, Vice President—Marketing, and such other employees appointed from time to time by our CEO. The FRM Committee meets quarterly and more frequently, as necessary, to discuss our interest rate and commodity hedging activities and, as appropriate, to approve additional hedges or other changes to our hedging program. The FRM Committee keeps minutes of its meetings and regularly reports its activities to the Audit Committee. +The Audit Committee provides significant assistance to our Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken to monitor, control, mitigate, and report those exposures. These reviews and discussions include review and/or approval of our commodity price hedging policy, interest rate risk management, and our insurance programs, as appropriate. In addition, our internal auditors, who report directly to the Audit Committee with respect to internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes and activities. The Audit Committee also has oversight responsibility for the integrity of our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. The Audit Committee also oversees and contributes to our Board’s understanding of information technology and cybersecurity risks, among others that may be relevant at any given time. +The Compensation Committee and its compensation consultants annually review our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the charter of the NCG Committee provide that the NCG Committee is responsible for identifying and recommending director nominees to our Board. The NCG Committee selects nominees based on a variety of factors, including the nominee’s character, judgment, diversity, age, expertise, industry experience, length of service, independence, and other board commitments. As set forth in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, it is the objective of our Board to collectively possess broad and relevant experience in high-level business +8 +policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In addition, our Corporate Governance Guidelines provide that a director who retires or experiences a significant change in his or her professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested by the NCG Committee, be prepared to offer his or her resignation from our Board. Upon tender of a resignation, the NCG Committee and our Board may review the continued appropriateness of Board membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and delivered to our Board a resignation letter that is contingent upon (a) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the shares of capital stock present in person or by proxy in an election of directors at the 2020 Annual Meeting of Stockholders; and (b) acceptance of his or her resignation by our Board in accordance with the policies and procedures adopted by our Board for such purpose. +Under the framework of our Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of our Board as a whole. The objective is to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director for reelection, the NCG Committee also considers the director’s past attendance at meetings and participation in and contributions to Board and committee activities. When seeking new director candidates, the NCG Committee routinely engages consultants and considers suggestions from incumbent directors, management, and our stockholders. The NCG Committee screens all potential candidates in the same manner regardless of the source of the recommendation. +The NCG Committee believes that our Board should reflect diversity in its broadest sense and the charter of the NCG Committee provides that, in addition to the other factors discussed above, the NCG Committee shall consider diversity in identifying individuals qualified to become Board members. In considering diversity, the NCG Committee considers our Board as a whole, without reference to specific representative directors, with the overall objective of having a group of directors that includes diverse viewpoints, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that current Board members and director nominees reflect our commitment to diversity. Following the 2020 Annual Meeting, assuming all nine of the current nominees are elected to our Board, we will have two Hispanic directors, one who has served since 2006 and one who has served since 2014, and two female directors, one who has served since 2014 and one who has served since 2018. +In addition to the considerations discussed above, our Board understands that director tenure and refreshment are important to our stockholders and other stakeholders and should be regularly evaluated in establishing an effective and well-functioning Board. In furtherance of this objective, our Board approved revisions to the Company’s Corporate Governance Guidelines in 2018 that require the NCG Committee to discuss annually with any director that has reached the age of 72 his or her interest in continuing to serve as a director, and his or her contributions to our Board. With respect to each director that has reached the age of 72, following such discussion, the NCG Committee shall make a recommendation to our Board as to whether it is appropriate for such director to stand for reelection. Our Board shall determine annually, by a majority-plus-one vote, whether to nominate such person for reelection. In February 2020, the NCG Committee discussed with Mr. Bickle his contributions to the Board and his interest in continuing to serve if reelected. Following such discussion, and upon further discussion by the NCG Committee without Mr. Bickle present, the NCG Committee recommended that the Board nominate Mr. Bickle for election as a director at the Annual Meeting and the Board then determined to do so (with Mr. Bickle abstaining). Further, the recent revisions to the Corporate Governance Guidelines provide that each independent director must retire in conjunction with the annual meeting of stockholders following his or her 75 th birthday, unless our Board unanimously waives this requirement based on a determination that it is in the best interests of our stockholders for such person to be nominated for reelection. +In light of increased demands on public company directors and the desire for new and diverse independent director candidates in order to regularly refresh the Board as a whole, the NCG Committee understands the importance of a comprehensive director onboarding process. Under the direction of our Corporate Secretary, with the oversight of, and in consultation with, the Chair of the NCG Committee, new directors receive wide-ranging exposure to the various aspects of our business and Company, as well as detailed overview of the Company’s policies and governance practices. New director onboarding is tailored to the specific +9 +qualifications and experience of the applicable director in order to allow him or her to meaningfully contribute to the work of our Board from the beginning of the director’s term. +The NCG Committee will consider stockholder recommendations for candidates for our Board. All stockholder recommendations must comply with the notice requirements contained in Section 4 of our By-Laws. We will furnish copies of our By-Laws without charge to any person who requests them. Requests for copies should be directed to our Corporate Secretary. For additional information about stockholder nominations, including nominations for the 2021 Annual Meeting of Stockholders, see “ Stockholder Proposals for the 2021 Annual Meeting of Stockholders . ” No stockholder director nominations were received in connection with the 2020 Annual Meeting. +Communications with Our Board +Our Board welcomes questions or comments about our Company. Stockholders and other stakeholders may contact our Board as a whole, only the non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients’ attention in care of SM Energy Company, Attn: Corporate Secretary, 1775 Sherman Street, Suite 1200, Denver, CO 80203. All stockholder communications will be provided to the named addressee or, if none named, to the Chair of the NCG Committee, who will facilitate the review of such communications. For additional information, see “ Stockholder Engagement and Feedback ” below. +10 +PROPOSAL 1—ELECTION OF DIRECTORS +Our Board of Directors is unclassified and director nominees that are elected shall serve one-year terms until the next Annual Meeting of Stockholders and until their respective successors are elected and qualified, or until their earlier resignation or removal. Based on the recommendations of the NCG Committee, our Board has nominated the following individuals for election as directors at the Annual Meeting: +Carla J. Bailo Loren M. Leiker Julio M. Quintana +Larry W. Bickle Javan D. Ottoson Rose M. Robeson +Stephen R. Brand Ramiro G. Peru William D. Sullivan +Each nominee is currently a director and all nominees were previously elected to our Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy Statement and has indicated a willingness to serve if elected. Although our Board does not contemplate that any of the nominees will be unable to serve, if a nominee becomes unable to serve prior to the Annual Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by our Board. +☑ +Our Board recommends voting “FOR” the election of each nominee listed above. +11 +Director Nominee Core Competencies and Composition Highlights +DIRECTOR INDEPENDENCE DIRECTOR TENURE DIRECTOR DIVERSITY +Eight of nine director nominees are independent. +Our director nominees provide an effective balance of fresh perspectives and experience. +Our Board is committed to achieving a diverse and broadly inclusive membership, with four of nine director nominees being gender or ethnically diverse. +* As of December 31, 2019; for purposes of this chart, a full year of credit is given for the year in which the respective directors are appointed. +As discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes that each nominee should have experience in positions of responsibility and leadership, and an understanding of the oil and natural gas exploration and production business. The overall objective is to identify a group of directors that can best contribute to our long-term success. All nominees discussed below are seasoned leaders who bring to our Board a vast array of oil and gas industry, public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance Guidelines. In addition, the nominees, whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our Company, and have a demonstrated ability to work collaboratively with open and candid discussion. +Set forth below for each director as of the filing date of this Proxy Statement is a summary of such director’s specific experiences, qualifications, attributes and skills, as well as biographical information, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships between any of our directors and any executive officer. +Among other attributes, as a group, the nominees possess a wide breadth of varied skills and experience in: +• executive leadership +• risk management +• corporate governance +• the oil, gas, and natural gas liquids +• operations management +• ESG and human capital +exploration and production industry +• strategic planning +management matters +• finance, capital management and +• business development +• executive compensation +accounting +• regulatory and governmental affairs +• public policy +12 +These qualities, when coupled with those highlighted below, led the NCG Committee and our Board to conclude that these individuals should continue to serve as our directors at this time in light of our business, structure, long-term strategy, and the overall energy industry environment. In addition to the foregoing, these nominees also have specific experience in certain areas we believe are particularly relevant to us in our industry at this time, as highlighted in the following table: +Bailo Bickle Brand Leiker Ottoson Peru Quintana Robeson Sullivan +Geology & Exploration l l l l +Enterprise Risk Management +& Hedging l l l l l l l +Data Analytics Cybersecurity +& Technology l l l l l l +Strategy & Project Management l l l l l l l l l +Director Nominees +Position, Principal Occupation and Business Experience: +Ms. Bailo currently serves as Chief Executive Officer of the Center for Automotive Research, a position she has held since 2017. In addition to her role at the Center for Automotive Research, Ms. Bailo has been President and Chief Executive Officer of ECOS Consulting LLC since 2014. Ms. Bailo also served as Assistant Vice President of Mobility Research and Business Development of Ohio State University from 2015 to 2017. Prior to her appointment as Assistant Vice President of Mobility Research and Business Development of Ohio State University, Ms. Bailo was the Senior Vice President, R&D Americas, Nissan North America, Inc. from 2011 to 2014. Prior to that appointment, she held a variety of technical and managerial positions with Nissan Motor Company Limited. Ms. Bailo started her career in 1978 at General Motors Company and held the position of Engineer, Vehicle Test, General Motors Truck & Bus until 1988. +Key Attributes, Experience and Skills: +Ms. Bailo brings to our Board a diverse technical and executive leadership background, including a unique perspective on the future of transportation fuels. Ms. Bailo has significant financial and risk management experience, which provides a strong foundation for her role as a member of the Audit Committee. Furthermore, as a result of her executive level experience, Ms. Bailo has extensive human resources management and corporate governance skills, in addition to the skills discussed above. +Carla J. Bailo +Director since 2018 +Member, Audit +Committee +Age: 59 +13 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also previously served on the Board of Directors of UNS Energy Company (NYSE: UNS) and the Board of Managers of Quantum Natural Gas Storage, LLC. +Key Attributes, Experience and Skills: +Mr. Bickle brings to our Board over 36 years of experience in various aspects of the oil and gas midstream industry and provides our Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Mr. Bickle also brings specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operation, and extensive experience with both state and federal regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as the basis for Mr. Bickle’s designation as an audit committee financial expert and provides a strong foundation for his service on the Audit Committee. In addition to the skills discussed above, Mr. Bickle’s previous service on other public company boards enhances his strong corporate governance background. +As a result of Mr. Bickle’s extensive industry experience and comprehensive knowledge of the Company, and following discussions with Mr. Bickle about his interest in continuing to serve as a director and his contributions to the Company, the NCG Committee recommended to our Board, and our Board has unanimously determined (other than Mr Bickle, who abstained), that it is appropriate and in the best interests of the Company’s stockholders to nominate Mr. Bickle for election by the stockholders at the Annual Meeting. +Larry W. Bickle +Director since 1995 +Member, Audit and Compensation +Committees +Age: 74 +Position, Principal Occupation and Business Experience: +Mr. Brand was a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the E&P sector for solving subsurface problems in complex geologic formations from 2014 until 2017. He was also on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution as a service platform to assess and manage data that can be used in a predictive role from 2014 until 2018. Mr. Brand was also Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. At the end of 2010, Mr. Brand retired as Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in October 2007, Mr. Brand served as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Mr. Brand started his career in 1976 as a geologist with Phillips Petroleum Company and thereafter served in various roles of increasing responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key Attributes, Experience and Skills: +Mr. Brand has over 42 years of experience in the energy industry, including extensive experience in the development of exploration and development programs, project management, and in strategic planning and research programs for upstream, downstream, and “new” stream technologies. In addition to the skills discussed above, he also has valuable human resources management skills and experiences, which provide a strong foundation for his role as Chair of the Compensation Committee and are significant in the oversight of our compensation management functions. +Stephen R. Brand +Director since 2011 +Member, Compensation +(Chair) and Nominating +and Corporate +Governance Committees +Age: 70 +14 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in the United States. Mr. Leiker served EOG as Senior Executive Vice President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of Vermilion Energy Inc. (VET: Toronto) since December 2012, a director of Navitas Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March 2015. +Key Attributes, Experience and Skills: +Mr. Leiker brings to our Board over 42 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience in exploration activities similar to ours, and a deep understanding of upstream operations and asset management technologies, which provide a strong foundation for his service on the Audit Committee and are important in the oversight of our financial reporting and financial and operational risk management functions. In addition to the skills discussed above, Mr. Leiker’s service on other public company boards enhances his strong corporate governance background. +Loren M. Leiker +Director since 2012 +Member, Audit, +Nominating and Corporate +Governance and Executive +Committees +Age: 66 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the Company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed President of the company in October 2012 and Chief Executive Officer of the company in February 2015. Mr. Ottoson has been in the energy industry for over 37 years. From April 2006 until he joined the company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +Key Attributes, Experience and Skills: +Our Board of Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on our Board because he is a proven leader with the strong technical skills and leadership vision necessary to create value for our stockholders. In addition to the skills discussed above, Mr. Ottoson’s vision, experiences and familiarity with our operations are critical to our success as we continue to execute on our strategic transition toward the acquisition and development of top tier assets. +Javan D. Ottoson +Director since 2014 +Member, Executive Committee +Age: 61 +15 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 2004 to 2007 (and its Senior Vice President and Chief Financial Officer from 1999-2004). He joined Phelps Dodge in 1979 and held various finance and accounting positions prior to his appointment as Chief Financial Officer. Mr. Peru currently serves on the Board of Directors of Anthem, Inc. (NYSE: ANTM) and of UNS Energy Corporation, a subsidiary of Fortis, Inc. +Key Attributes, Experience and Skills: +Mr. Peru brings to our Board significant financial expertise, much of which he obtained through his over 33 years of experience in the mining industry. Mr. Peru’s service as chairman of the audit committee of another publicly traded company enhances his significant financial management and accounting oversight experience, and his board service with Anthem, Inc. and UNS Energy Corporation provide significant insights into the rapidly changing healthcare system as well as renewable energy and power generation technologies. As a result of his executive level experience, Mr. Peru also has extensive human resources management skills, which are an important foundation for his service on the Compensation Committee. In addition to the skills discussed above, Mr. Peru’s service on other public company boards enhances his strong corporate governance background. +Ramiro G. Peru +Director since 2014 +Member, Audit and +Compensation +Committees +Age: 64 +Position, Principal Occupation and Business Experience: +Mr. Quintana currently serves on the Board of Directors of Newmont Mining Company (NYSE: NEM) and of Basic Energy Services (NYSE:BAS). Mr. Quintana served as the President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January 2015, and served on Tesco’s Board of Directors from September 2004 to May 2015. Prior to his appointment as President and Chief Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer of Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana brings to our Board over 39 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of drilling and asset management technologies, and broad human resources management skills and experience, which provide a strong foundation for his role on the Compensation Committee and are important in the oversight of our financial reporting and financial and operational risk management functions. In addition to the skills discussed above, Mr. Quintana’s service on other public company boards enhances his strong corporate governance background. +Julio M. Quintana +Director since 2006 +Member, Nominating and +Corporate Governance +(Chair) and Compensation +Committees +Age: 60 +16 +Position, Principal Occupation and Business Experience: +Ms. Robeson currently serves on the Board of Directors of Newpark Resources, Inc. (NYSE:NR) and Antero Midstream Corporation (NYSE: AM). Ms. Robeson served as Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners, LP, from 2012 until her retirement in 2014. Ms. Robeson also served as Group Vice President and Chief Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream, LLC, Ms. Robeson was the Vice President and Treasurer. Prior to joining DCP Midstream, LLC, Ms. Robeson was with Kinder Morgan, Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson served as a director of American Midstream GP, LLC, the general partner of American Midstream Partners, LP (NYSE: AMID) from June 1, 2014, until her resignation on June 14, 2016, and served as a director of Tesco Corporation (NASDAQ: TESO) from October 29, 2015, until December 15, 2017, when Nabors Industries Ltd. completed its acquisition of Tesco. +Key Attributes, Experience and Skills: +Ms. Robeson brings to our Board over 33 years of broad experience in various aspects of the oil and gas industry, including exploration and production, midstream, refining, and marketing. She has executive leadership experience as well as significant financial management, risk management and accounting oversight experience, which provides a strong foundation for her role as Chair of the Audit Committee and is important in the oversight of our financial reporting and financial risk management functions. In addition to the skills discussed above, Ms. Robeson’s service on other public company boards enhances her strong corporate governance background. +Rose M. Robeson +Director since 2014 +Member, Audit (Chair), +Nominating and Corporate +Governance and Executive +Committees +Age: 59 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan retired from Anadarko in August 2003. Mr. Sullivan has been a director since August 2007, and Non-executive Chairman of the Board since May 2015, of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of CSI Compressco Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded limited partnership providing wellhead compression-based production enhancement services. CSI Compressco GP, Inc. is a minority-owned subsidiary of Tetra Technologies, Inc. From March 2006 to September 2018, Mr. Sullivan served as a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing oil and natural gas properties. From February 2007 until May 2015, Mr. Sullivan was a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids ( “ NGLs ” ) and NGL products. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key Attributes, Experience and Skills: +Mr. Sullivan brings to our Board over 40 years of strong and broad experience in the oil and gas industry, with particular expertise in the exploration and production sector of the industry. His experience as an exploration and production senior executive enables him to contribute significant independent insights on our business and operations, and the economic environment and long-term strategic issues that we face. In addition to the skills discussed above, his human resources management skills and experience are important in the oversight of our compensation management functions, and his service on other public company boards of directors provides a strong corporate governance background. These skills and experiences provide a strong foundation for Mr. Sullivan’s role as Chairman of our Board. +William D. Sullivan +Director since 2004 +Chairman of the Board of Directors +Member, Executive Committee +Age: 63 +17 +INFORMATION ABOUT OUR EXECUTIVE OFFICERS +The following table sets forth the names, ages (as of April 1, 2020) and positions of SM Energy’s executive officers: +Name Age Position +Javan D. Ottoson 61 President, Chief Executive Officer and Director +A. Wade Pursell 55 Executive Vice President and Chief Financial Officer +Herbert S. Vogel 59 Executive Vice President and Chief Operating Officer +David W. Copeland 63 Executive Vice President, General Counsel and Corporate Secretary +Lehman E. Newton, III 64 Senior Vice President—Operations +Kenneth J. Knott 55 Senior Vice President—Business Development and Land +Mary Ellen Lutey 48 Senior Vice President—Development and Environmental, Health and Safety +David J. Whitcomb 57 Vice President—Marketing +Patrick A. Lytle 39 Controller and Principal Accounting Officer +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed as Chief Executive Officer of the Company in February 2015 and President of the Company in October 2012. Mr. Ottoson has been in the energy industry for over 37 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice President and Chief Financial Officer. Mr. Pursell was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to offshore energy producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He joined Helix in May 1997, as Vice President—Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an Experienced Manager specializing in the offshore services industry. Mr. Pursell has over 32 years of experience in the energy industry. +Herbert S. Vogel. Mr. Vogel was appointed Executive Vice President and Chief Operating Officer of the Company in June 2019, having previously served as Executive Vice President—Operations of the Company since August 2014. Mr. Vogel joined the Company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 35 years of experience in the oil and gas business. He joined the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations management, new ventures development, and business unit management at ARCO and BP. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice President and General Counsel. He was appointed as the Company’s Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has 38 years of experience in the legal profession, including 29 years as internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho +18 +Resources Inc., in Midland, Texas, where he served as an executive officer and general counsel, and later as its Senior Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served as an executive officer and general counsel of two energy companies he co-founded in Midland, Texas. Mr. Copeland started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager for the Midland, Texas office, was appointed Vice President and Regional Manager of the Permian region in June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. In December 2019, Mr. Newton was appointed Senior Vice President—Operations of the Company. Mr. Newton has over 41 years of experience in the energy industry. Prior to joining SM Energy, Mr. Newton’s previous roles included 22 years with ARCO in various engineering, operations and management roles, including as Asset Manager, ARCO’s East Texas operations, Vice President, Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian; Project Manager for one of Chevron’s largest Lower 48 projects; Business Development Manager for Pure Resources; and he was a founding partner in Westwin Energy, an independent Permian Basin exploration and production company. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development and Land in August 2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional Land Manager when the office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Senior Vice President—Development and Environmental, Health and Safety in December 2019. Ms. Lutey was appointed Senior Vice President and Regional Manager in May 2015 for the South Texas & Gulf Coast region and, from December 2012 to May 2015, she served as Vice President and Regional Manager for the Company’s Mid-Continent region. She joined SM Energy in June 2008 as North Rockies Asset Manager, where she managed the Company’s activities in the Williston Basin. Ms. Lutey has over 28 years of experience in the energy industry. Prior to joining SM Energy, Ms. Lutey’s previous roles included Senior Reservoir Engineer with Chesapeake Energy Corporation where she was responsible for the resource development of the Fayetteville Shale in Arkansas; Team Lead for Engineering and Geoscience with ConocoPhillips Canada where she was responsible for the technical and business performance of two multi-discipline groups in Western Canada; and Team Lead for Engineering and Geoscience with Burlington Resources Canada where she managed the growth and development of resource plays in Western Canada. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. Mr. Whitcomb joined SM Energy in November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time his title was changed to Assistant Vice President and Director of Marketing. +Patrick A. Lytle. Mr. Lytle was appointed Controller in November 2018 and Principal Accounting Officer in December 2018. Mr. Lytle has held roles of increasing responsibility since first joining the Company in 2007. Most recently, Mr. Lytle served as Senior Director, Financial Planning & Analysis and Assistant Secretary of the Company. Prior to that, he was the Director of Financial Planning and Financial Reporting. Prior to joining the Company, Mr. Lytle was an Audit Manager with Hiratsuka & Schmitt, LLP. Mr. Lytle is a certified public accountant in the State of Colorado. +No family relationships exist between any executive officer and any director, any other executive officer, or any person nominated to become such, except that Ms. Lutey’s husband is the Company’s Vice President—Information Technology. Further details regarding the compensation paid to Ms. Lutey’s husband are described under “ Certain Relationships and Related Transactions .” No executive officer has been involved in any legal proceeding that occurred within the last ten years and that is material to an evaluation of their ability or integrity as an executive officer. +19 +COMPENSATION DISCUSSION AND ANALYSIS +CD&A Focus and Response to Market Disruption +This compensation discussion and analysis (“CD&A”) describes the key objectives, elements and rationale for each component of the executive compensation program for our Chief Executive Officer, Chief Financial Officer and each of our three other most highly compensated executive officers employed at the end of the 2019 fiscal year, whom we collectively refer to in this CD&A as our “NEOs” or “Named Executive Officers.” This CD&A also discusses the Compensation Committee’s efforts in designing our executive compensation program and in making compensation decisions to respond to the existing commodity price environment, our stockholders’ concerns and feedback, and the Company’s execution of its strategic transformation process. +While this CD&A highlights our performance and executive compensation decisions for 2019, we recognize that the industry is facing unprecedented disruption as a result of, among other things, COVID-19 and a misaligned commodity price environment, resulting from extreme oversupply and reduced demand. At the time this Proxy Statement is filed, this disruption has created volatility and uncertainty in financial and commodity markets that have negatively impacted our stockholders. In response, our Board is working closely with management to ensure our compensation and incentive plan designs are aligned with long-term stockholder value, and taking proactive steps which include the following actions and considerations: +• temporary reduction to our CEO’s base salary by 20% effective April 15, 2020; +• possible additional temporary reductions to our CEO’s base salary, as well as the base salaries of our other executive officers, if business conditions do not improve; +• reduction of 2020 LTIP target grant values, as compared to 2019 grant values, and/or delay of 2020 LTIP awards, if business conditions do not improve; +• possible temporary reduction to executive officers’ annual cash bonus targets and award (to be paid in 2021); and +• indefinite suspension of scheduled 2020 base salary increases for all employees. +2019 Named Executive Officers +Javan D. Ottoson President, Chief Executive Officer and Director +A. Wade Pursell Executive Vice President and Chief Financial Officer +Herbert S. Vogel Executive Vice President and Chief Operating Officer +David W. Copeland Executive Vice President, General Counsel and Corporate Secretary +Lehman E. Newton, III Senior Vice President—Operations +This CD&A is divided into the following sections: +Section 1 — Aligning Strategy with Stockholder Value Creation—Objectives of Our Executive Compensation Program +Section 2 — +2019 Business Results and Select Executive Compensation Decisions +Section 3 — Competitive Positioning—Selection and Purpose of Our Comparative Peer Group +Section 4 — Primary Elements of Compensation and Select Executive Compensation Decisions +Section 5 — Compensation Determination Process +Section 6 — Other Compensation Matters +20 +SECTION 1 — Aligning Strategy with Stockholder Value Creation—Objectives of Our Executive Compensation Program +Stockholder Engagement and Responsiveness +In 2018, representatives of our Board and management team initiated a broad stockholder engagement effort focused on gathering feedback on our business strategy, governance practices, executive compensation program, focus on ESG matters, and other items of interest to our stockholders. Following our 2018 outreach efforts, we adopted several modifications to our executive compensation design and received the overwhelming support of our stockholders in favor of our say-on-pay proposal. While this vote demonstrates stockholder support for our executive compensation program design and process, representatives of our Board and management team continued our outreach efforts in 2019 by reaching out to stockholders owning a majority of our shares. We welcomed the candid feedback shared by our stockholders, including that our stockholders desired enhanced ESG disclosures. As a result, we intend to expand our ESG disclosure efforts. Over the past two years, we have shared with our stockholders our view that the Compensation Committee has been diligent in its efforts to align executive compensation with our stockholders’ experience in a challenging commodity price environment, while also recognizing the Company’s successful execution of its strategic transformation process and the need to retain and incentivize our management team to continue its positive trajectory. For more information regarding our recent stockholder outreach efforts, as well as our plans to expand our ESG disclosures, see the “ Stockholder Engagement and Feedback ” section of this Proxy Statement. +Executive Compensation Objectives +Our executive compensation program is designed to incentivize achievement of superior returns for our stockholders by linking pay to a balanced mix of financial, operational, and ESG-based metrics over time. The Compensation Committee continually evaluates and, when appropriate, modifies our program to more properly align executive pay with Company performance and our investors’ experience throughout industry cycles. The objectives of our executive compensation program are to: +• link realized compensation to the achievement of our short-term and long-term financial and strategic objectives, and returns to our investors; +• align performance incentives with the long-term interests of our stockholders; +• provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented leaders; +• ensure executive compensation is cost-effective and financially efficient; +• maintain high standards of corporate governance consistent with evolving best practices; and +• discourage excessive or imprudent risk taking. +Stockholder-Focused Program Principles +As demonstrated by the recent executive compensation program modifications described in this CD&A, the Compensation Committee strives to design our compensation programs to align executive compensation with our stockholders’ experience, including use of the following practices, several of which we believe set us apart from typical market practice: +• rigorous goal setting, measurement, review and accountability; +• annual incentive plan performance targets typically set at or above prior year actuals; +• alignment of short-term and long-term incentive plan performance metrics with market expectations; +• achievement of above median long-term incentive plan performance to earn target payout; +• achievement of positive total shareholder return (“TSR”) to earn above target long-term incentive plan payout under both performance metrics (relative TSR and cash return on total capital invested); and +• 84% of 2019 CEO compensation is variable and performance-based. +21 +Compensation Best Practices and Corporate Governance Highlights +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and qualitative factors and review not only “what” is achieved, but also “how” it is achieved. Our stockholder engagement efforts serve an important role in conducting this evaluation and ensuring that our executive compensation and governance practices meet or exceed the expectations of our Board and our stockholders. Some best practices of our executive compensation program are set forth in the table below: +WHAT WE DO: +P +Pay-for-Performance: The significant majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating long-term stockholder value. +P +Independent Compensation Consultant: The Compensation Committee retains an independent compensation consultant. +P +Target the Median: We generally target pay opportunities for our executives at the market median. +P +Clawback Policy: We have adopted a clawback policy applicable to our NEOs. +P +Equity-Weighted Compensation: A significant portion of executive compensation is in the form of equity, with 75% of our CEO’s 2019 target LTIP equity value delivered in performance-based awards. +P +Equity Ownership Requirements: We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are appropriately aligned with the long-term financial interests of our stockholders. +P +Compensation Risk Assessment: The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by its independent compensation consultant to ensure our plans are designed appropriately and do not encourage excessive risk taking, while considering market changes and peer group comparisons. +P +Caps on Incentive Awards: Performance-based PSUs are capped at target if absolute TSR is negative for the performance period; beginning in 2020, annual cash bonus is subject to a downward multiplier if absolute TSR is negative by 10% or more. +P +Proper Incentives: Our LTIP design includes a capital efficiency metric that incentivizes and recognizes our ongoing commitment to achieving positive returns on capital invested. +P +Above Median Performance to Earn Target: LTIP performance metrics require above-median TSR against designated peer group to earn target payout. +WHAT WE DO NOT DO: +O +No Tax Gross-ups: We do not provide golden parachute excise tax payments or other tax gross-ups. +O +Prohibited Transactions: We do not permit officers, employees or directors to enter into transactions that “hedge” the value of our securities owned by them, hold our securities in margin accounts, pledge our securities to secure indebtedness, or buy or sell options or derivatives with respect to our securities. +O +Limited Severance: We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +O +Double-Trigger Change of Control Severance: We do not provide “single-trigger” cash severance or equity vesting acceleration upon a change in control. +O +No Excess Perquisites: Executive perquisites are minimal and comprise a very small portion of the executive compensation package. +O +No Dividends on Unvested Equity: We do not pay dividends on unvested restricted stock units or performance share units. +O +No Unlimited Cash Bonuses: Annual cash incentive awards are capped regardless of performance against our short-term metrics. +SECTION 2 — 2019 Business Results and Select Executive Compensation Decisions +During 2019, we completed our strategic transformation, which commenced in 2016 through a series of strategic asset acquisitions and divestitures. For the fourth quarter of 2019, we achieved an important milestone by generating a positive difference between our net cash provided by operating activities and our net cash used in investing activities. Our operational execution in 2019 was outstanding, achieving our objectives in important industry metrics, including: (a) 25% increase in production volumes from our oil rich Midland Basin assets; (b) key top-quartile benchmarks for EHS performance; and (c) proving up additional investment opportunities on our existing acreage positions. +22 +The graph below illustrates the Company’s stock price performance as compared to the S&P 500 and the average of our peer companies’ stock price performance during the period from the beginning of 2017 through 2019. As reflected in the graph, despite our successful operational performance and execution of our business strategy, we believe the Company’s stock price, while performing similarly to that of our peers, significantly underperformed the S&P 500 due to commodity price volatility and a major shift in investor preferences toward investing in other sectors. +An integral part of our executive compensation program is that the Compensation Committee carefully considers our stockholders’ overall experience and seeks to align expected compensation outcomes with that experience. Accordingly, its 2019 decisions on executive compensation included the following key actions, which demonstrate that our CEO’s compensation is significantly aligned with our stockholders’ experience: +CEO Compensation Award Results +2019 STIP Payout Ü +NEGATIVE +discretion applied +Ü +2nd +consecutive year +2019 LTIP Grant Ü +NEGATIVE +discretion applied +Ü +2nd +consecutive year +2016-2019 PSU Award Ü +ZERO +payout +Ü +3rd +consecutive year +CEO Total Target, Awarded and Realized Pay +The chart set forth below reflects Mr. Ottoson’s total target compensation opportunity compared to the awards granted by the Compensation Committee, as well as the compensation actually realized by Mr. Ottoson. As demonstrated in the chart, in 2018, and again in 2019, the Compensation Committee exercised its discretion to reduce the compensation awarded to Mr. Ottoson under both of our LTIP and Short-Term Incentive Plan (“STIP”) +23 +in order to reflect our stockholders’ experience. Furthermore, the compensation actually realized by Mr. Ottoson reflects the rigorous nature of our LTIP design. For example, over the last three performance periods, during which the grant date fair value of PSUs awarded to Mr. Ottoson totaled approximately $6.3 million, no PSU compensation was realized by Mr. Ottoson. +Further, as shown in the chart set forth below, Mr. Ottoson’s average realized pay and the realized value of his PSU awards have declined by a greater extent than the Company’s TSR, evidencing the Compensation Committee’s commitment to pay-for-performance. +SECTION 3—Competitive Positioning—Selection and Purpose of Our Comparative Peer Group +Comparative Peer Group +Selection of a comparative peer group is foundational to the design of a rational executive compensation program. One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our executive officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies using +24 +the General Industry Classification Standard Industry Code include standard measures such as revenue, operating cash flow, enterprise value, and market capitalization, as well as the degree of each company’s offshore and international operations and the relative mix of oil, gas and NGLs indicative of the Company’s production in the aggregate. Secondary criteria, such as peer groups identified by proxy advisory firms and companies that may differ in size and scale but directly compete with the Company for talent, and other matters deemed relevant by the Compensation Committee are also considered. The Compensation Committee’s compensation consultant, Frederic W. Cook & Co., Inc. (“FW Cook”) identifies peer companies that are within a specific and reasonable range of our Company for at least four of these criteria and that have corporate structures similar to ours. FW Cook presents multiple peer group alternatives, and the Compensation Committee, with input from FW Cook, selects a peer group that includes the 15-20 companies that best fit the selection criteria, excluding those companies from the peer group from the previous year that no longer satisfy the selection criteria. In March 2019, the Compensation Committee approved the peer group used for 2019 compensation comparisons, which consisted of the following companies: +2019 Peer Group +Callon Petroleum Company +Gulfport Energy Corporation PDC Energy, Inc. +Carrizo Oil & Gas, Inc. (1) +Jagged Peak Energy Inc. (1) +Range Resources Corporation +Centennial Resource Development, Inc. +Laredo Petroleum Inc. Southwestern Energy Company +Cimarex Energy Company +Matador Resources Company +SRC Energy, Inc. (1) +Denbury Resources Incorporated +Oasis Petroleum, Inc. Whiting Petroleum Corporation +Extraction Oil & Gas, Inc. Parsley Energy, Inc. WPX Energy Inc. +____________________________ +(1) Each of these companies has been acquired by another member of the peer group since it was selected for inclusion, and therefore ceases to independently remain a member of the peer group. +The following chart depicts the changes to our 2019 peer group as compared to our 2018 peer group: +2018 Peers Removed from 2019 Peer Group New 2019 Peers +Cabot Oil & Gas Corporation (1) +Centennial Resource Development, Inc. +Energen Corporation (2) +Gulfport Energy Corporation +Newfield Exploration Company (2) +Matador Resources Company +QEP Resources, Inc. (2) +Parsley Energy, Inc. +Wildhorse Resource Development Corp. (2) +Southwestern Energy Company +SRC Energy, Inc. +____________________________ +(1) No longer satisfies peer selection criteria. +(2) Removed due to closed or pending acquisition at the time of peer group determination. +Competitive Compensation Analysis +In 2019, FW Cook analyzed competitive pay trends among the peer group, along with data from relevant, third-party, independent compensation surveys focused on the exploration and production industry. Findings from this analysis indicated that the target total direct compensation (base salary plus target annual bonus plus target LTIP grant) of Messrs. Ottoson, Pursell, and Vogel was near the market median, Mr. Newton’s target total direct compensation was between the market median and the 75 th percentile, and Mr. Copeland’s target total direct compensation was between the 25th percentile and the market median. Based on this analysis, FW Cook recommended to the Compensation Committee that Mr. Copeland’s LTIP grant target be increased. +Findings from FW Cook’s 2019 competitive compensation analysis were among the many factors considered by the Compensation Committee in its review of base salary and STIP and LTIP targets for each of our NEOs. After reviewing this comparative compensation data, the Compensation Committee elected to increase the base salaries for each NEO in recognition of individual performance and consistent with merit increases for employees Company-wide. +25 +SECTION 4—Primary Elements of Compensation and Select Executive Compensation Decisions +The primary elements of our executive compensation program and the purpose of each component are summarized in the following table. Our NEOs receive the same forms of compensation as other employees with similar tenure, the only differences being target pay opportunities and the proportion of each element of compensation in the total mix of pay. +Compensation Element Form of Compensation Description Purpose +FIXED Base Salary Cash Fixed compensation based on position, experience and expertise; generally targeted at median of peer group. Attract and retain qualified employees; provide a level of fixed pay based on skills, competencies, experience, and individual contributions. +AT-RISK STIP Annual Cash Incentive Award Cash Annual cash incentive opportunity dependent upon annual individual and corporate performance in key metrics. +Drive and incentivize superior annual performance; incentivize achievement of financial and operational goals aligned with the Company’s annual business plan, as well as ESG goals. +LTIP RSUs Equity Time-based restricted equity that vests ratably over a three-year period. Promotes retention and stock ownership; incentivizes long-term sustainable value creation through stock price performance. +PSUs Equity Performance-based equity measured relative to a peer group with regard to TSR and a capital efficiency metric over a three-year period. Promotes retention; incentivizes long-term sustainable value creation through stock price performance and capital efficiency; aligns executive incentives with creation of stockholder value and caps pay opportunity if TSR is negative. +Total Direct Compensation Mix +The graphs below show the 2019 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts illustrate, 84% and 74% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to performance-based STIP and LTIP, and thus is variable and tied to performance ( i.e. , “at risk”). +*Does not include one-time award of 20,000 RSUs to Mr. Vogel +in connection with his 2019 promotion to EVP-COO. +26 +2019 Performance Highlights and Incentive Plan Results +The graphic below illustrates certain 2019 operational and financial highlights, as well as the relationship between our STIP and LTIP performance metrics and our incentive plan results. +MIDLAND BASIN PRODUCTION +á 25% +over 2018 +NET CASH PROVIDED +BY OPERATING ACTIVITIES +EXCEEDED +NET CASH USED IN +INVESTING ACTIVITIES +(Fourth Quarter 2019) +NET RESERVE +ADDITIONS +á 101.5 +MMBOE before revisions +HOW WE MEASURE PERFORMANCE 2019 RESULTS INCENTIVE PLAN +MULTIPLIERS +2019 STIP METRICS 2019 STIP PAYOUT STIP PAYOUT RESULTS +QUANTITATIVE METRIC +RESULTS (1) +CORPORATE MULTIPLIER +production +volume production +volume 3% 1.26x +1.12 multiplier +proved developed +reserve additions proved developed +reserve additions 8% +1.32 multiplier CEO MULTIPLIER +finding & +development costs finding & +development costs 11% 1.10x +1.44 multiplier +cash flow cash flow 5% +Negative discretion applied to CEO’s +cash bonus (2nd consecutive year) +1.20 multiplier +cash operating +costs cash operating +costs 3% +1.12 multiplier +QUANTITATIVE +MULTIPLIER 1.24x LTIP PAYOUT RESULTS +multiplier PSU MULTIPLIER +QUALITATIVE 0.00x +EHS EHS 0.02 +multiplier no payout earned +(3rd consecutive year) +exploration success & +inventory growth exploration success +& inventory growth 0% +modifier +TOTAL +MULTIPLIER 1.26x 2019 LTIP GRANT +multiplier +30% below target +2016-2019 LTIP PSU METRICS 2016-2019 LTIP PSU PAYOUT +METRIC RESULTS CEO LTIP award +granted at below target +(2nd consecutive year) +relative TSR relative TSR (2.06)% +absolute TSR absolute TSR (26.14)% +TOTAL +MULTIPLIER 0% +of target +(1) Expressed as a percentage of out-performance of 2019 targets. +27 +Base Salary +Base salary is intended to provide a foundation of cash compensation that recognizes the level of responsibility and authority of each individual executive, and compensates such executive for day-to-day contributions to our success. The Compensation Committee generally sets base salaries at or near the median of our peers, but considers individual circumstances such as responsibilities, skills and experience. Based on this assessment and consistent with our Company-wide merit increases, the Compensation Committee elected to increase the 2019 base salaries for our NEOs to the indicated amounts. +Name 2018 Salary 2019 Salary +Ottoson $ 852,840 $ 878,425 +Vogel (1) +$ 473,594 $ 509,776 +Pursell $ 476,524 $ 490,820 +Copeland $ 425,421 $ 433,929 +Newton $ 338,499 $ 348,654 +$ 2,566,878 $ 2,661,604 +____________________________ +(1) Mr. Vogel’s salary increase related in part to his promotion to Executive Vice President and Chief Operating Officer in June, 2019. +Short-Term Incentive Plan +Short-Term Incentive Plan—Design +Our STIP is designed to reward our NEOs for the successful execution of our annual business plan, measured by achievement of annual Company performance goals and the individual performance of each NEO. These performance objectives are established each year by the Compensation Committee in consultation with management and the Compensation Committee’s independent compensation consultant. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business. STIP awards are in the form of cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +Return on capital is an important consideration in the structure of our STIP and is reflected in three primary mechanisms: first , the quantitative goals the Compensation Committee determines are based on our operating plan and budget for the year, which reflects minimum return thresholds for each well drilled and completed; second , the finding and development cost metric reflects one component of our return on capital by calculating the efficiency of each capital dollar we spend; and third , the Compensation Committee has the discretion to negatively adjust payouts to the extent we achieve results by exceeding our capital expenditure budget. +Each NEO is assigned a target bonus as a percentage of his or her base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our performance goals are achieved at the “target” level. Actual bonuses can range from zero to two times a participant’s target percentage based on the Compensation Committee’s assessment of the Company’s performance and the individual performance of each of our NEOs; however, the maximum award permitted under our Cash Bonus Plan for any participant is $2,000,000. Target bonuses for 2019 as a percentage of base salary for each of the NEOs were as set forth in the following table. With the exception of Mr. Vogel, who was promoted to Executive Vice President and Chief Operating Officer in 2019, none of the NEO’s 2019 target bonus levels changed as compared to their target bonus levels in 2018. +28 +Name 2019 Target STIP Level, % of Base Salary +Ottoson 120% +Vogel (1) +95% +Pursell 90% +Copeland 70% +Newton 70% +____________________________ +(1) Mr. Vogel was promoted to Executive Vice President and Chief Operating Officer in June, 2019, and in connection with this promotion, his target STIP level as a percentage of base salary increased from 90% to 95%. For 2019, Mr. Vogel’s actual cash bonus equaled 93% of base salary as a result of prorating the portion of 2019 during which Mr. Vogel served in each of such roles. +Short-Term Incentive Plan—2019 Performance +In determining the 2019 annual cash bonus awards for our NEOs, the Compensation Committee assessed Company performance with respect to the five quantitative and two qualitative metrics described below. The 2019 targets for each quantitative measure were set at a more challenging benchmark than 2018 actual performance results with the exception of proved developed reserve additions (which had a slightly lower target as a result of a greater than 20% reduction in our 2019 capital budget that was effectuated to prioritize generation of free cash flow). The Compensation Committee’s evaluation of our performance under the quantitative metrics resulted in out-performance with respect to each measure, causing an initial multiplier of 1.24 times each NEO’s target bonus level, as set forth in this table: +Performance Measure Factor Weight Target Actual Result +Result % (1) +STIP Multiplier +Production Volume (MMBOE) 0.20 46.9 48.3 103 % 1.12 +Proved Developed Reserve Additions (MMBOE) 0.20 72.2 78 108 % 1.32 +Finding and Development Costs ($ per BOE) 0.20 $ 14.74 $ 13.14 111 % 1.44 +Cash Flow ($ in millions) 0.20 $ 947.00 $ 991.40 105 % 1.20 +Cash Operating Costs ($ per BOE) 0.20 $ 13.07 $ 12.71 103 % 1.12 +Result 1.24 +____________________________ +(1) Expressed as a percentage of out-performance of 2019 targets. +Metric +Result Commentary +Production Volume +Out-performed target by +3% +The production volume target represents the volume of oil, gas and NGLs forecasted to be produced under our 2019 business plan. This measure is important because proceeds from the sale of production generate essentially all of our revenue. +Proved Developed Reserve Additions +Out-performed target by +8% +The proved developed reserve additions target represents the proved developed reserves estimated to be added from projects funded under our capital program during 2019. This measure is important because proved developed reserves are the primary source of future production and cash flow for us and, as such, relate directly to the value of our Company. +Finding and Development Costs +Out-performed target by +11% +Finding and development costs are a measure of the efficiency of our capital program in generating value. The finding and development costs target represents the estimated cost of proved developed reserve additions on a dollar per barrel of oil equivalent (“BOE”) basis projected under our 2019 business plan. +Cash Flow +Out-performed target by +5% +Our cash flow target is calculated based on Adjusted EBITDAX, which represents net income (loss) before interest expense, other non-operating income or expense, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains or losses on extinguishment of debt, and material inventory impairments. This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a key factor in stockholder value creation. +Cash Operating Costs +Out-performed target by +3% +Our cash operating costs are calculated as the sum of our lease operating expenses, ad valorem taxes, workover expenses, transportation, production taxes, and general and administrative expenses (less stock compensation expense), on a per BOE basis. +29 +In addition to these quantitative metrics, the Compensation Committee assessed our 2019 performance in the qualitative areas discussed below. With respect to each of these qualitative measures, the Compensation Committee may adjust the initial multiplier result determined in its evaluation of the quantitative measures, either upward or downward, as described below. A determination of 0.00 represents performance in line with expectations during the year. +Environmental, Health, and Safety —With respect to the EHS qualitative measure, the Compensation Committee may adjust the initial quantitative multiplier result either upward or downward within a range of −0.05 to 0.05. In 2019, our health and safety performance goals were top-quartile or nearly top-quartile in the areas of statistical measurement that we track, which include total recordable incident rate, spill volumes, greenhouse gas emissions, and certain safety training objectives. As a result of the Company’s outstanding EHS performance, the Compensation Committee adjusted the quantitative result upward by 0.02. +Exploration Success and Inventory Growth (“Growth Goals”) —With respect to our Growth Goals, which for 2019 included: (a) adding more than 100 MMBOE in economic drilling inventory; (b) demonstrating value improvement from upspacing in the Eagle Ford; (c) demonstrating value improvement from Permian Basin co-development; (d) demonstrating application of new technologies; and (e) demonstrating progress in exploration prospect generation, the Compensation Committee may adjust the initial quantitative multiplier result either upward or downward within a range of −0.1 to 0.1. In 2019, the Company added substantial economic inventory, significantly increased the net present value of its portfolio, and added value through successful upspacing in the Eagle Ford and co-development in the Permian. As a result, the Compensation Committee determined that the Company met its 2019 exploration success and inventory growth objectives, but did not exceed them, and therefore did not make a 2019 adjustment for this qualitative measure. +Following the Compensation Committee’s evaluation of the Company’s quantitative STIP metrics and initial determination of a 1.24 multiplier, and after adjusting this multiplier based on the qualitative metrics of +0.02 for EHS and 0.00 for Growth Goals, the Compensation Committee applied a 1.26 times multiplier to the overall target bonus level for the NEOs. +The Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by evaluating how management achieved those goals. For 2019, each quantitative factor was assigned equal weighting of 20%; however, because quantitative goals must be determined at the beginning of the year, the Compensation Committee’s exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals do not reflect reasonable outcomes. +The Compensation Committee considered all the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for each of the NEOs. With respect to our CEO, the Committee exercised negative discretion and reduced the bonus payout in order to more closely align our CEO’s award with our stockholders’ experience during 2019. +Name Salary Paid in 2019 +Target STIP % (1) +Projected STIP (2) +Actual STIP +Ottoson $ 872,521 120 % $ 1,319,252 $ 1,150,000 (3) +Vogel $ 498,111 95 % $ 596,239 $ 630,000 +Pursell $ 487,521 90 % $ 552,849 $ 570,400 +Copeland $ 431,966 70 % $ 380,994 $ 395,000 +Newton $ 346,311 70 % $ 305,446 $ 375,000 +____________________________ +(1) Expressed as a percentage of base salary. +(2) This column reflects the annual cash bonus that would have been awarded to each NEO if the corporate multiplier of 1.26x were utilized. +(3) Reflects a 1.10x multiplier versus a 1.26x corporate multiplier. The Compensation Committee exercised discretion to reduce Mr. Ottoson ’ s STIP multiplier below the corporate multiplier in order to recognize our stockholders' experience; however, awarded slightly above target in recognition of successfully executing our 2019 business plan and, in particular, achieving the milestone of excess net cash provided by operating activities over net cash used in investing activities during the fourth quarter of 2019. +30 +Long-Term Incentive Plan +Long-term Incentive Plan − Design +Our LTIP is an equity compensation program that utilizes PSUs and RSUs to compensate our NEOs and other key employees for efficient capital management and long-term growth in our net asset value. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the “Equity Plan”), which our stockholders have approved. +RSUs are generally granted with a three-year vesting schedule, with one-third of the RSUs in each grant vesting on each of the first three anniversaries of the award date. RSUs are settled in shares of our common stock at the time of vesting. +PSUs are performance-based awards that are settled in shares of our common stock, with the number of resulting shares falling within a range of 0-200% of the number of PSUs originally granted, dependent on the Company’s performance with respect to certain metrics determined by the Compensation Committee over a three-year performance period. +2016-2019 LTIP Performance Period Results +At the completion of the 2016-2019 performance period, the PSUs granted on July 1, 2016, were settled using an earned percentage of zero, meaning no common stock was issued in settlement of such PSUs, and therefore, no PSU compensation was realized by our NEOs. We achieved this result based upon the outcome of our performance with respect to the two performance metrics applicable to this period: (a) our annualized absolute TSR for the performance period of −26.14%, which resulted in an earned percentage of zero, and (b) our relative TSR underperformed the peer index for the period by −2.06%, which did not change the earned percentage. +In making its determination regarding the zero percent PSU settlement, the Compensation Committee exercised negative discretion by treating one of the Company’s peer group members, EP Energy Corporation, which was de-listed from the New York Stock Exchange during the performance period, as a continuing member of the peer group that was determined to have a trading price of $0.07 on the over-the-counter market. If the Compensation Committee had removed EP Energy Corporation from the peer group or determined that its share price could not be independently validated, the PSU multiplier would have been 0.10. Therefore, no compensation was realized by the NEOs as a result of PSUs granted for the 2016-2019 performance period. +Notably, the 2016-2019 performance period was the third consecutive performance period from which no common stock was issued in settlement of the awarded PSUs, thus, no realized pay applicable to the PSU awards to our NEOs has resulted during the last three years. As a point of comparison, with respect to our CEO, the aggregate grant date fair value of PSUs totaled approximately $6.3 million over the last three performance periods, from which no PSU compensation was realized by Mr. Ottoson. +2019-2022 LTIP Performance Period Design and Awards +The 2019 LTIP awards to our NEOs were approved by the Compensation Committee during the second quarter of 2019 at an average of approximately 30% below target value and at a reduced value compared to 2018. In its determination of the total pool value for 2019, the Compensation Committee considered various factors, including share price performance, historical fair value transfer (or the percentage of market capitalization transferred to employees annually in the form of stock-based awards “FVT”) under our long-term incentive compensation system compared to our peer group companies, input from FW Cook on expected trends in LTIP design and FVT for the subject period, and shares available under our Equity Plan. +31 +Name 2018 LTIP Grant Value 2019 LTIP Grant Value Percent Reduction +Ottoson 4,799,999 3,465,846 (28) % +Vogel (1) +2,000,012 1,783,537 (11) % +Pursell 2,000,012 1,378,803 (31) % +Copeland 850,017 654,935 (23) % +Newton 524,993 396,395 (24) % +____________________________ +(1) Mr. Vogel was promoted to Executive Vice President and Chief Operating Officer in June, 2019, and in connection with this promotion, his target LTIP grant value was increased, which resulted in a smaller percentage reduction than the other NEOs. +Our LTIP program in effect during 2019 for our NEOs was heavily weighted to performance-based equity, reflecting the Company’s pay-for-performance philosophy. For our CEO, 75% of the LTIP target value consisted of performance-based PSUs and 25% consisted of time-based RSUs, and for our other NEOs, 60% of the LTIP target value consisted of PSUs with 40% consisting of RSUs. Participants were awarded RSUs and PSUs during the third quarter of 2019, with such PSUs subject to the performance measurement period beginning July 1, 2019, and ending June 30, 2022. The graphic below reflects the structure of our 2019 LTIP awards to our NEOs: +As presented in the graphic above, the metrics utilized in the PSU portion of the LTIP include total shareholder return and cash return on total capital invested. Both of these measurements are compared on a relative basis to the Performance Peer Group in determining the earned percentage of the target award for PSUs. The cash return metric replaced absolute TSR in the performance metrics starting in 2018. The Compensation Committee believes that the inclusion of a cash return metric incentivizes and recognizes management's continuing efforts to deploy capital in an efficient manner. Target payout for each PSU metric will be earned only if relative performance is above the median of the Performance Peer Group over the performance period. The total PSU award is also limited to a target payout if absolute TSR is negative over the performance measurement period. +The number of shares of our common stock issued to settle PSUs at the end of the 2019-2022 performance period will equal the number of PSUs multiplied by the “earned percentage.” The earned percentage for both performance metrics is outlined in the payout matrix below, subject to a maximum of 200% and a minimum of 0%: +3-Year Performance Period 80th P +Absolute TSR (CAGR) +0% 0% 25% 50% 100% +10% 50% 75% 100% 150% +20% 100% 125% 150% 200% +In determining the total LTIP grant values for 2025, the Compensation Committee considered various factors, including share price performance, historical fair value transfer (or the percentage of market capitalization transferred to employees annually in the form of stock-based awards, “FVT”) under our long-term incentive compensation system compared to our peer group companies, input from FW Cook on expected trends in LTIP design and FVT for the subject period as well as the value of our compensation peers’ long term incentive awards following FW Cook’s executive compensation review, and shares available under our Equity Plan. Following such consideration, the Compensation Committee approved the following 2025 target LTIP award values: +Name +2025 LTIP Grant Value +McDonald $2,299,995 +Pursell $2,499,989 +Lebeck $1,699,987 +Vogel $5,500,001 +Knott $800,002 +RSUs and PSUs were approved in June 2025 and awarded on July 1, 2025, consistent with our typical equity grant timing, with the PSUs subject to the measurement period beginning July 1, 2025, and ending June 30, 2028. The graphic below reflects the structure of our 2025 long-term incentive awards to our NEOs: +38 +SECTION 5—Compensation Determination Process +Responsibilities of the Compensation Committee +Our executive compensation is determined by the Compensation Committee. During 2025, the Compensation Committee was comprised of four independent directors and continued to operate under the framework of a written charter. Members of the Compensation Committee are appointed by our Board for, among other things, the purposes of: +• reviewing and approving our general compensation strategy and objectives, as well as disclosure required by SEC and listing exchange rules and regulations; +• reviewing and recommending our compensation plans, policies and programs to the Board for its approval; +• reviewing the performance and approving the compensation of our directors and executive officers, including our Chief Executive Officer; and +• overseeing the administration of our employee compensation and benefit plans. +In 2025, the Compensation Committee met eight times to administer the matters noted above and address other matters required under its charter. +Independent Compensation Consultant +FW Cook serves as the independent executive compensation consultant for, and reports directly to, the Compensation Committee. The Compensation Committee may replace FW Cook or hire additional consultants or other advisors as it deems necessary. A Principal of FW Cook regularly attends Compensation Committee meetings and communicates with the Compensation Committee between meetings, as requested. The services that FW Cook provides, based upon direction from the Compensation Committee, include advising the Compensation Committee on the design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis regarding the competitiveness of our executive compensation opportunities, conducting compensation risk assessments, and providing analysis concerning the equity compensation practices of our peers. After consideration of various independence factors, the Compensation Committee determined in 2025 that FW Cook’s work did not raise any potential conflicts of interest. In 2025, FW Cook did not provide any services to us other than those requested by the Compensation Committee and related to FW Cook’s engagement as the independent consultant to the Compensation Committee. +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company Manual, our Board has determined that all members of the Compensation Committee are independent. +Compensation Risk Assessment +Each year, the Compensation Committee, in consultation with FW Cook, reviews and evaluates our compensation policies and practices for all employees to assess to what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by properly aligning the interests of our employees with the interests of our stockholders, and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us. In 2025 and 2026, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and our Vice President - Human Resources, management provides recommendations to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer (Mr. Vogel for 2025 compensation and Ms. McDonald for 2026 +39 +compensation) recommends pay levels for executives, other than himself or herself, based on competitive market data, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing information on historical compensation levels, employee evaluations and its analysis of comparative industry data, and by interfacing with FW Cook. While members of the management team attend Compensation Committee meetings, they are not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective compensation. The Compensation Committee and our Board, as required under the charter of the Compensation Committee, make all final decisions with respect to compensation of our executive officers. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice President and Chief Operating Officer, and Executive Vice President - Chief Corporate Development Officer, General Counsel and Corporate Secretary and to provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for those executives, our Human Resources department provides the Compensation Committee and FW Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those executives, including severance arrangements and all benefits provided in connection with termination of employment. The tally sheets show the amount the executive would receive under various foreseeable circumstances ( e.g. , termination with or without cause, resignation, and retirement or termination in connection with change of control). The Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information provided to gain additional perspective and as a reference. +Say-On-Pay Results and Stockholder Feedback +We value the opinions of our stockholders regarding our executive compensation policies and practices. Our Board and management team are committed to maintaining an open dialogue with our stockholders, including regarding our executive compensation program. At the 2025 annual meeting of stockholders, approximately 93 percent of the votes cast in our say-on-pay advisory vote were in favor of our executive compensation policies and practices. Given the support shown, we did not make any changes to our 2025 compensation program in specific response to the say-on-pay vote. +40 +SECTION 6—Other Compensation Matters +The other components of our executive compensation program include the following: +Compensation Element +Description Purpose +Employee Stock Purchase Plan +Employees, including our executives, may purchase shares of our common stock at a 15 percent discount to the fair market value, subject to certain limits. Facilitate share ownership among employees and align employees’ interests with those of stockholders. +Qualified Retirement Plans +Includes qualified defined benefit pension plan and 401(k) plan with Company match. Attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income. +Supplemental Retirement Plan +Provides benefits to certain of our executives under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($350,000 for 2025). +Attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income. +Non-Qualified Deferred Compensation Plan +Provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans. Attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income. +Benefits and Perquisites +Medical, dental, vision, life, and disability insurance. Attract and retain highly qualified employees and support the overall health and well-being of employees. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan (“ESPP”) is to provide an opportunity for eligible employees, including our NEOs, to purchase shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and December 31 of each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15 percent of their base compensation. The purchase price of the stock is the lower of 85 percent of the fair market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is the lesser of (1) $25,000 per year, pursuant to the Internal Revenue Code of 1986, as amended (“IRC”), restrictions, or (2) 2,500 shares per offering period (5,000 shares per year). +Retirement Programs - Pension, Supplemental Executive Retirement Plan, 401(k) and Non-Qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the “Qualified Pension Plan”) and a 401(k) plan on the same basis as our eligible employees. Certain of our executives are also eligible to participate in our Supplemental Executive Retirement Plan (“SERP”) and all of our executives are eligible to participate in our Non-Qualified Deferred Compensation Plan (the “NQDC”). The SERP is an unfunded, non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence of IRC limits on the Qualified Pension Plan. The NQDC is intended to provide executives with tax planning opportunities and the opportunity to receive the full benefit of matching contributions in excess of IRC limits applicable to our 401(k) plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement income. +For certain executive-level employees, the Qualified Pension Plan, in combination with the SERP, provides a benefit after 25 years of credited service to the Company equal to 35 percent of final average compensation (or a lesser prorated percentage for qualifying employees that have not reached 25 years of credited service). Final average compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to determine benefits +41 +payable under the Qualified Pension Plan and the SERP is that executive’s average base salary, excluding bonuses and equity compensation awarded under the LTIP. +Our 401(k) plan is a defined contribution plan that allows eligible employees to contribute up to 60 percent of their income on a pretax basis, subject to annual limits determined by IRC regulations. With respect to employees who were hired prior to January 1, 2015, and who are eligible to participate in the Qualified Pension Plan, we match 100 percent of employee deferrals in cash on a dollar-for-dollar basis, up to six percent of the employee’s base salary and cash bonus. With respect to employees hired after January 1, 2015, who are not eligible to participate in the Qualified Pension Plan, we match 150 percent of employee deferrals on a dollar-for-dollar basis up to six percent of the employee’s base salary and cash bonus, which results in a nine percent cap on the Company’s matching contributions. Company contributions vest ratably on an annual basis over an employee’s first three years of employment with the Company. +The NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating employees may elect to defer (i) between zero percent and 50 percent of their base salary, and (ii) between zero percent and 100 percent of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to make contributions for each eligible employee equal to 100 percent of the deferred amount for such employee, limited to six percent of such employee’s base salary and cash bonus. Each eligible employee’s interest in the contributions we make will vest ratably on an annual basis over an employee’s first three years of employment with the Company. A participant’s account will be distributed based upon the participant’s payment election made at the time of deferral. A participant may elect to have distributions made in a lump sum or in annual installments ranging for a period from one to 10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis as all other employees. These plans are intended to provide benefits that support the well-being and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with all employees, group term life insurance up to two times their respective base salaries up to $2,000,000. +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. The Compensation Committee generally approves these grants at its June meeting. The Compensation Committee, our Board or our CEO have in the past, and may in the future, make limited off-cycle grants of equity on other dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain, or reward such persons; however, our CEO may only make such grants to non-executives. +We do not time the grant of equity awards in anticipation of the release of material nonpublic information and we do not time the release of material nonpublic information based on equity award grant dates or for the purpose of affecting the value of executive compensation. In addition, we do not take material nonpublic information into account when determining the timing and terms of such awards, as the timing of awards is generally in accordance with the annual compensation cycle or for limited off-cycle grants as described above. Although we do not have a formal policy with respect to the timing of our equity award grants, the Compensation Committee has historically granted annual equity awards on a predetermined annual schedule as described above. In 2025, we did not grant stock options to our NEOs during the time period described in Item 402(x) of Regulation S-K. +No Written Employment Agreements +The employment of all executives is “at will,” subject to and in accordance with the terms and conditions of written offers of employment. There are no written employment agreements with any executive officers. +42 +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of Vice President and above, including each of our NEOs, and certain other key employees, through change of control executive severance agreements. See “ Potential Payments Upon Termination or Change of Control—Change of Control Arrangements ” for more information about these agreements and potential payments in the event of a termination of employment following a change of control. No excise tax “gross up” payments are provided. +Clawback Policy +We maintain a written clawback policy that meets the requirements of SEC rules and NYSE listing standards, and requires repayment by executive officers of certain incentive-based compensation upon the occurrence of an accounting restatement that results from material noncompliance with a financial reporting requirement. The clawback policy provides that any repayment obligation will be determined regardless of fault and that our Board, subject to limited exceptions set forth in the SEC and NYSE rules and listing standards, does not have discretion to waive such obligation. Repayment obligations under the clawback policy apply to current and former executive officers of the Company who received incentive-based compensation based on a financial reporting measure during the three fiscal years preceding the date upon which the Company determined that a qualifying financial restatement was necessary, and the amount of the repayment obligation is equal to the excess of the amount that was actually paid to the executive officer over the amount that would have been paid if calculated in accordance with the restated amounts. +Stock Ownership Guidelines +To further align the interests of our executives with the interests of our stockholders with respect to long-term growth of stockholder value, the Compensation Committee has established, and our Board has approved, equity ownership guidelines for our executives and directors as follows: +Directors 5 times annual cash retainer +Chief Executive Officer 5 times annual base salary +Executive Vice Presidents 3 times annual base salary +Senior Vice Presidents and Vice Presidents 1 times annual base salary +Equity holdings include the value of unvested RSUs for purposes of these calculations, but exclude the value of unvested PSUs. Until a director or executive achieves the required ownership level, except for net settlements of equity awards for purposes of paying tax withholding obligations, such person may not sell equity without the prior approval of the Compensation Committee for the Chief Executive Officer or any Executive Vice President, and by the Chief Executive Officer for all other officers. The Compensation Committee will continue to review compliance with these guidelines annually, and more often as appropriate. +Securities Trading Policy and Prohibitions on Certain Hedging Transactions +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees, and directors of the risks of trading in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address trading by officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be highest, and generally prohibits our officers, certain other employees, and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, employees, and directors from engaging in transactions designed to mitigate, off-set, or avoid the risks associated with a decrease in the market value of our securities, including: (a) entering into transactions that “hedge” the value of our stock through the use of financial instruments, such as prepaid variable forward contracts, equity swaps, collars, exchange funds, or any other instrument that permits an officer, director, or employee to own Company securities without the full risks and rewards of ownership; (b) holding our securities in margin accounts; (c) pledging our securities to secure indebtedness; (d) buying or selling options or derivatives with respect to our securities; (e) short selling Company securities; and (f) placing standing or limit orders on Company securities (other than pursuant to approved Rule 10b5-1 Plans). These policies and procedures, as well +43 +as procedures that the Company follows, are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards. A copy of our adopted Securities Trading Policy is filed as Exhibit 19.1 to our 2024 Annual Report. +Section 7—CEO and Officer Transitions +As noted above, on January 30, 2026, we completed the Merger with Civitas. In connection with the Merger, the Board appointed Ms. McDonald to serve as the President and Chief Executive Officer of the Company, and Mr. Vogel’s employment as Chief Executive Officer was terminated in advance of his otherwise planned retirement in a manner that qualified for severance benefits under the Company’s change of control executive severance agreements. The Merger with Civitas constituted a “change of control” of the Company under our change of control executive severance agreements and equity awards, and thus, Mr. Vogel received the severance benefits provided pursuant to the terms of such agreements and awards (see “Potential Payments Upon Termination or Change of Control—Change of Control Arrangements” for more information). In connection with her appointment as President and Chief Executive Officer, the Board approved the following compensation package for Ms. McDonald effective as of January 30, 2026: an annual base salary of $900,000, a short-term incentive plan target of 120 percent of annual base salary, and a long-term incentive plan target of $5,300,000 (to be granted 40 percent in the form of RSUs and 60 percent in the form of PSUs). +In addition, in connection with the Merger, Mr. Knott’s service as Senior Vice President – Business Development and Land concluded and at the time of this filing, Mr. Knott continues to serve as a non-executive advisor to the Company supporting transition and integration matters related to the Merger. Mr. Knott’s employment with the Company is expected to be terminated in 2026 in a manner that qualifies for severance benefits under the Company’s change of control executive severance agreements. +Compensation Committee Report +The Compensation Committee of the Board of Directors of SM Energy Company reviewed and discussed the CD&A with management and FW Cook and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the disclosures set forth in the CD&A be included in this Proxy Statement and incorporated by reference into SM Energy Company’s 2025 Annual Report. +Respectfully submitted by the Compensation Committee of the Board of Directors, +Howard A. Willard, III, Chair +Barton R. Brookman +Rose M. Robeson +Wouter T. van Kempen +44 +EXECUTIVE COMPENSATION TABLES +Summary Compensation Table +The Summary Compensation Table (the “SCT”) sets forth the annual and long-term compensation of our NEOs during each of the last three years. +Name and Principal Position Year Salary +Bonus (1) +Stock Awards (2) +Non-Equity Incentive Plan Compensation (3) +Change In Pension Value and Non-Qualified Deferred Compensation Earnings (4) +All Other Compensation (5) +Total +Elizabeth A. McDonald 2025 $ 576,369 $ 875,000 $ 2,299,995 $ 536,024 $ — $ 187,784 $ 4,475,172 +President, Chief Executive Officer and Director 2024 $ 161,539 $ 875,000 $ 2,300,009 $ 211,615 $ — $ 11,631 $ 3,559,794 +A. Wade Pursell +2025 $ 581,957 $ — $ 2,499,989 $ 541,220 $ 215,853 $ 21,000 $ 3,860,019 +Executive Vice President and Chief Financial Officer 2024 $ 558,874 $ — $ 2,499,999 $ 2,422,124 $ 165,015 $ 20,700 $ 5,666,712 +2023 $ 532,834 $ — $ 2,249,983 $ 1,784,000 $ 116,994 $ 20,011 $ 4,703,822 +James B. Lebeck 2025 $ 462,485 $ — $ 1,699,987 $ 344,089 $ — $ 48,291 $ 2,554,852 +Executive Vice President - Chief Corporate Development Officer, General Counsel and Corporate Secretary 2024 $ 444,141 $ — $ 1,600,001 $ 459,641 $ — $ 68,858 $ 2,572,641 +2023 $ 396,923 $ — $ 1,500,042 $ 826,000 $ — $ 167,116 $ 2,890,081 +Herbert S. Vogel +2025 $ 889,262 $ — $ 5,500,001 $ 992,416 $ 342,029 $ 154,904 $ 7,878,612 +Former President, Chief Executive Officer and Director 2024 $ 853,989 $ — $ 5,499,984 $ 5,398,471 $ 319,552 $ 168,666 $ 12,240,662 +2023 $ 814,200 $ — $ 4,999,989 $ 4,815,816 $ 295,736 $ 134,889 $ 11,060,630 +Kenneth J. Knott 2025 $ 413,393 $ — $ 800,002 $ 288,342 $ 171,059 $ 69,206 $ 1,742,002 +Advisor, Former Senior Vice President - Business Development and Land 2024 $ 396,996 $ — $ 800,019 $ 875,923 $ 121,847 $ 72,618 $ 2,267,403 +2023 $ 378,499 $ — $ 750,005 $ 717,175 $ 85,311 $ 61,755 $ 1,992,745 +______________________________________ +(1) Ms. McDonald received a sign-on bonus of $1,750,000 in 2024 that was intended to serve as a make-whole award to replace forfeited compensation opportunities she would have been due from her prior employer. A total of 50% was paid with her first paycheck and the remainder was paid on the first anniversary of her start date. +(2) The amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation—Stock Compensation” (“FASB ASC Topic 718”), excluding the effect of estimated forfeitures related to service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 10 of the Notes to Consolidated Financial Statements included in our 2025 Annual Report. PSU awards are subject to market-based performance conditions relating to our total stockholder return and relative stockholder return compared to a peer company index over a three-year performance period and the grant date fair value is based on the probable outcome of such conditions. The grant date value of the 2025 PSUs for each NEO assuming maximum performance are as follows: (i) Ms. McDonald: $2,181,840; (ii) Mr. Pursell: $2,371,567; (iii) Mr. Lebeck: $1,612,657; (iv) Mr. Vogel: $6,261,005; and (v) Mr. Knott: $758,910. For additional information about long-term performance based-awards granted in 2025 see “ 2025-2028 LTIP Performance Period Design and Awards. ” +(3) The amounts in this column represent the aggregate of: (i) the cash bonuses paid in 2026, 2025, and 2024, but earned with respect to the 2025, 2024, and 2023 performance periods, respectively, under the STIP, and (ii) the payout of the performance-based cash awards granted in 2021 and 2020 and paid in 2024 and 2023, respectively. +(4) The amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO’s combined benefits under our qualified and non-qualified defined benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or above market earnings on deferred compensation. +(5) For 2025, amounts consist of the following Company contributions and other compensation: (i) for Ms. McDonald: $34,582 to the Company’s NQDC and $31,500 to the Company’s 401(k) Profit Sharing Plan, and $121,702 for relocation reimbursement, of which $31,951 was a gross up for relocation tax benefit; (ii) for Mr. Pursell: $21,000 to the Company’s 401(k) Profit Sharing Plan; (iii) for Mr. Lebeck: $31,500 to the Company’s 401(k) Profit Sharing Plan and $16,791 for relocation reimbursement; (iv) for Mr. Vogel: $133,904 to the Company’s NQDC and $21,000 to the Company’s 401(k) Profit Sharing Plan; and (v) for Mr. Knott: $48,206 to the Company’s NQDC and $21,000 to the Company’s 401(k) Profit Sharing Plan. +Grants of Plan-Based Awards in 2025 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the quantitative and qualitative metrics for our 2025 STIP on February 13, 2025. As discussed above, +45 +the bonus payments associated with the 2025 STIP were earned in 2025, but were paid in 2026. In addition, pursuant to our LTIP and in accordance with the Equity Plan, the Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 9, 2025. These grants were made effective as of July 1, 2025. These grants are summarized in the table below. +Name Grant Date +Approval Date +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards Estimated Future Payouts Under Equity Incentive Awards +All Other +Stock Awards: +Number of +Shares of +Stock or Units (7) +Grant Date +Fair Value of +Stock and +Option Awards (8) +Threshold (1) +Target (2) +Maximum (3) +Threshold (4) +Target (5) +Maximum (6) +Elizabeth A. McDonald $288,185 $576,369 $1,152,738 — — — — — +7/1/25 6/9/25 — — — — — — 44,163 $1,150,005 +7/1/25 6/9/25 — — — 10,474 41,894 83,788 — $1,149,990 +A. Wade Pursell $290,979 $581,957 $1,163,914 — — — — — +7/1/25 6/9/25 — — — — — — 48,003 $1,249,998 +7/1/25 6/9/25 — — — 11,384 45,537 91,074 — $1,249,991 +James B. Lebeck $184,994 $369,988 $739,976 — — — — — +7/1/25 6/9/25 — — — — — — 32,642 $849,998 +7/1/25 6/9/25 — — — 7,741 30,965 61,930 — $849,989 +Herbert S. Vogel $533,557 $1,067,114 $2,134,229 — — — — — +7/1/25 6/9/25 — — — — — — 84,485 $2,199,989 +7/1/25 6/9/25 — — — 30,055 120,219 240,438 — $3,300,012 +Kenneth J. Knott $155,022 $310,045 $620,090 — — — — — +7/1/25 6/9/25 — — — — — — 15,361 $400,000 +7/1/25 6/9/25 — — — 3,643 14,572 29,144 — $400,001 +______________________________________________ +(1) This amount represents the award earned under the Cash Bonus Plan, assuming we achieve the threshold performance for each metric under the plan, resulting in an earned percentage of 50 percent of target. However, as described above in “ Section 4—Primary Elements Of Compensation and Executive Compensation Results ,” actual bonuses range from zero to two times a participant’s target percentage. +(2) This amount represents the salary amount actually paid to each of our NEOs in 2025, multiplied by the applicable STIP target percentage. +(3) This amount represents the maximum possible award; as described above in “ Section 4—Primary Elements Of Compensation and Executive Compensation Results ,” actual bonuses range from zero to two times a participant’s target percentage. +(4) This amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve the threshold performance level established for each metric under the plan, resulting in an earned percentage of 25 percent. +(5) This amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve the target performance level established by the Compensation Committee, resulting in an earned percentage of 100 percent. PSUs represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period ending June 30, 2028, a number of shares of our common stock that may be from zero percent to 200 percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved the performance criteria and the extent to which the PSUs have vested. The performance criteria for the PSUs are based on the Company’s annualized absolute TSR and the Company’s TSR relative to the TSR of certain peer companies, in each case as defined by the award agreement. The PSUs will vest on July 1, 2028. The PSUs granted to Messrs. Vogel, Pursell and Knott are subject to the three-year performance period; however because these individuals were of retirement eligible age, as defined in their respective award agreements, on the award date, if retirement occurs before the end of the performance period, a pro-rata portion of the applicable PSUs will remain eligible to vest (pro-rated based on the number of days elapsed during the three-year performance period beginning on the award date) based on actual performance of the performance metrics. For additional detail regarding the 2025 performance-based equity awards, please see “ 2025-2028 LTIP Performance Period Design and Awards. ” +(6) This amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve the maximum performance level established by the Compensation Committee, resulting in an earned percentage of 200 percent. +(7) This amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2026, one-third on July 1, 2027, and one-third on July 1, 2028 (with the exception of Mr. Vogel, Mr. Knott and Mr. Pursell who is entitled to one-sixth vesting as noted below). Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. Dividends are credited to the holder and paid at the expiration of the vesting period or forfeited if the RSUs are forfeited. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement date. The RSUs granted to Mr. Vogel, Mr. Knott and Mr. Pursell are subject to pro rata vesting due to them attaining retirement eligible age, as defined in the award agreement, on the award date. As such, the awards vest one-sixth on January 1, 2026, one-sixth on July 1, 2026, one-sixth on January 1, 2027, one-sixth on July 1, 2027, one-sixth on January 1, 2028, and one-sixth on July 1, 2028. Shares are only released with respect to vested RSUs on the July 1 dates (or upon their earlier termination of employment). +(8) Represents the grant date fair value of the RSU grant based on the closing market price on the grant date. The grant date fair value of a PSU is calculated using a Monte Carlo simulation (using Geometric Brownian Motion Model), and the aggregate grant date fair value represented in this column for PSUs is calculated based upon the number of PSUs granted. +46 +Outstanding Equity Awards at 2025 Year-End +The following table shows outstanding equity awards for our NEOs as of December 31, 2025: +Name Stock Awards +Equity Incentive Plan Awards: +Number of Shares or Units of Stock That Have Not Vested +Market Value of Shares or Units of Stock That Have Not Vested (1) +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) +Elizabeth A. McDonald +RSUs (2) +19,380 $ 362,406 — $ — +RSUs (3) +44,163 $ 825,848 — $ — +PSUs (4) +— $ — 26,895 $ 502,937 +PSUs (5) +— $ — 41,894 $ 783,418 +A. Wade Pursell +RSUs (6) +11,855 $ 221,689 — $ — +RSUs (7) +19,087 $ 356,927 — $ — +RSUs (8) +48,003 $ 897,656 — $ — +PSUs (4) +— $ — 29,234 $ 546,676 +PSUs (9) +— $ — 37,590 $ 702,933 +PSUs (10) +— $ — 45,537 $ 851,542 +James B. Lebeck +RSUs (3) +32,642 $ 610,405 — $ — +RSUs (6) +5,269 $ 98,530 — $ — +RSUs (7) +12,216 $ 228,439 — $ — +RSUs (11) +14,698 $ 274,853 — $ — +PSUs (4) +— $ — 18,710 $ 349,877 +PSUs (5) +— $ — 30,965 $ 579,046 +PSUs (9) +— $ — 16,707 $ 312,421 +Herbert S. Vogel (16) +RSUs (8) +84,485 $ 1,579,870 — $ — +RSUs (12) +21,076 $ 394,121 — $ — +RSUs (13) +33,593 $ 628,189 — $ — +PSUs (10) +— $ — 120,219 $ 2,248,095 +PSUs (14) +— $ — 100,240 $ 1,874,488 +PSUs (15) +— $ — 77,177 $ 1,443,210 +Kenneth J. Knott +RSUs (6) +3,952 $ 73,902 — $ — +RSUs (7) +6,109 $ 114,238 — $ — +RSUs (8) +15,361 $ 287,251 — $ — +PSUs (4) +— $ — 9,355 $ 174,939 +PSUs (9) +— $ — 12,530 $ 234,311 +PSUs (10) +— $ — 14,572 $ 272,496 +____________________________ +(1) The market values of RSUs and PSUs that have not vested are calculated using the closing price of $18.70 of our common stock on December 31, 2025. +47 +(2) These RSUs were granted on September 9, 2024, and vest in 1/3 increments with the remaining vesting scheduled to occur 1/3 on July 1, 2026, and 1/3 on July 1, 2027. +(3) These RSUs were granted on July 1, 2025, and vest in 1/3 increments with the vesting scheduled to occur 1/3 on July 1, 2026, 1/3 on July 1, 2027, and 1/3 on July 1, 2028. +(4) These PSUs were granted on October 1, 2024, and vest on July 1, 2027. The PSUs are subject to a three-year performance period ending June 30, 2027. The award is reported at an earned percentage of 100 percent. +(5) These PSUs were granted on July 1, 2025, and vest on July 1, 2028. The PSUs are subject to a three-year performance period ending June 30, 2028. The award is reported at an earned percentage of 100 percent. +(6) These RSUs were granted on July 1, 2023, and vest in 1/3 increment with the remaining vesting scheduled to occur on July 1, 2026. +(7) These RSUs were granted July 1, 2024, and vest in 1/3 increments with the remaining vesting scheduled to occur 1/3 on July 1, 2026, and 1/3 on July 1, 2027. +(8) These RSUs were granted July 1, 2025, and vest(ed) in 1/6 increments with the remaining vesting scheduled to occur (or having occurred) 1/6 on January 1, 2026, 1/6 on July 1, 2026, 1/6 on January 1, 2027, 1/6 on July 1, 2027, 1/6 on January 1, 2028, and 1/6 on July 1, 2028. +(9) These PSUs were granted on July 1, 2023, and vest on July 1, 2026. The PSUs are subject to a three-year performance period ending June 30, 2026. The award is reported at an earned percentage of 100 percent. +(10) These PSUs were granted on July 1, 2025, and vest on July 1, 2028. The PSUs are subject to a three-year performance period ending June 30, 2028. The award is reported at an earned percentage of 100 percent, based on year-end trending performance. However, for retirement eligible employees, if retirement occurs before the end of the performance period, a pro-rated portion of these PSUs will remain eligible to vest (pro-rated based on the number of days elapsed during the three-year performance period beginning on the award date) based on actual performance of the performance metrics. +(11) These RSUs were granted on January 23, 2023, and vested on January 23, 2026. +(12) These RSUs were granted on July 1, 2023, and vest(ed) in 1/6 increments with the remaining vesting scheduled to occur (or having occurred) 1/6 on January 1, 2026, and 1/6 on July 1, 2026. +(13) These RSUs were granted on July 1, 2024, and vest(ed) in 1/6 increments with the remaining vesting scheduled to occur (or having occurred) 1/6 on January 1, 2026, 1/6 on July 1, 2026, 1/6 on January 1, 2027, and 1/6 on July 1, 2027. +(14) These PSUs were granted on July 1, 2023, and vest on July 1, 2026. The PSUs are subject to a three-year performance period ending June 30, 2026. The award is reported at an earned percentage of 100 percent, based on year-end trending performance. However, for retirement eligible employees, if retirement occurs before the end of the performance period, a pro-rated portion of these PSUs will remain eligible to vest (pro-rated based on the number of days elapsed during the three-year performance period beginning on the award date) based on actual performance of the performance metrics. +(15) These PSUs were granted on October 1, 2024, and vest on July 1, 2027. The PSUs are subject to a three-year performance period ending June 30, 2027. The award is reported at an earned percentage of 100 percent, based on year-end trending performance. However, for retirement eligible employees, if retirement occurs before the end of the performance period, a pro-rated portion of these PSUs will remain eligible to vest (pro-rated based on the number of days elapsed during the three-year performance period beginning on the award date) based on actual performance of the performance metrics. +(16) For a description of the treatment of Mr. Vogel’s equity awards upon his termination in advance of his otherwise planned retirement, see “Potential Payments upon Termination or Change of Control-Change of Control Arrangements” below. +2025 Stock Vested +Stock Awards +Name +Number of Shares Acquired on Vesting (1) +Value Realized +on Vesting (2) +Elizabeth A. McDonald 9,690 $258,820 +A. Wade Pursell 43,350 $1,071,179 +James B. Lebeck 11,376 $281,101 +Herbert S. Vogel 84,200 $2,080,582 +Kenneth J. Knott 13,642 $337,094 +____________________________ +(1) This column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2025. As discussed above, each RSU and PSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement. +(2) The value realized on vesting and settlement of the RSUs is computed by multiplying the number of shares of common stock issued upon the vesting and settlement of RSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date was not a market trading date, then on the last market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation were $24.71 on June 30, 2025, for the vesting and settlement of the third vesting tranche of the 2022 RSU awards, the vesting and settlement of the second vesting tranche of the 2023 RSU awards, and the vesting and settlement of the first vesting tranche of the 2024 RSU awards, all of which were settled on July 1, 2025; and $24.71 on June 30, 2025, for the vesting and full settlement of the July 1, 2022 PSU awards, which were settled based upon an earned percentage of 28%. Additionally, one-third of Ms. McDonald’s RSUs granted on September 9, 2024, vested on September 9, 2025, at a per share closing market price of $26.71. +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our employees who joined SM Energy prior to January 1, 2015, and meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC limits (the 2025 limit was $350,000 in annual base salary income, for certain executive officers with a +48 +title of at least vice president). The following table represents the value of the NEO’s pension benefits as of December 31, 2025: +Name Plan Name Number of Years Credited Service Present Value of Accumulated Benefit Payment During Last Fiscal Year +Elizabeth A. McDonald Qualified Pension Plan — $ — $ — +Non–Qualified SERP Pension Plan — $ — $ — +A. Wade Pursell Qualified Pension Plan 17 $ 840,209 $ — +Non–Qualified SERP Pension Plan 17 $ 548,486 $ — +James B. Lebeck Qualified Pension Plan — $ — $ — +Non–Qualified SERP Pension Plan — $ — $ — +Herbert S. Vogel Qualified Pension Plan 14 $ 851,819 $ — +Non–Qualified SERP Pension Plan 14 $ 1,287,378 $ — +Kenneth J. Knott Qualified Pension Plan 25 $ 1,065,174 $ — +Non–Qualified SERP Pension Plan 25 $ 175,681 $ — +Non-Qualified Deferred Compensation for 2025 +This Non-Qualified Deferred Compensation table sets forth the NEOs participation in the NQDC. This plan allows eligible employees to defer part of their salary and annual incentive bonus on a voluntary basis. +Name +Executive Contributions in Last FY (1) +Registrant Contributions in Last FY (2) +Aggregate Earnings in Last FY (3) +Aggregate Withdrawals in Last FY Aggregate +Balance at +Last FYE +Elizabeth A. McDonald $ 34,582 $ 34,582 $ 8,955 $ — $ 78,119 +A. Wade Pursell $ — $ — $ 168,903 $ — $ 1,253,161 +James B. Lebeck $ — $ — $ 14,220 $ — $ 93,827 +Herbert S. Vogel $ 133,904 $ 133,904 $ 152,464 $ — $ 2,948,183 +Kenneth J. Knott $ 52,107 $ 48,206 $ 252,473 $ — $ 1,775,154 +____________________________ +(1) The amounts in this column are also included in the Summary Compensation Table under the Salary column or the Non-Equity Incentive Plan Compensation column, as applicable. +(2) The amounts in this column represent the matching contributions. The matching contributions are included in the “All Other Compensation” column of the Summary Compensation Table. We match deferred compensation up to an amount equal to six percent of base salary plus any STIP cash bonus. +(3) The earnings reflected in this column represent deemed investment earnings or losses from voluntary deferrals and Company contributions, as applicable. The NQDC does not guarantee a return on deferred amounts. +Our SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated benefits under the SERP for each NEO, is set forth in the “ Pension Benefits ” section above. In addition, annual increases in the actuarial value of benefits under the SERP are included in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +Potential Payments Upon Termination or Change of Control +Change of Control Arrangements +Change of control severance protection is provided through change of control executive severance agreements to executives at the level of vice president and above, including each of our NEOs, and to certain other key employees. These agreements have a “double trigger” mechanism, which requires first that a qualifying change of control event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. +49 +A “Change of Control” is defined to include (a) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or consolidation of our Company, or (b) a change in more than 50 percent of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or by our stockholders pursuant to the recommendation of the incumbent members of the Board. The Merger, which closed on January 30, 2026, constituted a Change of Control event under these agreements. +Executive officers are entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a Change of Control (a) without “cause” by our Company or (b) for “good reason” by the officer, each as defined in the agreements. The term “good reason” incorporates the concept of a change in the executive’s status, authority, position, offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the ninety (90) days preceding a Change of Control or within two and one-half years thereafter. The term “good reason” also contemplates a reduction in the executive’s base salary and benefits over this same time frame, the requirement that an executive relocate his or her base of employment outside a 25-mile radius from the executive’s primary work location at the time of the Change of Control, failure of the Company to pay certain compensation and benefits, a material breach of the agreement, or failure of any successor to assume the agreement. +Upon a qualifying termination under the change of control severance agreements, the NEOs are entitled to receive a lump sum payment equal to 2.5 times (or 3.0 times for Mr. Vogel) the sum of (i) the greater of the NEO’s base salary as in effect on the termination date or as of immediately prior to the Change of Control and (ii) the greater of the NEO’s target short term incentive plan award as in effect on the termination date or as of immediately prior to the Change of Control. In addition, the NEOs would be entitled to a pro-rata target short term incentive plan award for the year of termination and a lump sum payment equal to 24 times the Company’s then monthly contribution for medical, dental, and vision insurance on behalf of the NEO and the NEO’s family. +Particularly in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that change of control executive severance agreements promote stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for the executive as well as a retention incentive benefiting the Company and our stockholders without creating an unreasonable impediment to a potential acquirer of the Company. We believe that the severance payment amounts under these agreements for our executives are comparable to payment amounts offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits protection during a reasonable period of time to allow the executive to obtain comparable employment. +Outstanding equity awards held by the NEOs are generally subject to “double trigger” vesting, meaning that outstanding awards will only accelerate in the event of a Change of Control to the extent that the NEO’s employment or engagement is terminated without cause or the NEO resigns for good reason following the Change of Control. In such case, outstanding RSUs and PSUs will fully accelerate, with performance goals deemed to have been achieved at target levels. Upon a termination due to death or disability, (i) RSUs will immediately vest, and (ii) the PSUs will remain outstanding and be eligible to vest based on actual performance of the performance goals. For retirement eligible employees (those who are at least 60 years of age and have completed at least 10 years of service as of the grant date), (i) with respect to PSUs, upon their retirement, a pro-rated portion of the PSUs will remain eligible to vest (pro-rated based on the number of days that have elapsed during the three-year performance period) based on actual performance; and (ii) with respect to RSUs, the RSUs vest on a modified vesting schedule in 1/6th increments, with any unvested RSUs forfeited upon termination (unless otherwise accelerated in accordance with the foregoing termination provisions). +With respect to our NEOs, the following table sets forth the estimated gross taxable compensation payable upon (i) a Change of Control without termination; (ii) termination in connection with a Change of Control; (iii) death or disability; and (iv) voluntary termination or retirement. The amounts set forth below assume a termination date of December 31, 2025, under the executive severance and change of control agreements that were in place at that time, and thus do not take into account the Merger with Civitas (which constituted a Change of Control for purposes of the change of control severance agreements and outstanding equity awards), nor the +50 +early termination of Mr. Vogel’s employment in January 2026 in advance of his otherwise planned retirement. In the event the executive is subject to golden parachute excise taxes under Section 4999 of the IRC, severance benefits may be reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax “gross-up” payments are provided. +Potential Payments upon Termination or Change of Control +Name Base Salary Cash Bonus +Accelerated Vesting of RSUs and Performance-Based Awards (1) +Continued Employee Benefits Total +Elizabeth A. McDonald +Change of Control/No Termination $ — $ — $ — $ — $ — +Change of Control Termination +$ 1,456,000 $ 1,456,000 $ 2,526,243 $ 62,340 $ 5,500,583 +Termination upon Death or Disability +$ — $ — $ 2,526,243 $ — $ 2,526,243 +Voluntary Termination/Retirement $ — $ — $ — $ — $ — +A. Wade Pursell +Change of Control/No Termination $ — $ — $ — $ — $ — +Change of Control Termination +$ 1,470,115 $ 1,470,115 $ 3,908,200 $ 64,630 $ 6,913,060 +Termination upon Death or Disability +$ — $ — $ 3,908,200 $ — $ 3,908,200 +Voluntary Termination/Retirement $ — $ — $ — $ — $ — +James B. Lebeck +Change of Control/No Termination $ — $ — $ — $ — $ — +Change of Control Termination +$ 1,168,311 $ 934,650 $ 2,679,314 $ 61,424 $ 4,843,699 +Termination upon Death or Disability +$ — $ — $ 2,679,314 $ — $ 2,679,314 +Voluntary Termination/Retirement $ — $ — $ — $ — $ — +Herbert S. Vogel +Change of Control/No Termination $ — $ — $ — $ — $ — +Change of Control Termination +$ 2,695,699 $ 3,234,837 $ 5,867,917 $ 58,235 $ 11,856,688 +Termination upon Death or Disability +$ — $ — $ 5,867,917 $ — $ 5,867,917 +Voluntary Termination/Retirement $ — $ — $ — $ — $ — +Kenneth J. Knott +Change of Control/No Termination $ — $ — $ — $ — $ — +Change of Control Termination +$ 1,044,297 $ 783,223 $ 1,268,617 $ 36,807 $ 3,132,944 +Termination upon Death or Disability +$ — $ — $ 1,268,617 $ — $ 1,268,617 +Voluntary Termination/Retirement $ — $ — $ — $ — $ — +_________________________________ +(1) The amounts reflected in the “Accelerated Vesting of RSUs and Performance-Based Awards” column represents (i) the market-value of all unvested RSUs as of December 31, 2025, (ii) the target value of all unvested PSU awards as of December 31, 2025, based on the settlement conditions in each respective award agreement; and (iii) for both RSUs and PSUs, the value of dividend equivalent rights on such unvested awards. Upon termination due to death or disability, (i) RSUs immediately vest and are settled; and (ii) performance-based awards remain outstanding and such awards are not settled and released until the end of the respective performance period and determination of the final settlement factor. +As described above, Mr. Vogel’s employment terminated in advance of his otherwise planned retirement in a manner that qualified for severance benefits under the Company’s change of control executive severance agreements and the Merger constituted a Change in Control under the Company’s change of control executive severance agreements and outstanding equity awards. As such, Mr. Vogel received the following payments and benefits in connection with his termination: (1) accelerated vesting of performance share awards totaling a value of $2,997,879 (based on our closing price per share on January 29, 2026 of $18.87) in accordance with each award agreement; (2) accelerated vesting of restricted share awards totaling a value of $2,002,805 (based on our closing price per share on January 29, 2026 of $18.87) in accordance with each award agreement; (3) severance benefits of $5,930,537, reflecting 3.0 times his base salary and target bonus; (4) a pro-rata 2026 target STIP +51 +award of $88,626, and (5) a $58,235 payment to offset the costs of continued medical, dental, and vision insurance coverage. +Equity Compensation Plans +The Company has equity compensation plans under which options and shares of the Company’s common stock are authorized for grant or issuance as compensation to eligible employees, consultants, and members of our Board of Directors . The following table is a summary of the shares of common stock authorized for issuance under equity compensation plans as of December 31, 2025: +(a) (b) (c) +Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants, and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +— — +Restricted stock units (1)(2) +1,447,925 N/A +Performance share units (1)(2)(3) +819,605 N/A +Total for Equity Incentive Compensation Plan 2,267,530 — 2,532,469 +Employee Stock Purchase Plan (4) +— — 3,046,153 +Equity compensation plans not approved by security holders — — — +Total for all plans 2,267,530 — 5,578,622 +____________________________ +(1) In May 2025, our stockholders approved the Equity Plan, which succeeded the SM Energy Company Equity Incentive Compensation Plan, as amended and restated effective as of May 22, 2018 (“Predecessor Equity Plan” and together with the Equity Plan, the “Equity Plans”). The Company ceased granting awards under the Predecessor Equity Plan, however, existing awards remain outstanding under the Predecessor Equity Plan. The Equity Plan authorizes the issuance of restricted stock, restricted stock units, nonqualified stock options, incentive stock options, stock appreciation rights, performance share units, and stock-based awards to key employees, consultants, and members of the Board of the Company or any affiliate of the Company. The number of shares of the Company’s common stock underlying awards granted in 2025, 2024, and 2023 under the Equity Plans were 1,466,390, 774,687, and 943,979, respectively. +(2) RSUs and PSUs do not have exercise prices associated with them, but rather a weighted-average per unit fair value which is described here in order to provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per unit fair value for the outstanding RSUs and PSUs was $30.55 and $32.18, respectively. +(3) The number of awards to be issued assumes a multiplier of one. The final number of shares of the Company’s common stock issued upon settlement of PSUs may vary depending on the three-year multiplier determined at the end of the performance period under the Equity Plans, which ranges from zero to two. +(4) Under the ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15 percent of their eligible compensation. The purchase price of the common stock is 85 percent of the lower of the fair market value of the common stock on the first or last day of the six-month offering period, and shares issued under the ESPP on or after December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the IRC. The number of shares of the Company’s common stock issued in 2025, 2024, and 2023 under the ESPP were 167,027, 97,500, and 114,427, respectively. +CEO Pay Ratio +Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), certain U.S. public companies must disclose the ratio of the CEO’s annual total compensation to the median annual total compensation of all employees (excluding the CEO). +We identified our current median employee as of December 19, 2025, using the consistently applied compensation measure determined by calculating the sum of 2025 annual base salary and actual cash bonus paid to each employee, including any overtime pay. In making this determination we annualized bonus, base salary, and any overtime pay for employees that were not employed for the entirety of 2025. +We determined that the amount of the annual total compensation of our median employee for 2025 was $202,421. This amount represents the total compensation that would have been reported in the Summary Compensation Table in accordance with the requirements of Item 402(c)(x) of Regulation S-K for the median +52 +employee if the employee had been an NEO for fiscal year 2025. We then determined that the amount of our former CEO’s annual total compensation for 2025 was $7,878,612, which represents the amount reported for our former CEO in the “Total” column of the 2025 Summary Compensation Table. +Name and Principal Position Year Salary +Stock Awards (1) +Non-Equity Incentive Plan Compensation (2) +Change In Pension Value and Non-Qualified Deferred Compensation Earnings (3) +All Other Compensation (4) +Total +Herbert S. Vogel 2025 $ 889,262 $ 5,500,001 $ 992,416 $ 342,029 $ 154,904 $ 7,878,612 +Former President, Chief Executive Officer and Director +Median Employee 2025 $ 128,500 $ 31,795 $ 30,917 $ — $ 11,209 $ 202,421 +____________________________ +(1) The amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with FASB ASC Topic 718. These grant date fair values have been determined in accordance with Note 2 to the Summary Compensation Table set forth above. +(2) The amounts in this column represent the cash bonuses paid in 2026, but earned during 2025, under the STIP. +(3) The amounts shown in this column are attributable to the increase, if any, in the actuarial value of each individual’s combined benefits under our qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. Neither individual received preferential or above market earnings on deferred compensation. +(4) Amounts consist of our respective contributions to our 401(k) Profit Sharing Plan, contributions to our NQDC, and any anniversary gift cards. +Based on the foregoing, for 2025, the ratio of the annual total compensation of our CEO to the annual total compensation for our median employee is 39:1. This pay ratio is a reasonable estimate, calculated in a manner consistent with SEC rules and based on our payroll and employment records. +The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. +53 +Pay Versus Performance +As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation actually paid (“CAP”) (as defined by SEC rules) and certain financial performance of the Company. The Compensation Committee did not consider the pay versus performance disclosure when making its incentive compensation decisions. For further information about how we align executive compensation with the Company’s performance, see “ Compensation Discussion and Analysis ” above. The amounts in the table below are calculated in accordance with SEC rules and do not represent amounts actually earned or realized by NEOs. +Pay Versus Performance +Value of Initial Fixed $100 Investment Based on: +Year (1) +Summary Compensation Table Total for PEO +Compensation Actually Paid to PEO (2)(3) +Average Summary Compensation Table Total for Non-PEO NEOs +Average Compensation Actually Paid to Non-PEO NEOs (2) +Total Shareholder Return +Peer Group Total Shareholder Return (4) +Net Income +Adjusted Free Cash Flow (5) +(in millions) +2025 $ 7,878,612 $ ( 4,392,669 ) $ 3,152,219 $ 125,782 $ 328.58 $ 249.26 $ 648 $ 481 +2024 $ 12,240,662 $ 11,928,971 $ 3,516,638 $ 3,473,519 $ 663.43 $ 244.11 $ 770 $ 306 +2023 $ 11,060,630 $ 12,463,744 $ 2,891,619 $ 3,247,712 $ 650.33 $ 254.80 $ 818 $ 285 +2022 $ 6,733,036 $ 11,113,208 $ 2,083,619 $ 3,751,637 $ 575.24 $ 252.51 $ 1,112 $ 804 +2021 $ 4,295,321 $ 14,520,242 $ 1,639,759 $ 5,005,015 $ 482.24 $ 165.60 $ 36 $ 483 +____________________________ +(1) Herbert S. Vogel, served as principal executive officer (“PEO”) for each of the years shown. The remaining NEOs (“Non-PEO NEOs”) for each year presented above consisted of the following: +• 2025 and 2024: A. Wade Pursell, Elizabeth A. McDonald, James B. Lebeck, Kenneth J. Knott +• 2023: A. Wade Pursell, James B. Lebeck, Kenneth J. Knott, Mary Ellen Lutey +• 2022 and 2021: A. Wade Pursell, David W. Copeland, Mary Ellen Lutey, Lehman E. Newton, III +(2) See “ Adjustments to Determine Compensation Actually Paid” table below for additional detail. +(3) Compensation Actually Paid to the PEO for 2025 is negative primarily due to a decline in the Company’s stock price during the year, which reduced the fair value of outstanding equity awards under the SEC’s required valuation methodology as calculated under Item 402(v) of Regulation S-K and does not reflect a recovery of compensation from the PEO. +(4) The peer group used for comparison of cumulative total shareholder return is the Dow Jones Exploration and Production Index - DJUSOS. +(5) We deemed adjusted free cash flow to be the most important financial performance measure used to link Company performance to compensation actually paid to our PEO and non-PEO NEOs for all years presented. See “ Performance Measure” table below for additional detail. +The following table sets forth the adjustments made during 2025 in the Pay Versus Performance table to arrive at compensation actually paid to our PEO and non-PEO NEOs: +Adjustments to Determine Compensation Actually Paid +2025 +PEO (Herbert S. Vogel) Average for Non-PEO NEOs +Total Compensation as reported in SCT $ 7,878,612 $ 3,152,219 +Deduction of “Change in Pension Value and Nonqualified Deferred Compensation Earnings” reported in SCT ( 342,029 ) ( 96,728 ) +Service cost for pension plans 143,513 35,891 +Deduction of “Stock Awards” reported in SCT ( 5,500,001 ) ( 1,824,993 ) +Fair value of awards granted during year, which remain unvested as of year-end +3,232,881 1,112,368 +Year-over-year change in fair value of awards granted in prior years that were outstanding and unvested as of year-end +( 7,700,131 ) ( 1,864,073 ) +Change in fair value from prior year-end to vesting date of awards granted in prior years that vested during the year +( 2,105,514 ) ( 388,902 ) +Compensation Actually Paid +$ ( 4,392,669 ) $ 125,782 +Unvested equity awards presented in the table above are computed in accordance with FASB ASC Topic 718. +54 +The following is an unranked list of the most important performance measures that link compensation actually paid to our PEO and non-PEO NEOs to Company performance. See the CD&A section above for additional discussion of why we think these measures are important. +Performance Measure Description +Adjusted Free Cash Flow Net cash provided by (used in) operating activities less capital expenditures, less budgeted stockholder returns actually paid in the period. +Absolute TSR +Measurement of the compounded annual growth rate of the Company’s TSR. +Relative TSR Measurement of the compounded annual growth rate of the Company’s TSR compared to that of the applicable peer group. +Adjusted EBITDAX +Adjusted EBITDAX represents net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. +55 +In accordance with Item 402(v) of Regulation S-K, we are providing the following charts depicting the relationships between compensation actually paid to the PEO and non-PEO NEOs, and the following financial performance metrics: adjusted free cash flow, TSR, and net income (loss). The graph presenting TSR includes a comparison of the Company’s TSR to the peer group TSR. As described in greater detail in the CD&A, we utilize multiple performance measures to align executive compensation with annual and long-term performance, and all of those measures are not presented in the following charts. +56 +PROPOSAL 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our stockholders are being asked to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this Proxy Statement. As an advisory vote, this Proposal 2 is not binding on our Board or the Compensation Committee, will not overrule any decisions made by our Board or the Compensation Committee, and will not require our Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions and executive compensation program design. In particular, to the extent there is any significant vote against our named executive officers’ compensation as disclosed in this Proxy Statement, we will consider our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. We currently hold annual advisory votes to approve the compensation of our named executive officers and in accordance with such policy, the next advisory vote will be held at our 2027 annual meeting of stockholders. +As described in the CD&A, our executive compensation programs are designed to provide a competitive level of compensation necessary to attract, motivate and retain talented and experienced executives and to incentivize them to achieve short-term and long-term corporate goals that enhance stockholder value. In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of our named executive officers’ compensation is allocated to performance-based short-term and long-term incentive programs that are dependent on our performance (and thereby “at-risk”). In addition, as an executive officer’s responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed “at-risk” increases in relation to base salary. Furthermore, our NEOs’ targeted total direct compensation (base salary plus target cash bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As discussed in greater detail in the CD&A, during 2025 we executed our core strategic objectives by achieving record operating cash flow and production, reducing net debt, returning capital to our stockholders, and expanding our top-tier inventory through the successful integration of the Uinta Basin asset and entering into the Merger with Civitas, which closed in January, 2026. +Our STIP measures and rewards annual performance using metrics that we believe are the key drivers of long-term stockholder value creation. Upon evaluation of our performance with respect to the six quantitative and two qualitative metrics that are described in greater detail in the CD&A, the Compensation Committee applied a 0.93 times multiplier to our NEOs’ target cash bonus awards. +With respect to the 2022-2025 LTIP performance period, our TSR performance fell below the threshold payout level on both an absolute and relative basis, resulting in zero payout for those metrics. With respect to the free cash flow generation metric, our performance exceeded the threshold level but fell short of target. With respect to the sustainability metric, our performance exceeded the threshold level for all three components, with two components (GHG emissions intensity reduction and employee and contractor safety) falling short of target, and one component (spill performance), exceeding target. Taken together, our 2022-2025 LTIP performance resulted in a PSU multiplier of 0.28 times. Over a five year period, our average LTIP multiplier is 1.36 times, and over a ten year period is 0.79 times, reflecting the rigorous nature of our LTIP. +As you consider this Proposal 2, we urge you to read the CD&A, which more thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. +57 +In light of these circumstances, we are asking stockholders to vote “FOR” the following resolution: +“RESOLVED, that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy Statement for SM Energy Company’s 2026 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the “Compensation Discussion and Analysis” section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement.” +☑ +Our Board recommends voting “FOR” the advisory vote to approve named executive officer compensation. +58 +DIRECTOR COMPENSATION +2025 Non-Employee Director Compensation* +Name Fees Earned or Paid in Cash +Stock +Awards (1)(2)(3) +Option Awards (4) +Non-Equity Incentive Plan Compensation Change in Pension Value and Non-Qualified Deferred Compensation Earnings +All Other Compensation (5) +Total +Carla J. Bailo $115,000 $185,023 $— $— $— $— $300,023 +Stephen R. Brand (6) +$— $— $— $— $— $— $— +Barton R. Brookman +$— $280,038 $— $— $— $5,000 $285,038 +Ramiro G. Peru $120,000 $185,023 $— $— $— $25,000 $330,023 +Anita M. Powers +$— $280,038 $— $— $— $— $280,038 +Julio M. Quintana $95,000 $325,030 $— $— $— $8,667 $428,697 +Rose M. Robeson $115,000 $185,023 $— $— $— $— $300,023 +William D. Sullivan $— $280,038 $— $— $— $5,000 $285,038 +Ashwin Venkatraman +$95,000 $185,023 $— $— $— $— $280,023 +____________________________ +(1) The Company issued to Ms. Bailo, Mr. Brookman, Mr. Peru, Ms. Powers, Mr. Quintana, Ms. Robeson, Mr. Sullivan, and Mr. Venkatraman their respective equity retainer of 7,982 shares of our common stock on May 22, 2025, after each such director’s election to the Board on May 22, 2025. Mr. Brookman, Ms. Powers, and Mr. Sullivan elected to receive their 2025 cash retainer in shares of the Company’s common stock, which resulted in a grant on May 22, 2025, of 4,099 additional shares of the Company’s common stock under the Company’s Equity Plan. The Company issued to Mr. Quintana an additional 6,040 shares of the Company’s common stock on May 22, 2025, for serving as the non-executive Chairman of the Board. These stock awards are for the annual service period from May 22, 2025, through May 21, 2026. The shares became unrestricted on December 31, 2025. The value of the stock awards represents the grant date fair value as calculated under the valuation provisions required by FASB ASC Topic 718. +(2) The grant date fair value of each share of our common stock issued to non-employee directors over their past year of service to us is set forth in the following table and is computed in accordance with FASB ASC Topic 718, based on the grant date fair value. There were no forfeitures by directors during fiscal year 2025. +Grant Date Shares Value Grantee +5/22/2025 7,982 $185,023 +Bailo, Peru, Robeson, Venkatraman +5/22/2025 12,081 $280,038 +Brookman, Powers, Sullivan +5/22/2025 14,022 $325,030 +Quintana +(3) As of December 31, 2025, the restrictions expired on the shares granted to our non-employee directors during 2025. As such, none of our non-employee directors held any unvested awards as of December 31, 2025. +(4) For the year ended December 31, 2025, no stock options were issued to directors, nor have any stock options been issued to the directors since December 2004. As of December 31, 2025, the non-employee directors do not hold any outstanding stock options. +(5) The amounts in this column represent matching charitable contributions made on the behalf of Messrs. Brookman, Peru, Quintana and Sullivan for the year 2025 under our matching charitable gift program. +(6) Dr. Brand retired from the Board effective as of the adjournment of the Company’s 2025 annual meeting of stockholders. +* Each of Morris R. Clark, Carrie M. Fox, Lloyd W. Helms, Jr., Wouter T. van Kempen and Howard A. Willard III served as directors of Civitas prior to the Merger. In connection with their service as directors of Civitas during 2025 through the closing of the Merger, they received compensation from Civitas (including cash compensation and the grant date value of equity awards) as follows: Mr. Clark $506,675; Ms. Fox $481,675; Mr. Helms $533,734, Mr. van Kempen $510,341; and Mr. Willard $551,974. In addition, Mr. van Kempen served as Interim Chief Executive Officer of Civitas from August 6, 2025, through the closing of the Merger and received total compensation (including cash compensation, the grant date value of equity awards, cash severance payments and the Merger-related retention bonus described below) of $19,529,669 in connection with his service in such capacity. Prior to the closing of the Merger, the Civitas Compensation Committee approved retention bonuses for all of Civitas’ employees from the $50,000,000 retention bonus pool established pursuant to the Merger Agreement, including $21,000,000 to Civitas’ executive officers, which bonuses were incremental to any cash compensation, grant date equity awards and cash severance payments previously awarded. SM Energy was not involved in the decisions with respect to the retention bonus pool and the specific allocations of the $21,000,000 among the executive officers were not disclosed to SM Energy until after the Merger closing. These awards included the following amounts for the executive officers of Civitas: Mr. van Kempen $6,000,000; Travis Counts $6,000,000; Clay Carrell $5,000,000 and Marianella Foschi $4,000,000. +General Overview +The annual service period for our directors begins immediately following each annual meeting of our stockholders and continues until the successive annual meeting of our stockholders. For service during the +59 +2025-2026 term, target base compensation for each member of the Board of Directors was set at $280,000 annually, and was split between (i) an equity grant comprised of the Company’s common stock valued at $185,000 at the time of election; and (ii) a cash retainer of $95,000, paid in lieu of Board and Committee meeting attendance fees. Mr. Vogel, who served as our President and Chief Executive Officer and the only employee director during 2025, did not receive additional compensation for serving on our Board or any committee of our Board. +The annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education programs: +• Cash Retainer — A $95,000 retainer (in lieu of Board and committee meeting attendance fees) payable at the individual director’s option, either entirely in cash or shares of our common stock. Mr. Brookman, Ms. Powers, and Mr. Sullivan elected to have their 2025-2026 cash retainer paid in shares of our common stock, which resulted in a grant on May 22, 2025, of 4,099 shares of our common stock under our Equity Plan. In the event any director attends more than 30 board and committee meetings in the aggregate during the annual service period, such director will receive $1,500 per meeting for each meeting in excess of 30. +• Equity Retainer — A grant of shares of our common stock with a value of $185,000. This grant, which equated to 7,982 shares of our common stock, was issued under the Equity Plan on May 22, 2025. These shares and any shares issued pursuant to the retainer became unrestricted on December 31, 2025. The related compensation expense that we record is the fair value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +We pay the chairs of the following committees the specified cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of their respective committee assignments: +• Audit Committee Chair—$25,000 +• Compensation Committee Chair—$20,000 +• G&S Committee Chair—$20,000 +We paid Mr. Quintana a retainer equal to $140,000 for his service as non-executive Chairman of the Board during the 2025-2026 annual service period. The retainer was paid in the form of shares of our common stock on May 22, 2025, and resulted in a grant of 6,040 shares. The retainer was paid in addition to his non-employee director compensation. +We maintain a matching charitable gift program to encourage financial support for organizations that are exempt from federal income taxation in which employees and our non-management directors may participate. Our annual charitable contributions budget, which includes this matching program, is determined by management at the beginning of each year, and all budgeted funds are expended for charitable purposes. Messrs. Brookman, Peru, Quintana and Sullivan participated in this program during 2025, and we matched a total of $43,667 in non-employee director contributions under this program. We may suspend, change, revoke or terminate the charitable gift program at any time. +Certain directors are eligible to participate in our Company-wide health, pharmacy, dental, and vision insurance programs at a premium cost that is equal to the COBRA rates associated with our plan. Participation in Company plans is considered non-compensatory, and directors currently participating in such plans are no longer eligible to participate upon such director reaching the age of Medicare eligibility. +The Compensation Committee has established equity ownership guidelines for non-employee directors of five times the annual cash retainer amount. Directors are allowed time to meet this guideline and are not required to acquire shares in the open market for this purpose. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +60 +The following table shows beneficial ownership of shares of our common stock as known to us as of the Record Date, April 1, 2026, by all beneficial owners of more than five percent of the outstanding shares of our common stock, by each director, director nominee, and named executive officers, and all directors and executive officers as a group. RSUs and PSUs that will not vest within 60 days of April 1, 2026, (and for which no actual shares have been issued) are not included in this table. Deferred RSUs that could vest within 60 days of April 1, 2026, are included in this table (see Footnote 4 below the table). A supplemental table has been included later in this section describing the number of RSUs and PSUs owned by the individuals described below. Except as otherwise indicated, the address for each of the named security holders is 1700 Lincoln Street, Suite 3200, Denver, Colorado 80203. +Name of Beneficial Owner Shares Beneficially Owned +Percent Beneficially Owned (1) +Name and Address of Stockholders Owning More Than 5% +BlackRock Inc. (2) +33,455,147 14.0 % +50 Hudson Yards +New York, NY 10001 +The Vanguard Group (3) +13,856,552 5.8 % +100 Vanguard Blvd. +Malvern, PA 19355 +Name and Position of Directors, Director Nominees and Named Executive Officers +Barton R. Brookman, Director 26,747 * +Morris R. Clark, Director (4) +62,812 * +Carrie M. Fox, Director (4) +89,023 * +Lloyd W. Helms, Jr., Director (4) +17,540 * +Ramiro G. Peru, Director 90,517 * +Julio M. Quintana, Director 109,814 * +Rose M. Robeson, Director 41,363 * +Wouter T. van Kempen, Director (4) +135,585 * +Ashwin Venkatraman, Director 10,009 * +Howard A. Willard III, Director (4) +72,962 * +Elizabeth A. McDonald, President and Chief Executive Officer +6,362 * +A. Wade Pursell, Executive Vice President and Chief Financial Officer 405,610 * +Blake D. McKenna, Executive Vice President and Chief Operating Officer +— * +James B. Lebeck, Executive Vice President - Chief Corporate Development Officer, General Counsel and Corporate Secretary +14,837 * +Herbert S. Vogel, Former President and Chief Executive Officer +625,418 * +All Directors and Executive Officers as a group (14 persons) +1,083,181 0.5 % +____________________________ +* Less than 1 percent. +(1) Based on an aggregate of 239,741,889 shares of outstanding common stock as of April 1, 2026. +(2) According to a Statement on Schedule 13G/A filed by BlackRock, Inc. (“BlackRock”) on March 4, 2026, by reason of advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 33,455,147 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, sole voting power as to 33,100,271 shares, and sole dispositive power as to 33,455,147 shares. +(3) The Vanguard Group (“Vanguard”) subsequently reported that due to an internal realignment it no longer has, or is deemed to have, beneficial ownership over SM Energy securities beneficially owned by various subsidiaries and/or business divisions. Vanguard also reported that certain subsidiaries or business divisions that formerly had, or were deemed to have, beneficial ownership with Vanguard will report beneficial ownership separately (on a disaggregated basis). +(4) Pursuant to the Merger, each outstanding Civitas deferred restricted stock unit (“DSU”) award fully vested and was converted into an SM Energy DSU award equal to the product of the number of shares of Civitas common stock subject to such Civitas DSU Award and 1.45, rounded up to the nearest whole number. The amounts shown include the following vested DSUs that will settle in SM Energy common stock upon the director's separation from the board: (i) 62,812 shares - Morris R. Clark; (ii) 62,812 shares - Carrie M. Fox; (iii) 17,540 shares - Lloyd W. Helms, Jr.; (iv) 29,417 shares - Wouter T. van Kempen; and (v) 62,812 shares - Howard A. Willard III. +61 +Section 16(a) Reports +Pursuant to Section 16(a) of the Exchange Act, the Company’s executive officers, Directors, and all persons who own more than 10 percent of a registered class of the Company’s equity securities must file reports of ownership and ownership changes with the SEC. All requisite Section 16(a) filings were timely filed in 2025. +Restricted Stock Units and Performance Share Units +Restricted stock units represent the right to receive shares of our common stock to be delivered upon settlement, subject to risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive any cash dividends or other distributions paid in cash on our common stock prior to vesting. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance share units represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common stock that may be from zero to 200 percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive any cash dividends or other distributions paid in cash on our common stock. +The following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of April 1, 2026. +Name +Total Restricted Stock Units (1) +Total Performance Share Units +Total Vested Performance Share Units (2) +Barton R. Brookman, Director +— — — +Morris R. Clark, Director +— — — +Carrie M. Fox, Director +— — — +Lloyd W. Helms, Jr., Director +— — — +Ramiro G. Peru, Director +— — — +Julio M. Quintana, Director +— — — +Rose M. Robeson, Director +— — — +Wouter T. van Kempen, Director +— — — +Ashwin Venkatraman, Director +— — — +Howard A. Willard III, Director +— — — +Elizabeth A. McDonald, President and Chief Executive Officer +63,543 68,789 — +A. Wade Pursell, Executive Vice President and Chief Financial Officer +78,945 112,361 — +Blake D. McKenna, Executive Vice President and Chief Operating Officer +12,481 11,840 — +James B. Lebeck, Executive Vice President - Chief Corporate Development Officer, General Counsel and Corporate Secretary 50,127 66,382 — +All Directors and Executive Officers as a group (14 persons) +205,096 259,372 — +____________________________ +(1) DSUs held by directors previously serving on the Civitas board of directors fully vested and converted into SM Energy DSUs in connection with the Merger, as described in Footnote 4 to the table above. Accordingly, such DSUs are not included in this table. +(2) PSUs granted on July 1, 2023, will vest on July 1, 2026. PSUs granted on October 1, 2024, will vest on July 1, 2027. PSUs granted on July 1, 2025, will vest on July 1, 2028. The amounts shown reflect the vested portion of the PSUs owned by each director, named executive officer and all directors and executive officers as a group. The actual number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary from zero to 200 percent of the number of PSUs indicated, depending on the extent to which we have achieved our performance goals. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by our Board of Directors to assist the Board in fulfilling its oversight responsibilities with respect to (a) the integrity of SM Energy Company’s financial statements and financial +62 +reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements; (b) the qualifications, independence, and performance of SM Energy Company’s independent registered public accounting firm; (c) the performance of SM Energy Company’s internal audit function; and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management is responsible for the Company’s financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2025, was responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. +In connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated financial statements of the Company for the year ended December 31, 2025. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC, including critical audit matters arising from the current period audit. In addition, the Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence. +Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board that the audited consolidated financial statements of the Company be included in the 2025 Annual Report. +Respectfully submitted by the Audit Committee of the Board of Directors, +Ramiro G. Peru, Chair +Morris R. Clark +Carrie M. Fox +Lloyd W. Helms, Jr. +Rose M. Robeson +Ashwin Venkatraman +Audit Committee Pre-Approval Policy and Procedures +Prior to the engagement of the independent registered public accounting firm, the Audit Committee’s policy requires the Audit Committee to review and pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm (including the related fees and other terms of such services). Per the Audit Committee charter, the Audit Committee shall approve the fees and any other significant compensation to be paid to the independent registered public accounting firm. Further, any non-audit services to be performed by the independent registered public accounting firm require advance approval from the Audit Committee, unless the non-audit services meet a de minimis exception allowed by law in which case the pre-approval may be waived. The Audit Committee establishes a process for annually evaluating the independent auditor. That evaluation includes several factors related to the independent auditor, including qualifications and expertise, past performance, obtaining an annual assessment from the Company’s management, interactions with the independent auditor, the results of any PCAOB inspection, and the appropriateness of fees. +In connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the independent registered public accounting firm are monitored by financial management of our Company, which are reviewed, negotiated, and approved by the Audit Committee; (c) any services proposed to be provided by the independent registered public accounting firm and the related fees that have not been pre-approved during the annual review by the Audit Committee must be pre-approved by +63 +the Audit Committee in advance of any work performed; and (d) incremental fees for previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +To the knowledge of management, neither Ernst & Young LLP, the Company’s independent registered public accounting firm for the fiscal year ended 2025, nor any of its members had any direct or material indirect financial interest in our Company or any connection with our Company in any capacity other than as our independent registered public accounting firm for the years ended December 31, 2025, and 2024. +We incurred the following fees for the audit of the consolidated financial statements and for other services related to the last two fiscal years. All services and fees, including tax service fees, were pre-approved by the Audit Committee. +2025 2024 +Audit Fees (1) +$1,869,000 $2,102,500 +Audit Related Fees $— $— +Tax Fees (2) +$20,000 $20,000 +All Other Fees $— $— +Total Fees $1,889,000 $2,122,500 +____________________________ +(1) Includes fees associated with (i) the audit of our annual financial statements and review of our quarterly financial statements, (ii) the audit of internal control over financial reporting, (iii) reviews of registration statements, unregistered securities transactions and related consents and comfort letters, and (iv) services rendered in connection with other statutory and regulatory filings. +(2) Includes basic tax compliance services and assistance with technical research. +The Audit Committee concluded that the provision of the non-audit services, such as tax services, does not compromise Ernst & Young LLP’s independence. +Change in Independent Registered Public Accounting Firm +On February 4, 2026, the Audit Committee dismissed Ernst & Young as the Company’s independent registered public accounting firm and appointed Deloitte & Touche LLP for the fiscal year ending December 31, 2026. The change was effective upon the completion of Ernst & Young’s audit of the Company’s consolidated financial statements for the year ended December 31, 2025. Ernst & Young’s audit report on the Company’s consolidated financial statements for the fiscal years ended December 31, 2025, and 2024, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2025, and 2024, and in the subsequent interim period through February 26, 2026, the date of Ernst & Young’s report on the Company’s December 31, 2025 financial statements, there were (i) no disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Ernst & Young would have caused Ernst & Young to make reference to the subject matter thereof in connection with its reports on the consolidated financial statements of the Company for such years, and (ii) no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). +During the fiscal years ended December 31, 2024, and 2023, and in the subsequent interim period through February 4, 2026, neither the Company, nor any party on behalf of the Company, consulted with Deloitte & Touche with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of the audit opinion that might be rendered with respect to the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company by Deloitte & Touche that was an important factor considered by the Company in reaching a decision as to any accounting, +64 +auditing or financial reporting issue, or (ii) any matter that was subject to any disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). +The change in independent auditors was previously disclosed in our Current Report on Form 8-K filed with the SEC on February 9, 2026. A copy of Ernst & Young’s related letter, dated February 9, 2026, was attached as Exhibit 16.1 to that Form 8-K. +A representative of Ernst & Young is expected to participate in the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +65 +PROPOSAL 3 — RATIFICATION OF THE APPOINTMENT +OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Our stockholders are being asked to ratify the appointment by the Audit Committee of Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for 2026. The Audit Committee has engaged Deloitte to perform the audit of our financial statements as of and for the year ending December 31, 2026. +The Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of Deloitte is not required by law or our organizational documents, our Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do not ratify the appointment of Deloitte, the Audit Committee will consider whether to engage another independent registered public accounting firm, but will not be obligated to do so. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. +A representative of Deloitte is expected to participate in the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +☑ +Our Board recommends voting “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2026. +66 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee’s review of any transaction, arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related Person Transactions Policy, a “related person” means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than five percent of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director’s independence in the event the related person is a director, and the extent of the related person’s interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in compliance with the policy and remain appropriate. +In addition, our By-Laws provide that a director, officer, or employee of our Company may not pursue for his or her own account a business or investment opportunity that he or she learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. +Transactions with Related Persons +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when our Board, acting through the Audit Committee or as otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products or services from, or provide products or services to, related persons on an arm’s length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable to those obtained from or provided to employees generally. Since January 1, 2025, with the exception of the transactions described in the following paragraph, which was approved by our Audit Committee, we had no transactions that required approval under our Related Person Transactions Policy. +Mary Ellen Lutey, former Senior Vice President - Texas, previously served as an executive officer of the Company prior to her retirement on July 1, 2025. Dean Lutey, the spouse of Ms. Mary Ellen Lutey and the Company’s former Senior Vice President - Chief Information Officer, retired from the Company on January 2, 2026. During the fiscal year ended December 31, 2025, and through his retirement date of January 2, 2026, Mr. Lutey earned total compensation of $1,642,474, which included his base salary, annual bonus, LTIP awards, benefits under our qualified and non-qualified benefit plans, and matching contributions by the Company under its 401(k) Profit Sharing Plan and Non-Qualified Deferred Compensation Plan. Mr. Lutey also participated in the Company’s benefit programs for its employees. +67 +Compensation Committee Interlocks and Insider Participation +None of the directors who served on the Compensation Committee during fiscal year 2025 has ever served as one of our officers or employees. During fiscal year 2025, there were no Compensation Committee interlocks. +68 +VOTING, ATTENDANCE, AND OTHER MATTERS +Who Can Vote +Only stockholders of record at the close of business on the Record Date, April 1, 2026, are entitled to receive notice of the Annual Meeting and to vote shares of our common stock held on that date. As of April 1, 2026, there were 239,741,889 shares of our common stock issued and outstanding. Holders of our common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our outstanding shares of common stock entitled to vote are present at the Annual Meeting being conducted via live audio webcast, or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares held by us as treasury shares are not entitled to vote and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the Internet, by telephone or by mailing a completed proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card in the enclosed prepaid and addressed envelope, and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified in a proxy, such proxy will be voted as follows: +• FOR the election of the 11 nominees named in this Proxy Statement under the caption “ Proposal 1—Election of Directors ;” +• FOR the advisory approval of the compensation of our named executive officers; +• FOR the ratification of the appointment by our Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2026; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the Annual Meeting, or any adjournment(s) or postponement(s) thereof. +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other nominee and you have not elected to receive your proxy materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by your bank, broker or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If you hold shares in BOTH street name and as a stockholder of record, +YOU MUST VOTE SEPARATELY for each set of shares. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in “street name”) rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned in street name. +69 +• Stockholder of Record. If your shares are registered directly in your name with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your voting proxy directly or to vote through the internet at the virtual Annual Meeting. +• Street Name Stockholder. If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name.” As the beneficial owner, you have the right to direct your broker or nominee how to vote and are also invited to participate in the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares through the internet at the virtual Annual Meeting unless you obtain a legal proxy from the record holder giving you the right to vote the shares. +Participating in the Virtual Annual Meeting +In order to access the virtual Annual Meeting, you must (a) have beneficially owned shares of our common stock on April 1, 2026, and (b) register at https://web.viewproxy.com/sm-energy/2026 by 11:59 p.m. (EDT) on May 20, 2026. You will need to enter your name, phone number, and email address. After registering, and prior to the Annual Meeting, you will receive a meeting invitation by email with a unique link to join the Annual Meeting. You will be able to listen, vote, and submit questions during the virtual Annual Meeting. Instructions on how to participate via the internet, including how to demonstrate proof of share ownership, are posted at https://web.viewproxy.com/sm-energy/2026 . Information on this website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +Annual Meeting Webcast +A webcast replay of the Annual Meeting will also be archived on our Investor Relations website, http://sm-energy.com/investors , until June 21, 2026. +Submitting Questions at the Annual Meeting +Our stockholders may submit a question during registration at https://web.viewproxy.com/sm-energy/2026 or during the virtual meeting by typing your question into the questions and comments section of the virtual Annual Meeting interface. Questions must be proper and must be submitted during the relevant portion of the meeting agenda. Questions on similar topics or that are otherwise generally related may be grouped together and answered at once, and we reserve the right to exclude questions regarding topics that are not pertinent to the meeting, our Company, or that are not compliant with the rules of conduct for the meeting. Our Chairman or CEO, or other representative, as appropriate, will endeavor to answer as many pertinent questions as time permits. +If the Virtual Annual Meeting Experiences Technical Difficulties +If we experience technical difficulties during the meeting ( e.g. , a temporary or prolonged power outage), our Chairman will determine whether the meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the meeting will need to be reconvened on a later day (if the technical difficulty is more prolonged). In any situation, we will promptly notify stockholders of the decision via https://web.viewproxy.com/sm-energy/2026 . +There will be technicians available to assist with any technical difficulties you may have accessing the Annual Meeting live audio webcast. Please be sure to check in at least 30 minutes prior to the start of the Annual Meeting, so we may try to address any technical difficulties before the Annual Meeting live audio webcast begins. If you encounter any difficulties accessing the Annual Meeting live audio webcast during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call 866-612-8937. +Voting Requirements; Vote Treatment +If you hold your shares in street name, you will receive instructions from your bank, broker or other nominee describing how to vote your shares. If you do not instruct your bank, broker or other nominee how to vote +70 +your shares, it may vote your shares as it decides as to each routine matter for which it has discretionary authority under the rules of the NYSE. +There are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your shares, and the bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a “broker non-vote” results. Broker non-votes will be counted as present at the meeting for purposes of determining a quorum, but will not be entitled to vote with respect to non-discretionary matters. +Abstentions occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, we expect that the record holder will not be permitted to vote your shares with respect to Proposal 1 ( Election of Directors ), and Proposal 2 ( Advisory Vote on Executive Compensation ), and your shares will be considered “broker non-votes” with respect to these proposals; but will nevertheless be entitled to vote your shares with respect to Proposal 3 ( Ratification of Appointmen t of Deloitte & Touche LLP as o ur Independent Registered Public Accounting Firm for 2026 ) in the discretion of the record holder. +• Proposal 1 (Election of Directors) : Our By-Laws provide that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total number of shares “entitled to vote” on the election of directors and will have the same effect as a vote “Against” a director. Broker non-votes will have no effect on the outcome of the vote for directors. +• Proposal 2 (Advisory Vote on Executive Compensation) : Approval of this proposal requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total number of shares “entitled to vote” on this proposal and will have the same effect as a vote “Against” the proposal. Broker non-votes will have no effect on the outcome of the vote on this proposal. While this vote is required by law, it is not binding, will not create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or our Board. However, the Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +• Proposal 3 (Ratification of Appointment of D eloitte & Touche LLP as o ur Independent Registered Public Accounting Firm for 2026): Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2026, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total number of shares “entitled to vote” on this proposal and will have the same effect as a vote “Against” the proposal. We expect that brokers will have discretionary authority to vote on this proposal and, assuming they exercise such discretionary authority, there will not be any broker non-votes. Broker non-votes, if any, will have no effect on the outcome of the vote on this proposal. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of our Notice of Internet Availability, 2025 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that they want to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and may utilize separate proxy voting instructions. +71 +If you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2025 Annual Report, or Proxy Statement, please submit a request to our Corporate Secretary, James B. Lebeck, at 1700 Lincoln St., Suite 3200, Denver, CO 80203, or call (303) 830-5855, and we will promptly send such materials to you at no cost. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is exercised by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting procedures before the Annual Meeting; +• voting by Internet while participating in the virtual Annual Meeting (participating in the Annual Meeting by internet does not revoke your proxy unless you vote by Internet during the virtual Annual Meeting); or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, which are located at 1700 Lincoln St., Suite 3200, Denver, CO 80203. +If you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your nominee’s procedures. +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. The Board of Directors has re tained Alliance Advisors, LLC to assist in the solicitation of proxies for total fees of $10,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, teleph one, messenger, electronic mail or via the Internet. In addition, our officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be compensated for soliciting the proxies but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +Stockholder Proposals for the 2027 Annual Meeting of Stockholders +Stockholders interested in submitting a proposal for inclusion in our proxy materials and for presentation at the 2027 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. Rule 14a-8 addresses when we must include a stockholder proposal in our proxy materials, including eligibility and procedural requirements that apply to the proponent. In general, to be eligible for inclusion in our proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 9, 2026. +In addition to the requirements of Rule 14a-8, all stockholder proposals (including any director nomination) must comply with the notice requirements contained in our By-Laws, which require, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the proposal is made, if any), the name and address of the stockholder, specific information concerning such stockholder’s interests in our securities and a commitment by any proposed director nominee to serve the full term if nominated and elected. In addition, the notice must include the recommended director nominee’s name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and the proposed nominee and a written questionnaire completed by the proposed nominee. In order for a nomination of persons for election to our Board or a proposal of business to be properly brought before the 2027 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before the meeting by or at the direction of our Board or by a +72 +stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for election to our Board or a proposal of business for the 2027 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the 120 th day prior to the first anniversary of the date of the 2026 Annual Meeting nor later than the close of business on the 90 th day prior to the first anniversary of the 2026 Annual Meeting. In other words, for a stockholder nomination for election to our Board or a proposal of business to be considered at the 2027 Annual Meeting of Stockholders, it should be received by our Corporate Secretary no earlier than January 21, 2027, and no later than February 20, 2027. If the date of our 2026 Annual Meeting of Stockholders changes by more than 30 days before or after May 21, 2026, then stockholder nominations and proposals must be received not earlier than the close of business on the 120 th day prior to the date of the 2027 Annual Meeting of Stockholders and not later than the close of business on the later of the 90 th day prior to the date of the 2027 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2027 Annual Meeting of Stockholders is less than 100 days prior to the date of the meeting, the 10th day following the day on which public announcement of the date of the 2027 Annual Meeting of Stockholders is first made by us. If a stockholder fails to meet these deadlines and fails to satisfy the requirements of Rule 14a-4 under the Securities Exchange Act of 1934, we may exercise discretionary voting authority under proxies we solicit to vote on any such proposal as we determine appropriate. In addition to satisfying the requirements under our By-Laws with respect to advance notice of any director nomination, any stockholder who intends to solicit proxies in support of director nominees other than the Company’s nominees in accordance with Rule 14a-19 must provide the required notice of intent to solicit proxies to the Corporate Secretary no later than 60 calendar days prior to the first anniversary of the date of the 2026 Annual Meeting (no later than March 22, 2027 for the 2027 Annual Meeting of Stockholders). For additional information about stockholder nominations and proposals, see “ Corporate Governance—Director Nominations and Qualifications . ” We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above and other applicable requirements. +Availability of 2025 Annual Report +We filed our 2025 Annual Report with the SEC on February 26, 2026. Our 2025 Annual Report is being made available to our stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material. It is available free of charge at the SEC’s web site at www.sec.gov . Upon written request by a stockholder, we will promptly mail, without charge, a copy of the Form 10-K, including the financial statements and financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at 1700 Lincoln Street, Suite 3200, Denver, Colorado 80203. +Other Available Information +We make our Corporate Governance Guidelines; Financial Code of Ethics; Code of Conduct; and the charters of the Audit, Compensation, and G&S Committees available through the Governance section of our website at www.sm-energy.com . These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +Management does not know of any matters to be brought before the Annual Meeting other than the election of directors, the advisory vote to approve the compensation of our named executive officers, and the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2026. If any other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +Our website at www.sm-energy.com includes much of this information, along with other general information about our operations, community activities and stakeholder relations. Any remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at ir@sm-energy.com . Whether or not you intend to participate in the Annual Meeting, we urge you to submit your proxy promptly. +73 +By Order of the Board of Directors, +James B. Lebeck +Executive Vice President - Chief Corporate Development Officer, General Counsel and Corporate Secretary +Denver, Colorado +April 8, 2026 +74 +SM Energy Company +1700 Lincoln Street, Suite 3200, Denver, Colorado 80203 +This proxy is solicited on behalf of the Board of Directors for the +Annual Meeting of Stockholders to be held on May 21, 2026. +The undersigned hereby appoints A. Wade Pursell, James B. Lebeck, and Andrew T. Fiske, or any of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares of SM Energy Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 21, 2026, and at any reconvened meeting after any adjournment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. +The Annual Meeting of Stockholders will be held virtually. In order to attend the meeting, you must register at https://web.viewproxy.com/sm-energy/2026 by 11:59 PM ET on May 20, 2026. On the day of the Annual Meeting of Stockholders, if you have properly registered, you may enter the meeting by clicking on the link provided via email in your registration confirmation. Further instructions on how to attend and vote at the Annual Meeting of Stockholders are contained in the Proxy Statement in the sections titled “Voting, Attendance, and Other Matters,” “Participating in the Virtual Annual Meeting” and “How to Vote.” +This proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted “FOR” all director nominees in Proposal 1, and “FOR” Proposals 2 and 3. +This proxy also confers discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. As of the date of the accompanying proxy statement, SM Energy Company’s management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, including concerning any adjournment of the meeting, this proxy will be voted in accordance with the recommendations of SM Energy Company’s management. +CONTINUED AND TO BE SIGNED ON REVERSE SIDE +p PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. p +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting +of Stockholders to be held May 21, 2026. The Notice of Meeting, Proxy Statement and our +2025 Annual Report are available at: https://web.viewproxy.com/sm-energy/2026 +75 +Using a black ink pen, mark your votes with an X as shown in this example. x +A. Company Proposals − The Board of Directors recommend a vote FOR all the nominees listed, and FOR Proposals 2 and 3. +1. The Board of Directors has nominated the below eleven persons to stand for election as directors until the next annual meeting of stockholders. As of the date of the accompanying Proxy Statement, no one has been nominated to serve as director other than the nominees listed below. +FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN +01 Barton R. Brookman +☐ ☐ ☐ +05 Elizabeth A. McDonald +☐ ☐ ☐ +09 Wouter T. van Kempen +☐ ☐ ☐ +02 Morris R. Clark +☐ ☐ ☐ +06 Ramiro G. Peru +☐ ☐ ☐ +10 Ashwin Venkatraman +☐ ☐ ☐ +03 Carrie M. Fox +☐ ☐ ☐ +07 Julio M. Quintana +☐ ☐ ☐ +11 Howard A. Willard III +☐ ☐ ☐ +04 Lloyd W. Helms, Jr. +☐ ☐ ☐ +08 Rose M. Robeson +☐ ☐ ☐ +2. To approve, on a non-binding advisory basis, the compensation philosophy, policies and procedures, and the compensation of our Company’s named executive officers, as disclosed in the accompanying Proxy Statement. +3. +To ratify the appointment by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2026. +☐ FOR ☐ AGAINST ☐ ABSTAIN +☐ FOR ☐ AGAINST ☐ ABSTAIN +NOTE : Such other business as may properly come before the meeting or any adjournment thereof will be voted on by the proxy holders in their discretion. If any nominee becomes unwilling or unable to serve as a director, the proxy holders will have the authority to vote your shares for any substitute candidate nominated by the Board of Directors. +VIRTUAL CONTROL NUMBER +B. Authorized Signatures − This section must be completed for your vote to be counted. − Date and Sign Below +Date +Signature +Signature +(Joint Owners) +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. +p PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. p +VIRTUAL CONTROL NUMBER +PROXY VOTING INSTRUCTIONS +Please have your 11 digit control number ready when voting by Internet or Telephone +INTERNET TELEPHONE MAIL +Vote Your Proxy on the Internet: +Go to www.AALvote.com/SM +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +Vote Your Proxy by Phone: +Call 1 (866) 804-9616 +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +Vote Your Proxy by Mail: +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +76 \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-26-000048/proxy_rpt.txt b/raw/proxies/0000893538/0000893538-26-000048/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ac884aa8380e45f6c963016ba4f038ea4ad85608 --- /dev/null +++ b/raw/proxies/0000893538/0000893538-26-000048/proxy_rpt.txt @@ -0,0 +1,12 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee’s review of any transaction, arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related Person Transactions Policy, a “related person” means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than five percent of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director’s independence in the event the related person is a director, and the extent of the related person’s interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in compliance with the policy and remain appropriate. +In addition, our By-Laws provide that a director, officer, or employee of our Company may not pursue for his or her own account a business or investment opportunity that he or she learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. +Transactions with Related Persons +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when our Board, acting through the Audit Committee or as otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products or services from, or provide products or services to, related persons on an arm’s length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable to those obtained from or provided to employees generally. Since January 1, 2025, with the exception of the transactions described in the following paragraph, which was approved by our Audit Committee, we had no transactions that required approval under our Related Person Transactions Policy. +Mary Ellen Lutey, former Senior Vice President - Texas, previously served as an executive officer of the Company prior to her retirement on July 1, 2025. Dean Lutey, the spouse of Ms. Mary Ellen Lutey and the Company’s former Senior Vice President - Chief Information Officer, retired from the Company on January 2, 2026. During the fiscal year ended December 31, 2025, and through his retirement date of January 2, 2026, Mr. Lutey earned total compensation of $1,642,474, which included his base salary, annual bonus, LTIP awards, benefits under our qualified and non-qualified benefit plans, and matching contributions by the Company under its 401(k) Profit Sharing Plan and Non-Qualified Deferred Compensation Plan. Mr. Lutey also participated in the Company’s benefit programs for its employees. +67 +Compensation Committee Interlocks and Insider Participation +None of the directors who served on the Compensation Committee during fiscal year 2025 has ever served as one of our officers or employees. During fiscal year 2025, there were no Compensation Committee interlocks. +68 \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-15-003306/proxy.txt b/raw/proxies/0000893538/0001047469-15-003306/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..4827e0fb92e96bdfe4e4447a89bad050f8d253d9 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-15-003306/proxy.txt @@ -0,0 +1,3198 @@ +DEF 14A +1 +a2223986zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Proxy Statement and Notice of +2015 Annual Meeting of Stockholders +May 19, 2015 +Denver, Colorado +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +TUESDAY, MAY 19, 2015 +To +All Stockholders: +The +2015 Annual Meeting of Stockholders of SM Energy Company (the "Annual Meeting") is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln +Street, Denver, Colorado, on Tuesday, May 19, 2015, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +nine individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2015; +3. hold +an advisory vote to approve the compensation of our named executive officers; and +4. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on March 20, 2015, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2015 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other +verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form that is +sent to you, or your most recent brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on March 20, +2015. We can use that to verify your beneficial ownership of our common stock and admit you to the meeting. If you intend to vote at the meeting, you also will need to bring to the meeting a legal +proxy from your bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and Corporate Secretary +Denver, +Colorado +April 9, 2015 +Table of Contents +TABLE OF CONTENTS +Page +General Matters +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +1 +Differences Between Stockholders of Record and Street Name Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +4 +Other Available Information +4 +Stockholders Sharing the Same Address +5 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +6 +Communications with the Board +7 +Board and Committee Meetings +7 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +12 +Policies and Procedures on Transactions with Related Persons +12 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +14 +Section 16(a) Beneficial Ownership Reporting Compliance +17 +Information About Executive Officers +18 +Executive Compensation +21 +Compensation Discussion and Analysis +21 +Compensation Committee Report +40 +Executive Compensation Tables +41 +Potential Payments Upon Termination or Change of Control +47 +Equity Compensation Plans +49 +Director Compensation +51 +Compensation Committee Interlocks +54 +Proposal 1—Election of Directors +55 +Proposal 2—Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2015 +62 +Proposal 3—Advisory Vote on Executive Compensation +63 +Report of the Audit Committee +65 +Independent Registered Public Accounting Firm +66 +Audit Committee Preapproval Policy and Procedures +67 +Stockholder Proposals for the 2016 Annual Meeting of Stockholders +68 +2014 Annual Report +69 +Other Matters +70 +Table of Contents +GENERAL MATTERS +Background +This Proxy Statement contains information about the 2015 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy +Company to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, on Tuesday, May 19, 2015, at 3:30 p.m. local time. Our Board of +Directors ("Board") is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," "us," +and "our" refer to SM Energy Company and its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2014 ("2014 Annual Report"), are being distributed and made available on or about April 9, 2015. In accordance with rules and regulations adopted by the United States Securities and Exchange +Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be +mailed by intermediaries on or about April 9, 2015, to beneficial owners of our common stock. Stockholders will have the ability to access the proxy materials on a website referred to in the +Notice or may request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The +proxy materials are being mailed to all stockholders of record, as of close of business on March 20, 2015, on or about April 9, 2015. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of nine individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public +accounting firm for 2015; +• an advisory vote to approve the compensation of our named executive officers; and +• such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the first three items noted above. +Who Can Vote +Only stockholders of record at the close of business on the record date, March 20, 2015, are entitled to receive notice of the +Annual Meeting and to vote shares of our common stock held on that date. As of March 20, 2015, there were 67,463,060 shares of our common stock issued and outstanding, +1 +Table of Contents +net +of zero shares held in treasury. Holders of our common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in "street name") rather than directly in their +own name. As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered +directly in your name with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to +grant your voting proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a +brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee +how to vote and are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a +signed proxy from the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the +Internet, by telephone or by mailing a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope, and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified in a proxy, such proxy will be +voted as follows: +• FOR the election of the nine nominees named in this Proxy Statement under the caption "Proposal 1—Election of +Directors"; +• FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public +accounting firm for 2015; +• FOR the advisory approval of the compensation of our named executive officers; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the Annual +Meeting, or any adjournment(s) or postponement(s) thereof. +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other +nominee and you have not elected to receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by your bank, broker +or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +2 +Table of Contents +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is +exercised by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting +procedures before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke any +previously submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, which are +located at 1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our +outstanding shares of common stock are present at the Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares +held by us as treasury shares are not entitled to vote and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote +your shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for which it has discretionary authority under +the rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a +bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your shares, and the +bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a "broker non-vote" results. Although any broker non-vote would be counted as present at the +meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ) and Proposal 3 ( Advisory Vote on Executive +Compensation ); and your shares will be considered "broker non-votes" with respect to these proposals; but will nevertheless be +3 +Table of Contents +entitled +to vote your shares with respect to Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for +2015 ) in the discretion of the record holder. +• Proposal 1 ( Election of Directors ): Our Amended and Restated By-Laws (our +"By-Laws") provide that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. +Abstentions will be counted in determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes +will have no effect on the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as Our Independent Registered +Public Accounting Firm for 2015 ): Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending +December 31, 2015, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted +in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this proposal +requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total +number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the vote on this proposal. +While this vote is required by law, it will not be binding, nor will it create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or the Board. However, +the Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies for +total fees of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition, +our officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be additionally +compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other +persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +Other Available Information +We make available through the Governance section of our website (www.sm-energy.com) the following documents: our Corporate Governance +Guidelines; our Financial Code of Ethics (the "Financial Code"); our Code of Business Conduct and Conflict of Interest Policy (the "Code of Conduct"); and the Charters of the Audit, Compensation, +Executive, and Nominating and Corporate Governance Committees of our Board. These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated +by reference into this Proxy Statement and should not be considered part of this document. +4 +Table of Contents +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same +address and last name will receive only one copy of our Notice of Internet Availability, 2014 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that +they want to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and may utilize separate +proxy voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2014 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary, at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will promptly send such to +you. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the +future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 19, 2015 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2015 Annual Meeting of Stockholders, and the Form 10-K for the +fiscal year ended December 31, 2014, are available at http://www.viewproxy.com/sm-energy/2015/. +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its +committees, our Corporate Governance Guidelines, the Financial Code and the Code of Conduct. These documents provide the framework for our corporate governance. A complete copy of these documents is +available on our website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. The +Board regularly reviews corporate governance developments and modifies our governance documents as appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer or controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for an executive officer subject to the Financial Code be made only by +the Audit Committee of the Board and disclosed as required by law, SEC rules and regulations, and NYSE rules. Changes to, or waivers from, the Financial Code for any of our executive officers subject +to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such change or waiver. To date, the Audit +Committee of our Board has not granted waivers of the Financial Code for any of our executive officers subject to the Financial Code. +Board and Committee Independence +The Board is comprised of a majority of independent directors, four of whom, Stephen R. Brand, Loren M. Leiker, +Ramiro G. Peru and Rose M. Robeson joined the Board in the last four years. The Board has determined that Larry W. Bickle, Dr. Brand, William J. Gardiner, +Mr. Leiker, Mr. Peru, Julio M. Quintana, Ms. Robeson, John M. Seidl and William D. Sullivan are +independent and do not have any material relationship with us other than as a director and stockholder. In its review of the independence of these directors, the Board considered past employment, +remuneration, and any other relationship with us. In making its determination as to the independence of its members, the Board considered the independence tests described in Section 303A.02 of +the Corporate Governance Standards of the NYSE's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our Board's leadership structure has separated the roles of Chief Executive Officer and Chairman of the Board. +Mr. Sullivan, an independent director serving on our Board since 2004, who has experience serving on several other public company boards and over 32 years of experience working with oil +and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Mr. Sullivan does not serve on any committee of our Board, other than the +Executive Committee, which meets infrequently and did not take action on any matter in 2014. Javan D. Ottoson serves as our Chief Executive Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; +6 +Table of Contents +facilitating +communications among the directors; setting the Board meeting agenda in consultation with the Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and +serving as a liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of our Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our NCG Committee evaluates our leadership structure and makes recommendations to the Board. While recognizing that different +board leadership structures may be appropriate at different times and under different circumstances, based on +the recommendation of the NCG Committee, our Board has determined that our current leadership structure is preferable, with Mr. Ottoson serving as our Chief Executive Officer, and +Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director. Mr. Bickle assumed that role on January 1, 2012, upon his +appointment as Chair of the NCG Committee. The lead independent director is responsible for presiding at executive sessions of non-management directors. In the lead independent director's absence, the +Chairman of the Board serves as lead independent director. +As +of the filing date of this Proxy Statement, the Board has nine independent members and only two non-independent members: Javan D. Ottoson, our Chief Executive Officer and +Anthony J. Best, our former Chief Executive Officer who retired from the company as of January 31, 2015 and has elected not to stand for re-election to the Board. Additionally, +Mr. Seidl has notified the Board that he does not intend to stand for re-election at the Annual Meeting. A number of our independent Board members are currently serving or have served as +members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As discussed above, our Board has three +committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, qualifications, attributes, and skills +of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director nominee's biographical information below. +We believe that the number of independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their respective Board committees, and the overall +leadership of the Board by the Chairman of the Board are beneficial to our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company. Interested parties and stockholders may contact the Board as a whole, only +the non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients' attention in care of SM Energy Company, Corporate Secretary, +1775 Sherman Street, Suite 1200, Denver, CO 80203. All such communications will be provided to the Chair of the NCG Committee, who will facilitate the review of such communications. +Board and Committee Meetings +Our Board met 12 times during 2014. Our non-management directors routinely meet in executive session immediately before or +after each regularly scheduled meeting of the Board or as otherwise deemed necessary and met five times during 2014. Each incumbent director participated in at least 83% of the Board meetings and in +at least 86% of his or her appointed committee meetings held during the director's tenure on the Board in 2014. It is our policy that each director is expected to +7 +Table of Contents +attend +the annual meeting of our stockholders, and each director then serving on the Board attended the 2014 Annual Meeting of Stockholders. +The +following table identifies the members of each committee, as of March 1, 2015, and sets forth the number of meetings held in 2014: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Anthony J. Best +Larry W. Bickle +Stephen R. Brand +William J. Gardiner +Loren M. Leiker +Javan D. Ottoson +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +John M. Seidl +William D. Sullivan +Number of meetings held in 2014 +7 +3 +8 +0 +Chair +Member +The +Audit Committee assists the Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Pursuant to the Audit Committee charter, +members are prohibited from serving on more than three audit committees of public companies (one of which is us), and no Audit Committee member currently serves on more than two such committees. The +Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our quarterly and annual financial results. The Audit Committee +reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of audit fees, the scope and adequacy of our system of +internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal audit functions and any related party transactions. The +Audit Committee is currently composed of five directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy +Statement. While all of the Audit Committee members are considered financially literate, the Board has determined that four members of the current Audit Committee, Mr. Bickle, +Mr. Gardiner, Mr. Peru and Ms. Robeson, are audit committee financial experts as the term is defined by the SEC. As noted above, Mr. Bickle, Mr. Gardiner, +Mr. Peru and Ms. Robeson are also independent. +The +NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of +all committees of the Board, and to oversee all of our corporate governance functions, including the Board +8 +Table of Contents +and +committee self-evaluation process. For additional information on the functions performed by the NCG Committee, see "Director Nominations and Qualifications" below. +The +Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements for our senior management and directors, adoption of compensation plans in which our officers and directors are eligible +to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy Statement describes these +responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are +not in conflict with our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +Our +Board and each of its committees separately evaluated their performance during 2014, and the Audit Committee, Compensation Committee and NCG Committee each completed written +evaluations. The Executive Committee did not complete a written evaluation due to its unique, limited purpose and infrequent meeting schedule. This performance evaluation process was directed by the +NCG Committee and the evaluations were discussed and accepted by the Board. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is +responsible for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current Board leadership +structure, with Mr. Sullivan serving as our Chairman of the Board and Mr. Ottoson serving as our Chief Executive Officer, supports this approach by facilitating communication between +management and the Board regarding risk management issues. We also believe +that this design places the Board in a better position to evaluate the performance of management, more efficiently facilitates communication of the views of the independent directors, and contributes +to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, General Counsel, Executive Vice +President—Operations, Senior Vice President—Human Resources, and Treasurer. The committee meets quarterly to update our enterprise risk management process and plan (the "ERM +Plan"), utilizing the Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during our business strategy +sessions. Minutes of these meetings are kept, and the activities of the committee are regularly reported to the Audit Committee and the Board. Risk prevention or mitigation steps are documented for +the material risks identified based upon projected likelihood and impact of any occurrence of the particular risk. The ERM Plan is reviewed with our Board annually. +We +also have a Financial Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, Executive Vice President—Operations and +Treasurer. The committee meets quarterly and more frequently, as necessary, to discuss our interest rate and +9 +Table of Contents +commodity +hedging activities and, as appropriate, to approve additional hedges. Minutes of these meetings are kept, and the activities of the committee are regularly reported to the Audit Committee. +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the specific guidelines and +policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include a review of our oil, natural gas and natural gas liquids commodity +price hedging arrangements, interest rate risk management, and insurance coverage, as appropriate. In addition, our internal auditors, who report directly to the Audit Committee with respect to +internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes. The Audit Committee also has oversight responsibility for the integrity of +our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. In addition, the +Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the +full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying +and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee selects a nominee based on the nominee's skills, achievements, and experience. As set +forth in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in +high-level business policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of +responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In addition, our Corporate Governance Guidelines provide that a director who retires or +experiences a significant change in his or her professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested +by the NCG Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the NCG Committee and the Board may review the continued appropriateness of Board +membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and delivered to the Board a resignation letter that is contingent upon +(i) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the shares of capital stock in an election of directors at the 2015 +Annual Meeting of Stockholders; and (ii) acceptance of his or her resignation by the Board in accordance with the policies and procedures adopted by the Board for such purpose. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee considers suggestions from incumbent directors, management, stockholders, and others. The NCG Committee screens all potential +candidates in the same manner regardless of the source of the recommendation. The NCG Committee +10 +Table of Contents +retained +a search firm during 2014 in connection with its recommendation of Mr. Peru and Ms. Robeson to fill Board vacancies. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity in identifying director nominees, the NCG Committee considers the Board as a whole, without reference to specific representative directors, with the overall objective of +establishing a group of directors that reflects diversity, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that +current Board members and director nominees reflect our commitment to diversity. Following the 2015 Annual Meeting, assuming all nine of the current nominees are elected to the Board, we will have two +Hispanic directors, one who has served since 2006 and one who has served since 2014, and one female director who has served since 2014. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4(g) of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the +proposal is made, if any), the name and address of the stockholder and specific information concerning such stockholder's interests in our securities. In addition, the notice must include the +recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and the proposed nominee and a written questionnaire +completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for copies should be directed to our Corporate Secretary. For +additional information about stockholder nominations, including nominations for the 2016 Annual Meeting of Stockholders, see "Stockholder Proposals for the 2016 Annual Meeting of Stockholders." No +stockholder director nominations were received in connection with the Annual Meeting. +11 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. The only transaction between our company and a related person since January 1, 2014, involves our relationship with +Tesco Corporation ("Tesco"). Mr. Quintana was the President, Chief Executive Officer, and a director of Tesco before his retirement in January 2015. Tesco designs, manufactures, and delivers +technology based solutions for the upstream energy industry, including oilfield drilling and completion technology, services, and equipment. In 2006, we entered into an agreement with Tesco to provide +equipment and services to us in connection with our drilling and completion operations based on Tesco's industry-recognized ability to supply specific high-quality equipment and services for drilling +and casing needs, which are particularly well suited for certain of our operations. Under our agreement, +12 +Table of Contents +Tesco +from time to time upon our request, provides equipment or services to us. This agreement continues until canceled by either us or Tesco on 30 days advance written notice. Pursuant to this +agreement, we are obligated to pay Tesco only for services actually performed or equipment provided. This agreement does not require us to make any other payments to Tesco, nor does it obligate us to +use Tesco for any services or equipment. Mr. Quintana did not have any direct or indirect interest in the transaction, other than as a result of having served as an executive officer and +director of Tesco. Mr. Quintana had no input in our selection of Tesco for equipment and services or the terms of our agreement with Tesco. Decisions to use Tesco are made by technical +professionals supervising the relevant regional activity, based on their assessment of Tesco's equipment and services and related costs in comparison to other providers. In 2014, we paid Tesco +$1,115,956. The amount we paid Tesco during 2014 for equipment and services represented approximately 8% of the total amount paid by us to all service providers (including Tesco) for similar equipment +and services during 2014. In accordance with our Related Person Transactions Policy, the Audit Committee reviewed the relationship between us and Tesco and determined that the relationship is in our +best interests and the best interests of our stockholders. +13 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known to us as of March 13, +2015, by all beneficial owners of more than 5% of the outstanding shares of our common stock, by each director, director nominee, and named executive officer, and all directors and executive officers +as a group. Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted stock units and +performance share units. A supplemental table has been included later in this section describing the number of restricted stock units and performance share units owned by the individuals described +below. +Name of Beneficial Owner +Shares +beneficially +owned, +excluding +options +Options +exercisable +within +60 days +of 3/13/2015 +Total shares +beneficially +owned (1) +Percent +beneficially +owned (2) +Name and Address of Stockholders Owning More Than 5% +BlackRock, Inc. (3) +5,326,737 +— +5,326,737 +7.9 +% +55 East 52 nd Street +New York, NY 10022 +Vanguard Group, Inc. (4) +4,917,190 +— +4,917,190 +7.3 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Artisan Partners Asset Management Inc. (5) +4,234,067 +— +4,234,067 +6.3 +% +875 East Wisconsin Avenue, Suite 800 +Milwaukee, WI 53202 +Name and Position of Directors, Director Nominees and Named Executive Officers +Anthony J. Best, Director +205,161 +— +205,161 +* +Larry W. Bickle, Director +144,167 +— +144,167 +* +Stephen R. Brand, Director +10,514 +— +10,514 +* +William J. Gardiner, Director +56,135 +— +56,135 +* +Loren M. Leiker, Director +11,097 +— +11,097 +* +Ramiro G. Peru, Director +6,752 +— +6,752 +* +Julio M. Quintana, Director +17,822 +— +17,822 +* +Rose M. Robeson, Director +2,951 +— +2,951 +* +John M. Seidl, Director +3,010 +— +3,010 +* +William D. Sullivan, Director +42,821 +— +42,821 +* +Javan D. Ottoson, President, Chief Executive Officer and Director +100,358 +— +100,358 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +67,750 +— +67,750 +* +David W. Copeland, Executive Vice President, General Counsel and Corporate Secretary +54,561 +— +54,561 +* +Herbert S. Vogel, Executive Vice President—Operations +6,737 +— +6,737 +* +All executive officers and directors as a group (21 persons, including those named above) +977,491 +977,491 +1.4 +% +* Less +than 1%. +14 +Table of Contents +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and +any shares that the individual has the right to acquire within 60 days of a date reasonably selected by us, through the exercise of any stock option or other right. We selected March 13, +2015, as the determination date. +(2) Based +on an aggregate of 67,463,060 shares of common stock outstanding as of March 13, 2015. +(3) According +to a Statement on Schedule 13G/A filed by BlackRock, Inc. ("BlackRock") on January 23, 2015, by reason of advisory +and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 5,326,737 shares, with shared voting power as to zero +shares, shared dispositive power as to zero shares, and sole voting power as to 5,098,004 shares and sole dispositive power as to 5,326,737 shares. +(4) According +to a Statement on Schedule 13G/A filed by Vanguard Group, Inc. ("Vanguard") on February 11, 2015, by reason of +advisory and other relationships with persons who own shares of our common stock, Vanguard may be deemed to be the beneficial owner of a total of 4,917,190 shares, with shared voting power as +to zero shares, shared dispositive power as to 39,448 shares, and sole voting power as to 45,048 shares and sole dispositive power as to 4,877,742 shares. +(5) According +to a Statement on Schedule 13G filed by Artisan Partners Asset Management Inc. ("Artisan") on January 30, 2015, by +reason of advisory and other relationships with persons who own shares of our common stock, Artisan may be deemed to be the beneficial owner of a total of 4,234,067 shares, with shared voting +power as to 4,117,866 shares, shared dispositive power as to 4,234,067 shares, and sole voting power as to zero shares and sole dispositive power as to zero shares. +Restricted Stock Units and Performance Share Units +Restricted stock units ("RSUs") represent the right to receive shares of our common stock to be delivered upon +settlement, subject to risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other +distributions paid in cash on our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance +share units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common +stock that may be from zero to two hundred percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the +PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends or other distributions paid in cash on our common stock. +15 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 13, 2015. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +William J. Gardiner +— +— +— +Loren M. Leiker +— +— +— +Julio M. Quintana +— +— +— +Ramiro G. Peru +— +— +— +Rose M. Robeson +— +— +— +John M. Seidl +— +— +— +William D. Sullivan +— +— +— +Anthony J. Best +27,221 +123,086 +123,086 +Javan D. Ottoson +26,042 +66,322 +15,390 +A. Wade Pursell +12,043 +50,976 +12,504 +David W. Copeland +4,683 +20,499 +5,290 +Herbert S. Vogel +4,594 +18,941 +4,424 +All Executive Officers and Directors as a group (21 persons, including those named above) +93,810 +366,226 +183,968 +(1) PSUs +granted on July 1, 2012, vested one-third on each of July 1, 2013, and July 1, 2014 and will vest one-third on +July 1, 2015. PSUs granted on July 1, 2013, and July 1, 2014, will not vest until July 1, 2016 and July 1, 2017, respectively. Mr. Best was retirement +eligible at his January 31, 2015 retirement date, and pursuant to the terms of his award agreements, became vested in all PSUs as of such date. The amounts shown reflect the vested portion of +the PSUs owned by each director, named executive officer and all directors and executive officers as a group. The actual number of shares of our common stock issued to settle the PSUs at the end of +the performance period may vary from zero to two hundred percent of the number of PSUs indicated, depending on the extent to which we have achieved our performance goals. +16 +Table of Contents +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under +United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of our common stock must report their +initial ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has designated specific deadlines for these +reports and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2014 under Section 16(a) under the Exchange Act. +17 +Table of Contents +INFORMATION ABOUT EXECUTIVE OFFICERS +The +following table sets forth the names, ages (as of March 13, 2015) and positions of SM Energy's executive officers: +Name +Age +Position +Javan D. Ottoson +56 +President, Chief Executive Officer and Director +A. Wade Pursell +50 +Executive Vice President and Chief Financial Officer +David W. Copeland +58 +Executive Vice President, General Counsel and Corporate Secretary +Herbert S. Vogel +54 +Executive Vice President—Operations +Kenneth J. Knott +50 +Senior Vice President—Business Development and Land and Assistant Secretary +Gregory T. Leyendecker +57 +Senior Vice President and Regional Manager +Mark D. Mueller +50 +Senior Vice President and Regional Manager +Lehman E. Newton, III +59 +Senior Vice President and Regional Manager +Mary Ellen Lutey +43 +Vice President and Regional Manager +Mark T. Solomon +46 +Vice President—Controller and Assistant Secretary +David J. Whitcomb +52 +Vice President—Marketing +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice +President and Chief Operating Officer. +Mr. Ottoson was appointed as Chief Executive Officer of the Company in February 2015, President of the Company in October 2012 and appointed to the Board in September 2014. Mr. Ottoson +has been in the energy industry for over 33 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and +Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of drilling and engineering +functions. Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, +Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including +serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice +President and Chief Financial Officer. +Mr. Pursell was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to offshore +energy producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He joined +Helix in May 1997, as Vice President—Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an +Experienced Manager specializing in the offshore services industry. Mr. Pursell has over 27 years of experience in the energy industry. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice +President and General Counsel. He was appointed as +the Company's Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has over 32 years of experience in the legal profession, including over +23 years as internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as its Vice President, General +Counsel and Secretary from April 2004 through November 2009, and then as its +18 +Table of Contents +Senior +Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served as an executive officer and general counsel of two energy companies he co-founded in Midland, +Texas. Mr. Copeland started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Herbert S. Vogel. Mr. Vogel was appointed as Executive Vice President—Operations of +the Company in August 2014. +Mr. Vogel joined the Company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 30 years of experience in the oil and gas +business. He joined the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power +from March 2010 until his retirement in February 2012. His previous roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and +Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing +responsibility in engineering, operations management, new ventures development, and business unit management at ARCO and BP. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development +and Land and Assistant Secretary in +August 2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant +Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast +Regional Land Manager when the office was moved to Houston in March 2004. +Gregory T. Leyendecker. Mr. Leyendecker was appointed Senior Vice President and Regional +Manager in May 2010. From July 2007 to May +2010, he served as Vice President and Regional Manager. Mr. Leyendecker joined the Company in December 2006 as Operations Manager for the South Texas & Gulf Coast region in Houston, +Texas. Mr. Leyendecker has over 34 years of experience in the energy industry, and held various positions with Unocal Corporation, an independent oil and natural gas exploration and +production company, from 1980 until its acquisition in 2005. During his career with Unocal, he was the Asset Manager for Unocal Gulf Region USA from 2003 to June 2004 and Production and Reservoir +Engineering Technology Manager for Unocal from June 2004 to August 2005. He was appointed Drilling and Workover Manager for the San Joaquin Valley business unit of Chevron, as successor-by-merger of +Unocal Corporation, in Bakersfield, California in August 2005, and held this position until January 2006. Immediately prior to joining the Company, Mr. Leyendecker was Vice President of +Drilling Management Services from February 2006 to November 2006 for Enventure Global Technology, a provider of solid expandable tubular technology. +Mark D. Mueller. Mr. Mueller joined the Company in September 2007 as Senior Vice +President. Mr. Mueller was appointed as the +Regional Manager of the Rocky Mountain region effective January 1, 2008. Mr. Mueller has been in the energy industry for over 28 years. From September 2006 to September 2007, he +was Vice President and General Manager at Samson Exploration Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, in Calgary, Canada, where his +responsibilities included fiscal performance, reserves, and all operational functions of the company. From April 2005 until its sale in August 2006, Mr. Mueller was Vice President and General +Manager for Samson Canada Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, where he was responsible for all business units and the eventual +sale of the company. Mr. Mueller joined Samson Canada Ltd. as Project Manager in May 2003 to build a new basin-centered gas business unit and was Vice President from December 2003 to August +2006. Prior to joining Samson, Mr. Mueller was West Central Alberta Engineering Manager for Northrock Resources Ltd., a Canadian oil and gas company that was a wholly-owned subsidiary of Unocal +Corporation, in Calgary, Canada. From 1986 to 2003, Mr. Mueller +19 +Table of Contents +held +positions of increasing responsibility in engineering and management for Unocal throughout North America and Southeast Asia. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager +for the Midland, Texas office, was appointed +Vice President and Regional Manager of the Permian region in +June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 36 years of experience in the energy industry. From November 2005 to November +2006, Mr. Newton served as Project Manager for one of Chevron's largest Lower 48 projects. Mr. Newton joined Pure Resources in February 2003 as the Business Development Manager +and worked in that capacity until October 2005. Mr. Newton was a founding partner in Westwin Energy, an independent Permian Basin exploration and production company, from June 2000 to January +2003. Prior to that, Mr. Newton spent 21 years with ARCO in various engineering, operations and management roles, including as Asset Manager, ARCO's East Texas operations, Vice +President, Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian. +Mary Ellen Lutey. Ms. Lutey was appointed Vice President and Regional Manager of the +Mid-Continent region in December 2012. She joined +SM Energy in June 2008 as North Rockies Asset Manager, where she managed the Company's activities in the Williston Basin. Prior to joining SM Energy, Ms. Lutey held various +technical and managerial positions in several regions of the United States and Canada. She was a Senior Reservoir Engineer with Chesapeake Energy Corporation from September 2007 until June 2008, where +she was responsible for the resource development of the Fayetteville Shale in Arkansas. Ms. Lutey was a Team Lead for Engineering and Geoscience, with ConocoPhillips Canada from April 2006 +until September 2007, where she was responsible for the technical and business performance of two multi-discipline groups in Western Canada. From July 2005 until April 2006, she was a Team Lead for +Engineering and Geoscience with Burlington Resources Canada, where she managed the growth and development of resource plays in Western Canada. From 1994 until 2005, Ms. Lutey held various +engineering and leadership positions of increasing responsibility for Burlington Resources. Ms. Lutey has over 23 years of experience in the energy industry. +Mark T. Solomon. Mr. Solomon was appointed Vice President—Controller and Assistant +Secretary of the Company in May 2011. +He was appointed Controller of the Company in January 2007. Mr. Solomon served as the Company's Acting Principal Financial Officer from April 2008 to September 2008, which was during the period +of time that the Company's Chief Financial Officer position was vacant. Mr. Solomon joined the Company in 1996. He served as Financial Reporting Manager from February 1999 to September 2002, +Assistant Vice President—Financial Reporting from September 2002 to May 2006 and Assistant Vice President—Assistant Controller from May 2006 to January 2007. Prior to joining +the Company, Mr. Solomon was an auditor with Ernst & Young. Mr. Solomon has over 18 years of experience in the energy industry. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August +2008. Mr. Whitcomb joined +SM Energy in November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil +marketing, at which time his title was changed to Assistant Vice President and Director of Marketing. +20 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation programs for our Chief Executive Officer, Chief Financial +Officer and each of our three other most highly compensated executive officers employed at the end of the 2014 fiscal year, whom we collectively refer to in this "Executive Compensation" section as +our "NEOs" or "Named Executive Officers." Our NEOs for fiscal 2014 were: +• Anthony J. Best , Chief Executive Officer (Mr. Best retired from our +company on January 31, 2015) +• Javan D. Ottoson , President and Chief Operating Officer +• A. Wade Pursell , Executive Vice President and Chief Financial Officer +• David W. Copeland , Executive Vice President, General Counsel and Corporate +Secretary +• Herbert S. Vogel , Executive Vice President—Operations +This +Compensation Discussion and Analysis is divided into four sections: +Section 1—Executive +Summary +Section 2—Objectives +of Executive Compensation Program +Section 3—Compensation +Determination Process +Section 4—Elements +of Compensation +SECTION 1—EXECUTIVE SUMMARY +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and qualitative factors and +review not +only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced mix of base salary, annual cash incentives through our Short-Term Incentive Plan ("STIP"), and +long-term equity incentives through our Long-Term Incentive Plan ("LTIP"). We balance incentives tied to short-term annual performance with incentives tied to our multi-year performance. In this way, +our executives are motivated to consider the impact of their decisions over the short, intermediate, and long term. The performance metrics used in our 2014 STIP include those we believe are the key +drivers of long-term stockholder value creation: production volume; proved developed reserve additions; finding and development costs; cash flow; net income; environmental, health, and safety goals; +and exploration success and inventory growth. The STIP program is not completely formulaic because the Compensation Committee has the discretion to adjust bonuses based on the "quality" of the results +as well as individual performance and behavior, and has used that discretion to adjust calculated bonuses in the past. Our LTIP rewards total stockholder return, both on an absolute basis and relative +to an index of peer exploration and production companies. +21 +Table of Contents +Business Highlights +The year 2014 was a strong one for us. Our production of 55.1 million barrels of oil equivalent ("MMBOE") exceeded our target, +set a new production record for our company, and represented 14.1% growth in production from 2013. We also exceeded our proved developed reserve additions target—102.0 MMBOE—by +15.7%, adding 118.0 MMBOE to our proved developed reserves. Our financial performance in 2014 matched our strong operational results. We exceeded our cash flow target of $1,579.3 million by +4.3%, with a cash flow of $1,647.9 million. Our strong cash flow and continued efforts to reduce costs led to net income of $666.1 million, which exceeded our target by 115.6%. Our +finding and development costs also beat our target by 5.2%. Our performance with respect to our qualitative STIP factors was also positive, with strong exploration success and inventory growth +performance driven largely by our achievements in our Eagle Ford shale and Bakken/Three Forks programs. We also achieved top-quartile performance for many of the health and safety metrics that we +believe are important measures of risk to our employees, our contractors and the public. +Compensation Program and Corporate Governance Highlights +What We Do: +What We Do Not Do: +ü +We generally target pay opportunities at the market median. +c +We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +ü +The majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating of long-term stockholder value. +c +We do not provide "single-trigger" cash severance or equity vesting acceleration upon a change in control. +ü +A significant portion of executive compensation is in the form of equity, with the majority of the value settled based on a combination of our absolute and relative total shareholder return. +c +We do not provide golden parachute excise tax or other tax gross-ups. +ü +We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the long-term financial interests of our stockholders. +c +We do not pay dividends on unearned restricted and performance share units. +ü +The Compensation Committee retains an independent compensation consultant who provides no other services to us. +c +We do not permit option repricing, or exchange of underwater options for other awards or cash, without shareholder approval. +ü +The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by the Compensation Committee's independent compensation consultant to ensure they are designed appropriately and do +not encourage excessive risk taking, while taking into account market changes and peer group comparisons. +c +We do not permit officers, employees or directors to enter into transactions that "hedge" the value of our stock, hold our securities in margin accounts, pledge our securities to secure indebtedness, or buy or sell +options or derivatives with respect to our securities. +ü +We have adopted a clawback policy for our NEOs. +22 +Table of Contents +Our +performance in 2014 is exemplary of the excellence we strive to achieve. We beat the targets set by the Compensation Committee in all five quantitative areas and generally performed +well with respect to +our qualitative metrics. These results influenced our Compensation Committee to pay actual 2014 bonuses for the NEOs that were at approximately 155% the applicable STIP target percentage. We believe +that this result indicates that our STIP is appropriately designed to link compensation earned to the achievement of our financial and strategic objectives. See the "Short-Term Incentive Plan" section +below for additional discussion. +Our +LTIP uses a combination of service-vesting RSUs and performance-based PSUs. We believe these types of long-term incentives appropriately balance risk and reward, because such units +have both upside potential and downside risk. The performance measures used in our LTIP reward total stockholder return, both on an absolute basis and relative to an index of peer exploration and +production companies. At the completion of the 2011–2014 performance period, we settled PSUs granted on July 1, 2011, using an earned percentage of 55% (as compared to a target of +100%). We achieved this result based upon our annualized absolute total shareholder return ("TSR") for the performance period of 6.2%, which resulted in an earned percentage of 35%. In addition, our +TSR exceeded the TSR for our comparative peer group of companies for the period, which increased the earned percentage by 20%. We believe that this result indicates that our LTIP appropriately links +compensation to the achievement of our long-term financial and strategic objectives. +Stockholder Advisory Vote on Compensation +At our 2014 Annual Meeting of Stockholders, our stockholders were provided the opportunity to cast a non-binding advisory vote on the +compensation of our NEOs. Over 98% of votes cast approved the compensation of our NEOs. Because the vote was advisory, the result was not binding on the Compensation Committee. However, the +Compensation Committee believes that our stockholders' overwhelming approval of the compensation of our NEOs indicates that they consider our compensation philosophy and our executive compensation +policies to be effective and aligned with their interests. The Compensation Committee took into account the outcome of the vote and other factors, as more fully discussed herein, in reviewing our +executive compensation policies for 2014 and in determining that no significant changes to our executive compensation programs and policies were necessary in 2014. +SECTION 2—OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM +Our overall executive compensation program is designed to promote superior returns for our stockholders through the exploration for and development +and growth of +our oil, natural gas and natural gas liquid assets. The objectives of our executive compensation program are to: +1. Provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented management. +Our +pay philosophy is to target overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, based on analysis +performed by the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. ("F. W. Cook"), we target total direct compensation for our NEOs +around the median of our industry peer group (see "Section 3—Compensation Determination Process" for further detail). Actual compensation earned by a particular individual may be +above or below the target level based on company and individual performance measured against the established metrics of our incentive compensation programs. +23 +Table of Contents +2. Link compensation earned to the achievement of our short-term and long-term financial and strategic objectives. +We +believe that the proportion of total compensation that is performance-based, and therefore "at risk," should increase with an individual's level of responsibility. Our compensation system is +intended to provide the appropriate balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this end, our STIP rewards annual +operating and financial performance based upon quantitative measures of cash flow, net income, production volume, proved developed reserve growth, and finding and development costs, and discretionary +qualitative measures of environmental, health, and safety and exploration success and inventory growth (see "Elements of Compensation—Short-Term Incentive Plan"). Our LTIP rewards total +stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies (see "Elements of Compensation—Long-Term Incentive Plan"). +3. Align performance incentives with the long-term interests of our stockholders. +We +believe that we achieve alignment of long-term interests between stockholders and management by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that ensure our executives have a meaningful ownership stake during their tenure. In addition, the metrics used for our STIP include those we believe drive long-term value +creation, while realized compensation under our LTIP is aligned with absolute and relative returns realized by our stockholders. +4. Ensure programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs ( e.g. , salary increases, bonus payments, +and equity compensation grants), the Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation, expected accounting treatment, potential +stockholder dilution, and the impact on our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most financially +efficient manner possible, and that satisfy our other objectives. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the Internal Revenue Code ("IRC"), compensation in excess of +$1.0 million per year paid to certain of our NEOs is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as defined in +Section 162(m). The Compensation Committee administers our STIP and LTIP so that compensation awarded and paid to our NEOs is intended to be "performance-based" under Section 162(m) and +therefore fully tax-deductible; however, the Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility requirements, and it is possible +that Section 162(m) may disallow compensation deductions that would otherwise be available to us. +24 +Table of Contents +5. Uphold high standards of good corporate governance and strive to achieve evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, F. W. Cook, stays abreast of current and developing +corporate governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it deems appropriate, to reflect best practices and/or new legislation. +SECTION 3—COMPENSATION DETERMINATION PROCESS +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and the Compensation Committee, as discussed below. The Compensation Committee +is currently comprised of five independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the +purposes of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; and +• reviewing the performance and approving the compensation for our executive officers, including our Chief Executive Officer. +In +2014, the Compensation Committee met eight times to administer the matters noted above and other related matters. +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company +Manual, the Board has determined that the members of the Compensation Committee are independent. +Independent Compensation Consultant +Since 2007, the Compensation Committee has engaged F. W. Cook as its independent executive compensation consultant. +F. W. Cook reports directly to the Compensation Committee and the Compensation Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems +necessary. A principal of F. W. Cook attends Compensation Committee meetings, as requested, and communicates with the Compensation Committee between meetings. The services +F. W. Cook provides, based upon direction from the Compensation Committee, include advising the Compensation Committee on the design of our executive compensation programs and the +evolving best practices related thereto, providing market information and analysis regarding the competitiveness of our executive compensation opportunities, conducting compensation risk assessments +and providing analysis concerning the equity compensation practices of our peers. To facilitate the delivery of these services to the Compensation Committee, F. W. Cook interfaces with +our management, in particular our Senior Vice President—Human Resources. F. W. Cook does not provide directly, or indirectly through +25 +Table of Contents +affiliates, +any non-executive compensation services, such as pension consulting or human resource outsourcing, to us. The total consulting fees we pay to F. W. Cook are less than 1% of +the total annual revenues of F. W. Cook, and F. W. Cook and the F. W. Cook consultants working with us are prohibited from owning any of our shares of common +stock directly, although such shares may be owned within mutual funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known +personal relationship with any of our officers, directors, stockholders or employees that would present a potential conflict to their independence. After consideration of disclosures and +representations made by F. W. Cook concerning the foregoing, the Compensation Committee determined in 2014 that F. W. Cook's work did not raise any potential conflicts of +interest. F. W. Cook has agreed to advise the Compensation Committee if any potential conflict of interest arises that could cause F. W. Cook's independence to be +questioned and not to undertake any project for our management, except at the request of the Compensation Committee and as agent for the Compensation Committee. In 2014, F. W. Cook did +not provide any services to us other than those requested by the Compensation Committee and related to F. W. Cook's engagement as the independent consultant to the Compensation +Committee. +Compensation Risk Assessment +Each year, the Compensation Committee and F. W. Cook review and evaluate our compensation policies and practices for all +employees to assess to what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by +properly aligning the interest of our employees with the interests of our stockholders and whether risks arising from our compensation policies and practices for our employees are reasonably likely to +have a material adverse effect on us. In 2014 and 2015, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably +likely to have a material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and Senior Vice President—Human Resources, management provides +recommendations to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than +himself based on competitive market data, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing information on +historical compensation levels, employee evaluations and its analysis of comparative industry data, and by interfacing with F. W. Cook. While members of the management team attend +Compensation Committee meetings, they are not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective +compensation. The Compensation Committee and the Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our +executive officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies with +our General Industry Classification Standard Industry Code include standard measures such as revenue, assets, number of employees, and enterprise value, as well as several industry-specific criteria +such as annual production volume, fiscal year-end reserves, total costs incurred in oil and gas activities, and the magnitude of each company's offshore and non-U.S.- +26 +Table of Contents +based +operations. F. W. Cook identifies peer companies that are within 50%—200% of our company for at least four of these criteria and that have corporate structures similar +to ours. The Compensation Committee, with input from F. W. Cook, selects a peer group that includes the 15–20 companies that best fit the selection criteria, excluding +those companies from the peer group from the previous year that no longer satisfy the selection criteria. The peer group used for 2014 compensation comparisons was approved in March 2014 and consisted +of the following companies: +Cabot Oil & Gas Corporation +Oasis Petroleum, Inc. +Cimarex Energy Company +Pioneer Natural Resources Co. +Concho Resources Inc. +QEP Resources, Inc. +Continental Resources, Inc. +Range Resources Corporation +Denbury Resources Incorporated +Rosetta Resources, Inc. +Energen Resources Corporation +Ultra Petroleum Corp. +EXCO Resources, Incorporated +Whiting Petroleum Corporation +Newfield Exploration Company +WPX Energy Inc. +At +the time the Compensation Committee approved the peer group, we ranked between the peer group median and the 75 th percentile in annual revenues, annual production and +total costs incurred in oil and gas activities; we ranked between the 25 th percentile and the peer group median in number of employees, and fiscal year-end reserves; and we ranked within +5% of the 25 th percentile in total assets and enterprise value. +This +peer group includes twelve of the companies included in our 2013 peer group, plus four additional companies: Oasis Petroleum, Inc., Pioneer Natural Resources Co., Rosetta +Resources, Inc. and WPX Energy Inc. Companies in the 2013 peer group excluded from the 2014 peer group were: Bill Barrett Corporation, Comstock Resources, Forest Oil Corporation and Laredo Petroleum +Holdings, Inc. +In +May 2014, F. W. Cook conducted an analysis of competitive pay levels for the executive officers named in the most recently filed proxy statements of the peer group +companies versus corresponding positions at our company. For certain NEO positions, F. W. Cook also supplemented this analysis with data from relevant, third party, independent +compensation surveys focused on the exploration and production industry (the Energy 27 Group and Effective Compensation, Inc. surveys). Competitive data reflected 2014 target compensation +levels, where disclosed; otherwise data reflected 2013 compensation. Findings from this analysis indicated that base salaries were between the median and the 75 th percentile of the peer +group for Mr. Best and Mr. Vogel, near the 75 th percentile for Mr. Copeland, and between the 25 th percentile and the median of the peer group for +Mr. Ottoson and Mr. Pursell. These findings also +indicated that the target annual cash compensation (base salary plus target annual bonus) for Mr. Best, Mr. Ottoson, Mr. Pursell and Mr. Vogel was between the +25 th percentile and median of the peer group and between the median and the 75 th percentile of the peer group for Mr. Copeland. Target total direct compensation +(base salary plus target bonus plus the grant-date fair value of 2013 long-term incentive compensation) was below the 25 th percentile for Mr. Best, Mr. Ottoson and +Mr. Pursell and near the 25 th percentile for Mr. Copeland and Mr. Vogel. +Findings +from F. W. Cook's May 2014 competitive analysis was one of many factors considered by the Compensation Committee in its review of base salary, STIP targets and +target LTIP values for each of our NEOs. After reviewing this comparative compensation data, the Compensation Committee elected to maintain the base salary for each of our NEOs at the same levels, but +to adjust the STIP targets for Mr. Ottoson, Mr. Pursell, and Mr. Vogel to 100%, 90% and 80%, respectively from the 2013 STIP targets of 90%, 80% and 70%, respectively. +Mr. Best's and Mr. Copeland's STIP targets remained unchanged. As a result of this adjustment, 2014 target annual cash compensation was near the median +27 +Table of Contents +for +all of NEOs. The Compensation Committee increased target LTIP values for Mr. Ottoson, Mr. Pursell, Mr. Copeland, and Mr. Vogel by $1,000,000, $600,000, $100,000, and +$350,000, respectively, to better align with the market median. The adjustments to STIP and LTIP targets generally resulted in target total direct compensation near the peer group median for all NEOs, +except for Mr. Best, whose target total direct compensation was closer to the 25 th percentile. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our CEO, President and CFO and to +provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for those executives, our Human Resources department provides the +Compensation Committee and F. W. Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those executives, including severance arrangements and +all benefits provided in connection with termination of employment. The tally sheets show the amount the executive would receive under various foreseeable circumstances +( e.g. , termination with or without cause; resignation; and retirement or termination in connection with change in control). +The +Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information +provided to gain additional perspective and as a reference. +SECTION 4—ELEMENTS OF COMPENSATION +The principal components of our executive compensation program and the purpose of each component are summarized in the following table. With the +exception of the +supplemental executive retirement plan ("SERP") and the non-qualified deferred compensation plan, our executive compensation program is comprised of the same components as the compensation program for +other employees. The only material differences are the target pay levels and the proportion of each component in the total pay mix. +28 +Table of Contents +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; and recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; and reward long-term company performance +Employee Stock Purchase Plan +employees, including our executives, may purchase shares of our common stock at a 15% discount to the fair market value, subject to certain limits +facilitate share ownership among employees; and align employees' interests with those of stockholders +Qualified Retirement Plans +includes qualified defined benefit pension plan and 401(k) plan with company match +attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Retirement Plan +provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($260,000 for 2014) +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Non-qualified Deferred Compensation Plan +provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +medical, dental, life, wellness, financial advisory services for executives and disability insurance +attract and retain highly qualified employees; and support the overall health and well-being of all employees +Target Competitive Positioning +Our pay philosophy is for each executive's target compensation opportunity to approximate market medians in total compensation and +across individual compensation elements. Actual pay and award value may be higher or lower than target, based on company and individual performance results and changes in our performance, including +our share price. +29 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2014 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts +illustrate, 84% and 82% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied +to performance ( i.e. , "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of +each individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data, individual performance and potential, internal +equity considerations, and input from the Chief Executive Officer (for executives other than himself), the Compensation Committee approved the following 2014 salaries on February 17, 2014, for +the NEOs: +Name +2013 Salary +2014 Salary +Best +$800,000 +$836,000 +Ottoson +$473,000 +$505,000 +Pursell +$419,000 +$438,000 +Copeland +$376,000 +$393,000 +Vogel (1) +$349,000 +$370,000 +(1) Following +his appointment in August 2014 as Executive Vice President—Operations, Mr. Vogel's salary was increased to +$400,000. +The +salary increases approved in 2014 were based on the Compensation Committee's decision that our executive officers' individual performances, corporate performance, industry +inflation, and the competitive aspects of the oil and gas industry justified the increases with individual adjustments +30 +Table of Contents +determined +with reference to respective comparative industry data by position and our goal of target compensation approximating the median of our comparative peer group. +Short-Term Incentive Plan—Design +The STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives. These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are published as annual goals. At the +discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business; however, no adjustments were made during 2014. +Payments under the STIP are in the form of annual cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses generally range from zero to two times a participant's target percentage based on the Compensation Committee's assessment of our +performance and that of each of our NEOs. In addition, the maximum award for any participant is $2,000,000. Target bonuses for 2014 as percentages of base salary for the NEOs were as follows: +Name +2014 Target +Bonus Level, +% of base +salary +Best +100 +% +Ottoson +100 +% +Pursell +90 +% +Copeland +70 +% +Vogel +80 +% +31 +Table of Contents +Short-Term Incentive Plan—2014 Performance +In order for the STIP bonus pool to be funded for our NEOs, the 2014 STIP required that our 2014 cash flow, as described below, exceed +a threshold level of $750 million. If our cash flow had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Our actual 2014 cash flow +was $1.6 billion, resulting in full initial funding of the STIP bonus pool for our NEOs at the maximum level. The Compensation Committee then examined our performance under five quantitative +and two qualitative metrics to determine actual bonus payments to our NEOs by reducing (but not increasing) the amounts funded through achievement of the cash flow threshold. Using this construct, +bonus payments to our NEOs under the STIP are intended to be "performance-based," as defined under IRC Section 162(m), and therefore fully deductible for federal income tax purposes. The +Compensation Committee evaluated our performance in the following five quantitative areas with respect to the annual cash bonus awards for our NEOs: +Factor +Weight +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (MMBOE) +.25 +48.1 +52.3 +57.6 +55.1 +105.4 +% +Proved Developed Reserve Additions (MMBOE) (1) +.25 +86.7 +102.0 +117.3 +118.0 +115.7 +% +Finding and Development Costs ($ per BOE) (2) +.25 +$21.01 +$18.27 +$15.53 +$17.32 +94.8 +% +Cash Flow ($ in millions) +.15 +$1,263.5 +$1,579.3 +$1,974.2 +$1,647.9 +104.3 +% +Net Income ($ in millions) +.10 +$231.8 +$309.0 +$386.3 +$666.1 +215.6 +% +(1) Adjusted +for engineering revisions to proved developed reserves due to asset performance. +(2) Based +on proved developed reserve additions, as adjusted for engineering revisions due to asset performance (excluding land costs). As noted +below, our actual finding and development cost out-performed our target by 5.2%. +Production Volume —The production volume target represents the volume of oil, gas and NGLs estimated in our 2014 +business plan to be produced and sold +during 2014. This measure is important because proceeds from the sale of production generate essentially all of our revenue. In 2014, we exceeded our corporate production volume target by 5.4%. +Proved Developed Reserve Additions —The proved developed reserve additions target represents the proved developed +reserves estimated to be added from +projects funded under our capital program during 2014. This measure is important because proved developed reserves are the primary source of future production and cash flow for us and, as such, relate +directly to the value of our company. In 2014, we generated 15.7% more proved developed reserve additions than our target amount. +Finding and Development Costs —Finding and development costs are a measure of the efficiency of our capital program in +adding value. The finding and +development costs target represents the estimated cost of proved developed reserve additions on a dollar per barrel of oil equivalent ("BOE") basis, as projected under our 2014 business plan. In 2014, +our finding and development costs out-performed our target by 5.2%. +Cash Flow —Our cash flow target is calculated based on our GAAP net income, as adjusted for miscellaneous gains and +losses; depreciation, depletion +and amortization; impairment and abandonment expense; exploration expense; all taxes; changes in Net Profits Interest Bonus Plan ("NPP") liability; stock compensation expense; interest expense and +unrealized derivative gains/losses. +This measure is important because our cash flow is the primary source of funding for our ongoing capital program and +32 +Table of Contents +working +capital needs, as well as a key factor in stockholder value creation. In 2014, our cash flow exceeded our 2014 business plan target by 4.3%. +Net Income —The GAAP net income target represents the amount of GAAP net income initially expected to be generated +based on achieving projected 2014 +business plan results. This measure is important because the rate at which non-cash costs are incurred is related to investment efficiency over time, and non-recurring events can be materially +positive or negative relative to expectations. In 2014, our net income exceeded our target by 115.6%. +Additionally, +the Compensation Committee assessed our 2014 performance in the following qualitative areas: +Environmental, Health, and Safety (EHS) —Our health and safety performance was in the top-quartile in the areas of +statistical measurement that we +track; however, our volume of barrels of produced fluid spilled per barrels of fluid produced was higher than our top-quartile goal. As a result, the Compensation Committee gave neither positive nor +negative credit for this qualitative measure in 2014. +Exploration Success and Inventory Growth —Our performance with respect to our qualitative metric for exploration +success and inventory growth was +positive, with substantial increases in economic inventory. Accordingly, the Compensation Committee gave the maximum positive credit for this qualitative measure in 2014. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is assigned the weighting disclosed in the above table; however, because quantitative goals must be determined at the beginning +of the year, +the Compensation Committee's exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals no longer +comport with reasonable outcomes. +The +Compensation Committee considered all of the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Name +Salary Paid +in 2014 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Best +$826,308 +100 +% +155 +% +$1,280,777 +Ottoson +$496,385 +100 +% +155 +% +$769,103 +Pursell +$432,885 +90 +% +134 +% +$580,548 +Copeland +$388,423 +70 +% +109 +% +$421,766 +Vogel +$374,731 +80 +% +129 +% +$484,187 +33 +Table of Contents +Short-Term Incentive Plan—Three-Year Results +While our operational performance metrics have remained unchanged for at least the last three years, the Compensation Committee has +reviewed and approved increasingly challenging annual operational performance goals intended to generate competitive returns and advance our goal of long-term growth in stockholder value. Our most +recent three-year operational performance with respect to these goals is illustrated below: +2012–2014 Production +2012–2014 Proved Developed Reserve Additions +2012–2014 F&D Costs +2012–2014 Cash Flow +Due +to fluctuations each year in net income, historical performance charts for this metric are not meaningful and therefore not included. +34 +Table of Contents +Long-Term Incentive Plan +Our LTIP, which we implemented in its current form in 2008, is an equity compensation program that utilizes performance share units, +or PSUs, and restricted stock units, or RSUs, to compensate our NEOs and other key employees for long-term growth in our net asset value, as reflected in our absolute and relative cumulative total +stockholder return ("TSR"), which includes the effects of dividends. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"). +Under +our LTIP, participants were awarded RSUs and PSUs during the third quarter of 2014, for the performance measurement period beginning July 1, 2014, and ending +June 30, 2017. The ratio of PSUs to RSUs in an LTIP participant's grant varies based upon each participant's position. Our NEOs receive 75% of their award in the form of PSUs, with the balance +in the form of RSUs. RSUs are settled in shares of our common stock at the time of vesting, and PSUs are settled in shares of our common stock, depending on the extent to which we have satisfied the +performance criteria, at the end of the three-year performance period. The actual number of shares of our common stock issued to settle PSUs at the end of the three-year performance period can range +from 0% to 200% of the number of PSUs, depending on our absolute and relative TSR. TSR is measured on a compound +annualized basis, and relative TSR is compared to the TSR of an equal weighted index of peer companies (the "TSR Peer Group"), in both cases using the average closing prices for the 20 days +prior to the start and end of the performance period. The TSR Peer Group consists of companies from our comparative peer group, as recommended by F. W. Cook and selected by the +Compensation Committee based upon the criteria discussed above, with any adjustments to that list of companies as deemed necessary or appropriate by the Compensation Committee in its discretion. As of +July 1, 2014, for the 2014–2017 performance period, the constituents of the TSR Peer Group included the same companies shown under " Comparative Peer +Group " above. +At +any time during the three-year performance period, the Compensation Committee may elect to modify the TSR Peer Group if significant changes +( e.g. , a member of the TSR Peer Group is acquired) occur relating to any member of the TSR Peer Group. As of the date of this Proxy Statement, the +Compensation Committee has not modified the TSR Peer Group for the 2014–2017 performance period. +The +number of shares of our common stock issued to settle PSUs at the end of the 2014–2017 performance period will equal the number of PSUs multiplied by the "Earned +Percentage." The earned percentage is the sum of the Absolute TSR Score and the TSR vs. Peer Index Score, as outlined in the payout matrix below, subject to a maximum of 200% and a minimum +of 0%: +Absolute TSR +TSR vs. Peer Index +Annualized +TSR +Earned +Percentage* +% Point +Difference +from Index +Earned +Percentage* +£ 0% +0% +£ –10% +–80% +4% +20% +0% +20% +16% +110% +³ 8% +100% +³ 25% +200% +* Earned percentage is linearly interpolated for performance between points. +The +PSUs and RSUs awarded and individual allocations to our NEOs were approved by the Compensation Committee during the second quarter of 2014. In its determination of the total pool +value for 2014, the Compensation Committee considered various factors, including historical fair value +35 +Table of Contents +transfer +(or the percentage of market capitalization transferred to employees annually in the form of stock based awards and other forms of ownership in our company, "FVT") under our long-term +incentive compensation system compared to our peer group companies, input from F. W. Cook on expected trends in FVT for the subject period, and shares available under our Equity Plan. +The 2014 RSUs have a three-year vesting schedule, with one-third vesting on each of the first three anniversaries of the award date. The 2014 PSUs vest on July 1, 2017. We settle the RSUs with +shares of our common stock as they vest. If an NEO is terminated, voluntarily or involuntarily (but excluding normal retirement after age 65), prior to the third anniversary of the award date, he/she +will retain all shares of common stock previously issued by us to settle the RSUs as they vest, but will forfeit all unvested RSUs. No settlement of vested PSUs occurs until the three-year performance +period is concluded, and upon voluntary or involuntary termination (but excluding normal retirement after age 65), an NEO +would forfeit all unvested PSUs. All PSUs granted are also subject to a cap in value per unit calculated based on an absolute TSR of 50% for each year and an assumed earned percentage of 200%. +At +the completion of the 2011–2014 performance period, we settled PSUs granted on July 1, 2011, using an earned percentage of 55%. We achieved this result based upon +our annualized absolute TSR for the performance period of 6.2%, which resulted in an earned percentage of 35%, while our TSR exceeded the peer index for the period, which increased the earned +percentage by 20%. The chart below illustrates the total return for our stockholders for the three-year period ending June 30, 2014, relative to the peer index for such period. An investment of +$100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in the peer index at the beginning of the three-year period reflected in the chart below: +Comparison of Three-Year Return +2011–2014 +36 +Table of Contents +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. +The Compensation Committee generally approves these grants at its June meeting. The Compensation Committee, the Board or our CEO have in the past, and may in the future, make limited grants of equity +on other dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain or reward such persons. We did not make any special grants of equity +to our NEOs during 2014. +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. The NPP was +designed to reward the contributions made by our executives and other key employees to our long-term financial success. Under the NPP, participants shared in the net profits derived from our +investment in all oil and gas activity from a specific pool of properties in a given year after we recovered the capital costs associated with that pool. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. Each of Mr. Best and Mr. Ottoson participate in two NPP pools and currently receive no compensation from these pools because they have +not reached payout status. +Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified Pension +Plan") and a 401(k) plan on the same basis as all of our employees. Our executives are also eligible to participate in our SERP and non-qualified deferred compensation plan (the "NQDC"). The SERP is +an unfunded, non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence of IRC limits on the Qualified Pension Plan. +The NQDC is intended to provide executives with tax planning opportunities and the opportunity to receive the full benefit of matching contributions in excess of IRC limits applicable to our 401(k) +plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement +income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that executive's average base salary, excluding bonuses. +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the 401(k) plan, subject to annual limits to amounts determined by IRC regulations ($17,500 for +2014). We +37 +Table of Contents +match +each employee's contributions in cash on a dollar for dollar basis, up to 6% of the employee's base salary and cash bonus. Company contributions vest over an employee's first five years of +employment with the company. +The +NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating +employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to +make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee's base salary and cash bonus. Each eligible employee's interest in +the contributions we make will vest 40% after the second year of such employee's service to us, and 20% per year thereafter. A participant's account will be distributed based upon the participant's +payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual installments ranging for a period from 1–10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis +as all other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with +all employees, group term life insurance up to 2.5 times their respective base salaries up to $2,000,000. We also provide financial planning services to our executives, including the NEOs, upon +their election. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees, including our NEOs, to +purchase shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and +December 31 of each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is the lower +of 85% of the fair market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. +Employment Agreements +The employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of +employment. Mr. Best had previously been the only executive with a written employment agreement with the company. In conjunction with his retirement, Mr. Best and the company mutually +agreed to terminate his employment agreement effective as of January 31, 2015. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, +and certain other key employees, through change of control executive severance agreements. See "Potential Payments upon Termination or Change of Control— Change of +Control Arrangements " for more information about these agreements and potential payments in the event of a termination of employment following a change in control. No excise +tax "gross up" payments are provided. +38 +Table of Contents +Clawback Policy +Our Board adopted a formal clawback policy effective as of February 17, 2015. The clawback policy provides that in the event we +are required to prepare an accounting restatement of our financial statements due to any material noncompliance with any financial reporting requirement under applicable securities laws, the Board +may, in its sole discretion, require reimbursement of compensation paid pursuant to our Cash Bonus Plan after January 1, 2015, to any officer of the company that engaged in fraudulent or +intentional illegal misconduct and for whom disclosure was required in any of the Company's filings with the Securities and Exchange Commission that required disclosure pursuant to Item 402(c) +of Regulation S-K and that applied to any portion of the period for which the accounting restatement was required. +Stock Ownership Guidelines +To further align senior management's interests with the interests of our stockholders with respect to long-term growth of stockholder +value, the Compensation Committee has established and the Board has approved equity ownership guidelines for our executives as follows: +Chief Executive Officer +5 times annual base salary +Executive Vice Presidents +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of equity +awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to such executive, unless approved by the Compensation Committee for the Chief Executive Officer or +any Executive Vice President, and by the Chief Executive Officer for all other officers. As of March 20, 2015, Mr. Ottoson, Mr. Pursell, and Mr. Copeland satisfy these +guidelines, with Mr. Ottoson owning equity with a value of approximately 7.4 times his base salary, Mr. Pursell owning equity with a value of approximately 8.4 times his +base salary, and Mr. Copeland owning equity with a value of approximately 7.0 times his base salary. As of March 20, 2015, Mr. Vogel did not satisfy these guidelines, +owning equity with a value of approximately 1.3 times his base salary. +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of +trading in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address trading by +officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be highest, and generally +prohibits our officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, employees and directors from +(a) entering into transactions that "hedge" the value of our stock, (b) holding our securities in margin accounts, (c) pledging our securities to secure indebtedness, and +(d) buying or selling options or derivatives with respect to our securities. +39 +Table of Contents +Compensation Committee Report +The Compensation Committee of SM Energy Company has reviewed and discussed the disclosures contained under "Compensation +Discussion and Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the disclosures set forth +under the heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on Form 10-K for the +fiscal year ended December 31, 2014. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Stephen R. +Brand, Chair +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +John M. Seidl +40 +Table of Contents +Executive Compensation Tables +Summary Compensation Table for 2012, 2013, and 2014 +This Summary Compensation table sets forth the annual and long-term compensation our NEOs received during each of the last three +years. In addition to salaries, the table reflects RSUs and PSUs granted in 2012, 2013, and 2014 and cash bonuses earned in 2012, 2013, and 2014. Eligible employees participate in our STIP and LTIP as +described more fully in the "Compensation Discussion and Analysis" and disclosed below. +Name and Principal Position +Year +Salary +Bonus (1) +Stock +Awards (2) +Non-Equity +Incentive +Plan +Compensation (3) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings (4) +All Other +Compensation (5) +Total +Anthony J. Best +2014 +$826,308 +$— +$3,699,974 +$1,280,777 +$270,022 +$64,794 +$6,141,875 +Chief Executive Officer +2013 +$744,231 +$— +$3,699,981 +$1,488,462 +$190,120 +$26,002 +$6,148,796 +(principal executive officer) +2012 +$631,154 +$— +$3,499,983 +$560,000 +$144,834 +$49,445 +$4,885,416 +Javan D. Ottoson +2014 +$496,385 +$— +$2,799,996 +$769,103 +$127,536 +$50,949 +$4,243,969 +President and +2013 +$459,423 +$— +$1,800,031 +$835,000 +$50,150 +$27,030 +$3,171,634 +Chief Operating Officer +2012 +$417,885 +$— +$2,150,211 +$335,000 +$75,455 +$50,055 +$3,028,606 +A. Wade Pursell +2014 +$432,885 +$— +$1,999,957 +$580,548 +$77,890 +$15,750 +$3,107,030 +Executive Vice President +2013 +$398,654 +$— +$1,399,983 +$637,846 +$21,892 +$15,373 +$2,473,748 +and Chief Financial Officer (principal financial officer) +2012 +$354,077 +$— +$1,299,999 +$250,000 +$44,233 +$31,720 +$1,980,029 +David W. Copeland +2014 +$388,423 +$— +$699,996 +$421,766 +$68,114 +$15,600 +$1,593,899 +Executive Vice President, +2013 +$359,239 +$— +$600,010 +$502,834 +$36,170 +$15,300 +$1,513,553 +General Counsel and Corporate Secretary +2012 +$323,592 +$— +$550,021 +$200,000 +$69,844 +$67,818 +$1,211,275 +Herbert S. Vogel +2014 +$374,731 +$— +$814,994 +$484,187 +$49,336 +$44,209 +$1,767,457 +Executive Vice President— +2013 +$335,423 +$— +$499,966 +$493,072 +$51,935 +$26,260 +$1,406,656 +Operations +2012 +$244,423 +$250,000 +$660,011 +$155,697 +$— +$160,661 +$1,470,792 +(1) Mr. Vogel +received a $250,000 sign-on bonus as part of his hiring. The bonus was paid in two equal increments in 2012. +(2) The +amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial +Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated +forfeitures related to service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to +Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. PSU awards are subject to market-based performance conditions +relating to our total stockholder return and relative stockholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSU awards reflected in +this column are based on the estimate as of the grant date of the probable outcome of these performance conditions, and those grant date fair values for Messrs. Best, Ottoson, Pursell, +Copeland, and Vogel respectively are $2,774,958, $2,100,032, $1,499,982, $524,984, and $611,220. If instead we assume that the highest level of performance conditions will be achieved, the grant date +fair values of those awards as computed in accordance with FASB ASC Topic 718 for Messrs. Best, Ottoson, Pursell, Copeland, and Vogel respectively are $5,549,916, $4,200,064, $2,999,965, +$1,049,969, and $1,222,439. +(3) The +amounts in the column represent the bonuses paid in 2015, 2014, and 2013, but earned during 2014, 2013 and 2012 performance periods, +respectively, under the STIP. +41 +Table of Contents +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our +qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or above market +earnings on deferred compensation. +(5) Amounts +consist of our respective contributions to our 401(k) Profit Sharing Plan, contribution to our Non-Qualified Deferred Compensation +Plan, payments for financial consulting services and any wellness gift cards. In 2014, matching contributions to our 401(k) Profit Sharing Plan of $15,600 were provided to each of Messrs. Best, +Ottoson, Pursell, Copeland and Vogel. In 2014, matching contributions to our Non-Qualified Deferred Compensation Plan of $38,502, $23,234, and $17,652 were made to Mr. Best, Mr. Ottoson +and Mr. Vogel, respectively. In 2014, financial consulting service benefits of $10,643, $12,015, and $10,807 were provided to Mr. Best, Mr. Ottoson and Mr. Vogel, +respectively. +Grants of Plan-Based Awards in 2014 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the qualitative metrics for +our 2014 STIP on February 17, 2014. As discussed above, in 2015, we made the bonus payments associated with the 2014 STIP. In addition, pursuant to our LTIP and in accordance with our Equity +Plan, our Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 23, 2014. We made these grants on July 1, 2014. These grants are summarized in the table below. +Estimated Possible +Payouts Under +Non-Equity Incentive +Plan Awards +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (5) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option +Awards (6) +Grant +Date +Name +Target (1) +Maximum (2) +Threshold +Target (3) +Maximum (4) +Anthony J. Best +2/17/14 +$826,308 +$2,000,000 +— +— +— +— +— +7/1/14 +— +— +— +— +— +10,999 +$925,016 +7/1/14 +— +— +— +29,315 +58,630 +— +$2,774,958 +Javan D. Ottoson +2/17/14 +$496,385 +$2,000,000 +— +— +— +— +— +7/1/14 +— +— +— +— +— +8,323 +$699,964 +7/1/14 +— +— +— +22,185 +44,370 +— +$2,100,032 +A. Wade Pursell +2/17/14 +$389,596 +$2,000,000 +— +— +— +— +— +7/1/14 +— +— +— +— +— +5,945 +$499,975 +7/1/14 +— +— +— +15,846 +31,692 +— +$1,499,982 +David W. Copeland +2/17/14 +$271,896 +$2,000,000 +— +— +— +— +— +7/1/14 +— +— +— +— +— +2,081 +$175,012 +7/1/14 +— +— +— +5,546 +11,092 +— +$524,984 +Herbert S. Vogel +2/17/14 +$299,785 +$2,000,000 +— +— +— +— +— +7/1/14 +— +— +— +— +— +2,423 +$203,774 +7/1/14 +— +— +— +6,457 +12,914 +— +$611,220 +(1) This +amount represents the salary amount actually paid to each of our NEOs in 2014, multiplied by the applicable STIP target percentage. +(2) This +amount represents the maximum award possible under the stockholder-approved Section 162(m) Cash Bonus Plan; however, as described +above in "Section 4—Elements Of Compensation—Short Term Incentive Plan—Design," in general, actual bonuses generally range from zero to two times a +participant's target percentage. +(3) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the target performance level established by our Compensation Committee, resulting in an earned percentage of 100%. PSUs +42 +Table of Contents +represent +the right to receive, upon settlement of the PSUs after the completion of a three-year performance period ending June 30, 2017, a number of shares of our common stock that may be from +0% to 200% of the number of PSUs granted on the award date, depending on the extent to which our performance criteria have been achieved and the extent to which the PSUs have vested. The performance +criteria for the PSUs are based on a combination of our TSR for the performance periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer +companies for the performance period. The PSUs will vest on July 1, 2017. +(4) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the maximum performance level established by our Compensation Committee, resulting in an earned percentage of 200%. +(5) This +amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2015, one-third on July 1, 2016, +and one-third on July 1, 2017. Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. The RSUs are not eligible for dividends +and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement +date. +(6) The +grant date fair value of a PSU is calculated using a Geometric Brownian Motion Model, and the aggregate grant date fair value represented +in this column for PSUs is calculated based upon the number of PSUs granted. +43 +Table of Contents +Outstanding Equity Awards at 2014 Year-End +The following table shows outstanding equity awards for our NEOs as of December 31, 2014: +Stock Awards +Equity Incentive Plan +Awards: +Equity Incentive Plan +Awards: +Name +Number of Shares or +Units of Stock That +Have Not Vested +Market Value of Shares +or Units of Stock that +Have Not Vested (1) +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value +of Unearned Shares, +Units or Other Rights +That Have Not +Vested (1) +Anthony J. Best +5,940 +(2) +$229,165 +— +$— +— +$— +50,500 +(3) +$1,948,290 +10,282 +(4) +$396,680 +— +$— +— +$— +43,271 +(5) +$1,669,395 +10,999 +(7) +$424,341 +— +$— +— +$— +29,315 +(8) +$1,130,973 +Javan D. Ottoson +2,716 +(2) +$104,783 +— +$— +— +$— +23,086 +(3) +$890,658 +5,003 +(4) +$193,016 +— +$— +— +$— +21,051 +(5) +$812,148 +10,000 +(6) +$385,800 +— +$— +8,323 +(7) +$321,101 +— +$— +— +$— +22,185 +(8) +$855,897 +A. Wade Pursell +2,207 +(2) +$85,146 +— +$— +— +$— +18,757 +(3) +$723,645 +3,891 +(4) +$150,115 +— +$— +— +$— +16,373 +(5) +$631,670 +5,945 +(7) +$229,358 +— +$— +— +$— +15,846 +(8) +$611,339 +David W. Copeland +934 +(2) +$36,034 +— +$— +— +$— +7,936 +(3) +$306,171 +1,668 +(4) +$64,351 +— +$— +— +$— +7,017 +(5) +$270,716 +2,081 +(7) +$80,285 +— +$— +— +$— +5,546 +(8) +$213,965 +Herbert S. Vogel +781 +(2) +$30,131 +— +$— +— +$— +6,637 +(3) +$256,055 +1,390 +(4) +$53,626 +— +$— +— +$— +5,847 +(5) +$225,577 +2,423 +(7) +$93,479 +— +$— +— +$— +6,457 +(8) +$249,111 +(1) The +market value of RSUs and PSUs that have not vested is calculated using the closing price of $38.58 of our common stock on +December 31, 2014. The market value of PSUs is calculated based upon an earned percentage of 100%. +(2) These +RSUs vest 1/3rd on July 1, 2013, 1/3rd on July 1, 2014, and 1/3rd on July 1, 2015. +(3) These +PSUs vest 1/3rd on July 1, 2013, 1/3rd on July 1, 2014, and 1/3rd on July 1, 2015. The PSUs are subject to a +three-year performance period ending June 30, 2015. The award is reported at an earned percentage of 100%. Because these PSUs are not settled until the end of the applicable three-year +performance period, the PSUs shown in the table above include both vested and unvested PSUs. +(4) These +RSUs vest 1/3rd on July 1, 2014, 1/3rd on July 1, 2015, and 1/3rd on July 1, 2016. +(5) These +PSUs vest on July 1, 2016. The PSUs are subject to a three-year performance period ending June 30, 2016. The award is +reported at an earned percentage of 100%. +(6) These +RSUs vest on October 3, 2015. These RSUs were granted in conjunction with Mr. Ottoson's promotion to President. +(7) These +RSUs vest 1/3rd on July 1, 2015, 1/3rd on July 1, 2016, and 1/3rd on July 1, 2017. +(8) These +PSUs vest on July 1, 2017. The PSUs are subject to a three-year performance period ending June 30, 2017. The award is +reported at an earned percentage of 100%. +44 +Table of Contents +2014 Stock Vested +Stock Awards +Name +Number of Shares +Acquired on Vesting (1) +Value Realized +on Vesting (2) +Anthony J. Best +33,875 +$2,853,119 +Javan D. Ottoson +14,334 +$1,207,182 +A. Wade Pursell +11,477 +$966,576 +David Copeland +4,698 +$395,646 +Herbert S. Vogel +2,322 +$195,280 +(1) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2014. As discussed +above, each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement +of the PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from 0% to 200% of the number of PSUs, depending on the extent to which we have +achieved our performance goals. This table does not include any vested, outstanding PSUs, because all outstanding PSUs are currently subject to the applicable three-year performance period, and thus +have not been settled. +(2) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon +the vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date +was not a normal market trading date, then on the last normal market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation +were $84.10 on June 30, 2014, for the vesting and settlement of the first vesting tranche of the 2013 RSU awards and the vesting and settlement of the second vesting tranche of the 2012 RSU +awards and the vesting and settlement of the third vesting tranche of the 2011 RSU awards which were all settled on July 1, 2014; and $84.35 on July 1, 2014, for the vesting and +settlement date of July 2, 2014, for the full settlement of the July 1, 2011 PSU awards, which were settled based upon an earned percentage of 55%. +45 +Table of Contents +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our +employees who meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC limits (the 2014 limit was $260,000 in +annual base salary income for certain executive officers with a senior management hierarchy title of at least Vice President). +The +following table represents the value of the NEOs' pension benefits as of December 31, 2014: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Anthony J. Best +Qualified Pension Plan +9 +$372,102 +$— +Non-Qualified SERP Pension Plan +9 +$678,059 +$— +Javan D. Ottoson +Qualified Pension Plan +8 +$234,308 +$— +Non-Qualified SERP Pension Plan +8 +$185,864 +$— +A. Wade Pursell +Qualified Pension Plan +6 +$134,701 +$— +Non-Qualified SERP Pension Plan +6 +$75,365 +$— +David W. Copeland +Qualified Pension Plan +4 +$124,643 +$— +Non-Qualified SERP Pension Plan +4 +$49,485 +$— +Herbert S. Vogel +Qualified Pension Plan +3 +$79,973 +$— +Non-Qualified SERP Pension Plan +3 +$20,629 +$— +Non-qualified Deferred Compensation for 2014 +This Non-qualified Deferred Compensation table sets forth the NEOs participation in the Non-qualified Deferred Compensation Plan. This +plan allows eligible employees to defer part of their salary and annual incentive bonus on a voluntary basis. +Name +Executive +Contributions +in Last FY (1) +Registrant +Contributions in +Last FY (2) +Aggregate +Earnings in +Last FY (3) +Aggregate +Withdrawals in +Last FY +Aggregate +Balance at +Last FYE +Anthony J. Best +$38,502 +$38,502 +$919 +$— +$77,923 +Javan D. Ottoson +$23,234 +$23,234 +$1,225 +$— +$47,693 +A. Wade Pursell +$— +$— +$— +$— +$— +David W. Copeland +$— +$— +$— +$— +$— +Herbert S. Vogel +$17,652 +$17,652 +$670 +$— +$35,974 +(1) The +amounts in this column are also included in the Salary column in the Summary Compensation Table. +(2) The +amounts in the column represent the matching contributions. The matching contributions are included in the "All Other Compensation" +column of the 2014 Summary Compensation Table. Six percent of any compensation deferred receives a company match. +(3) The +earnings reflected in the column represent deemed investment earnings or losses from voluntary deferrals and Company contribution, as +applicable. The Non-qualified Deferred Compensation Plan does not guarantee a return on deferred amounts. +Although +the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from net profits, if any, from oil and gas activity from designated +46 +Table of Contents +pools +of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific determinable compensation amounts or balances are deferred. The NPP +is described in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts would be reflected in the Summary Compensation Table above; however, we did not pay any NPP Compensation +to our NEOs during 2012, 2013 or 2014. +Our +SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated +benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section above. In addition, annual increases in the actuarial value of benefits under the SERP +are included in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +As discussed in "Compensation Discussion and Analysis—Section 4—Elements of +Compensation—Employment Agreements," the employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of Vice President and above, including each of our NEOs, +and to certain other key employees, through change of control executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of +control event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive +officers are entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a change of control of our company (a) without "cause" +by our company or (b) for "good reason" by the officer, each as defined in the agreements. The term "good reason" incorporates the concept of a change in the executive's status, authority, +position, offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or within two and +one-half years thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time frame, or the requirement that an executive relocate his +base of employment outside a 25 mile radius from the executive's location at that time. Severance payments equal to a maximum of two and one-half times annual base salary, depending on the +length of time of employment after the change of control, provided that in no event would the severance payments equal less than one times annual base salary. In addition, all insurance and benefits +will be provided for a period of one year after termination. In the event the executive is subject to golden parachute excise taxes under Section 4999 of the IRC, severance benefits may be +reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax "gross-up" payments are provided. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company, or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +47 +Table of Contents +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention incentive benefiting our company and our stockholders without creating an unreasonable impediment to a potential acquirer of our company. The maximum two and +one-half times base salary post-change of +control severance benefit, and the minimum one times base salary benefit and insurance coverage period under these agreements for our executives, are comparable to payment levels and periods offered +under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits protection during a reasonable period of time to allow +the executive to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2014, under the change of control executive severance agreements, the total maximum +severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year after severance for each of the NEOs who +were employed by us as of December 31, 2014, would be as follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated +Value of +Benefits for +One Year (1) +Anthony J. Best (2) +$2,090,000 +$1,672,000 +$16,140 +Javan D. Ottoson +$1,262,500 +$505,000 +$16,363 +A. Wade Pursell +$1,095,000 +$438,000 +$26,215 +David W. Copeland +$982,500 +$393,000 +$25,965 +Herbert S. Vogel +$1,000,000 +$400,000 +$26,147 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any +such benefits pursuant to a subsequent employer's benefit plans. The maximum period for receipt of benefits under the change of control executive severance agreements is one year for all NEOs with the +exception of Mr. Best as described in footnote 2. +(2) The +employment agreement between our company and Mr. Best provides that in the event of a change of control of our company and a +termination of Mr. Best's employment, we must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years +thereafter, and, to the extent that severance pay or benefits to be received by Mr. Best under the terms of the change in control executive severance agreement between our company and +Mr. Best would exceed the severance pay or benefits under his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive +severance agreement. +Under +our change of control executive severance agreements with our executives, the severance payments are to be made in such base salary installment amounts and pursuant to such base +salary installment payment schedule as were in effect immediately prior to the change of control, and our company or its successor is obligated to make such payments. We also have change in control +arrangements with a majority of our non-executive employees. +48 +Table of Contents +Equity Compensation Plans +Options and shares of our common stock are authorized for grant or issuance pursuant to our Equity Plan as compensation to eligible +employees, consultants, and members of the Board of Directors. Our stockholders have approved this plan. The following table is a summary of the shares of common stock authorized for issuance under +the equity compensation plans as of December 31, 2014: +(a) +(b) +(c) +Plan category +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants, and +rights +Weighted-average +exercise price of +outstanding +options, warrants, +and rights +Number of securities +remaining available for +future issuance under +equity compensation +plans (excluding +securities reflected in +column (a)) +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +— +— +Restricted stock (1)(3) +515,724 +N/A +Performance share units (1)(3)(4) +745,264 +N/A +Total for Equity Incentive Compensation Plan +1,260,988 +— +3,602,270 +Employee Stock Purchase Plan (2) +— +— +1,146,921 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +1,260,988 +— +4,749,191 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified +stock options, incentive stock options, stock appreciation rights, performance shares, performance units, and stock-based awards to key employees, consultants, and members of our Board or any of our +affiliates. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock +Option Plan, the SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan (collectively referred to as the "Predecessor Plans"). +All grants of equity are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor Plan immediately prior to the +effective date of the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. Our Board approved amendments to the Equity Plan +in 2009, 2010 and 2013, and each amended plan was approved by our stockholders at the respective annual stockholders' meetings. The awards granted in 2014, 2013 and 2012 under the Equity Plan were +464,641, 632,939 and 724,671, respectively. +(2) Under +the SM Energy Company ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to +15 percent of their eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six-month +offering period, and shares issued under the ESPP as of December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the Internal Revenue +Code. Shares issued under the ESPP totaled 83,136, 77,427 and 66,485 in 2014, 2013 and 2012, respectively. +49 +Table of Contents +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in +order to provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $68.29 and +$67.48, respectively. +(4) The +number of awards vested assumes an earned percentage of 100%. The final number of shares issued may vary depending on the ending +three-year earned percentage, which ranges from 0% to 200%. +50 +Table of Contents +DIRECTOR COMPENSATION +General +The annual service period for our directors is the period from one stockholders' annual meeting to the next. In May +2014, F. W. Cook conducted an analysis of compensation for members of the boards of directors of our peer companies versus the compensation for members of our Board. +F. W. Cook's analysis generally revealed that our director compensation was below the 25 th percentile of the peer group. Based on F. W. Cook's analysis, the +Compensation Committee elected to recommend to our Board a $20,000 increase in both the cash retainer and the equity compensation portions of the director compensation package for the current +2014–2015 service period. The Compensation Committee recommended to our Board the director compensation package for the annual service period from May 20, 2014, through +May 19, 2015, which our Board approved on May 20, 2014. Director compensation is primarily paid in the form of stock grants. Mr. Ottoson, our President and Chief Executive Officer +and only employee director, does not receive additional compensation for serving on the Board or any committee of the Board. Mr. Best, who retired from the company on January 31, 2015, +does not receive additional compensation for serving on the Board or any committee of the Board. +The +annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education +programs: +• Cash Retainer —A $90,000 retainer (in lieu of Board and committee meeting +attendance fees) payable at the individual director's option, either entirely in cash or shares of our common stock. Mr. Bickle, Mr. Gardiner, Mr. Leiker, Mr. Quintana and +Mr. Sullivan each elected to have their 2014 retainers paid in shares of our common stock, which resulted in a grant on May 21, 2014, of 1,154 shares of our common stock to each +under our Equity Plan. Ms. Robeson elected to have her pro rata 2014 retainer paid in shares of our common stock, which resulted in a grant on July 11, 2014, of 984 shares of our +common stock under our Equity Plan. In the event any director attends in excess of 30 Board and committee meetings in the aggregate during the period from May 20, 2014, through May 19, +2015, such director shall receive $1,500 per meeting for each meeting in excess of 30. +• Equity Retainer —A grant of shares of our common stock with a value of +$180,000—resulting in a grant on May 21, 2014, to each non-employee director of 2,307 shares of our common stock issued under our Equity Plan. Ms. Robeson and +Mr. Peru received pro rata grants of shares of our common stock as discussed below. These shares and any shares issued pursuant to any retainer are earned over the director's annual service +period. Shares issued to a director for compensation may not be transferred until 18 months after the date of issuance. Shares issued to a director who thereafter resigns from the Board before +completing the annual service period, but after having completed at least five years of service as a Board member, are treated as fully earned. The related compensation expense we record is the fair +value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +51 +Table of Contents +Chairs +of the following committees are paid the following cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of +their respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +Mr. Sullivan +was paid a retainer for his service as non-executive Chairman of the Board of $85,000 for the 2014–2015 annual service period. The retainer was paid in +the form of shares of our common stock on May 21, 2014, which resulted in a grant of 1,090 shares. The retainer was in addition to his basic non-employee director compensation. +We +maintain a matching charitable gift program to encourage financial support for charitable organizations that are exempt from federal income taxation in which employees and our +non-management directors may participate. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a percentage of the average +of our prior three years' income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Dr. Brand, Mr. Seidl and +Mr. Sullivan participated in this program during 2014, and we matched a total of $10,000 in non-employee director contributions under this program. We may suspend, change, revoke or terminate +the program at any time. +Our +directors are eligible to participate in our company-wide health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for non-employee directors of five times their annual cash retainer. New directors are allowed time to meet this +guideline and are not required to acquire shares in the open market for this purpose. +The +following table sets forth the annual and long-term compensation paid during 2014 to our non-employee directors. The stock based component of the compensation reflects the grant +date fair value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +52 +Table of Contents +2014 Director Compensation +Name +Fees +Earned +or Paid in +Cash +Stock +Awards (3)(4)(5) +Option +Awards (6) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (7) +Total +Larry W. Bickle +$10,000 +$270,062 +$— +$— +$— +$— +$280,062 +Stephen R. Brand +$105,000 +$180,015 +$— +$— +$— +$2,000 +$287,015 +William J. Gardiner +$20,000 +$270,062 +$— +$— +$— +$— +$290,062 +Loren M. Leiker +$— +$270,062 +$— +$— +$— +$— +$270,062 +Ramiro G. Peru (1) +$67,315 +$134,699 +$— +$— +$— +$— +$202,014 +Julio M. Quintana +$— +$270,062 +$— +$— +$— +$— +$270,062 +Rose Robeson (2) +$— +$231,594 +$— +$— +$— +$— +$231,594 +John M. Seidl +$90,000 +$180,015 +$— +$— +$— +$3,000 +$273,015 +William D. Sullivan +$— +$355,115 +$— +$— +$— +$5,000 +$360,115 +(1) We +issued to Mr. Peru his equity retainer of 1,717 shares of our common stock on August 20, 2014, after his appointment +to the Board on August 20, 2014. This stock award was for the period from August 20, 2014, through May 20, 2015, and is considered to be earned over his pro-rated annual service +period and will be fully vested on May 21, 2015. The shares also carry a transfer restriction imposed by us that expires 18 months after the date of issuance of the shares. The value of +the stock awards represents the grant date fair value. +(2) We +issued to Ms. Robeson her equity retainer of 1,967 shares of our common stock on July 11, 2014, after her appointment +to the Board on July 11, 2014. Ms. Robeson elected to receive an additional 984 shares of our common stock on July 11, 2014, in lieu of her pro-rated $90,000 annual cash +retainer. This stock award was for the period from July 11, 2014, through May 20, 2015, and is considered to be earned over her pro-rated annual service period and will be fully vested +on May 21, 2015. The shares also carry a transfer restriction imposed by us that expires 18 months after the date of issuance of the shares. The value of the stock awards represents the +grant date fair value. +(3) We +issued to each of our non-employee directors (other than Mr. Peru and Ms. Robeson, whose pro rata grants are described +above) their equity retainer of 2,307 shares of our common stock on May 21, 2014, after such director's election to the Board on May 20, 2014. We issued to Mr. Sullivan an +additional 1,090 shares of our common stock on May 21, 2014, for serving as the Non-Executive Chairman of the Board. Mr. Bickle, Mr. Gardiner, Mr. Leiker, +Mr. Quintana and Mr. Sullivan elected to receive an additional 1,154 shares of our common stock on May 21, 2014, in lieu of their respective $90,000 annual cash retainers. +These stock awards are for the annual service period from May 21, 2014 through May 20, 2015. The shares are considered to be earned over the director's annual service period and will be +fully vested on May 21, 2015. The shares also carry a transfer restriction imposed by us that expires 18 months after the date of issuance of the shares. The value of the stock awards +represents the grant date fair value. +(4) The +grant date fair value of each share of our common stock issued to non-employee directors over their past two years of service to us is +set forth in the following table and is computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. There were no forfeitures by directors during fiscal +2014. +53 +Table of Contents +Grant Date +Shares +Value +Grantee +8/20/2014 +1,717 +$134,699 +Peru +7/11/2014 +2,951 +$231,594 +Robeson +5/21/2014 +2,307 +$180,015 +Brand, Seidl +5/21/2014 +3,461 +$270,062 +Bickle, Gardiner, Leiker and Quintana +5/21/2014 +4,551 +$355,115 +Sullivan +5/23/2013 +2,539 +$160,008 +Brand, Seidl +5/23/2013 +3,650 +$230,023 +Bickle, Gardiner, Leiker and Quintana +5/23/2013 +4,841 +$305,080 +Sullivan +(5) As +of December 31, 2014, our non-employee directors held the following number of shares of restricted stock, which were granted in +2014: Mr. Bickle—3,461, Dr. Brand—2,307, Mr. Gardiner—3,461, Mr. Leiker—3,461, Mr. Peru—1,717, +Mr. Quintana—3,461, Ms. Robeson—2,951, Mr. Seidl—2,307, and Mr. Sullivan—4,551. +(6) For +the year ended December 31, 2014, no stock options were issued to directors, nor have any stock options been issued to the +directors since December 2004. As of December 31, 2014, the non-employee directors do not hold any outstanding stock options. +(7) The +amounts in this column represent matching charitable contributions made on the behalf of Dr. Brand, Mr. Seidl and +Mr. Sullivan for the year 2014 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS +None +of the directors who served on the Compensation Committee during fiscal year 2014 has ever served as one of our officers or employees. During fiscal year +2014, there were no Compensation Committee interlocks. +54 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Our +directors are elected annually. On September 29, 2014, Mr. Best notified our Board that he did not intend to stand for re-election at the +2015 Annual Meeting of Stockholders, and on February 17, 2015, Mr. Seidl notified our Board that he did not intend to stand for re-election at the 2015 Annual Meeting of Stockholders. As +a result, and based on the recommendations of the NCG Committee, the Board has nominated the following individuals for election as directors to serve until the 2016 Annual Meeting of Stockholders and +until their successors have been elected and qualified, or until their earlier resignation or removal: +Larry W. Bickle +Ramiro G. Peru +Stephen R. Brand +Julio M. Quintana +William J. Gardiner +Rose M. Robeson +Loren M. Leiker +William D. Sullivan +Javan D. Ottoson +Each +nominee is currently a director and all nominees other than Ms. Robeson, who was appointed to the Board effective July 11, 2014, Mr. Peru, who was appointed on +August 20, 2014, and Mr. Ottoson, who was appointed to the Board effective September 26, 2014, were previously elected to the Board by our stockholders. Each nominee has consented +to being named as a nominee in this Proxy Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if +such a situation arises prior to the Annual Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of our oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, +public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance +Guidelines. Among other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, +operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that +led the NCG Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our +long-term strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, +whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +Set +forth below is a summary of certain characteristics of our director nominees as well as certain biographical information, as of the filing date of this Proxy Statement, for each +nominee for election as director, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships +among any of our directors or executive officers. +55 +Table of Contents +Director Nominee Summary +All of our non-management Director Nominees are independent +Our Director Nominees provide an effective balance of fresh perspective and experience with the company +Director Nominees +Larry W. Bickle +Director since 1995 +Age: 69 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private +equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer of +TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also serves as a member of the Board of Managers of Quantum Natural Gas Storage, LLC. +Key Attributes, Experience and Skills: +Mr. Bickle +brings to the Board over 31 years of experience in various aspects of the oil and gas midstream industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy +insights from his experience leading TPC Corporation. Mr. Bickle also brings specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas +marketing and trading operation, and extensive experience with both state and federal regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as +the basis for Mr. Bickle's designation as an audit committee financial expert. Mr. Bickle's previous service on other public company boards enhances his strong corporate governance background. +56 +Table of Contents +Stephen R. Brand +Director since 2011 +Age: 65 +Position, Principal Occupation and Business Experience: +Dr. Brand is currently Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. He is also a director of BPZ Resources, Inc. (NYSE: +BPZ), a company that focuses on exploration, development and production of oil and natural gas in Peru and Ecuador. Dr. Brand is a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the +E&P sector for solving subsurface problems in complex geologic formations. He is also on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution-as-a-service platform to assess and manage +data that can be used in a predictive role. At the end of 2010, Dr. Brand retired as Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice +President, Technology (R&D) of ConocoPhillips in October 2007, Dr. Brand served as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Dr. Brand started his career in 1976 as a geologist with +Phillips Petroleum Company and thereafter served in various roles of increasing responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key Attributes, Experience and Skills: +Dr. Brand has +over 37 years of experience in the energy industry, including extensive experience in the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" stream +technologies. He also has valuable human resources management skills and experiences, which are relevant in the oversight of our operational and compensation management functions. +William J. Gardiner +Director since 1999 +Age: 61 +Position, Principal Occupation and Business Experience: +Mr. Gardiner is Senior Vice President and Chief Financial Officer of King Ranch, Inc., a privately held ranching and agricultural company that owns the historic 825,000 acre "King Ranch" in south Texas. Mr. Gardiner has been an executive +officer and Chief Financial Officer of King Ranch, Inc. since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice President and Chief Financial Officer of CRSS, Inc., a NYSE-listed architectural engineering and +independent power producing firm. Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director at the time of our acquisition of King Ranch Energy, Inc. in 1999. +Key Attributes, Experience and Skills: +Mr. Gardiner +brings to the Board strong financial management and accounting oversight skills and experiences, a significant amount of which was obtained through his work in energy related businesses for over 27 years. These skills and experiences are +important in the oversight of our financial reporting and financial and operational risk management functions, and serve as a basis for Mr. Gardiner's designation as an audit committee financial expert. +57 +Table of Contents +Loren M. Leiker +Director since 2012 +Age: 61 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in the United States. Mr. Leiker served EOG as Senior Executive Vice President +of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, Inc., +where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of Vermilion Energy Inc. (VET: Toronto) since December 2012, a director of Navitas +Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March 2015. +Key Attributes, Experience and Skills: +Mr. Leiker +brings to the Board over 37 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience in exploration activities similar to ours, a deep understanding of upstream operations and +asset management technologies, and broad human resources management skills and experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Leiker's service on other +public company boards enhances his strong corporate governance background. +Javan D. Ottoson +Director since 2014 +Age: 56 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed as Chief Executive Officer of the company in February 2015 and President of the company in October 2012. +Mr. Ottoson has been in the energy industry for over 33 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and Engineering at Energy Partners, Ltd., an independent +oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, +and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in +management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +Key Attributes, Experience and Skills: +The Board of +Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on the Board because he is a proven leader with the strong technical skills and leadership vision necessary to create top quartile returns +for our stockholders. Mr. Ottoson's experiences and familiarity with our operations is critical to our success as we continue to build on our existing assets and expand our opportunities through acquisitions and exploration. +58 +Table of Contents +Ramiro G. Peru +Director since 2014 +Age: 59 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 1999 to 2007. He joined Phelps Dodge in 1979 and held various finance and accounting positions prior to his appointment as Chief Financial +Officer. Mr. Peru currently serves on the Boards of Directors of Anthem, Inc. (NYSE: ANTM) and UNS Energy Corporation. +Key Attributes, Experience and Skills: +Mr. Peru brings +to the Board significant financial expertise, much of which he obtained through his over 28 years of experience in the mining industry. Mr. Peru's service as chairman of the audit committee of another publicly traded company enhances his +significant financial management and accounting oversight experience. As a result of his executive level experience, Mr. Peru also has extensive human resources management skills, which are an important foundation for his service on the +Compensation Committee. +Julio M. Quintana +Director since 2006 +Age: 55 +Position, Principal Occupation and Business Experience: +Mr. Quintana served as the President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January 2015, and currently serves as a director of Tesco Corporation. Prior to his appointment as President +and Chief Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer at Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for +Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana +brings to the Board over 34 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of drilling and asset management technologies, +and broad human resources management skills and experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Quintana's service on another public company board enhances +his strong corporate governance background. +59 +Table of Contents +Rose M. Robeson +Director since 2014 +Age: 54 +Position, Principal Occupation and Business Experience: +Ms. Robeson served as Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners LP, from 2012 until her retirement in 2014. Ms. Robeson also served as Group Vice President and +Chief Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream LLC, Ms. Robeson was the Vice President and Treasurer. Prior to joining DCP Midstream, LLC, Ms. Robeson was with Kinder Morgan, +Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson has served as a director of American Midstream GP, LLC, the general partner of American Midstream Partners, LP (NYSE: +AMID) since June 1, 2014. +Key Attributes, Experience and Skills: +Ms. Robeson +brings to the Board over 26 years of broad experience in various aspects of the oil and gas industry, including exploration and production, midstream and refining, and marketing. She also has significant financial management, risk management and +accounting oversight experience, which is important in the oversight of our financial reporting, financial risk management and compensation management functions. Ms. Robeson's service on another public company board enhances her strong corporate +governance background. +60 +Table of Contents +William D. Sullivan +Director since 2004 +Age: 58 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan retired from Anadarko in August +2003. Since March 2006, Mr. Sullivan has been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing oil and natural +gas properties. Since February 2007, Mr. Sullivan has been a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of +gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. Since August 2007, Mr. Sullivan has been a director of Tetra Technologies, Inc. (NYSE: TTI), an oil and +gas services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of CSI Compressco Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded limited +partnership providing wellhead compression-based production enhancement services. CSI Compressco GP, Inc. is a minority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. +From August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice +President—International Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key Attributes, Experience and Skills: +Mr. Sullivan +brings to the Board over 32 years of strong and broad experience in the oil and gas industry, with particular expertise in the exploration and production side of the industry. His experience as an exploration and production senior executive +enables him to contribute significant independent insights on our business and operations, and the economic environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in +the oversight of our compensation management functions, and his service on other public company boards of directors provides a strong corporate governance background. +Recommendation of the Board: +The Board recommends voting " FOR " the election of all the nominees listed above. +61 +Table of Contents +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2015 +Our +stockholders are being asked to ratify the appointment by the Audit Committee of Ernst & Young LLP ("EY") as our independent registered public +accounting firm for 2015. EY has served as our independent registered public accounting firm since 2013, and the Audit Committee plans to engage EY to perform the audit of our financial statements as +of and for the year ending December 31, 2015. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of EY is not required by law or our organizational +documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public +accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do not ratify the appointment of EY, the Audit Committee will consider whether to engage another +independent registered public accounting firm, but will not be obligated to do so. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent +registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. +A +representative of EY is expected to be present at the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +Recommendation of the Board : The Board recommends voting " FOR " +Proposal 2. +62 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our +stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this +Proxy Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the Board or the Compensation Committee, +or require the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the outcome of the vote when considering +future executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed in this Proxy Statement, we will +consider our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" section above, our executive compensation programs are designed to provide a competitive level +of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. +In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named executive officers is +allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby "at-risk"). In addition, as an executive officer's +responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed "at-risk" increases in relation to base salary. Furthermore, our named +executive officers' targeted total direct compensation (base salary plus target bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more detail under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the +key drivers of long-term stockholder value creation. Our LTIP also compensates performance based upon absolute "total stockholder return," as well as total stockholder return compared to our peers. We +believe that we have achieved our goal for at least the last three years. As you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which +more thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these +policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. In +addition, the fact that we have received the support of at least 97% of votes cast in the last four advisory votes on executive compensation indicates that our stockholders strongly support our +compensation philosophy. +In +light of these circumstances, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2015 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the "Compensation +Discussion +63 +Table of Contents +and +Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +During +our 2011 Annual Meeting of Stockholders, our stockholders approved a non-binding, advisory proposal to hold annual advisory votes to approve our executive compensation. In +consideration of the results of this advisory vote, the Board has adopted a policy providing for annual advisory votes on executive compensation. Unless the Board modifies this policy, the next +advisory vote on compensation following this vote will be held at our 2016 Annual Meeting of Stockholders. +Recommendation of the Board : The Board recommends voting " FOR " +Proposal 3. +64 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The +Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its oversight responsibilities with +respect to (a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance +with legal and regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, (c) the +performance of SM Energy Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2014, was responsible for performing an independent audit of +SM Energy Company's financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee +these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial statements of SM Energy Company for the year ended December 31, 2014. The Audit Committee also discussed with the independent registered public accounting firm the matters +required to be discussed by Auditing Standards No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee +received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding +the independent registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting +firm that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be +included in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2014. +Respectfully +submitted by the Audit Committee of the Board of Directors, +William J. +Gardiner, Chair +Larry W. Bickle +Loren M. Leiker +Ramiro G. Peru +Rose M. Robeson +65 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +On +September 10, 2012, the Audit Committee approved the engagement of EY as the Company's independent registered public accounting firm for the year +ending December 31, 2013. The Audit Committee approved the engagement of EY as the Company's independent registered public accounting firm for the year ending December 31, 2014, on +May 20, 2014. +To +the knowledge of management, neither EY nor any of its members had any direct or material indirect financial interest in our company or any connection with our company in any +capacity other than as our independent registered public accounting firm for the years ended December 31, 2014, and 2013. +We +paid the following fees for the audit of the consolidated financial statements and for other services provided in the years ended December 31, 2014, and 2013. All services and +fees, including tax service fees, were pre-approved by the Audit Committee. +2014 +2013 +Audit Fees (1) +$928,520 +$847,555 +Audit Related Fees (2) +90,500 +— +Tax Fees (3) +10,000 +10,000 +All Other Fees +— +— +Total Fees +$1,029,020 +$857,555 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +audits of specific divested properties on behalf of third party buyer. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee concluded that the provision of the non-audit services, such as tax services, was compatible with maintaining EY's independence. +66 +Table of Contents +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The +charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the +independent registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. Such pre-approval requirement +for non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's +policy that, prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided +by the independent registered public accounting firm (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the independent registered public accounting firm are monitored by financial +management of our company and reported to the Audit Committee; (c) any services proposed to be provided by the independent registered public accounting firm and the related fees that have not +been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and (d) incremental fees for previously approved +services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +67 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS +Pursuant +to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy materials and for +presentation at the 2016 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be eligible for inclusion in our +proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 11, 2015. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to the Board or a proposal +of business to be properly brought before the 2016 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before +the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for +election to the Board or a proposal of business for the 2016 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the +105 th day prior to the first anniversary of the date of the 2015 Annual Meeting nor later than the close of business on the 75 th day prior to the first anniversary of the +2015 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be considered at the 2016 Annual Meeting of Stockholders, it should be properly +submitted to our Corporate Secretary no earlier than February 4, 2016, and no later than March 5, 2016. If the date of our 2016 Annual Meeting of Stockholders changes by more than +20 days before or after May 19, 2016, then stockholder nominations and proposals must be received not earlier than the close of business on the 105 th day prior to the date +of the 2016 Annual Meeting of Stockholders and not later than the close of business on the later of the 75 th day prior to the date of the 2016 Annual Meeting of Stockholders or, if the +first public announcement of the date of the 2016 Annual Meeting of Stockholders is less than 85 days prior to the date of the meeting, the 10th day following the day on which public +announcement of the date of the 2016 Annual Meeting of Stockholders is first made by us. For additional information about stockholder nominations and proposals, see "Corporate +Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly presented by a +stockholder at the 2016 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the proxy statement +discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 24, 2016, and the +stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 24, 2016, and the matter nonetheless is permitted to be +presented at the 2016 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter in the proxy +statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above +and other applicable requirements. +68 +Table of Contents +2014 ANNUAL REPORT +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, with the SEC. Our Annual Report is being made available to +our stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material. It is available free of charge at the SEC's web site at www.sec.gov . Upon written +request by a stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial statements and +financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in +furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +69 +Table of Contents +OTHER MATTERS +Management +does not know of any matters to be brought before the Annual Meeting other than the election of directors, the ratification of the appointment by +the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2015, and the advisory vote to approve the compensation of our named executive officers. If any +other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy intend to use their discretionary voting authority under +the proxy to vote the proxy in accordance with their best judgment on those matters. +Our +website at www.sm-energy.com includes much of this information, along with other general information about our operations, community activities and stakeholder relations. Any +remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at ir@sm-energy.com or our External Affairs Department at +externalaffairs@sm-energy.com. +Whether +or not you intend to be present at the Annual Meeting, we urge you to submit your proxy promptly. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and Corporate Secretary +April 9, +2015 +70 +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 02188B 1 U PX + q PLEASE FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q +. + A The Board of Directors recommends a vote FOR all the nominees listed +and FOR Proposals 2 and 3. For Against Abstain 1. The Board of Directors has +nominated the below nine persons to stand for election as directors. As of +the date of the accompanying proxy statement, no one has been nominated to +serve as director other than the nominees listed below. 2. The proposal to +ratify the appointment by the Audit Committee of Ernst & Young LLP as our +independent registered public accounting firm for 2015. For Against Abstain +3. To approve, on a non-binding advisory basis, the compensation philosophy, +policies and procedures, and the compensation of our Company’s named +executive officers, as disclosed in the accompanying Proxy Statement. Annual +Meeting Proxy Card 01 - Larry W. Bickle 04 - Loren M. Leiker 07 - Julio M. +Quintana 02 - Stephen R. Brand 05 - Javan D. Ottoson 03 - William J. Gardiner +06 - Ramiro G. Peru For Against Abstain For Against Abstain 08 - Rose M. +Robeson For Against Abstain IMPORTANT ANNUAL MEETING INFORMATION Authorized +Signatures — This section must be completed for your vote to be counted. — +Date and Sign Below B Please sign exactly as name(s) appears hereon. Joint +owners should each sign. When signing as attorney, executor, administrator, +corporate officer, trustee, guardian, or custodian, please give full title. +Signature 1 — Please keep signature within the box. Signature 2 — Please keep +signature within the box. Date (mm/dd/yyyy) — Please print date below. 09 - +William D. Sullivan NNNNNNNNNNNN 2 3 4 3 3 6 2 NNNNNNNNN +q PLEASE FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q . Proxy — SM Energy Company Electronic Delivery of Future Proxy +Materials If you would like to reduce the costs incurred by us in mailing +proxy materials, you can consent to receiving all future proxy statements, +proxy cards and annual reports electronically via e-mail or the Internet. To +sign up for electronic delivery, please follow the instructions on the front +of this card to vote using the Internet and, when prompted, indicate that you +agree to receive or access proxy materials electronically in future years. +Important Notice Regarding the Availability of Proxy Materials for the Annual +Meeting of Stockholders to be held on May 19, 2015. The Proxy Statement and +our 2014 Annual Report on Form 10-K are available at: +http://www.viewproxy.com/sm-energy/2015/. 1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 This proxy is solicited on behalf of the Board of +Directors for the Annual Meeting of Stockholders to be held on May 19, 2015. +The undersigned hereby appoints A. Wade Pursell, David W. Copeland, and James +B. Lebeck, or any of them, each with the power to appoint his substitute, as +proxies for the undersigned to vote all shares of SM Energy Company common +stock which the undersigned is entitled to vote at the Annual Meeting of +Stockholders to be held on May 19, 2015, and at any reconvened meeting after +any adjournment thereof, as directed on the matters referred to on the reverse +side and at their discretion on any other matters that may properly be +presented at the meeting, including concerning any adjournment of the +meeting. This proxy when properly executed will be voted in the manner +directed by the undersigned stockholder. If this proxy is properly executed +but no voting direction is given, this proxy will be voted “FOR” all director +nominees in Proposal 1, and “FOR” Proposals 2 and 3. This proxy also confers +discretionary authority to the proxies to vote on any other matters that may +properly be presented at the meeting, including concerning any adjournment of +the meeting. As of the date of the accompanying proxy statement, SM Energy +Company’s management did not know of any other matters to be presented at the +meeting. If any other matters are properly presented at the meeting, +including concerning any adjournment of the meeting, this proxy will be voted +in accordance with the recommendations of SM Energy Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-15-003306/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-15-003306/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4375a00cf3c1436a1b1dc3c83da28e348e38b2de --- /dev/null +++ b/raw/proxies/0000893538/0001047469-15-003306/proxy_rpt.txt @@ -0,0 +1,40 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. The only transaction between our company and a related person since January 1, 2014, involves our relationship with +Tesco Corporation ("Tesco"). Mr. Quintana was the President, Chief Executive Officer, and a director of Tesco before his retirement in January 2015. Tesco designs, manufactures, and delivers +technology based solutions for the upstream energy industry, including oilfield drilling and completion technology, services, and equipment. In 2006, we entered into an agreement with Tesco to provide +equipment and services to us in connection with our drilling and completion operations based on Tesco's industry-recognized ability to supply specific high-quality equipment and services for drilling +and casing needs, which are particularly well suited for certain of our operations. Under our agreement, +12 +Table of Contents +Tesco +from time to time upon our request, provides equipment or services to us. This agreement continues until canceled by either us or Tesco on 30 days advance written notice. Pursuant to this +agreement, we are obligated to pay Tesco only for services actually performed or equipment provided. This agreement does not require us to make any other payments to Tesco, nor does it obligate us to +use Tesco for any services or equipment. Mr. Quintana did not have any direct or indirect interest in the transaction, other than as a result of having served as an executive officer and +director of Tesco. Mr. Quintana had no input in our selection of Tesco for equipment and services or the terms of our agreement with Tesco. Decisions to use Tesco are made by technical +professionals supervising the relevant regional activity, based on their assessment of Tesco's equipment and services and related costs in comparison to other providers. In 2014, we paid Tesco +$1,115,956. The amount we paid Tesco during 2014 for equipment and services represented approximately 8% of the total amount paid by us to all service providers (including Tesco) for similar equipment +and services during 2014. In accordance with our Related Person Transactions Policy, the Audit Committee reviewed the relationship between us and Tesco and determined that the relationship is in our +best interests and the best interests of our stockholders. +13 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-16-012165/proxy.txt b/raw/proxies/0000893538/0001047469-16-012165/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7fd594269cf3f1e71755d28738e4e59850f0307 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-16-012165/proxy.txt @@ -0,0 +1,4379 @@ +DEF 14A +1 +a2228151zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Proxy Statement and Notice of +2016 Annual Meeting of Stockholders +May 24, 2016 +Denver, Colorado +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +TUESDAY, MAY 24, 2016 +To +All Stockholders: +The +2016 Annual Meeting of Stockholders of SM Energy Company (the "Annual Meeting") is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, +Colorado 80203, on Tuesday, May 24, 2016, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2016; +3. hold +an advisory vote to approve the compensation of our named executive officers; +4. approve +an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total number of shares authorized for +issuance under this plan from 10,700,000 shares to 14,100,000 shares; and +5. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on March 22, 2016, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2016 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other +verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form that is +sent to you, or a brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on March 22, 2016. We can use +that to verify your beneficial ownership of our common stock and admit you to the meeting. If you intend to vote at the meeting, you also will need to bring to the meeting a legal proxy from your +bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and +Corporate Secretary +Denver, +Colorado +April 13, 2016 +Table of Contents +TABLE OF CONTENTS +Page +General Matters +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +2 +Differences Between Stockholders of Record and Street Name Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +5 +Other Available Information +5 +Stockholders Sharing the Same Address +5 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +6 +Communications with the Board +7 +Board and Committee Meetings +7 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +12 +Policies and Procedures on Transactions with Related Persons +12 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +13 +Section 16(a) Beneficial Ownership Reporting Compliance +16 +Information About Executive Officers +17 +Executive Compensation +20 +Compensation Discussion and Analysis +20 +Compensation Committee Report +41 +Executive Compensation Tables +42 +Potential Payments Upon Termination or Change of Control +48 +Equity Compensation Plans +50 +Director Compensation +51 +Compensation Committee Interlocks +53 +Proposal 1—Election of Directors +54 +Proposal 2—Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2016 +61 +Proposal 3—Advisory Vote on Executive Compensation +62 +Proposal 4—Amendment and Restatement of Equity Plan +64 +Report of the Audit Committee +77 +Independent Registered Public Accounting Firm +78 +Audit Committee Pre-approval Policy and Procedures +79 +Stockholder Proposals for the 2017 Annual Meeting of Stockholders +80 +2015 Annual Report +81 +Other Matters +82 +Annex A, Equity Incentive Compensation Plan +A-1 +Table of Contents +GENERAL MATTERS +Background +This Proxy Statement contains information about the 2016 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company to +be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, 80203 on Tuesday, May 24, 2016, at 3:30 p.m. local time. Our Board of Directors +("Board") is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," "us," and "our" +refer to SM Energy Company and its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2015 ("2015 Annual Report"), are being distributed and made available on or about April 13, 2016. In accordance with rules and regulations adopted by the United States Securities and Exchange +Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be +mailed by intermediaries on or about April 13, 2016, to beneficial owners of our common stock. Stockholders will have the ability to access the proxy materials on a website referred to in the +Notice or may request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The +proxy materials are being mailed to all stockholders of record, as of the close of business on March 22, 2016, on or about April 13, 2016. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of eight individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public +accounting firm for 2016; +• an advisory vote to approve the compensation of our named executive officers; +• the approval of an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total +number of shares authorized for issuance under this plan from 10,700,000 shares to 14,100,000 shares; and +• such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the first four items noted above. +1 +Table of Contents +Who Can Vote +Only stockholders of record at the close of business on the record date, March 22, 2016, are entitled to receive notice of the +Annual Meeting and to vote shares of our common stock held on that date. As of March 22, 2016, there were 68,077,546 shares of our common stock issued and outstanding. Holders of our common +stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in "street name") rather than directly in their +own name. As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered +directly in your name with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right +to grant your voting proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a +brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee +how to vote and are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a +signed proxy from the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the +Internet, by telephone or by mailing a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope, and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified in a proxy, such proxy will be +voted as follows: +• FOR the election of the eight nominees named in this Proxy Statement under the caption "Proposal 1—Election of Directors"; +• FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public +accounting firm for 2016; +• FOR the advisory approval of the compensation of our named executive officers; +• FOR the approval of an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total +number of shares authorized for issuance under this plan from 10,700,000 shares to 14,100,000 shares; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the Annual +Meeting, or any adjournment(s) or postponement(s) thereof. +2 +Table of Contents +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other +nominee and you have not elected to receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by your bank, broker +or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is +exercised by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting +procedures before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke any +previously submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, which are +located at 1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our +outstanding shares of common stock are present at the Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares +held by us as treasury shares are not entitled to vote and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote +your shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for which it has discretionary authority under +the rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a +bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your shares, and the +bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a "broker non-vote" results. Although any broker non-vote would be counted as present at the +meeting for +3 +Table of Contents +purposes +of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ), Proposal 3 ( Advisory Vote on Executive Compensation ) and +Proposal 4 ( Approval of Amendment and Restatement of Equity Incentive Compensation Plan ), and your shares will be considered "broker non-votes" with +respect to these proposals; but will nevertheless be entitled to vote your shares with respect to Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as +our Independent Registered Public Accounting Firm for 2016 ) in the discretion of the record holder. +• Proposal 1 ( Election of Directors ): Our Amended and Restated By-Laws (our "By-Laws") +provide that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will +be counted in determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes will have no effect +on the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as Our Independent Registered +Public Accounting Firm for 2016 ): Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year +ending December 31, 2016, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be +counted in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this proposal +requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total +number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the vote on this proposal. +While this vote is required by law, it will not be binding, nor will it create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or the Board. However, +the Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +• Proposal 4 ( Approval of Amendment and Restatement of Equity Incentive Compensation +Plan ): Under NYSE rules and regulations promulgated under Section 162(m) of the Internal Revenue Code ("IRC"), the approval of the amendment and restatement of our +Equity Incentive Compensation Plan, including an increase to the number of shares authorized for issuance under this plan, requires the affirmative vote of a majority of the votes cast on the +amendment, and the NYSE rules require that the total votes cast represent over 50 percent of all shares entitled to vote. Abstentions will have the effect of votes against approval of the +amendment. Broker non-votes will have no effect on the outcome of the vote on this proposal. +4 +Table of Contents +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies +for total fees of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In +addition, our officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be +additionally compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries +and other persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +Other Available Information +We make available through the Governance section of our website (www.sm-energy.com) the following documents: our Corporate Governance +Guidelines; our Financial Code of Ethics (the "Financial Code"); our Code of Business Conduct and Conflict of Interest Policy (the "Code of Conduct"); and the Charters of the Audit, Compensation, +Executive, and Nominating and Corporate Governance Committees of our Board. These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated +by reference into this Proxy Statement and should not be considered part of this document. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same +address and last name will receive only one copy of our Notice of Internet Availability, 2015 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that +they want to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who +participate in householding will continue to have access to and may utilize separate proxy voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2015 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary, at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will promptly send such to +you. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the +future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 24, 2016 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2016 Annual Meeting of Stockholders, and the Form 10-K for the +fiscal year ended December 31, 2015, are available at http://www.viewproxy.com/sm-energy/2016/. +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its +committees, our Corporate Governance Guidelines, the Financial Code and the Code of Conduct. These documents provide the framework for our corporate governance. A complete copy of these documents is +available on our website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. The +Board regularly reviews corporate governance developments and modifies our governance documents as appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer or controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for an executive officer subject to the Financial Code be made only by +the Audit Committee of the Board and disclosed as required by law, SEC rules and regulations, and NYSE rules. Changes to, or waivers from, the Financial Code for any of our executive officers subject +to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such change or waiver. To date, the Audit +Committee of our Board has not granted waivers of the Financial Code for any of our executive officers subject to the Financial Code. +Board and Committee Independence +The Board is comprised of a majority of independent directors, four of whom, Stephen R. Brand, Loren M. Leiker, Ramiro G. Peru and +Rose M. Robeson joined the Board in the last five years. The Board has determined that Larry W. Bickle, Dr. Brand, William J. Gardiner, Mr. Leiker, Mr. Peru, Julio M. Quintana, +Ms. Robeson, and William D. Sullivan are independent and do +not have any material relationship with us other than as a director and stockholder. In its review of the independence of these directors, the Board considered past employment, remuneration, and any +other relationship with us. In making its determination as to the independence of its members, the Board considered the independence tests described in Section 303A.02 of the Corporate +Governance Standards of the NYSE's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our Board's leadership structure has reflected our Board's decision to separate the roles of Chief Executive +Officer and Chairman of the Board. Mr. Sullivan, an independent director serving on our Board since 2004, who has experience serving on several other public company boards and over +36 years of experience working with oil and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Mr. Sullivan does not serve +on any committee of our Board, other than the Executive Committee, which meets infrequently and did not take action on any matter in 2015. Javan D. Ottoson serves as our Chief Executive +Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; +6 +Table of Contents +facilitating +communications among the directors; setting the Board meeting agenda in consultation with the Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and +serving as a liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of our Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our NCG Committee evaluates our leadership structure and makes recommendations to the Board. While recognizing that different +board +leadership structures may be appropriate at different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has determined that our current leadership +structure is preferable, with Mr. Ottoson serving as our Chief Executive Officer, and Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director. Mr. Bickle has served in that role since January 1, 2012. +The lead independent director is responsible for presiding at executive sessions of non-management directors. In the lead independent director's absence, the Chairman of the Board serves as lead +independent director. +As +of the filing date of this Proxy Statement, the Board has eight independent members and only one non-independent member: Javan D. Ottoson, our Chief Executive Officer. A +number of our independent Board members are currently serving or have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as +directors of other public companies. As discussed above, our Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the +committee. The specific experiences, qualifications, attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are +briefly described in each director nominee's biographical information below. We believe that the independent and experienced directors that make up our Board, the specific experiences and skills that +they bring to their respective Board committees, and the overall leadership of the Board by the Chairman of the Board are beneficial to our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company. Interested parties and stockholders may contact the Board as a whole, only +the non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients' attention in care of SM Energy Company, Corporate Secretary, 1775 +Sherman Street, Suite 1200, Denver, CO 80203. All such communications will be provided to the Chair of the NCG Committee, who will facilitate the review of such communications. +Board and Committee Meetings +Our Board met eight times during 2015. Our non-management directors routinely meet in executive session immediately before or after +each regularly scheduled meeting of the Board or as otherwise deemed necessary and met six times during 2015. Each incumbent director participated in at least 88% of the Board meetings and in at least +86% of his or her appointed committee meetings held during the director's tenure on the Board in 2015. It is our policy that each director is expected to attend the annual meeting of our stockholders, +and each director then serving on the Board attended the 2015 Annual Meeting of Stockholders. +7 +Table of Contents +The +following table identifies the members of each committee, as of March 1, 2016, and sets forth the number of meetings held in 2015: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Larry W. Bickle +Stephen R. Brand +William J. Gardiner +Loren M. Leiker +Javan D. Ottoson +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +William D. Sullivan +Number of meetings held in 2015 +7 +2 +9 +0 +Chair +Member +The +Audit Committee assists the Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Pursuant to the Audit Committee charter, +members are prohibited from serving on more than three audit committees of public companies (one of which is us), and no Audit Committee member currently serves on more than three such committees. The +Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our quarterly and annual financial results. The Audit Committee +reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of audit fees, the scope and adequacy of our system of +internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal audit functions and any related party transactions. The +Audit Committee is currently composed of five directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy +Statement. While all of the Audit Committee members are considered financially literate, the Board has determined that four members of the current Audit Committee, Mr. Bickle, +Mr. Gardiner, Mr. Peru and Ms. Robeson, are audit committee financial experts as the term is defined by the SEC. As noted above, Mr. Bickle, Mr. Gardiner, +Mr. Peru and Ms. Robeson are also independent. +The +NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of +all committees of the Board, and to oversee all of our corporate governance functions, including the Board and committee self-evaluation process. For additional information on the functions performed +by the NCG Committee, see "Director Nominations and Qualifications" below. +The +Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements +8 +Table of Contents +for +our senior management and directors, adoption of compensation plans in which our officers and directors are eligible to participate, and the granting of equity based compensation or other benefits +under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy Statement describes these responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are +not in conflict with +our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +Our +Board and each of its committees separately evaluated their performance during 2015, and the Audit Committee, Compensation Committee and NCG Committee each completed written +evaluations. The Executive Committee did not complete a written evaluation due to its unique, limited purpose and infrequent meeting schedule. This performance evaluation process was directed by the +NCG Committee and the evaluations were discussed and accepted by the Board. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is +responsible for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current Board leadership +structure, with Mr. Sullivan serving as our Chairman of the Board and Mr. Ottoson serving as our Chief Executive Officer, supports this approach by facilitating communication between +management and the Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more efficiently +facilitates communication of the views of the independent directors, and contributes to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, General Counsel, Executive Vice +President—Operations, Senior Vice President—Human Resources, and Treasurer. The committee meets quarterly to update our enterprise risk management process and plan (the "ERM +Plan"), utilizing the Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during our business strategy +sessions. We keep minutes of these meetings, and regularly report the activities of the committee to the Audit Committee and the Board. We document risk prevention or mitigation steps for the material +risks identified based upon projected likelihood and impact of any occurrence of the particular risk. We review the ERM Plan with our Board annually. +We +also have a Financial Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, Executive Vice President—Operations and +Treasurer. The committee meets quarterly and more frequently, as necessary, to discuss our interest +rate and commodity hedging activities and, as appropriate, to approve additional hedges or other changes to our hedge program. We keep minutes of these meetings, and regularly report the activities of +the committee to the Audit Committee. +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our +9 +Table of Contents +risk +assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the specific guidelines and +policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include a review of our oil, natural gas and natural gas liquids commodity +price hedging arrangements, interest rate risk management, and insurance coverage, as appropriate. In addition, our internal auditors, who report directly to the Audit Committee with respect to +internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes. The Audit Committee also has oversight responsibility for the integrity of +our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. In addition, the +Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the +full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying +and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee selects a nominee based on the nominee's skills, achievements, and experience. As set +forth in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in +high-level business policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of +responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In addition, our Corporate Governance Guidelines provide that a director who retires or +experiences a significant change in his or her professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested +by the NCG Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the NCG +Committee and the Board may review the continued appropriateness of Board membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and +delivered to the Board a resignation letter that is contingent upon (a) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the +shares of capital stock in an election of directors at the 2016 Annual Meeting of Stockholders; and (b) acceptance of his or her resignation by the Board in accordance with the policies and +procedures adopted by the Board for such purpose. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee considers suggestions from incumbent directors, management, stockholders, and others. The NCG Committee screens all potential +candidates in the same manner regardless of the source of the recommendation. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity +10 +Table of Contents +in +identifying director nominees, the NCG Committee considers the Board as a whole, without reference to specific representative directors, with the overall objective of establishing a group of +directors that reflects diversity, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that current Board members +and director nominees reflect our commitment to diversity. Following the 2016 Annual Meeting, assuming all eight of the current nominees are elected to the Board, we will have two Hispanic directors, +one who has served since 2006 and one who has served since 2014, and one female director who has served since 2014. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4(g) of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the +proposal is made, if any), the name and address of the stockholder and specific information concerning such stockholder's +interests in our securities. In addition, the notice must include the recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the +stockholder and the proposed nominee and a written questionnaire completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for +copies should be directed to our Corporate Secretary. For additional information about stockholder nominations, including nominations for the 2017 Annual Meeting of Stockholders, see "Stockholder +Proposals for the 2017 Annual Meeting of Stockholders." No stockholder director nominations were received in connection with the Annual Meeting. +11 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2015. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known to us as of March 18, +2016, by all beneficial owners of more than 5% of the outstanding shares of our common stock, by each director, director nominee, and named executive officer, and all directors and executive officers +as a group. Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted stock units and +performance share units. A supplemental table has been included later in this section describing the number of restricted stock units and performance share units owned by the individuals described +below. +Name of Beneficial Owner +Shares +beneficially +owned +Percent +beneficially +owned (1) +Name and Address of Stockholders Owning More Than 5% +Fidelity Management & Research Company (2) +8,494,208 +12.5 +% +245 Summer Street +Boston, MA 02210 +Capital Research Gobal Investors (3) +6,698,000 +9.8 +% +333 South Hope Street +Los Angeles, CA 90071 +BlackRock, Inc. (5) +6,059,030 +8.9 +% +55 East 52 nd Street +New York, NY 10055 +Vanguard Group, Inc. (4) +4,925,170 +7.2 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Key Group Holdings (Cayman). Ltd. (6) +4,007,719 +5.9 +% +3C Caves Point, West Bay Street +Nassau, Bahamas +Causeway Capital Management LLC (7) +3,835,774 +5.6 +% +11111 Santa Monica Blvd. 15 th Floor +Los Angeles, CA 90025 +Name and Position of Directors, Director Nominees and Named Executive Officers +Larry W. Bickle, Director +147,475 +* +Stephen R. Brand, Director +15,476 +* +William J. Gardiner, Director +61,097 +* +Loren M. Leiker, Director +16,059 +* +Ramiro G. Peru, Director +10,060 +* +Julio M. Quintana, Director +22,784 +* +Rose M. Robeson, Director +7,913 +* +William D. Sullivan, Director +49,345 +* +Javan D. Ottoson, President, Chief Executive Officer and Director +131,301 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +82,314 +* +Herbert S. Vogel, Executive Vice President—Operations +21,445 +* +David W. Copeland, Executive Vice President, General Counsel and Corporate Secretary +72,279 +* +Mark D. Mueller, Senior Vice President and Regional Manager +51,741 +* +Anthony J. Best, Chief Executive Officer (8) +249,269 +* +All executive officers and directors as a group (19 persons, including those named above) +1,123,869 +1.7 +% +* Less than 1%. +13 +Table of Contents +(1) Based on an aggregate of 68,077,546 shares of common stock outstanding as of March 18, 2016. +(2) According to a Statement on Schedule 13G/A filed by Fidelity Mangement & Research +Company ("Fidelity") on February 12, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, Fidelity may be deemed to be the beneficial owner of a +total of 8,494,208 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 113,855 shares and sole dispositive power as to 8,494,208 +shares. +(3) According to a Statement on Schedule 13G filed by Capital Research Global +Investors, Inc. ("Captial") on February 16, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, Capital may be deemed to be the +beneficial owner of a total of 6,698,000 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 6,698,000 shares and sole +dispositive power as to 6,698,000 shares. +(4) According to a Statement on Schedule 13G filed by Vanguard Group, Inc. ("Vanguard") on +February 11, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, Vanguard may be deemed to be the beneficial owner of a total of 4,925,170 +shares, with shared voting power as to 3,700 shares, shared dispositive power as to 48,308 shares, and sole voting power as to 48,608 shares and sole dispositive power as to 4,876,862 shares. +(5) According to a Statement on Schedule 13G/A filed by BlackRock, Inc. ("BlackRock") on +February 10, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 6,059,030 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 5,804,136 shares and sole dispositive power as to 6,059,030 shares. +(6) According to a Statement on Schedule 13G/A filed by Key Group Holdings (Cayman), Ltd. +("Key") on February 16, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, Key may be deemed to be the beneficial owner of a total of 4,007,719 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 4,007,719 shares and sole dispositive power as to 4,007,719 shares. +(7) According to a Statement on Schedule 13G/A filed by Causeway Capital Management LLC +("Causeway") on February 16, 2016, by reason of advisory and other relationships with persons who own shares of our common stock, Causeway may be deemed to be the beneficial owner of a total of +3,835,774 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 1,675,742 shares and sole dispositive power as to 3,835,774 +shares. +(8) Mr. Best retired from SM Energy effective as of January 31, 2015. +Restricted Stock Units and Performance Share Units +Restricted stock units ("RSUs") represent the right to receive shares of our common stock to be delivered upon +settlement, subject to risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other +distributions paid in cash on our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance +share units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common +stock that may be from zero to two hundred percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the +PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends or other distributions paid in cash on our common stock. +14 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 18, 2016. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +William J. Gardiner +— +— +— +Loren M. Leiker +— +— +— +Julio M. Quintana +— +— +— +Ramiro G. Peru +— +— +— +Rose M. Robeson +— +— +— +William D. Sullivan +— +— +— +Anthony J. Best +— +72,586 +72,586 +Javan D. Ottoson +25,206 +92,861 +— +A. Wade Pursell +15,202 +59,099 +— +Herbert S. Vogel +11,603 +39,184 +— +David W. Copeland +6,225 +24,142 +— +Mark D. Mueller +3,749 +15,279 +— +All Executive Officers and Directors as a group (19 persons, including those named above) +76,820 +362,823 +72,586 +(1) PSUs +granted on July 1, 2013, July 1, 2014 and July 1, 2015, will not vest until July 1, 2016, July 1, +2017 and July 1, 2018, respectively. Mr. Best was retirement eligible at his January 31, 2015 retirement date, and pursuant to the terms of his award agreements, became vested in +all PSUs as of such date. The amounts shown reflect the vested portion of the PSUs owned by each director, named executive officer and all directors and executive officers as a group. The actual +number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary from zero to two hundred percent of the number of PSUs indicated, depending on the extent +to which we have achieved our performance goals. +15 +Table of Contents +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under +United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of our common stock must report their +initial ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has designated specific deadlines for these +reports and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2015 under Section 16(a) under the Exchange Act. +16 +Table of Contents +INFORMATION ABOUT EXECUTIVE OFFICERS +The +following table sets forth the names, ages (as of March 13, 2016) and positions of SM Energy's executive officers: +Name +Age +Position +Javan D. Ottoson +57 +President, Chief Executive Officer and Director +A. Wade Pursell +51 +Executive Vice President and Chief Financial Officer +David W. Copeland +59 +Executive Vice President, General Counsel and Corporate Secretary +Herbert S. Vogel +55 +Executive Vice President—Operations +Kenneth J. Knott +51 +Senior Vice President—Business Development and Land and +Assistant Secretary +Mary Ellen Lutey +44 +Senior Vice President and Regional Manager +Mark D. Mueller +51 +Senior Vice President and Regional Manager +Lehman E. Newton, III +60 +Senior Vice President and Regional Manager +Mark T. Solomon +47 +Vice President—Controller and Assistant Secretary +David J. Whitcomb +53 +Vice President—Marketing +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice President +and Chief Operating Officer. Mr. Ottoson +was appointed as Chief Executive Officer of the Company in February 2015 and President of the Company in October 2012. Mr. Ottoson has been in the energy industry for over 34 years. From +April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President-Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas +exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure +Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO +United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice President +and Chief Financial Officer. Mr. Pursell +was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to offshore energy +producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He joined Helix in +May 1997, as Vice President-Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an Experienced Manager +specializing in the offshore services industry. Mr. Pursell has over 28 years of experience in the energy industry. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice President and +General Counsel. He was appointed as the +Company's Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has 34 years of experience in the legal profession, including 25 years as +internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as its Vice President, General Counsel and +Secretary from April 2004 through November 2009, and then as its Senior Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served +17 +Table of Contents +as +an executive officer and general counsel of two energy companies he co-founded in Midland, Texas. Mr. Copeland started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & +Browder law firm in Midland, Texas. +Herbert S. Vogel. Mr. Vogel was appointed as Executive Vice President—Operations of the +Company in August 2014. Mr. Vogel +joined the Company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 31 years of experience in the oil and gas business. He joined +the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous +roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel +started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations management, new ventures +development, and business unit management at ARCO and BP. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development and +Land and Assistant Secretary in August +2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant +Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional +Land Manager when the office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Senior Vice President and Regional Manager in May +2015. +From December 2012 to May 2015, she served as Vice President and Regional Manager for the Mid-Continent region. She joined SM Energy in June 2008 as North Rockies Asset Manager, where she managed the +Company's activities in the Williston Basin. Prior to joining SM Energy, Ms. Lutey held various technical and managerial positions in several regions of the United States and Canada. She was a +Senior Reservoir Engineer with Chesapeake Energy Corporation from September 2007 until June 2008, where she was responsible for the resource development of the Fayetteville Shale in Arkansas. +Ms. Lutey was a Team Lead for Engineering and Geoscience, with ConocoPhillips Canada from April 2006 until September 2007, where she was responsible for the technical and business performance +of two multi-discipline groups in Western Canada. From July 2005 until April 2006, she was a Team Lead for Engineering and Geoscience, with Burlington Resources Canada where she managed the growth and +development of resource plays in Western Canada. From 1994 until 2005, Ms. Lutey held various engineering and leadership positions of increasing responsibility for Burlington Resources. +Ms. Lutey has over 24 years of experience in the energy industry. +Mark D. Mueller. Mr. Mueller joined the Company in September 2007 as Senior Vice President. +Mr. Mueller was appointed as the Regional +Manager of the Rocky Mountain region effective January 1, 2008. Mr. Mueller has been in the energy industry for over 29 years. From September 2006 to September 2007, he was Vice +President and General Manager at Samson Exploration Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, in Calgary, Canada, where his +responsibilities included fiscal performance, reserves, and all operational functions of the company. From April 2005 until its sale in August 2006, Mr. Mueller was Vice President and General +Manager for Samson Canada Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, where he was responsible for all business units and the +eventual sale of the company. Mr. Mueller joined Samson Canada Ltd. as Project Manager in May 2003 to build a new basin-centered gas business unit and was Vice President from December +2003 to August 2006. Prior to joining Samson, Mr. Mueller was West Central Alberta Engineering Manager for Northrock Resources Ltd., a Canadian oil and gas company that was a +wholly-owned subsidiary of Unocal Corporation, in Calgary, Canada. From 1986 to 2003, Mr. Mueller +18 +Table of Contents +held +positions of increasing responsibility in engineering and management for Unocal throughout North America and Southeast Asia. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager for +the Midland, Texas office, was appointed Vice +President and Regional Manager of the Permian region in June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 37 years of experience in +the energy industry. From November 2005 to November 2006, Mr. Newton served as Project Manager for one of Chevron's largest Lower 48 projects. Mr. Newton joined Pure Resources in +February 2003 as the Business Development Manager and worked in that +capacity until October 2005. Mr. Newton was a founding partner in Westwin Energy, an independent Permian Basin exploration and production company, from June 2000 to January 2003. Prior to that, +Mr. Newton spent 21 years with ARCO in various engineering, operations and management roles, including as Asset Manager, ARCO's East Texas operations, Vice President, Business +Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian. +Mark T. Solomon. Mr. Solomon was appointed Vice President—Controller and Assistant +Secretary of the Company in May 2011. He was +appointed Controller of the Company in January 2007. Mr. Solomon served as the Company's Acting Principal Financial Officer from April 2008 to September 2008, which was during the period of +time that the Company's Chief Financial Officer position was vacant. Mr. Solomon joined the Company in 1996. He served as Financial Reporting Manager from February 1999 to September 2002, +Assistant Vice President-Financial Reporting from September 2002 to May 2006 and Assistant Vice President-Assistant Controller from May 2006 to January 2007. Prior to joining the Company, +Mr. Solomon was an auditor with Ernst & Young. Mr. Solomon has over 19 years of experience in the energy industry. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. +Mr. Whitcomb joined SM Energy in +November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time +his title was changed to Assistant Vice President and Director of Marketing. +19 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation programs for our Chief Executive Officer, Chief Financial +Officer and each of our three other most highly compensated executive officers employed at the end of the 2015 fiscal year, whom we collectively refer to in this "Executive Compensation" section as +our "NEOs" or "Named Executive Officers." Our NEOs for fiscal 2015 were: +• Javan D. Ottoson , President and Chief Executive Officer +• A. Wade Pursell , Executive Vice President and Chief Financial Officer +• Herbert S. Vogel , Executive Vice President—Operations +• David W. Copeland , Executive Vice President, General Counsel and Corporate Secretary +• Mark D. Mueller , Senior Vice President and Regional Manager +• Anthony J. Best , Chief Executive Officer (Mr. Best retired from our company on +January 31, 2015) +This +Compensation Discussion and Analysis is divided into six sections: +Section 1—Executive +Summary +Section 2—Objectives +of Executive Compensation Program +Section 3—Competitive +Positioning +Section 4—Elements +of Compensation +Section 5—Compensation +Determination Process +Section 6—Other +Compensation Items +SECTION 1—EXECUTIVE SUMMARY +Overview of Industry and 2015 Business Highlights +In 2015, we continued delivering on our strategy of profitably building our ownership and operatorship of North American oil, gas and +NGL producing assets that have high operating margins and significant opportunities for additional economic investment, through outstanding operational execution, acquisitions and exploration. The +achievement of these key business objectives is essential to delivering results to our stockholders and to sustaining long-term share price growth. In spite of a difficult commodity price environment, +our operational performance in 2015 is exemplary of the excellence we strive to achieve. Our 2015 business highlights included: achieving record production of 64.2 MMBOE, or 175.9 MBOE +per day, and adding 160.6 MMBOE of proved reserves through drilling +20 +Table of Contents +activities; +realizing significant cost reductions and capital efficiencies in both our lease operating expense and our CAPEX program; and maintaining our liquidity and strong balance sheet. +2015 Incentive Plan Payouts: Pay for Performance +As discussed in greater detail below, in response to the market downturn in 2015, the Compensation Committee made compensation +decisions with the intention of confirming alignment between executive pay and performance. +Short-Term Incentive Plan ("STIP") Results: After taking into account several downward +adjustments to our actual performance approved by the +Compensation Committee (discussed in greater detail below), we exceeded the targets set by the Compensation Committee in two out of five quantitative areas, missing each of the other three +quantitative targets by less than three percent, and generally performed well with respect to our qualitative metrics. These results influenced our Compensation Committee to pay actual 2015 bonuses +for the NEOs at approximately 97% of the applicable STIP target percentage. We believe that this result indicates that our STIP is appropriately designed to link compensation earned to the achievement +of our financial and strategic objectives. See the "Short-Term Incentive Plan" section below for additional discussion. +Long-Term Incentive Plan ("LTIP") Results: Our LTIP uses a combination of service-vesting +RSUs and performance-based PSUs. We believe these types of +long-term incentives appropriately balance risk and reward, because such units have both upside potential and downside risk. The performance measures used in our LTIP reward total stockholder return, +both on an absolute basis and relative to an index of peer exploration and production companies. At the completion of the 2012–2015 performance period, we settled PSUs granted on +July 1, 2012, using an earned percentage of 100% (as compared to a target of 100%). We achieved this result based upon our annualized absolute total stockholder return ("TSR") for the +performance period of 0.0%, which resulted in an earned percentage of 0%. In addition, our TSR exceeded the TSR for our comparative peer group of companies for the period by 13.6%, which increased the +earned percentage to 100%. We believe that this result indicates that our LTIP appropriately links compensation to the achievement of our long-term financial and strategic objectives. +21 +Table of Contents +Realizable Pay +The following chart compares the relationship between Mr. Ottoson's realizable pay, the Company's total stockholder return, and +the change in commodity prices over the past three years: +(1) As +discussed in our 2015 Proxy Statement, in 2014, following a review of the competitive pay levels for executive officers of other companies +in our peer group, the Compensation Committee increased Mr. Ottoson's STIP target percentage and target LTIP value to better align with the peer group median. +(2) Following +his appointment as Chief Executive Officer effective as of February 1, 2015, the Compensation Committee increased +Mr. Ottoson's Target Pay. +In +the chart above, (a) Target Pay includes salary and annual STIP target compensation as determined by the Compensation Committee, as well as the grant date fair value of the +RSUs and PSUs as disclosed in the Summary Compensation Table for the designated year; (b) Realizable Pay includes salary as determined by the Compensation Committee for the designated year, +actual STIP payments for the designated year's performance, the number of RSUs granted in the applicable year multiplied by our closing stock price on +December 31, 2015, and the number of PSUs granted in the applicable year multiplied by the earned percentage calculated as if the applicable +performance period ended on December 31, 2015, multiplied by our closing stock price on December 31, 2015; (c) Oil Price +Performance is calculated as the percentage change in the price of a barrel of oil from the applicable grant date to December 31, 2015; and +22 +Table of Contents +(d) TSR +represents our total stockholder return, including the impact of dividends, over the applicable period. +Compensation Program and Corporate Governance Highlights +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and +qualitative factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced mix of base salary, annual cash incentives through our STIP, and +long-term equity incentives through our LTIP. We balance incentives tied to short-term annual performance with incentives tied to multi-year performance. In this way, we motivate executives to +consider the impact of their decisions over the short, intermediate, and long term. The performance metrics used in our 2015 STIP include those we believe are the key drivers of long-term stockholder +value creation: production volume; proved developed reserve additions; finding and development +costs; cash flow; cash operating costs; environmental, health, and safety goals; and exploration success and economic inventory growth. Our STIP program is not completely formulaic because the +Compensation Committee has the discretion to adjust bonuses based on the "quality" of the results and other relevant factors as well as individual performance and behavior, and has used that +discretion to adjust calculated bonuses in the past. Our LTIP rewards total stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies. In +addition, +23 +Table of Contents +during +2015, we took several steps to restructure our benefits programs to reduce costs. Some highlights of our executive compensation program are: +What We Do: +What We Do Not Do: +ü +We generally target pay opportunities at the market median. +c +We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +ü +The majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating long-term stockholder value. +c +We do not provide "single-trigger" cash severance or equity vesting acceleration upon a change in control. +ü +A significant portion of executive compensation is in the form of equity, with the majority of the value settled based on a combination of our absolute and relative total stockholder return. +c +We do not provide golden parachute excise tax or other tax gross-ups. +ü +We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the long-term financial interests of our stockholders. +c +We do not pay dividends on unearned restricted stock and performance share units. +ü +The Compensation Committee retains an independent compensation consultant who provides no other services to our company. +c +We do not permit option repricing, or exchange of underwater options for other awards or cash, without stockholder approval. +ü +The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by its independent compensation consultant to ensure our plans are designed appropriately and do not encourage +excessive risk taking, while taking into account market changes and peer group comparisons. +c +We do not permit officers, employees or directors to enter into transactions that "hedge" the value of our securities owned by them, hold our securities in margin accounts, pledge our securities to secure indebtedness, +or buy or sell options or derivatives with respect to our securities. +ü +We have adopted a clawback policy applicable to our NEOs. +Stockholder Advisory Vote on Compensation +At our 2015 Annual Meeting of Stockholders, our stockholders were provided the opportunity to cast a non-binding advisory vote on the +compensation of our NEOs. Over 98% of votes cast approved the compensation of our NEOs. Because the vote was advisory, the result was not binding on the Compensation Committee. However, the +Compensation Committee believes that our stockholders' overwhelming approval of the compensation of our NEOs indicates that they consider our compensation philosophy and our executive compensation +policies to be effective and aligned with their interests. The Compensation Committee took into account the outcome of the vote and other factors, as more fully discussed herein, in reviewing our +executive compensation policies for 2015 and in determining that no significant changes to our executive compensation programs and policies were necessary in 2015. +24 +Table of Contents +SECTION 2—OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM +Our overall executive compensation program is designed to promote superior returns for our stockholders and to align executive pay with Company +performance +throughout industry cycles. The objectives of our executive compensation program are to: +1. Provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented +management. +Our +pay philosophy targets overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, based on analysis performed +by the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. ("F. W. Cook"), we target total direct compensation for our NEOs around the +median of our industry peer group (see "Section 3—Competitive Positioning" for further detail). Actual compensation earned by a particular individual may be above or below the +target level based on company and individual performance measured against the established metrics of our incentive compensation programs. +2. Link compensation earned to the achievement of our short-term and long-term financial and strategic +objectives. +We +believe the performance-based, "at risk" proportion of total compensation should increase with an individual's level of responsibility. Our compensation system is intended to provide the +appropriate balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this end, our STIP rewards annual operating and financial +performance based upon quantitative measures of cash flow, production volume, proved developed reserve growth, cash operating costs and finding and development costs, and discretionary qualitative +measures of environmental, health, and safety and exploration success and inventory growth (see "Elements of Compensation—Short-Term Incentive Plan"). The combination of the production +volume metric with the finding and development cost metric emphasizes the need for us to wisely allocate our capital expenditure budget. For 2015, we added cash operating costs as an STIP metric to +highlight for all of our employees the need for efficiently and wisely managing our costs. Our LTIP rewards total stockholder return, both on an absolute basis and relative to an index of peer +exploration and production companies (see "Elements of Compensation—Long-Term Incentive Plan"). +3. Align performance incentives with the long-term interests of our stockholders. +We +believe that we achieve alignment of long-term interests between stockholders and management by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that ensure our executives have a meaningful ownership stake during their tenure. In addition, the metrics used for our STIP include those we believe drive long-term value +creation, while realized compensation under our LTIP is aligned with absolute and relative returns realized by our stockholders. +25 +Table of Contents +4. Ensure programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs ( e.g. , salary increases, bonus payments, +and equity compensation grants), the Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation, expected accounting treatment, potential +stockholder dilution, and the impact on our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most financially +efficient manner possible, and that satisfy our other objectives, and after an extensive review and analysis, during 2015, we froze participation in our defined benefit pension plan to limit our +future potential liabilities related to such plan. As a result, employees hired after December 31, 2014, may participate only in our defined contribution plan. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the IRC, compensation in excess of $1.0 million per +year paid to certain of our NEOs is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as defined in Section 162(m). The Compensation +Committee administers our STIP and LTIP so that compensation awarded and paid to our NEOs is intended to be "performance-based" under Section 162(m) and therefore fully tax-deductible; however, +the Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility requirements, and it is possible that Section 162(m) may disallow +compensation deductions that would otherwise be available to us. +5. Uphold high standards of good corporate governance and strive to achieve evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, F. W. Cook, stays abreast of current and developing corporate +governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it deems appropriate, to reflect best practices and/or new legislation. +SECTION 3—COMPETITIVE POSITIONING +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our +executive officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies with +our General Industry Classification Standard +Industry Code include standard measures such as revenue, assets, number of employees, and enterprise value, as well as several industry-specific criteria such as annual production volume, fiscal +year-end reserves, total costs incurred in oil and gas activities, and the magnitude of each company's offshore and non-U.S.-based operations. F. W. Cook identifies peer companies that are within +50%–200% of our company for at least four of these criteria and that have corporate structures similar to ours. The Compensation Committee, with input from F. W. Cook, selects a peer group +that includes the 15–20 companies that best fit the selection criteria, excluding those companies from the peer group from the previous year that no longer satisfy the selection criteria. +In April 2015, the Compensation Committee +26 +Table of Contents +approved +the peer group used for 2015 compensation comparisons, which consisted of the following companies: +Cabot Oil & Gas Corporation +Pioneer Natural Resources Co. +Cimarex Energy Company +QEP Resources, Inc. +Concho Resources Inc. +Range Resources Corporation +Continental Resources, Inc. +Rosetta Resources, Inc. +Denbury Resources Incorporated +Ultra Petroleum Corp. +Energen Resources Corporation +Whiting Petroleum Corporation +Newfield Exploration Company +WPX Energy Inc. +Oasis Petroleum, Inc. +At +the time the Compensation Committee approved the peer group, we ranked between the peer group median and the 75 th percentile in annual revenues, annual +production and total costs incurred in oil and gas activities; and we ranked between the 25 th percentile and the peer group median in total assets, enterprise value, number of +employees, and fiscal year-end reserves. +This +peer group includes 15 of the companies included in our 2014 peer group. The Compensation Committee elected to exclude EXCO Resources, Incorporated from the 2015 peer group. +In +May 2015, F. W. Cook conducted an analysis of competitive pay levels for the executive officers named in the most recently filed proxy statements of the peer group companies versus +corresponding positions at our company. For certain NEO positions, F. W. Cook also supplemented this analysis with data from relevant, third party, independent compensation surveys focused on the +exploration and production industry (the Energy 27 Group, Meridian and Effective Compensation, Inc. surveys). Competitive data reflected 2015 target compensation levels, where disclosed; +otherwise, data reflected 2014 compensation. Findings from this analysis indicated that base salaries were below the 25 th percentile of the peer group for Mr. Vogel, at the +25 th percentile for Mr. Ottoson, between the 25 th percentile and the median for Mr. Pursell and Mr. Mueller and near the +75 th percentile for Mr. Copeland. These findings also indicated that the target annual cash compensation (base salary plus target annual bonus) for Mr. Ottoson, +Mr. Pursell and Mr. Vogel was below the 25 th percentile of the peer group, between the 25 th percentile and the median for Mr. Mueller, +and between the median and the 75 th percentile for Mr. Copeland. Target total direct compensation (base salary plus target bonus plus the grant-date fair +value of 2014 long-term incentive compensation) was below the 25 th percentile for Mr. Ottoson, Mr. Pursell and Mr. Vogel, and between the +25 th percentile and the median for Mr. Copeland and Mr. Mueller. +Findings +from F. W. Cook's May 2015 competitive analysis was one of many factors considered by the Compensation Committee in its review of base salary, STIP targets and target LTIP +values for each of our NEOs. After reviewing this comparative compensation data, the Compensation Committee elected to maintain the base salary and STIP target percentages for each of our NEOs at the +same levels. The Compensation Committee increased target LTIP values for Mr. Ottoson and Mr. Vogel by $1,200,000 and $1,185,000, respectively, to better align such values with the market +median following their recent promotions. The adjustments to LTIP targets generally resulted in target total direct compensation between the 25 th percentile and the peer group +median for both Mr. Ottoson and Mr. Vogel. The Compensation Committee did not adjust the LTIP targets for Mr. Pursell, Mr. Copeland or Mr. Mueller. +27 +Table of Contents +SECTION 4—ELEMENTS OF COMPENSATION +The principal components of our executive compensation program and the purpose of each component are summarized in the following table. With the +exception of the +supplemental employee retirement plan ("SERP") and the non-qualified deferred compensation plan, our executive compensation program is comprised of the same components as the compensation program for +other employees. The only material differences are the target pay levels and the proportion of each component in the total pay mix. +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; and recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; and reward long-term company performance +Employee Stock Purchase Plan +employees, including our executives, may purchase shares of our common stock at a 15% discount to the fair market value, subject to certain limits +facilitate share ownership among employees; and align employees' interests with those of stockholders +Qualified Retirement Plans +includes qualified defined benefit pension plan and 401(k) plan with company match +attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Retirement Plan +provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($265,000 for 2015) +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Non-qualified Deferred Compensation Plan +provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +medical, dental, life, wellness, financial advisory services for executives and disability insurance +attract and retain highly qualified employees; and support the overall health and well-being of all employees +28 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2015 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts +illustrate, 86% and 80% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied +to performance ( i.e. , "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of +each individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data, individual performance and potential, internal +equity considerations, and input from the Chief Executive Officer (for executives other than himself), the Compensation Committee approved the following 2015 salaries on February 17, 2015, for +our NEOs: +Name +2014 Salary +2015 Salary +Ottoson (1) +$505,000 +$800,000 +Pursell +$438,000 +$447,000 +Vogel +$400,000 +$412,000 +Copeland +$393,000 +$401,000 +Mueller +$310,000 +$316,000 +(1) Following +his appointment as President and Chief Executive Officer effective as of February 1, 2015, the Compensation Committee +approved a 2015 base salary of $800,000 for Mr. Ottoson. +The +salary increases approved in 2015 were based on the Compensation Committee's decision that our executive officers' individual performances, corporate performance, industry +inflation, and the competitive aspects of the oil and gas industry justified the increases with individual adjustments +29 +Table of Contents +determined +with reference to respective comparative industry data by position and our goal of target compensation approximating the median of our comparative peer group. In light of the continued +downturn in commodity prices and resulting reduction in our activity, the Compensation Committee has elected to maintain the base salaries of our NEOs for 2016 at 2015 levels. +Short-Term Incentive Plan—Design +The STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives. These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are published as annual goals. In 2015, in +light of the commodity price downturn, we revised the performance objectives to include cash operating costs to reflect the importance of efficiently managing our costs. In 2016, we further revised +the performance objectives by increasing the relative weighting of the cash flow and cash operating cost metrics, while reducing the weighting of production, proved reserve additions and finding and +development costs. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business, and as discussed below, +the Compensation Committee exercised its negative discretion to adjust our 2015 performance in certain metrics downward. Payments under the STIP are in the form of annual cash bonuses under our Cash +Bonus Plan, which was last approved by our stockholders in May 2013. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses generally range from zero to two times a participant's target percentage based on the Compensation Committee's assessment of our +performance and that of each of our NEOs. In addition, the maximum award for any participant is $2,000,000. Target bonuses for 2015 as percentages of base salary for the NEOs were as follows: +Name +2015 Target +Bonus Level, +% of base +salary +Ottoson +100 +% +Pursell +90 +% +Vogel +80 +% +Copeland +70 +% +Mueller +70 +% +30 +Table of Contents +Short-Term Incentive Plan—2015 Performance +In order for the STIP bonus pool to be funded for our NEOs, the 2015 STIP required that our 2015 cash flow metric, as described below, +exceed a threshold level of $600 million. If our cash flow metric had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Our actual +2015 cash flow was approximately $1.1 billion, resulting in full initial funding of the STIP bonus pool for our NEOs at the maximum level. The Compensation Committee then examined our +performance under five quantitative and two qualitative metrics to determine actual bonus payments to our NEOs by reducing (but not increasing) the amounts funded through achievement of the cash flow +threshold. Using this construct, bonus payments to our NEOs under the STIP are intended to be "performance-based," as defined under Section 162(m) of the IRC, and therefore fully deductible for +federal income tax purposes. The Compensation Committee evaluated our performance in the following five quantitative areas with respect to the annual cash bonus awards for our NEOs: +Factor +Weight +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (MMBOE) +.25 +52.6 +61.9 +71.2 +60.8 +98.2 +% +Proved Developed Reserve Additions (MMBOE) (1) +.25 +67.8 +84.7 +105.9 +95.0 +112.2 +% +Finding and Development Costs ($ per BOE) (2) +.25 +$16.30 +$14.17 +$12.04 +$14.53 +102.5 +% +Cash Flow ($ in millions) +.15 +$862.0 +$1077.5 +$1,346.9 +$1,064.1 +98.8 +% +Cash Operating Costs ($ per BOE) (3) +.10 +$18.44 +$15.38 +$11.53 +$13.50 +87.8 +% +(1) Adjusted +for engineering revisions to proved developed reserves due to asset performance. +(2) Based +on proved developed reserve additions, as adjusted for engineering revisions due to asset performance (excluding land costs). As noted +below, our actual finding and development cost missed our target by 2.5%. +(3) As +noted below, our actual cash operating costs out-performed our target by 12.2%. +31 +Table of Contents +Metric +Result +Commentary +Production Volume +Missed target by 1.8%. +The production volume target represents the volume of oil, gas and NGLs estimated to be produced under our 2015 business plan. This measure is important because proceeds from the sale of production generate essentially +all of our revenue. In 2015, for purposes of the STIP, the Compensation Committee adjusted our actual production figure downward as a result of capital expenditures in excess of our budget in an environment of industry-wide costs declining faster +than budgeted. +Proved Developed Reserve Additions +Out-performed target by 12.2%. +The proved developed reserve additions target represents the proved developed reserves estimated to be added from projects funded under our capital program during 2015. This measure is important because proved developed +reserves are the primary source of future production and cash flow for us and, as such, relate directly to the value of our company. In 2015, for purposes of the STIP, the Compensation Committee adjusted the amount of proved developed reserve +additions downward due to changes in our reserve calculation methodology that we did not anticipate when the 2015 STIP targets were set. +Finding and Development Costs +Missed our target by 2.5%. +Finding and development costs are a measure of the efficiency of our capital program in adding value. The finding and development costs target represents the estimated cost of proved developed reserve additions on a +dollar per barrel of oil equivalent ("BOE") basis, as projected under our 2015 business plan. In 2015, for purposes of the STIP, the Compensation Committee adjusted our finding and development costs upward based on the modifications to our proved +developed reserve additions discussed above and based on industry-wide costs declining faster than budgeted. +Cash Flow +Missed our target by 1.2%. +Our cash flow target is calculated based on our GAAP net income, as adjusted for miscellaneous gains and losses; depreciation, depletion and amortization; impairment and abandonment expense; exploration expense; all +taxes; changes in Net Profits Interest Bonus Plan ("NPP") liability; stock compensation expense; interest expense and unrealized derivative gains/losses. This measure is important because our cash flow is the primary source of funding for our ongoing +capital program and working capital needs, as well as a key factor in stockholder value creation. In 2015, for purposes of the STIP, the Compensation Committee adjusted our actual cash flow figure downward as a result of capital expenditures in +excess of our budget in an environment of industry-wide costs declining faster than budgeted. +Cash Operating Costs +Out-performed our target by 12.2%. +Our cash operating costs are calculated as the sum of our lease operating expense, ad valorem taxes, workover expenses, transportation, production taxes, general and administrative expenses (less stock compensation +expense), and marketed gas operating expenses, on a per BOE basis. The Compensation Committee added this metric to our STIP in 2015 due to the importance of efficiently using cash expenditures during periods of significant commodity price +declines. +32 +Table of Contents +Additionally, +the Compensation Committee assessed our 2015 performance in the following qualitative areas: +Environmental, Health, and Safety (EHS) —Our environmental, health and safety performance was in the top-quartile in +the areas of statistical +measurement that we track; however, we have room to continue to improve on our spill performance. As a result, the Compensation Committee gave some positive credit for this qualitative measure in +2015. +Exploration Success and Inventory Growth —Our performance with respect to our qualitative metric for exploration +success and inventory growth was +significantly impeded by the dramatic decline in commodity prices. Accordingly, the Compensation Committee gave the maximum negative credit for this qualitative measure in 2015. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is assigned the weighting disclosed in the above table; however, because quantitative goals must be determined at the beginning +of the year, the Compensation Committee's exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals +no longer comport with reasonable outcomes. +The +Compensation Committee considered all of the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Name +Salary Paid +in 2015 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Ottoson +$796,731 +100 +% +97 +% +$773,000 +Pursell +$461,769 +90 +% +87 +% +$403,125 +Vogel +$424,616 +80 +% +78 +% +$329,502 +Copeland +$414,270 +70 +% +68 +% +$281,289 +Mueller +$326,539 +70 +% +68 +% +$221,700 +Long-Term Incentive Plan +Our LTIP, which we implemented in its current form in 2008, is an equity compensation program that utilizes performance share units, +or PSUs, and restricted stock units, or RSUs, to compensate our NEOs and other key employees for long-term growth in our net asset value, as reflected in our absolute and relative cumulative TSR, +which includes the effects of dividends. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"). +33 +Table of Contents +Under our LTIP, participants were awarded RSUs and PSUs during the third quarter of 2015, for the performance measurement period beginning July 1, +2015, +and ending June 30, 2018. The ratio of PSUs to RSUs in an LTIP participant's grant varies based upon each participant's position. Our NEOs receive 75% of the value of their award in the form of +PSUs, with the balance in the form of RSUs. RSUs are settled in shares of our common stock at the time of vesting, and PSUs are settled in shares of our common stock, depending on the extent to which +we have satisfied the performance criteria, at the end of the three-year performance period. The actual number of shares of our common stock issued to settle PSUs at the end of the three-year +performance period can range from 0% to 200% of the number of PSUs awarded, depending on our absolute and relative TSR. TSR is measured on a compound annualized basis, and relative TSR is compared to +the TSR of an equal weighted index of peer companies (the "TSR Peer Group"), in both cases using the average closing prices for the 20 days prior to the start and end of the performance period. +The TSR Peer Group consists of companies from our comparative peer group, as recommended by F. W. Cook and selected by the Compensation Committee based upon the criteria discussed above, with any +adjustments to that list of companies as deemed necessary or appropriate by the Compensation Committee in its discretion. As of July 1, 2015, for the 2015–2018 performance period, +the constituents of the TSR Peer Group included the same companies shown under " Comparative Peer Group " above. +At +any time during the three-year performance period, the Compensation Committee may elect to modify the TSR Peer Group if significant changes +( e.g. , a member of the TSR Peer Group is acquired) occur relating to any member of the TSR Peer Group. As of the date of this Proxy Statement, the +Compensation Committee modified the TSR Peer Group for the 2015–2018 performance period by removing Rosetta Resources, Inc. following its merger with Noble Energy, Inc. +The +number of shares of our common stock issued to settle PSUs at the end of the 2015–2018 performance period will equal the number of PSUs multiplied by the "Earned +Percentage." The earned percentage is the sum of the Absolute TSR Score and the TSR vs. Peer Index Score, as outlined in the payout matrix below, subject to a maximum of 200% and a minimum of 0%: +Absolute TSR +TSR vs. Peer Index +Annualized +TSR +Earned +Percentage* +% Point Difference from Index +Earned +Percentage* +£ 0% +0% +£ –10% +–80% +4% +20% +0% +20% +16% +110% +³ 8% +100% +³ 25% +200% +* Earned percentage is linearly interpolated for performance between points. +The +PSUs and RSUs awarded and individual allocations to our NEOs were approved by the Compensation Committee during the second quarter of 2015. In its determination of the total pool +value for 2015, the Compensation Committee considered various factors, including historical fair value transfer (or the percentage of market capitalization transferred to employees annually in the +form of stock based awards and other forms of ownership in our company, "FVT") under our long-term incentive compensation system compared to our peer group companies, input from F. W. Cook on expected +trends in FVT for the subject period, and shares available under our Equity Plan. In particular, as a result of the drop in our common stock share price in conjunction with the reduction of commodity +prices during the second half of 2014 and the first half of 2015, the Compensation Committee reduced the total pool value for 2015 by 12.5% in order to reduce the FVT associated with the 2015 LTIP +grant. The 2015 RSUs have a three-year vesting schedule, with one-third vesting on each of the first three anniversaries of the award date. The 2015 PSUs vest on July 1, 2018. We settle the +RSUs with shares of our common stock as they vest. If an NEO is terminated, voluntarily or +34 +Table of Contents +involuntarily +(but excluding normal retirement after age 65), prior to the third anniversary of the award date, he/she will retain all shares of common stock previously issued by us to settle the RSUs +as they +vest, but will forfeit all unvested RSUs. No settlement of vested PSUs occurs until the three-year performance period is concluded, and upon voluntary or involuntary termination (but excluding normal +retirement after age 65), an NEO would forfeit all unvested PSUs. All PSUs granted are also subject to a cap in value per unit calculated based on an absolute TSR of 50% for each year and an assumed +earned percentage of 200%. +At +the completion of the 2012–2015 performance period, we settled PSUs granted on July 1, 2012, using an earned percentage of 100%. We achieved this result based upon +our annualized absolute TSR for the performance period of 0.0%, which resulted in an earned percentage of 0%, while our TSR exceeded the peer index for the period by 13.6%, which increased the earned +percentage to 100%. The chart below illustrates the total return for our stockholders for the three-year period ending June 30, 2015, relative to the peer index for such period: +Comparison of Three-Year Return +2012–2015 +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. +The Compensation Committee generally approves these grants at its June meeting. The Compensation Committee, the Board or our CEO have in the past, and may in the future, make limited grants of equity +on other dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain or reward such persons. We did not make any special grants of equity +to our NEOs during 2015. +35 +Table of Contents +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. The NPP was +designed to reward the contributions made by our executives and other key employees to our long-term financial success. Under the NPP, participants shared in the net profits derived from our +investment in all oil and gas activity from a specific pool of properties in a given year after we recovered the capital costs associated with that pool. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. Mr. Ottoson participates in two NPP pools and currently receives no compensation from these pools because they have not reached payout status. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees, including our NEOs, to +purchase shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and +December 31 of each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is the lower +of 85% of the fair market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. +Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified Pension +Plan") and a 401(k) plan on the same basis as all of our employees. Our executives are also eligible to participate in our SERP and non-qualified deferred compensation plan (the "NQDC"). The SERP is +an unfunded, non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence of IRC limits on the Qualified Pension Plan. +The NQDC is intended to provide executives with tax planning opportunities and the opportunity to receive the full benefit of matching contributions in excess of IRC limits applicable to our 401(k) +plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement +income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that executive's average base salary, excluding bonuses. +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the +36 +Table of Contents +401(k) +plan, subject to annual limits to amounts determined by IRC regulations ($18,000 for 2015). We match each employee's contributions in cash on a dollar for dollar basis, up to 6% of the +employee's base salary and cash bonus for participants in the Qualified Pension Plan and up to 9% of the employee's base salary and cash bonus for employees that are not participants in the Qualified +Pension Plan. Company contributions vest over an employee's first five years of employment with the company. +The +NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating +employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to +make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee's +base salary and cash bonus. Each eligible employee's interest in the contributions we make will vest 40% after the second year of such employee's service to us, and 20% per year thereafter. A +participant's account will be distributed based upon the participant's payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual +installments ranging for a period from 1–10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis +as all other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with +all employees, group term life insurance up to 2.5 times their respective base salaries up to $2,000,000. We also provide financial planning services to our executives, including the NEOs, upon their +election. +SECTION 5—COMPENSATION DETERMINATION PROCESS +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and its Compensation Committee, as discussed below. The Compensation Committee +is currently comprised of four independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the +purposes of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; and +• reviewing the performance and approving the compensation for our executive officers, including our Chief Executive Officer. +37 +Table of Contents +In +2015, the Compensation Committee met nine times to administer the matters noted above and address other matters required under its charter. The following diagram outlines key +Compensation Committee activities during the year: +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company +Manual, the Board has determined that all members of the Compensation Committee are independent. +Independent Compensation Consultant +In 2015, the Compensation Committee sent a request for proposal to four independent compensation consultants, including F. W. Cook. +Following the RFP and interview process, the Compensation Committee decided to re-engage F. W. Cook as its independent executive compensation consultant. F. W. Cook reports directly to the +Compensation Committee and the Compensation Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems necessary. A principal of F. W. Cook attends Compensation +Committee meetings, as requested, and communicates with the Compensation Committee between meetings. The services F. W. Cook provides, based upon direction from the Compensation Committee, include +advising the Compensation Committee on the design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis regarding the +competitiveness of our executive compensation opportunities, conducting compensation risk assessments and providing analysis concerning the equity compensation practices of our peers. To facilitate +the delivery of these services to the Compensation Committee, F. W. Cook interfaces with our management, in particular our Senior Vice President—Human Resources. F. W. Cook does not +provide directly, or indirectly through affiliates, any non-executive compensation services, such as pension consulting or human resource outsourcing, to us. The total consulting fees we pay to F. W. +Cook are less than 1% of the total annual revenues of F. W. Cook, and F. W. Cook and the F. W. Cook consultants working with us are prohibited from owning any of our shares of common stock directly, +although such shares may be owned within +38 +Table of Contents +mutual +funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known personal relationship with any of our officers, directors, stockholders or employees that would +present a potential conflict to their independence. After consideration of disclosures and representations made by F. W. Cook concerning the foregoing, the Compensation Committee +determined in 2015 that F. W. Cook's work did not raise any potential conflicts of interest. F. W. Cook has agreed to advise the Compensation Committee if any potential +conflict of interest arises that could cause F. W. Cook's independence to be questioned and not to undertake any project for our management, except at the request of the Compensation +Committee and as agent for the Compensation Committee. In 2015, F. W. Cook did not provide any services to us other than those requested by the Compensation Committee and related to +F. W. Cook's engagement as the independent consultant to the Compensation Committee. +Compensation Risk Assessment +Each year, the Compensation Committee and F. W. Cook review and evaluate our compensation policies and practices for all employees to +assess to what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by properly +aligning the interest of our employees with the interests of our stockholders and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a +material adverse effect on us. In 2015 and 2016, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably likely +to have a material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and Senior Vice President—Human Resources, management provides +recommendations to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than +himself based on competitive market data, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing information on +historical compensation levels, employee evaluations and its analysis of comparative industry data, and by interfacing with F. W. Cook. While members of the management team attend Compensation +Committee meetings, they are not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective compensation. The +Compensation Committee and the Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our President and CEO, CFO and +Executive Vice President—Operations and to provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for those executives, +our Human Resources department provides the Compensation Committee and F. W. Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those executives, including +severance arrangements and all benefits provided in connection with termination of employment. The +tally sheets show the amount the executive would receive under various foreseeable circumstances ( e.g. , termination with or without cause; resignation; +and retirement or termination in connection with change in control). +39 +Table of Contents +The +Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information +provided to gain additional perspective and as a reference. +SECTION 6—OTHER COMPENSATION ITEMS +Employment Agreements +The employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of +employment. Mr. Best had previously been the only executive with a written employment agreement with the company. In conjunction with his retirement, Mr. Best and the company mutually +agreed to terminate his employment agreement effective as of January 31, 2015. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, +and certain other key employees, through change of control executive severance agreements. See "Potential Payments upon Termination or Change of Control— Change of +Control Arrangements " for more information about these agreements and potential payments in the event of a termination of employment following a change in control. No excise +tax "gross up" payments are provided. +Clawback Policy +Our Board adopted a formal clawback policy effective as of February 17, 2015. The clawback policy provides that in the event we +are required to prepare an accounting restatement of our financial statements due to any material noncompliance with any financial reporting requirement under applicable securities laws, the Board +may, in its sole discretion, require reimbursement of compensation paid pursuant to our Cash Bonus Plan after January 1, 2015, to any officer of the company that engaged in fraudulent or +intentional illegal misconduct and for whom disclosure was required in any of the Company's filings with the Securities and Exchange Commission that required disclosure pursuant to Item 402(c) +of Regulation S-K and that applied to any portion of the period for which the accounting restatement was required. +Stock Ownership Guidelines +To further align senior management's interests with the interests of our stockholders with respect to long-term growth of stockholder +value, the Compensation Committee has established and the Board has approved equity ownership guidelines for our executives as follows: +Chief Executive Officer +5 times annual base salary +Executive Vice Presidents +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of equity +awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to such executive, unless approved by the Compensation Committee for the Chief Executive Officer or +any Executive Vice President, and by the Chief Executive Officer for all other officers. As of March 21, 2016, Mr. Pursell, Mr. Copeland and Mr. Mueller satisfy these +guidelines, with Mr. Pursell owning +40 +Table of Contents +equity +with a value of approximately 4.3 times his base salary, Mr. Copeland owning equity with a value of approximately 3.8 times his base salary, and Mr. Mueller owning equity with a +value of approximately 3.4 times his base salary. As of March 21, 2016, Mr. Ottoson and Mr. Vogel did not satisfy these guidelines, primarily due to the fact that +Mr. Ottoson's and Mr. Vogel's recent promotions increased their base salaries and increased the amount of equity they are required to own, as well as the recent drop in our stock price. +The Compensation Committee will continue to review compliance with these guidelines annually, and more often as appropriate. +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of +trading in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address trading by +officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be highest, and generally +prohibits our officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, employees and directors from +(a) entering into transactions that "hedge" the value of our stock, (b) holding our securities in margin accounts, (c) pledging our securities to secure indebtedness, and +(d) buying or selling options or derivatives with respect to our securities. +Compensation Committee Report +The Compensation Committee of SM Energy Company has reviewed and discussed the disclosures contained under "Compensation Discussion +and Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the disclosures set forth under the +heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on Form 10-K for the fiscal year ended +December 31, 2015. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Stephen +R. Brand, Chair +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +41 +Table of Contents +Executive Compensation Tables +Summary Compensation Table for 2013, 2014, and 2015 +This Summary Compensation table sets forth the annual and long-term compensation our NEOs received during each of the last three +years. In addition to salaries, the table reflects RSUs and PSUs granted in 2013, 2014, and 2015 and cash bonuses earned in 2013, 2014, and +2015. Eligible employees participate in our STIP and LTIP as described more fully in the "Compensation Discussion and Analysis" and disclosed below. +Name and Principal Position +Year +Salary +Stock +Awards (2) +Non-Equity +Incentive +Plan +Compensation (3) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings (4) +All Other +Compensation (5) +Total +Javan D. Ottoson +2015 +$796,731 +$3,000,014 +$773,000 +$210,255 +$122,185 +$4,902,185 +President and Chief Executive +2014 +$496,385 +$2,799,996 +$769,103 +$127,536 +$50,949 +$4,243,969 +Officer (principal executive officer) +2013 +$459,423 +$1,800,031 +$835,000 +$50,150 +$27,030 +$3,171,634 +A. Wade Pursell +2015 +$461,769 +$1,624,985 +$403,125 +$61,731 +$15,900 +$2,567,510 +Executive Vice President and +2014 +$432,885 +$1,999,957 +$580,548 +$77,890 +$15,750 +$3,107,030 +Chief Financial Officer (principal financial officer) +2013 +$398,654 +$1,399,983 +$637,846 +$21,892 +$15,373 +$2,473,748 +Herbert S. Vogel +2015 +$424,616 +$1,624,985 +$329,502 +$64,107 +$82,516 +$2,525,726 +Executive Vice +2014 +$374,731 +$814,994 +$484,187 +$49,336 +$44,209 +$1,767,457 +President—Operations +2013 +$335,423 +$499,966 +$493,072 +$51,935 +$26,260 +$1,406,656 +David W. Copeland +2015 +$414,270 +$700,003 +$281,289 +$73,264 +$15,950 +$1,484,776 +Executive Vice President, +2014 +$388,423 +$699,996 +$421,766 +$68,114 +$15,600 +$1,593,899 +General Counsel and Corporate Secretary +2013 +$359,239 +$600,010 +$502,834 +$36,170 +$15,300 +$1,513,553 +Mark D. Mueller +2015 +$326,539 +$389,984 +$221,700 +$41,615 +$67,427 +$1,047,265 +Sr. VP/Regional Manager +Anthony J. Best (1) +2015 +$96,462 +$66,773 +$— +$272,061 +$110,051 +$545,347 +Chief Executive Officer +2014 +$826,308 +$3,699,974 +$1,280,777 +$270,022 +$64,794 +$6,141,875 +(principal executive officer) +2013 +$744,231 +$3,699,981 +$1,488,462 +$190,120 +$26,002 +$6,148,796 +(1) Mr. Best +retired from SM Energy effective as of January 31, 2015. +(2) The +amount in this column for 2015 for Mr. Best represents his pro rata compensation for his service as a member of the Board +following his retirement as Chief Executive Officer. Please see "Director Compensation" below for additional details. All other amounts in this column represent the aggregate grant date fair values of +PSU and RSU awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC +Topic 718"), excluding the effect of estimated forfeitures related to service-based vesting conditions. These grant date fair values have been determined based on the assumptions and +methodologies discussed in Note 7 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. PSU +awards are subject to market-based performance conditions relating to our total stockholder return and relative stockholder return compared to a peer company index over a three-year performance +period. The grant date fair values of PSU awards reflected in this column are based on the estimate as of the grant date of the probable outcome of these performance conditions, and those grant date +fair values for Messrs. Ottoson, Pursell, Copeland, Vogel and Mueller respectively are $2,249,998, $1,218,739, $524,992, $1,218,739 and $292,488. If instead we assume that the highest level of +performance conditions will be achieved, the grant date fair values of those awards as computed in accordance with FASB ASC Topic 718 for Messrs. Ottoson, Pursell, Copeland, Vogel and Mueller +respectively are $4,499,994, $2,437,478, $1,049,984, $2,437,478 and $584,976. +42 +Table of Contents +(3) The +amounts in the column represent the bonuses paid in 2016, 2015, and 2014, but earned during 2015, 2014 and 2013 performance periods, +respectively, under the STIP. +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our +qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or above market +earnings on deferred compensation. +(5) Amounts +consist of our respective contributions to our 401(k) Profit Sharing Plan, contribution to our Non-Qualified Deferred Compensation +Plan, payments for financial consulting services and any wellness gift cards. In 2015, matching contributions to our 401(k) Profit Sharing Plan of $15,900 were provided to each of Messrs. Best, +Ottoson, Pursell, Copeland, Vogel and Mueller. In 2015, matching contributions to our Non-Qualified Deferred Compensation Plan of $82,634, $93,950, $54,528 and $39,242 were made to Mr. Best, +Mr. Ottoson, Mr. Vogel and Mr. Mueller, respectively. In 2015, financial consulting service benefits of $11,467, $12,335, $12,088 and $12,286 were provided to Messrs. Best, +Ottoson, Vogel and Mueller, respectively. +Grants of Plan-Based Awards in 2015 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the qualitative metrics for +our 2015 STIP on February 16, 2016. As discussed above, in 2016, we made the bonus payments associated with the 2015 STIP. In addition, pursuant to our LTIP and in accordance with our Equity +Plan, our Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 22, 2015. We made these grants on July 1, 2015. These grants are summarized in the table below. +Estimated Possible +Payouts Under +Non-Equity Incentive +Plan Awards +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (5) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option +Awards (6) +Grant +Date +Name +Target (1) +Maximum (2) +Threshold +Target (3) +Maximum (4) +Javan D. Ottoson +2/16/15 +$797,731 +$2,000,000 +— +— +— +— +— +7/1/15 +— +— +— +— +— +17,155 +$750,016 +7/1/15 +— +— +— +49,625 +99,250 +— +$2,249,998 +A. Wade Pursell +2/16/15 +$415,592 +$2,000,000 +— +— +— +— +— +7/1/15 +— +— +— +— +— +9,292 +$406,246 +7/1/15 +— +— +— +26,880 +53,760 +— +$1,218,739 +Herbert S. Vogel +2/16/15 +$339,692 +$2,000,000 +— +— +— +— +— +7/1/15 +— +— +— +— +— +9,292 +$406,246 +7/1/15 +— +— +— +26,880 +53,760 +— +$1,218,739 +David W. Copeland +2/16/15 +$289,989 +$2,000,000 +— +— +— +— +— +7/1/15 +— +— +— +— +— +4,003 +$175,011 +7/1/15 +— +— +— +11,579 +23,158 +— +$524,992 +Mark D. Mueller +2/16/15 +$228,577 +$2,000,000 +— +— +— +— +— +7/1/15 +— +— +— +— +— +2,230 +$97,496 +7/1/15 +— +— +— +6,451 +12,902 +— +$292,488 +Anthony J. Best +2/16/15 +— +— +— +— +— +— +— +7/1/15 +— +— +— +— +— +— +— +7/1/15 +— +— +— +— +— +— +— +(1) This +amount represents the salary amount actually paid to each of our NEOs in 2015, multiplied by the applicable STIP target percentage. +(2) This +amount represents the maximum award possible under the stockholder-approved Section 162(m) Cash Bonus Plan; however, as described +above in "Section 4—Elements Of +43 +Table of Contents +Compensation—Short +Term Incentive Plan—Design," in general, actual bonuses generally range from zero to two times a participant's target percentage. +(3) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the target performance level established by our Compensation Committee, resulting in an earned percentage of 100%. PSUs represent the right to receive, upon settlement of the PSUs after the +completion of a three-year performance period ending June 30, 2018, a number of shares of our common stock that may be from 0% to 200% of the number of PSUs granted on the award date, depending +on the extent to which our performance criteria have been achieved and the extent to which the PSUs have vested. The performance criteria for the PSUs are based on a combination of our TSR for the +performance periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer companies for the performance period. The PSUs will vest on +July 1, 2018. +(4) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the maximum performance level established by our Compensation Committee, resulting in an earned percentage of 200%. +(5) This +amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2016, one-third on July 1, 2017, +and one-third on July 1, 2018. Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. The RSUs are not eligible for dividends +and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement +date. +(6) The +grant date fair value of a PSU is calculated using a Geometric Brownian Motion Model, and the aggregate grant date fair value represented +in this column for PSUs is calculated based upon the number of PSUs granted. +44 +Table of Contents +Outstanding Equity Awards at 2015 Year-End +The following table shows outstanding equity awards for our NEOs as of December 31, 2015: +Stock Awards +Equity Incentive Plan +Awards: +Equity Incentive Plan +Awards: +Name +Number of Shares or +Units of Stock That +Have Not Vested +Market Value of Shares +or Units of Stock that +Have Not Vested (1) +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value +of Unearned Shares, +Units or Other Rights +That Have Not +Vested (1) +Javan D. Ottoson +2,502 +(4) +$49,189 +— +$— +— +$— +21,051 +(5) +$413,863 +5,549 +(6) +$109,093 +— +$— +— +$— +22,185 +(7) +$436,157 +17,155 +(8) +$337,267 +— +$— +— +$— +49,625 +(9) +$975,628 +A. Wade Pursell +1,946 +(4) +$38,258 +— +$— +— +$— +16,373 +(5) +$321,893 +3,964 +(6) +$77,932 +— +$— +— +$— +15,846 +(7) +$311,532 +9,292 +(8) +$182,681 +— +$— +— +$— +26,880 +(9) +$528,461 +Herbert S. Vogel +695 +(4) +$13,664 +— +$— +— +$— +5,847 +(5) +$114,952 +1,616 +(6) +$31,771 +— +$— +— +$— +6,457 +(7) +$126,945 +9,292 +(8) +$182,681 +— +$— +— +$— +26,880 +(9) +$528,461 +David W. Copeland +834 +(4) +$16,396 +— +$— +— +$— +7,017 +(5) +$137,954 +1,388 +(6) +$27,288 +— +$— +— +$— +5,546 +(7) +$109,034 +4,003 +(8) +$78,699 +— +$— +— +$— +11,579 +(9) +$227,643 +Mark D. Mueller +626 +(4) +$12,307 +— +$— +— +$— +5,263 +(5) +$103,471 +893 +(6) +$17,556 +— +$— +— +$— +3,565 +(7) +$70,088 +2,230 +(8) +$43,842 +— +$— +— +$— +6,451 +(9) +$126,827 +Anthony J. Best +— +$— +43,271 +(2) +$850,708 +— +$— +29,315 +(3) +$576,333 +(1) The +market value of RSUs and PSUs that have not vested is calculated using the closing price of $19.66 of our common stock on +December 31, 2015. The market value of PSUs is calculated based upon an earned percentage of 100%. +(2) These +PSUs have vested following Mr. Best's retirement; however, the three-year performance period ends June 30, 2016. The +award is reported at an earned percentage of 100%. +(3) These +PSUs have vested following Mr. Best's retirement; however, the three-year performance period ends June 30, 2017. The +award is reported at an earned percentage of 100%. +(4) These +RSUs vest 1/3rd on July 1, 2014, 1/3rd on July 1, 2015, and 1/3rd on July 1, 2016. +(5) These +PSUs vest on July 1, 2016. The PSUs are subject to a three-year performance period ending June 30, 2016. The award is +reported at an earned percentage of 100%. +(6) These +RSUs vest 1/3rd on July 1, 2015, 1/3rd on July 1, 2016, and 1/3rd on July 1, 2017. +45 +Table of Contents +(7) These +PSUs vest on July 1, 2017. The PSUs are subject to a three-year performance period ending June 30, 2017. The award is +reported at an earned percentage of 100%. +(8) These +RSUs vest 1/3rd on July 1, 2016, 1/3rd on July 1, 2017, and 1/3rd on July 1, 2018. +(9) These +PSUs vest on July 1, 2018. The PSUs are subject to a three-year performance period ending June 30, 2018. The award is +reported at an earned percentage of 100%. +2015 Stock Vested +Stock Awards +Name +Number of Shares +Acquired on Vesting (1) +Value Realized +on Vesting (2) +Javan D. Ottoson +41,077 +$1,787,171 +A. Wade Pursell +24,890 +$1,147,927 +Herbert S. Vogel +8,920 +$411,390 +David W. Copeland +10,397 +$479,510 +Mark D. Mueller +8,327 +$384,041 +Anthony J. Best +77,721 +$3,338,142 +(1) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2015. As discussed +above, each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement +of the PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from 0% to 200% of the number of PSUs, depending on the extent to which we have +achieved our performance goals. +(2) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon +the vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date +was not a normal market trading date, then on the last normal market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation +were $46.12 on June 30, 2015, for the vesting and settlement of the first vesting tranche of the 2014 RSU awards and the vesting and settlement of the second vesting tranche of the 2013 RSU +awards and the vesting and settlement of the third vesting tranche of the 2012 RSU awards, which were all settled on July 1, 2015; and $46.12 on June 30, 2015, for the vesting and +settlement date of July 1, 2015, for the full settlement of the July 1, 2012 PSU awards, which were settled based upon an earned percentage of 100%. The per share closing market prices +utilized for Mr. Best's RSU computation was $37.07 on July 31, 2015, for the vesting and settlement of all three vesting tranches of the 2014 RSU awards and the vesting and settlement of +the second and third vesting tranches of the 2013 RSU awards and the vesting and settlement of the third vesting tranche of the 2012 RSU awards which were all settled on August 3, 2015, after +the expiration of the 409(A) holding period due to his retirement. The per share closing market prices utilized for Mr. Ottoson's RSU computation was $35.39 on October 2, 2015, for the +vesting and settlement of 10,000 RSUs granted in conjunction with his promotion to President for the vesting and settlement date of October 5, 2015. +46 +Table of Contents +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our +employees who joined SM Energy prior to January 1, 2015, and meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified +plans IRC limits (the 2015 limit was $265,000 in annual base salary income for certain executive officers with a senior management hierarchy title of at least Vice President). +The +following table represents the value of the NEOs' pension benefits as of December 31, 2015: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Javan D. Ottoson +Qualified Pension Plan +9 +$278,454 +$— +Non-Qualified SERP Pension Plan +9 +$351,974 +$— +A. Wade Pursell +Qualified Pension Plan +7 +$161,475 +$— +Non-Qualified SERP Pension Plan +7 +$110,323 +$— +Herbert S. Vogel +Qualified Pension Plan +4 +$112,448 +$— +Non-Qualified SERP Pension Plan +4 +$52,260 +$— +David W. Copeland +Qualified Pension Plan +5 +$165,650 +$— +Non-Qualified SERP Pension Plan +5 +$81,742 +$— +Mark D. Mueller +Qualified Pension Plan +8 +$188,378 +$— +Non-Qualified SERP Pension Plan +8 +$36,424 +$— +Anthony J. Best +Qualified Pension Plan +9 +$472,671 +$— +Non-Qualified SERP Pension Plan +9 +$— +$849,551 +Non-qualified Deferred Compensation for 2015 +This Non-qualified Deferred Compensation table sets forth the NEOs participation in the Non-qualified Deferred Compensation Plan. This +plan allows eligible employees to defer part of their salary and annual incentive bonus on a voluntary basis. +Name +Executive +Contributions +in Last FY (1) +Registrant +Contributions in +Last FY (2) +Aggregate +Earnings in +Last FY (3) +Aggregate +Withdrawals in +Last FY +Aggregate +Balance at +Last FYE +Javan D. Ottoson +$93,950 +$93,950 +($344 +) +$— +$235,249 +A. Wade Pursell +$— +$— +$— +$— +$— +Herbert S. Vogel +$54,528 +$54,528 +($188 +) +$— +$144,842 +David W. Copeland +$— +$— +$— +$— +$— +Mark D. Mueller +$39,242 +$39,242 +($3,579 +) +$— +$104,119 +Anthony J. Best +$133,865 +$82,634 +($59 +) +$— +$294,363 +(1) The +amounts in this column are also included in the Summary Compensation Table under the Salary column or the Non-Equity Incentive Plan +Compensation column, as applicable. +(2) The +amounts in the column represent the matching contributions. The matching contributions are included in the "All Other Compensation" +column of the Summary Compensation Table. We match deferred compensation up to an amount equal to six percent of base salary plus any STIP cash bonus. +(3) The +earnings reflected in the column represent deemed investment earnings or losses from voluntary deferrals and Company contribution, as +applicable. The Non-qualified Deferred Compensation Plan does not guarantee a return on deferred amounts. +47 +Table of Contents +Although +the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from net profits, if any, from oil and gas activity from designated +pools of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific determinable compensation amounts or balances are deferred. The NPP +is described +in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts would be reflected in the Summary Compensation Table above; however, we did not pay any NPP Compensation to our NEOs +during 2013, 2014 or 2015. +Our +SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated +benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section above. In addition, annual increases in the actuarial value of benefits under the SERP +are included in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +As discussed in "Compensation Discussion and Analysis—Section 6—Other Compensation +Items—Employment Agreements," the employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of Vice President and above, including each of our NEOs, +and to certain other key employees, through change of control executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of +control event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive +officers are entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a change of +control of our company (a) without "cause" by our company or (b) for "good reason" by the officer, each as defined in the agreements. The term "good reason" incorporates the concept of a +change in the executive's status, authority, position, offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding +a change of control event or within two and one-half years thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time frame, or +the requirement that an executive relocate his base of employment outside a 25 mile radius from the executive's location at that time. Severance payments equal to a maximum of two and one-half times +annual base salary, depending on the length of time of employment after the change of control, provided that in no event would the severance payments equal less than one times annual base salary. In +addition, all insurance and benefits will be provided for a period of one year after termination. In the event the executive is subject to golden parachute excise taxes under Section 4999 of +the IRC, severance benefits may be reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax "gross-up" payments are provided. Effective as +of January 1, 2016, we entered into new change of control agreements with our NEOs, which contain substantially similar terms as the previous agreements, except the severance payments were +modified to include: (a) all compensation accrued but not paid prior to the termination; (b) a lump sum amount equal to 200% of the executive's base salary and target STIP cash bonus; +(c) a lump sum amount equal to the executive's pro rata target STIP cash bonus for the year in which +48 +Table of Contents +employment +is terminated; and (d) a lump sum amount equal to 24 multiplied by our then monthly contribution for medical, dental, and vision insurance on behalf of the executive and his or her +family. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company, or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention incentive benefiting our company and our stockholders without creating an unreasonable impediment to a potential acquirer of our company. The severance payment +amounts under these agreements for our executives are comparable to payment amounts offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable +compensation and insurance and benefits protection during a reasonable period of time to allow the executive to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2015, under the change of control executive severance agreements, the total maximum +severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year after severance for each of the NEOs who +were employed by us as of December 31, 2015, would be as follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated +Value of +Benefits for +One Year (1) +Javan D. Ottoson +$2,000,000 +$800,000 +$18,857 +A. Wade Pursell +$1,117,500 +$447,000 +$29,515 +Herbert S. Vogel +$1,030,000 +$412,000 +$17,939 +David W. Copeland +$1,002,500 +$401,000 +$17,832 +Mark D. Mueller +$790,000 +$316,000 +$29,539 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any +such benefits pursuant to a subsequent employer's benefit plans. The maximum period for receipt of benefits under the change of control executive severance agreements is one year for all NEOs. +Under +our change of control executive severance agreements with our executives, the severance payments are to be made in such base salary installment amounts and pursuant to such base +salary installment payment schedule as were in effect immediately prior to the change of control, and our company or its successor is obligated to make such payments. We also have change in control +arrangements with a majority of our non-executive employees. +49 +Table of Contents +Equity Compensation Plans +Options and shares of our common stock are authorized for grant or issuance pursuant to our Equity Plan as compensation to eligible +employees, consultants, and members of the Board of Directors. Our stockholders have approved this plan. The following table is a summary of the shares of common stock authorized for issuance under +the equity compensation plans as of December 31, 2015: +(a) +(b) +(c) +Plan category +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants, and +rights +Weighted-average +exercise price of +outstanding +options, +warrants, +and rights +Number of securities +remaining available for +future issuance under +equity compensation +plans (excluding +securities reflected +in column (a)) +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +— +— +Restricted stock (1)(3) +543,737 +N/A +Performance share units (1)(3)(4) +725,408 +N/A +Total for Equity Incentive Compensation Plan +1,269,145 +— +2,781,642 +Employee Stock Purchase Plan (2) +— +— +949,707 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +1,269,145 +— +3,731,349 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified +stock options, incentive stock options, stock appreciation rights, performance shares, performance units, and stock-based awards to key employees, consultants, and members of our Board or any of our +affiliates. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock +Option Plan, the SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan (collectively referred to as the "Predecessor Plans"). All grants of +equity are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor Plan immediately prior to the effective date of +the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. Our Board approved amendments to the Equity Plan in 2009, 2010 and +2013, and each amended plan was approved by our stockholders at the respective annual stockholders' meetings. The awards granted in 2015, 2014 and 2013 under the Equity Plan were 714,949, 464,641, and +632,939, respectively. +(2) Under +the SM Energy Company ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to +15 percent of their eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six-month +offering period, and shares issued under the ESPP as of December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the IRC. Shares issued +under the ESPP totaled 197,214, 83,136, and 77,427 in 2015, 2014 and 2013, respectively. +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in +order to provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $55.01 and +$63.43, respectively. +(4) The +number of awards vested assumes an earned percentage of 100%. The final number of shares issued may vary depending on the ending +three-year earned percentage, which ranges from 0% to 200%. +50 +Table of Contents +DIRECTOR COMPENSATION +General +The annual service period for our directors is the period from one stockholders' annual meeting to the next. In May +2015, F. W. Cook conducted an analysis of compensation for members of the boards of directors of our peer companies versus the compensation for members of our Board. F. W. Cook's +analysis generally revealed that our director compensation approximated the median of the peer group. Based on F. W. Cook's analysis, the Compensation Committee elected to recommend to +our Board that no changes be made to the director compensation package for the 2015–2016 service period, which our Board approved on May 19, 2015. Director compensation is primarily +paid in the form of stock grants. Mr. Ottoson, our President and Chief Executive Officer and only employee director, does not receive additional compensation for serving on the Board or any +committee of the Board. +The +annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education +programs: +• Cash Retainer —A $90,000 retainer (in lieu of Board and committee meeting +attendance fees) payable at the individual director's option, either entirely in cash or shares of our common stock. Dr. Brand, Mr. Gardiner, Mr. Leiker, Mr. Quintana, +Ms. Robeson and Mr. Sullivan each elected to have their 2015 retainers paid in shares of our common stock, which resulted in a grant on May 20, 2015, of 1,654 shares of our common +stock to each under our Equity Plan. In the event any director attends in excess of 30 Board and committee meetings in the aggregate during the period from May 19, 2015, through May 24, +2016, such director shall receive $1,500 per meeting for each meeting in excess of 30. +• Equity Retainer —A grant of shares of our common stock with a value of +$180,000—resulting in a grant on May 20, 2015, to each non-employee director of 3,308 shares of our common stock issued under our Equity Plan. These shares and any shares issued +pursuant to any retainer are earned over the director's annual service period. Shares issued to a director for compensation may not be transferred until 18 months after the date of issuance. +Shares issued to a director who thereafter resigns from the Board before completing the annual service period, but after having completed at least five years of service as a Board member, are treated +as fully earned. The related compensation expense that we record is the fair value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +We +pay the chairs of the following committees the specified cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of +their respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +51 +Table of Contents +We +paid Mr. Sullivan a retainer for his service as non-executive Chairman of the Board of $85,000 for the 2015–2016 annual service period. The retainer was in the +form of shares of our common stock on May 20, 2015, which resulted in a grant of 1,562 shares. The retainer was in addition to his basic non-employee director compensation. +We +maintain a matching charitable gift program to encourage financial support for charitable organizations that are exempt from federal income taxation in which employees and our +non-management directors may participate. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a percentage of the average +of our prior three years' income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Ms. Robeson and John M. Seidl participated in +this program during 2015, and we matched a total of $3,250 in non-employee director contributions under this program. Mr. Seidl retired as a director on May 19, 2015. We may suspend, +change, revoke or terminate the program at any time. +Our +directors are eligible to participate in our company-wide health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for non-employee directors of five times the annual cash retainer amount. New directors are allowed time to meet +this guideline and are not required to acquire shares in the open market for this purpose. +The +following table sets forth the annual and long-term compensation paid during 2015 to our non-employee directors. The stock based component of the compensation reflects the grant +date fair value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +2015 Director Compensation +Name +Fees +Earned +or Paid in +Cash +Stock +Awards (2)(3)(4) +Option +Awards (5) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (6) +Total +Anthony J. Best (1) +$— +$66,773 +$— +$— +$— +$— +$66,773 +Larry W. Bickle +$100,000 +$133,379 +$— +$— +$— +$— +$233,379 +Stephen R. Brand +$15,000 +$207,759 +$— +$— +$— +$— +$222,759 +William J. Gardiner +$20,000 +$200,068 +$— +$— +$— +$— +$220,068 +Loren M. Leiker +$— +$212,572 +$— +$— +$— +$— +$212,572 +Ramiro G. Peru +$90,000 +$141,715 +$— +$— +$— +$— +$231,715 +Julio M. Quintana +$— +$200,068 +$— +$— +$— +$— +$200,068 +Rose Robeson +$— +$212,572 +$— +$— +$— +$2,000 +$214,572 +John M. Seidl (1) +$— +$— +$— +$— +$— +$1,250 +$1,250 +William D. Sullivan +$— +$263,048 +$— +$— +$— +$— +$263,048 +(1) Mr. Best +and Mr. Seidl retired from the Board on May 19, 2015. +(2) We +issued to each of our non-employee directors their equity retainer of 3,308 shares of our common stock on May 20, 2015, after such +director's election to the Board on May 19, 2015. We issued to Mr. Sullivan an additional 1,562 shares of our common stock on May 20, 2015, for serving as the Non-Executive +Chairman of the Board. Dr. Brand, Mr. Gardiner, Mr. Leiker, Mr. Quintana, Ms. Robeson and Mr. Sullivan elected to receive an additional 1,654 shares of +52 +Table of Contents +our +common stock on May 20, 2015, in lieu of their respective $90,000 annual cash retainers. These stock awards are for the annual service period from May 19, 2015 through May 19, +2016. The shares are considered to be earned over the director's annual service period and will be fully vested on May 20, 2016. The shares also carry a transfer restriction imposed by us that +expires 18 months after the date of issuance of the shares. The value of the stock awards represents the grant date fair value. We issued 1,953 shares of unrestricted common stock to +Mr. Best on July 28, 2015, for pro-rata compensation for his service on the Board between February 1, 2015, and May 19, 2015. +(3) The +grant date fair value of each share of our common stock issued to non-employee directors over their past two years of service to us is +set forth in the following table and is computed in accordance with FASB ASC Topic 718, based on the grant date fair value. There were no forfeitures by directors during fiscal 2015. +Grant Date +Shares +Value +Grantee +7/28/2015 +1,953 +$66,773 +Best +5/20/2015 +3,308 +$133,379 +Bickle +5/20/2015 +4,962 +$207,759 +Brand +5/20/2015 +4,962 +$200,068 +Gardiner, Quintana +5/20/2015 +6,524 +$263,048 +Sullivan +5/20/2015 +4,962 +$212,572 +Leiker, Robeson +5/20/2015 +3,308 +$141,715 +Peru +8/20/2014 +1,717 +$124,148 +Peru +7/11/2014 +2,951 +$206,077 +Robeson +5/21/2014 +2,307 +$159,760 +Brand +5/21/2014 +3,461 +$227,007 +Bickle, Gardiner and Quintana +5/21/2014 +3,461 +$239,674 +Leiker +5/21/2014 +2,307 +$151,316 +Seidl +5/21/2014 +4,551 +$298,500 +Sullivan +(4) As +of December 31, 2015, our non-employee directors held the following number of shares of restricted stock, which were granted in +2015: Mr. Bickle—3,308, Dr. Brand—4,962, Mr. Gardiner—4,962, Mr. Leiker—4,962, Mr. Peru—3,308, +Mr. Quintana—4,962, Ms. Robeson—4,962 and Mr. Sullivan—6,524. +(5) For +the year ended December 31, 2015, no stock options were issued to directors, nor have any stock options been issued to the +directors since December 2004. As of December 31, 2015, the non-employee directors do not hold any outstanding stock options. +(6) The +amounts in this column represent matching charitable contributions made on the behalf of Mr. Seidl and Ms. Robeson for the +year 2015 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS +None +of the directors who served on the Compensation Committee during fiscal year 2015 has ever served as one of our officers or employees. During fiscal year +2015, there were no Compensation Committee interlocks. +53 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Our +directors are elected annually. At the Annual Meeting, eight directors are to be elected to serve for one year or until their successors are elected and +qualified. Based on the recommendations of the NCG Committee, the Board has nominated the following individuals for election as directors to serve until the 2017 Annual Meeting of Stockholders and +until their successors have been elected and qualified, or until their earlier resignation or removal: +Larry W. Bickle +Ramiro G. Peru +Stephen R. Brand +Julio M. Quintana +Loren M. Leiker +Rose M. Robeson +Javan D. Ottoson +William D. Sullivan +Each +nominee is currently a director and all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy +Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if such a situation arises prior to the Annual +Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of our oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, +public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance +Guidelines. Among other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, +operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that +led the NCG Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our +long-term strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, +whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +Set +forth below is a summary of certain characteristics of our director nominees as well as certain biographical information, as of the filing date of this Proxy Statement, for each +nominee for election as director, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships +among any of our directors or executive officers. +54 +Table of Contents +Director Nominee Summary +All of our non-management Director Nominees are independent +Our Director Nominees provide an effective balance of fresh perspective and experience with the company +Director Nominees +Larry W. Bickle +Director since 1995 +Age: 70 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private +equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer of +TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also served on the Board of Directors of UNS Energy Company (NYSE: UNS) and currently serves as a member of the Board of Managers of Quantum +Natural Gas Storage, LLC. +Key Attributes, Experience and Skills: +Mr. Bickle +brings to the Board over 32 years of experience in various aspects of the oil and gas midstream industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy +insights from his experience leading TPC Corporation. Mr. Bickle also brings specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas +marketing and trading operation, and extensive experience with both state and federal regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as +the basis for Mr. Bickle's designation as an audit committee financial expert. Mr. Bickle's previous service on other public company boards enhances his strong corporate governance background. +55 +Table of Contents +Stephen R. Brand +Director since 2011 +Age: 66 +Position, Principal Occupation and Business Experience: +Dr. Brand is currently Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. He is also a director of BPZ Resources, Inc., +a company that focuses on exploration, development and production of oil and natural gas in Peru and Ecuador. Dr. Brand is a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the E&P +sector for solving subsurface problems in complex geologic formations. He is also on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution-as-a-service platform to assess and manage data that +can be used in a predictive role. At the end of 2010, Dr. Brand retired as Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, +Technology (R&D) of ConocoPhillips in October 2007, Dr. Brand served as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Dr. Brand started his career in 1976 as a geologist with Phillips +Petroleum Company and thereafter served in various roles of increasing responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key Attributes, Experience and Skills: +Dr. Brand has +over 38 years of experience in the energy industry, including extensive experience in the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" stream +technologies. He also has valuable human resources management skills and experiences, which are relevant in the oversight of our operational and compensation management functions. +56 +Table of Contents +Loren M. Leiker +Director since 2012 +Age: 62 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in the United States. Mr. Leiker served EOG as Senior Executive Vice +President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, +Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of Vermilion Energy Inc. (VET: Toronto) since December 2012, a director +of Navitas Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March 2015. +Key Attributes, Experience and Skills: +Mr. Leiker +brings to the Board over 38 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience in exploration activities similar to ours, a deep understanding of upstream operations and +asset management technologies, and broad human resources management skills and experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Leiker's service on other +public company boards enhances his strong corporate governance background. +Javan D. Ottoson +Director since 2014 +Age: 57 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed as Chief Executive Officer of the company in February 2015 and President of the company in October 2012. +Mr. Ottoson has been in the energy industry for over 33 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and Engineering at Energy Partners, Ltd., an +independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a +Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked +for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +Key Attributes, Experience and Skills: +The Board of +Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on the Board because he is a proven leader with the strong technical skills and leadership vision necessary to create top quartile returns for +our stockholders. Mr. Ottoson's experiences and familiarity with our operations are critical to our success as we persevere through this period of depressed commodity prices and ultimately return to growing our economic inventory and expanding +our opportunities through acquisitions and exploration. +57 +Table of Contents +Ramiro G. Peru +Director since 2014 +Age: 60 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 2004 to 2007 (Senior Vice President and Chief Financial Officer from 1999–2004). He joined Phelps Dodge in 1979 and held various +finance and accounting positions prior to his appointment as Chief Financial Officer. Mr. Peru currently serves on the Boards of Directors of Anthem, Inc. (NYSE: ANTM) and UNS Energy Corporation, a subsidiary of Fortis, Inc. +Key Attributes, Experience and Skills: +Mr. Peru brings +to the Board significant financial expertise, much of which he obtained through his over 29 years of experience in the mining industry. Mr. Peru's service as chairman of the audit committee of another publicly traded company enhances his +significant financial management and accounting oversight experience. As a result of his executive level experience, Mr. Peru also has extensive human resources management skills, which are an important foundation for his service on the +Compensation Committee. +Julio M. Quintana +Director since 2006 +Age: 56 +Position, Principal Occupation and Business Experience: +Mr. Quintana currently serves on the Board of Directors of Newmont Mining Company (NYSE: NEM). Mr. Quintana served as the President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January +2015, and served on Tesco's Board of Directors from September 2004 to May 2015. Prior to his appointment as President and Chief Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer at Tesco beginning in +September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an +integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana +brings to the Board over 35 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of drilling and asset management technologies, +and broad human resources management skills and experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Quintana's service on another public company board enhances +his strong corporate governance background. +58 +Table of Contents +Rose M. Robeson +Director since 2014 +Age: 55 +Position, Principal Occupation and Business Experience: +Ms. Robeson served as Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners LP, from 2012 until her retirement in 2014. Ms. Robeson also served as Group Vice +President and Chief Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream LLC, Ms. Robeson was the Vice President and Treasurer. Prior to joining DCP Midstream, LLC, +Ms. Robeson was with Kinder Morgan, Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson has served as a director of American Midstream GP, LLC, the +general partner of American Midstream Partners, LP (NYSE: AMID) since June 1, 2014, and as a director of Tesco Corporation (NASDAQ:TESCO) since October 29, 2015. +Key Attributes, Experience and Skills: +Ms. Robeson +brings to the Board over 27 years of broad experience in various aspects of the oil and gas industry, including exploration and production, midstream and refining, and marketing. She also has significant financial management, risk management and +accounting oversight experience, which is important in the oversight of our financial reporting, financial risk management and compensation management functions. Ms. Robeson's service on other public company boards enhances her strong corporate +governance background. +59 +Table of Contents +William D. Sullivan +Director since 2004 +Age: 59 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan retired from Anadarko in August +2003. Since March 2006, Mr. Sullivan has been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing +oil and natural gas properties. From February 2007 until May 2015, Mr. Sullivan was a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited +partnership engaged in the business of gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. Mr. Sullivan has been a director since August 2007, and +Non-executive Chairman of the Board since May 2015, of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of CSI Compressco +Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded limited partnership providing wellhead compression-based production enhancement services. CSI Compressco GP, Inc. is a +minority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production +at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, +and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key Attributes, Experience and Skills: +Mr. Sullivan +brings to the Board over 36 years of strong and broad experience in the oil and gas industry, with particular expertise in the exploration and production side of the industry. His experience as an exploration and production senior executive +enables him to contribute significant independent insights on our business and operations, and the economic environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in +the oversight of our compensation management functions, and his service on other public company boards of directors provides a strong corporate governance background. +Recommendation of the Board: +The Board recommends voting " FOR " the election of all the nominees listed above. +60 +Table of Contents +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2016 +Our +stockholders are being asked to ratify the appointment by the Audit Committee of Ernst & Young LLP ("EY") as our independent registered +public accounting firm for 2016. EY has served as our independent registered public accounting firm since 2013, and the Audit Committee plans to engage EY to perform the audit of our financial +statements as of and for the year ending December 31, 2016. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of EY is not required by law or our organizational +documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public +accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do not ratify the appointment of EY, the Audit Committee will consider whether to engage another +independent registered public accounting firm, but will not be obligated to do so. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent +registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. +A +representative of EY is expected to be present at the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +Recommendation of the Board : The Board recommends voting " FOR " +Proposal 2. +61 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our +stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this +Proxy Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the Board or the Compensation Committee, or +require the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the outcome of the vote when considering future +executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed in this Proxy Statement, we will consider +our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" section above, our executive compensation programs are designed to provide a competitive level +of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. +In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named executive officers is +allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby "at-risk"). In addition, as an executive officer's +responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed "at-risk" increases in relation to base salary. Furthermore, our named +executive officers' targeted total direct compensation (base salary plus target bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more detail under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the +key drivers of long-term stockholder value creation. Our LTIP also compensates performance based upon absolute "total stockholder return," as well as total stockholder return compared to our peers. We +believe that we have achieved our goal for at least the last three years. As you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which more +thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these +policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. In +addition, the fact that we have received the support of at least 97% of votes cast in the last four advisory votes on executive compensation indicates that our stockholders strongly support our +compensation philosophy. +62 +Table of Contents +In +light of these circumstances, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2016 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the "Compensation +Discussion and Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +During +our 2011 Annual Meeting of Stockholders, our stockholders approved a non-binding, advisory proposal to hold annual advisory votes to approve our executive compensation. In +consideration of the results of this advisory vote, the Board has adopted a policy providing for annual advisory votes on executive compensation. Unless the Board modifies this policy, the next +advisory vote on compensation following this vote will be held at our 2017 Annual Meeting of Stockholders. +Recommendation of the Board : The Board recommends voting " FOR " +Proposal 3. +63 +Table of Contents +PROPOSAL 4—APPROVAL OF AMENDMENT AND RESTATEMENT OF OUR EQUITY PLAN +Overview +Subject to our stockholders' approval, on March 24, 2016, the Board of Directors approved an amendment and restatement of our +Equity Plan to (i) increase the stated total number of shares of the Company's common stock authorized for issuance to participants pursuant to awards granted under our Equity Plan from +10,700,000 shares to 14,100,000 shares, and (ii) increase the limit on the number of performance shares that may be issued to any individual in a given year. +We +believe the terms of our Equity Plan, as amended, are beneficial to our stockholders for a number of reasons: +• the requested number of additional authorized shares covers only the number of shares we expect to use for three years of grants under +our LTIP, which: +• limits undesirable consequences of share "overhang," i.e. , the total +number of shares related to outstanding options and other equity awards, plus shares available for grant, in relation to the total number of shares outstanding; and +• gives our stockholders the right to approve or reject future plans to prevent undesirable dilution or excessive share +overhang; and +• it prohibits repricing without stockholder approval; +• it prohibits reload options; +• it requires options for shares to be priced at not less than the fair market value of the shares on the grant date; and +• its flexible nature gives us the ability to respond to compensatory market trends by enabling us to adjust the mix of awards and grant +a wide variety of awards, as determined by the Compensation Committee. +Our +Equity Plan provides for the issuance of restricted stock, restricted stock units, nonqualified stock options ("NSOs"), incentive stock options ("ISOs"), stock appreciation rights +("SARs"), performance shares, performance units, and stock based awards to members of the Board and key employees of the Company and or any affiliate of the Company. The purpose of our Equity Plan is +to link the compensation earned by our employees to achievement of our long-term financial and strategic objectives, and to align performance incentives for our employees, including our executives, +with the long-term interests of our stockholders. Our Equity Plan is further intended to provide us with the flexibility to attract, retain, compensate and motivate the services of participants upon +whose judgment, dedication and efforts we must depend upon for our long-term success. A copy of our Equity Plan, as amended and restated, is attached to this proxy statement as Annex A. +64 +Table of Contents +If +our stockholders do not approve the amendment, the Compensation Committee will consider other alternatives to provide long-term incentive compensation for our Equity Plan +participants, including the payment of cash. +General Background of Our Equity Plan +Our Equity Plan was originally adopted by the Board on March 23, 2006, as the "2006 Equity Incentive Compensation Plan," and +approved by our stockholders on May 17, 2006. Our Equity Plan was first amended and restated on March 28, 2008, and approved by our stockholders on May 21, 2008. Included in the +amendments approved by the stockholders on May 21, 2008, was an increase in the stated total number of shares of common stock authorized for issuance under our Equity Plan from 2,000,000 shares +to 3,500,000 shares. Under additional amendments approved by the stockholders in 2009, the stated total number of shares of common stock authorized for issuance to participants pursuant to awards +granted under the Equity Plan was increased from 3,500,000 to 6,000,000 shares and the Equity Plan was renamed the "Equity Incentive Compensation Plan." Additionally, our Equity Plan was changed so +that each share of common stock issued in connection with an award after May 20, 2009, other than a stock option or SAR, was counted against the share limit at a 1.43:1 ratio. Our Equity Plan +was amended and restated on April 1, 2010, and approved by our stockholders on May 26, 2010. The 2010 amendment increased the number of shares authorized for issuance to participants +pursuant to awards to 7,600,000 shares from 6,000,000 shares. Our Equity Plan was amended and restated on March 28, 2013, and approved by our stockholders on May 22, 2013. The 2013 +amendment increased the number of shares authorized for issuance to participants pursuant to awards to 10,700,000 shares from 7,600,000 shares. Additionally, the 2013 amendment altered the methodology +used to calculate the number of authorized shares that remain such that each share of common stock issued in connection with an award after May 22, 2013, was counted against the share limit at +a 1:1 ratio. +Our +Equity Plan serves as the successor equity incentive plan to the Predecessor Plans, which were previously approved by our stockholders, and no further grants have been made under +the Predecessor Plans from and after the original effective date of our Equity Plan, May 17, 2006. Our Equity Plan currently authorizes the issuance of a total of 10,700,000 shares of common +stock, plus remaining unused shares of common stock from the Predecessor Plans transferred into our Equity Plan in accordance with its terms, and without taking into account the additional shares +under the proposed amendment. +Please +see the discussion of our LTIP above under the caption "Executive Compensation—Compensation Discussion and Analysis—Section 4—Elements +of Compensation" for details concerning our current compensation policies related to equity based incentives. +As +of March 22, 2016, we had 68,077,546 shares of common stock outstanding, net of treasury shares, and 2,821,892 shares of common stock were available for future issuance under +our Equity Plan. On that date we had 1,235,318 full value awards outstanding on that date in the form of RSUs and PSUs. Accordingly, our outstanding awards with respect to approximately 1,235,318 +shares (assuming the outstanding PSUs settle at an earned percentage of 100%) and the 2,821,892 authorized shares +available for future issuance under our Equity Plan (commonly referred to as "overhang") represent approximately 5.6% of our outstanding shares. On March 22, 2016, the closing price of our +common stock as reported on the NYSE was $19.79 per share. +65 +Table of Contents +Reasons for Amendment +Our Board believes that the grants of RSUs and PSUs pursuant to our LTIP and our Equity Plan are in our best interests and the best +interests of our stockholders and will continue to align our employees' interests with the long-term interests of our stockholders. Accordingly, the Board has concluded that the amendment of our +Equity Plan is in our best interests and the best interests of our stockholders because it is necessary in order to maintain the availability of equity incentive awards for our employees, including +our executives, and other participants who perform services for us and will enable us to continue to execute on our long-term incentive compensation program. +Description of Material Changes to Our Equity Plan +If our stockholders approve the amendments to our Equity Plan, the following material changes to our Equity Plan will be +effected: +• the number of shares authorized for issuance under the Plan will be increased from 10,700,000 to 14,100,000, plus shares remaining for +issuance under the Predecessor Plans; and +• the annual limit on the number of performance shares that may be issued to any individual will be increased from 200,000 to 300,000. +Reasons for Stockholder Approval of Amendments +Under applicable NYSE rules, we must obtain stockholder approval of the amendments to our Equity Plan. In addition, stockholder +approval of the amendments is necessary to allow us to ensure that compensation paid under our Equity Plan can be eligible for the "performance based compensation" exemption from the limits on tax +deductibility imposed by Section 162(m) of the IRC, and, while we have no current plans to issue stock options, to permit us to issue ISOs in accordance with Section 422 of the IRC. +Summary of Our Equity Plan +The following is a summary of the principal features of our Equity Plan, which reflects the proposed amendments. The summary is +qualified in its entirety by reference to the complete text of our Equity Plan document, as amended and restated (assuming our stockholders approve the amendments proposed herein), a copy of which is +attached to this Proxy Statement as Annex A. In addition, we will furnish a copy of our Equity Plan to any stockholder upon written request to our Corporate Secretary. We encourage you to +carefully review the entire Equity Plan, as amended and restated. +Types of Awards +Our Equity Plan permits the grant of restricted stock, RSUs, NSOs, ISOs, SARs, performance shares, performance units, and stock based +awards. +Administration +The Compensation Committee, or any other duly authorized committee of the Board appointed by the Board, is responsible for +administering our Equity Plan. The committee that administers our Equity Plan, referred to as the committee, shall be comprised of two or more members of the Board, and each member of the committee +shall be a "non-employee director" as such term is +66 +Table of Contents +defined +in Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, an "outside director" within the meaning of the regulations promulgated under +Section 162(m) of the IRC and an "independent director" for purposes of the rules and regulations of the NYSE. Subject to the provisions of our Equity Plan, the committee shall have complete +discretion in determining the nature, terms, conditions, and amounts of awards granted under our Equity Plan. In making such determinations, the committee may take into account the nature of services +rendered by such employees and members of the Board, their present and potential contributions to us, and such other factors as the committee in its discretion shall deem relevant. +Shares Subject to our Equity Plan and Maximum Awards +Subject to adjustment as described below, after the approval of the amendment, the total number of shares of the Company's common +stock made available and reserved for issuance will be increased from 10,700,000 shares to 14,100,000 shares, plus any remaining shares available for issuance under the Predecessor Plans as provided +in our Equity Plan document. Any shares issued pursuant to awards shall be counted against the total share authorization limit as one share for every one share issued. The maximum total number of +shares that may be issued through NSOs is equal to the total share authorization. The maximum total number of shares that may be issued through ISOs is 10,700,000. +Any +awards that are not settled in shares will not be counted against the total share authorization limit. Any shares tendered to pay an option exercise price or to satisfy any tax +withholding on exercise or settlement of an award will not be counted against the total share authorization limit. Any shares related to awards (or after May 17, 2006, awards granted or issued +under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, +(ii) are settled in cash either in lieu of shares or otherwise, or (iii) are exchanged with the committee's approval for awards not involving shares, will be available again for issuance +under the Plan. Unless and until the committee determines that an award is not designed to qualify as performance based compensation under Section 162(m) of the IRC, the following limits apply +to grants of awards to covered employees under Section 162(m) of the IRC: +• Restricted Stock/RSUs. The maximum total number of shares +that may be granted in the form of restricted stock/RSUs in any one fiscal year to any one Participant is 100,000. +• Options and SARS. The maximum total number of shares that +may be granted in the form of options or SARs in any one fiscal year to any one participant is 200,000. +• Performance Shares/Performance Units. The maximum total +award of performance shares or performance units that a participant may receive in any one fiscal year is 300,000 shares, and the maximum value of performance units that a participant may receive with +respect to awards in any one fiscal year is a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +• Stock Based Awards. The maximum total grant with respect +to stock based awards in any one fiscal year to any one participant is 200,000. +Our +Equity Plan provides for appropriate adjustments to the number of shares available for awards in the event of a merger, consolidation, reorganization, recapitalization, separation, +stock dividend, extraordinary or special dividend, stock split, reverse stock split, or similar event or transaction involving the Company. +67 +Table of Contents +The +proposed increase in the number of shares available for grant under the Equity Plan was thoughtfully considered. The total number of shares requested takes into account the maximum +number of shares that could be issued, assuming awards are granted in number and type similar to recent practice. The actual number of shares issued on settlement of PSUs depends on the final +three-year earned percentage, which ranges from zero to 200%. The number of shares requested has been calculated to take into account the possibility that PSUs would be settled as if the highest level +of performance conditions is achieved. However, the rate at which the Equity Plan's shares will be depleted could be significantly slower if PSU awards are settled at less than two shares per unit. +The +Compensation Committee approved and recommended that our Board approve the proposed increase in the number of shares available for grant under our Equity Plan from 10,700,000 shares +to 14,100,000 shares, based on its review of the analysis provided by our management and the advice and input of its independent compensation consultant, F. W. Cook. Our Board subsequently approved +the proposed increase in the number of shares available for grant under our Equity Plan, subject to the approval of our stockholders. In setting the amount of shares subject to our Equity Plan, the +Compensation Committee and the Board considered the historical amounts of equity awards we had granted in the past three years and the advice from F. W. Cook that seeking a three-year replenishment +was appropriate for us and our stockholders. In fiscal years 2013, 2014 and 2015, we granted equity awards representing a total of approximately 604,770 shares, 436,964 shares, and 677,000 shares, +respectively (assumes one share for every PSU issued and one share for every RSU issued). The Compensation Committee in conjunction with F. W. Cook and our Board also reviewed our compensation share +usage rate (commonly referred to as "burn rate") and overhang. For fiscal years 2013, 2014 and 2015, our burn rate was 0.91%, 0.65% and 1.00%, respectively (assumes one share for every PSU issued and +one share for every RSU issued and calculated based upon the number of equity awards issued and the weighted average number of shares outstanding). For the three years 2013–2015, our +average burn rate of 0.85% was slightly above the average burn rate of our peer group, which was 0.7%. As of March 22, 2016, our overhang was approximately 5.6% of our outstanding shares. The +Compensation Committee and our Board intend to continue to consider our equity expenditures in a manner that allows us to compete effectively with others in our industry to attract, retain, and +motivate individuals to achieve long-term value creation for our stockholders, and we believe our that our burn rate combined with our overhang indicates that an increase of 3,400,000 shares available +for issuance out of a total of 68,077,546 shares issued and outstanding (an increase of 5.0%) is unlikely to result in material dilution to our stockholders. +Stockholders +should also consider our stock ownership guidelines that define ownership expectations for directors and our executive officers. We believe that our directors and executive +officers should have a significant financial stake in our company to ensure that their interests are aligned with those of our stockholders. Under our stock ownership guidelines, +(i) independent directors are required to own stock equal in value to at least five times their annual cash retainer, (ii) our CEO is required to own stock equal in value to five times +his annual salary, and (iii) our other NEOs are required to hold stock as follows: Executive Vice Presidents—three times their respective annual base salaries and Senior Vice +President and Vice Presidents—one times their respective annual base salaries. The Compensation Committee annually reviews the progress toward meeting the stock ownership guidelines by our +executive officers, including our NEOs. +Eligibility and Participation +Certain eligible employees, including our NEOs, and members of the Board are eligible to participate in our Equity Plan and be granted +awards under our Equity Plan. As of March 22, 2016, we had 779 employees and eight members of the Board currently eligible to participate, and 330 of our employees were participants in the +LTIP. Subject to the provisions of our Equity Plan, the committee +68 +Table of Contents +may +from time to time, in its sole discretion, select from among eligible employees and members of the Board to whom awards shall be granted under our Equity Plan and shall determine in its discretion +the nature, terms, conditions, and amount of each award. +Duration +Subject to the right of the committee or the Board to amend or terminate our Equity Plan at any time, our Equity Plan shall remain in +effect, until the earlier of the tenth anniversary of the effective date of the amendment of our Equity Plan, which will be May 24, 2016, subject to stockholder approval, or when all shares of +common stock subject to our Equity Plan have been purchased or acquired according to our Equity Plan's provisions. Any previously granted awards under our Equity Plan that remain outstanding as of the +date of expiration or other termination of our Equity Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with their respective terms. +Restricted Stock Awards +Restricted stock may be issued for services rendered with any or no additional purchase price as shall be determined by the committee +in its discretion and may be subject to certain restrictions and to a risk of forfeiture as set forth in the award agreement. A participant to +whom shares of restricted stock are granted shall, upon issuance of a stock certificate for the shares issued, have all of the rights of ownership with respect to the shares subject to such restricted +stock award, including the right to vote the same and receive any dividends paid thereon; subject however, to the terms, conditions, and restrictions contained in our Equity Plan and in the applicable +award agreement. +Restricted Stock Unit Awards +Each RSU awarded shall represent a right for one share of common stock to be delivered upon settlement of the award, which right shall +be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in our Equity Plan and the award agreement. An RSU award agreement may provide for cancellation of +RSUs upon termination of the participant's employment or other relationship with us or nonperformance of specified performance goals or measures established by the committee. An RSU award agreement +may also provide for vesting periods that require the passage of time and/or the occurrence of events in order for the RSUs to vest and become no longer subject to cancellation. RSUs shall not be +credited with dividend equivalents unless specifically provided for in the applicable award agreement, and then only upon such terms and conditions as set forth in such award agreement. The committee, +in its discretion, is free to specify terms and conditions other than those described above. +Settlement +of an RSU award shall be made in accordance with the terms and conditions of the applicable award agreement. An RSU award agreement may provide that settlement may be made +solely through the issuance of shares of common stock or at the mutual election of the participant and the Company, in a combination of shares of common stock and cash. Upon the settlement of an RSU +award, we shall deliver to the participant the number of shares of common stock issued to the participant in settlement of the award, which shares may be delivered in book-entry or certificated form. +The +Compensation Committee has delegated to our Chief Executive Officer the power to issue RSUs with an annual aggregate value of up to $1,000,000 per year to our non-officer employees. +69 +Table of Contents +Stock Options +Subject to the terms and provisions of our Equity Plan, ISOs and NSOs may be granted to participants in such number, upon such terms, +and at such times as shall be determined by the committee. Notwithstanding the foregoing, no ISOs may be granted more than ten years after May 24, 2016. Each stock option granted to a +participant shall expire at such time as the committee shall determine at the time of grant; provided, however, no stock option shall be exercisable later than the tenth anniversary date of its grant. +Stock options granted under our Equity Plan shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions as the committee shall in each +instance approve, which need not be the same for each grant or for each participant. +The +stock option price for each grant of a stock option shall be determined by the committee and shall be specified in the award agreement. The stock option price may include a stock +option price based on 100 percent of the fair market value of the shares of common stock on the date of grant, a stock option price that is set at a premium to the fair market value of the +shares of common stock on the date of grant, or a stock option price that is indexed to the fair market value of the shares of common stock on the date of grant, with the index determined by the +committee in its discretion. The stock option price for each stock option grant, whether issued as an ISO or an NSO, shall be not less than 100 percent of the fair market value of the +underlying shares of common stock on the date of grant. Dividend equivalents are not permitted for stock options. +SARs +Subject to the terms and conditions of our Equity Plan, SARs may be granted to participants at any time and from time to time and upon +such terms as shall be determined by the committee in its discretion. The committee may grant freestanding SARs, tandem SARs, or any combination of these forms of SARs. The grant price for each grant +of a freestanding SAR shall be determined by the committee and shall be specified in the award agreement. The SAR grant price may include a grant price based on 100 percent of the fair market +value of the underlying share on the date of grant or a grant price that is set at a premium to the fair market value of the underlying share on the date of grant. The SAR grant price shall not be +less than the fair market value of the underlying share on the date of grant. The grant price of the tandem SARs shall be equal to the option price of the related option. A tandem SAR means a SAR that +the committee specifies is granted in connection with a related stock option pursuant to our Equity Plan, the exercise of which shall require forfeiture of the right to purchase a share of common +stock under the related stock option (and when a share of common stock is purchased under the stock option, the tandem SAR shall similarly be cancelled) or a SAR that is granted in tandem with a stock +option but the exercise of such option does not cancel the SAR, but rather results in the exercise of the related SAR. Regardless of whether a stock option is granted coincident with a SAR, a SAR is +not a tandem SAR unless so specified by the committee at time of grant. Dividend equivalents are not permitted for SARs. +Performance Shares and Performance Units +Subject to the terms and conditions of our Equity Plan, performance shares and performance units may be granted at any time and from +time to time as shall be determined by the committee in its discretion. Each performance share and performance unit shall have an initial value established by the committee at the time of the grant. +The committee shall in its discretion set performance criteria for a performance period that shall not be shorter than 12 months, which, depending on the extent to which the performance +criteria are met, will determine, in the manner established by the committee and set +70 +Table of Contents +forth +in the applicable award agreement, the value and/or amount of each performance share or performance unit that will be paid to a participant. +Subject +to our Equity Plan and the applicable award agreement, after the applicable performance period has ended, the holder of performance shares or performance units shall be entitled +to receive, to the extent that the performance shares or performance units have vested, if applicable, a payout of the value or amount of performance shares or performance units, determined as a +function of the extent to which the corresponding performance criteria have been achieved. The committee in its discretion may require a participant to hold the shares or other property received +pursuant to such an award for a specified period of time. Payment of earned performance shares and performance units shall be made in accordance with the terms and conditions of the applicable award +agreement. A performance share or performance unit award agreement may provide that payment may be made, to the extent that the performance share or performance unit has vested and the performance +criteria are met, solely through the issuance of shares earned upon the expiration of the applicable performance period. The participant may elect to satisfy the participant's tax withholding +obligation with respect to the award by having us withhold shares or other property or by the participant surrendering shares or other property to us with a fair market value on or near the tax +withholding date equal to the tax withholding obligation. +Dividends +and other distributions declared by our Board and paid with respect to outstanding shares shall only be paid with respect to performance share and performance unit awards for +shares that have been issued by us in payment of such awards to the extent that the awards have vested and upon the expiration of the applicable performance periods for the awards. Performance shares +and performance units shall not be credited with dividend equivalents unless specifically provided for in the applicable award agreement and then only upon such terms and conditions as set forth in +such award agreement. +Stock Based Awards +Subject to the terms and provisions of our Equity Plan, the committee, at any time and from time and time, may grant other types of +equity based or equity related awards not otherwise described by the terms of our Equity Plan (including the grant or offer for sale of unrestricted shares of common stock) in such amounts and subject +to such terms and conditions including, but not limited to, being subject to performance criteria or in satisfaction of such obligations. Such awards may entail the transfer of actual shares of common +stock to participants or payment in cash or otherwise of amounts based on the value of shares of common stock. +Performance Measures +Notwithstanding any other terms of our Equity Plan, the vesting, monetization, or value (as determined by the committee) of each award +other than a stock option or SAR that, at the time of grant, the committee intends to be performance based compensation to a covered employee shall be determined by the attainment of one or more +performance goals as determined by the committee in conformity with Section 162(m) of the IRC. The committee shall specify in writing, by resolution or otherwise, the participants eligible to +receive such an award (which may be expressed in terms of a class of individuals) and the performance goal(s) applicable to such awards within ninety (90) days after the commencement of the +period to which the performance goal(s) relate(s) or such earlier time as required to comply with Section 162(m) of the IRC. No such award shall be payable unless the committee certifies in +writing, by resolution or otherwise, that the performance goal(s) applicable to the award were satisfied. In no case may the committee increase the value of an award of performance based compensation +above the maximum value determined under the performance formula by the +71 +Table of Contents +attainment +of the applicable performance goal(s), but the committee retains the discretion to reduce the value below such maximum. A general description of performance measures on which performance +goals will be based is contained in our Equity Plan document attached to this proxy statement as Annex A. +Change of Control +Accelerated Vesting and Payment +Subject to the provisions of our Equity Plan or as otherwise provided in the award agreement, for awards granted prior to a change of +control, in the event a change of control occurs and a participant's employment with the Company is terminated without cause or the participant terminates his or her employment for good reason within +thirty (30) months of the change of control (a "Change of Control Termination"), unless otherwise specifically prohibited under law or by the rules and regulations of a national securities +exchange: +• any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be immediately +payable; +• any and all stock options and SARs granted shall become immediately exercisable; +• the target payout opportunities attainable under all outstanding awards of performance based restricted stock and performance based +RSUs, performance shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on measured +performance as of the effective date of the change of control, +• the vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the +Change of Control Termination and shall be paid out to participants within 30 days following the effective date of the Change of Control Termination, and +• awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of +the Change of Control Termination; +• upon a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the +participant and us or an affiliate of ours, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• the committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a Change of Control +Termination, and the value of such awards, as determined by the committee in accordance with the terms of our Equity Plan and the award agreement, be paid out in cash in an amount determined by the +committee in accordance with the terms of our Equity Plan and the award agreement, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment +shall be made on account of an ISO using a value higher than the fair market value on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a change of control and a Change of Control Termination do not occur, would result in an award to a covered employee +designed to qualify as performance based compensation to not so qualify, the committee shall have the discretion to adopt for such award such provisions as shall satisfy the requirements of +Section 162(m) of the IRC. +72 +Table of Contents +Alternate Awards +Subject to certain conditions set forth in our Equity Plan, no cancellation, acceleration of vesting, lapsing of restrictions, payment +of an award, cash settlement, or other payment shall occur with respect to any award if the committee reasonably determines in good faith prior to the occurrence of a change of control, that such +award shall be honored, assumed, or new rights substituted therefore by any successor, all as described in our Equity Plan. +Amendment, Modification, Suspension, and Termination +The committee or the Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate our Equity Plan in +whole or in part; provided, however, that: +• except in connection with a corporate transaction involving us (including, without limitation, any stock dividend, stock split, +extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split up, spin off, combination, or exchange of shares), the terms of outstanding awards may not be amended to +reduce the option price of outstanding options or the grant price of outstanding SARs or cancel outstanding options or SARs in exchange for cash, other awards or options or SARs with an option price +or grant price that is less than the option price or grant price of the original options or SARs without stockholder approval; +• no amendment or modification that would increase the total number of shares of common stock available for issuance under our Equity +Plan or the total number of shares available for ISOs under our Equity Plan shall be effective unless approved by our stockholders; and +• to the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment shall be +effective unless approved by our stockholders in accordance with applicable law, regulation, or securities exchange or market requirement. +Adjustment of Awards +The committee may make appropriate proportionate adjustments or substitutions in the terms and conditions of, and the criteria +included in, awards in recognition of +unusual or nonrecurring events affecting us or our financial statements or of changes in applicable laws, regulations, or accounting principles, whenever the committee determines that such adjustments +are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under our Equity Plan. +Adjustments +shall be made automatically, without the necessity of committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a +stock split affected by means of a stock dividend and in the case of any other dividend paid in shares of common stock. Adjustments shall be made in the discretion of the committee with respect to +other corporate events or transactions. +Securities Registration +We have registered under the Securities Act of 1933, as amended (the "Securities Act") the issuance of previously authorized shares of +common stock under our Equity Plan, and plan to register the issuance of the additional shares under these amendments if approved by our stockholders. +73 +Table of Contents +Accordingly, +participants will be able to sell shares issued under our Equity Plan once any vesting and holding periods are satisfied, subject to other requirements of the Securities Act. +Tax Matters +ISOs. The grant of an ISO will not result in any immediate tax consequences to us or the +optionee. An +optionee will not recognize taxable income and we will not be entitled to any deduction upon the timely exercise of an ISO, but the excess of the fair market value of the shares of common stock +acquired over the stock option price will be an item of tax preference for purposes of the alternative minimum tax. If the optionee does not dispose of the shares of common stock acquired within one +year after their receipt (and within two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares of common stock will be treated as long term capital +gain or loss. Capital losses of individuals are deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize +ordinary taxable income in an amount equal to the lesser of (i) the excess of the fair market value of the shares of common stock on the date of exercise over the option price, or +(ii) if the disposition is a taxable sale or exchange, the amount of any gain recognized. Upon such a disqualifying disposition, we will be entitled to a deduction in the same amount and at the +same time as the optionee recognizes such ordinary taxable income. +NSOs. The grant of a NSO will not result in any immediate tax consequences to us or the +optionee. Upon the exercise of a NSO, the optionee will +recognize ordinary taxable income, and we will be entitled to a deduction, equal to the difference between the stock option price and the fair market value of the shares of common stock acquired at +the time of exercise. +SARs. The grant of either a tandem SAR or a freestanding SAR will not result in any +immediate tax consequences to us or the grantee. Upon the +exercise of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares of common stock received will constitute ordinary taxable income +to the grantee. We will be entitled to a deduction in the same amount and at the same time. +Restricted Stock. A grantee normally will not recognize taxable income upon an award of +restricted stock, and we will not be entitled to a +deduction, until the termination of the restrictions. Upon such termination, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common +stock at that time, plus the amount of any dividends and interest thereon to which the grantee then becomes entitled. However, a grantee may elect to recognize ordinary taxable income in the year the +restricted stock is awarded in an amount equal to its fair market value at that time, determined without regard to the restrictions. We will be entitled to a deduction in the same amount and at the +same time as the grantee recognizes income, subject to the limitations of Section 162(m) of the IRC. +RSUs. The grant of an RSU will not result in any immediate tax consequences to us or the +grantee. Upon payment of a RSU, the grantee will recognize +ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at that time. We will be entitled to a +deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Performance Shares and Performance Units. The grant of a performance share or performance +unit will not result in any immediate tax consequences to +us or the grantee. Upon payment of a performance share or performance unit, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock +or cash received at that time. We +74 +Table of Contents +will +be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Payouts of Performance Compensation Awards. The designation of an award of restricted stock, +RSUs, performance shares, or performance units as a +performance compensation award will not change the tax treatment described above to an employee who receives such an award or grant. Such a designation will, however, enable such award or grant to +qualify as performance based compensation not subject to the $1 million limitation on deductible compensation under Section 162(m) of the IRC. Applicable taxes required by law will be +withheld from all amounts paid in satisfaction of an award. The amount of the withholding will generally be determined with reference to the closing price of the shares of common stock as reported on +the NYSE on the date of determination. +Golden Parachute Tax and Section 280G of the IRC. If an award is accelerated as a +result of either (i) a change of control of the +Company for awards granted, or (ii) a change of control of the Company and a termination of a participant's employment either by us without cause or by the participant for good reason within +30 months of the change of control for awards granted on or after May 21, 2008, all or a portion of the value of the award at that time may be a "parachute payment" under +Section 280G of the IRC for certain employees and other individuals who perform services for us. Section 280G generally provides that if parachute payments equal or exceed three times an +award holder's average W-2 compensation for the five tax years preceding the year of the change of control, we will not be permitted to claim its deduction with respect to any "excess parachute +payments" made to the individual. An "excess parachute payment" generally is the portion of a parachute payment that exceeds such individual's historical average compensation. Section 280G of +the IRC generally applies to employees or other individuals who perform services for us if within the 12 month period preceding the change of control the individual is an officer of the +Company, a stockholder owning more than one percent of our stock, or a member of the group consisting of the lesser of the highest paid one percent +of our employees or the highest paid 250 of our employees. A recipient of an excess parachute payment is subject to a 20 percent excise tax on such excess parachute payment under +Section 4999 of the IRC. +The +discussion set forth above is intended only as a summary and does not purport to be a complete enunciation or analysis of all potential tax consequences relevant to recipients of +awards under our Equity Plan. We have not undertaken to discuss the tax treatment of awards under our Equity Plan in connection with a merger, consolidation, or similar transaction. Such treatment +will depend on the terms of the transaction and the method of dealing with the awards in connection therewith. +75 +Table of Contents +New Plan Benefits Table +We cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our executive +officers, employees or directors under our Equity Plan. Such awards will be subject to limits as set forth in Section 4.1 of our Equity Plan document attached to this proxy statement as +Annex A. +The +following table sets forth the RSU and PSU awards granted in 2015 under our Equity Plan to each of our NEOs, executive officers as a group, and participating employees (excluding +NEOs and other executive officers) as a group as well as restricted stock granted in 2015 to non-executive directors as a group related to the service period from May 19, 2015, through +May 19, 2016. +Total Shares (1) +Javan D. Ottoson +66,780 +A. Wade Pursell +36,172 +Herbert S. Vogel +36,172 +David W. Copeland +15,582 +Mark D. Mueller +8,681 +Anthony J. Best (2) +— +All executive officers as a group (10 persons, including those named above) +198,557 +All directors who are not executive officers as a group (9 persons) +39,903 +All current participating employees, excluding executive officers, as a group +478,442 +(1) Total +shares are calculated based upon one share for each RSU, PSU, and share of restricted stock. +(1) Mr. Best +retired effective as of January 31, 2015. +Disclosure with Respect to Equity Compensation Plan +For a table providing information as of December 31, 2015, concerning equity awards granted under our Equity Plan, please see +the "Equity Compensation Plans" section of this Proxy Statement. +Recommendation of the Board : The Board recommends voting " FOR " +Proposal 4. +76 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The +Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its oversight responsibilities with respect +to (a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and +regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, (c) the performance of SM Energy +Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2015, was responsible for performing an independent audit of SM +Energy Company's financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these +processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial statements of SM Energy Company for the year ended December 31, 2015. The Audit Committee also discussed with the independent registered public accounting firm the matters required to +be discussed by Auditing Standards No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee received the +written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent +registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that +firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be included +in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2015. +Respectfully +submitted by the Audit Committee of the Board of Directors, +William +J. Gardiner, Chair +Larry W. Bickle +Loren M. Leiker +Ramiro G. Peru +Rose M. Robeson +77 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the knowledge of management, neither EY nor any of its members had any direct or material indirect financial interest in our company or any connection with +our company in any capacity other than as our independent registered public accounting firm for the years ended December 31, 2015, and 2014. +We +paid the following fees for the audit of the consolidated financial statements and for other services provided in the years ended December 31, 2015, and 2014. All services and +fees, including tax service fees, were pre-approved by the Audit Committee. +2015 +2014 +Audit Fees (1) +$994,585 +$928,520 +Audit Related Fees (2) +— +90,500 +Tax Fees (3) +17,500 +10,000 +All Other Fees +— +— +Total Fees +$1,012,085 +$1,029,020 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +audits of specific divested properties on behalf of third party buyer. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee concluded that the provision of the non-audit services, such as tax services, was compatible with maintaining EY's independence. +78 +Table of Contents +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The +charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the +independent registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. Such pre-approval requirement +for non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's +policy that, prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided +by the independent registered public accounting firm (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the independent registered public accounting firm are monitored by financial +management of our company and reported to the Audit Committee; (c) any services proposed to be provided by the independent registered public accounting firm and the related fees that have not +been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and (d) incremental fees for previously approved +services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +79 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2017 ANNUAL MEETING OF STOCKHOLDERS +Pursuant +to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy materials and for +presentation at the 2017 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be eligible for inclusion in our +proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 14, 2016. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to the Board or a proposal +of business to be properly brought before the 2017 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before +the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for +election to the Board or a proposal of business for the 2017 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the +120 th day prior to the first anniversary of the date of the 2016 Annual Meeting nor later than the close of business on the 90 th day prior to the first +anniversary of the 2016 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be considered at the 2017 Annual Meeting of Stockholders, it +should be properly submitted to our Corporate Secretary no earlier than January 24, 2017, and no later than February 23, 2017. If the date of our 2017 Annual Meeting of Stockholders +changes by more than 30 days before or after May 24, 2017, then stockholder nominations and proposals must be received not earlier than the close of business on the +120 th day prior to the date of the 2017 Annual Meeting of Stockholders and not later than the close of business on the later of the 90 th day prior to the date +of the 2017 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2017 Annual Meeting of Stockholders is less than 100 days prior to the date of the meeting, +the 10th day following the day on which public announcement of the date of the 2017 Annual Meeting of Stockholders is first made by us. For additional information about stockholder nominations +and proposals, see "Corporate Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly presented by a +stockholder at the 2017 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the proxy statement +discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 27, 2017, and the +stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 27, 2017, and the matter nonetheless is permitted to be +presented at the 2017 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter in the proxy +statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above +and other applicable requirements. +80 +Table of Contents +2015 ANNUAL REPORT +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, with the SEC. Our Annual Report is being made available to +our stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material. It is available free of charge at the SEC's web site at www.sec.gov . Upon written +request by a stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial statements and +financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in +furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +81 +Table of Contents +OTHER MATTERS +Management +does not know of any matters to be brought before the Annual Meeting other than the election of directors, the ratification of the appointment by +the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2016, the advisory vote to approve the compensation of our named executive officers, and +the approval of the amendment and restatement of our Equity Incentive Compensation Plan. If any other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the +individuals named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +Our +website at www.sm-energy.com includes much of this information, along with other general information about our operations, community activities and stakeholder relations. Any +remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at ir@sm-energy.com or our External Affairs Department at +externalaffairs@sm-energy.com. +Whether +or not you intend to be present at the Annual Meeting, we urge you to submit your proxy promptly. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and +Corporate Secretary +April 13, +2016 +82 +Table of Contents +ANNEX A +SM ENERGY COMPANY +EQUITY INCENTIVE COMPENSATION PLAN +As Amended as of May 24, 2016 +ARTICLE 1. +ESTABLISHMENT, PURPOSE AND DURATION +1.1 Establishment. SM Energy Company, a Delaware corporation (the "Company"), has established an equity +incentive compensation plan formerly known as the 2006 Equity Incentive Compensation Plan (the "Plan"), originally adopted effective May 17, 2006. On March 26, 2009, the Plan was renamed +as the Equity Incentive Compensation Plan. The Plan permits the grant of Restricted Stock, Restricted Stock Units, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, +Performance Shares, Performance Units and Stock Based Awards. The Plan as amended and restated herein will become effective upon its approval by the Company's stockholders on May 24, 2016 (the +"Effective Date") and shall remain in effect as provided in Section 1.3 hereof. +1.2 Purpose. The purpose of the Plan is to promote the success and enhance the value of the Company by linking +the personal interests of the Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide +flexibility to the Company in its ability to attract, motivate, and retain the services of Participants upon whose judgment, interest, and special effort the success of the Company is substantially +dependent. +1.3 Duration. The Plan commenced as of May 17, 2006, as set forth in Section 1.1 hereof, and +shall remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to Article XIV hereof, until the earlier of (i) the tenth +anniversary of the Effective Date, or (ii) when all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. Any previously granted Awards under this Plan +which remain outstanding as of the date of expiration or other termination of the Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with +their respective terms. +1.4 Successor Plan. This Plan shall serve as the successor to the St. Mary Land & Exploration +Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the +St. Mary Land & Exploration Company Non-Employee Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants or awards shall be made under the +Predecessor Plans from and after May 17, 2006. Each outstanding grant or award under a Predecessor Plan immediately prior to May 17, 2006 shall continue to be governed solely by the +terms and conditions of the applicable Predecessor Plan and the instruments evidencing such grant or award, and, except as otherwise expressly provided herein or by the Committee, no provision of this +Plan shall affect or otherwise modify the rights or obligations of holders of such outstanding grants or awards under the Predecessor Plans. Any Shares reserved for issuance under the Predecessor +Plans in excess of the number of Shares as to which grants or awards have been made thereunder shall be transferred into this Plan as of May 17, 2006 and shall become available for Awards under +this Plan. Any Shares related to grants or awards made under the +Predecessor Plans that after May 17, 2006 may lapse, expire, terminate, or are cancelled, are settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to +pay the option price, or are used to satisfy any tax withholding requirements shall be deemed to be available for issuance or reissuance under Section 4.1 of this Plan. +A-1 +Table of Contents +ARTICLE 2. +DEFINITIONS AND CONSTRUCTION +2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below, +unless the context clearly requires otherwise, and when such meaning is intended the term shall be capitalized. +(a) " Affiliate " shall have the meaning given to such term in Rule 12b-2 under the Exchange Act, with reference to the +Company, and shall also include any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least 50 percent of +the total combined voting power of such corporation or of the capital interest or profits interest of such partnership or other entity. +(b) " Award " means, individually or collectively, a grant or award under this Plan of Restricted Stock, Restricted Stock +Units, NQSOs, ISOs, SARs, Performance Shares, Performance Units or Stock Based Awards, in each case subject to the terms of this Plan. +(c) " Award Agreement " means either (i) a written agreement entered into by the Company and a Participant setting +forth the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such +Award. All Award Agreements shall be deemed to incorporate the provisions of the Plan. An Award Agreement need not be identical to other Award Agreements either in form or substance. An Award +Agreement may be transmitted electronically to the Participant in the discretion of the Company. +(d) " Board " or " Board of Directors " means the Board of Directors of the +Company. +(e) " Change of Control " shall mean any of the following events: +(i) (A) +The acquisition by any individual or entity (a "Person") or Persons acting as a group of beneficial ownership (within the meaning of Rule 13d-3 promulgated +under the Exchange Act) of more than 50 percent of either (1) the then value of the outstanding shares of common stock of the Company, or (2) the combined voting power of the then +outstanding voting securities of the Company entitled to vote generally in the election of directors. +(B) For +purposes of paragraph (A), Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the +same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, +purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase +or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and +not with respect to the ownership interest in the other corporation. For purposes of determining stock ownership, see (e)(iv) below. +A-2 +Table of Contents +(ii) A +majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the +members of the Board prior to the date of the appointment or election; or +(iii) (A) +Any one Person, or more than one Person acting as a group (as determined in (e)(iii)(C) below), acquires (or has acquired during the 12 month period ending +on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50 percent of the total gross fair +market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the +value of the assets being disposed of, determined without regard to any liabilities associated with such assets. +(B) A +transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to— +(1) A +stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; +(2) An +entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; +(3) A +Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the +outstanding stock of the Company; or +(4) An +entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in (e)(iii)(B)(3). For +purposes of this paragraph (e)(iii)(B) and except as otherwise provided, a Person's status is determined immediately after the transfer of the assets. For example, a transfer to a corporation +in which the Company has no ownership interest before the transaction, but which is a majority owned subsidiary of the Company after the transaction, is not treated as a change in the ownership of the +assets of the Company. +(C) Persons +will not be considered to be acting as a group for purposes of this paragraph (e)(iii) solely because they purchase assets of the Company at the same +time. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business +transaction with the Company. If a Person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar +transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving +rise to the change and not with respect to the ownership interest in the other corporation. +A-3 +Table of Contents +(D) For +purposes of determining stock ownership, see (e)(iv) below. +(iv) For +purposes of determining whether there has been a Change of Control, Section 318(a) of the Code applies to determine stock ownership. Stock underlying a +vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). +For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by §§1.83-3(b) and (j) of the +income tax regulations promulgated by the +Internal Revenue Service), the stock underlying the option is not treated as owned by the individual who holds the option. +(f) " Change of Control Price " means the highest per share price for Shares offered in conjunction with any transaction +resulting in a Change of Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change of Control occurring solely +by reason of a change in the composition of the Board, the highest Fair Market Value of the Shares on any of the 30 trading days immediately preceding the date on which a Change of Control occurs. +(g) " Change of Control Termination " has the meaning set forth in Section 13.2 hereof. +(h) " Code " means the Internal Revenue Code of 1986, as amended. +(i) " Committee " means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the +Board appointed by the Board to administer the Plan. The Committee shall be comprised of two or more directors, and each member of the Committee shall be a Non-Employee Director, an "outside director" +within the meaning of the regulations under Section 162(m) of the Code, and an "independent director" for purposes of the rules and regulations of the New York Stock Exchange ("NYSE") (or such +other principal securities market on which the Shares are traded). +(j) " Company " means SM Energy Company, a Delaware corporation, and any successor thereto as provided in Article XVII +hereof. +(k) " Covered Employee " means an Employee who is, or who the Committee expects to become, a "covered employee" within the +meaning of Section 162(m) of the Code. +(l) " Director " means any individual who is a member of the Board of Directors of the Company. +(m) " Dividend Equivalent " means a right with respect to an Award to receive cash, Shares or other property equal in value +and form to dividends declared by the Board and paid with respect to outstanding Shares. Dividend Equivalents shall not apply to Options or Stock Appreciation Rights, and shall not apply to any other +type of Award unless specifically provided for in the Award Agreement, and if specifically provided for in the Award Agreement shall be subject to such terms and conditions set forth in the Award +Agreement as the Committee shall determine. Dividend Equivalents credited in connection with Performance Units or Restricted Stock Units that vest based on the achievement of +performance goals will be subject to restrictions and risk of forfeiture to the same extent as the underlying Award. +A-4 +Table of Contents +(n) " Employee " means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or +an Affiliate shall not be considered Employees under this Plan. +(o) " Exchange Act " means the Securities Exchange Act of 1934, as amended. +(p) " Fair Market Value " or " FMV " means a value or price that is based on the +opening, closing, actual, high, low or average selling prices per Share on the NYSE or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next +succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of FMV may differ depending on whether FMV is in reference to the grant, +exercise, vesting, settlement or payout of an Award. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. +(q) " Fiscal Year " means the year commencing on January 1 and ending on December 31, or such other fiscal year +period as approved by the Board. +(r) " Freestanding SAR " means a SAR that is not a Tandem SAR, as described in Article VIII herein. +(s) " Grant Price " means the price against which the amount payable is determined upon exercise of a SAR. +(t) " Incentive Stock Option " or " ISO " means an Option to purchase Shares +granted under Article VII herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision. +(u) " Non-Employee Director " means a Director who meets the definition of a "Non-Employee Director" set forth in +Rule 16b-3(b)(3) under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. +(v) " Nonqualified Stock Option " or " NQSO " means an Option to purchase +Shares granted under Article VII herein, which is not intended to be an Incentive Stock Option or which otherwise does not meet the requirements for an ISO. +(w) " Option " means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the +form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan. +(x) " Option Price " means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined +by the Committee. +(y) " Participant " means a participant holding an outstanding Award granted under the Plan. +(z) " Performance Based Compensation " means compensation under an Award that is granted in order to provide remuneration +solely on account of the attainment of one or more Performance Goals under circumstances that satisfy the requirements of Section 162(m) of the Code. +A-5 +Table of Contents +(aa) " Performance Goal " means a performance criterion selected by the Committee for a particular Award for purposes of +Article XI based on one or more Performance Measures. +(bb) " Performance Measures " mean measures as described in Article XI, the attainment of one or more of which shall, +as determined by the Committee, determine the vesting, monetization, or value of an Award to a Covered Employee that is designated to qualify as Performance Based Compensation. +(cc) " Performance Period " means the period of time, which shall not be shorter than 12 months, during which the +assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award of Performance Shares or Performance Units. +(dd) " Performance Share " means an Award granted under Article IX herein, denominated in Shares, the value of which at +the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved. +(ee) " Performance Unit " means an Award granted under Article IX herein, denominated in units, which may be valued by +reference to a designated amount of property other than Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have +been achieved. +(ff) " Plan " means this Equity Incentive Compensation Plan, as it may be amended from time to time. +(gg) " Restricted Stock " means an Award under Article VI of Shares that may be subject to certain restrictions and to +a risk of forfeiture as set forth in the Award Agreement. +(hh) " Restricted Stock Unit " means an Award under Article VI that is valued by reference to a Share, which value may +be paid by delivery of Shares or cash or a combination thereof upon settlement of the Award, subject to the specific terms and conditions of the Award as set forth in the Award Agreement. +(ii) " Securities Act " means the Securities Act of 1933, as amended. +(jj) " Shares " means shares of common stock of the Company, $0.01 par value per share. +(kk) " Stock Appreciation Right " or " SAR " means the conditional right to +receive the difference between the FMV of a Share on the date of exercise over the Grant Price, pursuant to the terms of Article VIII herein. +(ll) " Stock Based Award " means an equity based or equity related Award granted pursuant to the terms of Article X +herein. +(mm) "Substitute Award" means Awards granted or Shares issued by the Company in assumption of or in substitution or exchange +for Awards previously granted or the right or obligation to make future Awards, in each case by a company acquired by the Company or any Affiliate, or a company with which the Company or any Affiliate +combines. +A-6 +Table of Contents +(nn) " Tandem SAR " means a SAR that the Committee specifies pursuant to Article VIII herein is granted in connection +with a related Option, the exercise of which SAR shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR +shall similarly be cancelled), or a SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related SAR. +Regardless of whether an Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so specified by the Committee at the time of grant. +2.2 Construction. Captions and titles contained herein are for convenience of reference only and shall not +affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, any definition of any term herein in the singular also shall include the plural. +ARTICLE 3. +ADMINISTRATION +3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, +consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and the Company's officers and Directors shall be entitled to rely upon the +advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, +the Company, and all other interested parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the +Plan. +3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to +(i) interpret the terms and the intent of the Plan, any Award and any Award Agreement or other agreement ancillary to or in connection with the Plan, (ii) determine eligibility for +Awards and select those who will become Participants in the Plan, (iii) adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper, +(iv) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company with respect to the Plan and (v) make all other determinations necessary +or advisable for the administration of the Plan. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to +Article XIV, adopting modifications, amendments or subplans to +the Plan or any Award Agreement. Subject to the terms and provisions of the Plan, the Committee shall have complete discretion in determining the nature, terms, conditions and amount of each Award. In +making such determinations, the Committee may take into account the nature of services rendered by the recipient of the Award, such person's present and potential contributions to the Company and such +other factors as the Committee in its discretion shall deem relevant. +3.3 Delegation. The Committee may delegate to one or more of its members any of the Committee's administrative +duties or powers as it may deem advisable; provided, however, that any such delegation shall not be inconsistent with the provisions of Rule 16b-3 under the Exchange Act or +Section 162(m) of the Code as to actions to be taken by the Committee in connection therewith. In addition, the Committee may delegate to the Chief Executive Officer of the Company the power to +grant Restricted Stock Units to non-executive employees in an amount not to exceed $1,000,000 in any one year. +A-7 +Table of Contents +ARTICLE 4. +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +4.1 Total Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2 +herein, the total number of Shares hereby made available and reserved for issuance to Participants pursuant to Awards granted under the Plan shall be 14,100,000, plus any remaining Shares available +for issuance under the Predecessor Plans as set forth in Section 1.4 (with such total number of Shares, including such adjustment and remaining Shares, to be referred to as the "Total Share +Authorization"). Any Shares issued in connection with an Option or SAR shall be counted against the Total Share Authorization limit as one Share for every one Share issued. Any Shares issued pursuant +to Awards granted on or before May 20, 2009 in connection with an Award other than an Option or SAR shall be counted against the Total Share Authorization limit as two Shares for every one +Share issued. Any Shares issued pursuant to Awards granted after May 20, 2009 but before May 22, 2013 in connection with an Award other than an Option or SAR shall be counted against the +Total Share Authorization +limit as 1.43 Shares for every one Share issued. Any Shares issued pursuant to Awards granted after May 22, 2013 in connection with any Award shall be counted against the Total Share +Authorization limit as one Share for every one Share issued. The maximum aggregate number of Shares that may be issued through Nonqualified Stock Options shall be equal to the Total Share +Authorization. The maximum aggregate number of Shares that may be issued through Incentive Stock Options shall be 10,700,000. +Any +Awards that are not settled in Shares shall not be counted against the Total Share Authorization limit. Any Shares related to Awards (or after May 17, 2006, awards granted or +issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such Shares, (ii) are settled in cash either in lieu +of Shares or otherwise, or (iii) are exchanged with the Committee's approval for Awards not involving Shares, shall be available again for issuance under the Plan. In addition, if the Option +Price of any Option granted under the Plan or the tax withholding requirement with respect to any Award granted under the Plan is satisfied by tendering Shares to the Company (by either actual +delivery or by attestation), or if a SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of +Shares available for issuance under the Plan; provided, however, that from and after May 21, 2008 and until May 22, 2013, Shares tendered as full or partial payment to the Company of the +Option Price upon exercise of Options granted under this Plan, Shares reserved for issuance upon grant of SARs, to the extent the number of reserved Shares exceeds the number of Shares actually issued +upon exercise of the SARs, and Shares withheld by, or otherwise remitted to, the Company to satisfy a Participant's tax withholding obligations with respect to any Award granted under this Plan, shall +not become available again for issuance under this Plan. The Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares. Unless and until the Committee +determines that an Award to a Covered Employee shall not be designed to qualify as Performance Based Compensation, the following limits ("Award Limits") shall apply to grants of Awards to Covered +Employees under the Plan: +(a) Restricted Stock/Restricted Units. The maximum aggregate number of Shares that may be granted in the form +of Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one Participant shall be 100,000. +(b) Options and SARS. The maximum aggregate number of Shares that may be granted in the form of Options or SARs +in any one Fiscal Year to any one Participant shall be 200,000. +(c) Performance Shares/Performance Units. The maximum aggregate Award of Performance Shares or Performance +Units that a Participant may receive in any one Fiscal Year shall be 300,000 +A-8 +Table of Contents +Shares, +and the maximum value of Performance Units that a Participant may receive with respect to Awards in any one Fiscal Year shall be a value of $5,000,000 determined as of the date of vesting or +payout, as applicable. +(d) Stock Based Awards. The maximum aggregate grant with respect to Stock Based Awards in any one Fiscal Year +to any one Participant shall be 200,000. +4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not +limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary or +special dividend, stock split, reverse stock split, split up, spin off, other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or +other like change in capital structure or distribution (other than normal cash dividends) to the stockholders of the Company, or any similar corporate event or transaction, the Committee, in order to +prevent dilution or enlargement of Participants' rights under the Plan, shall make or provide for appropriate proportionate substitutions or adjustments, as applicable, to the number and kind of +Shares that may be issued under the Plan, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the application and computation +of any Dividend Equivalents that may be provided for in Award Agreements, the Award Limits, and any other value determinations applicable to outstanding Awards or to this Plan. Such adjustments shall +be made automatically, without the necessity of Committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a stock split effected by means of a +stock dividend, and in the case of any other dividend paid in Shares, and shall be made in the discretion of the Committee with respect to other corporate events or transactions. The Committee, in its +sole discretion, may also make other appropriate adjustments in the terms of any Awards under the Plan to reflect, or related to, such changes or distributions and may modify any other terms of +outstanding Awards, including modifications of performance criteria and changes in the length of Performance Periods, as are equitably necessary to prevent dilution or enlargement of Participant's +rights under the Plan that otherwise would result from such corporate event or transaction. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding +on Participants under the Plan. Subject to the provisions of Article XIII and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available +hereunder, the Committee may authorize the issuance, assumption, substitution or conversion of Awards under this Plan in connection with any such corporate event or transaction upon such terms and +conditions as it may deem appropriate. In addition, the Committee may amend the Plan, or adopt supplements to the Plan, in such manner as it deems appropriate to provide for such issuance, assumption, +substitution or conversion as provided in the previous sentence. +4.3 Substitute Awards. Substitute Awards shall not reduce the Shares authorized for grant under the Plan or the +applicable Award Limits, nor shall Shares subject to a Substitute Award again be available for Awards under the Plan as provided in Section 4.1 above. Additionally, in the event that a company +acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation +of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment +or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) +may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall not be made after the date awards or +grants could have been made under the terms of the pre-existing plan, absent the +A-9 +Table of Contents +acquisition +or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination. +ARTICLE 5. +ELIGIBILITY AND PARTICIPATION +5.1 Eligibility. All Employees and members of the Board of the Company and of any Affiliate of the Company +shall be eligible to participate in the Plan and be granted Awards under the Plan. +5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, in its +sole discretion, select from among persons eligible to participate in the Plan those to whom Awards shall be granted under the Plan, and shall determine in its discretion the nature, terms, +conditions, and amount of each Award. +ARTICLE 6. +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +6.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, in its discretion may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and upon such terms as the Committee +shall determine. +(a) Restricted +Stock. +(i) Nature +of Restricted Stock. Restricted Stock may be issued for services rendered with any or no additional purchase price as shall be determined by the Committee in +its discretion, and may be subject to certain restrictions and to a risk of forfeiture as set forth in the Award Agreement. A Participant to whom Shares of Restricted Stock are issued shall have all +of the rights of ownership with respect to the Shares subject to such Restricted Stock Award, including the right to vote the same and receive any dividends paid thereon; subject, however, to the +terms, conditions and restrictions contained in this Plan and in the applicable Award Agreement. +(ii) Forfeiture +and Vesting. A Restricted Stock Award Agreement may provide for forfeiture of the Restricted Stock upon termination of the Participant's employment or other +relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Award Agreement may also provide for (i) vesting +periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock to vest and become no longer subject to forfeiture and (ii) holding periods during +which the Restricted Stock may not be sold or otherwise transferred. +(iii) Delivery +of Shares and Settlement. Upon an Award of Restricted Stock, the Company shall deliver to the Participant the Shares subject to the Award (which Shares may +be delivered in book-entry or certificated form), and such Shares shall be evidenced with an appropriate legend referring to or setting forth the applicable restrictions to which such Shares are +subject (by means of appropriate stop-transfer orders on Shares credited to book-entry accounts or by means of appropriate legends on Shares that have been certificated). After the Shares are no +longer subject to such restrictions, the Company shall, in accordance with the terms +A-10 +Table of Contents +and +conditions of the Award Agreement and upon the request of the Participant and the surrender by the Participant of any certificated Shares, settle the completed Restricted Stock Award by providing +the Participant with Shares with such restrictions removed. +(b) Restricted +Stock Units. +(i) Nature +of Restricted Stock Units; Accounts. Each Restricted Stock Unit awarded shall represent a right for one Share to be delivered upon settlement of the Award, +which right shall be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Plan and the Award Agreement. The Company shall establish and maintain a +Participant account to record Restricted Stock Units and transactions and events affecting such units. Restricted Stock Units and other items reflected in the account will represent only bookkeeping +entries by the Company to evidence unfunded obligations of the Company. +(ii) Deferral +Period and Settlement Date. Restricted Stock Units (if not previously cancelled or forfeited) shall be settled on the date or dates set forth in the Award +Agreement. In addition, unless otherwise determined by the Committee, if the Committee reasonably determines that any settlement of Restricted Stock Units would result in payment of compensation to a +Participant which is not deductible by the Company under Section 162(m) of the Code, such settlement shall be deferred, subject to compliance with Section 409A of the Code as referred to +in Article XX herein, to the extent necessary to avoid payment of such nondeductible compensation, with such deferral continuing only until such date as settlement can be effected without loss +of deductibility by the Company under Section 162(m) of the Code. +(iii) Cancellation +and Vesting. A Restricted Stock Unit Award Agreement may provide for cancellation of the Restricted Stock Units upon termination of the Participant's +employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Unit Award Agreement may also provide +for vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock Units to vest and become no longer subject to cancellation. +(iv) Dividend +Equivalents. Restricted Stock Units shall not be credited with Dividend Equivalents unless specifically provided for in the Award Agreement, and then only +upon such terms and conditions as set forth in the Award Agreement. +(v) Settlement +and Delivery of Shares. Settlement of a Restricted Stock Unit Award shall be made in accordance with the terms and conditions of the applicable Award +Agreement. A Restricted Stock Unit Award Agreement may provide that settlement may be made (A) solely through the issuance of Shares or (B) at the mutual election of the Participant and +the Company, in a combination of Shares and cash. Upon the settlement of a Restricted Stock Unit Award, the Company shall deliver to the Participant the number of Shares issued to the Participant in +settlement of the Award (which Shares may be delivered in book-entry or certificated form). +6.2 Restricted Stock and Restricted Stock Unit Award Agreements. Each Restricted Stock and Restricted Stock +Unit Award shall be evidenced by an Award Agreement which shall set forth the terms and conditions of such Award, including the number of Shares to which the Award relates, the +A-11 +Table of Contents +date +or dates upon which such Award shall vest and the circumstances (including termination of employment or failure to satisfy one or more restrictive covenants or other ongoing obligations) under +which the Award shall not vest, the time and manner of settlement of the Award, such transfer restrictions which the Committee may impose, and any other terms or conditions which the Committee may +impose. +(a) If +not otherwise specified by the Committee, the following terms and conditions shall apply to Restricted Stock and Restricted Stock Units awarded under the Plan: +(i) Vesting. +An Award of Restricted Stock or Restricted Stock Units shall vest pursuant to a vesting schedule as determined by the Committee, which vesting schedule may +provide that (A) an Award held by a Participant who retires from employment with the Company after having both reached the age of sixty and completed twelve years of service with the Company +shall continue to vest in accordance with the vesting schedule set forth in the applicable Award Agreement notwithstanding the termination of the Participant's employment with the Company, provided +that prior to full vesting of the Award such Participant does not after such retirement become employed on a full time basis by a competitor of the Company prior to reaching age sixty-five, and +(B) an Award held by a Non-Employee Director of the Company who resigns from the Board after completing at least five years of service to the Company as a Non-Employee Director shall become +fully vested. +(ii) Termination. +An outstanding Award of Restricted Stock that has not vested or an outstanding Award of Restricted Stock Units that has not been settled shall be +cancelled upon the Company's termination of the employment of the Participant for cause. +(iii) Acceleration. +An outstanding Award of Restricted Stock or Restricted Stock Units shall become fully vested and settled irrespective of its other provisions upon +termination of the Participant's employment with the Company or Affiliate because of death, disability or normal retirement upon reaching the age of sixty-five. +(iv) Transferability. +An outstanding Award of Restricted Stock or Restricted Stock Units that has not vested and been settled or is otherwise restricted by the terms of the +Award Agreement as to transferability shall not be transferable by the Participant, and the Participant shall not be permitted to +sell, transfer, pledge or otherwise encumber such Award or the Shares issuable in settlement thereof, other than (A) to the person or persons to whom the Participant's rights under such Award +pass by will or the laws of descent and distribution, (B) to the spouse or the descendants of the Participant or to trusts for such persons to whom or which the Participant may transfer such +Award, (C) to the legal representative of any of the foregoing, or (D) pursuant to a qualified domestic relations order as defined under Section 414(p) of the Code or similar +order or agreement relating to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant. If an Award is +transferred to any person to whom a transfer of the Award is permitted, the transferee shall remain subject to all of the vesting conditions to which the Award is subject. Any such transfer shall be +made only in compliance with the Securities Act and the requirements therefor as set forth by the Company. +(b) The +Committee shall be free to specify terms and conditions other than and in addition to those set forth above, in its discretion. +A-12 +Table of Contents +ARTICLE 7. +STOCK OPTIONS +7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants +in such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee in its discretion. ISOs may be granted only to Employees of the Company or a parent +or subsidiary corporation of the Company within the meaning of Section 424 of the Code, and no ISOs may be granted more than 10 years after the adoption of the Plan by the Board. +7.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option +Price, the duration of the Option, the number of Shares to which the Option relates, the conditions upon which an Option shall become vested and exercisable, and any other terms and +conditions as the Committee shall determine. The Award Agreement shall also specify whether the Option is intended to be an ISO or a NQSO. +7.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the +Committee and shall be specified in the Award Agreement. The Option Price for an Option, whether issued as an ISO or an NQSO, shall be not less than 100 percent of the FMV of the underlying +Shares on the date of grant; provided, however, that the Option Price for an ISO granted to a person who at the time of grant owns (or is deemed to own pursuant to Section 424(d) of the Code) +stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any of its Affiliates (a "Significant Stockholder") shall be not less than +110 percent of the Fair Market Value of the underlying Shares as of the date of grant. +7.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided however, that no Option shall be exercisable later than the tenth anniversary date of its grant, and provided further that no ISO granted to a Significant +Stockholder shall be exercisable after the expiration of five years from the date of grant. +7.5 Exercise of Options. Options shall be exercisable at such times and on the such events, and be subject to +such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the delivery of a +notice of exercise to the Company or an agent designated by the Company in a form specified by or acceptable to the Committee, or by complying with any alternative procedures which may be authorized +by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, and accompanied by full payment for the Shares. Upon exercise of any Option, the Option Price +shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate +FMV at the time of exercise equal to the total Option Price; (c) by a combination of (a) and (b); or (d) by any other method approved or accepted by the Committee in its sole +discretion and subject to such rules and regulations as the Committee may establish. Subject to Section 7.6 and any governing rules or regulations, as soon as practicable after receipt of a +notification of exercise and full payment for the Shares, the Company shall cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount based +upon the number of Shares purchased under the Option(s). +7.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired +pursuant to the exercise of an Option granted under the Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant +A-13 +Table of Contents +to +exercise for a specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed and/or traded. +7.7 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the +Participant shall have the right to exercise the Option following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be +determined in the sole discretion of the Committee, need not be uniform among all Options granted under the Plan, and may reflect distinctions based on the reasons for termination. +7.8 Nontransferability of Options . +(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned or +otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In addition, all ISOs granted to a Participant under the Plan shall be exercisable during such +Participant's lifetime only by such Participant. +(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a NQSO granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +(c) Notification of Disqualifying Disposition. The Participant to whom an ISO is granted shall notify the +Company upon the disposition of Shares issued pursuant to the exercise of an ISO or Shares received as a dividend on ISO stock. The Company shall use such information to determine whether a +disqualifying disposition as described in Section 421(b) of the Code has occurred. +7.9 $100,000 Annual ISO Limitation. To the extent that the aggregate Fair Market Value of Shares (determined as +of the time the ISOs with respect to such Shares are granted) with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under this Plan and all other +plans of the Company and any Affiliate) exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions shall be applied by taking ISOs into account in the order in which they were +granted. +ARTICLE 8. +STOCK APPRECIATION RIGHTS +8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any +time and from time to time and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of +SARs. The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price for each Freestanding SAR may +include a Grant Price based on 100 percent of the FMV of the underlying Share on the date of grant or a Grant Price that is set at a premium to the FMV of the underlying Share on the date of +grant. The SAR Grant Price for each Freestanding SAR shall not be less than FMV of the underlying Share on the date of grant. The Grant Price of Tandem SARs shall be equal to the Option Price of the +related Option. +A-14 +Table of Contents +8.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, +the term of the SAR, and any such other provisions as the Committee shall determine. +8.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee in its sole +discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary date of its grant. +8.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions that +the Committee in its sole discretion imposes. +8.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related +Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then +exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the +expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100 percent of the difference between the Option Price of the +underlying ISO and the FMV of the +Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject to the ISO exceeds the Option Price +of the ISO. +8.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from +the Company in an amount representing the difference between the FMV of the underlying Share on the date of exercise over the Grant Price. At the discretion of the Committee, the payment upon SAR +exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some +combination thereof, or in any other form approved by the Committee in its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later +determination in the Award Agreement for the grant of the SAR. +8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to exercise the SAR following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the sole +discretion of the Committee, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +8.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a SAR granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +8.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may +impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring +the Participant to hold the Shares received upon exercise of a SAR for a specified period of time. +A-15 +Table of Contents +ARTICLE 9. +PERFORMANCE SHARES AND PERFORMANCE UNITS +9.1 Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and upon such terms as the Committee shall determine. +9.2 Value of Performance Shares and Performance Units. Each Performance Share and Performance Unit shall have +an initial value that is established by the Committee at the time of grant. The Committee shall in its discretion set performance criteria for a Performance Period which, depending on the extent to +which the performance criteria are met, will determine, in the manner established by the Committee and set forth in the Award Agreement, the value and/or amount of each Performance Share or +Performance Unit that will be paid to the Participant. +9.3 Earnings of Performance Shares and Performance Units. Subject to the terms of this Plan and the applicable +Award Agreement, after the applicable Performance Period has ended, the holder of Performance Shares and/or Performance Units shall be entitled to receive, to the extent that the Performance Shares or +Performance Units have vested, if applicable, a payout of the value and/or amount of Performance Shares and/or Performance Units, determined as a function of the extent to which the corresponding +performance criteria have been achieved. The Committee may in its discretion require the Participant to hold the Shares or other property received pursuant to such Award for a specified period of +time. +9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance +Shares and Performance Units shall be made in accordance with the terms and conditions of the applicable Award Agreement. A Performance Share or Performance Unit Award Agreement may provide that +payment may be made, to the extent that the Performance Share or Performance Unit has vested and the performance criteria are met, solely through the issuance of Shares earned upon the expiration of +the applicable Performance Period, and that the Participant may elect to satisfy the Participant's tax withholding obligation with respect to the Award by having the Company withhold Shares or other +property or by the Participant surrendering Shares or other property to the Company with a FMV on or near the tax withholding date equal to the tax withholding obligation. Upon the payment in the form +of Shares of a Performance Share or Performance Unit Award, the Company shall deliver to the Participant the number of Shares issued to the Participant in payment of the Award (which Shares may be +delivered in book-entry or certificated form). +9.5 Dividends and Other Distributions. Dividends and other distributions declared by the Board and paid with +respect to outstanding Shares shall only be paid with respect to Performance Share and +Performance Unit Awards for Shares that have been issued by the Company in payment of such Awards to the extent that the Awards have vested and upon the expiration of the applicable Performance +Periods for the Awards. Performance Shares and Performance Units shall not be credited with Dividend Equivalents unless specifically provided for in the Award Agreement, and then only upon such terms +and conditions as set forth in the Award Agreement. +9.6 Vesting and Termination of Employment. Each Award Agreement shall set forth the extent to which the Award +shall vest, which may be pursuant to a vesting schedule as determined by the Committee, and the extent to which the Participant shall have the right to retain Performance Shares and/or Performance +Units following the termination of the Participant's employment or other relationship with the Company or an Affiliate. Such provisions shall be determined in the sole +A-16 +Table of Contents +discretion +of the Committee, need not be uniform among all Performance Shares and Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +9.7 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a +Participant's Award Agreement at the time of grant or thereafter by the Committee, Performance Shares and Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated, other than by will or by the laws of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the +Committee, a Participant's rights with respect to Performance Shares and Performance Units shall inure during such Participant's lifetime only to such Participant. +ARTICLE 10. +STOCK BASED AWARDS +10.1 Stock Based Awards. Subject to the terms and conditions of the Plan, the Committee, at any time and from +time to time, may grant other types of equity based or equity related Awards not described by the other terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amounts +and subject to such terms and conditions, including, but not limited to, conditions based on the satisfaction of performance criteria or the satisfaction of such obligations as the Committee shall +determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. +10.2 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to receive Stock Based Awards following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the +sole discretion of the Committee, need not be uniform among all Stock Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +10.3 Nontransferability of Stock Based Awards. Except as otherwise provided in a Participant's Award Agreement +at the time of grant or thereafter by the Committee, Stock Based Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of +descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, a Participant's rights with respect to Stock +Based Awards shall inure during such Participant's lifetime only to such Participant. +ARTICLE 11. +PERFORMANCE MEASURES +Notwithstanding any other terms of this Plan, the vesting, payment obligation or value (as determined by the Committee) of each Award +other than an Option or SAR that, at the time of grant, the Committee intends to be Performance Based Compensation to a Covered Employee, shall be determined by the attainment of one or more +Performance Goals as determined by the Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to +receive such an Award (which may be expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within 90 days after the commencement of the period to +which the Performance Goal(s) relate(s), or such earlier time as required to comply with Section 162(m) of the Code. No such Award shall be payable unless the Committee certifies in writing, by +resolution or otherwise, that the Performance Goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value of an Award of Performance Based Compensation above the +maximum value determined under the performance +A-17 +Table of Contents +formula +by the attainment of the applicable Performance Goal(s), but the Committee retains the discretion to reduce the value below such maximum. +Unless +and until the Committee proposes for stockholder vote and the stockholders approve a change in the general Performance Measures set forth in this Article XI, the +Performance Goal(s) upon which +the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the following Performance Measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +(c) Share +price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or +capital); +(h) Increases +in, or levels of, operating and/or nonoperating expenses; +(i) Other +specific unusual or nonrecurring events; +(j) Foreign +exchange gains and losses; and +(k) A +change in the Company's fiscal year. +Any +Performance Measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or Affiliates of the Company or any combination thereof, as +the Committee may deem appropriate, and any Performance Measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of Performance Goal(s). +The +Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the +relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations +affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 +and/or in management's discussion and analysis of +A-18 +Table of Contents +financial +condition and results of operations appearing in the Company's Annual Report on Form 10-K for the applicable year; and (f) significant acquisitions or divestitures. To the +extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing Performance Measures without obtaining stockholder approval +of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to +grant Awards to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code. +ARTICLE 12. +RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE +12.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right +of the Company or an Affiliate to terminate any Participant's employment, consulting or other +service relationship with the Company or an Affiliate at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company +or an Affiliate. Neither an Award nor any benefits arising under this Plan shall constitute part of an employment or service contract between a Participant and the Company or an Affiliate, and, +accordingly, subject to the terms of this Plan, this Plan may be terminated, amended or modified at any time in the sole and exclusive discretion of the Committee without giving rise to liability on +the part of the Company or an Affiliate for severance payments or otherwise, except as provided in this Plan. +For +purposes of the Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be +deemed a termination of employment. The Committee may provide in a Participant's Award Agreement or otherwise the conditions under which a transfer of employment to an entity that is spun off from the +Company or an Affiliate shall not be deemed a termination of employment for purposes of an Award. +12.2 Participation. No Employee or other person eligible to participate in the Plan shall have the right to be +selected to receive an Award. No person selected to receive an Award shall have the right to be selected to receive a future Award or, if selected to receive a future Award, the right to receive such +future Award on terms and conditions identical or in proportion in any way to any prior Award. +12.3 Rights as a Stockholder. A Participant shall have none of the rights of a stockholder with respect to +Shares covered by any Award until the Participant becomes the record holder of such Shares. +ARTICLE 13. +CHANGE OF CONTROL +13.1 Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject to the +provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted prior to May 21, 2008, in the event of a Change of Control, unless otherwise specifically +prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded: +A-19 +Table of Contents +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be +immediately payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control, and shall be paid out to Participants within +30 days following the effective date of the Change of Control; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control; +(d) Upon +a Change of Control, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, the +Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control, and that the value of such +Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount based on the Change of Control Price within a +reasonable time subsequent to the Change of Control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the FMV of the underlying Shares on the date +of settlement. +13.2 Accelerated Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to +the provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted on or after May 21, 2008 and prior to a Change of Control, in the event that a Change +of Control occurs and a Participant's employment with the Company is subsequently terminated without Cause (as defined in such Participant's Award Agreement) or the Participant terminates his or her +employment with the Company for Good Reason (as defined in such Participant's Award Agreement) within 30 months of the Change of Control (a "Change of Control Termination"), unless otherwise +specifically prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded, with respect to such Awards granted to such Participant: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be +immediately payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +A-20 +Table of Contents +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on measured performance as of the +effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to such +Participant within 30 days following the effective date of the Change of Control Termination; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control Termination; +(d) Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an +Affiliate, the Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control Termination, and that the +value of such Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount determined by the Committee, in +accordance with the terms of the Plan and the Award Agreements, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on +account of an ISO using a value higher than the FMV of the underlying Shares on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a Change of Control and a Change of Control Termination do not occur, would result in an Award to a Covered Employee +designed to qualify as Performance Based Compensation to not so qualify, the Committee shall have the discretion to adopt for such Award such provisions as shall satisfy the requirements of +Section 162(m) of the Code. +13.3 Alternative Awards. Notwithstanding Sections 13.1 and 13.2, no cancellation, acceleration of +vesting, lapsing of restrictions, payment of an Award, cash settlement, or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the +occurrence of a Change of Control, that such Award shall be honored or assumed, or new rights substituted therefor (with such honored, assumed or substituted Award hereinafter referred to as an +"Alternative Award") by any successor to the Company or an Affiliate as described in Article XVII; provided, however, that any such Alternative Award must: +(a) Be +based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within 60 days after the +Change of Control; +(b) Provide +such Participant with rights and entitlements substantially equivalent to or more favorable than the rights, terms, and conditions applicable under such Award, +including, but not limited to, an identical or more favorable exercise or vesting schedule and identical or more favorable timing and methods of payment; and +(c) Have +substantially equivalent economic value to such Award (determined at the time of the Change of Control). +A-21 +Table of Contents +ARTICLE 14. +AMENDMENT AND TERMINATION OF THE PLAN +14.1 Amendment, Modification, Suspension, and Termination. The Committee or the Board may, at any time and from +time to time, alter, amend, modify, suspend or terminate the Plan in whole or in part; provided, however, that: +(a) Consistent +with the provisions of Section 4.2 and except in connection with a corporate transaction involving the Company (including, without limitation, any +stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding +Awards may not be amended to reduce the Option Price of outstanding Options or the Grant Price of outstanding SARs or cancel outstanding Options or SARs +in exchange for cash, other Awards or Options or SARs with an Option Price or Grant Price that is less than the Option Price or Grant Price of the original Options or SARs without stockholder +approval. +(b) No +amendment or modification which would increase the total number of Shares available for issuance under the Plan or the total number of shares available for ISOs +under the Plan shall be effective unless approved by the stockholders of the Company. +(c) To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment or modification shall be effective unless +approved by the stockholders of the Company in accordance with the applicable law, regulation, or securities exchange or market requirement. +14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make +adjustments in the terms and conditions of, and the criteria provided in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in +Section 4.2 hereof) affecting the Company or the financial statements of the Company, or in recognition of changes in applicable laws, regulations or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Awards +and the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants under the Plan. To the extent such adjustments affect +Awards to Covered Employees intended to be Performance Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +14.3 No Impairment of Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary, no +amendment, modification, suspension or termination of the Plan shall in any manner adversely affect in any material way any outstanding Award previously granted under the Plan without the written +consent of the Participant holding such Award. +ARTICLE 15. +SECURITIES REGISTRATION +15.1 Securities Registration. In the event that the Company shall deem it necessary or desirable to register +under the Securities Act, or any other applicable statute, any Awards or any Shares with respect to which an Award may be or shall have been granted, or to qualify any such Awards or Shares under the +Securities Act or any other statute, then the affected Participants shall cooperate with the Company and take such action as is necessary to permit registration or qualification of such Awards or +Shares. +A-22 +Table of Contents +15.2 Representations. Unless the Company determines that the following representation is unnecessary, each +person receiving an Award under the Plan may be required by the Company, as a condition to the issuance of Shares pursuant to the Award, to make a representation in writing that (i) he or she +is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the Securities +Act, and (ii) before any transfer in connection with the resale of such Shares, an exemption from registration of such transaction under the Securities Act shall be established to the +satisfaction of the Company. The Company may also require that any certificates or book-entry accounts for such Shares contain restrictive legends or stop-transfer orders reflecting the foregoing. +ARTICLE 16. +TAX WITHHOLDING +In connection with Awards granted under the Plan, the Company and any Affiliate shall have the power and the right to deduct or +withhold, or require a Participant to remit to the Company or any Affiliate, amounts sufficient to satisfy any federal, state and local withholding tax requirements with respect to any taxable event +as a result of the Plan and Awards granted under the Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant +making other arrangements, in either case on such conditions as the Committee specifies. The Company may in its discretion make loans to Participants of funds sufficient to satisfy any such +withholding tax requirements, provided that any such loan shall comply with all applicable laws, rules and regulations and no such loan shall be made to a Director or executive officer of the Company +in violation of Section 13(k) of the Exchange Act, as adopted pursuant to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any Affiliate shall have the right to require +that any recipient or permitted transferee of an Award under the Plan who is not an Employee shall be responsible for the payment of all amounts required to satisfy all federal, state, and local +withholding taxes applicable to such persons with respect to such Award. +ARTICLE 17. +SUCCESSORS +Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder, shall be binding on any +successor to the Company or Affiliate, respectively, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially +all of the business and/or assets of the Company or Affiliate, as applicable. +ARTICLE 18. +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee, or an officer or +employee who assists in administering the Plan, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably +incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken +or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in +any such action, suit or proceeding against him or her, provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to +handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may +A-23 +Table of Contents +be +entitled under the Company's certificate of incorporation or bylaws, as a matter of law or otherwise, or any power that the Company or an Affiliate may have to indemnify them or hold them harmless. +ARTICLE 19. +GENERAL PROVISIONS +19.1 Forfeiture Events. Without limiting in any way the generality of the Committee's power to specify any +terms and conditions of an Award consistent with law, the Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to +reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events +may include, but not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and Affiliate +policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection or other agreements that may apply to the Participant, or other conduct by the +Participant that is detrimental to the business or reputation of the Company or Affiliates. +19.2 Evidence of Restrictions. The certificates or book-entry accounts for Shares issued under the Plan may +include or be subject to any legend or stop-transfer order that the Committee deems appropriate to reflect any restrictions on transfer of such Shares. +19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares +issued under the Plan prior to: +(a) Obtaining +any approvals from governmental agencies that the Company determines are necessary or advisable; and +(b) Completion +of any registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental body that the Company +determines to be necessary or advisable, and the listing or approval for trading of such Shares on any applicable securities exchange or market. +19.4 Uncertificated Shares. Where the Plan provides for the issuance of stock certificates to evidence the +issuance or transfer of Shares, such Shares may be evidenced on an uncertificated basis to the extent not prohibited by applicable law or stock exchange rules. +19.5 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments +that the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be +construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative or any other person. Awards shall be +general unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company, the Award shall be a general unsecured obligation of the Affiliate and not +an obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured +general creditor of the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or +separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the +Employee Retirement Income Security Act of 1974. +A-24 +Table of Contents +19.6 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award +Agreement. In the event that any fractional Shares would otherwise result from the application of the terms of an Award, the Company shall instead pay cash in lieu of fractional Shares on such basis +as the Committee may determine in its discretion. +19.7 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the +Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program +or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant's rights under any such other plan, policy, program or arrangement. +19.8 No Constraint on Corporate Action. Nothing in this Plan shall be construed to (i) limit, impair or +otherwise affect the Company's or an Affiliate's right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or +dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) limit the right or power of the Company or an Affiliate to take any action which such entity deems to be +necessary or appropriate. +19.9 Severability. In the event that any provision of the Plan shall be held to be illegal or invalid for any +reason, the illegality or invalidity thereof shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been +included. +19.10 Requirements of Law. The granting of Awards and the issuance of Shares pursuant to an Award shall be +subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges or markets as may be required. The Company or an Affiliate shall +receive the consideration required by law for the issuance of Awards under the Plan. The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, +which authority is necessary for the lawful issuance and sale of any Shares hereunder, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as +to which such requisite authority shall not have been obtained. +19.11 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and +governed by the laws of the State of Colorado, excluding any conflicts or choice of law principles which might otherwise result in construction or interpretation of the Plan or an Award Agreement +under the substantive law of another jurisdiction. +19.12 Recovery of Compensation in Connection with Financial Restatement. Notwithstanding any other provision of +this Plan or any applicable Award Agreement to the contrary, if the Board determines that the Company is required to restate its financial statements due to material noncompliance with any financial +reporting requirement under the law, whether such noncompliance is the result of misconduct or other circumstances, a Participant will be required to reimburse the Company for any amounts earned or +payable with respect to an Award to the extent required by and otherwise in accordance with applicable law and any Company policies. Without limiting the foregoing, all Awards granted or other +compensation paid by the Company under the Plan will be subject to any compensation recapture policies required by applicable law (including the Sarbanes-Oxley Act of 2002) or that are established by +the Board or the Committee from time to time, in their respective sole discretion, including any clawback policy adopted or implemented by the Board or Committee in respect of the Dodd-Frank Wall +Street Reform and Consumer Protection Act of 2010 and such regulations as are promulgated thereunder from time to time to the extent required therein and the implementing regulations. +A-25 +Table of Contents +ARTICLE 20. +SECTION 409A OF THE CODE +Awards issued under the Plan are intended to be exempt from or comply with Section 409A of the Code, and, accordingly, to the +maximum extent permitted, the Plan and each Award shall be interpreted and administered in accordance with that intent. Notwithstanding anything to the contrary in the Plan or any Award Agreement, to +the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided +pursuant to the Plan during the six (6) month period +immediately following the Participant's termination of service shall instead be paid on the first payroll date after the six-month anniversary of the Participant's separation from service (or the +Participant's death, if earlier). Nothing in the Plan or any Award Agreement will be construed to impose on either the Company or the Committee any obligation to take any action to prevent the +assessment of any excise tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or +penalty. +This +Equity Incentive Compensation Plan, as amended, was adopted by the Board of Directors of SM Energy Company on March 24, 2016, subject to approval of the Company's +stockholders effective May 24, 2016. +A-26 +NNNNNNNNNNNN . Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 4. + 1. The Board of Directors has nominated the below eight persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been nominated to serve as director other than the nominees listed below. For Against Abstain For Against Abstain For Against Abstain 01 - Larry W. Bickle 02 - Stephen R. Brand 03 - Loren M. Leiker 04 - Javan D. Ottoson 05 - Ramiro G. Peru 06 - Julio M. Quintana 07 - Rose M. Robeson 08 - William D. Sullivan For Against Abstain ForAgainst Abstain 2. The proposal to ratify the appointment by the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2016. 3. To approve, on a non-binding advisory basis, the compensation philosophy, policies and procedures, and the compensation of our Company’s named executive officers, as disclosed in the accompanying Proxy Statement. For Against Abstain 4. The proposal to approve the amendment and restatement of the Equity Incentive Compensation Plan, including an amendment to increase the total number of shares authorized for issuance under the plan. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. + 1 U P X 2 7 3 8 7 3 2 02A6XC NNNNNNNNN B A Annual Meeting Proxy Card X IMPORTANT ANNUAL MEETING INFORMATION +. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on May 24, 2016. The Proxy Statement and our 2015 Annual Report on Form 10-K are available at: http://www.viewproxy.com/sm-energy/2016/. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — SM Energy Company 1775 Sherman Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders to be held on May 24, 2016. The undersigned hereby appoints A. Wade Pursell, David W. Copeland, and James B. Lebeck, or any of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares of SM Energy Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 24, 2016, and at any reconvened meeting after any adjournment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. This proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted “FOR” all director nominees in Proposal 1, and “FOR” Proposals 2, 3 and 4. This proxy also confers discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. As of the date of the accompanying proxy statement, SM Energy Company’s management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, including concerning any adjournment of the meeting, this proxy will be voted in accordance with the recommendations of SM Energy Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-16-012165/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-16-012165/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..00d1d5f887a2226d8d979f8ff691f1caa12b5ad4 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-16-012165/proxy_rpt.txt @@ -0,0 +1,25 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2015. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-17-002599/proxy.txt b/raw/proxies/0000893538/0001047469-17-002599/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e9c34a3b431002c42d2e598c1280765ba5675375 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-17-002599/proxy.txt @@ -0,0 +1,3404 @@ +DEF 14A +1 +a2231715zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Proxy Statement and Notice of +2017 Annual Meeting of Stockholders +May 23, 2017 +Denver, Colorado +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +TUESDAY, MAY 23, 2017 +To +All Stockholders: +The +2017 Annual Meeting of Stockholders of SM Energy Company (the "Annual Meeting") is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, +Colorado 80203, on Tuesday, May 23, 2017, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2017; +3. hold +an advisory vote to approve the compensation of our named executive officers; +4. hold +an advisory vote on the frequency of advisory votes regarding the compensation of our named executive officers; +5. approve +an amendment to our Employee Stock Purchase Plan; and +6. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on April 4, 2017, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2017 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other +verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form that is +sent to you, or a brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on April 4, 2017. We can use +that to verify your beneficial ownership of our +common stock and admit you to the meeting. If you intend to vote at the meeting, you also will need to bring to the meeting a legal proxy from your bank, broker, or other holder of record that +authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and +Corporate Secretary +Denver, +Colorado +April 13, 2017 +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 23, 2017 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2017 Annual Meeting of Stockholders, and the Form 10-K for the +fiscal year ended December 31, 2016, are available at http://www.viewproxy.com/sm-energy/2017/. +Table of Contents +TABLE OF CONTENTS +Page +General Matters +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +2 +Differences Between Stockholders of Record and Street Name Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +5 +Other Available Information +5 +Stockholders Sharing the Same Address +5 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +6 +Communications with the Board +7 +Board and Committee Meetings +7 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +12 +Policies and Procedures on Transactions with Related Persons +12 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +13 +Section 16(a) Beneficial Ownership Reporting Compliance +16 +Information About Executive Officers +17 +Executive Compensation +20 +Compensation Discussion and Analysis +20 +Compensation Committee Report +40 +Executive Compensation Tables +41 +Potential Payments Upon Termination or Change of Control +47 +Equity Compensation Plans +48 +Director Compensation +50 +Compensation Committee Interlocks +52 +Proposal 1—Election of Directors +53 +Proposal 2—Ratification of the Appointment of Ernst & Young LLP as our +Independent Registered Public Accounting Firm for 2017 +60 +Proposal 3—Advisory Vote on Executive Compensation +61 +Proposal 4—Advisory Vote on Frequency of Executive Compensation Advisory Votes +62 +Proposal 5—Amendment of Employee Stock Purchase Plan +63 +Report of the Audit Committee +66 +Independent Registered Public Accounting Firm +67 +Audit Committee Pre-approval Policy and Procedures +68 +Stockholder Proposals for the 2018 Annual Meeting of Stockholders +69 +2016 Annual Report +70 +Other Matters +71 +Annex A, Employee Stock Purchase Plan +A-1 +Table of Contents +GENERAL MATTERS +Background +This Proxy Statement contains information about the 2017 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company to be held +in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, 80203 on Tuesday, May 23, 2017, at 3:30 p.m. local time. Our Board of Directors ("Board") +is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," "us," and "our" refer to +SM Energy Company and its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2016 ("2016 Annual Report"), are being distributed and made available on or about April 13, 2017. In accordance with rules and regulations adopted by the United States Securities and Exchange +Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be +mailed by intermediaries on or about April 13, 2017, to beneficial owners of our common stock. Stockholders will have the ability to access the proxy materials on a website referred to in the +Notice or may request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The +proxy materials are being mailed to all stockholders of record, as of the close of business on April 4, 2017, on or about April 13, 2017. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of eight individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting +firm for 2017; +• an advisory vote to approve the compensation of our named executive officers; +• an advisory vote on the frequency of advisory votes regarding the compensation of our named executive officers; +• the approval of an amendment to our Employee Stock Purchase Plan; and +• such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the first five items noted above. +1 +Table of Contents +Who Can Vote +Only stockholders of record at the close of business on the record date, April 4, 2017, are entitled to receive notice of the Annual +Meeting and to vote shares of our common stock held on that date. As of April 4, 2017, there were 111,258,225 shares of our common stock issued and outstanding. Holders of our common stock are +entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in "street name") rather than directly in their own name. +As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered directly in your name +with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your voting +proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a brokerage account or +by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee how to vote and are +also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a signed proxy from +the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the +Internet, by telephone or by mailing a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope, and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified in a proxy, such proxy will be +voted as follows: +• FOR the election of the eight nominees named in this Proxy Statement under the caption "Proposal 1—Election of Directors"; +• FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public +accounting firm for 2017; +• FOR the advisory approval of the compensation of our named executive officers; +• ONE YEAR as the frequency of future advisory votes regarding the compensation of our named executive officers; +• FOR the approval of an amendment to our Employee Stock Purchase Plan; and +2 +Table of Contents +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the Annual Meeting, or any +adjournment(s) or postponement(s) thereof. +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other +nominee and you have not elected to receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by your bank, broker +or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is exercised by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting procedures +before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke any previously +submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, which are located at +1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our outstanding shares +of common stock are present at the Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares held by us as treasury +shares are not entitled to vote and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote your +shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for which it has discretionary authority under the +rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a +bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given +3 +Table of Contents +timely +instructions on how the bank, broker or other nominee should vote your shares, and the bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a +"broker non-vote" results. Although any broker non-vote would be counted as present at the meeting for +purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ), Proposal 3 ( Advisory Vote on Executive Compensation ), +Proposal 4 ( Advisory Vote on the Frequency of Executive Compensation Advisory Votes ) and Proposal 5 ( Approval of an Amendment of +Employee Stock Purchase Plan ), and your shares will be considered "broker non-votes" with respect to these proposals; but will nevertheless be entitled to vote your shares with +respect to Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2017 ) in +the discretion of the record holder. +• Proposal 1 ( Election of Directors ): Our Amended and Restated By-Laws (our "By-Laws") provide +that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be +counted in determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes will have no effect on +the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as Our Independent Registered Public +Accounting Firm for 2017 ): Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending +December 31, 2017, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted +in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this proposal requires the +affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total number of +shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the vote on this proposal. While this +vote is required by law, it will not be binding, nor will it create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or the Board. However, the +Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +• Proposal 4 ( Advisory Vote on the Frequency of Executive Compensation Advisory Votes ): The +frequency of the advisory vote (every one year, every two years or every three years) that receives the greatest number of votes will be considered the advice of our stockholders on the frequency of +the advisory vote on executive compensation. Accordingly, abstentions will have no effect on the outcome of the vote on this proposal. Broker non-votes will have no effect on the outcome of the vote +on this proposal. While this vote is required by law, it is advisory in nature and will neither be binding on our company or the Board, nor will it +4 +Table of Contents +create +or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, our company or the Board. However, the Board will take into account the outcome of this vote in +making a determination on the frequency at which advisory votes on executive compensation will be included in our proxy statements for future annual meetings. +• Proposal 5 ( Approval of an Amendment of Employee Stock Purchase Plan ): Under regulations +promulgated under Section 162(m) of the Internal Revenue Code ("IRC"), the approval of the amendment of our Employee Stock Purchase Plan, requires the affirmative vote of a majority of the +votes cast on the amendment. Abstentions will have the effect of votes against approval of the amendment. Broker non-votes will have no effect on the outcome of the vote on this proposal. +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies for total +fees of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition, our +officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be additionally +compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other +persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +Other Available Information +We make available through the Governance section of our website (www.sm-energy.com) the following documents: our Corporate Governance +Guidelines; our Financial Code of Ethics (the "Financial Code"); our Code of Business Conduct and Conflict of Interest Policy (the "Code of Conduct"); and the Charters of the Audit, Compensation, +Executive, and Nominating and Corporate Governance Committees of our Board. These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated +by reference into this Proxy Statement and should not be considered part of this document. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same address +and last name will receive only one copy of our Notice of Internet Availability, 2016 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that they want +to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and may utilize separate proxy +voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2016 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary, at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will promptly send such to +you. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the +future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its committees, our +Corporate Governance Guidelines, the Financial Code and the Code of Conduct. These documents provide the framework for our corporate governance. A complete copy of these documents is available on our +website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. The Board regularly +reviews corporate governance developments and modifies our governance documents as appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer or controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for an executive officer subject to the Financial Code be made only by +the Audit Committee of the Board and disclosed as required by law, SEC rules and regulations, and NYSE rules. Changes to, or waivers from, the Financial Code for any of our executive officers subject +to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such change or waiver. To date, the Audit +Committee of our Board has not granted waivers of the Financial Code for any of our executive officers subject to the Financial Code. +Board and Committee Independence +The Board is comprised of a majority of independent directors, four of whom, Stephen R. Brand, Loren M. Leiker, Ramiro G. Peru and Rose M. +Robeson joined the Board in the last six years. The Board has determined that Larry W. Bickle, Dr. Brand, Mr. Leiker, Mr. Peru, Julio M. Quintana, Ms. Robeson, and William +D. Sullivan are independent and do not have any material relationship with us other than as a director and stockholder. In its review of the independence of these directors, the Board considered past +employment, remuneration, and any other relationship with us. In making its determination as to the independence of its members, the Board considered the independence tests described in +Section 303A.02 of the Corporate Governance Standards of the NYSE's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our leadership structure has reflected our Board's decision to separate the roles of Chief Executive Officer and Chairman +of the Board. Mr. Sullivan, an independent director serving on our Board since 2004, who has experience serving on several other public company boards and over 37 years of experience +working with oil and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Mr. Sullivan does not serve on any committee of our Board, +other than the Executive Committee, which meets infrequently and did not meet in 2016. Javan D. Ottoson serves as our Chief Executive Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; +6 +Table of Contents +facilitating +communications among the directors; setting the Board meeting agenda in consultation with our Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and +serving as a liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of the Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our NCG Committee evaluates our leadership structure and makes recommendations to the Board. While recognizing that different +board leadership structures may be appropriate at different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has determined that our current +leadership structure is preferable, with Mr. Ottoson serving as our Chief Executive Officer, and Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director. Mr. Quintana has served in that role since February 21, +2017. The lead independent director is responsible for presiding at executive sessions of non-management directors. In the lead independent director's absence, the Chairman of the Board serves as lead +independent director. +As +of the filing date of this Proxy Statement, the Board has seven independent members and only one non-independent member: Mr. Ottoson, our Chief Executive Officer. A number of +our independent directors have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As +discussed above, our Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, +qualifications, attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director +nominee's biographical information below. We believe that the independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their respective +Board committees, and the overall leadership of the Board by the Chairman of the Board are beneficial to our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company. Interested parties and stockholders may contact the Board as a whole, only the +non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients' attention in care of SM Energy Company, Corporate Secretary, 1775 Sherman +Street, Suite 1200, Denver, CO 80203. All such communications will be provided to the Chair of the NCG Committee, who will facilitate the review of such communications. +Board and Committee Meetings +Our Board met 11 times during 2016. Our non-management directors routinely meet in executive session immediately after each regularly scheduled +meeting of the Board or as otherwise deemed necessary and met five times during 2016. Each incumbent director participated in at least 82% of the Board meetings and in 100% of his or her respective +committee meetings held in 2016. It is our policy that each director is expected to attend the annual meeting of our stockholders, and each director then serving on the Board attended the 2016 Annual +Meeting of Stockholders. +7 +Table of Contents +The +following table identifies the members of each committee, as of March 1, 2017, and sets forth the number of meetings held in 2016: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Larry W. Bickle +Stephen R. Brand +Loren M. Leiker +Javan D. Ottoson +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +William D. Sullivan +Number of meetings held in 2016 +6 +3 +8 +0 +Chair +Member +The +Audit Committee assists the Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Pursuant to the Audit Committee charter, +members are prohibited from serving on more than three audit committees of public companies (one of which is us), and no Audit Committee member currently serves on more than three such committees. The +Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our quarterly and annual financial results. The Audit Committee +reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of audit fees, the scope and adequacy of our system of +internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal audit functions and any related party transactions. The +Audit Committee is currently composed of four directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy +Statement. While all of the Audit Committee members are considered financially literate, the Board has determined that three members of the current Audit Committee, Mr. Bickle, Mr. Peru +and Ms. Robeson, are audit committee financial experts as the term is defined by the SEC. As noted above, Mr. Bickle, Mr. Peru and Ms. Robeson are also independent. +The +NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of +all committees of the Board, and to oversee all of our corporate governance functions, including the Board and committee self-evaluation process. For additional information on the functions performed +by the NCG Committee, see "Director Nominations and Qualifications" below. +The +Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements for our senior management and directors, adoption of compensation plans in which our officers and +8 +Table of Contents +directors +are eligible to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy +Statement describes these responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are +not in conflict with our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +Our +Board and each of its committees separately evaluated their performance during 2016, and the Audit Committee, Compensation Committee and NCG Committee each completed written +evaluations. The Executive Committee did not complete a written evaluation due to its unique, limited purpose and infrequent meeting schedule. This performance evaluation process was directed by the +NCG Committee and the evaluations were discussed and accepted by the Board. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is responsible +for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current Board leadership structure, with +Mr. Sullivan serving as our Chairman of the Board and Mr. Ottoson serving as our Chief Executive Officer, supports this approach by facilitating communication between management and the +Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more efficiently facilitates communication of +the views of the independent directors, and contributes to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, General Counsel, Executive Vice +President—Operations, and Associate General Counsel. The committee meets quarterly to update our enterprise risk management process and plan (the "ERM Plan"), utilizing the Committee of +Sponsoring Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during our business strategy sessions. We keep minutes of these +meetings, and regularly report the activities of the committee to the Audit Committee and the Board. We document risk prevention or mitigation steps for the material risks identified based upon +projected likelihood and impact of any occurrence of the particular risk. We review the ERM Plan with our Board annually. +We +also have a Financial Risk Management Committee comprised of our President and Chief Executive Officer, Chief Financial Officer, Executive Vice President—Operations and +Vice President—Marketing. The committee meets quarterly and more frequently, as necessary, to discuss our interest rate and commodity hedging activities and, as appropriate, to approve +additional hedges or other changes to our hedge program. We keep minutes of these meetings, and regularly report the activities of the committee to the Audit Committee. +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the specific guidelines and +policies that +9 +Table of Contents +have +been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include review and approval of our oil, natural gas and natural gas liquids commodity +price hedging policy, interest rate risk management, and insurance coverage, as appropriate. In addition, our internal auditors, who report directly to the Audit Committee with respect to internal +audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes. The Audit Committee also has oversight responsibility for the integrity of our +financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. In addition, the +Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the +full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying and +recommending directors for nomination by the Board for election as members of the Board. The NCG Committee selects a nominee based on the nominee's skills, achievements, and experience. As set forth +in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in +high-level business policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of +responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In addition, our Corporate Governance Guidelines provide that a director who retires or +experiences a +significant change in his or her professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested by the NCG +Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the NCG Committee and the Board may review the continued appropriateness of Board membership under +the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and delivered to the Board a resignation letter that is contingent upon (a) his or her +failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the shares of capital stock in an election of directors at the 2017 Annual Meeting of +Stockholders; and (b) acceptance of his or her resignation by the Board in accordance with the policies and procedures adopted by the Board for such purpose. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee routinely engages consultants and also considers suggestions from incumbent directors, management, and our stockholders. The NCG +Committee screens all potential candidates in the same manner regardless of the source of the recommendation. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity in identifying director nominees, the NCG Committee considers the Board as a whole, without +10 +Table of Contents +reference +to specific representative directors, with the overall objective of establishing a group of directors that reflects diversity, that can work in a collaborative and effective manner, and that +can best contribute to our long-term success. The NCG Committee believes that current Board members and director nominees reflect our commitment to diversity. Following the 2017 Annual Meeting, +assuming all eight of the current nominees are elected to the Board, we will have two Hispanic directors, one who has served since 2006 and one who has served since 2014, and one female director who +has served since 2014. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4 of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the +proposal is made, if any), the name and address of the stockholder, specific information concerning such stockholder's interests in our securities and a commitment to serve the full term if nominated +and elected. In addition, the notice must include the recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and +the proposed nominee and a written questionnaire completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for copies should be +directed to our Corporate Secretary. For additional information about stockholder nominations, including nominations for the 2018 Annual Meeting of Stockholders, see "Stockholder Proposals for the +2018 Annual Meeting of Stockholders." No stockholder director nominations were received in connection with the Annual Meeting. +11 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, arrangement, +or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the +aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related +Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than 5% of +our outstanding shares of common stock, and (iii) any immediate family member +of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best +interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent +with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as otherwise +described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not +limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products +or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable +to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2016. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known to us as of March 17, 2017, by all +beneficial owners of more than 5% of the outstanding shares of our common stock, by each director, director nominee, and named executive officer, and all directors and executive officers as a group. +Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted stock units and performance share +units. A supplemental table has been included later in this section +describing the number of restricted stock units and performance share units owned by the individuals described below. +Name of Beneficial Owner +Shares +beneficially +owned +Percent +beneficially +owned (1) +Name and Address of Stockholders Owning More Than 5% +Fidelity Management & Research Company (2) +11,484,006 +10.3 +% +245 Summer Street +Boston, MA 02210 +BlackRock, Inc. (3) +8,506,120 +7.6 +% +55 East 52 nd Street +New York, NY 10055 +QStar LLC (4) +8,187,510 +7.4 +% +1100 Louisiana Street, Suite 4900 +Houston, TX 77002 +Vanguard Group, Inc. (5) +7,553,182 +6.8 +% +100 Vanguard Blvd. +Malvern, PA 19355 +Capital Research Global Investors (6) +7,245,940 +6.5 +% +333 South Hope Street +Los Angeles, CA 90071 +Name and Position of Directors, Director Nominees and Named Executive Officers +Larry W. Bickle, Director +153,120 +* +Stephen R. Brand, Director +23,944 +* +Loren M. Leiker, Director +44,527 +* +Ramiro G. Peru, Director +18,205 +* +Julio M. Quintana, Director +48,429 +* +Rose M. Robeson, Director +17,381 +* +William D. Sullivan, Director +75,479 +* +Javan D. Ottoson, President, Chief Executive Officer and Director +143,102 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +88,578 +* +Herbert S. Vogel, Executive Vice President—Operations +32,037 +* +David W. Copeland, Executive Vice President, General Counsel and Corporate Secretary +86,451 +* +Kenneth J. Knott, Senior Vice President—Business Development and Land +43,574 +* +All executive officers and directors as a group (17 persons, including those named above) +985,835 +* +* Less than 1%. +(1) Based on an aggregate of 111,258,225 shares of common stock outstanding as of March 17, 2017. +(2) According to a Statement on Schedule 13G/A filed by Fidelity Management & Research Company +("Fidelity") on February 14, 2017, by reason of advisory and other relationships with persons who own +13 +Table of Contents +shares +of our common stock, Fidelity may be deemed to be the beneficial owner of a total of 11,484,006 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, +and sole voting power as to 390,352 shares and sole dispositive power as to 11,484,006 shares. +(3) According to a Statement on Schedule 13G/A filed by BlackRock, Inc. ("BlackRock") on +January 27, 2017, by reason of advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 8,506,120 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 8,098,905 shares and sole dispositive power as to 8,506,120 shares. +(4) According to a questionnaire completed by QStar LLC. ("QStar") on March 13, 2017, in connection +with our filing of a Registration Statement on Form S-3, QStar may be deemed to be the beneficial owner of a total of 8,187,510 shares, with shared voting power as to zero shares, shared +dispositive power as to zero shares, and sole voting power as to 8,187,510 shares and sole dispositive power as to 8,187,510 shares. +(5) According to a Statement on Schedule 13G/A filed by Vanguard Group, Inc. ("Vanguard") on +February 13, 2017, by reason of advisory and other relationships with persons who own shares of our common stock, Vanguard may be deemed to be the beneficial owner of a total of 7,553,182 +shares, with shared voting power as to 8,760 shares, shared dispositive power as to 61,503 shares, and sole voting power as to 56,953 shares and sole dispositive power as to 7,491,679 shares. +(6) According to a Statement on Schedule 13G/A filed by Capital Research Global Investors, Inc. +("Capital") on February 13, 2017, by reason of advisory and other relationships with persons who own shares of our common stock, Capital may be deemed to be the beneficial owner of a total of +7,245,940 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 7,245,940 shares and sole dispositive power as to 7,245,940 +shares. +Restricted Stock Units and Performance Share Units +Restricted stock units ("RSUs") represent the right to receive shares of our common stock to be delivered upon settlement, +subject to risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid +in cash on our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance +share units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common +stock that may be from zero to two hundred percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the +PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends or other distributions paid in cash on our common stock. +14 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 17, 2017. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +Loren M. Leiker +— +— +— +Julio M. Quintana +— +— +— +Ramiro G. Peru +— +— +— +Rose M. Robeson +— +— +— +William D. Sullivan +— +— +— +Javan D. Ottoson +37,360 +145,229 +— +A. Wade Pursell +21,532 +85,083 +— +David W. Copeland +8,037 +31,950 +— +Herbert S. Vogel +20,358 +75,694 +— +Kenneth J. Knott +3,978 +15,590 +— +All Executive Officers and Directors as a group (17 persons, including those named above) +112,554 +437,296 +— +(1) PSUs +granted on July 1, 2014, July 1, 2015 and July 1, 2016, will not vest until July 1, 2017, July 1, 2018 and +July 1, 2019, respectively. The amounts shown reflect the vested portion of the PSUs owned by each director, named executive officer and all directors and executive officers as a group. The +actual number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary from zero to two hundred percent of the number of PSUs indicated, depending on the +extent to which we have achieved our performance goals. +15 +Table of Contents +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under +United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of our common stock must report their initial +ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has designated specific deadlines for these reports +and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2016 under Section 16(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). +16 +Table of Contents +INFORMATION ABOUT EXECUTIVE OFFICERS +The +following table sets forth the names, ages (as of April 1, 2017) and positions of SM Energy's executive officers: +Name +Age +Position +Javan D. Ottoson +58 +President, Chief Executive Officer and Director +A. Wade Pursell +52 +Executive Vice President and Chief Financial Officer +David W. Copeland +60 +Executive Vice President, General Counsel and Corporate Secretary +Herbert S. Vogel +56 +Executive Vice President—Operations +Kenneth J. Knott +52 +Senior Vice President—Business Development and Land and +Assistant Secretary +Mary Ellen Lutey +45 +Senior Vice President and Regional Manager +Lehman E. Newton, III +61 +Senior Vice President and Regional Manager +Mark T. Solomon +48 +Vice President—Controller and Assistant Secretary +David J. Whitcomb +54 +Vice President—Marketing +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice President +and Chief Operating Officer. Mr. Ottoson +was appointed as Chief Executive Officer of the Company in February 2015 and President of the Company in October 2012. Mr. Ottoson has been in the energy industry for over 35 years. From +April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President-Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas +exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure +Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO +United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice President +and Chief Financial Officer. Mr. Pursell +was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to offshore energy +producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He joined Helix in +May 1997, as Vice President-Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an Experienced Manager +specializing in the offshore services industry. Mr. Pursell has over 29 years of experience in the energy industry. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice President and +General Counsel. He was appointed as the +Company's Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has 35 years of experience in the legal profession, including 26 years as +internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as its Vice President, General Counsel and +Secretary from April 2004 through November 2009, and then as its Senior Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served as an executive officer and +general counsel of two energy companies he co-founded in Midland, Texas. +17 +Table of Contents +Mr. Copeland +started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Herbert S. Vogel. Mr. Vogel was appointed as Executive Vice President—Operations of the +Company in August 2014. Mr. Vogel +joined the Company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 32 years of experience in the oil and gas business. He joined +the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous +roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel +started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations management, new ventures +development, and business unit management at ARCO and BP. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development and +Land and Assistant Secretary in August +2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant +Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional +Land Manager when the office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Senior Vice President and Regional Manager in May +2015 for the South Texas & Gulf Coast +region. From December 2012 to May 2015, she served as Vice President and Regional Manager for the Mid-Continent region. She joined SM Energy in June 2008 as North Rockies Asset Manager, where she +managed the Company's activities in the Williston Basin. Prior to joining SM Energy, Ms. Lutey held various technical and managerial positions in several regions of the United States and +Canada. She was a Senior Reservoir Engineer with Chesapeake Energy Corporation from September 2007 until June 2008, where she was responsible for the resource development of the Fayetteville Shale in +Arkansas. Ms. Lutey was a Team Lead for Engineering and Geoscience, with ConocoPhillips Canada from April 2006 until September 2007, where she was responsible for the technical and business +performance of two multi-discipline groups in Western Canada. From July 2005 until April 2006, she was a Team Lead for Engineering and Geoscience, with Burlington Resources Canada where she managed +the growth and development of resource plays in Western Canada. From 1994 until 2005, Ms. Lutey held various engineering and leadership positions of increasing responsibility for Burlington +Resources. Ms. Lutey has over 25 years of experience in the energy industry. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager for +the Midland, Texas office, was appointed Vice +President and Regional Manager of the Permian region in June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 38 years of experience in +the energy industry. From November 2005 to November 2006, Mr. Newton served as Project Manager for one of Chevron's largest Lower 48 projects. Mr. Newton +joined Pure Resources in February 2003 as the Business Development Manager and worked in that capacity until October 2005. Mr. Newton was a founding partner in Westwin Energy, an independent +Permian Basin exploration and production company, from June 2000 to January 2003. Prior to that, Mr. Newton spent 21 years with ARCO in various engineering, operations and management +roles, including as Asset Manager, ARCO's East Texas operations, Vice President, Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian. +18 +Table of Contents +Mark T. Solomon. Mr. Solomon was appointed Vice President—Controller and Assistant +Secretary of the Company in May 2011. He was +appointed Controller of the Company in January 2007. Mr. Solomon served as the Company's Acting Principal Financial Officer from April 2008 to September 2008, which was during the period of +time that the Company's Chief Financial Officer position was vacant. Mr. Solomon joined the Company in 1996. He served as Financial Reporting Manager from February 1999 to September 2002, +Assistant Vice President-Financial Reporting from September 2002 to May 2006 and Assistant Vice President-Assistant Controller from May 2006 to January 2007. Prior to joining the Company, +Mr. Solomon was an auditor with Ernst & Young. Mr. Solomon has over 20 years of experience in the energy industry. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. +Mr. Whitcomb joined SM Energy in +November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time +his title was changed to Assistant Vice President and Director of Marketing. +19 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation programs for our Chief Executive Officer, Chief Financial Officer and +each of our three other most highly compensated executive officers employed at the end of the 2016 fiscal year, whom we collectively refer to in this "Executive Compensation" section as our "NEOs" or +"Named Executive Officers." Our NEOs for fiscal 2016 were: +• Javan D. Ottoson , President and Chief Executive Officer +• A. Wade Pursell , Executive Vice President and Chief Financial Officer +• Herbert S. Vogel , Executive Vice President—Operations +• David W. Copeland , Executive Vice President, General Counsel and Corporate Secretary +• Kenneth J. Knott , Senior Vice President—Business Development and Land +This +Compensation Discussion and Analysis is divided into six sections: +Section 1—Executive +Summary +Section 2—Objectives +of Executive Compensation Program +Section 3—Competitive +Positioning +Section 4—Elements +of Compensation +Section 5—Compensation +Determination Process +Section 6—Other +Compensation Items +SECTION 1—EXECUTIVE SUMMARY +Overview of Industry and 2016 Business Highlights +2016 was a year of strategic transformation for SM Energy. We undertook several transformative acquisitions and divestitures to strengthen our +asset portfolio by adding top tier assets and divesting non-core assets, and we expect that this strategic shift for the company will deliver significant value for our stockholders over the next +several years. Despite a difficult commodity price environment, our operational performance in 2016 was excellent. Our 2016 business highlights included: exceeding our production goal by 2.4% and our +cash flow goal by 7.2%; realizing significant cost reductions and capital efficiencies in both our lease operating expense and our CAPEX program; and maintaining our liquidity and strong balance +sheet. +20 +Table of Contents +2016 Incentive Plan Payouts: Pay for Performance +As discussed in greater detail below, in response to the continued market downturn in 2016, the Compensation Committee made compensation +decisions with the intention of confirming alignment between executive pay and performance. +Short-Term Incentive Plan ("STIP") Results: As a result of the projected impact of depressed +commodity +prices on our financial results for 2016, the Compensation Committee revised the quantitative metrics for our STIP so that the payout for target performance was reduced from a 100% of target payout to +a 50% of target payout. We out-performed the targets set by the Compensation Committee in all five quantitative areas, which, as discussed below in " Short-Term Incentive +Plan—Design ", are associated with our return on capital. These results, along with the individual performance of each NEO, influenced the Compensation Committee to +pay actual 2016 bonuses for the NEOs at approximately 90% of the applicable STIP target percentages, with the exception of Mr. Knott, who was awarded a bonus of approximately 120% of target +primarily due to his individual performance during 2016. We believe that this result indicates that our STIP is appropriately designed to link compensation earned to the achievement of our financial +and strategic objectives. See the "Short-Term Incentive Plan" section below for additional discussion. +Long-Term Incentive Plan ("LTIP") Results: Our LTIP uses a combination of service-vesting RSUs and +performance-based PSUs. We believe these types of +long-term incentives appropriately balance risk and reward, because such units have both upside potential and downside risk. The performance measures used in our LTIP reward total stockholder return, +both on an absolute basis and relative to an index of peer exploration and production companies. At the completion of the 2013-2016 performance period, we settled PSUs granted on July 1, 2013, +based upon an earned percentage of 20% (as compared to a target of 100%). We achieved this result because (a) our annualized absolute total stockholder return ("TSR") for the performance period +was –21%, which resulted in an earned percentage of 0%, and (b) our TSR exceeded the TSR for our comparative peer group of companies for the period by 0.8%, which increased the +earned percentage to 20%. We believe that this result indicates that our LTIP appropriately links compensation to the achievement of our long-term financial and strategic objectives. +21 +Table of Contents +Realizable Pay +The following charts illustrate the relationship between Mr. Ottoson's compensation and our performance, including our performance +compared to our peers, over the last three years. The first three charts illustrate our total stockholder return compared to the peer group average for the three-, two- and one-year periods associated +with our 2014 LTIP, 2015 LTIP and 2016 LTIP awards, respectively. The final chart compares Mr. Ottoson's target pay and his realizable pay. +(1) Following +his promotion to Chief Executive Officer effective as of February 1, 2015, the Compensation Committee increased Mr. Ottoson's +Target Pay. +(2) In +2016, the Compensation Committee reduced Mr. Ottoson's LTIP grant date fair value as a result of market conditions. Please see +"Section 3—Competitive Positioning" for additional discussion. +In +the fourth chart above, (a) Target Pay includes salary and annual STIP target compensation as determined by the Compensation Committee, as well as the grant date fair value of +the RSUs and PSUs as disclosed in the Summary Compensation Table for the designated year; and (b) Realizable Pay includes salary as determined by the Compensation Committee for the designated +year, actual STIP payments for the designated year's performance, the number of RSUs granted in the applicable year multiplied by our closing stock +price on April 4, 2017, and the number of PSUs granted in the applicable year multiplied by the earned percentage calculated as if the applicable +performance period ended on April 4, 2017, multiplied by our closing stock price on April 4, 2017. This data clearly +22 +Table of Contents +illustrates +that our realizable pay is highly aligned with stockholder returns and our return performance against our peer group. +Compensation Program and Corporate Governance Highlights +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and qualitative +factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced mix of base salary, annual cash incentives through our STIP, and long-term +equity incentives through our LTIP. We balance incentives tied to short-term annual performance with incentives tied to multi-year performance. In this way, we motivate executives to consider the +impact of their decisions over the short, intermediate, and long term. The performance metrics used in our 2016 STIP include those we believe are the key drivers of long-term stockholder value +creation: production volume; proved developed reserve additions; finding and development costs; cash flow; cash operating costs; environmental, health, and safety performance; and exploration success +and economic inventory growth. Our STIP program is not completely formulaic because the Compensation Committee has the discretion to adjust bonuses based on the "quality" of the results and other +relevant factors as well as individual performance and behavior, and has used that discretion to adjust calculated bonuses in the past. Our LTIP rewards total stockholder return, both on +23 +Table of Contents +an +absolute basis and relative to an index of peer exploration and production companies. Some highlights of our executive compensation program are: +What We Do: +What We Do Not Do: +ü +We generally target pay opportunities at the market median. +c +We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +ü +The majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating long-term stockholder value. +c +We do not provide "single-trigger" cash severance or equity vesting acceleration upon a change in control. +ü +A significant portion of executive compensation is in the form of equity, with the majority of the value settled based on a combination of our absolute and relative total stockholder return. +c +We do not provide golden parachute excise tax or other tax gross-ups. +ü +We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the long-term financial interests of our stockholders. +c +We do not pay dividends on unearned restricted stock and performance share units. +ü +The Compensation Committee retains an independent compensation consultant who provides no other services to our company. +c +We do not permit option repricing, or exchange of underwater options for other awards or cash, without stockholder approval. +ü +The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by its independent compensation consultant to ensure our plans are designed appropriately and do not encourage +excessive risk taking, while taking into account market changes and peer group comparisons. +c +We do not permit officers, employees or directors to enter into transactions that "hedge" the value of our securities owned by them, hold our securities in margin accounts, pledge our securities to secure +indebtedness, or buy or sell options or derivatives with respect to our securities. +ü +We have adopted a clawback policy applicable to our NEOs. +Stockholder Advisory Vote on Compensation +At our 2016 Annual Meeting of Stockholders, our stockholders were provided the opportunity to cast a non-binding advisory vote on the +compensation of our NEOs. Over 98% of votes cast approved the compensation of our NEOs. Because the vote was advisory, the result was not binding on the Compensation Committee. However, the +Compensation Committee believes that our stockholders' overwhelming approval of the compensation of our NEOs indicates that they consider our compensation philosophy and our executive compensation +policies to be effective and aligned with their interests. The Compensation Committee took into account the outcome of the vote and other factors, as more fully discussed herein, in reviewing our +executive compensation policies for 2016 and in determining that no significant changes to our executive compensation programs and policies were necessary in 2016. +24 +Table of Contents +SECTION 2—OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM +Our overall executive compensation program is designed to promote superior returns for our stockholders and to align executive pay with Company +performance +throughout industry cycles. The objectives of our executive compensation program are to: +1. Provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented +management. +Our +pay philosophy targets overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, based on analysis performed +by the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. ("F. W. Cook"), we target total direct compensation for our NEOs around the +median of our industry peer group (see "Section 3—Competitive Positioning" for further detail). Actual compensation earned by a particular individual may be above or below the +target level based on company and individual performance measured against the established metrics of our incentive compensation programs. +2. Link compensation earned to the achievement of our short-term and long-term financial and strategic objectives. +We +believe the performance-based, "at risk" proportion of total compensation should increase with an individual's level of responsibility. Our compensation system is intended to provide the +appropriate balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this end, our STIP rewards annual operating and financial +performance based upon quantitative measures of cash flow, production volume, proved developed reserve growth, cash operating costs and finding and development costs, and discretionary qualitative +measures of environmental, health, and safety and exploration success and inventory growth (see "Elements of Compensation—Short-Term Incentive Plan"). The significant weighting assigned to +our cash flow highlighted the importance of cash flow generation to our business during this period of depressed commodity prices, while the cash operating costs metric emphasized the need for +efficiently and wisely managing our costs. The combination of the production volume metric with the finding and development cost metric emphasizes the need for us to wisely allocate our capital +expenditure budget. Our LTIP rewards total stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies (see "Elements of +Compensation—Long-Term Incentive Plan"). +3. Align performance incentives with the long-term interests of our stockholders. +We +believe that we achieve alignment of long-term interests between stockholders and management by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that ensure our executives have a meaningful ownership stake during their tenure. In addition, the metrics used for our STIP include those we believe drive long-term value +creation, while realized compensation under our LTIP is aligned with absolute and relative returns realized by our stockholders. +25 +Table of Contents +4. Ensure programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs ( e.g. , salary increases, bonus payments, +and equity compensation grants), the Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation programs, expected accounting treatment, +potential stockholder dilution, and the impact on our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most +financially efficient manner possible, and that satisfy our other compensation objectives. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the IRC, compensation in excess of $1.0 million per +year paid to certain of our NEOs is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as defined in Section 162(m). The Compensation +Committee administers our STIP and LTIP so that compensation awarded and paid to our NEOs is intended to be "performance-based" under Section 162(m) and therefore fully tax-deductible; however, +the Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility requirements, and it is possible that Section 162(m) may disallow +compensation deductions that would otherwise be available to us. +5. Uphold high standards of good corporate governance and strive to achieve evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, F. W. Cook, stays abreast of current and developing corporate +governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it deems appropriate, to reflect best practices and/or new legislation. +SECTION 3—COMPETITIVE POSITIONING +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our executive +officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies with our General +Industry Classification Standard Industry Code include standard measures such as revenue, operating cash flow, enterprise value, and market cap, as well as the magnitude of each company's offshore and +non-U.S.-based operations. F. W. Cook identifies +peer companies that are within a specific and reasonable range of our company for at least four of these criteria and that have corporate structures similar to ours. The Compensation Committee, with +input from F. W. Cook, selects a peer group that includes the 15-20 companies that best fit the selection criteria, excluding those companies from the peer group from the previous year that no longer +26 +Table of Contents +satisfy +the selection criteria. In March 2016, the Compensation Committee approved the peer group used for 2016 compensation comparisons, which consisted of the following companies: +Cabot Oil & Gas Corporation +Newfield Exploration Company +Cimarex Energy Company +Oasis Petroleum, Inc. +Concho Resources Inc. +PDC Energy, Inc. +Continental Resources, Inc. +QEP Resources, Inc. +Denbury Resources Incorporated +Range Resources Corporation +Energen Resources Corporation +Whiting Petroleum Corporation +EP Energy Corporation +WPX Energy Inc. +Laredo Petroleum Inc. +At +the time the Compensation Committee approved the peer group, we ranked below the 25 th percentile in enterprise value and market cap; between the +25 th percentile and the peer group median in revenue; and between peer group median and the 75 th percentile in operating cash flow. +This +peer group includes 12 of the companies included in our 2015 peer group. The Compensation Committee elected to exclude Pioneer Natural Resources Co., Rosetta +Resources, Inc. and Ultra Petroleum Corp. from the 2016 peer group and elected to add EP Energy Corporation, Laredo Petroleum Inc. and PDC Energy, Inc. to the 2016 peer group. +In +2016, F. W. Cook analyzed competitive pay trends at these peer group companies along with data from relevant, third party, independent compensation surveys focused on the exploration +and production industry (the Energy 27 Group, Meridian and Effective Compensation, Inc. surveys). Based on this analysis, F. W. Cook recommended to the Compensation Committee that no changes be +made to the STIP target percentages or the LTIP grants for our NEOs for 2016. +Findings +from F. W. Cook's 2016 competitive analysis was one of many factors considered by the Compensation Committee in its review of base salary, STIP targets and target LTIP values +for each of +our NEOs. After reviewing this comparative compensation data, the Compensation Committee elected to maintain the base salary and STIP target percentages for each of our NEOs at the same levels as +2015, while awarding LTIP values at less than target for each NEO. +SECTION 4—ELEMENTS OF COMPENSATION +The principal components of our executive compensation program and the purpose of each component are summarized in the following table. With the +exception of the +supplemental employee retirement plan ("SERP") and the non-qualified deferred compensation plan, our executive compensation program is comprised of the same components as the compensation program for +other +27 +Table of Contents +employees +with similar tenure with the company. The only material differences are the target pay levels and the proportion of each component in the total pay mix. +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; and recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; and reward long-term company performance +Employee Stock Purchase Plan +employees, including our executives, may purchase shares of our common stock at a 15% discount to the fair market value, subject to certain limits +facilitate share ownership among employees; and align employees' interests with those of stockholders +Qualified Retirement Plans +includes qualified defined benefit pension plan and 401(k) plan with company match +attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Retirement Plan +provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($265,000 for 2016) +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Non-qualified Deferred Compensation Plan +provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +medical, dental, vision, life, wellness, financial advisory services for executives and disability insurance +attract and retain highly qualified employees; and support the overall health and well-being of all employees +28 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2016 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts illustrate, +86% and 80% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied to +performance ( i.e. , "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of each +individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data and the continued downturn in our industry during 2016, +the Compensation Committee elected to maintain the base salaries for our NEOs in 2016: +Name +2015 Salary +2016 Salary +Ottoson +$ +800,000 +$ +800,000 +Pursell +$ +447,000 +$ +447,000 +Vogel +$ +412,000 +$ +412,000 +Copeland +$ +401,000 +$ +401,000 +Knott +$ +316,000 +$ +316,000 +Short-Term Incentive Plan—Design +The STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives and the individual performance of each NEO. These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are +published as annual goals. In 2015, in light of the commodity price downturn, we revised the performance objectives to include cash operating costs to reflect the importance of efficiently managing +our costs. In 2016, we further revised the +29 +Table of Contents +performance +objectives by increasing the relative weighting of the cash flow and cash operating cost metrics, while reducing the weighting of production, proved reserve additions and finding and +development costs. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business. Payments under the STIP +are in the form of annual cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +Return +on capital is an important consideration in the structure of our STIP and is reflected in three primary mechanisms: first , the +quantitative goals the Compensation Committee adopts are based on our drilling plan and budget for the year, which requires expected minimum return thresholds for each well drilled and completed; second , +the finding and development cost metric reflects one component of our return on capital by calculating the efficiency of each capital dollar we +spend; and third , the Compensation Committee has the discretion to adjust credit for the proved reserve addition metric if our capital expenditures +exceed our budget. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses generally range from zero to two times a participant's target percentage based on the Compensation Committee's assessment of our +performance and that of each of our NEOs. In addition, the maximum award for any participant is $2,000,000. Target bonuses for 2016 as percentages of base salary for the NEOs were as follows: +Name +2016 Target +Bonus Level, +% of Base +Salary +Ottoson +100 +% +Pursell +90 +% +Vogel +80 +% +Copeland +70 +% +Knott +50 +% +Short-Term Incentive Plan—2016 Performance +In order for the STIP bonus pool to be funded for our NEOs, the 2016 STIP required that our 2016 cash flow metric, as described below, exceed a +threshold level of $450 million. If our cash flow metric had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Using this construct, +bonus payments to our NEOs under the STIP are intended to be "performance-based," as defined under Section 162(m) of the IRC, and therefore fully deductible for federal income tax purposes. Our +actual 2016 cash flow was approximately $791 million, +resulting in full initial funding of the STIP bonus pool for our NEOs at the maximum level. The Compensation Committee then examined our performance under five quantitative and two qualitative metrics +to determine actual bonus payments to our NEOs by reducing (but not increasing) the amounts funded through achievement of the cash flow threshold, while also taking into account the Compensation +Committee's decision that achieving target performance would result in STIP payments at 50% of the +30 +Table of Contents +applicable +STIP target. The Compensation Committee evaluated our performance in the following five quantitative areas with respect to the annual cash bonus awards for our NEOs: +Factor +Weight +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (MMBOE) +.15 +45.96 +54.0 +81.0 +55.3 +102.4 +% +Proved Developed Reserve Additions (MMBOE) +.15 +44.3 +52.1 +78.2 +53.6 +102.9 +% +Finding and Development Costs ($ per BOE) (1) +.15 +$15.56 +$13.53 +$6.76 +$12.83 +94.8 +% +Cash Flow ($ in millions) +.40 +$627.2 +$737.9 +$1,291.3 +$790.8 +107.2 +% +Cash Operating Costs ($ per BOE) (2) +.15 +$15.49 +$13.47 +$6.73 +$12.73 +94.5 +% +(1) As +noted below, our actual finding and development cost out-performed our target by 5.2%. +(2) As +noted below, our actual cash operating costs out-performed our target by 5.5%. +Metric +Result +Commentary +Production Volume +Out-performed target by 2.4%. +The production volume target represents the volume of oil, gas and NGLs estimated to be produced under our 2016 business plan. This measure is important because proceeds from the sale of production generate essentially +all of our revenue. +Proved Developed Reserve Additions +Out-performed target by 2.9%. +The proved developed reserve additions target represents the proved developed reserves estimated to be added from projects funded under our capital program during 2016. This measure is important because proved developed +reserves are the primary source of future production and cash flow for us and, as such, relate directly to the value of our company. +Finding and Development Costs +Out-performed our target by 5.2%. +Finding and development costs are a measure of the efficiency of our capital program in adding value. The finding and development costs target represents the estimated cost of proved developed reserve additions on a +dollar per barrel of oil equivalent ("BOE") basis, as projected under our 2016 business plan. +Cash Flow +Out-performed our target by 7.2%. +Our cash flow target is calculated based on Adjusted EBITDAX, which represents net income (loss) before interest expense, other non-operating income or expense, income taxes, depletion, depreciation, amortization and +asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, change in the Net Profits Plan liability, gains and losses +on divestitures, gains or losses on extinguishment of debt, and materials inventory impairments. This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a +key factor in stockholder value creation. +Cash Operating Costs +Out-performed our target by 5.5%. +Our cash operating costs are calculated as the sum of our lease operating expense, ad valorem taxes, workover expenses, transportation, production taxes, and general and administrative expenses (less stock compensation +expense), on a per BOE basis. The Compensation Committee added this metric to our STIP in 2015 due to the importance of efficiently using cash expenditures during periods of significant commodity price declines. +31 +Table of Contents +Additionally, +the Compensation Committee assessed our 2016 performance in the following qualitative areas: +Environmental, Health, and Safety (EHS) —Our environmental performance was in the top-quartile in the areas of +statistical measurement that we track; +however, we have room to improve on our health and safety performance. As a result, the Compensation Committee gave neither positive nor negative credit for this qualitative measure in 2016. +Exploration Success and Inventory Growth —Our performance with respect to our qualitative metric for exploration +success and inventory growth +satisfied all the criteria considered by the Compensation Committee in this area. Accordingly, the Compensation Committee gave the maximum positive credit for this qualitative measure in 2016. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is assigned the weighting disclosed in the above table; however, because quantitative goals must be determined at the beginning +of the year, the Compensation Committee's exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals +no longer comport with reasonable outcomes. +The +Compensation Committee considered all of the above-mentioned factors, as well as its prior decision that achieving target performance would result in STIP payments at 50% of the +applicable STIP target and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Name +Salary Paid +in 2016 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Ottoson +$800,000 +100 +% +90 +% +$720,000 +Pursell +$447,000 +90 +% +81 +% +$360,813 +Vogel +$412,000 +80 +% +74 +% +$304,184 +Copeland +$401,000 +70 +% +61 +% +$246,295 +Knott +$316,000 +50 +% +61 +% +$194,081 +Long-Term Incentive Plan +Our LTIP, which we implemented in its current form in 2008, is an equity compensation program that utilizes performance share units, or PSUs, +and restricted stock units, or RSUs, to compensate our NEOs and other key employees for long-term growth in our net asset value, as reflected in our absolute and relative cumulative TSR, which +includes the effects of dividends. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"). +32 +Table of Contents +Under our LTIP, participants were awarded RSUs and PSUs during the third quarter of 2016, for the performance measurement period beginning July 1, +2016, +and ending June 30, 2019. The ratio of PSUs to RSUs in an LTIP participant's grant varies based upon each participant's position. Our NEOs receive 75% of the value of their award in the form of +PSUs, with the balance in the form of RSUs. RSUs are settled in shares of our common stock at the time of vesting, and PSUs are settled in shares of our common stock, depending on the extent to which +we have satisfied the performance criteria, at the end of the three-year performance period. The actual number of shares of our common stock issued to settle PSUs at the end of the three-year +performance period can range from 0% to 200% of the number of PSUs awarded, depending on our absolute and relative TSR. TSR is measured on a compound annualized basis, and relative TSR is compared to +the TSR of an equal weighted index of peer companies (the "TSR Peer Group"), in both cases using the average closing prices for the 20 days prior to the start and end of the performance period. +The TSR Peer Group consists of companies from our comparative peer group, as recommended by F. W. Cook and selected by the Compensation Committee based upon the criteria discussed above, with any +adjustments to that list of companies as deemed necessary or appropriate by the Compensation Committee in its discretion. As of July 1, 2016, for the 2016–2019 performance period, +the constituents of the TSR Peer Group included the same companies shown under " Comparative Peer Group " above. +At +any time during the three-year performance period, the Compensation Committee may elect to modify the TSR Peer Group if significant changes +( e.g. , a member of the TSR Peer Group is acquired) occur relating to any member of the TSR Peer Group. As of the date of this Proxy Statement, the +Compensation Committee has not modified the TSR Peer Group for the 2016–2019 performance period. +The +number of shares of our common stock issued to settle PSUs at the end of the 2016–2019 performance period will equal the number of PSUs multiplied by the "Earned +Percentage." The earned percentage is the sum of the Absolute TSR Score and the TSR vs. Peer Index Score, as outlined in the payout matrix below, subject to a maximum of 200% and a minimum of 0%: +Absolute TSR +TSR vs. Peer Index +Annualized +TSR +Earned +Percentage* +% Point Difference +from Index +Earned +Percentage* +£ 0% +0% +£ –10% +–80% +4% +20% +0% +20% +16% +110% +³ 8% +100% +³ 25% +200% +* Earned percentage is linearly interpolated for performance between points. +The +PSUs and RSUs awarded and individual allocations to our NEOs were approved by the Compensation Committee during the second quarter of 2016. In its determination of the total pool +value for 2016, the Compensation Committee considered various factors, including historical fair value transfer (or the percentage of market capitalization transferred to employees annually in the +form of stock based awards and other forms of ownership in our company, "FVT") under our long-term incentive compensation system compared to our peer group companies, input from F. W. Cook on expected +trends in FVT for the subject period, and shares available under our Equity Plan. In particular, as a result of the drop in our common stock share price in conjunction with the decrease in commodity +prices during 2015 and the first half of 2016, the Compensation Committee reduced the total pool value for 2016 by 25% in order to reduce the FVT associated with the 2016 LTIP grant. The 2016 RSUs +have a three-year vesting schedule, with one-third vesting on each of the first three anniversaries of the award date. The 2016 PSUs vest on July 1, 2019. We settle the RSUs with shares of our +common stock as they vest. If an NEO is terminated, voluntarily or involuntarily, prior to the +33 +Table of Contents +third +anniversary of the award date, he/she will retain all shares of common stock previously issued by us to settle the RSUs as they vest, but will forfeit all unvested RSUs. No settlement of vested +PSUs +occurs until the three-year performance period is concluded, and upon voluntary or involuntary termination, an NEO would forfeit all unvested PSUs. All PSUs granted are also subject to a cap in value +per unit calculated based on an absolute TSR of 50% for each year and an assumed earned percentage of 200%. +At +the completion of the 2013-2016 performance period, we settled PSUs granted on July 1, 2013, using an earned percentage of 20%. We achieved this result based upon +(a) our annualized absolute TSR for the performance period of –21%, which resulted in an earned percentage of 0%, and (b) our TSR exceeding the peer index for the period +by 0.8%, which increased the earned percentage to 20%. The chart below illustrates the total return for our stockholders for the three-year period ending June 30, 2016, relative to the peer +index for such period: +Comparison of Three-Year Return +2013–2016 +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. The +Compensation Committee generally approves these grants at its June meeting. The Compensation Committee, the Board or our CEO have in the past, and may in the future, make limited grants of equity on +other dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain or reward such persons. We did not make any special grants of equity to +our NEOs during 2016. +34 +Table of Contents +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. The NPP was designed +to reward the contributions made by our executives and other key employees to our long-term financial success. Under the NPP, participants shared in the net profits derived from our investment in all +oil and gas activity from a specific pool of properties in a given year after we recovered the capital costs associated with that pool. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. Mr. Ottoson participates in two NPP pools and currently receives no compensation from these pools because they have not reached payout status. +Mr. Knott participates in eight pools and currently receives compensation from some of those pools. Please see Summary Compensation Table for 2014, 2015 and +2016 for more detail on the NPP payments. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees, including our NEOs, to purchase +shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and December 31 of +each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is the lower of 85% of the fair +market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. +Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified Pension Plan") and a +401(k) plan on the same basis as our eligible employees. Our executives are also eligible to participate in our SERP and non-qualified deferred compensation plan (the "NQDC"). The SERP is an unfunded, +non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence of IRC limits on the Qualified Pension Plan. The NQDC is +intended to provide executives with tax planning opportunities and the opportunity to receive the full benefit of matching contributions in excess of IRC limits applicable to our 401(k) plan. We +provide these plans to remain competitive in the hiring and retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that executive's average base salary, excluding bonuses. +35 +Table of Contents +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the 401(k) plan, subject to annual limits to amounts determined by IRC regulations ($18,000 for +2016). We match each employee's contributions in cash on a dollar for dollar basis, up to 6% of the employee's base salary and cash bonus for participants in the Qualified Pension Plan and up to 9% of +the employee's base salary and cash bonus for employees that are not participants in the Qualified Pension Plan. Company contributions vest over an employee's first five years of employment with the +company. +The +NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating +employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to +make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee's base salary and cash bonus. Each eligible employee's interest in +the contributions we make will vest 40% after the second year of such employee's service to us, and 20% per year thereafter. A +participant's account will be distributed based upon the participant's payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual +installments ranging for a period from 1–10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis as all +other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with all +employees, group term life insurance up to 2.5 times their respective base salaries up to $2,000,000. We also provide financial planning services to our executives, including the NEOs, upon their +election. +SECTION 5—COMPENSATION DETERMINATION PROCESS +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and its Compensation Committee, as discussed below. The Compensation Committee is +currently comprised of four independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the +purposes of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; and +• reviewing the performance and approving the compensation for our executive officers, including our Chief Executive Officer. +36 +Table of Contents +In +2016, the Compensation Committee met eight times to administer the matters noted above and address other matters required under its charter. The following diagram outlines key +Compensation Committee activities during the year: +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company Manual, +the Board has determined that all members of the Compensation Committee are independent. +Independent Compensation Consultant +F. W. Cook serves as independent executive compensation consultant for and reports directly to the Compensation Committee. The Compensation +Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems necessary. A principal of F. W. Cook attends Compensation Committee meetings, as requested, and +communicates with the Compensation Committee between meetings. The services F. W. Cook provides, based upon direction from the Compensation Committee, include advising the Compensation Committee on +the design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis regarding the competitiveness of our executive compensation +opportunities, conducting compensation risk assessments and providing analysis concerning the equity compensation practices of our peers. To facilitate the delivery of these services to the +Compensation Committee, F. W. Cook interfaces with our management, in particular our Senior Vice President—Human Resources. F. W. Cook does not provide +directly, or indirectly through affiliates, any non-executive compensation services, such as pension consulting or human resource outsourcing, to us. The total consulting fees we pay to F. W. Cook are +less than 1% of the total annual revenues of F. W. Cook, and F. W. Cook and the F. W. Cook consultants working with us are prohibited from owning any of our shares of common stock directly, although +such shares may be owned within mutual funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known personal relationship with any of our officers, directors, +stockholders or employees that would present a potential conflict to their +37 +Table of Contents +independence. +After consideration of disclosures and representations made by F. W. Cook concerning the foregoing, the Compensation Committee determined in 2016 that F. W. Cook's work did not raise any +potential conflicts of interest. F. W. Cook has agreed to advise the Compensation Committee if any potential conflict of interest arises that could cause F. W. Cook's independence to be questioned and +not to undertake any project for our management, except at the request of the Compensation Committee and as agent for the Compensation Committee. In 2016, F. W. Cook did not provide any services to us +other than those requested by the Compensation Committee and related to F. W. Cook's engagement as the independent consultant to the Compensation Committee. +Compensation Risk Assessment +Each year, the Compensation Committee and F. W. Cook review and evaluate our compensation policies and practices for all employees to assess to +what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by properly aligning the +interest of our employees with the interests of our stockholders and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material +adverse effect on us. In 2016 and 2017, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a +material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and Senior Vice President—Human Resources, management provides recommendations +to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than himself based on +competitive market data, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing information on historical compensation +levels, employee evaluations and its analysis of comparative industry data, and by interfacing with F. W. Cook. While members of the management team attend Compensation Committee meetings, they are +not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective compensation. The Compensation Committee and the +Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our President and CEO, Executive Vice President +and CFO, and Executive Vice President—Operations and to provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for +those executives, our Human Resources department provides the Compensation Committee and F. W. Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those +executives, including severance arrangements and all benefits provided in connection with termination of employment. The +tally sheets show the amount the executive would receive under various foreseeable circumstances ( e.g. , termination with or without cause; resignation; +and retirement or termination in connection with change in control). +The +Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information +provided to gain additional perspective and as a reference. +38 +Table of Contents +SECTION 6—OTHER COMPENSATION ITEMS +Employment Agreements +The employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, and +certain other key employees, through change of control executive severance agreements. See "Potential Payments upon Termination or Change of Control— Change of +Control Arrangements " for more information about these agreements and potential payments in the event of a termination of employment following a change in control. No excise +tax "gross up" payments are provided. +Clawback Policy +Our Board adopted a formal clawback policy effective as of February 17, 2015. The clawback policy provides that in the event we are +required to prepare an accounting restatement of our financial statements due to any material noncompliance with any financial reporting requirement under applicable securities laws, the Board may, in +its sole discretion, require reimbursement of compensation paid pursuant to our Cash Bonus Plan after January 1, 2015, to any officer of the company that engaged in fraudulent or intentional +illegal misconduct and for whom disclosure was required in any of the Company's filings with the Securities and Exchange Commission that required disclosure pursuant to Item 402(c) of +Regulation S-K and that applied to any portion of the period for which the accounting restatement was required. +Stock Ownership Guidelines +To further align senior management's interests with the interests of our stockholders with respect to long-term growth of stockholder value, +the Compensation Committee has established and the Board has approved equity ownership guidelines for our executives as follows: +Chief Executive Officer +5 times annual base salary +Executive Vice Presidents +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of equity +awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to such executive, unless approved by the Compensation Committee for the Chief Executive Officer or +any Executive Vice President, and by the Chief Executive Officer for all other officers. As of April 4, 2017, all of our NEOs satisfied these guidelines. The Compensation Committee will +continue to review compliance with these guidelines annually, and more often as appropriate. +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of trading +in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to +39 +Table of Contents +specifically +address trading by officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived +to be highest, and generally prohibits our officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, +employees and directors from (a) entering into transactions that "hedge" the value of our stock, (b) holding our securities in margin accounts, (c) pledging our securities to +secure indebtedness, and (d) buying or selling options or derivatives with respect to our securities. +Compensation Committee Report +The Compensation Committee of the Board of Directors of SM Energy Company has reviewed and discussed the disclosures contained under +"Compensation Discussion and Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the +disclosures set forth under the heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on +Form 10-K for the fiscal year ended December 31, 2016. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Stephen +R. Brand, Chair +Larry W. Bickle +Ramiro G. Peru +Julio M. Quintana +40 +Table of Contents +Executive Compensation Tables +This Summary Compensation table sets forth the annual and long-term compensation our NEOs received during each of the last three years. In +addition to salaries, the table reflects RSUs and PSUs granted in 2014, 2015, and 2016 and cash bonuses earned in 2014, 2015, and 2016. Eligible employees participate in our STIP and LTIP as described +more fully in the "Compensation Discussion and Analysis" and disclosed below. +Name and Principal Position +Year +Salary +Stock +Awards (1) +Non-Equity +Incentive +Plan +Compensation (2) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings (3) +All Other +Compensation (4) +Total +Javan D. Ottoson +2016 +$800,000 +$2,600,005 +$720,000 +$294,467 +$122,973 +$4,537,445 +Chief Executive Officer and +2015 +$796,731 +$3,000,014 +$773,000 +$210,255 +$122,185 +$4,902,185 +President (principal executive officer) +2014 +$496,385 +$2,799,996 +$769,103 +$127,536 +$50,949 +$4,243,969 +A. Wade Pursell +2016 +$447,000 +$1,500,010 +$360,813 +$96,009 +$15,900 +$2,419,732 +Executive Vice President and +2015 +$461,769 +$1,624,985 +$403,125 +$61,731 +$15,900 +$2,567,510 +Chief Financial Officer (principal financial officer) +2014 +$432,885 +$1,999,957 +$580,548 +$77,890 +$15,750 +$3,107,030 +Herbert S. Vogel +2016 +$412,000 +$1,500,010 +$304,184 +$80,580 +$72,755 +$2,369,529 +Executive Vice +2015 +$424,616 +$1,624,985 +$329,502 +$64,107 +$82,516 +$2,525,726 +President—Operations +2014 +$374,731 +$814,994 +$484,187 +$49,336 +$44,209 +$1,767,457 +David W. Copeland +2016 +$401,000 +$524,998 +$246,295 +$89,423 +$40,040 +$1,301,756 +Executive Vice President, +2015 +$414,270 +$700,003 +$281,289 +$73,264 +$15,950 +$1,484,776 +General Counsel and Corporate Secretary +2014 +$388,423 +$699,996 +$421,766 +$68,114 +$15,600 +$1,593,899 +Kenneth J. Knott +2016 +$316,000 +$280,013 +$319,338 +$95,595 +$37,051 +$1,047,997 +Senior Vice President—Business Development and Land +(1) The +amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial Accounting +Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated forfeitures related +to service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to Consolidated Financial +Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. PSU awards are subject to market-based performance conditions relating to our total +stockholder return and relative stockholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSU awards reflected in this column are based on +the estimate as of the grant date of the probable outcome of these performance conditions, and those grant date fair values for Messrs. Ottoson, Pursell, Vogel, Copeland and Knott respectively +are $1,950,009, $1,125,002, $1,125,002, $393,752 and $210,010. If instead we assume that the highest level of performance conditions will be achieved, the grant date fair values of those awards as +computed in accordance with FASB ASC Topic 718 for Messrs. Ottoson, Pursell, Vogel, Copeland and Knott respectively are $3,900,018, $2,250,004, $2,250,004, $787,504 and $420,020. +(2) The +amounts in the column represent the bonuses paid in 2017, 2016, and 2015, but earned during 2016, 2015 and 2014 performance periods, respectively, +under the STIP. Mr. Knott participates in the NPP program and $125,257 NPP payments are included in this number. +(3) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our qualified +and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our +41 +Table of Contents +financial +statements. No NEO received preferential or above market earnings on deferred compensation. +(4) Amounts +consist of our respective contributions to our 401(k) Profit Sharing Plan, contribution to our Non-Qualified Deferred Compensation Plan, +payments for financial consulting services and any anniversary gift cards. In 2016, matching contributions to our 401(k) Profit Sharing Plan of $15,900 were provided to each of Messrs. Ottoson, +Pursell, Vogel, Copeland and Knott. In 2016, matching contributions to our Non-Qualified Deferred Compensation Plan of $94,380, $44,490, $24,060 and $9,502 were made to Messrs. Ottoson, Vogel, +Copeland and Knott, respectively. In 2016, financial consulting service benefits of $12,600, $12,365 and $11,649 were provided to Messrs. Ottoson, Vogel and Knott, respectively. +Grants of Plan-Based Awards in 2016 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the qualitative metrics for our 2016 +STIP on February 23, 2016. As discussed above, in 2017, we made the bonus payments associated with the 2016 STIP. In addition, pursuant to our LTIP and in accordance with our Equity Plan, our +Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 20, 2016. We made these grants on July 1, 2016. These grants are summarized in the table below. +Estimated Future +Payouts Under +Non-Equity Incentive +Plan Awards +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (5) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option +Awards (6) +Grant +Date +Name +Target (1) +Maximum (2) +Threshold +Target (3) +Maximum (4) +Javan D. Ottoson +2/23/16 +$800,000 +$2,000,000 +— +— +— +— +— +7/1/16 +— +— +— +— +— +23,148 +$649,996 +7/1/16 +— +— +— +73,419 +146,838 +— +$1,950,009 +A. Wade Pursell +2/23/16 +$402,300 +$2,000,000 +— +— +— +— +— +7/1/16 +— +— +— +— +— +13,355 +$375,008 +7/1/16 +— +— +— +42,357 +84,714 +— +$1,125,002 +Herbert S. Vogel +2/23/16 +$329,600 +$2,000,000 +— +— +— +— +— +7/1/16 +— +— +— +— +— +13,355 +$375,008 +7/1/16 +— +— +— +42,357 +84,714 +— +$1,125,002 +David W. Copeland +2/23/16 +$280,700 +$2,000,000 +— +— +— +— +— +7/1/16 +— +— +— +— +— +4,674 +$131,246 +7/1/16 +— +— +— +14,825 +29,650 +— +$393,752 +Kenneth J. Knott +2/23/16 +$158,000 +$2,000,000 +— +— +— +— +— +7/1/16 +— +— +— +— +— +2,493 +$70,003 +7/1/16 +— +— +— +7,907 +15,814 +— +$210,010 +(1) This +amount represents the salary amount actually paid to each of our NEOs in 2016, multiplied by the applicable STIP target percentage. +(2) This +amount represents the maximum award possible under the stockholder-approved Section 162(m) Cash Bonus Plan; however, as described above in +"Section 4—Elements of Compensation—Short Term Incentive Plan—Design," in general, actual bonuses generally range from zero to two times a participant's +target percentage. +(3) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve +the target performance level established by our Compensation Committee, resulting in an earned percentage of 100%. PSUs represent the right to receive, upon settlement of the PSUs after the completion +of a three-year performance period ending June 30, 2019, a number of shares of our common stock that may be from 0% to 200% of the number of PSUs granted on the award date, depending +42 +Table of Contents +on +the extent to which our performance criteria have been achieved and the extent to which the PSUs have vested. The performance criteria for the PSUs are based on a combination of our TSR for the +performance periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer companies for the performance period. The PSUs will vest on +July 1, 2019. +(4) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve +the maximum performance level established by our Compensation Committee, resulting in an earned percentage of 200%. +(5) This +amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2017, one-third on July 1, 2018, and +one-third on July 1, 2019. Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. The RSUs are not eligible for dividends and +are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement date. +(6) The +grant date fair value of a PSU is calculated using a Geometric Brownian Motion Model, and the aggregate grant date fair value represented in this +column for PSUs is calculated based upon the number of PSUs granted. +43 +Table of Contents +Outstanding Equity Awards at 2016 Year-End +The following table shows outstanding equity awards for our NEOs as of December 31, 2016: +Stock Awards +Equity Incentive Plan +Awards: +Equity Incentive Plan +Awards: +Number of +Shares or +Units of +Stock +That Have +Not Vested +Market Value +of Shares or +Units of +Stock that +Have Not +Vested (1) +Name +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value +of Unearned Shares, +Units or Other Rights +That Have Not +Vested (1) +Javan D. Ottoson +2,775 +(2) +$95,682 +— +$— +— +$— +22,185 +(3) +$764,939 +11,437 +(4) +$394,348 +— +$— +— +$— +49,625 +(5) +$1,711,070 +23,148 +(6) +$798,143 +— +$— +— +$— +73,419 +(7) +$2,531,487 +A. Wade Pursell +1,982 +(2) +$68,339 +— +$— +— +$— +15,846 +(3) +$546,370 +6,195 +(4) +$213,604 +— +$— +— +$— +26,880 +(5) +$926,822 +13,355 +(6) +$460,480 +— +$— +— +$— +42,357 +(7) +$1,460,469 +Herbert S. Vogel +808 +(2) +$27,860 +— +$— +— +$— +6,457 +(3) +$222,637 +6,195 +(4) +$213,604 +— +$— +— +$— +26,880 +(5) +$926,822 +13,355 +(6) +$460,480 +— +$— +— +$— +42,357 +(7) +$1,460,469 +David W. Copeland +694 +(2) +$23,929 +— +$— +— +$— +5,546 +(3) +$191,226 +2,669 +(4) +$92,027 +— +$— +— +$— +11,579 +(5) +$399,244 +4,674 +(6) +$161,160 +— +$— +— +$— +14,825 +(7) +$511,166 +Kenneth J. Knott +341 +(2) +$11,758 +— +$— +— +$— +2,720 +(3) +$93,786 +1,144 +(4) +$39,445 +— +$— +— +$— +4,963 +(5) +$171,124 +2,493 +(6) +$85,959 +— +$— +— +$— +7,907 +(7) +$272,633 +(1) The +market value of RSUs and PSUs that have not vested is calculated using the closing price of $34.48 of our common stock on December 30, +2016. The market value of PSUs is calculated based upon an earned percentage of 100%. +(2) These +RSUs vest 1/3rd on July 1, 2015, 1/3rd on July 1, 2016, and 1/3rd on July 1, 2017. +(3) These +PSUs vest on July 1, 2017. The PSUs are subject to a three-year performance period ending June 30, 2017. The award is reported at +an earned percentage of 100%. +(4) These +RSUs vest 1/3rd on July 1, 2016, 1/3rd on July 1, 2017, and 1/3rd on July 1, 2018. +(5) These +PSUs vest on July 1, 2018. The PSUs are subject to a three-year performance period ending June 30, 2018. The award is reported at +an earned percentage of 100%. +(6) These +RSUs vest 1/3rd on July 1, 2017, 1/3rd on July 1, 2018, and 1/3rd on July 1, 2019. +(7) These +PSUs vest on July 1, 2019. The PSUs are subject to a three-year performance period ending June 30, 2019. The award is reported at +an earned percentage of 100%. +44 +Table of Contents +2016 Stock Vested +Stock Awards +Name +Number of Shares +Acquired on Vesting (1) +Value Realized +on Vesting (2) +Javan D. Ottoson +15,205 +$410,535 +A. Wade Pursell +10,300 +$278,100 +Herbert S. Vogel +5,770 +$155,790 +David W. Copeland +4,266 +$115,182 +Kenneth J. Knott +2,105 +$56,835 +(1) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2016. As discussed above, +each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement of the +PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from 0% to 200% of the number of PSUs, depending on the extent to which we have achieved +our performance goals. +(2) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon the +vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date was +not a normal market trading date, then on the last normal market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation +were $27.00 on June 30, 2016, for the vesting and settlement of the first vesting tranche of the 2015 RSU awards and the vesting and settlement of the second vesting tranche of the 2014 RSU +awards and the vesting and settlement of the third vesting tranche of the 2013 RSU awards, which were all settled on July 1, 2016; and $27.00 on June 30, 2016, for the vesting and +settlement date of July 1, 2016, for the full settlement of the July 1, 2013 PSU awards, which were settled based upon an earned percentage of 20%. +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our employees who +joined SM Energy prior to January 1, 2015, and meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC +limits (the 2016 limit was $265,000 in annual base salary income for certain executive officers with a senior management hierarchy title of at least Vice President). +45 +Table of Contents +The +following table represents the value of the NEOs' pension benefits as of December 31, 2016: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Javan D. Ottoson +Qualified Pension Plan +10 +$345,354 +$— +Non-Qualified SERP Pension Plan +10 +$579,541 +$— +A. Wade Pursell +Qualified Pension Plan +8 +$212,174 +$— +Non-Qualified SERP Pension Plan +8 +$155,632 +$— +Herbert S. Vogel +Qualified Pension Plan +5 +$158,417 +$— +Non-Qualified SERP Pension Plan +5 +$86,871 +$— +David W. Copeland +Qualified Pension Plan +6 +$220,356 +$— +Non-Qualified SERP Pension Plan +6 +$116,458 +$— +Kenneth J. Knott +Qualified Pension Plan +16 +$373,889 +$— +Non-Qualified SERP Pension Plan +16 +$72,133 +$— +Non-qualified Deferred Compensation for 2016 +This Non-qualified Deferred Compensation table sets forth the NEOs participation in the Non-qualified Deferred Compensation Plan. This plan +allows eligible employees to defer part of their salary and annual incentive bonus on a voluntary basis. +Name +Executive +Contributions +in Last FY (1) +Registrant +Contributions in +Last FY (2) +Aggregate +Earnings in +Last FY (3) +Aggregate +Withdrawals in +Last FY +Aggregate +Balance at +Last FYE +Javan D. Ottoson +$94,380 +$94,380 +$20,215 +$— +$444,224 +A. Wade Pursell +$— +$— +$— +$— +$— +Herbert S. Vogel +$44,490 +$44,490 +$11,666 +$— +$245,488 +David W. Copeland +$24,060 +$24,060 +$1,892 +$— +$50,012 +Kenneth J. Knott +$39,593 +$9,502 +$12,619 +$— +$148,906 +(1) The +amounts in this column are also included in the Summary Compensation Table under the Salary column or the Non-Equity Incentive Plan Compensation +column, as applicable. +(2) The +amounts in this column represent the matching contributions. The matching contributions are included in the "All Other Compensation" column of the +Summary Compensation Table. We match deferred compensation up to an amount equal to six percent of base salary plus any STIP cash bonus. +(3) The +earnings reflected in this column represent deemed investment earnings or losses from voluntary deferrals and Company contribution, as applicable. +The Non-qualified Deferred Compensation Plan does not guarantee a return on deferred amounts. +Although +the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from net profits, if any, from oil and gas activity from designated +pools of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific determinable compensation amounts or balances are deferred. The NPP +is described in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts are reflected in the Summary Compensation Table above. +Our +SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated +benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section above. In addition, annual increases in the actuarial value of benefits under the SERP +are +46 +Table of Contents +included +in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +As discussed in "Compensation Discussion and Analysis—Section 6—Other Compensation Items—Employment +Agreements," the employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of Vice President and above, including each of our NEOs, and to +certain other key employees, through change of control executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of control +event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive officers are +entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a change of control of our company (a) without "cause" by our company +or (b) for "good reason" by the officer, each as defined in the agreements. The term "good reason" incorporates the concept of a change in the executive's status, authority, position, offices, +titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or within two and one-half years +thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time frame, or the requirement that an executive relocate his base of +employment outside a 25-mile radius from the executive's location at that time. Severance payments equal to (a) all compensation accrued but not paid prior to the termination; (b) a lump +sum amount equal to 200% of the executive's base salary and target STIP cash bonus; (c) a lump sum amount equal to the executive's pro rata target STIP cash bonus for the year in which +employment is terminated; and (d) a lump sum amount equal to 24 multiplied by our then monthly contribution for medical, dental, and vision insurance on behalf of the executive and his or her +family. In the event the executive is subject to golden parachute excise taxes under Section 4999 of the IRC, severance benefits +may be reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax "gross-up" payments are provided. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company, or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention incentive benefiting our company and our stockholders without creating an unreasonable impediment to a potential acquirer of our company. The severance payment +amounts under these agreements for our executives are comparable to payment amounts offered under similar +47 +Table of Contents +arrangements +by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits protection during a reasonable period of time to allow the executive +to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2016, under the change of control executive severance agreements, the total +severance payments for two years base salary and STI target, the pro rata target STIP cash bonus for 2016 and the estimated lump sum value of medical, dental and vision benefits for two years for each +of the NEOs who were employed by us as of December 31, 2016, would be as follows: +Name +Severance +Payments +Estimated +Value of +Benefits for +Two Years (1) +Javan D. Ottoson +$4,000,000 +$29,952 +A. Wade Pursell +$2,100,900 +$52,332 +Herbert S. Vogel +$1,812,800 +$29,952 +David W. Copeland +$1,644,100 +$28,466 +Kenneth J. Knott +$1,106,000 +$52,332 +(1) The +change of control executive severance agreements provides a lump sum payment equal to 24 multiplied by the Company's then monthly contribution for +medical, dental and vision insurance on behalf of the Executive and his or her family. +Equity Compensation Plans +Options and shares of our common stock are authorized for grant or issuance pursuant to our Equity Plan as compensation to eligible employees, +consultants, and members of the Board of Directors. Our stockholders have approved this plan. The following table is a summary of the shares of common stock authorized for issuance under the equity +compensation plans as of December 31, 2016: +(a) +(b) +(c) +Plan category +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants, and +rights +Weighted-average +exercise price of +outstanding +options, +warrants, +and rights +Number of securities +remaining available for +future issuance under +equity compensation +plans (excluding +securities reflected +in column (a)) +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +— +— +Restricted stock (1)(3) +604,116 +N/A +Performance share units (1)(3)(4) +878,844 +N/A +Total for Equity Incentive Compensation Plan +1,482,960 +— +5,531,614 +Employee Stock Purchase Plan (2) +— +— +731,572 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +1,482,960 +— +6,263,186 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified stock +options, incentive stock options, stock appreciation rights, performance shares, performance units, and stock-based awards to key employees, consultants, and members of our Board or any of our +affiliates. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the +48 +Table of Contents +St. Mary +Land & Exploration Company Incentive Stock Option Plan, the SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan +(collectively referred to as the "Predecessor Plans"). All grants of equity are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award +under a Predecessor Plan immediately prior to the effective date of the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. +Our Board approved amendments to the Equity Plan in 2009, 2010, 2013 and 2016, and each amended plan was approved by our stockholders at the respective annual stockholders' meetings. The number of +shares underlying the awards granted in 2016, 2015 and 2014 under the Equity Plan were 918,509, 714,949, and 464,641, respectively. +(2) Under +the SM Energy Company ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to 15 percent of +their eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six-month offering period, and +shares issued under the ESPP on or after December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the IRC. Shares issued under the ESPP +totaled 218,135, 197,214, and 83,136 in 2016, 2015 and 2014, respectively. +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in order to +provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $37.39 and $45.53, +respectively. +(4) The +number of awards vested assumes an earned percentage of 100%. The final number of shares issued may vary depending on the ending three-year earned +percentage, which ranges from 0% to 200%. +49 +Table of Contents +DIRECTOR COMPENSATION +General +The annual service period for our directors is the period from one stockholders' annual meeting to the next. In May 2016, F. W. +Cook conducted an analysis of compensation for members of the boards of directors of our peer companies versus the compensation for members of our Board. F. W. Cook's analysis generally +revealed that our director compensation approximated the median of the peer group. Based on F. W. Cook's analysis, the Compensation Committee elected to recommend to our Board that no +changes be made to the director compensation package for the 2016-2017 service period, which our Board approved on May 25, 2016. Director compensation is primarily paid in the form of stock +grants. Mr. Ottoson, our President and Chief Executive Officer and +only employee director, does not receive additional compensation for serving on the Board or any committee of the Board. +The +annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education +programs: +• Cash Retainer —A $90,000 retainer (in lieu of Board and committee meeting attendance +fees) payable at the individual director's option, either entirely in cash or shares of our common stock. Dr. Brand, Mr. Leiker, Ms. Robeson and Mr. Sullivan each elected +to have their 2016 retainers paid in shares of our common stock, which resulted in a grant on May 25, 2016, of 2,823 shares of our common stock to each under our Equity Plan. In the event any +director attends in excess of 30 Board and committee meetings in the aggregate during the period from May 24, 2016, through May 23, 2017, such director shall receive $1,500 per meeting +for each meeting in excess of 30. +• Equity Retainer —A grant of shares of our common stock with a value of +$180,000—resulting in a grant on May 25, 2016, to each non-employee director of 5,645 shares of our common stock issued under our Equity Plan. These shares and any shares issued +pursuant to any retainer vested on December 31, 2016. The related compensation expense that we record is the fair value of the share grant as calculated under the valuation provisions required +by FASB ASC Topic 718. +We +pay the chairs of the following committees the specified cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of +their respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +We +paid Mr. Sullivan a retainer for his service as non-executive Chairman of the Board of $85,000 for the 2016-2017 annual service period. The retainer was in the form of shares +of our common stock on May 25, 2016, which resulted in a grant of 2,666 shares. The retainer was in addition to his basic non-employee director compensation. +50 +Table of Contents +We +maintain a matching charitable gift program to encourage financial support for charitable organizations that are exempt from federal income taxation in which employees and our +non-management directors may participate. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a percentage of the average +of our prior three years' income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Mr. Sullivan and Ms. Robeson +participated in this program during 2016, and we matched a total of $7,000 in non-employee director contributions under this program. We may suspend, change, revoke or terminate the program at any +time. +Our +directors are eligible to participate in our company-wide health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for non-employee directors of five times the annual cash retainer amount. New directors are allowed time to meet +this guideline and are not required to acquire shares in the open market for this purpose. +The +following table sets forth the annual and long-term compensation paid during 2016 to our non-employee directors. The stock based component of the compensation reflects the grant +date fair value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +2016 Director Compensation +Name +Fees +Earned +or Paid in +Cash +Stock +Awards (1)(2)(3) +Option +Awards (4) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (5) +Total +Larry W. Bickle +$100,000 +$180,019 +$— +$— +$— +$— +$280,019 +Stephen R. Brand +$15,000 +$270,044 +$— +$— +$— +$— +$285,044 +Loren M. Leiker +$— +$270,044 +$— +$— +$— +$— +$270,044 +Ramiro G. Peru +$90,000 +$180,019 +$— +$— +$— +$— +$270,019 +Julio M. Quintana +$90,000 +$180,019 +$— +$— +$— +$— +$270,019 +Rose M. Robeson +$20,000 +$270,044 +$— +$— +$— +$2,000 +$292,044 +William D. Sullivan +$— +$355,063 +$— +$— +$— +$5,000 +$360,063 +(1) We +issued to each of our non-employee directors their equity retainer of 5,645 shares of our common stock on May 25, 2016, after such +director's election to the Board on May 24, 2016. We issued to Mr. Sullivan an additional 2,666 shares of our common stock on May 25, 2016, for serving as the Non-Executive +Chairman of the Board. Dr. Brand, Mr. Leiker, Ms. Robeson and Mr. Sullivan elected to receive an additional 2,823 shares of our common stock on May 25, 2016, in lieu +of their respective $90,000 annual cash retainers. These stock awards are for the annual service period from May 24, 2016, through May 23, 2017. The shares fully vested on +December 31, 2016. The value of the stock awards represents the grant date fair value. +(2) The +grant date fair value of each share of our common stock issued to non-employee directors over their past two years of service to us is set forth +in the following table and is computed in accordance with FASB ASC Topic 718, based on the grant date fair value. There were no forfeitures by directors during fiscal 2016. +51 +Table of Contents +Grant Date +Shares +Value +Grantee +5/25/2016 +5,645 +$180,019 +Bickle, Peru, Quintana +5/25/2016 +8,468 +$270,044 +Brand, Leiker, Robeson +5/25/2016 +11,134 +$355,063 +Sullivan +5/20/2015 +3,308 +$133,379 +Bickle +5/20/2015 +4,962 +$207,759 +Brand +5/20/2015 +4,962 +$200,068 +Gardiner, Quintana +5/20/2015 +6,524 +$263,048 +Sullivan +5/20/2015 +4,962 +$212,572 +Leiker, Robeson +5/20/2015 +3,308 +$141,715 +Peru +(3) As +of December 31, 2016, the restrictions on the shares granted to our non-employee directors during 2016 expired. Accordingly, our +non-employee directors held no shares of restricted stock as of that date. +(4) For +the year ended December 31, 2016, no stock options were issued to directors, nor have any stock options been issued to the directors since +December 2004. As of December 31, 2016, the non-employee directors do not hold any outstanding stock options. +(5) The +amounts in this column represent matching charitable contributions made on the behalf of Ms. Robeson and Mr. Sullivan for the year +2016 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS +None +of the directors who served on the Compensation Committee during fiscal year 2016 has ever served as one of our officers or employees. During fiscal year 2016, +there were no Compensation Committee interlocks. +52 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Our +directors are elected annually. At the Annual Meeting, eight directors are to be elected to serve for one year or until their successors are elected and qualified. +Based on the recommendations of the NCG Committee, the Board has nominated the following individuals for election as directors to serve until the 2018 Annual Meeting of Stockholders and until their +successors have been elected and qualified, or until their earlier resignation or removal: +Larry W. Bickle +Ramiro G. Peru +Stephen R. Brand +Julio M. Quintana +Loren M. Leiker +Rose M. Robeson +Javan D. Ottoson +William D. Sullivan +Each +nominee is currently a director and all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy +Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if such a situation arises prior to the Annual +Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of our oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, +public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance +Guidelines. Among other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, +operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that +led the NCG Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our +long-term strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, +whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +Set +forth below is a summary of certain characteristics of our director nominees as well as certain biographical information, as of the filing date of this Proxy Statement, for each +nominee for election as director, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships +among any of our directors or executive officers. +53 +Table of Contents +Director Nominee Summary +All of our non-management director nominees +are independent +Our director nominees provide an effective balance of +fresh perspective and experience with the Company +Director Nominees +Larry W. Bickle +Director since 1995 +Age: 71 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, +he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, +Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also served on the Board of Directors of UNS Energy Company (NYSE: UNS) +and currently serves as a member of the Board of Managers of Quantum Natural Gas Storage, LLC. +Key Attributes, Experience and +Skills: +Mr. Bickle brings to the Board over 33 years of experience in various aspects of the oil and +gas midstream industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Mr. Bickle also brings +specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operation, and extensive experience with both state and federal +regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as the basis for Mr. Bickle's designation as an audit committee financial expert and +provides a strong foundation for his service on the Audit Committee. Mr. Bickle's previous service on other public company boards enhances his strong corporate governance background. +54 +Table of Contents +Stephen R. Brand +Director since 2011 +Age: 67 +Position, Principal Occupation and Business Experience: +Dr. Brand is currently Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for +the oil and gas industry. Dr. Brand is also a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the E&P sector for solving subsurface problems in complex geologic formations. He is also +on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution-as-a-service platform to assess and manage data that can be used in a predictive role. At the end of 2010, Dr. Brand retired as +Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in October 2007, Dr. Brand served as +Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Dr. Brand started his career in 1976 as a geologist with Phillips Petroleum Company and thereafter served in various roles of increasing responsibility +with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key +Attributes, Experience and Skills: +Dr. Brand has over 39 years of experience in the energy industry, +including extensive experience in the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" stream technologies. He also has valuable human resources management skills +and experiences, which provide a strong foundation for his role as Chair of the Compensation Committee and are significant in the oversight of our compensation management functions. +55 +Table of Contents +Loren M. Leiker +Director since 2012 +Age: 63 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in +the United States. Mr. Leiker served EOG as Senior Executive Vice President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil +and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of +Vermilion Energy Inc. (VET: Toronto) since December 2012, a director of Navitas Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March +2015. +Key Attributes, Experience and Skills: +Mr. Leiker brings to the Board over 39 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience +in exploration activities similar to ours, and a deep understanding of upstream operations and asset management technologies, which provide a strong foundation for his service on the Audit Committee and are important in the oversight of our financial +reporting and financial and operational risk management functions. Mr. Leiker's service on other public company boards enhances his strong corporate governance background. +Javan D. Ottoson +Director since 2014 +Age: 58 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the Company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed President of the company in +October 2012 and Chief Executive Officer of the company in February 2015. Mr. Ottoson has been in the energy industry for over 34 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice +President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. +Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and +Development, ARCO Permian. +Key Attributes, Experience and Skills: +The Board of Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on the Board because he is a proven leader with the +strong technical skills and leadership vision necessary to create top quartile returns for our stockholders. Mr. Ottoson's experiences and familiarity with our operations are critical to our success as we continue to execute on our strategic +transition toward the acquisition and development of top tier assets. +56 +Table of Contents +Ramiro G. Peru +Director since 2014 +Age: 61 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 2004 to 2007 (and its Senior Vice President and Chief Financial +Officer from 1999-2004). He joined Phelps Dodge in 1979 and held various finance and accounting positions prior to his appointment as Chief Financial Officer. Mr. Peru currently serves on the Board of Directors of Anthem, Inc. (NYSE: ANTM) +and of UNS Energy Corporation, a subsidiary of Fortis, Inc. +Key Attributes, Experience and Skills: +Mr. Peru brings to the Board significant financial expertise, much of which he obtained through his over 30 years of +experience in the mining industry. Mr. Peru's service as chairman of the audit committee of another publicly traded company enhances his significant financial management and accounting oversight experience. As a result of his executive level +experience, Mr. Peru also has extensive human resources management skills, which are an important foundation for his service on the Compensation Committee. Mr. Peru's service on other public company boards enhances his strong corporate +governance background. +Julio M. Quintana +Director since 2006 +Age: 57 +Position, Principal Occupation and Business Experience: +Mr. Quintana currently serves on the Board of Directors of Newmont Mining Company (NYSE: NEM) and of Basic Energy Services (NYSE:BAS). Mr. Quintana served as the +President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January 2015, and served on Tesco's Board of Directors from September 2004 to May 2015. Prior to his appointment as President and Chief +Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer of Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for +Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana brings to the Board over 36 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of +drilling and asset management technologies, and broad human resources management skills and experience, which provide a strong foundation for his role on the Compensation Committee and are important in the oversight of our financial reporting and +financial and operational risk management functions. Mr. Quintana's service on other public company boards enhances his strong corporate governance background. +57 +Table of Contents +Rose M. Robeson +Director since 2014 +Age: 56 +Position, Principal Occupation and Business Experience: +Ms. Robeson served as Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners LP, from +2012 until her retirement in 2014. Ms. Robeson also served as Group Vice President and Chief Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream LLC, Ms. Robeson was the Vice +President and Treasurer. Prior to joining DCP Midstream, LLC, Ms. Robeson was with Kinder Morgan, Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson has +served as a director of American Midstream GP, LLC, the general partner of American Midstream Partners, LP (NYSE: AMID) from June 1, 2014, until her resignation on June 14, 2016, and has served as a director of Tesco +Corporation (NASDAQ:TESCO) since October 29, 2015. +Key Attributes, Experience and Skills: +Ms. Robeson brings to the Board over 28 years of broad experience in various aspects of the oil and gas industry, +including exploration and production, midstream and refining, and marketing. She also has significant financial management, risk management and accounting oversight experience, which provides a strong foundation for her role as Chair of the Audit +Committee and is important in the oversight of our financial reporting and financial risk management. Ms. Robeson's service on other public company boards enhances her strong corporate governance background. +58 +Table of Contents +William D. Sullivan +Director since 2004 +Age: 60 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, +for over 20 years. Mr. Sullivan retired from Anadarko in August 2003. Since March 2006, Mr. Sullivan has been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a +limited partnership focused on the acquisition and development of producing oil and natural gas properties. From February 2007 until May 2015, Mr. Sullivan was a director of Targa Resources GP LLC, which is the general partner of Targa +Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. +Mr. Sullivan has been a director since August 2007, and Non-executive Chairman of the Board since May 2015, of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services company. Since June 2011, Mr. Sullivan has been a director and +member of the audit committee of CSI Compressco Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded limited partnership providing wellhead compression-based production enhancement +services. CSI Compressco GP, Inc. is a minority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was +Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International Operations from 1998 to +2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key +Attributes, Experience and Skills: +Mr. Sullivan brings to the Board over 37 years of strong and broad +experience in the oil and gas industry, with particular expertise in the exploration and production sector of the industry. His experience as an exploration and production senior executive enables him to contribute significant independent insights on +our business and operations, and the economic environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in the oversight of our compensation management functions, and his +service on other public company boards of directors provides a strong corporate governance background. These skills and experiences provide a strong foundation for Mr. Sullivan's role as Chairman of the Board. +Recommendation of the Board: +The Board recommends voting " FOR " the election of all the nominees listed above. +59 +Table of Contents +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR +2017 +Our +stockholders are being asked to ratify the appointment by the Audit Committee of Ernst & Young LLP ("EY") as our independent registered public +accounting firm for 2017. EY has served as our independent registered public accounting firm since 2013, and the Audit Committee plans to engage EY to perform the audit of our financial statements as +of and for the year ending December 31, 2017. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of EY is not required by law or our organizational +documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public +accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do not ratify the appointment of EY, the Audit Committee will consider whether to engage another +independent registered public accounting firm, but will not be obligated to do so. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent +registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. +A +representative of EY is expected to be present at the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +Recommendation of the Board : The Board recommends voting " FOR " Proposal 2. +60 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our +stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this Proxy +Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the Board or the Compensation Committee, or require +the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the outcome of the vote when considering future +executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed in this Proxy Statement, we will consider +our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" section above, our executive compensation programs are designed to provide a competitive level +of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. +In +order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named executive officers is +allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby "at-risk"). In addition, as an executive officer's +responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed "at-risk" increases in relation to base salary. Furthermore, our named +executive officers' targeted total direct compensation (base salary plus target cash bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more detail under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the +key drivers of long-term stockholder value creation. Our LTIP also compensates performance based upon absolute "total stockholder return," as well as total stockholder return compared to our peers. We +believe that we have achieved our goal for at least the last three years. As you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which more +thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these +policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. In +addition, the fact that we have received the support of at least 98% of votes cast in the last four advisory votes on executive compensation indicates that our stockholders strongly support our +compensation philosophy. +In +light of these circumstances, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2017 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the "Compensation +Discussion and Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +Recommendation of the Board : The Board recommends voting " FOR " Proposal 3. +61 +Table of Contents +PROPOSAL 4—ADVISORY VOTE ON THE FREQUENCY OF EXECUTIVE COMPENSATION ADVISORY VOTES +In +accordance with Section 14A of the Exchange Act, we are asking stockholders to vote on whether they would prefer future advisory votes on executive +compensation to occur every year, every two years or every three years. After careful consideration of the frequency alternatives, the Board of Directors believes that conducting an advisory vote on +executive compensation every year is appropriate for the company and its stockholders at this time. We have conducted an advisory vote on executive compensation on an annual basis since 2011, the year +of the last stockholder advisory vote on the frequency of executive compensation advisory votes. +You +may cast your vote on your preferred voting frequency by choosing one of the following options—one year, two years, three years or abstain—on the proxy card +when you vote in response to the resolution set forth below: +RESOLVED, +that the option of once every one year, two years, or three years that receives the highest number of votes cast on this resolution will be determined to be the preferred frequency with +which the company is to hold a stockholder vote to approve, on an advisory basis, the compensation of the company's named executive officers set forth in the Compensation Discussion and Analysis, the +Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement for the Company's 2017 Annual Meeting of Stockholders. +The +Board and the Compensation Committee will review and consider the vote when making future determinations as to the frequency of the advisory "say-on-pay" vote. However, because this +advisory vote on frequency is non-binding, the Board may decide that it is in the company's and its stockholders' best interests to hold an advisory vote on executive compensation more or less +frequently than the option selected by stockholders. +Recommendation of the Board : The Board recommends voting " ONE +YEAR " on +Proposal 4. +62 +Table of Contents +PROPOSAL 5—APPROVAL OF AMENDMENT OF OUR EMPLOYEE STOCK PURCHASE PLAN +General +The purpose of our existing Employee Stock Purchase Plan (the "ESPP") is to encourage employee stock ownership, thus aligning employee +interests with those of our stockholders, and to enhance the ability of the company to attract, retain and motivate qualified employees. We believe that the ESPP offers a convenient means for our +employees who might not otherwise own our common stock to purchase shares. The ESPP, which is qualified as an "employee stock purchase plan" under Section 423 of the IRC and the related +regulations, currently covers an aggregate of 2,000,000 +shares of our common stock and provides that no new purchase period may begin after July 1, 2017. The Compensation Committee recommended and the Board approved on April 6, 2017, subject +to approval by our stockholders at the annual meeting, that the ESPP be amended and restated to increase the number of shares that may be issued under the ESPP by 1,268,428 (to 2,000,000 shares +available for issuance) and to permit new purchase periods to begin through July 1, 2028. +The +summary below of the material terms of the ESPP is qualified in its entirety by reference to the text of the ESPP as proposed to be amended and restated, which is attached as +Annex A to this Proxy Statement. +Shares Subject to the ESPP +As of February 28, 2017, 731,572 shares of our common stock remained for issuance under the ESPP. If the amendment and restatement of +the ESPP is approved, 2,000,000 shares will be available for issuance in the future under the ESPP. If any purchase right under the ESPP terminates, is cancelled or expires without having been +exercised in full, the underlying shares that were not purchased will again be available under the ESPP. To prevent dilution or enlargement of the rights of participants under the ESPP, appropriate +adjustments will be made if any change is made to our outstanding common stock by reason of any merger, reorganization, consolidation, recapitalization, dividend or distribution, stock split, reverse +stock split, spin-off or similar transaction or other change in corporate structure affecting our common stock or its value. +ESPP Participants +As defined in the ESPP, all employees of the company and its subsidiaries are eligible to participate in the ESPP unless after the grant of +purchase rights under the ESPP the employee would own common stock equal to or exceeding 5% of the total combined voting power or value of all outstanding capital stock of the company (as calculated +under the attribution rules in the IRC). Participation in the ESPP is voluntary and is dependent upon each eligible employee's election to participate and his or her determination, subject to the +ESPP's provisions, as to the desired level of participation. As of December 31, 2016, approximately 98% of our employees are eligible to participate in the ESPP and approximately 63% were +participating. +Purchases Under the ESPP +Our Board is responsible for administering the ESPP and has broad power to make determinations under the ESPP, to interpret the terms of the +ESPP and to establish rules and +63 +Table of Contents +regulations +for its administration. The purchase periods under the plan begin on January 1 and July 1 of each year and terminate on June 30 and December 31, respectively. +The purchase price at which shares may be purchased at the end of any purchase period is equal to the 85% of the lesser of the per share price of our common stock at either the first or last day of +the applicable purchase period. +Prior +to the first day of each purchase period, each participant makes an election to participate during the purchase period. At the end of the purchase period, the participant receives +a number of shares, determined on the last day of the purchase period, equal to the payroll deductions credited during the purchase period divided by the purchase price described in the immediately +preceding paragraph. A participant may not purchase shares with a fair market value greater than $25,000 under the ESPP in any calendar year. +Participants +may purchase shares only by submitting an election form during the election period prior to the beginning of each purchase period, stating the participant's election to +have after-tax payroll deductions made for the purpose of participating in the ESPP. After initial enrollment in the ESPP, payroll deductions continue from purchase period to purchase period unless +the participant makes another election to terminate his or her payroll deductions, terminates his or her employment with the Company or becomes ineligible to participate in the ESPP. The amounts +deducted are credited to the participant's account under the ESPP until the purchase date. All amounts credited to a terminated employee's account will be returned to such employee. We do not pay +interest on the deducted amounts. +In +the event of a change in control, the company will have the right to terminate the offering and related purchase period as of such date, and, if so terminated, the payroll +dedications credited to each participant will be returned. A change in control will occur if any person or group becomes a beneficial owner of more than 50% of the total fair market value or total +voting power of the common stock or acquires all assets of the company. If the company does not terminate the offering, the purchase period will be deemed to end on the day immediately prior to the +effective date of the change of control. +Amendment of the ESPP +The Board may amend or terminate the ESPP without further action on the part of the stockholders, except where stockholder approval is required +by applicable law or regulation. No amendment or termination will adversely affect any right to purchase shares that has been granted under the ESPP without the consent of the participant. +United States Federal Income Tax Considerations +The following discussion of certain of the U.S. federal income tax consequences of awards under the ESPP is based on current U.S. federal tax +laws and regulations and does not purport to be a complete discussion. This description may differ from the actual tax consequences incurred by any individual recipient of an award. Moreover, existing +law is subject to change by new legislation, by new regulations, by administrative pronouncements and by court decisions or by new or clarified interpretations or applications of existing laws, +regulations, administrative pronouncements and court decisions. Any such change may affect the U.S. federal income tax consequences described below. The following summary of the U.S. federal income +tax consequences in respect of the ESPP is for general information only. Interested parties should consult their own tax advisors as to specific tax consequences, including the application and effect +of foreign, state and local laws. +64 +Table of Contents +The +ESPP is intended to be an "employee stock purchase plan" as defined in Section 423 of the IRC, under which neither the grant nor the exercise of rights to acquire common +stock under the ESPP is taxable to the participant or gives rise to a deduction for the company. Amounts deducted from a participant's compensation to purchase shares under the ESPP are taxable to the +participant in the year in which the amounts would otherwise have been received. +If +a participant sells the shares acquired under the ESPP more than two years after the beginning of the applicable purchase period and one year from the purchase date, the participant +will recognize as ordinary income the lesser of the amount by which the fair market value of the shares when purchased exceeds the purchase price (i.e., the discount below fair market value) or +the amount, if any, by which the fair market value of the shares at the time of the sale exceeds the purchase price. The participant's tax basis in the purchased shares will increase by the amount +recognized as ordinary income and any further gain recognized on the sale will be treated as capital gain. The company will not be entitled to a deduction with respect to that sale. +If +the participant sells the shares acquired under the ESPP within two years after the beginning of the applicable purchase period or within one year of the purchase date, the +participant will recognize ordinary income in the year of the sale, the amount of which generally will be the excess of the fair market value of the shares on the date the shares were purchased +(i.e., the end of the applicable purchase period) over the purchase price for those shares. The participant's tax basis will increase by the amount recognized as ordinary income and any further +gain or loss realized upon the sale will be capital gain or loss. To the extent that an employee recognizes ordinary income, the company will be entitled to a corresponding deduction, provided that, +among other things, (i) the income meets the test or reasonableness, is an ordinary and necessary business expense and is not an "excess parachute payment" within the meaning of +Section 280G of the IRC and is not disallowed by the $1 million limitation under Section 162(m) of the IRC and (ii) any applicable reporting obligations are satisfied. +Recommendation of the Board : The Board recommends voting " FOR " Proposal 5. +65 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The +Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its oversight responsibilities with respect to +(a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and +regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, (c) the performance of SM Energy +Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2016, was responsible for performing an independent audit of SM +Energy Company's financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these +processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial statements of SM Energy Company for the year ended December 31, 2016. The Audit Committee also discussed with the independent registered public accounting firm the matters required to +be discussed by Auditing Standards No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee received the +written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent +registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that +firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be included +in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2016. +Respectfully +submitted by the Audit Committee of the Board of Directors, +Rose +M. Robeson, Chair +Larry W. Bickle +Loren M. Leiker +Ramiro G. Peru +66 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the knowledge of management, neither EY nor any of its members had any direct or material indirect financial interest in our company or any connection with our +company in any capacity other than as our independent registered public accounting firm for the years ended December 31, 2016, and 2015. +We +paid the following fees for the audit of the consolidated financial statements and for other services provided in the years ended December 31, 2016, and 2015. All services and +fees, including tax service fees, were pre-approved by the Audit Committee. +2016 +2015 +Audit Fees (1) +$1,272,200 +$994,585 +Audit Related Fees +— +— +Tax Fees (2) +15,000 +17,500 +All Other Fees +— +— +Total Fees +$1,287,200 +$1,012,085 +(1) Includes +reviews of registration statements and related consents and comfort letters as well as audit services related to oil and gas property +acquisitions and divestitures activity. +(2) Includes +basic compliance services and assistance with technical research. +The +Audit Committee concluded that the provision of the non-audit services, such as tax services, was compatible with maintaining EY's independence. +67 +Table of Contents +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The +charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the independent +registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. Such pre-approval requirement for non-audit +services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's policy that, +prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the +independent registered public accounting firm (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the +independent registered public accounting firm are monitored by financial management of our company and reported to the Audit Committee; (c) any services proposed to be provided by the +independent registered public accounting firm and the related fees that have not been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in +advance of any work performed; and (d) incremental fees for previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit +Committee. +68 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS +Pursuant +to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy materials and for presentation at the +2018 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be eligible for inclusion in our proxy materials, +stockholder proposals must be received by our Corporate Secretary no later than December 14, 2017. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to the Board or a proposal +of business to be properly brought before the 2018 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before +the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for +election to the Board or a proposal of business for the 2018 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the +120 th day prior to the first anniversary of the date of the 2017 Annual Meeting nor later than the close of business on the 90 th day prior to the +first anniversary of the 2017 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be considered at the 2018 Annual Meeting of +Stockholders, it should be properly submitted to our Corporate Secretary no earlier than January 23, 2018, and no later than February 22, 2018. If the date of our 2018 Annual Meeting of +Stockholders changes by more than 30 days before or after May 23, 2018, then stockholder nominations and proposals must be received not earlier than the close of business on the +120 th day prior to the date of the 2018 Annual Meeting of Stockholders and not later than the close of business on the later of the 90 th day prior to the date +of the 2018 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2018 Annual Meeting of Stockholders is less than 100 days prior to the date of the meeting, +the 10th day following the day on which public announcement of the date of the 2018 Annual Meeting of Stockholders is first made by us. For additional information about stockholder nominations +and proposals, see "Corporate Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly presented by a +stockholder at the 2018 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the proxy statement +discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 27, 2018, and the +stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 27, 2018, and the matter nonetheless is permitted to be +presented at the 2018 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter in the proxy +statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above +and other applicable requirements. +69 +Table of Contents +2016 ANNUAL REPORT +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, with the SEC. Our Annual Report is being made available to our +stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material. It is available free of charge at the SEC's web site at www.sec.gov . Upon written request +by a stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial statements and +financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in +furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +70 +Table of Contents +OTHER MATTERS +Management +does not know of any matters to be brought before the Annual Meeting other than the election of directors, the ratification of the appointment by the Audit +Committee of Ernst & Young LLP as our independent registered public accounting firm for 2017, the advisory vote to approve the compensation of our named executive officers, the advisory +vote on the frequency of advisory votes regarding the compensation of our named executive officers, and the approval of the amendment of our Employee Stock Purchase Plan. If any other matters not +mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote +the proxy in accordance with their best judgment on those matters. +Our +website at www.sm-energy.com includes much of this information, along with other general information about our operations, community activities and stakeholder relations. Any +remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at ir@sm-energy.com or our External Affairs Department at +externalaffairs@sm-energy.com. +Whether +or not you intend to be present at the Annual Meeting, we urge you to submit your proxy promptly. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and +Corporate Secretary +April 13, +2017 +71 +Table of Contents +ANNEX A +SM ENERGY COMPANY +AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN +APRIL 6, 2017 +ARTICLE I +ESTABLISHMENT AND PURPOSE +1.1 Establishment . SM Energy Company, a Delaware corporation (the +" Company "), has established this employee stock purchase plan for employees of the Company or any Subsidiary Corporation (defined below), who are +providing material services to the Company, which shall be known as the SM ENERGY COMPANY EMPLOYEE STOCK PURCHASE PLAN (the " Plan "). The Plan is +intended to qualify as an employee stock purchase plan, as defined in Code Section 423. +1.2 Purpose . The purpose of the Plan is to enhance stockholder value by attracting, retaining and motivating +employees of the Company and of any Subsidiary Corporation by providing them with a means to acquire a proprietary interest in the Company's success. +ARTICLE II +DEFINITIONS +2.1 Account . " Account " shall mean the account maintained by the +Plan Administrator consisting of payroll deductions with respect to such Participant as adjusted for amounts used to purchase Stock and distributions to the Participant. +2.2 Authorization . " Authorization " is defined in +Section 3.4. +2.3 Base Pay . " Base Pay " shall mean regular straight-time +earnings excluding payments for overtime, shift premium, bonuses and other special payments, commissions and other incentive payments and as further defined in Section 8.1. +2.4 Board . " Board " shall mean the Board of Directors of the +Company. +2.5 Code . " Code " shall mean the Internal Revenue Code of 1986, +as amended. +2.6 Effective Date . " Effective Date " shall mean April 6, +2017, which is the date as of which this Plan is adopted by the Board, subject to obtaining shareholder approval within 12 months before or after such date. +The +Plan is an amendment and restatement of an Employee Stock Purchase Plan originally adopted on September 18, 1997, by the Board of Directors of SM Energy Company, then named +St. Mary Land & Exploration Company, which was then approved by the Company's stockholders at the Company's 1998 annual meeting of stockholders. The original plan was subsequently +amended by the Board of Directors of the Company on February 27, 2001, February 18, 2005, September 25, 2009, December 30, 2009, July 30, 2010, and March 31, +2011. +The +last Offering under the original plan commenced on January 1, 2017. +A-1 +Table of Contents +2.7 Employee . " Employee " shall mean any person who is +customarily employed on a full-time or part-time basis by the Company or a Subsidiary Corporation and is regularly scheduled to work more than 20 hours per week. +2.8 Offering . " Offering " shall mean a semi-annual offering of +the Company's Stock as further described in Section 6.1. +2.9 Offering Commencement Date and Offering Termination Date . " Offering Commencement +Date " and " Offering Termination Date " are defined in Section 6.1. +2.10 Offering Period . " Offering Period " is defined in +Section 6.1. +2.11 Option . " Option " shall mean a Participant's right to +purchase Stock of the Company as of each Offering Termination Date for each Offering with the accumulated payroll deductions in the Participant's Account. +2.12 Participant . " Participant " shall mean an Employee who +becomes a Participant by completing an authorization for payroll deduction under Section 3.4. +2.13 Plan Administrator . " Plan Administrator " shall mean such +person as may be designated from time to time by the Board of the Company. +2.14 Stock . " Stock " shall mean shares of the Company's common +stock subject to this Plan. +2.15 Subsidiary Corporation . " Subsidiary Corporation " shall +mean any present or future corporation, which +(i) would +be a "subsidiary corporation" of SM Energy Company as that term is defined in Section 424 of the Code and +(ii) is +designated by the Committee as a participating subsidiary corporation whose employees may become Participants in the Plan. +ARTICLE III +ELIGIBILITY AND PARTICIPATION +3.1 Initial Eligibility . Any Employee shall be eligible to participate in Offerings under the Plan that +commence on or after the first Offering Commencement Date occurring after the Employee's commencement of employment with the Company or a Subsidiary Corporation. +3.2 Leave of Absence . For purposes of participation in the Plan, the employment relationship shall be treated +as continuing intact while the individual is on military leave, sick leave or other leave of absence approved by the Company or a Subsidiary Corporation that meets the requirements of Treasury +Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three months, or such other period of time specified in Treasury Regulation Section 1.421-1(h)(2), and the +individual's right to re-employment is not guaranteed by statute or contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three-month +period, or such other period specified in Treasury Regulation Section 1.421-1(h)(2). +A-2 +Table of Contents +3.3 Restrictions on Participation . Notwithstanding any provisions of the Plan to the contrary, no Employee +shall be granted an Option, +(a) if, +immediately after the grant, such Employee would own Stock or hold outstanding Options to purchase Stock possessing 5% or more of the total combined voting power or +value of all classes of stock of the Company (for purposes of this paragraph, the rules of Section 424(d) of the Code shall apply in determining stock ownership of any Employee); +(b) which +permits his or her rights to purchase Stock under all employee stock purchase plans of the Company to accrue at a rate that exceeds $25,000 in fair market value +of the Stock (determined at the time such option is granted) for each calendar year in which such Option is outstanding; or +(c) which +permits an Employee to purchase in excess of 2,500 shares in such Offering. +3.4 Commencement and Automatic Continuation of Participation . An Employee who meets the requirements of +Section 3.1 may become a Participant by completing an authorization for a payroll deduction on the form provided by the Company (an +" Authorization ") and filing it with the Plan Administrator on or before the date set for such purpose by the Plan Administrator, which date shall be +prior to the Offering Commencement Date for the Offering (as such terms are defined below). Payroll deductions for a Participant shall commence on the applicable Offering Commencement Date when his or +her Authorization becomes effective. Each Participant in the immediately preceding Offering who continues to be an Employee and eligible to participate in the Plan shall automatically be deemed to be +a Participant in the next Offering using the same Authorization and corresponding payroll deduction level as was in effect for the immediately preceding Offering, unless the Participant has filed a +new Authorization for the next Offering in accordance with Sections 3.4, 7.1, and 7.3 (in which case such new Authorization shall apply to the next Offering), or unless the Participant +terminates his or her participation in accordance with Article X or withdraws his or her accumulated payroll deductions in accordance with Section 9.2. Payroll deductions for a +Participant shall continue until the Participant terminates his or her participation in accordance with Article X. +ARTICLE IV +ADMINISTRATION +4.1 Administration . The Board shall be responsible for administering the Plan and appointing the Plan +Administrator. +(a) The +Board is authorized to interpret the Plan; to prescribe, amend, and rescind rules and regulations relating to the Plan; to provide for conditions and assurances +deemed necessary or advisable to protect the interests of the Company with respect to the Plan; and to make all other determinations necessary or advisable for the administration of the Plan. +Determinations, interpretations, or other actions made or taken by the Board with respect to the Plan and Options granted under the Plan shall be final and binding and conclusive for all purposes and +upon all persons. +(b) At +the discretion of the Board the Plan may be administered by a Committee of two or more Directors appointed by the Board (the +" Committee "). The Committee shall have full power and authority, subject to the limitations of the Plan and any limitations imposed by the Board, to +construe, interpret and administer the Plan and to make determinations which shall be final, conclusive and binding upon all persons, including any +A-3 +Table of Contents +persons +having any interests in any Options which may be granted under the Plan, or Stock purchased under the Plan. +(c) Where +a Committee has been created by the Board pursuant to this Article IV, references in the Plan to actions to be taken by the Board shall be deemed to refer +to the Committee as well, except where limited by the Plan or by the Board. +(d) No +member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. +ARTICLE V +STOCK SUBJECT TO THE PLAN +5.1 Number . The maximum number of shares of Stock which shall be issued under the Plan from and after the +Effective Date, subject to adjustment upon changes in capitalization of the Company as provided in Section 5.2, shall be an aggregate of 2,000,000 shares. If the total number of shares of Stock +for which Options are exercised on any Offering Termination Date in accordance with this Article V exceeds the maximum number of shares of Stock remaining in the Plan, the Company shall make a +pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll +deductions credited to the Account of each Participant under the Plan shall be returned to him or her as promptly as possible. +5.2 Adjustment in Capitalization . In the event of any change in the outstanding shares of Stock of the Company +by reason of a stock dividend or split, recapitalization, reclassification, or other similar capital change, the aggregate number of shares of Stock set forth in Section 5.1 and the number of +shares of Stock set forth in Section 3.3 (c) shall be appropriately adjusted by the Board, whose determination shall be conclusive. In any such case, the number and kind of shares of +Stock that are subject to any Option and the Option price per share shall be proportionately and appropriately adjusted without any change in the aggregate Option price to be paid therefor upon +exercise of the Option. +5.3 No Transfer Restrictions on Shares . A Participant may sell or otherwise transfer any shares of Stock +purchased in an Offering at any time that the Participant chooses, subject to compliance with securities laws. +5.4 Notice of Disqualifying Dispositions . Each Participant shall give the Company prompt written notice of any +disposition or other transfer of shares of Stock acquired pursuant to the exercise of an Option acquired under the Plan, if such disposition or transfer is made within two years after the Offering +Commencement Date or within one year after the Offering Termination Date. +5.5 Legend . The Company may take any steps to restrict the sale of shares of Stock issued to a Participant +under this Plan as it determines to be necessary to enforce any applicable restrictions on transfer of such shares of Stock under this Plan, including, without limitation, affixing a legend +restricting the sale of the Stock on any certificate therefor. +ARTICLE VI +OFFERINGS +6.1 Semi-Annual Offerings . The Plan will be implemented by semi-annual offerings of the Company's Stock (the +" Offerings ") commencing on January 1 and July 1 of such year and terminating +A-4 +Table of Contents +on +June 30 and December 31 of such year, respectively. The first Offering shall commence on July 1, 2017, and, unless all shares of Stock in the Plan shall have been purchased +prior thereto, the last Offering shall commence on July 1, 2028. +As +used in the Plan, " Offering Commencement Date " means the January 1 or July 1, as the case may be, on which the +particular Offering begins; " Offering Termination Date " means the June 30 or December 31, as the case may be, on which the particular +Offering terminates; and " Offering Period " means the period between any Offering Commencement Date and the corresponding Offering Termination Date. +ARTICLE VII +PAYROLL DEDUCTIONS +7.1 Amount of Deduction . At the time a Participant files his or her authorization for payroll deduction, +deductions shall be made from his or her Base Pay in accordance with such authorization on each payday that falls on or after the Offering Commencement Date and on or before the Offering Termination +Date during the time he or she is a Participant at the rate of not less than 1% and not more than 15% of his or her Base Pay during the Offering. If a Participant completed an Authorization for a +prior Offering and participated in the immediately preceding Offering, then the level of payroll deductions in place for such immediately preceding Offering pursuant to such Authorization shall remain +in effect for the next Offering, unless the Participant elects to terminate his or her participation +in the next Offering or files a new Authorization in accordance with Sections 3.4 and 7.3 in which the Participant elects to change the level of payroll deductions for the next Offering, +in which case such new Authorization shall apply to the next Offering. In the case of a part-time hourly Employee, such Employee's Base Pay during an Offering shall be determined by multiplying such +Employee's hourly rate of Base Pay during the Offering by the number of regularly scheduled hours of work for such Employee during such Offering. +7.2 Participant's Account . All payroll deductions made for a Participant shall be credited to his or her +Account under the Plan. A Participant may not make any separate cash payment into such Account. +7.3 Changes in Payroll Deductions . A Participant may discontinue his or her participation in the Plan as +provided in Article X, or on one occasion only during each Offering Period may elect to decrease the percentage of Base Pay of his or her contributions to his or her Account by filing with the +Plan Administrator a new payroll deduction authorization, but no other change can be made during an Offering Period. +7.4 Leave of Absence . If a Participant goes on a leave of absence, such Participant shall have the right to +elect either: (a) to withdraw the balance in his or her Account pursuant to Section 9.2 or (b) to remain a Participant in the Plan (subject to Section 3.2) authorizing +deductions to be made from payments by the Company to the Participant during such leave of absence, if any. +ARTICLE VIII +GRANTING OF OPTION +8.1 Number of Option Shares . On the Commencement Date of each Offering, a Participant shall be deemed to have +been granted an Option to purchase shares of the Stock of the Company equal to (i) that percentage of the Employee's Base Pay that he or she has elected to have withheld (but not in any case +less than 1% or more than 15%) multiplied by (ii) the Employee's Base Pay during the period of the Offering (iii) divided by the lesser of (A) 85% of the market value of Stock on +the +A-5 +Table of Contents +applicable +Offering Commencement Date or (B) 85% of the market value of each share of Stock on the applicable Offering Termination Date. The market value of the Stock shall be determined as +provided in paragraphs (a) and (b) of Section 8.2 below. An Employee's Base Pay during the applicable Offering Period shall be determined by multiplying his or her normal weekly +Base Pay rate (as adjusted during the Offering Period) by 26 or the hourly rate by 1,040; provided that, in the case of a part-time hourly Employee, the Employee's Base Pay during the period of an +Offering shall be determined by multiplying such Employee's hourly Base Pay rate by the number of regularly scheduled hours of work for such Employee during such Offering. +8.2 Option Price . The option price of each share of Stock purchased with payroll deductions made during such +Offering for a Participant therein shall be the lower of: +(a) 85% +of the closing price of the Stock on the Offering Commencement Date or the nearest prior business day on which trading occurred on the New York Stock Exchange +(" NYSE "); or +(b) 85% +of the closing price of the Stock on the Offering Termination Date or the nearest prior business day on which trading occurred on the NYSE. +If +the Stock of the Company is not listed for trading on the NYSE on any of the aforesaid dates for which closing prices of the Stock are to be determined, then reference shall be made +to the fair market value of the Stock on that date, as determined on such basis as shall be established or specified for that purpose by the Board. +ARTICLE IX +EXERCISE OF OPTION +9.1 Automatic Exercise . A Participant's Option for the purchase of Stock with payroll deductions made during +any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering for the purchase of the number of full shares of Stock that the +accumulated payroll deductions in his or her Account at that time will purchase at the applicable Option price (but not in excess of the number of shares of Stock for which Options have been granted +to the Participant pursuant to Section 8.1, in which case such excess accumulated payroll deductions will be returned to the Participant following the Offering Termination Date without +interest). +9.2 Withdrawal of Account . By written notice to the Plan Administrator, at any time prior to the Offering +Termination Date applicable to any Offering, a Participant may elect to withdraw all, but not less than all, of the accumulated payroll deductions in his or her Account at such time. +9.3 Fractional Shares . Fractional shares will not be issued under the Plan, and any accumulated payroll +deductions that would have been used to purchase fractional shares will be retained in the Participant's Account and applied to the purchase of shares of Stock in the next Offering, unless the +Participant has elected to terminate his or her participation in the next Offering or is otherwise ineligible to participate in the next Offering, in which case such remaining accumulated payroll +deductions will be promptly returned to the Participant, without interest. +9.4 Delivery of Stock . As promptly as practicable after the Offering Termination Date of each Offering, the +Company will deliver to each Participant, as appropriate, the Stock purchased upon exercise of his or her Option. +A-6 +Table of Contents +ARTICLE X +WITHDRAWAL +10.1 In General . As indicated in Section 9.2, a Participant may withdraw payroll deductions credited to +his or her Account under the Plan at any time by giving written notice to the Plan Administrator of the Company. All of the Participant's payroll deductions credited to his or her Account will be paid +to him or her promptly after receipt of his or her notice of withdrawal, and no further payroll deductions will be made from his or her pay during such Offering. The Company may, at its option, treat +any attempt to borrow by an Employee on the security of his or her accumulated payroll deductions as an election, under Section 9.2, to withdraw such deductions. +10.2 Effect on Subsequent Participation . A Participant's withdrawal from any Offering will not have any effect +upon his or her eligibility to participate in any succeeding Offering or in any similar plan that may hereafter be adopted by the Company; provided, however, following any such withdrawal, such +Participant must complete a new Authorization in accordance with Section 3.4 to participate in any subsequent Offering. +10.3 Termination of Employment . Upon termination of the Participant's employment for any reason, including +retirement (but excluding death while in the employ of the Company) prior to the Offering Termination Date, the payroll deductions credited to his or her Account will be returned to him or her. +10.4 Termination of Employment Due to Death . Upon termination of the Participant's employment because of his or +her death, his or her beneficiary as defined in Section 19.1, or if none is designated, his or her estate, shall have the right to elect by written notice given to the Plan Administrator of the +Company prior to the earlier of the Offering Termination Date or the expiration of a period of 60 days commencing with the date of the death of the Participant either: +(a) to +withdraw all of the payroll deductions credited to the Participant's Account under the Plan, or +(b) to +exercise the Participant's Option for the purchase of Stock on the Offering Termination Date next following the date of the Participant's death for the purchase of +the number of full shares of Stock which the accumulated payroll deductions in the Participant's Account at the date of the Participant's death will purchase at the applicable option price, and any +excess in such Account will be returned to said beneficiary, without interest. +In +the event that no such written notice of election shall be duly received by the office of the Plan Administrator of the Company, the beneficiary shall automatically be deemed to have +elected, pursuant to paragraph (b), to exercise the Participant's Option. +ARTICLE XI +INTEREST +11.1 Payment of Interest . No interest will be paid or allowed on any money paid into the Plan or credited to +the Account of any Participant, including money which is distributed to an Employee or his or her beneficiary pursuant to any provision of this Plan. +A-7 +Table of Contents +ARTICLE XII +NO RIGHT TO EMPLOYMENT +Nothing in the Plan shall interfere with or limit in any way the right of the Company or a Subsidiary Corporation to terminate any Employee's +employment at any time, nor confer upon any Employee any right to continue in the employ of the Company or a Subsidiary Corporation. +ARTICLE XIII +AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN +The Board may at any time terminate and from time to time may amend or modify the Plan. Any amendment or modification of the Plan by the Board +may be accomplished without approval of the stockholders of the Company, except in the event that stockholder approval of such amendment or modification is required by any law or regulation governing +the Company. +No +amendment, modification, or termination of the Plan shall in any manner adversely affect any outstanding Option under the Plan without the consent of the Participant holding the +Option. +ARTICLE XIV +ACQUISITION, MERGER OR LIQUIDATION +14.1 Acquisition . +(a) In +the event that an Acquisition occurs with respect to the Company, the Company may, but shall not be required to, cancel an Offering and all Options outstanding as of +the effective date of such Acquisition, whether or not such Options are then exercisable. In that event, the payroll deductions credited to the Account of each Participant shall be returned to him or +her. If the Company does not elect to cancel the Offering, such Offering shall terminate on the day immediately prior to the effective date of the Acquisition and such date shall be considered the +Offering Termination Date for the Offering. +(b) For +purposes of this section, an " Acquisition " shall mean any transaction in which substantially all of the Company's +assets are acquired or in which a controlling amount of the Company's outstanding shares are acquired, in each case by a single person or entity or an affiliated group of persons and entities. For +purposes of this section, a controlling amount shall mean more than fifty percent of the issued and outstanding shares of Stock of the Company. The Company shall have the above option to cancel an +Offering and all Options regardless of how the Acquisition is effectuated, whether by direct purchase, through a merger or similar corporate transaction, or otherwise. +(c) Where +the Company does not exercise its option to terminate an Offering and all Options under this Section 14.1, the remaining provisions of this +Article XIV shall apply, to the extent applicable. +14.2 Merger or Consolidation . If the Company shall be the surviving corporation in any merger or consolidation, +any Offering shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the Option would have been entitled in such merger or consolidation, provided +that the Company shall not be considered the surviving corporation for purposes hereof if the Company is the survivor of a reverse triangular merger. +A-8 +Table of Contents +14.3 Other Transactions . A dissolution or a liquidation of the Company or a merger or consolidation in which +the Company is not the surviving corporation (the Company shall not be considered the surviving corporation for purposes hereof if the Company is the survivor of a reverse triangular merger) shall +cause every Offering outstanding hereunder to terminate as of the effective date of such dissolution, liquidation, merger or consolidation. In that event, the payroll deductions credited to the +Account of each Participant shall be returned to him or her. +ARTICLE XV +SECURITIES REGISTRATION +15.1 Securities Registration . In the event that the Company shall deem it necessary or desirable to register +under the Securities Act of 1933, as amended, or any other applicable statute, any Options or any Stock with respect to which an Option may be or shall have been granted or exercised, or to qualify +any such Options or Stock under the Securities Act of 1933, as amended, or any other statute, then the Participant shall cooperate with the Company and take such action as is necessary to permit +registration or qualification of such Options or Stock. +15.2 Representations . Unless the Company has determined that the following representation is unnecessary, each +person participating in an Offering may be required by the Company, as a condition to the issuance of the shares of Stock pursuant to such Offering to make a representation in writing (i) that +he or she is acquiring such shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the +Securities Act of 1933, and (ii) that before any transfer in connection with the resale of such shares, he or she will obtain the written opinion of counsel for the Company, or other counsel +acceptable to the Company, that such shares may be transferred without registration thereof. The Company may also require that the certificates representing such shares contain legends reflecting the +foregoing. To the extent permitted by law, including the Securities Act of 1933, nothing herein, except for the transfer restrictions set forth in Section 5.3 (to the extent that they remain +applicable), shall restrict the right of a Participant to sell the shares received in an open market transaction. +ARTICLE XVI +TAX WITHHOLDING +Whenever shares of Stock are to be issued pursuant to an Offering, the Company shall have the power to require the recipient of the Stock to +remit to the Company an amount sufficient to satisfy federal, state, and local withholding tax requirements, if any. +ARTICLE XVII +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee and the Plan Administrator shall +be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting +from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from +any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in any such action, suit, or proceeding against him or her, +provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing +right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's certificate of incorporation +A-9 +Table of Contents +or +bylaws, as a matter of law, or otherwise, or any power that the Company or a Subsidiary Corporation may have to indemnify them or hold them harmless. +ARTICLE XVIII +REQUIREMENTS OF LAW +18.1 Requirements of Law . The granting of Options pursuant to an Offering and the issuance of shares of Stock +upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. +18.2 Governing Law . The Plan, and all agreements hereunder, shall be construed in accordance with and governed +by the laws of the State of Colorado. +ARTICLE XIX +MISCELLANEOUS +19.1 Designation of Beneficiary . A Participant may file a written designation of a beneficiary who is to +receive any Stock or cash. Such designation of beneficiary may be changed by the Participant at any time by written notice to the Plan Administrator of the Company. Upon the death of a Participant and +upon receipt by the Company of proof of identity and existence at the Participant's death of a beneficiary validly designated by him or her under the Plan, the Company shall deliver such Stock or cash +to such beneficiary. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company +shall deliver such Stock or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the +Company, in its discretion, may deliver such Stock or cash to the spouse or to any one or more dependents of the Participant as the Company may designate. No beneficiary shall, prior to the death of +the Participant by whom he or she has been designated, acquire any interest in the Stock or cash credited to the Participant under the Plan. +19.2 Transferability . During a Participant's lifetime, Options held by such Participant shall be exercisable +only by that Participant. Neither payroll deductions credited to a Participant's Account nor any rights with regard to the exercise of an Option or to receive Stock under the Plan may be assigned, +transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution or as provided in Section 19.1. Any such attempted +assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 9.2. +19.3 Use of Funds . All payroll deductions received or held by the Company under this Plan may be used by the +Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions. +19.4 Effect of Plan . The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure +to the benefit of, all successors of each Employee in the Plan, including, without limitation, such Employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any +receiver, trustee in bankruptcy or representative of creditors of such Employee. +ARTICLE XX +EFFECTIVE DATE OF PLAN +This Plan is hereby adopted by the Board as of the Effective Date, subject to approval of the shareholders as provided in Section 2.6. +A-10 +NNNNNNNNNNNN . Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q The Board of Directors recommends a vote FOR all the nominees listed, FOR Proposals 2, 3, 5 and for 1 Year on Proposal 4. + 1. The Board of Directors has nominated the below eight persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been nominated to serve as director other than the nominees listed below. For Against Abstain For Against Abstain For Against Abstain 01 - Larry W. Bickle 02 - Stephen R. Brand 03 - Loren M. Leiker 04 - Javan D. Ottoson 05 - Ramiro G. Peru 06 - Julio M. Quintana 07 - Rose M. Robeson 08 - William D. Sullivan For Against Abstain ForAgainst Abstain 2. The proposal to ratify the appointment by the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2017. 3. To approve, on a non-binding advisory basis, the compensation philosophy, policies and procedures, and the compensation of our Company’s named executive officers, as disclosed in the accompanying Proxy Statement. 1 Year 2 Years 3 Years Abstain ForAgainst Abstain 4. To recommend, on a non-binding advisory basis, the frequency of stockholder votes on executive compensation. 5. The proposal to approve the amendment of the Employee Stock Purchase Plan. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. + 1 U P X 3 1 6 0 9 7 2 02JFSC NNNNNNNNN B A Annual Meeting Proxy Card X IMPORTANT ANNUAL MEETING INFORMATION +. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on May 23, 2017. The Proxy Statement and our 2016 Annual Report on Form 10-K are available at: http://www.viewproxy.com/sm-energy/2017/. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — SM Energy Company 1775 Sherman Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders to be held on May 23, 2017. The undersigned hereby appoints A. Wade Pursell, David W. Copeland, and James B. Lebeck, or any of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares of SM Energy Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 23, 2017, and at any reconvened meeting after any adjournment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. This proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted “FOR” all director nominees in Proposal 1, “FOR” Proposals 2, 3, 5 and for “1 Year” on Proposal 4. This proxy also confers discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. As of the date of the accompanying proxy statement, SM Energy Company’s management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, including concerning any adjournment of the meeting, this proxy will be voted in accordance with the recommendations of SM Energy Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-17-002599/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-17-002599/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..518b2e1cf78ed08658097dba7b281bdb9cc12aaa --- /dev/null +++ b/raw/proxies/0000893538/0001047469-17-002599/proxy_rpt.txt @@ -0,0 +1,26 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, arrangement, +or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the +aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related +Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than 5% of +our outstanding shares of common stock, and (iii) any immediate family member +of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best +interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent +with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as otherwise +described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not +limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products +or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable +to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2016. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-18-002750/proxy.txt b/raw/proxies/0000893538/0001047469-18-002750/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..33b3a53db0248b5307c503b771861821eb6766a4 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-18-002750/proxy.txt @@ -0,0 +1,4207 @@ +DEF 14A +1 +a2235235zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Proxy Statement and Notice of +2018 Annual Meeting of Stockholders +May 22, 2018 +Denver, Colorado +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +TUESDAY, MAY 22, 2018 +To +All Stockholders: +The +2018 Annual Meeting of Stockholders of SM Energy Company (the "Annual Meeting") is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, +Colorado 80203, on Tuesday, May 22, 2018, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2018; +3. hold +an advisory vote to approve the compensation of our named executive officers; +4. approve +an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total number of shares authorized for issuance +under this plan from 14,100,000 shares to 17,500,000 shares; and +5. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on March 29, 2018, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2018 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other +verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form that is +sent to you, or a brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on March 29, 2018. We can use +that to verify your beneficial ownership of our common stock and admit you to the meeting. If you intend to vote at the meeting, you also will need to bring to the meeting a legal proxy from your +bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President and General Counsel +Denver, +Colorado +April 12, 2018 +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 22, 2018 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2018 Annual Meeting of Stockholders, and the Form 10-K for the +fiscal year ended December 31, 2017, are available at http://www.viewproxy.com/sm-energy/2018/. +Table of Contents +TABLE OF CONTENTS +Page +General Matters +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +2 +Differences Between Stockholders of Record and Street Name Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +5 +Other Available Information +5 +Stockholders Sharing the Same Address +5 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +6 +Communications with the Board +7 +Board and Committee Meetings +7 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +12 +Policies and Procedures on Transactions with Related Persons +12 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +13 +Section 16(a) Beneficial Ownership Reporting Compliance +16 +Information About Executive Officers +17 +Executive Compensation +20 +Compensation Discussion and Analysis +20 +Compensation Committee Report +40 +Executive Compensation Tables +41 +Potential Payments Upon Termination or Change of Control +47 +Equity Compensation Plans +48 +Director Compensation +50 +Compensation Committee Interlocks +52 +Proposal 1—Election of Directors +53 +Proposal 2—Ratification of the Appointment of Ernst & +Young LLP as our Independent Registered Public Accounting Firm for 2018 +60 +Proposal 3—Advisory Vote on Executive Compensation +61 +Proposal 4—Amendment and Restatement of Equity Plan +62 +Report of the Audit Committee +75 +Independent Registered Public Accounting Firm +76 +Audit Committee Pre-approval Policy and Procedures +77 +Stockholder Proposals for the 2019 Annual Meeting of Stockholders +78 +2017 Annual Report +79 +Other Matters +80 +Annex A, Equity Incentive Compensation Plan +A-1 +Table of Contents +GENERAL MATTERS +Background +This Proxy Statement contains information about the 2018 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company to be held +in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, 80203 on Tuesday, May 22, 2018, at 3:30 p.m. local time. Our Board of Directors ("Board") +is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," "us," and "our" refer to +SM Energy Company and its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2017 ("2017 Annual Report"), are being distributed and made available on or about April 12, 2018. In accordance with rules and regulations adopted by the United States Securities and Exchange +Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be +mailed by intermediaries on or about April 12, 2018, to beneficial owners of our common stock. Stockholders will have the ability to access the proxy materials on a website referred to in the +Notice or may request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The +proxy materials are being mailed on or about April 12, 2018, to all stockholders of record as of the close of business on March 29, 2018. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of eight individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting +firm for 2018; +• an advisory vote to approve the compensation of our named executive officers; +• the approval of an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total number of +shares authorized for issuance under this plan from 14,100,000 shares to 17,500,000 shares; and +• such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the first four items noted above. +1 +Table of Contents +Who Can Vote +Only stockholders of record at the close of business on the record date, March 29, 2018, are entitled to receive notice of the Annual +Meeting and to vote shares of our common stock held on that date. As of March 29, 2018, there were 111,687,016 shares of our common stock issued and outstanding. Holders of our common stock are +entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in "street name") rather than directly in their own name. +As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered directly in your name +with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your voting +proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a brokerage account or +by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee how to vote and are +also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a signed proxy from +the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the +Internet, by telephone or by mailing a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope, and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified in a proxy, such proxy will be +voted as follows: +• FOR the election of the eight nominees named in this Proxy Statement under the caption "Proposal 1—Election of Directors"; +• FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public +accounting firm for 2018; +• FOR the advisory approval of the compensation of our named executive officers; +• FOR the approval of an amendment and restatement of our Equity Incentive Compensation Plan, including an increase in the stated total number of +shares authorized for issuance under this plan from 14,100,000 shares to 17,500,000 shares; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the Annual Meeting, or any +adjournment(s) or postponement(s) thereof. +2 +Table of Contents +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other +nominee and you have not elected to receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by your bank, broker +or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is exercised by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting procedures +before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke any previously +submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, which are located at +1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our outstanding shares +of common stock are present at the +Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares held by us as treasury shares are not entitled to vote +and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote your +shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for which it has discretionary authority under the +rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a +bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your shares, and the +bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a "broker non-vote" results. Although any broker non-vote would be counted as present at the +meeting for +3 +Table of Contents +purposes +of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ), Proposal 3 ( Advisory Vote on Executive Compensation ) and +Proposal 4 ( Approval of Amendment and Restatement of Equity Incentive Compensation Plan ), and your shares will be considered "broker non-votes" with +respect to these proposals; but will nevertheless be entitled to vote your shares with respect to Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as +our +Independent Registered Public Accounting Firm for 2018 ) in the discretion of the record holder. +• Proposal 1 ( Election of Directors ): Our Amended and Restated By-Laws (our "By-Laws") provide +that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be +counted in determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes will have no effect on +the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as Our Independent Registered Public +Accounting Firm for 2018 ): Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending +December 31, 2018, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted +in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this proposal requires the +affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining the total number of +shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the vote on this proposal. While this +vote is required by law, it will not be binding, nor will it create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or the Board. However, the +Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +• Proposal 4 ( Approval of Amendment and Restatement of Equity Incentive Compensation Plan ): Under +NYSE rules, the approval of the amendment and restatement of our Equity Incentive Compensation Plan, including an increase to the number of shares authorized for issuance under this plan, requires the +affirmative vote of a majority of the votes cast on the amendment, and the NYSE rules require that the total votes cast represent over 50 percent of all shares entitled to vote. Abstentions +will have the effect of votes against approval of the amendment. Broker non-votes will have no effect on the outcome of the vote on this proposal. +4 +Table of Contents +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies for total +fees of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition, our +officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be additionally +compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other +persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +Other Available Information +We make available through the Governance section of our website (www.sm-energy.com) the following documents: our Corporate Governance +Guidelines; our Financial Code of Ethics (the "Financial Code"); our Code of Business Conduct and Conflict of Interest Policy (the "Code of Conduct"); and the Charters of the Audit, Compensation, +Executive, and Nominating and Corporate Governance Committees of our Board. These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated +by reference into this Proxy Statement and should not be considered part of this document. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same address +and last name will receive only one copy of our Notice of Internet Availability, 2017 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that they want +to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and may utilize separate proxy +voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2017 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary, James B. Lebeck, at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will +promptly send such to you. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a +single copy in the future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its committees, our +Corporate Governance Guidelines, the Financial Code and the Code of Conduct. These documents provide the framework for our corporate governance. A complete copy of these documents is available on our +website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. The Board regularly +reviews corporate governance developments and modifies our governance documents as appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer or controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for an executive officer subject to the Financial Code be made only by +the Audit Committee of the Board and disclosed as required by law, SEC rules and regulations, and NYSE rules. Changes to, or waivers from, the Financial Code for any of our executive officers subject +to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such change or waiver. To date, the Audit +Committee of our Board has not granted waivers of the Financial Code for any of our executive officers subject to the Financial Code. +Board and Committee Independence +Our Board is comprised of a majority of independent directors, two of whom, Ramiro G. Peru and Rose M. Robeson, joined the Board in the last +four years. The Board has determined that Larry W. Bickle, Stephen R. Brand, Loren M. Leiker, Mr. Peru, Julio M. Quintana, Ms. Robeson, and William D. Sullivan are independent and +do not have any material relationship with us other than as a director and stockholder. In its review of the independence of these directors, our Board considered past employment, remuneration, and +any other relationship with us. In making its determination as to the independence of its members, our Board considered the independence tests described in Section 303A.02 of the Corporate +Governance Standards of the NYSE's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our leadership structure has reflected our Board's decision to separate the roles of Chief Executive Officer and Chairman +of the Board. Mr. Sullivan, an independent director serving on our Board since 2004, who has experience serving on several other public company boards and over 38 years of experience +working with oil and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Mr. Sullivan does not serve on any committee of our Board, +other than the Executive Committee, which meets infrequently and did not meet in 2017. Javan D. Ottoson serves as our Chief Executive Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; +facilitating communications among the directors; setting the Board meeting agenda in consultation with +6 +Table of Contents +our +Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and serving as a liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of the Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our NCG Committee evaluates our leadership structure and makes recommendations to our Board. While recognizing that different +board leadership structures may be appropriate at different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has determined that our current +leadership structure is preferable, with Mr. Ottoson serving as our Chief Executive Officer, and Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, our Board has a separate lead independent director. Mr. Quintana has served in that role since February 21, +2017. The lead independent director is responsible for presiding at executive sessions of non-management directors. In the lead independent director's absence, the Chairman of the Board serves as lead +independent director. +As +of the filing date of this Proxy Statement, our Board has seven independent members, plus one non-independent member, Mr. Ottoson, our Chief Executive Officer. A number of our +independent directors have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As +discussed above, our Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, +qualifications, attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director +nominee's biographical information below. We believe that the independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their respective +Board committees, and the overall leadership of the Board by the Chairman of our Board are beneficial to our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company. Interested parties and stockholders may contact our Board as a whole, only the +non-management directors, or any one or more specified individual directors, including our lead independent director, by sending a letter to the intended recipients' attention in care of SM Energy +Company, Corporate Secretary, 1775 Sherman Street, Suite 1200, Denver, CO 80203. All such communications will be provided to the Chair of the NCG Committee, who will facilitate the review of +such communications. +Board and Committee Meetings +Our Board met six times during 2017. Our non-management directors routinely meet in executive session immediately after each regularly +scheduled meeting of the Board or as otherwise deemed necessary and met five times during 2017. Each incumbent director participated in at least 83% of the Board meetings and in 86% of his or her +respective committee meetings held in 2017. It is our policy that each director is expected to attend the annual meeting of our stockholders, and each director then serving on our Board attended the +2017 Annual Meeting of Stockholders. +7 +Table of Contents +The +following table identifies the members of each committee, as of March 1, 2018, and sets forth the number of meetings held in 2017: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Larry W. Bickle +Stephen R. Brand +Loren M. Leiker +Javan D. Ottoson +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +William D. Sullivan +Number of meetings held in 2017 +7 +2 +9 +0 +Chair +Member +The +Audit Committee assists our Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Pursuant to the Audit Committee charter, +members are prohibited from serving on more than three audit committees of public companies (one of which is us), and no Audit Committee member currently serves on more than three such committees. The +Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our quarterly and annual financial results. The Audit Committee +reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of audit fees, the scope and adequacy of our system of +internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal audit functions and any related party transactions. The +Audit Committee is currently composed of four directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy +Statement. While all of the Audit Committee members are considered financially literate, the Board has determined that three members of the current Audit Committee, Mr. Bickle, Mr. Peru +and Ms. Robeson, are audit committee financial experts as the term is defined by the SEC. As noted above, Mr. Bickle, Mr. Peru and Ms. Robeson are also independent. +The +NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of +all committees of the Board, and to oversee all of our corporate governance functions, including the Board and committee self-evaluation process. For additional information on the functions performed +by the NCG Committee, see "Director Nominations and Qualifications" below. +The +Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements for our senior management and directors, adoption of compensation plans in which our officers and +8 +Table of Contents +directors +are eligible to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy +Statement describes these responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are +not in conflict with our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +Our +Board and each of its committees (other than the Executive Committee) separately evaluated their performance during 2017. The Executive Committee did not complete an evaluation due +to its unique, limited purpose and infrequent meeting schedule. This performance evaluation process was directed by the NCG Committee and the evaluations were discussed and accepted by the Board. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is responsible +for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current Board leadership structure, with +Mr. Sullivan serving as our Chairman of the Board and Mr. Ottoson serving as our Chief Executive Officer, supports this approach by facilitating communication between management and the +Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more efficiently facilitates communication of +the views of the independent directors, and contributes to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice President +and General Counsel, Executive Vice President—Operations, and Deputy General Counsel. The committee meets quarterly to update our enterprise risk management process and plan (the "ERM +Plan"), utilizing the Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during our business strategy +sessions. We keep minutes of these meetings, and regularly report the activities of the committee to the Audit Committee and the Board. We document risk prevention or mitigation steps for the material +risks identified based upon projected likelihood and impact of any occurrence of the particular risk. We review the ERM Plan with our Board annually. +We +also have a Financial Risk Management Committee comprised of our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice +President—Operations and Vice President—Marketing. The committee meets quarterly and more frequently, as necessary, to discuss our interest rate and commodity hedging +activities and, as appropriate, to approve additional hedges or other changes to our hedge program. We keep minutes of these meetings, and regularly report the activities of the committee to the Audit +Committee. +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our risk assessment and risk management guidelines and policies with respect to our significant financial +9 +Table of Contents +risk +exposures, and the steps management has taken, as well as the specific guidelines and policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews +and discussions include review and approval of our oil, natural gas and natural gas liquids commodity price hedging policy, interest rate risk management, and insurance coverage, as appropriate. In +addition, our internal auditors, who report directly to the Audit Committee with respect to internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk +management processes. The Audit Committee also has oversight responsibility for the integrity of our financial statements and financial reporting processes and systems of internal controls regarding +finance, accounting, and compliance with legal and regulatory requirements. In addition, the Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage +excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying and +recommending directors for nomination by the Board for election as members of the Board. The NCG Committee selects a nominee based on the nominee's skills, achievements, and experience. As set forth +in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in +high-level business policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of +responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In +addition, our Corporate Governance Guidelines provide that a director who retires or experiences a significant change in his or her professional or business responsibilities, including a change in his +or her principal occupation, position or business affiliation, should, if requested by the NCG Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the +NCG Committee and the Board may review the continued appropriateness of Board membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and +delivered to the Board a resignation letter that is contingent upon (a) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the +shares of capital stock in an election of directors at the 2018 Annual Meeting of Stockholders; and (b) acceptance of his or her resignation by the Board in accordance with the policies and +procedures adopted by the Board for such purpose. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee routinely engages consultants and also considers suggestions from incumbent directors, management, and our stockholders. The NCG +Committee screens all potential candidates in the same manner regardless of the source of the recommendation. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity +10 +Table of Contents +in +identifying director nominees, the NCG Committee considers the Board as a whole, without reference to specific representative directors, with the overall objective of having a group of directors +that reflects diversity, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that current Board members and +director nominees reflect our commitment to diversity. Following the 2018 Annual Meeting, assuming all eight of the current nominees are elected to the Board, we will have two Hispanic directors, one +who has served since 2006 and one who has served since 2014, and one female director who has served since 2014. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4 of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the +proposal is made, if any), the name and address of the stockholder, specific information concerning such stockholder's interests in our securities and a commitment to serve the full term if nominated +and elected. In addition, the notice must include the recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and +the proposed nominee and a written questionnaire completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for copies should be +directed to our Corporate Secretary. For additional information about stockholder nominations, including nominations for the 2019 Annual Meeting of Stockholders, see "Stockholder Proposals for the +2019 Annual Meeting of Stockholders." No stockholder director nominations were received in connection with the Annual Meeting. +11 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, arrangement, +or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the +aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related +Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than 5% of +our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in +good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent +with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as otherwise +described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not +limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products +or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable +to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2017. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known to us as of March 16, 2018, by all +beneficial owners of more than 5% of the outstanding shares of our common stock, by each director, director nominee, and named executive officer, and all directors and executive officers as a group. +Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted +stock units and performance share units. A supplemental table has been included later in this section describing the number of restricted stock units and performance share units owned by the +individuals described below. +Name of Beneficial Owner +Shares +beneficially +owned +Percent +beneficially +owned (1) +Name and Address of Stockholders Owning More Than 5% +Vanguard Group, Inc. (2) +9,132,555 +8.2 +% +100 Vanguard Blvd. +Malvern, PA 19355 +BlackRock Inc. (3) +8,712,853 +7.8 +% +55 East 52 nd Street +New York, NY 10055 +Capital Research Global Investors (4) +8,668,331 +7.8 +% +333 South Hope Street +Los Angeles, CA 90071 +Causeway Capital Management LLC (5) +8,634,955 +7.7 +% +11111 Santa Monica Blvd. 15 th Floor +Los Angeles, CA 90025 +QStar LLC (6) +8,187,510 +7.3 +% +1100 Louisiana Street, Suite 4900 +Houston, TX 77002 +Millennium Management LLC (7) +6,710,210 +6.0 +% +666 Fifth Avenue +New York, NY 10103 +Dimensional Fund Advisors LP (8) +6,565,748 +5.9 +% +Building One +6300 Bee Cave Road +Austin, TX 78746 +Name and Position of Directors, Director Nominees and Named Executive Officers +Larry W. Bickle, Director +161,914 +* +Stephen R. Brand, Director +37,135 +* +Loren M. Leiker, Director +57,718 +* +Ramiro G. Peru, Director +26,999 +* +Julio M. Quintana, Director +48,429 +* +Rose M. Robeson, Director +26,175 +* +William D. Sullivan, Director +94,288 +* +Javan D. Ottoson, President, Chief Executive Officer and Director +156,851 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +91,344 +* +Herbert S. Vogel, Executive Vice President—Operations +41,444 +* +David W. Copeland, Executive Vice President and General Counsel +90,762 +* +Lehman E. Newton, III, Senior Vice President and Regional Manager +61,478 +* +All executive officers and directors as a group (16 persons, including those named above) +1,044,423 +* +* Less than 1%. +13 +Table of Contents +(1) Based on an aggregate of 111,687,016 shares of common stock outstanding as of March 16, 2018. +(2) According to a Statement on Schedule 13G/A filed by Vanguard Group, Inc. ("Vanguard") on +February 12, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, Vanguard may be deemed to be the beneficial owner of a total of 9,132,555 +shares, with shared voting power as to 10,860 shares, shared dispositive power as to 58,509 shares, and sole voting power as to 56,624 shares and sole dispositive power as to 9,074,046. +(3) According to a Statement on Schedule 13G/A filed by BlackRock Inc. ("BlackRock") on +January 23, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 8,712,853 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 8,269,454 shares and sole dispositive power as to 8,712,853 shares. +(4) According to a Statement on Schedule 13G/A filed by Capital Research Global Investors ("Capital") on +February 14, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, Capital may be deemed to be the beneficial owner of a total of 8,668,331 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 8,668,331 shares and sole dispositive power as to 8,668,331 shares. +(5) According to a Statement on Schedule 13G/A filed by Causeway Capital Management LLC ("Causeway") +on February 14, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, Causeway may be deemed to be the beneficial owner of a total of 8,634,955 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 3,821,452 shares and sole dispositive power as to 8,634,955 shares. +(6) According to a Statement on Schedule 13G/A filed by QStar LLC together with certain of its +affiliates ("QStar") on February 5, 2018, QStar may be deemed to be the beneficial owner of a total of 8,187,510 shares, with shared voting power as to zero shares, shared dispositive power as +to zero shares, and sole voting power as to 8,187,510 shares and sole dispositive power as to 8,187,510 shares. +(7) According to a Statement on Schedule 13G/A filed by Millennium Management LLC ("Millennium") and +Israel Englander, together with certain other affiliates on January 23, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, Millennium and +Mr. Englander may be deemed to be the beneficial owner of a total of 6,710,210 shares, with shared voting power as to 6,710,210 shares, shared dispositive power as to 6,710,210 shares, and sole +voting power as to zero shares and sole dispositive power as to zero shares. +(8) According to a Statement on Schedule 13G filed by Dimensional Fund Advisors LP ("Dimensional") on +February 9, 2018, by reason of advisory and other relationships with persons who own shares of our common stock, Dimensional may be deemed to be the beneficial owner of a total of 6,565,748 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting power as to 6,418,443 shares and sole dispositive power as to 6,565,748 shares. +Restricted Stock Units and Performance Share Units +Restricted stock units ("RSUs") represent the right to receive shares of our common stock to be delivered upon settlement, +subject to risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid +in cash on our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance +share units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common +stock that may be from zero to two hundred percent of the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the +PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends or other distributions paid in cash on our common stock. +14 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 16, 2018. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +Loren M. Leiker +— +— +— +Julio M. Quintana +8,794 +— +— +Ramiro G. Peru +— +— +— +Rose M. Robeson +— +— +— +William D. Sullivan +— +— +— +Javan D. Ottoson +96,771 +359,488 +— +A. Wade Pursell +42,250 +163,815 +— +Herbert S. Vogel +46,787 +178,001 +— +David W. Copeland +15,038 +59,506 +— +Lehman E. Newton +10,702 +40,879 +— +All executive officers and directors as a group (16 persons, including those named above) +251,726 +922,759 +— +(1) PSUs +granted on July 1, 2015, July 1, 2016 and July 1, 2016, will not vest until July 1, 2018, July 1, 2019 and +July 1, 2020, respectively. The amounts shown reflect the vested portion of the PSUs owned by each director, named executive officer and all directors and executive officers as a group. The +actual number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary from zero to two hundred percent of the number of PSUs indicated, depending on the +extent to which we have achieved our performance goals. +15 +Table of Contents +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under +United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of our common stock must report their initial +ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has designated specific deadlines for these reports, +and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2017 under Section 16(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). +16 +Table of Contents +INFORMATION ABOUT EXECUTIVE OFFICERS +The +following table sets forth the names, ages (as of April 1, 2018) and positions of SM Energy's executive officers: +Name +Age +Position +Javan D. Ottoson +59 +President, Chief Executive Officer and Director +A. Wade Pursell +53 +Executive Vice President and Chief Financial Officer +David W. Copeland +61 +Executive Vice President, General Counsel and Assistant Corporate Secretary +Herbert S. Vogel +57 +Executive Vice President—Operations +Kenneth J. Knott +53 +Senior Vice President—Business Development and Land and Assistant Secretary +Mary Ellen Lutey +46 +Senior Vice President and Regional Manager +Lehman E. Newton, III +62 +Senior Vice President and Regional Manager +Mark T. Solomon +49 +Vice President—Controller and Assistant Secretary +David J. Whitcomb +55 +Vice President—Marketing +Javan D. Ottoson. Mr. Ottoson joined the company in December 2006 as Executive Vice President +and Chief Operating Officer. Mr. Ottoson +was appointed as Chief Executive Officer of the company in February 2015 and President of the company in October 2012. Mr. Ottoson has been in the energy industry for over 36 years. From +April 2006 until he joined the company in December 2006, Mr. Ottoson was Senior Vice President-Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas +exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure +Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO +United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the company in September 2008 as Executive Vice President +and Chief Financial Officer. Mr. Pursell +was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to offshore energy +producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He joined Helix in +May 1997, as Vice President-Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an Experienced Manager +specializing in the offshore services industry. Mr. Pursell has over 30 years of experience in the energy industry. +David W. Copeland. Mr. Copeland joined the company in January 2011 as Senior Vice President and +General Counsel. He was appointed as the +company's Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has 36 years of experience in the legal profession, including 27 years as +internal counsel for various energy companies. Prior to joining the company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as an executive officer and general counsel, +and then as its Senior Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served as an executive officer and general counsel of two energy +17 +Table of Contents +companies +he co-founded in Midland, Texas. Mr. Copeland started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Herbert S. Vogel. Mr. Vogel was appointed as Executive Vice President—Operations of the +company in August 2014. Mr. Vogel +joined the company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 33 years of experience in the oil and gas business. He joined +the company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous +roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel +started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations management, new ventures +development, and business unit management at ARCO and BP. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development and +Land and Assistant Secretary in August +2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant +Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional +Land Manager when the office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Senior Vice President and Regional Manager in May +2015 for the South Texas & Gulf Coast +region. From December 2012 to May 2015, she served as Vice President and Regional Manager for the Mid-Continent region. She joined SM Energy in June 2008 as North Rockies Asset Manager, where she +managed the company's activities in the Williston Basin. Prior to joining SM Energy, Ms. Lutey held various technical and managerial positions in several regions of the United States and +Canada. She was a Senior Reservoir Engineer with Chesapeake Energy Corporation from September 2007 until June 2008, where she was responsible for the resource development of the Fayetteville Shale in +Arkansas. Ms. Lutey was a Team Lead for Engineering and Geoscience, with ConocoPhillips Canada from April 2006 until September 2007, where she was responsible for the technical and business +performance of two multi-discipline groups in Western Canada. From July 2005 until April 2006, she was a Team Lead for Engineering and Geoscience, with Burlington Resources Canada where she managed +the growth and development of resource plays in Western Canada. From 1994 until 2005, Ms. Lutey held various engineering and leadership positions of increasing responsibility for Burlington +Resources. Ms. Lutey has over 26 years of experience in the energy industry. +Lehman E. Newton, III. Mr. Newton joined the company in December 2006 as General Manager for +the Midland, Texas office, was appointed Vice +President and Regional Manager of the Permian region in June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 39 years of experience in +the energy industry. From November 2005 to November 2006, Mr. Newton served as Project Manager for one of Chevron's largest Lower 48 projects. Mr. Newton joined Pure Resources in +February 2003 as the Business Development Manager and worked in that capacity until October 2005. Mr. Newton was a founding partner in Westwin Energy, an independent Permian Basin exploration +and production company, from June 2000 to January 2003. Prior to that, Mr. Newton spent 21 years with ARCO in various engineering, operations and management roles, including as Asset +Manager, ARCO's East Texas operations, Vice President, Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian. +18 +Table of Contents +Mark T. Solomon. Mr. Solomon was appointed Vice President—Controller and Assistant +Secretary of the company in May 2011. He was +appointed Controller of the company in January 2007. Mr. Solomon served as the company's Acting Principal Financial Officer from April 2008 to September 2008, which was during the period of +time that the company's Chief Financial Officer position was vacant. Mr. Solomon joined the company in 1996. He served as Financial Reporting Manager from February 1999 to September 2002, +Assistant Vice President-Financial Reporting from September 2002 to May 2006 and Assistant Vice President-Assistant Controller from May 2006 to January 2007. Prior to joining the company, +Mr. Solomon was an auditor with Ernst & Young. Mr. Solomon has over 21 years of experience in the energy industry. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. +Mr. Whitcomb joined SM Energy in +November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time +his title was changed to Assistant Vice President and Director of Marketing. +19 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation programs for our Chief Executive Officer, Chief Financial Officer and +each of our three other most highly compensated executive officers employed at the end of the 2017 fiscal year, whom we collectively refer to in this "Executive Compensation" section as our "NEOs" or +"Named Executive Officers." Our NEOs for fiscal 2017 were: +• Javan D. Ottoson , President and Chief Executive Officer +• A. Wade Pursell , Executive Vice President and Chief Financial Officer +• Herbert S. Vogel , Executive Vice President—Operations +• David W. Copeland , Executive Vice President and General Counsel +• Lehman E. Newton, III , Senior Vice President and Regional Manager +This +Compensation Discussion and Analysis is divided into seven sections: +Section 1—Executive +Summary +Section 2—Objectives +of Executive Compensation Program +Section 3—Competitive +Positioning +Section 4—Primary +Elements of Compensation +Section 5—Compensation +Determination Process +Section 6—Other +Compensation Items +Section 7—Other +Matters +SECTION 1—EXECUTIVE SUMMARY +2017 Performance Highlights and Impact on Incentive Compensation +In 2017, after initiating our strategic transformation in 2016, we began executing on our plan to grow our debt-adjusted cash flow. Our +execution focused on the following key areas: +• driving value creation on our newly acquired Howard County assets through optimizing drilling and completion operations; +• generating margin expansion and significant returns through our development program focused on efficient capital deployment in growing our +Midland Basin assets; and +20 +Table of Contents +• further coring up our portfolio through continued rationalization of non-core assets to maximize the present value of our assets and de-lever +our balance sheet. +Over +the past year, we were highly successful in achieving these objectives, and expect to continue our success in these areas in 2018. The graphic below illustrates our 2017 performance highlights +and the corresponding relationship between our performance and our incentive arrangements. +Short-Term Incentive Plan ("STIP") Results: The performance metrics used in our 2017 STIP, as +indicated above, include those we believe are the key +drivers of long-term stockholder value creation. We out-performed the targets set by the Compensation Committee in three out of five quantitative areas, including those that are associated with our +return on capital, and both of the qualitative factors. Please see additional discussion below in " Short-Term Incentive Plan—Design ". These +results, along with the individual performance of each NEO, influenced the Compensation Committee to pay actual 2017 bonuses for the NEOs at approximately 155% of the applicable STIP target +percentages, with the exception of Mr. Vogel and Mr. Newton, who each received a bonus at approximately 178% of the applicable STIP target percentage due to their highly successful +leadership of our strategic and operational transformation in the Permian Basin. We believe that this result indicates that our STIP is appropriately designed to link compensation earned to the +achievement of our financial and strategic objectives. See the "Short-Term Incentive Plan" section below for additional discussion. +Long-Term Incentive Plan ("LTIP") Results: Our LTIP design in 2017 was focused on performance-based +PSUs (75% weighting), with the remainder +delivered in the form of service-vesting RSUs (25% weighting). The performance measures used in our 2014-2017 LTIP grants reward total stockholder return, both on an absolute basis and relative to an +index of peer exploration and production companies. At the completion of the three-year performance period, the PSUs granted on July 1, 2014, were settled based upon an earned percentage of 0% +(as compared to a target of 100%), because (a) our annualized absolute total stockholder return ("TSR") for the performance period was –41%, which resulted in an earned +percentage of 0%, and (b) our TSR underperformed the peer index for the period by 7%, which did not change the earned percentage. +Though disappointing, we believe that this result indicates that our LTIP is significantly aligned with stockholder returns and our return performance against our peer group. +21 +Table of Contents +2018 LTIP Plan Changes Reflect Our Commitment to Balance Sheet Strength and Capital Efficiency +The Compensation Committee recently approved a change to our LTIP design, replacing absolute TSR with growth of cash flow per debt adjusted +share relative to the Performance Peer Group (defined below) as a factor to determine the earned percentage for our PSUs. The Compensation Committee believes that this change is in the best interest +of the company and our stockholders because it employs a capital efficiency metric as part of our LTIP design, which we believe will incentivize and recognize management's continuing efforts to +maintain balance sheet strength and deploy capital in an efficient manner. Relative TSR will remain a performance metric in the LTIP design. Target payout will be earned only if relative performance +is above the median over the performance period. Consistent with our current LTIP design, if our absolute TSR is negative, the overall payout for the PSUs will not exceed target. These changes will be +in place for the PSU awards we expect to make in July 2018. +Pay for Performance Alignment—Realized Pay +The following charts illustrate the relationship between Mr. Ottoson's compensation and our performance, including our performance +compared to our peers, over the last three years. The first three charts illustrate our total stockholder return compared to the peer group average for the +22 +Table of Contents +three-year +periods associated with our 2015 LTIP, 2016 LTIP and 2017 LTIP awards, respectively. The final chart compares Mr. Ottoson's target pay and his realized pay for 2015, 2016 and 2017. +(1) In +2015 and 2016, as a result of the downturn in commodity prices, the Compensation Committee reduced Mr. Ottoson's LTIP grant date fair value +to 75% and 65% of his LTIP target, respectively. Following the recovery in commodity prices in 2017, the Compensation Committee elected to return Mr. Ottoson's LTIP grant date fair value to +100% of his LTIP target. +In +the fourth chart above, (a) Target Pay includes salary and annual STIP target compensation as determined by the Compensation Committee, as well as the grant date fair value of +the RSUs and PSUs as disclosed in the Summary Compensation Table for the designated year; and (b) Realized Pay includes salary as determined by the Compensation Committee for the designated +year, actual STIP payments for the designated year's performance, the number of RSUs settled in the applicable year multiplied by our closing stock +price on the day prior to the settlement date, and the number of shares of common stock issued to settle the PSUs in the applicable year multiplied by +our closing stock price on the day prior to the settlement date. This data clearly illustrates that Mr. Ottoson's realized pay is significantly aligned with stockholder returns and our return +performance against our peer group. +23 +Table of Contents +Compensation Program and Corporate Governance Highlights +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and qualitative +factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced mix of base salary, annual cash incentives through our STIP, and long-term +equity incentives through our LTIP. We balance incentives tied to short-term annual performance with incentives tied to multi-year performance. In this way, we motivate our NEOs to consider the impact +of their decisions over the short, intermediate, and long term. The performance metrics used in our 2017 STIP include those we believe are the key drivers of long-term stockholder value creation: +production volume; proved developed reserve additions; finding and development costs; cash flow; cash operating costs; environmental, health, and safety performance; and exploration success and +economic inventory growth. Our STIP program is not completely formulaic because the Compensation Committee has the discretion to adjust bonuses based on the "quality" of the results and other relevant +factors as well as individual performance and behavior, and has used that discretion to adjust calculated bonuses both positively and negatively in the past. Our previous LTIP grants reward total +stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies. As discussed above, the recent change to our LTIP design will now include a +specific capital efficiency metric that we believe incentivizes and recognizes +24 +Table of Contents +management's +continuing efforts to maintain balance sheet strength and deploy capital in an efficient manner. Some highlights of our executive compensation program are: +What We Do: +What We Do Not Do: +ü +We generally target pay opportunities at the market median. +c +We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +ü +The majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating long-term stockholder value. +c +We do not provide "single-trigger" cash severance or equity vesting acceleration upon a change in control. +ü +A significant portion of executive compensation is in the form of equity, with 75% of target equity value delivered in performance based awards. +c +We do not provide golden parachute excise tax or other tax gross-ups. +ü +We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the long-term financial interests of our stockholders. +c +We do not pay dividends on unearned restricted stock and performance share units. +ü +The Compensation Committee retains an independent compensation consultant who provides no other services to our company. +c +We do not permit option repricing, or exchange of underwater options for other awards or cash, without stockholder approval. +ü +The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by its independent compensation consultant to ensure our plans are designed appropriately and do not encourage +excessive risk taking, while taking into account market changes and peer group comparisons. +c +We do not permit officers, employees or directors to enter into transactions that "hedge" the value of our securities owned by them, hold our securities in margin accounts, pledge our securities to secure +indebtedness, or buy or sell options or derivatives with respect to our securities. +ü +We have adopted a clawback policy applicable to our NEOs. +ü +Performance-based PSUs capped at target if our TSR is negative for the performance period. +ü +Beginning in 2018, our LTIP design includes a specific metric that incentivizes and recognizes our on-going commitment to capital efficiency and balance sheet strength. +Stockholder Advisory Vote on Compensation +At our 2017 Annual Meeting of Stockholders, our stockholders were provided the opportunity to cast a non-binding advisory vote on the +compensation of our NEOs. Over 99% of votes cast approved the compensation of our NEOs. Because the vote was advisory, the result was not binding on the Compensation Committee. However, the +Compensation Committee believes that our stockholders' overwhelming approval of the compensation of our NEOs indicates that they consider our +25 +Table of Contents +compensation +philosophy and our executive compensation policies to be effective and aligned with their interests. The Compensation Committee took into account the outcome of the vote and other +factors, as more fully discussed herein, in reviewing our executive compensation policies for 2017. Following recent discussions with some of our stockholders, the Compensation Committee's independent +compensation consultant and management, our Compensation Committee determined it was in the best interests of our stockholders to modify our LTIP design beginning in 2018 to include a specific capital +efficiency metric as part of the earned percentage applicable to our PSUs. +SECTION 2—OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM +Our overall executive compensation program is designed to promote superior returns for our stockholders and to align executive pay with company +performance +throughout industry cycles. The objectives of our executive compensation program are to: +1. Provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented +management. +Our +pay philosophy targets overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, based on analysis performed +by the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. ("F. W. Cook"), we target total direct compensation for our NEOs around the +median of our industry peer group (see "Section 3—Competitive Positioning" for further detail). Actual compensation earned by a particular individual may be above or below the +target level based on company and individual performance measured against the established metrics of our incentive compensation programs. +2. Link compensation earned to the achievement of our short-term and long-term financial and strategic objectives. +We +believe the performance-based, "at risk" proportion of total compensation should increase with an individual's level of responsibility. Our compensation system is intended to provide the +appropriate balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this end, our STIP rewards annual operating and financial +performance based upon quantitative measures of cash flow, production volume, proved developed reserve growth, cash operating costs and finding and development costs, and discretionary qualitative +measures of environmental, health, and safety and exploration success and inventory growth (see "Primary Elements of Compensation—Short-Term Incentive Plan"). The combination of the +production volume metric with the finding and development cost metric emphasizes the need for us to wisely allocate our capital expenditure budget. Beginning in 2018, our LTIP design will reward total +stockholder return relative to an index of peer exploration and production companies as well as our growth of cash flow per debt adjusted share relative to those peer companies (see "Primary Elements +of Compensation—Long-Term Incentive Plan"). +3. Align performance incentives with the long-term interests of our stockholders. +We +believe that we achieve alignment of long-term interests between stockholders and management by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that ensure our +26 +Table of Contents +executives +have a meaningful ownership stake during their tenure. In addition, the metrics used for our STIP include those we believe drive long-term value creation, while realized compensation under +our LTIP is aligned with relative returns realized by our stockholders. +4. Ensure programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs ( e.g. , salary increases, bonus payments, +and equity compensation grants), the Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation programs, expected accounting treatment, +potential stockholder dilution, and the impact on our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most +financially efficient manner possible, and that satisfy our other compensation objectives. +5. Uphold high standards of good corporate governance and strive to achieve evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, F. W. Cook, stays abreast of current and developing corporate +governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it deems appropriate, to reflect best practices and/or new legislation. +SECTION 3—COMPETITIVE POSITIONING +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our executive +officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies with our General +Industry Classification Standard Industry Code include standard measures such as revenue, operating cash flow, enterprise value, and market cap, as well as the magnitude of each company's offshore and +non-U.S.-based operations. F. W. Cook identifies peer companies that are within a specific and reasonable range of our company for at least four of these criteria and that have corporate structures +similar to ours. The Compensation Committee, with input from F. W. Cook, selects a peer group that includes the 15-20 companies that best fit the selection criteria, excluding those companies from the +peer group from the previous year that no longer satisfy the selection criteria. In March 2017, the Compensation Committee approved the peer group used for 2017 compensation comparisons, which +consisted of the following companies, including all 15 companies in the 2016 peer group as well as adding Carrizo Oil & Gas, Inc.: +Cabot Oil & Gas Corporation +Laredo Petroleum Inc. +Carrizo Oil & Gas, Inc. +Newfield Exploration Company +Cimarex Energy Company +Oasis Petroleum, Inc. +Concho Resources Inc. +PDC Energy, Inc. +Continental Resources, Inc. +QEP Resources, Inc. +Denbury Resources Incorporated +Range Resources Corporation +Energen Resources Corporation +Whiting Petroleum Corporation +EP Energy Corporation +WPX Energy Inc. +27 +Table of Contents +Competitive Compensation Analysis +In 2017, F. W. Cook analyzed competitive pay trends at these peer group companies along with data from relevant, third party, independent +compensation surveys focused on the exploration and production industry (the Energy 27 Group, Meridian and Effective Compensation, Inc. surveys). Findings from this analysis indicated that +Mr. Ottoson's target total direct compensation (base salary plus target annual bonus plus target +LTIP grant) was below the 25 th percentile of the peer group, Mr. Vogel's and Mr. Newton's target total direct compensation was between the +25 th percentile and the peer group median, and Mr. Pursell's and Mr. Copeland's target total direct compensation was near the +peer group median. Based on this analysis, F. W. Cook recommended to the Compensation Committee that Mr. Ottoson's and Mr. Vogel's STIP target percentage and target LTIP grant be +increased. +Findings +from F. W. Cook's 2017 competitive compensation analysis were among the many factors considered by the Compensation Committee in its review of base salary, STIP targets and +target LTIP values for each of our NEOs. After reviewing this comparative compensation data, the Compensation Committee elected to increase the base salaries for our NEOs in recognition of individual +performance and consistent with our company-wide merit increases, with the exception of Mr. Vogel, whose base salary was increased by approximately $40,000 so that his base salary was at +approximately the median of the peer group. In addition, in light of the competitive positioning of Mr. Ottoson's and Mr. Vogel's target total direct compensation in comparison with the +peer group, the Compensation Committee also elected to increase Mr. Ottoson's and Mr. Vogel's STIP target percentage and target LTIP grant. Following these changes, Mr. Ottoson's +target total direct compensation was between the 25 th percentile and the peer group median, and Mr. Vogel's target total direct compensation was near the peer group median. +SECTION 4—PRIMARY ELEMENTS OF COMPENSATION +The primary elements of our executive compensation program and the purpose of each component are summarized in the following table. Our executive +compensation +program is comprised of the same components as the compensation program for other employees with similar tenure with the company. The only material differences are the target pay levels and the +proportion of each component in the total pay mix. +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; and recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; and reward long-term company performance and capital efficiency +28 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2017 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts illustrate, +88% and 77% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied to +performance ( i.e. , "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of each +individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data, the Compensation Committee elected to increase the base +salaries for our NEOs as discussed above. +Name +2016 Salary +2017 Salary +Ottoson +$ +800,000 +$ +824,000 +Pursell +$ +447,000 +$ +460,410 +Vogel +$ +412,000 +$ +453,200 +Copeland +$ +401,000 +$ +413,030 +Newton +$ +316,000 +$ +328,640 +Short-Term Incentive Plan—Design +Our STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives and the individual performance of each NEO. These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are +published as annual goals. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business. Payments under our +STIP are in the form of annual cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +29 +Table of Contents +Return +on capital is an important consideration in the structure of our STIP and is reflected in three primary mechanisms: first , the +quantitative goals the Compensation Committee adopts are based on our drilling plan and budget for the year, which requires expected minimum return thresholds for each well drilled and completed; second , +the finding and development cost metric reflects one component of our return on capital by calculating the efficiency of each capital dollar we +spend; and third , the Compensation Committee has the discretion to negatively adjust for the proved developed reserve addition metric to the extent we +achieve results in this area as a result of exceeding our capital expenditure budget. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses generally range from zero to two times a participant's target percentage based on the Compensation Committee's assessment of our +performance and that of each of our NEOs. In addition, the maximum award permitted under our Cash Bonus Plan for any participant is $2,000,000. Target bonuses for 2017 as percentages of base salary +for the NEOs were as follows: +Name +2017 Target +Bonus Level, +% of Base +Salary +Ottoson +120 +% +Pursell +90 +% +Vogel +90 +% +Copeland +70 +% +Newton +70 +% +Short-Term Incentive Plan—2017 Performance +In order for the STIP bonus pool to be funded for our NEOs, the 2017 STIP required that our 2017 cash flow metric, as described below, exceed a +threshold level of $400 million. If our cash flow metric had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Our actual 2017 cash +flow was approximately $650 million, resulting in full initial funding of the STIP bonus pool for our NEOs at the maximum level. The Compensation Committee then examined our performance under +five quantitative and two qualitative metrics to +determine actual bonus payments to our NEOs by reducing (but not increasing) the amounts funded through achievement of the cash flow threshold. The Compensation Committee evaluated our performance in +the following five quantitative areas with respect to the annual cash bonus awards for our NEOs: +Factor +Weight +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (MMBOE) +.20 +36.4 +42.8 +49.2 +43.6 +101.9 +% +Proved Developed Reserve Additions (MMBOE) +.20 +41.8 +52.2 +65.3 +66.5 +127.4 +% +Finding and Development Costs ($ per BOE) (1) +.20 +$19.26 +$16.75 +$14.24 +$14.03 +83.8 +% +Cash Flow ($ in millions) +.20 +$544.9 +$681.1 +$851.4 +$649.8 +95.4 +% +Cash Operating Costs ($ per BOE) (2) +.20 +$15.91 +$13.26 +$9.95 +$13.78 +103.9 +% +(1) As +noted below, our actual finding and development cost out-performed our target by 16.2%. +(2) As +noted below, our actual cash operating costs underperformed our target by 3.9%. +30 +Table of Contents +Metric +Result +Commentary +Production Volume +Out-performed target by 1.9%. +The production volume target represents the volume of oil, gas and NGLs estimated to be produced under our 2017 business plan. This measure is important because proceeds from the sale of production generate essentially +all of our revenue. +Proved Developed Reserve Additions +Out-performed target by 27.4%. +The proved developed reserve additions target represents the proved developed reserves estimated to be added from projects funded under our capital program during 2017. This measure is important because proved developed +reserves are the primary source of future production and cash flow for us and, as such, relate directly to the value of our company. +Finding and Development Costs +Out-performed target by 16.2%. +Finding and development costs are a measure of the efficiency of our capital program in adding value. The finding and development costs target represents the estimated cost of proved developed reserve additions on a +dollar per barrel of oil equivalent ("BOE") basis, as projected under our 2017 business plan. +Cash Flow +Underperformed target by 4.6%. +Our cash flow target is calculated based on Adjusted EBITDAX, which represents net income (loss) before interest expense, other non-operating income or expense, income taxes, depletion, depreciation, amortization and +asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, change in the Net Profits Plan liability, gains and losses +on divestitures, gains or losses on extinguishment of debt, and materials inventory impairments. This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a +key factor in stockholder value creation. +Cash Operating Costs +Underperformed target by 3.9%. +Our cash operating costs are calculated as the sum of our lease operating expense, ad valorem taxes, workover expenses, transportation, production taxes, and general and administrative expenses (less stock compensation +expense), on a per BOE basis. +31 +Table of Contents +Additionally, +the Compensation Committee assessed our 2017 performance in the following qualitative areas: +Environmental, Health, and Safety (EHS) —Our health and safety performance was top-quartile in the areas of statistical +measurement that we track; +however, we were not in the top-quartile in some of the areas of statistical measurement for environmental performance that we track. As a result, the Compensation Committee gave partial positive +credit for this qualitative measure in 2017. +Exploration Success and Inventory Growth —Our performance with respect to our qualitative metric for exploration +success and inventory growth +significantly exceeded all the criteria considered by the Compensation Committee in this area. Accordingly, the Compensation Committee gave the maximum positive credit for this qualitative measure in +2017. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is assigned the weighting disclosed in the above table; however, because quantitative goals must be determined at the beginning +of the year, the Compensation Committee's exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals +no longer comport with reasonable outcomes. +The +Compensation Committee considered all of the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Name +Salary Paid +in 2017 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Ottoson +$818,461 +120 +% +186 +% +$1,522,399 +Pursell +$457,315 +90 +% +139 +% +$637,955 +Vogel +$443,693 +90 +% +160 +% +$711,794 +Copeland +$410,254 +70 +% +109 +% +$445,126 +Newton +$325,723 +70 +% +125 +% +$406,421 +Long-Term Incentive Plan—Design +Our LTIP as in effect during 2017, which we implemented in its current form in 2008, is an equity compensation program that utilizes +performance share units, or PSUs, and restricted stock units, or RSUs, to compensate our NEOs and other key employees for long-term growth in our net asset value, as reflected in our absolute and +relative cumulative TSR, which includes the effects of dividends. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"). +The +target value of LTIP awards to our NEOs were approved by the Compensation Committee during the second quarter of 2017. In its determination of the total pool value for 2017, the +Compensation Committee considered various factors, including historical fair value transfer (or the percentage of market capitalization transferred to employees annually in the form of stock based +awards and other forms of ownership in our company, "FVT") under our long-term incentive compensation system compared to our peer group companies, input from F. W. Cook on expected trends in FVT for +the subject period, and shares available under our Equity Plan. +32 +Table of Contents +Our LTIP program in effect during 2017 for our NEOs was heavily weighted to performance based equity, reflecting our pay for performance philosophy. +For our +NEOs, 75% of the LTIP target value consisted of performance-based PSUs, and 25% consisted of time-based RSUs. Participants were awarded RSUs and PSUs during the third quarter of 2017, for the +performance measurement period beginning July 1, 2017, and ending June 30, 2020. RSUs have a three-year vesting schedule, with one-third vesting on each of the first three anniversaries +of the award date, and are settled in shares of our common stock at the time of vesting. PSUs are settled in shares of our common stock, the actual number of shares ranging from 0% to 200% of the +number of PSUs awarded depending on our absolute and relative TSR performance against the pre-established goals at the end of the three-year performance period. The PSUs are intended to reward our +NEOs for long-term growth in net asset value, as reflected in our absolute and relative TSR performance. +As +discussed above, beginning in 2018, the Compensation Committee approved a change to our LTIP design, replacing absolute TSR with growth of cash flow per debt adjusted share relative +to the Performance Peer Group as a factor to determine the earned percentage for our PSUs. The Compensation Committee believes that this change is in the best interest of the company and our +stockholders because it employs a specific capital efficiency metric as part of our LTIP design, which we believe will incentivize and recognize management's continuing efforts to maintain balance +sheet strength and deploy capital in an efficient manner. Relative TSR will remain a performance metric in +the LTIP design. Target payout will be earned only if relative performance is above the median over the performance period. Consistent with our current LTIP design, if our absolute TSR is negative, +the overall payout for the PSUs will not exceed target. +Long-Term Incentive Plan—PSUs +The number of shares of our common stock issued to settle PSUs at the end of the 2017-2020 performance period will equal the number of PSUs +multiplied by the "Earned Percentage." The earned percentage is the sum of the Absolute TSR Score and the TSR vs. Peer Index Score, as outlined in the payout matrix below, subject to a maximum of 200% +and a minimum of 0%: +Absolute TSR +TSR vs. Peer Index +Annualized +TSR +Earned +Percentage* +% Point Difference +from Index +Earned +Percentage* +£ 0% +0% +£ –10% +–80% +4% +20% +0% +20% +16% +110% +³ 8% +100% +³ 25% +200% +* Earned percentage is linearly interpolated for performance between points. +TSR +is measured on a compound annualized basis, and relative TSR is compared to the TSR of an equal weighted index of peer companies (the "Performance Peer Group"), in both cases using +the average closing prices for the 20 days prior to the start and end of the performance period. The Performance Peer Group consists of companies from our comparative peer group, as recommended +by F. W. Cook and selected by the Compensation Committee based upon the criteria discussed above, with any adjustments to that list of companies as deemed necessary or appropriate by the Compensation +Committee in its discretion. As of July 1, 2017, for the 2017-2020 performance period, the constituents of the Performance Peer Group included the same companies shown under +" Comparative Peer Group " above. +At +any time during the three-year performance period, the Compensation Committee may elect to modify the Performance Peer Group if significant changes +( e.g. , a member of the Performance Peer +33 +Table of Contents +Group +is acquired) occur relating to any member of the Performance Peer Group. As of the date of this Proxy Statement, the Compensation Committee has not modified the Performance Peer Group for the +2017-2020 performance period. +At +the completion of the 2014-2017 performance period, the PSUs granted on July 1, 2014, were settled using an earned percentage of 0%. We achieved this result based upon +(a) our annualized absolute TSR for the performance period of –41%, which resulted in an earned percentage of 0%, and (b) our TSR underperformed the peer index for the +period by 7%, which did not change the earned percentage. The chart below illustrates the total return for our stockholders for the three-year period ending June 30, 2017, relative to the peer +index for such period: +Comparison of Three-Year Return 2014–2017 +SECTION 5—COMPENSATION DETERMINATION PROCESS +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and its Compensation Committee, as discussed below. The Compensation Committee is +currently comprised of four independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the +purposes of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; and +34 +Table of Contents +• reviewing the performance and approving the compensation for our executive officers, including our Chief Executive Officer. +In +2017, the Compensation Committee met nine times to administer the matters noted above and address other matters required under its charter. The following diagram outlines key +Compensation Committee activities during the year: +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company Manual, +the Board has determined that all members of the Compensation Committee are independent. +Independent Compensation Consultant +F. W. Cook serves as independent executive compensation consultant for and reports directly to the Compensation Committee. The Compensation +Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems necessary. A principal of F. W. Cook attends Compensation Committee meetings, as requested, +and communicates with the Compensation Committee between meetings. The services F. W. Cook provides, based upon direction from the Compensation Committee, include advising the +Compensation Committee on the design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis regarding the competitiveness of +our executive compensation opportunities, conducting compensation risk assessments and providing analysis concerning the equity compensation practices of our peers. To facilitate the delivery of these +services to the Compensation Committee, F. W. Cook interfaces with our management, in particular our Vice President—Human Resources. F. W. Cook does not provide +directly, or indirectly through affiliates, any non-executive compensation services, such as pension consulting or human resource outsourcing, to us. The total consulting fees we pay to +F. W. Cook are less than 1% of the total annual revenues of F. W. Cook, and F. W. Cook and the F. W. Cook consultants working with us are +prohibited from owning any of our shares of common +35 +Table of Contents +stock +directly, although such shares may be owned within mutual funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known personal relationship with +any of our officers, directors, stockholders or employees that would present a potential conflict to their independence. After consideration of disclosures and representations made by +F. W. Cook concerning the foregoing, the Compensation Committee determined in 2017 that F. W. Cook's work did not raise any potential conflicts of interest. +F. W. Cook has agreed to advise the Compensation Committee if any potential conflict of interest arises that could cause F. W. Cook's independence to be questioned and not +to undertake any project for our management, except at the request of the Compensation Committee and as agent for the Compensation Committee. In 2017, F. W. Cook did not provide any +services to us +other than those requested by the Compensation Committee and related to F. W. Cook's engagement as the independent consultant to the Compensation Committee. +Compensation Risk Assessment +Each year, the Compensation Committee and F. W. Cook review and evaluate our compensation policies and practices for all employees to assess to +what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by properly aligning the +interest of our employees with the interests of our stockholders and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material +adverse effect on us. In 2017 and 2018, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a +material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and our Vice President—Human Resources, management provides recommendations to +the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than himself based on +competitive market data, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing information on historical compensation +levels, employee evaluations and its analysis of comparative industry data, and by interfacing with F. W. Cook. While members of the management team attend Compensation Committee meetings, they are +not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective compensation. The Compensation Committee and the +Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our President and CEO, Executive Vice President +and CFO, and Executive Vice +President—Operations and to provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for those executives, our Human +Resources department provides the Compensation Committee and F. W. Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those executives, including severance +arrangements and all benefits provided in connection with termination of employment. The tally sheets show the amount the executive would receive under various foreseeable circumstances +( e.g. , termination with or without cause; resignation; and retirement or termination in connection with change in control). +36 +Table of Contents +The +Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information +provided to gain additional perspective and as a reference. +SECTION 6—OTHER COMPENSATION ITEMS +The remaining components of our executive compensation program (other than the primary elements discussed above), include the following: +Compensation Element +Description +Purpose +Employee Stock Purchase Plan +employees, including our executives, may purchase shares of our common stock at a 15% discount to the fair market value, subject to certain limits +facilitate share ownership among employees; and align employees' interests with those of stockholders +Qualified Retirement Plans +includes qualified defined benefit pension plan and 401(k) plan with company match +attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Retirement Plan +provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($270,000 for 2017) +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Non-qualified Deferred Compensation Plan +provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +medical, dental, vision, life, financial advisory services for executives and disability insurance +attract and retain highly qualified employees; and support the overall health and well-being of all employees +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. The NPP was designed +to reward the contributions made by our executives and other key employees to our long-term financial success. Under the NPP, participants shared in the net profits derived from our investment in all +oil and gas activity from a specific pool of properties in a given year after we recovered the capital costs associated with that pool. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. Mr. Ottoson participates in two NPP pools and currently +37 +Table of Contents +receives +no compensation from these pools because they have not reached payout status. Please see Summary Compensation Table for 2015, 2016 and 2017 for +more detail on the NPP payments. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees, including our NEOs, to purchase +shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and December 31 of +each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is the lower of 85% of the fair +market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. +Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified Pension Plan") and a +401(k) plan on the same basis as our eligible employees. Our executives are also eligible to participate in our SERP and non-qualified deferred compensation plan (the "NQDC"). The SERP is an unfunded, +non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence of IRC limits on the Qualified Pension Plan. The NQDC is +intended to provide executives with tax planning opportunities and the opportunity to receive the full benefit of matching contributions in +excess of IRC limits applicable to our 401(k) plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, and to support our succession planning objectives +with a goal of providing retirement replacement income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that executive's average base salary, excluding bonuses. +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the 401(k) plan, subject to annual limits to amounts determined by IRC regulations ($18,000 for +2017). We match each employee's contributions in cash on a dollar for dollar basis, up to 6% of the employee's base salary and cash bonus for participants in the Qualified Pension Plan and up to 9% of +the employee's base salary and cash bonus for employees that are not participants in the Qualified Pension Plan. Company contributions vest over an employee's first five years of employment with the +company. +The +NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating +employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to +make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee's base salary and cash bonus. Each eligible employee's interest in +the contributions we make will vest 40% after the second year of such employee's service to us, and 20% per year thereafter. A participant's account will be distributed based upon the participant's +payment election made at the time +38 +Table of Contents +of +deferral. A participant may elect to have distributions made in lump sum or in annual installments ranging for a period from 1-10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis as all +other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with all +employees, group term life insurance up to 2.5 times their respective base salaries up to $2,000,000. We also provide financial planning services to our executives, including the NEOs, upon their +election. +SECTION 7—OTHER MATTERS +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. The +Compensation Committee generally approves these grants at its June meeting. The Compensation Committee, the Board or our CEO have in the past, and may in the future, make limited grants of equity on +other dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain or reward such persons; however, our CEO may only make such grants to +non-executives. We did not make any special grants of equity to our NEOs during 2017. +Employment Agreements +The employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, and +certain other key employees, through change of control executive severance agreements. See "Potential Payments upon Termination or Change of Control— Change of +Control Arrangements " for more information about these agreements and potential payments in the event of a termination of employment following a change in control. No excise +tax "gross up" payments are provided. +Clawback Policy +Our Board adopted a formal clawback policy effective as of February 17, 2015. The clawback policy provides that in the event we are +required to prepare an accounting restatement of our financial statements due to any material noncompliance with any financial reporting requirement under applicable securities laws, the Board may, in +its sole discretion, require reimbursement of compensation paid pursuant to our Cash Bonus Plan after January 1, 2015, to any officer of the company that engaged in fraudulent or intentional +illegal misconduct and for whom disclosure was required in any of the company's filings with the Securities and Exchange Commission that required disclosure pursuant to Item 402(c) of +Regulation S-K and that applied to any portion of the period for which the accounting restatement was required. +39 +Table of Contents +Stock Ownership Guidelines +To further align senior management's interests with the interests of our stockholders with respect to long-term growth of stockholder value, +the Compensation Committee has established and the Board has approved equity ownership guidelines for our executives as follows: +Chief Executive Officer +5 times annual base salary +Executive Vice Presidents +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of equity +awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to such executive, unless approved by the Compensation Committee for the Chief Executive Officer or +any Executive Vice President, and by the Chief Executive Officer for all other officers. As of April 4, 2018, all of our NEOs satisfied these guidelines. The Compensation Committee will +continue to review compliance with these guidelines annually, and more often as appropriate. +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of trading +in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address trading by officers, +certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be highest, and generally prohibits our +officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, employees and directors from +(a) entering into transactions that "hedge" the value of our stock, +(b) holding our securities in margin accounts, (c) pledging our securities to secure indebtedness, and (d) buying or selling options or derivatives with respect to our securities. +Compensation Committee Report +The Compensation Committee of the Board of Directors of SM Energy Company reviewed and discussed the disclosures contained under "Compensation +Discussion and Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the disclosures set forth +under the heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on Form 10-K for the fiscal +year ended December 31, 2017. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Stephen +R. Brand, Chair +Larry W. Bickle +Ramiro G. Peru +Julio M. Quintana +40 +Table of Contents +Executive Compensation Tables +This Summary Compensation table sets forth the annual and long-term compensation our NEOs received during each of the last three years. In +addition to salaries, the table reflects RSUs and PSUs granted in 2015, 2016, and 2017 and cash bonuses earned in 2015, 2016, and 2017. Eligible employees participate in our STIP and LTIP as described +more fully in the "Compensation Discussion and Analysis" and disclosed below. +Name and Principal Position +Year +Salary +Stock +Awards (1) +Non-Equity +Incentive +Plan +Compensation (2) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings (3) +All Other +Compensation (4) +Total +Javan D. Ottoson +2017 +$818,462 +$5,000,000 +$1,522,339 +$386,949 +$121,468 +$7,849,218 +Chief Executive Officer and +2016 +$800,000 +$2,600,005 +$720,000 +$294,467 +$122,973 +$4,537,445 +President (principal executive officer) +2015 +$796,731 +$3,000,014 +$773,000 +$210,255 +$122,185 +$4,902,185 +A. Wade Pursell +2017 +$457,315 +$2,000,007 +$637,955 +$117,300 +$37,849 +$3,250,426 +Executive Vice President and +2016 +$447,000 +$1,500,010 +$360,813 +$96,009 +$15,900 +$2,419,732 +Chief Financial Officer (principal financial officer) +2015 +$461,769 +$1,624,985 +$403,125 +$61,731 +$15,900 +$2,567,510 +Herbert S. Vogel +2017 +$443,693 +$2,299,993 +$711,794 +$106,697 +$73,714 +$3,635,891 +Executive Vice +2016 +$412,000 +$1,500,010 +$304,184 +$80,580 +$72,755 +$2,369,529 +President—Operations +2015 +$424,616 +$1,624,985 +$329,502 +$64,107 +$82,516 +$2,525,726 +David W. Copeland +2017 +$410,254 +$700,001 +$445,126 +$108,506 +$30,978 +$1,694,865 +Executive Vice President +2016 +$401,000 +$524,998 +$246,295 +$89,423 +$40,040 +$1,301,756 +and General Counsel +2015 +$414,270 +$700,003 +$281,289 +$73,264 +$15,950 +$1,484,776 +Lehman E. Newton +2017 +$325,723 +$525,004 +$406,421 +$113,032 +$47,254 +$1,417,434 +Sr. Vice President and Regional Manager +(1) The +amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial Accounting +Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated forfeitures related to +service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to Consolidated Financial +Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. PSU awards are subject to market-based performance conditions relating to our total +stockholder return and relative stockholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSU awards reflected in this column are based on +the estimate as of the grant date of the probable outcome of these performance conditions, and those grant date fair values for Messrs. Ottoson, Pursell, Vogel, Copeland and Newton respectively +are $3,750,002, $1,500,007, $1,724,997, $524,998 and $393,756. If instead we assume that the highest level of performance conditions will be achieved, the grant date fair values of those awards as +computed in accordance with FASB ASC Topic 718 for Messrs. Ottoson, Pursell, Vogel, Copeland and Newton respectively are $7,500,004, $3,000,014, $3,449,994, $1,049,995 and $787,512. +(2) The +amounts in the column represent the bonuses paid in 2018, 2017, and 2016, but earned during 2017, 2016 and 2015 performance periods, respectively, +under the STIP. +(3) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our qualified +and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or above market earnings +on deferred compensation. +41 +Table of Contents +(4) Amounts +consist of our respective contributions to our 401(k) Profit Sharing Plan, contribution to our Non-Qualified Deferred Compensation Plan, +payments for financial consulting services and any anniversary gift cards. In 2017, matching contributions to our 401(k) Profit Sharing Plan of $16,200 were provided to each of Messrs. Ottoson, +Pursell, Vogel, Copeland and Newton. In 2017, matching contributions to our Non-Qualified Deferred Compensation Plan of $92,308, $21,649, $44,873, $14,778 and $19,543 were made to +Messrs. Ottoson, Pursell, Vogel, Copeland and Newton, respectively. In 2017, financial consulting service benefits of $12,960, $12,368 and $11,510 were provided to Messrs. Ottoson, Vogel +and Newton, respectively. +CEO Pay Ratio +Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the ratio of our median employee's compensation to the +compensation of our CEO is 44:1. +In +order to find the median employee, we used the Consistently Applied Compensation Measure (CACM) defined as sum of the base salary and bonus, including any overtime or commission that +was paid to each employee. Furthermore, we annualized the bonus, base salary, and any overtime for employees that were not employed the entire 2017 year. We identified the median employee from +our employee population (excluding our CEO) as of November 15, 2017. +In +accordance with SEC rules, we then determined the amount of the annual total compensation of our median employee for 2017 was $177,380. This amount represents the total compensation +that would have been reported in the Summary Compensation Table in accordance with the requirements of Item 402(c)(x) of Regulation S-K for the median employee if the employee had been a +NEO for fiscal year 2017. +We +determined the amount of the CEO's annual total compensation was $7,849,218, which represents the amount reported for the CEO in the "Total" column of our 2017 Summary Compensation +Table. +Based +on the foregoing, for 2017, the ratio of the annual total compensation of our CEO to the annual total compensation for our median employee is 44:1. +The +pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records. +The +SEC's rules for identifying the median compensated employee and calculating the pay ratio based on that employee's annual total compensation allow companies to adopt a variety of +methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by +other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, +exclusions, estimates and assumptions in calculating their own pay ratios. +Grants of Plan-Based Awards in 2017 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the quantitative and qualitative +metrics for our 2017 STIP on February 20, 2017. As discussed above, in 2018, we made the bonus payments associated with the 2017 STIP. In addition, pursuant to our LTIP and in accordance with +our Equity Incentive Compensation Plan (the "Equity +42 +Table of Contents +Plan"), +our Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 19, 2017. We made these grants on July 1, 2017. These grants are summarized in the table below. +Estimated Future +Payouts Under +Non-Equity Incentive +Plan Awards +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (5) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option +Awards (6) +Grant +Date +Name +Target (1) +Maximum (2) +Threshold +Target (3) +Maximum (4) +Javan D. Ottoson +1/17/17 +$982,154 +$2,000,000 +— +— +— +— +— +7/1/17 +— +— +— +— +— +75,620 +$1,249,999 +7/1/17 +— +— +— +236,444 +472,888 +— +$3,750,001 +A. Wade Pursell +1/17/17 +$411,584 +$2,000,000 +— +— +— +— +— +7/1/17 +— +— +— +— +— +30,248 +$500,000 +7/1/17 +— +— +— +94,578 +189,156 +— +$1,500,007 +Herbert S. Vogel +1/17/17 +$399,323 +$2,000,000 +— +— +— +— +— +7/1/17 +— +— +— +— +— +34,785 +$574,996 +7/1/17 +— +— +— +108,764 +217,528 +— +$1,724,997 +David W. Copeland +1/17/17 +$287,178 +$2,000,000 +— +— +— +— +— +7/1/17 +— +— +— +— +— +10,587 +$175,003 +7/1/17 +— +— +— +33,102 +66,204 +— +$524,998 +Lehman E. Newton +1/17/17 +$228,006 +$2,000,000 +— +— +— +— +— +7/1/17 +— +— +— +— +— +7,940 +$131,248 +7/1/17 +— +— +— +24,827 +49,654 +— +$393,756 +(1) This +amount represents the salary amount actually paid to each of our NEOs in 2017, multiplied by the applicable STIP target percentage. +(2) This +amount represents the maximum award possible under the stockholder-approved Section 162(m) Cash Bonus Plan; however, as described above in +"Section 4—Elements Of Compensation—Short Term Incentive Plan—Design," in general, actual bonuses generally range from zero to two times a participant's +target percentage. +(3) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve +the target performance level established by our Compensation Committee, resulting in an earned percentage of 100%. PSUs represent the right to receive, upon settlement of the PSUs after the completion +of a three-year performance period ending June 30, 2020, a number of shares of our common stock that may be from 0% to 200% of the number of PSUs granted on the award date, depending on the +extent to which we have achieved the performance criteria and the extent to which the PSUs have vested. The performance criteria for the PSUs are based on a combination of our TSR for the performance +periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer companies for the performance period. The PSUs will vest on July 1, 2020. +(4) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we achieve +the maximum performance level established by our Compensation Committee, resulting in an earned percentage of 200%. +(5) This +amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2018, one-third on July 1, 2019, and +one-third on July 1, 2020. Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. The RSUs are not eligible for dividends and +are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement date. +(6) The +grant date fair value of a PSU is calculated using a Geometric Brownian Motion Model, and the aggregate grant date fair value represented in this +column for PSUs is calculated based upon the number of PSUs granted. +43 +Table of Contents +Outstanding Equity Awards at 2017 Year-End +The following table shows outstanding equity awards for our NEOs as of December 31, 2017: +Stock Awards +Equity Incentive Plan +Awards: +Equity Incentive Plan +Awards: +Number of +Shares or +Units of +Stock +That Have +Not Vested +Market Value +of Shares or +Units of +Stock that +Have Not +Vested (1) +Name +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value +of Unearned Shares, +Units or Other Rights +That Have Not +Vested (1) +Javan D. Ottoson +5,719 +(2) +$126,276 +— +$— +— +$— +49,625 +(3) +$1,095,720 +15,432 +(4) +$340,739 +— +$— +— +$— +73,419 +(5) +$1,621,092 +75,620 +(6) +$1,669,690 +— +$— +— +$— +236,444 +(7) +$5,220,684 +A. Wade Pursell +3,098 +(2) +$68,404 +— +$— +— +$— +26,880 +(3) +$593,510 +8,904 +(4) +$196,600 +— +$— +— +$— +42,357 +(5) +$935,243 +30,248 +(6) +$667,876 +— +$— +— +$— +94,578 +(7) +$2,088,282 +Herbert S. Vogel +3,098 +(2) +$68,404 +— +$— +— +$— +26,880 +(3) +$593,510 +8,904 +(4) +$196,600 +— +$— +— +$— +42,357 +(5) +$935,243 +34,785 +(6) +$768,053 +— +$— +— +$— +108,764 +(7) +$2,401,509 +David W. Copeland +1,335 +(2) +$29,477 +— +$— +— +$— +11,579 +(3) +$255,664 +3,116 +(4) +$68,801 +— +$— +— +$— +14,825 +(5) +$327,336 +10,587 +(6) +$233,761 +— +$— +— +$— +33,102 +(7) +$730,892 +Lehman E. Newton +744 +(2) +$16,428 +— +$— +— +$— +6,451 +(3) +$142,438 +2,018 +(4) +$44,557 +— +$— +— +$— +9,601 +(5) +$211,990 +7,940 +(6) +$175,315 +— +$— +— +$— +24,827 +(7) +$548,180 +(1) The +market value of RSUs and PSUs that have not vested is calculated using the closing price of $22.08 of our common stock on December 29, +2017. The market value of PSUs is calculated based upon an earned percentage of 100%. +(2) These +RSUs vest 1/3rd on July 1, 2016, 1/3rd on July 1, 2017, and 1/3rd on July 1, 2018. +(3) These +PSUs vest on July 1, 2018. The PSUs are subject to a three-year performance period ending June 30, 2018. The award is reported at +an earned percentage of 100%. +(4) These +RSUs vest 1/3rd on July 1, 2017, 1/3rd on July 1, 2018, and 1/3rd on July 1, 2019. +(5) These +PSUs vest on July 1, 2019. The PSUs are subject to a three-year performance period ending June 30, 2019. The award is reported at +an earned percentage of 100%. +(6) These +RSUs vest 1/3rd on July 1, 2018, 1/3rd on July 1, 2019, and 1/3rd on July 1, 2020. +(7) These +PSUs vest on July 1, 2020. The PSUs are subject to a three-year performance period ending June 30, 2020. The award is reported at +an earned percentage of 100%. +44 +Table of Contents +2017 Stock Vested +Stock Awards +Name +Number of Shares +Acquired on Vesting (1) +Value Realized +on Vesting (2) +Javan D. Ottoson +16,209 +$267,935 +A. Wade Pursell +9,530 +$157,531 +Herbert S. Vogel +8,356 +$138,125 +David W. Copeland +3,586 +$59,277 +Lehman E. Newton +2,199 +$36,349 +(1) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2017. As discussed above, +each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement of the +PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from 0% to 200% of the number of PSUs, depending on the extent to which we have achieved +our performance goals. +(2) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon the +vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date was +not a normal market trading date, then on the last normal market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation +were $16.53 on June 30, 2017, for the vesting and settlement of the first vesting tranche of the 2016 RSU awards, the vesting and settlement of the second vesting tranche of the 2015 RSU +awards, and the vesting and settlement of the third vesting tranche of the 2014 RSU awards, which were all settled on July 3, 2017; and $16.53 on June 30, 2017, for the vesting and +settlement date of July 1, 2017, for the full settlement of the July 1, 2014 PSU awards, which were canceled based upon an earned percentage of 0%. +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our employees who +joined SM Energy prior to January 1, 2015, and meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC +limits (the 2017 limit was $270,000 in annual base salary income, for certain executive officers with a senior management hierarchy title of at least vice president). +45 +Table of Contents +The +following table represents the value of the NEOs' pension benefits as of December 31, 2017: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Javan D. Ottoson +Qualified Pension Plan +11 +$432,774 +$— +Non-Qualified SERP Pension Plan +11 +$879,070 +$— +A. Wade Pursell +Qualified Pension Plan +9 +$280,775 +$— +Non-Qualified SERP Pension Plan +9 +$204,332 +$— +Herbert S. Vogel +Qualified Pension Plan +6 +$218,832 +$— +Non-Qualified SERP Pension Plan +6 +$133,153 +$— +David W. Copeland +Qualified Pension Plan +7 +$290,658 +$— +Non-Qualified SERP Pension Plan +7 +$154,662 +$— +Lehman E. Newton +Qualified Pension Plan +11 +$475,212 +$— +Non-Qualified SERP Pension Plan +11 +$99,641 +$— +Non-qualified Deferred Compensation for 2017 +This Non-qualified Deferred Compensation table sets forth the NEOs participation in the Non-qualified Deferred Compensation Plan. This plan +allows eligible employees to defer part of their salary and annual incentive bonus on a voluntary basis. +Name +Executive +Contributions +in Last FY (1) +Registrant +Contributions in +Last FY (2) +Aggregate +Earnings in +Last FY (3) +Aggregate +Withdrawals in +Last FY +Aggregate +Balance at +Last FYE +Javan D. Ottoson +$92,308 +$92,308 +$93,709 +$— +$722,548 +A. Wade Pursell +$180,407 +$21,649 +$21,869 +$— +$223,924 +Herbert S. Vogel +$44,873 +$44,873 +$66,624 +$— +$401,857 +David W. Copeland +$98,518 +$14,778 +$35,393 +$— +$198,700 +Lehman E. Newton +$48,858 +$19,543 +$67,685 +$— +$514,938 +(1) The +amounts in this column are also included in the Summary Compensation Table under the Salary column or the Non-Equity Incentive Plan Compensation +column, as applicable. +(2) The +amounts in this column represent the matching contributions. The matching contributions are included in the "All Other Compensation" column of the +Summary Compensation Table. We match deferred compensation up to an amount equal to six percent of base salary plus any STIP cash bonus. +(3) The +earnings reflected in this column represent deemed investment earnings or losses from voluntary deferrals and company contribution, as applicable. +The Non-qualified Deferred Compensation Plan does not guarantee a return on deferred amounts. +Although +the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from net profits, if any, from oil and gas activity from designated +pools of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific determinable compensation amounts or balances are deferred. The NPP +is described in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts are reflected in the Summary Compensation Table above. +Our +SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated +benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section above. In addition, annual increases in the actuarial value of benefits under the SERP +are +46 +Table of Contents +included +in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +As discussed in "Compensation Discussion and Analysis—Section 7—Other Matters—Employment +Agreements," the employment of all executives is "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, and to +certain other key employees, through change of control executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of control +event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive officers are +entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a change of control of our company (a) without "cause" by our company +or (b) for "good reason" by the officer, each as defined in the agreements. The term "good reason" incorporates the concept of a change in the executive's status, authority, position, offices, +titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or within two and one-half years +thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time frame, or the requirement that an executive relocate his or her base of +employment outside a 25-mile radius from the executive's location at that time. Severance payments equal to (a) all compensation accrued but not paid prior to the termination; (b) a lump +sum amount equal to 200% of the executive's base salary and target STIP cash bonus; (c) a lump sum amount equal to the executive's pro rata target STIP cash bonus for the year in which +employment is terminated; and (d) a lump sum amount equal to 24 multiplied by our then monthly contribution for medical, dental, and vision insurance on behalf of the executive and his or her +family. In the event the executive is subject to golden parachute excise taxes under Section 4999 of the IRC, +severance benefits may be reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax "gross-up" payments are provided. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company, or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention incentive benefiting our company and our stockholders without creating an unreasonable impediment to a potential acquirer of our company. The severance payment +amounts under these agreements for our executives are comparable to payment amounts offered under similar +47 +Table of Contents +arrangements +by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits protection during a reasonable period of time to allow the executive +to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2017, under the change of control executive severance agreements, the total +severance payments for two years base salary and STI target, the pro rata target STIP cash bonus for 2017 and the estimated lump sum value of medical, dental and vision benefits for two years for each +of the NEOs who were employed by us as of December 31, 2017, would be as follows: +Name +Severance +Payments +Estimated +Value of +Benefits for +Two Years (1) +Javan D. Ottoson +$4,614,400 +$30,235 +A. Wade Pursell +$2,163,927 +$52,802 +Herbert S. Vogel +$2,130,040 +$28,636 +David W. Copeland +$1,693,423 +$23,820 +Lehman E. Newton +$1,347,424 +$44,771 +(1) The +change of control executive severance agreements provides a lump sum payment equal to 24 multiplied by the company's then monthly contribution for +medical, dental and vision insurance on behalf of the Executive and his or her family. +Equity Compensation Plans +Options and shares of our common stock are authorized for grant or issuance pursuant to our Equity Plan as compensation to eligible employees, +consultants, and members of the Board of Directors. Our stockholders have approved this plan. The following table is a summary of the shares of common stock authorized for issuance under the equity +compensation plans as of December 31, 2017: +(a) +(b) +(c) +Plan category +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants, and +rights +Weighted-average +exercise price of +outstanding +options, +warrants, +and rights +Number of securities +remaining available for +future issuance under +equity compensation +plans (excluding +securities reflected +in column (a)) +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +— +— +Restricted stock (1)(3) +1,253,056 +N/A +Performance share units (1)(3)(4) +1,560,202 +N/A +Total for Equity Incentive Compensation Plan +2,813,258 +— +3,277,107 +Employee Stock Purchase Plan (2) +— +— +1,813,335 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +2,813,258 +— +5,090,442 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified stock +options, incentive stock options, stock appreciation rights, performance shares, performance units, and stock-based awards to key employees, consultants, and members of our Board or any of our +affiliates. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the +48 +Table of Contents +St. Mary +Land & Exploration Company Incentive Stock Option Plan, the SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan +(collectively referred to as the "Predecessor Plans"). All grants of equity are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award +under a Predecessor Plan immediately prior to the effective date of the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. +Our Board approved amendments to the Equity Plan in 2009, 2010, 2013 and 2016, and each amended plan was approved by our stockholders at the respective annual stockholders' meetings. The number of +shares underlying the awards granted in 2017, 2016 and 2015 under the Equity Plan were 2,078,878, 918,509, and 714,949, respectively. +(2) Under +the SM Energy Company Employee Stock Purchase Plan (ESPP), eligible employees may purchase shares of our common stock through payroll deductions +of up to 15 percent of their eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the +six-month offering period, and shares issued under the ESPP on or after December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the +IRC. Shares issued under the ESPP totaled 186,665, 218,135, and 197,214 in 2017, 2016 and 2015, respectively. +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in order to +provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $20.24 and $23.29, +respectively. +(4) The +number of awards vested assumes a one multiplier. The final number of shares of our common stock issued upon settlement may vary depending on the +three-year multiplier determined at the end of the performance period under the Equity Plan, which ranges from zero to two. +49 +Table of Contents +DIRECTOR COMPENSATION +General +The annual service period for our directors is the period from one stockholders' annual meeting to the next. In May 2017, F. W. +Cook conducted an analysis of compensation for members of the boards of directors of our peer companies versus the compensation for members of our Board. F. W. Cook's analysis generally +revealed that our director compensation approximated the median of the peer group. Based on F. W. Cook's analysis, the Compensation Committee elected to recommend to our Board that the non-executive +Chairman of the Board retainer be increased to $115,000. No other changes were recommended to the director compensation package for the 2017-2018 service period, which our Board approved on +May 23, 2017. Director compensation is primarily paid in the form of stock grants. Mr. Ottoson, our President and Chief Executive Officer and +only employee director, does not receive additional compensation for serving on the Board or any committee of the Board. +The +annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education +programs: +• Cash Retainer —A $90,000 retainer (in lieu of board and committee meeting attendance +fees) payable at the individual director's option, either entirely in cash or shares of our common stock. Dr. Brand, Mr. Leiker and Mr. Sullivan each elected to have their 2017 +retainers paid in shares of our common stock, which resulted in a grant on May 24, 2017, of 4,397 shares of our common stock to each under our Equity Plan. In the event any director attends in +excess of 30 board and committee meetings in the aggregate during the period from May 23, 2017, through May 22, 2018, such director shall receive $1,500 per meeting for each meeting in +excess of 30. +• Equity Retainer —A grant of shares of our common stock with a value of +$180,000—resulting in a grant on May 24, 2017, to each non-employee director of 8,794 shares of our common stock issued under our Equity Plan. These shares and any shares issued +pursuant to any retainer vested on December 31, 2017. The related compensation expense that we record is the fair value of the share grant as calculated under the valuation provisions required +by FASB ASC Topic 718. +We +pay the chairs of the following committees the specified cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of +their respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +We +paid Mr. Sullivan a retainer for his service as non-executive Chairman of the Board of $115,000 for the 2017-2018 annual service period. The retainer was in the form of shares +of our common stock on May 24, 2017, which resulted in a grant of 5,618 shares. The retainer was in addition to his basic non-employee director compensation. +50 +Table of Contents +We +maintain a matching charitable gift program to encourage financial support for charitable organizations that are exempt from federal income taxation in which employees and our +non-management directors may participate. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a percentage of the average +of our prior three years' income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Dr. Brand, Mr. Quintana, +Ms. Robeson and Mr. Sullivan participated in this program during 2017, and we matched a total of $32,334 in non-employee director contributions under this program. We may suspend, +change, revoke or terminate the program at any time. +Our +directors are eligible to participate in our company-wide health, pharmacy, dental, and vision insurance programs at a premium cost that is equal to the COBRA rates associated with +our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for non-employee directors of five times the annual cash retainer amount. Directors are allowed time to meet this +guideline and are not required to acquire shares in the open market for this purpose. +The +following table sets forth the annual and long-term compensation paid during 2017 to our non-employee directors. The stock based component of the compensation reflects the grant +date fair value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +2017 Director Compensation +Name +Fees +Earned +or Paid in +Cash +Stock +Awards (1)(2)(3) +Option +Awards (4) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (5) +Total +Larry W. Bickle +$90,000 +$180,013 +$— +$— +$— +$— +$270,013 +Stephen R. Brand +$15,000 +$270,020 +$— +$— +$— +$2,000 +$287,020 +Loren M. Leiker +$— +$270,020 +$— +$— +$— +$— +$270,020 +Ramiro G. Peru +$90,000 +$180,013 +$— +$— +$— +$— +$270,013 +Julio M. Quintana +$100,000 +$180,013 +$— +$— +$— +$23,334 +$303,347 +Rose Robeson +$110,000 +$180,013 +$— +$— +$— +$2,000 +$292,013 +William D. Sullivan +$— +$385,020 +$— +$— +$— +$5,000 +$390,020 +(1) We +issued to Mr. Bickle, Dr. Brand, Mr Leiker, Mr. Peru, Ms. Robeson and Mr. Sullivan their respective +equity retainer of 8,794 shares of our common stock on May 24, 2017, after such director's election to the Board on May 23, 2017. Mr. Quintana elected to receive his equity +retainer in the form of 8,794 RSUs. We issued to Mr. Sullivan an additional 5,618 shares of our common stock on May 24, 2017, for serving as the non-executive Chairman of the Board. +Dr. Brand, Mr. Leiker and Mr. Sullivan elected to receive an additional 4,397 shares of our common stock on May 24, 2017, in lieu of their respective $90,000 annual cash +retainers. These stock awards are for the annual service period from May 23, 2017, through May 22, 2018. The shares and RSUs fully vested on December 31, 2017. The value of the +stock awards represents the grant date fair value. +(2) The +grant date fair value of each share of our common stock or RSU issued to non-employee directors over their past two years of service to us is set +forth in the following table and is +51 +Table of Contents +computed +in accordance with FASB ASC Topic 718, based on the grant date fair value. There were no forfeitures by directors during fiscal 2017. +Grant Date +Shares +Value +Grantee +5/24/2017 +8,794 +$180,013 +Bickle, Peru, Quintana, Robeson +5/24/2017 +13,191 +$270,020 +Brand, Leiker +5/24/2017 +18,809 +$385,020 +Sullivan +5/25/2016 +5,645 +$180,019 +Bickle, Peru, Quintana +5/25/2016 +8,468 +$270,044 +Brand, Leiker, Robeson +5/25/2016 +11,134 +$355,063 +Sullivan +(3) As +of December 31, 2017, restrictions on shares granted to our non-employee directors during 2017 expired. Mr. Quintana's RSUs are +subject to settlement within 30 days of separation of service or May 25, 2027, whichever occurs first. +(4) For +the year ended December 31, 2017, no stock options were issued to directors, nor have any stock options been issued to the directors since +December 2004. As of December 31, 2017, no non-employee director holds any outstanding stock options. +(5) The +amounts in this column represent matching charitable contributions made on the behalf of Dr. Brand, Mr. Quintana, Ms. Robeson +and Mr. Sullivan for the year 2017 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS +None +of the directors who served on the Compensation Committee during fiscal year 2017 has ever served as one of our officers or employees. During fiscal year 2017, +there were no Compensation Committee interlocks. +52 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Our +directors are elected annually. At the Annual Meeting, eight directors are to be elected to serve for one year and until their successors are elected and +qualified. Based on the recommendations of the NCG Committee, the Board has nominated the following individuals for election as directors to serve until the 2019 Annual Meeting of Stockholders and +until their successors have been elected and qualified, or until their earlier resignation or removal: +Larry W. Bickle +Ramiro G. Peru +Stephen R. Brand +Julio M. Quintana +Loren M. Leiker +Rose M. Robeson +Javan D. Ottoson +William D. Sullivan +Each +nominee is currently a director and all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy +Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if such a situation arises prior to the Annual +Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of the oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, +public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance +Guidelines. Among other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, +operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that +led the NCG Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our +long-term strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, +whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +Set +forth below is a summary of certain characteristics of our director nominees as well as certain biographical information, as of the filing date of this Proxy Statement, for each +nominee for election as director, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships +among any of our directors or executive officers. +53 +Table of Contents +Director Nominee Summary +All of our non-management director nominees +are independent +Our director nominees provide an effective balance of +fresh perspective and experience with the Company +Director Nominees +Larry W. Bickle +Director since 1995 +Age: 72 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, +he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, +Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also served on the Board of Directors of UNS Energy Company (NYSE: UNS) +and currently serves as a member of the Board of Managers of Quantum Natural Gas Storage, LLC. +Key Attributes, Experience and +Skills: +Mr. Bickle brings to the Board over 34 years of experience in various aspects of the oil and +gas midstream industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Mr. Bickle also brings +specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operation, and extensive experience with both state and federal +regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as the basis for Mr. Bickle's designation as an audit committee financial expert and +provides a strong foundation for his service on the Audit Committee. Mr. Bickle's previous service on other public company boards enhances his strong corporate governance background. +54 +Table of Contents +Stephen R. Brand +Director since 2011 +Age: 68 +Position, Principal Occupation and Business Experience: +Dr. Brand is a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the E&P sector for solving subsurface problems +in complex geologic formations. He is also on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution as a service platform to assess and manage data that can be used in a predictive role. +Dr. Brand was also Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. At the end of 2010, Dr. Brand retired as Senior +Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in October 2007, Dr. Brand served as +Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Dr. Brand started his career in 1976 as a geologist with Phillips Petroleum Company and thereafter served in various roles of increasing responsibility +with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key +Attributes, Experience and Skills: +Dr. Brand has over 40 years of experience in the energy industry, +including extensive experience in the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" stream technologies. He also has valuable human resources management skills +and experiences, which provide a strong foundation for his role as Chair of the Compensation Committee and are significant in the oversight of our compensation management functions. +55 +Table of Contents +Loren M. Leiker +Director since 2012 +Age: 64 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in +the United States. Mr. Leiker served EOG as Senior Executive Vice President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil +and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of +Vermilion Energy Inc. (VET: Toronto) since December 2012, a director of Navitas Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March +2015. +Key Attributes, Experience and Skills: +Mr. Leiker brings to the Board over 40 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience +in exploration activities similar to ours, and a deep understanding of upstream operations and asset management technologies, which provide a strong foundation for his service on the Audit Committee and are important in the oversight of our financial +reporting and financial and operational risk management functions. Mr. Leiker's service on other public company boards enhances his strong corporate governance background. +Javan D. Ottoson +Director since 2014 +Age: 59 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed President of the company in +October 2012 and Chief Executive Officer of the company in February 2015. Mr. Ottoson has been in the energy industry for over 35 years. From April 2006 until he joined the company in December 2006, Mr. Ottoson was Senior Vice +President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. +Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and +Development, ARCO Permian. +Key Attributes, Experience and Skills: +The Board of Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on the Board because he is a proven leader with the +strong technical skills and leadership vision necessary to create top quartile returns for our stockholders. Mr. Ottoson's experiences and familiarity with our operations are critical to our success as we continue to execute on our strategic +transition toward the acquisition and development of top tier assets. +56 +Table of Contents +Ramiro G. Peru +Director since 2014 +Age: 62 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 2004 to 2007 (and its Senior Vice President and Chief Financial +Officer from 1999-2004). He joined Phelps Dodge in 1979 and held various finance and accounting positions prior to his appointment as Chief Financial Officer. Mr. Peru currently serves on the Board of Directors of Anthem, Inc. (NYSE: ANTM) +and of UNS Energy Corporation, a subsidiary of Fortis, Inc. +Key Attributes, Experience and Skills: +Mr. Peru brings to the Board significant financial expertise, much of which he obtained through his over 31 years of +experience in the mining industry. Mr. Peru's service as chairman of the audit committee of another publicly traded company enhances his significant financial management and accounting oversight experience. As a result of his executive level +experience, Mr. Peru also has extensive human resources management skills, which are an important foundation for his service on the Compensation Committee. Mr. Peru's service on other public company boards enhances his strong corporate +governance background. +Julio M. Quintana +Director since 2006 +Age: 58 +Position, Principal Occupation and Business Experience: +Mr. Quintana currently serves on the Board of Directors of Newmont Mining Company (NYSE: NEM) and of Basic Energy Services (NYSE:BAS). Mr. Quintana served as the +President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January 2015, and served on Tesco's Board of Directors from September 2004 to May 2015. Prior to his appointment as President and Chief +Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer of Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for +Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana brings to the Board over 37 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of +drilling and asset management technologies, and broad human resources management skills and experience, which provide a strong foundation for his role on the Compensation Committee and are important in the oversight of our financial reporting and +financial and operational risk management functions. Mr. Quintana's service on other public company boards enhances his strong corporate governance background. +57 +Table of Contents +Rose M. Robeson +Director since 2014 +Age: 57 +Position, Principal Occupation and Business Experience: +Ms. Robeson currently serves on the Board of Directors of Newpark Resources, Inc. (NYSE:NR) and AMGP GP LLC, the general partner of Antero +Midstream GP LP (NYSE:AMGP). Ms. Robeson served as Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners LP, from 2012 until her retirement in 2014. +Ms. Robeson also served as Group Vice President and Chief Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream LLC, Ms. Robeson was the Vice President and Treasurer. Prior to +joining DCP Midstream, LLC, Ms. Robeson was with Kinder Morgan, Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson served as a director of American +Midstream GP, LLC, the general partner of American Midstream Partners, LP (NYSE: AMID) from June 1, 2014, until her resignation on June 14, 2016, and served as a director of Tesco Corporation (NASDAQ: TESO) from +October 29, 2015, until December 15, 2017, when Nabors Industries Ltd. completed its acquisition of Tesco. +Key +Attributes, Experience and Skills: +Ms. Robeson brings to the Board over 30 years of broad experience +in various aspects of the oil and gas industry, including exploration and production, midstream and refining, and marketing. She also has significant financial management, risk management and accounting oversight experience, which provides a strong +foundation for her role as Chair of the Audit Committee and is important in the oversight of our financial reporting and financial risk management. Ms. Robeson's service on other public company boards enhances her strong corporate governance +background. +58 +Table of Contents +William D. Sullivan +Director since 2004 +Age: 61 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, +for over 20 years. Mr. Sullivan retired from Anadarko in August 2003. Since March 2006, Mr. Sullivan has been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a +limited partnership focused on the acquisition and development of producing oil and natural gas properties. From February 2007 until May 2015, Mr. Sullivan was a director of Targa Resources GP LLC, which is the general partner of Targa +Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. +Mr. Sullivan has been a director since August 2007, and Non-executive Chairman of the Board since May 2015, of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services company. Since June 2011, Mr. Sullivan has been a director and +member of the audit committee of CSI Compressco Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded limited partnership providing wellhead compression-based production enhancement +services. CSI Compressco GP, Inc. is a minority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was +Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International Operations from 1998 to +2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key +Attributes, Experience and Skills: +Mr. Sullivan brings to the Board over 38 years of strong and broad +experience in the oil and gas industry, with particular expertise in the exploration and production sector of the industry. His experience as an exploration and production senior executive enables him to contribute significant independent insights on +our business and operations, and the economic environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in the oversight of our compensation management functions, and his +service on other public company boards of directors provides a strong corporate governance background. These skills and experiences provide a strong foundation for Mr. Sullivan's role as Chairman of the Board. +Recommendation of the Board: +The Board recommends voting " FOR " the election of all the nominees listed above. +59 +Table of Contents +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018 +Our +stockholders are being asked to ratify the appointment by the Audit Committee of Ernst & Young LLP ("EY") as our independent registered public +accounting firm for 2018. EY has served as our independent registered public accounting firm since 2013, and the Audit Committee plans to engage EY to perform the audit of our financial statements as +of and for the year ending December 31, 2018. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of EY is not required by law or our organizational +documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public +accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do +not ratify the appointment of EY, the Audit Committee will consider whether to engage another independent registered public accounting firm, but will not be obligated to do so. Even if the selection +is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our +best interests and the best interests of our stockholders. +A +representative of EY is expected to be present at the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +Recommendation of the Board : The Board recommends voting " FOR " Proposal 2. +60 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our +stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive officers, as disclosed in this Proxy +Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the Board or the Compensation Committee, or require +the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the outcome of the vote when considering future +executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed in this Proxy Statement, we will consider +our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" section above, our executive compensation programs are designed to provide a competitive level +of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. +In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named executive officers is +allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby "at-risk"). In addition, as an executive officer's +responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed "at-risk" increases in relation to base salary. Furthermore, our named +executive officers' targeted total direct compensation (base salary plus target cash bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more detail under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the +key drivers of long-term stockholder value creation. Our LTIP also compensates performance based upon absolute "total stockholder return," as well as total stockholder return compared to our peers. We +believe that we have achieved our goal for at least the last three years. As you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which more +thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these +policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. In +addition, the fact that we have received the support of at least 98% of votes cast in the last four advisory votes on executive compensation indicates that our stockholders strongly support our +compensation philosophy. +In +light of these circumstances, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2018 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the "Compensation +Discussion and Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +Recommendation of the Board : The Board recommends voting "FOR" Proposal 3. +61 +Table of Contents +PROPOSAL 4—APPROVAL OF AMENDMENT AND RESTATEMENT OF OUR EQUITY PLAN +Overview +Subject to our stockholders' approval, on April 5, 2018, the Board of Directors approved an amendment and restatement of +our Equity Plan to (i) increase the stated total number of shares of the company's common stock authorized for issuance to participants pursuant to awards granted under our Equity Plan from +14,100,000 shares to 17,500,000 shares (plus shares remaining unused from the Predecessor Plans, as defined below), (ii) place a limit on the total compensation possible for our non-employee +directors, (iii) impose minimum time vesting requirements, (iv) eliminate +share recycling for net settlement of options and shares used to satisfy tax withholdings, and (v) prohibit payment of dividends or dividend equivalents on unvested awards. +We +believe the terms of our Equity Plan, as amended, are beneficial to our stockholders for a number of reasons: +• the requested number of additional authorized shares covers only the number of shares we expect to use for three years of grants under our +LTIP, which: +• limits undesirable consequences of share "overhang," i.e. , the total number of +shares related to outstanding options and other equity awards, plus shares available for grant, in relation to the total number of shares outstanding; and +• gives our stockholders the right to approve or reject future plans to prevent undesirable dilution or excessive share overhang; +and +• it prohibits repricing without stockholder approval; +• it prohibits reload options; +• it requires a minimum of one year for awards to vest; +• it prohibits payment of dividends or dividend equivalents on unvested awards; +• it does not permit share recycling for net settlement of options or shares used to satisfy tax witholding; +• it requires options for shares to be priced at not less than the fair market value of the shares on the grant date; and +• its flexible nature gives us the ability to respond to compensatory market trends by enabling us to adjust the mix of awards and grant a wide +variety of awards, as determined by the Compensation Committee. +Our +Equity Plan provides for the issuance of restricted stock, restricted stock units, nonqualified stock options ("NSOs"), incentive stock options ("ISOs"), stock appreciation rights +("SARs"), performance shares, performance units, and stock based awards to members of the Board and key employees of the company and or any affiliate of the company. The purpose of our Equity +62 +Table of Contents +Plan +is to link the compensation earned by our employees to achievement of our long-term financial and strategic objectives, and to align performance incentives for our employees, including our +executives, with the long-term interests of our stockholders. Our Equity Plan is further intended to provide us with the flexibility to attract, retain, compensate and motivate participants upon whose +judgment, dedication and efforts we must depend for our long-term success. A copy of our Equity Plan, as amended and restated on April 5, 2018, subject to stockholder approval, is attached to +this Proxy Statement as Annex A. +If +our stockholders do not approve the amendment and restatement, the Equity Plan as currently in effect will continue, and the Compensation Committee will consider other alternatives +to provide long-term incentive compensation for our Equity Plan participants, including the payment of cash. +General Background of Our Equity Plan +Our Equity Plan was originally adopted by the Board on March 23, 2006, as the "2006 Equity Incentive Compensation Plan," +and approved by our stockholders on May 17, 2006. Our Equity Plan was first amended and restated on March 28, 2008, and approved by our stockholders on May 21, 2008. Included in +the amendments approved by the stockholders on May 21, 2008, was an increase in the stated total number of shares of common stock authorized for issuance under our Equity Plan from 2,000,000 +shares to 3,500,000 shares. Under additional amendments approved by the stockholders in 2009, the stated total number of shares of common stock authorized for issuance to participants pursuant to +awards granted under the Equity Plan was increased from 3,500,000 to 6,000,000 shares and the Equity Plan was renamed the "Equity Incentive Compensation Plan." Additionally, our Equity Plan was +changed so that each share of common stock issued in connection with an award after May 20, 2009, other than a stock option or SAR, was counted against the share limit at a 1.43:1 ratio. Our +Equity Plan was amended and restated on April 1, 2010, and approved by our stockholders on May 26, 2010. The 2010 amendment increased the number of shares authorized for issuance to +participants pursuant to awards to 7,600,000 shares from 6,000,000 shares. Our Equity Plan was amended and restated on March 28, 2013, and approved by our stockholders on May 22, 2013. +The 2013 amendment increased the number of shares authorized for issuance to participants pursuant to awards to 10,700,000 shares from 7,600,000 shares. Additionally, the 2013 amendment altered the +methodology used to calculate the number of authorized shares that remain such that each share of common stock issued in connection with an award after May 22, 2013, was counted against the +share limit at a 1:1 ratio. Our Equity Plan was amended and restated on March 24, 2016, and approved by our stockholders on May 24, 2016. The 2016 amendment increased the number of +shares authorized for issuance to participants pursuant to awards to 14,100,000 from 10,700,000. +Our +Equity Plan serves as the successor equity incentive plan to the Predecessor Plans, which were previously approved by our stockholders, and no further grants have been made under +the Predecessor Plans from and after the original effective date of our Equity Plan, May 17, 2006. Our Equity Plan currently authorizes the issuance of a total of 14,100,000 shares of common +stock, plus remaining unused shares of common stock from the Predecessor Plans transferred into our Equity Plan in accordance with its terms, and without taking into account the additional shares +under the proposed amendment. +Please +see the discussion of our LTIP above under the caption "Executive Compensation—Compensation Discussion and Analysis—Section 4—Primary +Elements of Compensation" for details concerning our current compensation policies related to equity based incentives. +63 +Table of Contents +As +of March 29, 2018, we had 111,687,016 shares of common stock outstanding, net of treasury shares, and 3,370,202 shares of common stock were available for future issuance under +our Equity Plan. On that date, we had 2,755,280 full value awards outstanding on that date in the form of RSUs and PSUs. Accordingly, our outstanding awards with respect to approximately 2,755,280 +shares (assuming the outstanding PSUs settle at an earned percentage of 100%) and the 3,370,202 authorized shares available for future issuance under our Equity Plan (commonly referred to as +"overhang") represent approximately 5.5% of our outstanding shares. On March 29, 2018, the closing price of our common stock as reported on the NYSE was $18.03 per share. +In +fiscal years 2015, 2016 and 2017, we granted equity awards representing a total of approximately 679,000 shares, 867,000 shares, and 2,000,000 shares, respectively (assumes one share +for every PSU issued and one share for every RSU issued). For fiscal years 2015, 2016 and 2017, our compensation share usage rate (commonly referred to as "burn rate") was 0.95%, 0.60% and 0.92%, +respectively (calculated based upon the weighted average number of shares outstanding, one share for every RSU issued, and the actual number of shares issued to settle PSUs for that year). As of +March 29, 2018, our overhang was approximately 5.5% of our outstanding shares. The Compensation Committee and our Board intend to continue to consider our equity expenditures in a manner that +allows us to compete effectively with others in our industry to attract, retain, and motivate individuals to achieve long-term value creation for our stockholders, and we believe our that our burn +rate combined with our overhang indicates that an increase of 3,400,000 shares available for issuance out of a total of 111,687,016 shares issued and outstanding (an increase of 3.0%) is unlikely to +result in material dilution to our stockholders. +Reasons for Amendment +Our Board believes that the grants of RSUs and PSUs pursuant to our LTIP and our Equity Plan are in our best interests and the +best interests of our stockholders and will continue to align our employees' interests with the long-term interests of our stockholders. Accordingly, the Board has concluded that the amendment of our +Equity Plan is in our best interests and the best interests of our stockholders because it is necessary in order to maintain the availability of equity incentive awards for our employees, including +our executives, and other participants who perform services for us and will enable us to continue to execute on our long-term incentive compensation program. +Description of Material Changes to Our Equity Plan +If our stockholders approve the amendments to our Equity Plan, the following material changes to our Equity Plan will be +effected: +• the number of shares authorized for issuance under the Plan will be increased from 14,100,000 to 17,500,000, plus shares remaining for issuance +under the Predecessor Plans; +• total compensation for our non-employee directors, subject to certain exceptions, will be capped at $700,000 per year; +• minimum time vesting requirements for awards under the Equity Plan will be imposed; +• share recycling for net settlement of options and shares used to satisfy tax withholdings will be eliminated; and +• payment of dividends or dividend equivalents on unvested awards will be prohibited. +64 +Table of Contents +Reasons for Stockholder Approval of Amendments +Under applicable NYSE rules, we must obtain stockholder approval of the amendments to our Equity Plan. +Summary of Our Equity Plan +The following is a summary of the principal features of our Equity Plan, which reflects the proposed amendments. The summary is +qualified in its entirety by reference to the complete text of our Equity Plan document, as amended and restated (assuming our stockholders approve the amendments proposed herein), a copy of which is +attached to this Proxy Statement as Annex A. In addition, we will furnish a copy of our Equity Plan to any stockholder upon written request to our Corporate Secretary. We encourage you to +carefully review the entire Equity Plan, as amended and restated on April 5, 2018 subject to stockholder approval. +Types of Awards +Our Equity Plan permits the grant of restricted stock, RSUs, NSOs, ISOs, SARs, performance shares, performance units, and stock based awards. +Administration +The Compensation Committee, or any other duly authorized committee of the Board appointed by the Board, is responsible for administering our +Equity Plan. The committee that administers our Equity Plan, referred to as the committee, shall be comprised of two or more members of the Board, and each member of the committee shall be a +"non-employee director" as such term is defined in Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934 (the "Exchange +Act"), as amended, an "outside director" within the meaning of the regulations promulgated under Section 162(m) of the IRC and an "independent director" for purposes of the rules and +regulations of the NYSE. Subject to the provisions of our Equity Plan, the committee shall have complete discretion in determining the nature, terms, conditions, and amounts of awards granted under +our Equity Plan. In making such determinations, the committee may take into account the nature of services rendered by such employees and members of the Board, their present and potential +contributions to us, and such other factors as the committee in its discretion shall deem relevant. +Shares Subject to our Equity Plan and Maximum Awards +Subject to adjustment as described below, assuming the approval of the amendment, the total number of shares of the company's common stock made +available and reserved for issuance will be increased from 14,100,000 shares to 17,500,000 shares, plus any remaining shares available for issuance under the Predecessor Plans as provided in our +Equity Plan. Any shares issued pursuant to awards shall be counted against the total share authorization limit as one share for every one share issued. The maximum total number of shares that may be +issued through NSOs is equal to the total share authorization. The maximum total number of shares that may be issued through ISOs is 10,700,000. +Any +awards that are not settled in shares will not be counted against the total share authorization limit. Any shares tendered to pay an option exercise price or to satisfy any tax +withholding on exercise or settlement of an award will be counted against the total share authorization limit. Any shares related to awards which (i) terminate by expiration, forfeiture, +cancellation, or otherwise without the issuance of such shares, (ii) are settled in cash either in lieu of shares or +65 +Table of Contents +otherwise, +or (iii) are exchanged with the committee's approval for awards not involving shares, will be available again for issuance under the Plan. +Unless +and until the committee determines that an award is not designed to qualify as performance based compensation under Section 162(m) of the IRC, the following limits apply +to grants of awards to covered employees under Section 162(m) of the IRC: +• Restricted Stock/RSUs. The maximum total number of shares that may be +granted in the form of restricted stock/RSUs in any one fiscal year to any one Participant is 100,000. +• Options and SARS. The maximum total number of shares that may be granted in +the form of options or SARs in any one fiscal year to any one participant is 200,000. +• Performance Shares/Performance Units. The maximum total award of +performance shares or performance units that a participant may receive in any one fiscal year is 300,000 shares, and the maximum value of performance units that a participant may receive with respect +to awards in any one fiscal year is a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +• Stock Based Awards. The maximum total grant with respect to stock based +awards in any one fiscal year to any one participant is 200,000. +Our +Equity Plan provides for appropriate adjustments to the number of shares available for awards in the event of a merger, consolidation, reorganization, recapitalization, separation, +stock dividend, extraordinary or special dividend, stock split, reverse stock split, or similar event or transaction involving the company. +The +proposed increase in the number of shares available for grant under the Equity Plan was thoughtfully considered by the management of the company, the Compensation Committee, the +Board and F. W. Cook. The total number of shares requested takes into account the maximum number of shares that could be issued, assuming awards are granted in number and type similar to recent +practice. The actual number of shares issued on settlement of PSUs depends on the final three-year earned percentage, which ranges from zero to 200%. The number of shares requested has been calculated +to take into account the possibility that PSUs would be settled as if the highest level of performance conditions is achieved. However, the rate at which the Equity Plan's shares will be depleted +could be significantly slower if PSU awards are settled at less than two shares per unit. +The +Compensation Committee approved and recommended that our Board approve the proposed increase in the number of shares available for grant under our Equity Plan from 14,100,000 shares +to 17,500,000 shares (in addition to shares remaining unused from the Predecessor Plans), based on its review of the analysis provided by our management and the advice and input of its independent +compensation consultant, F. W. Cook. Our Board subsequently approved the proposed increase in the number of shares available for grant under our Equity Plan, subject to the approval of our +stockholders. In setting the amount of shares subject to our Equity Plan, the Compensation Committee and the Board considered the historical amounts of equity awards our company had granted in the +past three years and the advice from F. W. Cook that seeking a three-year replenishment was appropriate for our company. In addition, the Compensation Committee in conjunction with F.W. Cook and our +Board also reviewed our burn rate and overhang. +Stockholders +should also consider our stock ownership guidelines that define ownership expectations for directors and our executive officers. We believe that our directors and executive +66 +Table of Contents +officers +should have a significant financial stake in our company to ensure that their interests are aligned with those of our stockholders. Under our stock ownership guidelines, +(i) independent directors are required to own stock equal in value to at least five times their annual cash retainer, (ii) our CEO is required to own stock equal in value to five times +his annual salary, and (iii) our other NEOs are required to hold stock as follows: Executive Vice Presidents—three times their respective annual base salaries and Senior Vice +Presidents and Vice Presidents—one times their respective annual base salaries. The Compensation Committee annually reviews the progress toward meeting the stock ownership guidelines by +our directors and executive officers, including our NEOs. +Eligibility and Participation +Certain eligible employees, including our NEOs, and members of the Board are eligible to participate in our Equity Plan and be granted awards +under our Equity Plan. As of March 29, 2018, we had 639 employees and eight members of the Board currently eligible to participate, and 425 of our employees were participants in the LTIP. +Subject to the provisions of our Equity Plan, the committee may from time to time, in its sole discretion, select from among eligible employees and members of the Board to whom awards shall be granted +under our Equity Plan and shall determine in its discretion the nature, terms, conditions, and amount of each award. +Duration +Subject to the right of the committee or the Board to amend or terminate our Equity Plan at any time, our Equity Plan shall remain in effect, +until the earlier of the tenth anniversary of the effective date of the amendment of our Equity Plan, which will be May 22, 2018, subject to stockholder approval, or when all shares of common +stock subject to our Equity Plan have been purchased or acquired according to our Equity Plan's provisions. Any previously granted awards under our Equity Plan that remain outstanding as of the date +of expiration or other termination of our Equity Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with their respective terms. +Dividends and Dividend Equivalents +No outstanding equity award issued pursuant to the Equity Plan will receive or be credited with any dividend or dividend equivalent, unless +such dividend or dividend equivalent is accumulated and remains subject to the same vesting requirements as the underlying award. +Minimum Time Vesting +Subject to certain exceptions, all equity awards issued pursuant to the Equity Plan after May 22, 2018, will not vest earlier than the +first anniversary of the date such award is granted. +Restricted Stock Awards +Restricted stock may be issued for services rendered with any or no additional purchase price as shall be determined by the committee in its +discretion and may be subject to certain restrictions and to a risk of forfeiture as set forth in the award agreement. A participant to whom shares of restricted stock are granted shall, upon delivery +of the shares issued, have all of the rights of ownership with respect to the shares subject to such restricted stock award, including the right to vote +the same and receive any dividends paid thereon; subject however, to the terms, conditions, and restrictions contained in our Equity Plan and in the applicable award agreement. +67 +Table of Contents +Restricted Stock Unit Awards +Each RSU awarded shall represent a right for one share of common stock to be delivered upon settlement of the award, which right shall be +subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in our Equity Plan and the award agreement. An RSU award agreement may provide for cancellation of RSUs +upon termination of the participant's employment or other relationship with us or nonperformance of specified performance goals or measures established by the committee. An RSU award agreement may +also provide for vesting periods that require the passage of time and/or the occurrence of events in order for the RSUs to vest and become no longer subject to cancellation. RSUs shall not be credited +with dividend equivalents unless specifically provided for in the applicable award agreement, and then only upon such terms and conditions as set forth in such award agreement. The committee, in its +discretion, is free to specify terms and conditions other than those described above. +Settlement +of an RSU award shall be made in accordance with the terms and conditions of the applicable award agreement. An RSU award agreement may provide that settlement may be made +solely through the issuance of shares of common stock or at the mutual election of the participant and the company, in a combination of shares of common stock and cash. Upon the settlement of an RSU +award, we shall deliver to the participant the number of shares of common stock issued to the participant in settlement of the award, which shares may be delivered in book-entry or certificated form. +The +Compensation Committee has delegated to our Chief Executive Officer the power to issue RSUs with an annual aggregate value of up to $1,000,000 per year to our non-officer employees. +Stock Options +Subject to the terms and provisions of our Equity Plan, ISOs and NSOs may be granted to participants in such number, upon such terms, and at +such times as shall be determined by the committee. Notwithstanding the foregoing, no ISOs may be granted more than ten years after May 22, 2018. Each stock option granted to a participant +shall expire at such time as the committee shall determine at the time of grant; provided, however, no stock option shall be exercisable later than the tenth anniversary date of its grant. Stock +options granted under our Equity Plan shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions as the committee shall in each +instance approve, which need not be the same for each grant or for each participant. +The +stock option price for each grant of a stock option shall be determined by the committee and shall be specified in the award agreement. The stock option price may include a stock +option price based on 100 percent of the fair market value of the shares of common stock on the date of grant, a stock option price that is set at a premium to the fair market value of the +shares of common stock on the date of grant, or a stock option price that is indexed to the fair market value of the shares of common stock on the date of grant, with the index determined by the +committee in its discretion. The stock option price for each stock option grant, whether issued as an ISO or an NSO, shall be not less than 100 percent of the fair market value of the +underlying shares of common stock on the date of grant. Dividend equivalents are not permitted for stock options. +SARs +Subject to the terms and conditions of our Equity Plan, SARs may be granted to participants at any time and from time to time and upon such +terms as shall be determined by the committee in its +68 +Table of Contents +discretion. +The committee may grant freestanding SARs, tandem SARs, or any combination of these forms of SARs. The grant price for each grant of a freestanding SAR shall be determined by the committee +and shall be specified in the award agreement. The SAR grant price may include a grant price based on 100 percent of the fair market value of the underlying share on the date of grant or a +grant price that is set at a premium to the fair market value of the underlying share on the date of +grant. The SAR grant price shall not be less than the fair market value of the underlying share on the date of grant. The grant price of the tandem SARs shall be equal to the option price of the +related option. A tandem SAR means a SAR that the committee specifies is granted in connection with a related stock option pursuant to our Equity Plan, the exercise of which shall require forfeiture +of the right to purchase a share of common stock under the related stock option (and when a share of common stock is purchased under the stock option, the tandem SAR shall similarly be cancelled) or a +SAR that is granted in tandem with a stock option but the exercise of such option does not cancel the SAR, but rather results in the exercise of the related SAR. Regardless of whether a stock option +is granted coincident with a SAR, a SAR is not a tandem SAR unless so specified by the committee at time of grant. Dividend equivalents are not permitted for SARs. +Performance Shares and Performance Units +Subject to the terms and conditions of our Equity Plan, performance shares and performance units may be granted at any time and from time to +time as shall be determined by the committee in its discretion. Each performance share and performance unit shall have an initial value established by the committee at the time of the grant. The +committee shall in its discretion set performance criteria for a performance period that shall not be shorter than 12 months, which, depending on the extent to which the performance criteria +are met, will determine, in the manner established by the committee and set forth in the applicable award agreement, the value and/or amount of each performance share or performance unit that will be +paid to a participant. +Subject +to our Equity Plan and the applicable award agreement, after the applicable performance period has ended, the holder of performance shares or performance units shall be entitled +to receive, to the extent that the performance shares or performance units have vested, if applicable, a payout of the value or amount of performance shares or performance units, determined as a +function of the extent to which the corresponding performance criteria have been achieved. The committee in its discretion may require a participant to hold the shares or other property received +pursuant to such an award for a specified period of time. Payment of earned performance shares and performance units shall be made in accordance with the terms and conditions of the applicable award +agreement. A performance share or performance unit award agreement may provide that payment may be made, to the extent that the performance share or performance unit has vested and the performance +criteria are met, solely through the issuance of shares earned upon the expiration of the applicable performance period. The participant may elect to satisfy the participant's tax withholding +obligation with respect to the award by having us withhold shares or other property or by the participant surrendering shares or other property to us with a fair market value on or near the tax +withholding date equal to the tax withholding obligation. +Dividends +and other distributions declared by our Board and paid with respect to outstanding shares shall only be paid with respect to performance share and performance unit awards for +shares that have been issued by us in payment of such awards to the extent that the awards have vested and upon the expiration of the applicable performance periods for the awards. Performance shares +and performance +units shall not be credited with dividend equivalents unless specifically provided for in the applicable award agreement and then only upon such terms and conditions as set forth in such award +agreement. +69 +Table of Contents +Stock Based Awards +Subject to the terms and provisions of our Equity Plan, the committee, at any time and from time and time, may grant other types of equity +based or equity related awards not otherwise described by the terms of our Equity Plan (including the grant or offer for sale of unrestricted shares of common stock) in such amounts and subject to +such terms and conditions including, but not limited to, being subject to performance criteria or in satisfaction of such obligations. Such awards may entail the transfer of actual shares of common +stock to participants or payment in cash or otherwise of amounts based on the value of shares of common stock. +Change of Control +Accelerated Vesting and Payment. +Subject to the provisions of our Equity Plan or as otherwise provided in the award agreement, for awards granted prior to a change of control, +in the event a change of control occurs and a participant's employment with the company is terminated without cause or the participant terminates his or her employment for good reason within thirty +(30) months of the change of control (a "Change of Control Termination"), unless otherwise specifically prohibited under law or by the rules and regulations of a national securities +exchange: +• any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be immediately payable; +• any and all stock options and SARs granted shall become immediately exercisable; +• the target payout opportunities attainable under all outstanding awards of performance based restricted stock and performance based RSUs, +performance shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on measured performance as +of the effective date of the change of control, +• the vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the Change of +Control Termination and shall be paid out to participants within 30 days following the effective date of the Change of Control Termination, and +• awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of the Change +of Control Termination; +• upon a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the participant and us +or an affiliate of ours, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• the committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a Change of Control Termination, +and the value of such awards, as determined by the committee in accordance with the terms of our Equity Plan and the award agreement, be paid out in cash in an amount determined by the committee in +accordance with the terms of our Equity Plan and the award agreement, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such +70 +Table of Contents +payment +shall be made on account of an ISO using a value higher than the fair market value on the date of settlement. +Alternate Awards +Subject to certain conditions set forth in our Equity Plan, no cancellation, acceleration of vesting, lapsing of restrictions, payment of an +award, cash settlement, or other payment shall occur with respect to any award if the committee reasonably determines in good faith prior to the occurrence of a change of control, that such award +shall be honored, assumed, or new rights substituted therefore by any successor, all as described in our Equity Plan. +Amendment, Modification, Suspension, and Termination +The committee or the Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate our Equity Plan in whole or in +part; provided, however, that: +• except in connection with a corporate transaction involving us (including, without limitation, a change of control, any stock dividend, stock +split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split up, spin off, combination, or exchange of shares), the terms of outstanding awards may not be amended +to reduce the option price of outstanding options or the grant price of outstanding SARs and may not be amended to cancel outstanding options or SARs in exchange for cash in circumstances where the +current FMV is less than the Option Price or Grant Price, or in exchange for other awards with an option price or grant price that is less than the option price or grant price of the original options +or SARs without stockholder approval; +• no amendment or modification that would increase the total number of shares of common stock available for issuance under our Equity Plan or the +total number of shares available for ISOs under our Equity Plan shall be effective unless approved by our stockholders; and +• to the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment shall be effective +unless approved by our stockholders in accordance with applicable law, regulation, or securities exchange or market requirement. +Adjustment of Awards +The committee may make appropriate proportionate adjustments or substitutions in the terms and conditions of, and the criteria included in, +awards in recognition of unusual or nonrecurring events affecting us or our financial statements or of changes in applicable laws, regulations, or accounting principles, whenever the committee +determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under our Equity Plan. +Adjustments +shall be made automatically, without the necessity of committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a +stock split affected by means of a stock dividend and in the case of any other dividend paid in shares of common stock. Adjustments shall be made in the discretion of the committee with respect to +other corporate events or transactions. +71 +Table of Contents +Securities Registration +We have registered under the Securities Act of 1933, as amended (the "Securities Act") the issuance of previously authorized shares of common +stock under our Equity Plan, and plan to register the issuance of the additional shares under these amendments if approved by our stockholders. Accordingly, participants will be able to sell shares +issued under our Equity Plan once any vesting and holding periods are satisfied, subject to other requirements of the Securities Act. +Tax Matters +ISOs. The grant of an ISO will not result in any immediate tax consequences to us or the +optionee. An optionee will not recognize taxable income and +we will not be entitled to any deduction upon the timely exercise of an ISO, but the excess of the fair market value of the shares of common stock acquired over the stock option price will be an item +of tax preference for purposes of the alternative minimum tax. If the optionee does not dispose of the shares of common stock acquired within one year after their receipt (and within two years after +the option was granted), gain or loss recognized on the subsequent disposition of the shares of common stock will be treated as long term capital gain or loss. Capital losses of individuals are +deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize ordinary taxable income in an amount equal to the +lesser of (i) the excess of the fair market value of the shares of common stock on the date of exercise over the option price, or (ii) if the disposition is a taxable sale or exchange, +the amount of any gain recognized. Upon such a disqualifying disposition, we will be entitled to a deduction in the same amount and at the same time as the optionee recognizes such ordinary taxable +income. +NSOs. The grant of a NSO will not result in any immediate tax consequences to us or the +optionee. Upon the exercise of a NSO, the optionee will +recognize ordinary taxable income, and we will be entitled to a deduction, equal to the difference between the stock option price and the fair market value of the shares of common stock acquired at +the time of exercise. +SARs. The grant of either a tandem SAR or a freestanding SAR will not result in any immediate +tax consequences to us or the grantee. Upon the +exercise of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares of common stock received will constitute ordinary taxable income +to the grantee. We will be entitled to a deduction in the same amount and at the same time. +Restricted Stock. A grantee normally will not recognize taxable income upon an award of +restricted stock, and we will not be entitled to a +deduction, until the termination of the restrictions. Upon such termination, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common +stock at that time, plus the amount of any dividends and interest thereon to which the grantee then becomes entitled. However, a grantee may elect to recognize ordinary taxable income in the year the +restricted stock is awarded in an amount equal to its fair market value at that time, determined without regard to the restrictions. We will be entitled to a deduction in the same amount and at the +same time as the grantee recognizes income. +RSUs. The grant of an RSU will not result in any immediate tax consequences to us or the +grantee. Upon payment of a RSU, the grantee will recognize +ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at that time. We will be entitled to a deduction in the same amount and at the same +time. +72 +Table of Contents +Performance Shares and Performance Units. The grant of a performance share or performance +unit will not result in any immediate tax consequences to +us or the grantee. Upon payment of a performance share or performance unit, the grantee will recognize ordinary taxable income in an amount equal to +the fair market value of the shares of common stock or cash received at that time. We will be entitled to a deduction in the same amount and at the same time. +Deductibility of Awards. Section 162(m) of the IRC generally places a $1 million +limit on the amount of compensation a company can +deduct in any one year for certain executive officers. The exemption from Section 162(m)'s deduction limit for performance-based compensation has been repealed, effective for taxable years +beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief +applicable to certain arrangements in place as of November 2, 2017. While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, +the Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of +our executive compensation program even if the awards are not deductible by the company for tax purposes. +Withholding of Taxes on Awards. Applicable taxes required by law will be withheld from all +amounts paid in satisfaction of an award. The amount of +the withholding will generally be determined with reference to the closing price of the shares of common stock as reported on the NYSE on the date of determination. +Golden Parachute Tax and Section 280G of the IRC. If an award is accelerated in +connection with a change of control of the company, all or a +portion of the value of the award at that time may be a "parachute payment" under Section 280G of the IRC for certain employees and other individuals who perform services for us. +Section 280G generally provides that if parachute payments equal or exceed three times an award holder's average W-2 compensation for the five tax years preceding the year of the change of +control, we will not be permitted to claim its deduction with respect to any "excess parachute payments" made to the individual. An "excess parachute payment" generally is the portion of a parachute +payment that exceeds such individual's historical average compensation. Section 280G of the IRC generally applies to employees or other individuals who perform services for us if within the +12 month period preceding the change of control the individual is an officer of the company, a stockholder owning more than one percent of our stock, or a member of the group consisting of the +lesser of the highest paid one percent of our employees or the highest paid 250 of our employees. A recipient of an excess parachute payment is subject to a 20 percent excise tax on such excess +parachute payment under Section 4999 of the IRC. +The +discussion set forth above is intended only as a summary and does not purport to be a complete enunciation or analysis of all potential tax consequences relevant to recipients of +awards under our Equity Plan. We have not undertaken to discuss the tax treatment of awards under our Equity Plan in connection with a merger, consolidation, or similar transaction. Such treatment +will depend on the terms of the transaction and the method of dealing with the awards in connection therewith. +New Plan Benefits Table +We cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our +executive officers, employees or directors under our Equity Plan. Such awards will be subject to limits as set forth in Section 4.1 of our Equity Plan document attached to this proxy statement +as Annex A. +73 +Table of Contents +The +following table sets forth the RSU and PSU awards granted in 2017 under our Equity Plan to each of our NEOs, executive officers as a group, and participating employees (excluding +NEOs and other executive officers) as a group as well as restricted stock and RSUs granted in 2017 to non-executive directors as a group related to the service period from May 23, 2017, through +May 22, 2018. +Total +Shares (1) +Javan D. Ottoson +312,064 +A. Wade Pursell +124,826 +Herbert S. Vogel +143,549 +David W. Copeland +43,689 +Lehman E. Newton, III +32,767 +All executive officers as a group (9 persons, including those named above) +750,828 +All current directors who are not executive officers as a group (7 persons) +80,367 +All current participating employees, excluding executive officers, as a group +1,247,683 +(1) Total +shares are calculated based upon one share for each RSU, PSU, and share of restricted stock. +Disclosure with Respect to Equity Compensation Plan +For a table providing information as of December 31, 2017, concerning equity awards granted under our Equity Plan, +please see the "Equity Compensation Plans" section of this Proxy Statement. +Recommendation of the Board : The Board recommends voting " FOR " Proposal 4. +74 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The +Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its oversight responsibilities with respect to +(a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and +regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, (c) the performance of SM Energy +Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2017, was responsible for performing an independent audit of SM +Energy Company's financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these +processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial statements of SM Energy Company for the year ended December 31, 2017. The Audit Committee also discussed with the independent registered public accounting firm the matters required to +be discussed by Auditing Standards No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee received the +written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent +registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that +firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be included +in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2017. +Respectfully +submitted by the Audit Committee of the Board of Directors, +Rose +M. Robeson, Chair +Larry W. Bickle +Loren M. Leiker +Ramiro G. Peru +75 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the knowledge of management, neither EY nor any of its members had any direct or material indirect financial interest in our company or any connection with our +company in any capacity other than as our independent registered public accounting firm for the years ended December 31, 2017, and 2016. +We +paid the following fees for the audit of the consolidated financial statements and for other services provided in the years ended December 31, 2017, and 2016. All services and +fees, including tax service fees, were pre-approved by the Audit Committee. +2017 +2016 +Audit Fees (1) +$1,094,895 +$1,272,200 +Audit Related Fees +— +— +Tax Fees (2) +15,000 +15,000 +All Other Fees +— +— +Total Fees +$1,109,895 +$1,287,200 +(1) Includes +reviews of registration statements and related consents and comfort letters as well as audit services related to oil and gas property +acquisitions and divestitures activity. +(2) Includes +basic compliance services and assistance with technical research. +The +Audit Committee concluded that the provision of the non-audit services, such as tax services, was compatible with maintaining EY's independence. +76 +Table of Contents +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The +charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the independent +registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. Such pre-approval requirement for non-audit +services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's policy that, +prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the +independent registered public accounting firm (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the independent registered public accounting firm are monitored by financial +management of our company +and reported to the Audit Committee; (c) any services proposed to be provided by the independent registered public accounting firm and the related fees that have not been pre-approved during +the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and (d) incremental fees for previously approved services that are +expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +77 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS +Pursuant +to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy materials and for presentation at the +2019 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be eligible for inclusion in our proxy materials, +stockholder proposals must be received by our Corporate Secretary no later than December 13, 2018. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to the Board or a proposal +of business to be properly brought before the 2019 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before +the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for +election to the Board or a proposal of business for the 2019 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the +120 th day prior to the first anniversary of the date of the 2018 Annual Meeting nor later than the close of business on the 90 th day prior to the first +anniversary of the 2018 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be considered at the 2019 Annual Meeting of Stockholders, it +should be properly submitted to our Corporate Secretary no earlier than January 22, 2019, and no later than February 21, 2019. If the date of our 2019 Annual Meeting of Stockholders +changes by more than 30 days before or after May 22, 2019, then stockholder nominations and proposals must be received not earlier than the close of business on the +120 th day prior to the date of the 2019 Annual Meeting of Stockholders and not later than the close of business on the later of the 90 th day prior to the date +of the 2019 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2019 Annual Meeting of Stockholders is less than 100 days prior to the date of the meeting, +the 10th day following the day on which public announcement of the date of the 2019 Annual Meeting of Stockholders is first made by us. For additional information about stockholder nominations +and proposals, see "Corporate Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly presented by a +stockholder at the 2019 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the proxy statement +discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 26, 2019, and the +stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 26, 2019, and the matter nonetheless is permitted to be +presented at the 2019 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter in the proxy +statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above +and other applicable requirements. +78 +Table of Contents +2017 ANNUAL REPORT +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, with the SEC. Our Annual Report is being made available to our +stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material. It is available free of charge at the SEC's web site at www.sec.gov . Upon written request +by a stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial statements and +financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in +furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +79 +Table of Contents +OTHER MATTERS +Management +does not know of any matters to be brought before the Annual Meeting other than the election of directors, the ratification of the appointment by the Audit +Committee of Ernst & Young LLP as our independent registered public accounting firm for 2018, the advisory vote to approve the compensation of our named executive officers and the +amendment and restatement of our Equity Plan. If any other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy +intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +Our +website at www.sm-energy.com includes much of this information, along with other general information about our operations, community activities and stakeholder relations. Any +remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at ir@sm-energy.com or our External Affairs Department at +externalaffairs@sm-energy.com. +Whether +or not you intend to be present at the Annual Meeting, we urge you to submit your proxy promptly. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President and General Counsel +April 12, +2018 +80 +Table of Contents +ANNEX A +SM ENERGY COMPANY +EQUITY INCENTIVE COMPENSATION PLAN +As Amended and Restated as of May 22, 2018 +ARTICLE 1. +ESTABLISHMENT, PURPOSE AND DURATION +1.1 Establishment . SM Energy Company, a Delaware corporation (the "Company"), has established an equity +incentive compensation plan formerly known as the 2006 Equity Incentive Compensation Plan (the "Plan"), originally adopted effective May 17, 2006. On March 26, 2009, the Plan was renamed +as the Equity Incentive Compensation Plan, and on May 24, 2016, the Plan was amended and restated. The Plan permits the grant of Restricted Stock, Restricted Stock Units, Nonqualified Stock +Options, Incentive Stock Options, Stock Appreciation Rights, Performance Shares, Performance Units and Stock Based Awards. The Plan as amended and restated herein will become effective upon its +approval by the Company's stockholders on May 22, 2018 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof. +1.2 Purpose. The purpose of the Plan is to promote the success and enhance the value of the Company by linking +the personal interests of the Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide +flexibility to the Company in its ability to attract, motivate, and retain the services of Participants upon whose judgment, interest, and special effort the success of the Company is substantially +dependent. +1.3 Duration. The Plan commenced as of May 17, 2006, as set forth in Section 1.1 hereof, and +shall remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to Article XIV hereof, until the earlier of (i) the tenth +anniversary of the Effective Date, or (ii) when all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. Any previously granted Awards under this Plan +which remain outstanding as of the date of expiration or other termination of the Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with +their respective terms. +1.4 Successor Plan. This Plan shall serve as the successor to the St. Mary Land & Exploration +Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the +St. Mary Land & Exploration Company Non-Employee Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants or awards shall be made under the +Predecessor Plans from and after May 17, 2006. Any Shares reserved for issuance under the Predecessor Plans in excess of the number of Shares as to which grants or awards have been made +thereunder shall be transferred into this Plan as of May 17, 2006 and shall become available for Awards under this Plan. Any Shares related to grants or awards made under the Predecessor Plans +that after May 17, 2006 lapsed, expired, terminated, or were cancelled, were settled in cash in lieu of common stock, were tendered (either by actual delivery or attestation) to pay the option +price, or were used to satisfy any tax withholding requirements shall be deemed to be +available for issuance or reissuance under Section 4.1 of this Plan. As of the Effective Date, there are no outstanding grants or awards made under the Predecessor Plans. +A-1 +Table of Contents +ARTICLE 2. +DEFINITIONS AND CONSTRUCTION +2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below, +unless the context clearly requires otherwise, and when such meaning is intended the term shall be capitalized. +(a) " Affiliate " shall have the meaning given to such term in Rule 12b-2 under the Exchange Act, with reference to the +Company, and shall also include any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least 50 percent of +the total combined voting power of such corporation or of the capital interest or profits interest of such partnership or other entity. +(b) " Award " means, individually or collectively, a grant or award under this Plan of Restricted Stock, Restricted Stock +Units, NQSOs, ISOs, SARs, Performance Shares, Performance Units or Stock Based Awards, in each case subject to the terms of this Plan. +(c) " Award Agreement " means either (i) a written agreement entered into by the Company and a Participant setting +forth the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such +Award. All Award Agreements shall be deemed to incorporate the provisions of the Plan. An Award Agreement need not be identical to other Award Agreements either in form or substance. An Award +Agreement may be transmitted electronically to the Participant in the discretion of the Company. +(d) " Board " or " Board of Directors " means the Board of Directors of the +Company. +(e) " Change of Control " shall mean any of the following events: +(i) (A) The +acquisition by any individual or entity (a "Person") or Persons acting as a group of beneficial ownership (within the meaning of Rule 13d-3 +promulgated under the Exchange Act) of more than 50 percent of either (1) the then value of the outstanding shares of common stock of the Company, or (2) the combined voting power +of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. +(B) For +purposes of paragraph (A), Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the +same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, +purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase +or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and +not with respect to the ownership interest in the other corporation. For purposes of determining stock ownership, see (e)(iv) below. +A-2 +Table of Contents +(ii) A +majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the +members of the Board prior to the date of the appointment or election; or +(iii) (A) Any +one Person, or more than one Person acting as a group (as determined in (e)(iii)(C) below), acquires (or has acquired during the 12 month +period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50 percent of the +total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the +Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. +(B) A +transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to— +(1) A +stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; +(2) An +entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; +(3) A +Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the +outstanding stock of the Company; or +(4) An +entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in (e)(iii)(B)(3). For +purposes of this paragraph (e)(iii)(B) and except as otherwise provided, a Person's status is determined immediately after the transfer of the assets. For example, a transfer to a corporation +in which the Company has no ownership interest before the transaction, but which is a majority owned subsidiary of the Company after the transaction, is not treated as a change in the ownership of the +assets of the Company. +(C) Persons +will not be considered to be acting as a group for purposes of this paragraph (e)(iii) solely because they purchase assets of the Company at the same +time. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business +transaction with the Company. If a Person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar +transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving +rise to the change and not with respect to the ownership interest in the other corporation. +A-3 +Table of Contents +(D) For +purposes of determining stock ownership, see (e)(iv) below. +(iv) For +purposes of determining whether there has been a Change of Control, Section 318(a) of the Code applies to determine stock ownership. Stock underlying a +vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). +For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by §§1.83-3(b) and (j) of the +income tax regulations promulgated by the +Internal Revenue Service), the stock underlying the option is not treated as owned by the individual who holds the option. +(f) " Change of Control Termination " has the meaning set forth in Section 13.1 hereof. +(g) " Code " means the Internal Revenue Code of 1986, as amended. +(h) " Committee " means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the +Board appointed by the Board to administer the Plan. The Committee shall be comprised of two or more directors, and each member of the Committee shall be a Non-Employee Director, an "outside director" +within the meaning of the regulations under Section 162(m) of the Code, and an "independent director" for purposes of the rules and regulations of the New York Stock Exchange ("NYSE") (or such +other principal securities market on which the Shares are traded). +(i) " Company " means SM Energy Company, a Delaware corporation, and any successor thereto as provided in Article XVII +hereof. +(j) " Covered Employee " means an Employee who is, or who the Committee expects to become, a "covered employee" within the +meaning of Section 162(m) of the Code. +(k) " Director " means any individual who is a member of the Board of Directors of the Company. +(l) " Dividend Equivalent " means a right with respect to an Award to receive cash, Shares or other property equal in value +and form to dividends declared by the Board and paid with respect to outstanding Shares. +(m) " Employee " means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or +an Affiliate shall not be considered Employees under this Plan. +(n) " Exchange Act " means the Securities Exchange Act of 1934, as amended. +(o) " Fair Market Value " or " FMV " means a value or price that is based on the +opening, closing, actual, high, low or average selling prices per Share on the NYSE or other established stock exchange (or +exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of +FMV may differ depending on whether FMV is in reference to the grant, exercise, vesting, settlement or payout of an Award. If Shares are +A-4 +Table of Contents +not +traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. +(p) " Fiscal Year " means the year commencing on January 1 and ending on December 31, or such other fiscal year +period as approved by the Board. +(q) " Freestanding SAR " means a SAR that is not a Tandem SAR, as described in Article VIII herein. +(r) " Grant Price " means the price against which the amount payable is determined upon exercise of a SAR. +(s) " Incentive Stock Option " or " ISO " means an Option to purchase Shares +granted under Article VII herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision. +(t) " Non-Employee Director " means a Director who meets the definition of a "Non-Employee Director" set forth in +Rule 16b-3(b)(3) under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. +(u) " Nonqualified Stock Option " or " NQSO " means an Option to purchase Shares +granted under Article VII herein, which is not intended to be an Incentive Stock Option or which otherwise does not meet the requirements for an ISO. +(v) " Option " means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the +form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan. +(w) " Option Price " means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined +by the Committee. +(x) " Participant " means a participant holding an outstanding Award granted under the Plan. +(y) " Performance Based Compensation " means compensation under an Award that is granted in order to provide remuneration +solely on account of the attainment of one or more Performance Goals under circumstances meet the definition of "performance based compensation" under Section 162(m)(4)(c) of the Code as in +effect for tax years beginning before January 1, 2018. +(z) " Performance Goal " means a performance criterion selected by the Committee for a particular Award for purposes of +Article XI based on one or more Performance Measures. +(aa) " Performance Measures " mean measures as described in Article XI, the attainment of one or more of which shall, +as determined by the Committee, determine the vesting, monetization, or value of an Award to a Covered Employee that is designated to qualify as Performance Based Compensation. +(bb) " Performance Period " means the period of time, which shall not be shorter than 12 months, during which the +assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award of Performance Shares or Performance Units. +A-5 +Table of Contents +(cc) " Performance Share " means an Award granted under Article IX herein, denominated in Shares, the value of which at +the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved. +(dd) " Performance Unit " means an Award granted under Article IX herein, denominated in units, which may be valued by +reference to a designated amount of property other than Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have +been achieved. +(ee) " Plan " means this Equity Incentive Compensation Plan, as it may be amended from time to time. +(ff) " Restricted Stock " means an Award under Article VI of Shares that may be subject to certain restrictions and to +a risk of forfeiture as set forth in the Award Agreement. +(gg) " Restricted Stock Unit " means an Award under Article VI that is valued by reference to a Share, which value may +be paid by delivery of Shares or cash or a combination thereof upon settlement of the Award, subject to the specific terms and conditions of the Award as set forth in the Award Agreement. +(hh) " Securities Act " means the Securities Act of 1933, as amended. +(ii) " Shares " means shares of common stock of the Company, $0.01 par value per share. +(jj) " Stock Appreciation Right " or " SAR " means the conditional right to +receive the difference between the FMV of a Share on the date of exercise over the Grant Price, pursuant to the terms of Article VIII herein. +(kk) " Stock Based Award " means an equity based or equity related Award granted pursuant to the terms of Article X +herein. +(ll) "Substitute Award" means Awards granted or Shares issued by the Company in assumption of or in substitution or exchange +for Awards previously granted or the right or obligation to make future Awards, in each case by a company acquired by the Company or any Affiliate, or a company with which the Company or any Affiliate +combines. +(mm) " Tandem SAR " means a SAR that the Committee specifies pursuant to Article VIII herein is granted in connection +with a related Option, the exercise of which SAR shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR +shall similarly be cancelled), or a SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related +SAR. Regardless of whether an Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so specified by the Committee at the time of grant. +2.2 Construction. Captions and titles contained herein are for convenience of reference only and shall not +affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, any definition of any term herein in the singular also shall include the plural. +A-6 +Table of Contents +ARTICLE 3. +ADMINISTRATION +3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, +consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and the Company's officers and Directors shall be entitled to rely upon the +advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, +the Company, and all other interested parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the +Plan. +3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to +(i) interpret the terms and the intent of the Plan, any Award and any Award Agreement or other agreement ancillary to or in connection with the Plan, (ii) determine eligibility for +Awards and select those who will become Participants in the Plan, (iii) adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper, +(iv) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company with respect to the Plan and (v) make all other determinations necessary +or advisable for the administration of the Plan. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to +Article XIV, adopting modifications, amendments or subplans to the Plan or any Award Agreement. Subject to the terms and provisions of the Plan, the Committee shall have complete discretion in +determining the nature, terms, conditions and amount of each Award. In making such determinations, the Committee may take into account the nature of services rendered +by the recipient of the Award, such person's present and potential contributions to the Company and such other factors as the Committee in its discretion shall deem relevant. +3.3 Delegation. The Committee may delegate to one or more of its members any of the Committee's administrative +duties or powers as it may deem advisable; provided, however, that any such delegation shall not be inconsistent with the provisions of Rule 16b-3 under the Exchange Act or +Section 162(m) of the Code as to actions to be taken by the Committee in connection therewith. In addition, the Committee may delegate to the Chief Executive Officer of the Company the power to +grant Restricted Stock Units to non-executive employees in an amount not to exceed $1,000,000 in any one year. +ARTICLE 4. +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +4.1 Total Number of Shares Available for Awards. +(a) Subject +to adjustment as provided in Section 4.4 herein, the total number of Shares hereby made available and reserved for issuance to Participants pursuant to +Awards granted under the Plan shall be 17,500,000, plus any remaining Shares available for issuance under the Predecessor Plans as set forth in Section 1.4 (with such total number of Shares, +including such adjustment and remaining Shares, to be referred to as the "Total Share Authorization"). Any Shares issued in connection with an Option or SAR shall be counted against the Total Share +Authorization limit as one Share for every one Share issued. Any Shares issued pursuant to Awards granted on or before May 20, 2009 in connection with an Award other than an Option or SAR shall +be counted against the Total Share Authorization limit as two Shares for every one Share issued. Any Shares issued pursuant to Awards granted after May 20, 2009 but before May 22, 2013 +in connection with an Award other than an Option +A-7 +Table of Contents +or +SAR shall be counted against the Total Share Authorization limit as 1.43 Shares for every one Share issued. Any Shares issued pursuant to Awards granted after May 22, 2013 in connection with +any Award shall be counted against the Total Share Authorization limit as one Share for every one Share issued. +The maximum aggregate number of Shares that may be issued through Nonqualified Stock Options shall be equal to the Total Share Authorization. The maximum aggregate number of Shares that may be issued +through Incentive Stock Options shall be 10,700,000. +(b) Any +Awards that are not settled in Shares shall not be counted against the Total Share Authorization limit. Any Shares related to Awards (or after May 17, 2006, +awards granted or issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such Shares, (ii) are settled in +cash either in lieu of Shares or otherwise, or (iii) are exchanged with the Committee's approval for Awards not involving Shares, shall be available again for issuance under the Plan. In +addition, from and after May 23, 2013, until the Effective Date, if the Option Price of any Option granted under the Plan or the tax withholding requirement with respect to any Award granted +under the Plan is satisfied by tendering Shares to the Company (by either actual delivery or by attestation), or if a SAR is exercised, only the number of Shares issued, net of the Shares tendered, if +any, will be deemed delivered for purposes of determining the maximum number of Shares available for issuance under the Plan; provided, however, that from and after May 21, 2008 and until +May 22, 2013, Shares tendered as full or partial payment to the Company of the Option Price upon exercise of Options granted under this Plan, Shares reserved for issuance upon grant of SARs, to +the extent the number of reserved Shares exceeds the number of Shares actually issued upon exercise of the SARs, and Shares withheld by, or otherwise remitted to, the Company to satisfy a +Participant's tax withholding obligations with respect to any Award granted under this Plan, shall not become available again for issuance under this Plan. +(c) After +the Effective Date, notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under +paragraph (a) of this Section: (i) Shares tendered by the Participant or withheld by the Company in payment of the purchase price of an Option, (ii) Shares tendered by the +Participant or withheld by the Company to satisfy any tax withholding obligation with respect to Options or Stock Appreciation Rights, (iii) Shares subject to a Stock Appreciation Right that +are not issued in connection with its stock settlement on exercise thereof, and (iv) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of +Options. +(d) The +Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares. +4.2 Award Limits for Performance Based Compensation. Unless and until the Committee determines that an Award to +a Covered Employee shall not be designed to qualify as Performance Based Compensation, the following limits ("Award Limits") shall apply to grants of Awards to Covered Employees under the Plan: +(a) Restricted Stock/Restricted Units. The maximum aggregate number of Shares that may be granted in the form +of Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one Participant shall be 100,000. +(b) Options and SARS. The maximum aggregate number of Shares that may be granted in the form of Options or SARs +in any one Fiscal Year to any one Participant shall be 200,000. +A-8 +Table of Contents +(c) Performance Shares/Performance Units. The maximum +aggregate Award of Performance +Shares or Performance Units that a Participant may receive in any one Fiscal Year shall be 300,000 Shares, and the maximum value of Performance Units that a Participant may receive with respect to +Awards in any one Fiscal Year shall be a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +(d) Stock Based Awards. The maximum aggregate grant with respect to Stock Based Awards in any one Fiscal Year +to any one Participant shall be 200,000. +4.3 Limits and Other Provisions Applicable to Awards. +(a) Treatment of Dividends and Dividend Equivalents on Unvested Awards. In no event shall dividends or dividend +equivalents be paid with respect to Options or Stock Appreciation Rights. Notwithstanding any other provision of the Plan to the contrary, with respect to any Award that provides for or includes a +right to dividends or dividend equivalents, if dividends are declared during the period that an equity +Award is outstanding, such dividends (or dividend equivalents) shall either (i) not be paid or credited with respect to such Award or (ii) be accumulated but remain subject to vesting +requirement(s) to the same extent as the applicable Award and shall only be paid at the time or times such vesting requirement(s) are satisfied. +(b) Director Award and Compensation Limits. The maximum number of Shares subject to Awards granted during a +single fiscal year to any non-employee Director, taken together with any cash fees paid during the fiscal year to the non-employee Director in respect of the Director's service as a member of the +Board during such year (including service as a member or chair of any committees of the Board), shall not exceed $700,000 in total value (calculating the value of any such Awards based on the grant +date fair value of such Awards for financial reporting purposes). The independent members of the Board may make exceptions to this limit for a non-executive chair of the Board, provided that the +non-employee Director receiving such additional compensation may not participate in the decision to award such compensation. +(c) Minimum Vesting Provisions. Notwithstanding any other provision of the Plan to the contrary, equity-based +Awards granted under the Plan after the Effective Date shall vest no earlier than the first anniversary of the date the Award is granted (excluding, for this purpose, any (i) Substitute Awards, +(ii) Shares delivered in lieu of fully vested cash Awards and (iii) Awards to Directors that vest on the earlier of the one year anniversary of the date of grant or the next annual +meeting of stockholders); provided that the Committee may grant equity-based Awards without regard to the foregoing minimum vesting requirement with respect to a maximum of 5% of the Total Share +Authorization (subject to adjustment under Section 4.4); and, provided further, for the avoidance of doubt, that the foregoing restriction does not apply to the Committee's discretion to +provide for accelerated exercisability or vesting of any Award, including in cases of retirement, death, disability or a Change in Control, in the terms of the Award or otherwise +4.4 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not +limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary or +special dividend, stock split, reverse stock split, split up, spin off, other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or +other like change in capital structure or distribution (other than normal cash dividends) to the +A-9 +Table of Contents +stockholders +of the Company, or any similar corporate event or transaction, the Committee, in order to prevent dilution or enlargement of Participants' rights under the Plan, shall make or provide for +appropriate proportionate substitutions or adjustments, as applicable, to the number and kind of Shares that may be issued under the Plan, the number and kind of Shares subject to outstanding Awards, +the Option Price or Grant Price applicable to outstanding Awards, the application and computation of any Dividend Equivalents that may be provided for in Award Agreements, the Award Limits, and any +other +value determinations applicable to outstanding Awards or to this Plan. Such adjustments shall be made automatically, without the necessity of Committee action, on the customary and appropriate +arithmetical basis, in the case of any stock split, including a stock split effected by means of a stock dividend, and in the case of any other dividend paid in Shares, and shall be made in the +discretion of the Committee with respect to other corporate events or transactions. The Committee, in its sole discretion, may also make other appropriate adjustments in the terms of any Awards under +the Plan to reflect, or related to, such changes or distributions and may modify any other terms of outstanding Awards, including modifications of performance criteria and changes in the length of +Performance Periods, as are equitably necessary to prevent dilution or enlargement of Participant's rights under the Plan that otherwise would result from such corporate event or transaction. The +determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan. Subject to the provisions of Article XIII and any +applicable law or regulatory requirement, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance, assumption, substitution or conversion of +Awards under this Plan in connection with any such corporate event or transaction upon such terms and conditions as it may deem appropriate. In addition, the Committee may amend the Plan, or adopt +supplements to the Plan, in such manner as it deems appropriate to provide for such issuance, assumption, substitution or conversion as provided in the previous sentence. +4.5 Substitute Awards. Substitute Awards shall not reduce the Shares authorized for grant under the Plan or the +applicable Award Limits, nor shall Shares subject to a Substitute Award again be available for Awards under the Plan as provided in Section 4.1 above. Additionally, in the event that a company +acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of +such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or +valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may +be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall not be made after the date awards or +grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such +acquisition or combination. +ARTICLE 5. +ELIGIBILITY AND PARTICIPATION +5.1 Eligibility. All Employees and members of the Board of the Company and of any Affiliate of the Company +shall be eligible to participate in the Plan and be granted Awards under the Plan. +5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, in its +sole discretion, select from among persons eligible to participate in the Plan those to whom Awards shall be granted under the Plan, and shall determine in its discretion the nature, terms, +conditions, and amount of each Award. +A-10 +Table of Contents +ARTICLE 6. +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +6.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, in its discretion may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and upon such terms as the Committee +shall determine. +(a) Restricted +Stock. +(i) Nature +of Restricted Stock. Restricted Stock may be issued for services rendered with any or no additional purchase price as shall be determined by the Committee in its +discretion, and may be subject to certain restrictions and to a risk of forfeiture as set forth in the Award Agreement. A Participant to whom Shares of Restricted Stock are issued shall have all of +the rights of ownership with respect to the Shares subject to such Restricted Stock Award, including the right to vote the same and receive any dividends paid thereon; subject, however, to the terms, +conditions and restrictions contained in this Plan and in the applicable Award Agreement. +(ii) Forfeiture +and Vesting. A Restricted Stock Award Agreement may provide for forfeiture of the Restricted Stock upon termination of the Participant's employment or other +relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Award Agreement may also provide for (i) vesting +periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock to vest and become no longer subject to forfeiture and (ii) holding periods during +which the Restricted Stock may not be sold or otherwise transferred. +(iii) Delivery +of Shares and Settlement. Upon an Award of Restricted Stock, the Company shall deliver to the Participant the Shares subject to the Award (which Shares may +be delivered in book-entry or certificated form), and such Shares shall be evidenced with an appropriate legend referring to or setting forth the applicable restrictions to which such Shares are +subject (by means of appropriate stop-transfer orders on Shares credited to book-entry accounts or by means of appropriate legends on Shares that have been certificated). After the Shares are no +longer subject to such restrictions, the Company shall, in accordance with the terms and conditions of the Award Agreement and upon the request of the Participant and the surrender by the Participant +of any certificated Shares, settle the completed Restricted Stock Award by providing the Participant with Shares with such restrictions removed. +(b) Restricted +Stock Units. +(i) Nature +of Restricted Stock Units; Accounts. Each Restricted Stock Unit awarded shall represent a right for one Share to be delivered upon settlement of the Award, which +right shall be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Plan and the Award Agreement. The Company shall establish and maintain a +Participant account to record Restricted Stock Units and transactions and events affecting such units. Restricted Stock Units and other items reflected in the account will represent only bookkeeping +entries by the Company to evidence unfunded obligations of the Company. +A-11 +Table of Contents +(ii) Deferral +Period and Settlement Date. Restricted Stock Units (if not previously cancelled or forfeited) shall be settled on the date or dates set forth in the Award +Agreement. In addition, unless otherwise determined by the Committee, if the Committee reasonably determines that any settlement of Restricted Stock Units that are intended to be Performance Based +Compensation would result in payment of compensation to a Participant which is not deductible by the Company under Section 162(m) of the Code, such settlement shall be deferred, subject to +compliance with Section 409A of the Code as referred to in Article XX herein, to the extent necessary to avoid payment of such nondeductible compensation, with such deferral continuing +only until such date as settlement can be effected without loss of deductibility by the Company under Section 162(m) of the Code. +(iii) Cancellation +and Vesting. A Restricted Stock Unit Award Agreement may provide for cancellation of the Restricted Stock Units upon termination of the Participant's +employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Unit Award Agreement may also provide +for vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock Units to vest and become no longer subject to cancellation. +(iv) Dividend +Equivalents. Restricted Stock Units shall not be credited with Dividend Equivalents unless specifically provided for in the Award Agreement, and then only +upon such terms and conditions as set forth in this Plan and in the Award Agreement. +(v) Settlement +and Delivery of Shares. Settlement of a Restricted Stock Unit Award shall be made in accordance with the terms and conditions of the applicable Award +Agreement. A Restricted Stock Unit Award Agreement may provide that settlement may be made (A) solely through the issuance of Shares or (B) at the mutual election of the Participant and +the Company, in a combination of Shares and cash. Upon the settlement of a Restricted Stock Unit Award, the Company shall deliver to the Participant the number of Shares issued to the Participant in +settlement of the Award (which Shares may be delivered in book-entry or certificated form). +6.2 Restricted Stock and Restricted Stock Unit Award Agreements. Each Restricted Stock and Restricted Stock +Unit Award shall be evidenced by an Award Agreement which shall set forth the terms and conditions of such Award, including the number of Shares to which the Award relates, the date or dates upon +which such Award shall vest and the circumstances (including termination of employment or failure to satisfy one or more restrictive covenants or other ongoing obligations) under which the Award shall +not vest, the time and manner of settlement of the Award, such transfer restrictions which the Committee may impose, and any other terms or conditions which the Committee may impose. +(a) If +not otherwise specified by the Committee, the following terms and conditions shall apply to Restricted Stock and Restricted Stock Units awarded under the Plan: +(i) Vesting. +An Award of Restricted Stock or Restricted Stock Units shall vest pursuant to a vesting schedule as determined by the Committee, which vesting schedule may +provide that (A) an Award held by a Participant who retires from employment with the Company after having both reached the age of sixty and completed twelve years of service with the Company +shall continue to vest in +A-12 +Table of Contents +accordance +with the vesting schedule set forth in the applicable Award Agreement notwithstanding the termination of the Participant's employment with the Company, provided that prior to full vesting +of the Award such Participant does not after such retirement become employed on a full time basis by a competitor of the Company prior to reaching age sixty-five, and (B) an Award held by a +Non-Employee +Director of the Company who resigns from the Board after completing at least five years of service to the Company as a Non-Employee Director shall become fully vested. +(ii) Termination. +An outstanding Award of Restricted Stock that has not vested or an outstanding Award of Restricted Stock Units that has not been settled shall be +cancelled upon the Company's termination of the employment of the Participant for cause. +(iii) Acceleration. +An outstanding Award of Restricted Stock or Restricted Stock Units shall become fully vested and settled irrespective of its other provisions upon +termination of the Participant's employment with the Company or Affiliate because of death, disability or normal retirement upon reaching the age of sixty-five. +(iv) Transferability. +An outstanding Award of Restricted Stock or Restricted Stock Units that has not vested and been settled or is otherwise restricted by the terms of the +Award Agreement as to transferability shall not be transferable by the Participant, and the Participant shall not be permitted to sell, transfer, pledge or otherwise encumber such Award or the Shares +issuable in settlement thereof, other than (A) to the person or persons to whom the Participant's rights under such Award pass by will or the laws of descent and distribution, (B) to the +spouse or the descendants of the Participant or to trusts for such persons to whom or which the Participant may transfer such Award, (C) to the legal representative of any of the foregoing, or +(D) pursuant to a qualified domestic relations order as defined under Section 414(p) of the Code or similar order or agreement relating to the provision of child support, alimony +payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant. If an Award is transferred to any person to whom a transfer of the Award is permitted, the +transferee shall remain subject to all of the vesting conditions to which the Award is subject. Any such transfer shall be made only in compliance with the Securities Act and the requirements therefor +as set forth by the Company. +(b) The +Committee shall be free to specify terms and conditions other than and in addition to those set forth above, in its discretion. +ARTICLE 7. +STOCK OPTIONS +7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants +in such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee in its discretion. ISOs may be granted only to Employees of the +Company or a parent or subsidiary corporation of the Company within the meaning of Section 424 of the Code, and no ISOs may be granted more than 10 years after the adoption of the Plan +by the Board. +7.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option +Price, the duration of the Option, the number of Shares to which the Option +A-13 +Table of Contents +relates, +the conditions upon which an Option shall become vested and exercisable, and any other terms and conditions as the Committee shall determine. The Award Agreement shall also specify whether +the Option is intended to be an ISO or a NQSO. +7.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the +Committee and shall be specified in the Award Agreement. The Option Price for an Option, whether issued as an ISO or an NQSO, shall be not less than 100 percent of the FMV of the underlying +Shares on the date of grant; provided, however, that the Option Price for an ISO granted to a person who at the time of grant owns (or is deemed to own pursuant to Section 424(d) of the Code) +stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any of its Affiliates (a "Significant Stockholder") shall be not less than +110 percent of the Fair Market Value of the underlying Shares as of the date of grant; and provided, however, that this Section 7.3 shall not apply to Substitute Awards. +7.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided however, that no Option shall be exercisable later than the tenth anniversary date of its grant, and provided further that no ISO granted to a Significant +Stockholder shall be exercisable after the expiration of five years from the date of grant. Notwithstanding the foregoing, except for ISOs, to the extent permissible under Section 409A of the +Code, the exercise period of an Option will be automatically extended if the expiration date occurs during a period when trading in Company Shares is prohibited, to a date that is 30 days after +the conclusion of the prohibition. +7.5 Exercise of Options. Options shall be exercisable at such times and on such events, and be subject to such +restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the delivery of a notice +of exercise to the Company or an agent designated by the Company in a form specified by or acceptable to the Committee, or by complying with any alternative procedures which may be authorized by the +Committee, setting forth the number of Shares with respect to which the Option is to be exercised, and accompanied by full payment for the Shares. Upon exercise of any Option, the Option Price shall +be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate FMV at +the +time of exercise equal to the total Option Price; (c) by a combination of (a) and (b); or (d) by any other method approved or accepted by the Committee in its sole discretion and +subject to such rules and regulations as the Committee may establish. Subject to Section 7.6 and any governing rules or regulations, as soon as practicable after receipt of a notification of +exercise and full payment for the Shares, the Company shall cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount based upon the number +of Shares purchased under the Option(s). +7.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired +pursuant to the exercise of an Option granted under the Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant to exercise for a +specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed and/or traded. +7.7 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the +Participant shall have the right to exercise the Option following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be +determined in the sole discretion of the Committee, need not be uniform among all Options granted under the Plan, and may reflect distinctions based on the reasons for termination. +A-14 +Table of Contents +7.8 Nontransferability of Options. +(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned or +otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In addition, all ISOs granted to a Participant under the Plan shall be exercisable during such +Participant's lifetime only by such Participant. +(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a NQSO granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. Any permitted transfer of an NQSO must be for zero consideration. +(c) Notification of Disqualifying Disposition. The Participant to whom an ISO is granted shall notify the +Company upon the disposition of Shares issued pursuant to the exercise of an ISO or Shares received as a dividend on ISO stock. The Company shall use such information to determine whether a +disqualifying disposition as described in Section 421(b) of the Code has occurred. +7.9 $100,000 Annual ISO Limitation. To the extent that the aggregate Fair Market Value of Shares (determined as +of the time the ISOs with respect to such Shares are granted) with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under this Plan and all other +plans of the Company and any Affiliate) exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions shall be applied by taking ISOs into account in the order in which they were +granted. +ARTICLE 8. +STOCK APPRECIATION RIGHTS +8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any +time and from time to time and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of +SARs. The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price for each Freestanding SAR may +include a Grant Price based on 100 percent of the FMV of the underlying Share on the date of grant or a Grant Price that is set at a premium to the FMV of the underlying Share on the date of +grant. The SAR Grant Price for each Freestanding SAR shall not be less than FMV of the underlying Share on the date of grant. The Grant Price of Tandem SARs shall be equal to the Option Price of the +related Option. +8.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, +the term of the SAR, and any such other provisions as the Committee shall determine. +8.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee in its sole +discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary date of its grant. +Notwithstanding the foregoing, to the extent permissible under Section 409A of the Code, the +A-15 +Table of Contents +term +of a SAR will be automatically extended if the expiration date occurs during a period when trading in Company Shares is prohibited, to a date that is 30 days after the conclusion of the +prohibition. +8.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions that +the Committee in its sole discretion imposes. +8.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related +Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then +exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the +expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100 percent of the difference between the Option Price of the +underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject +to the ISO exceeds the Option Price of the ISO. +8.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from +the Company in an amount representing the difference between the FMV of the underlying Share on the date of exercise over the Grant Price. At the discretion of the Committee, the payment upon SAR +exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some +combination thereof, or in any other form approved by the Committee in its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later +determination in the Award Agreement for the grant of the SAR. +8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to exercise the SAR following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the sole +discretion of the Committee, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +8.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a SAR granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant +under the Plan shall be exercisable during such Participant's lifetime only by such Participant. Any permitted transfer shall be for zero consideration. +8.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may +impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring +the Participant to hold the Shares received upon exercise of a SAR for a specified period of time. +A-16 +Table of Contents +ARTICLE 9. +PERFORMANCE SHARES AND PERFORMANCE UNITS +9.1 Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and upon such terms as the Committee shall determine. +9.2 Value of Performance Shares and Performance Units. Each Performance Share and Performance Unit shall have +an initial value that is established by the Committee at the time of grant. The Committee shall in its discretion set performance criteria for a Performance Period which, depending on the extent to +which the performance criteria are met, will determine, in the manner established by the Committee and set forth in the Award Agreement, the value and/or amount of each Performance Share or +Performance Unit that will be paid to the Participant. +9.3 Earnings of Performance Shares and Performance Units. Subject to the terms of this Plan and the applicable +Award Agreement, after the applicable Performance Period has ended, the holder of Performance Shares and/or Performance Units shall be entitled to receive, to the extent that the Performance Shares or +Performance Units have vested, if applicable, a payout of the value and/or amount of Performance Shares and/or Performance Units, determined as a function of the extent to which the corresponding +performance criteria have been achieved. The Committee may in its discretion require the Participant to hold the Shares or other property received pursuant to such Award for a specified period of +time. +9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance +Shares and Performance Units shall be made in accordance with the terms and conditions of the applicable Award Agreement. A Performance Share or Performance Unit Award Agreement may provide that +payment may be made, to the extent that the Performance Share or Performance Unit has vested and the performance criteria are met, solely through the issuance of Shares earned upon the expiration of +the applicable Performance Period, and that the Participant may elect to satisfy the Participant's tax withholding obligation with respect to the Award by having the Company withhold Shares or other +property or by the Participant surrendering Shares or other property to the Company with a FMV on or near the tax withholding date equal to the tax withholding obligation. Upon the payment in the form +of Shares of a Performance Share or Performance Unit Award, the Company shall deliver to the Participant the number of Shares issued to the Participant in payment of the Award (which Shares may be +delivered in book-entry or certificated form). +9.5 Dividends and Other Distributions. Dividends and other distributions declared by the Board and paid with +respect to outstanding Shares shall only be paid with respect to Performance Share and Performance Unit Awards for Shares that have been issued by the Company in payment of such Awards to the extent +that the Awards have vested and upon the expiration of the applicable Performance Periods for the Awards. Performance Shares and Performance Units shall not be credited with Dividend Equivalents +unless specifically provided for in the Award Agreement, and then only upon such terms and conditions as set forth in the Award Agreement. +9.6 Vesting and Termination of Employment. Each Award Agreement shall set forth the extent to which the Award +shall vest, which may be pursuant to a vesting schedule as determined by the Committee, and the extent to which the Participant shall have the right to retain Performance Shares and/or Performance +Units following the termination of the Participant's employment or other relationship with the Company or an Affiliate. Such provisions shall be determined in the sole +A-17 +Table of Contents +discretion +of the Committee, need not be uniform among all Performance Shares and Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +9.7 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a +Participant's Award Agreement at the time of grant or thereafter by the Committee, Performance Shares and Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated, other than by will or by the laws of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the +Committee, a Participant's rights with respect to Performance Shares and Performance Units shall inure during such Participant's lifetime only to such Participant. Any permitted transfer shall be for +zero consideration. +ARTICLE 10. +STOCK BASED AWARDS +10.1 Stock Based Awards. Subject to the terms and conditions of the Plan, the Committee, at any time and from +time to time, may grant other types of equity based or equity related Awards not described by the other terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amounts +and subject to such terms and conditions, including, but not limited to, conditions based on the satisfaction of performance criteria or the satisfaction of such obligations as the Committee shall +determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. +10.2 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to receive Stock Based Awards following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the +sole discretion of the Committee, need not be uniform among all Stock Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +10.3 Nontransferability of Stock Based Awards. Except as otherwise provided in a Participant's Award Agreement +at the time of grant or thereafter by the Committee, Stock Based Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of +descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, a Participant's rights with respect to Stock +Based Awards shall inure during such Participant's lifetime only to such Participant. Any permitted transfer shall be for zero consideration. +ARTICLE 11. +PERFORMANCE MEASURES +Notwithstanding any other terms of this Plan, the vesting, payment obligation or value (as determined by the Committee) of each Award other +than an Option or SAR that, at the time of grant, the Committee intends to be Performance Based Compensation to a Covered Employee, shall be determined by the attainment of one or more Performance +Goals as determined by the Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to receive such +an Award (which may be expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within 90 days after the commencement of the period to which the +Performance Goal(s) relate(s), or such earlier time as +required to comply with Section 162(m) of the Code. No such Award shall be payable unless the Committee certifies in writing, by resolution or otherwise, that the Performance Goal(s) applicable +to the Award were satisfied. In no case may the Committee increase the value of an Award of Performance Based Compensation above the maximum value determined under the performance formula by the +attainment of the applicable Performance Goal(s), but the Committee retains the discretion to reduce the value below such maximum. +A-18 +Table of Contents +Unless and until the Committee proposes for stockholder vote and the stockholders approve a change in the general Performance Measures set forth in +this +Article XI, the Performance Goal(s) upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the +following Performance Measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +(c) Share +price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or +capital); +(h) Increases +in, or levels of, operating and/or nonoperating expenses; +(i) Other +specific unusual or nonrecurring events; +(j) Foreign +exchange gains and losses; and +(k) A +change in the Company's fiscal year. +Any +Performance Measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or Affiliates of the Company or any combination thereof, as +the Committee may deem appropriate, and any Performance Measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of Performance Goal(s). +The +Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the +relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations +affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 +and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's Annual Report on Form 10-K for the applicable year; and +(f) significant acquisitions or divestitures. To the extent such inclusions or +A-19 +Table of Contents +exclusions +affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing Performance Measures without obtaining stockholder approval +of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to +grant Awards to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code. +ARTICLE 12. +RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE +12.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right +of the Company or an Affiliate to terminate any Participant's employment, consulting or other service relationship with the Company or an Affiliate at any time, nor confer upon any Participant any +right to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate. Neither an Award nor any benefits arising under this Plan shall constitute part of an +employment or service contract between a Participant and the Company or an Affiliate, and, accordingly, subject to the terms of this Plan, this Plan may be terminated, amended or modified at any time +in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments or otherwise, except as provided in this Plan. +For +purposes of the Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be +deemed a termination of employment. The Committee may provide in a Participant's Award Agreement or otherwise the conditions under which a transfer of employment to an entity that is spun off from the +Company or an Affiliate shall not be deemed a termination of employment for purposes of an Award. +12.2 Participation. No Employee or other person eligible to participate in the Plan shall have the right to be +selected to receive an Award. No person selected to receive an Award shall have the right to be +selected to receive a future Award or, if selected to receive a future Award, the right to receive such future Award on terms and conditions identical or in proportion in any way to any prior Award. +12.3 Rights as a Stockholder. A Participant shall have none of the rights of a stockholder with respect to +Shares covered by any Award until the Participant becomes the record holder of such Shares. +ARTICLE 13. +CHANGE OF CONTROL +13.1 Accelerated Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to +the provisions of Section 13.2 or as otherwise provided in the Award Agreement, for Awards granted on or after May 21, 2008 and prior to a Change of Control, in the event that a Change +of Control occurs and a Participant's employment with the Company is subsequently terminated without Cause (as defined in such Participant's Award Agreement) or the Participant terminates his or her +employment with the Company for Good Reason (as defined in such Participant's Award Agreement) within 30 months of the Change of Control (a "Change of Control Termination"), unless otherwise +A-20 +Table of Contents +specifically +prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded, with respect to such Awards granted to such Participant: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be +immediately payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be +deemed to have been fully earned based on measured performance as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to such +Participant within 30 days following the effective date of the Change of Control Termination; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control Termination; +(d) Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an +Affiliate, the Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control Termination, and that the +value of such Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount determined by the Committee, in +accordance with the terms of the Plan and the Award Agreements, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on +account of an ISO using a value higher than the FMV of the underlying Shares on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a Change of Control and a Change of Control Termination do not occur, would result in an Award to a Covered Employee +designed to qualify as Performance Based Compensation to not so qualify, the Committee shall have the discretion to adopt for such Award such provisions as shall satisfy the requirements of +Section 162(m) of the Code. +13.2 Alternative Awards. Notwithstanding Section 13.1, no cancellation, acceleration of vesting, lapsing +of restrictions, payment of an Award, cash settlement, or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the occurrence of a Change +of Control, that such Award shall be honored or assumed, or new rights substituted therefor (with such honored, assumed or substituted Award hereinafter referred to as an +A-21 +Table of Contents +"Alternative +Award") by any successor to the Company or an Affiliate as described in Article XVII; provided, however, that any such Alternative Award must: +(a) Be +based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within 60 days after the +Change of Control; +(b) Provide +such Participant with rights and entitlements substantially equivalent to or more favorable than the rights, terms, and conditions applicable under such Award, +including, but not limited to, an identical or more favorable exercise or vesting schedule and identical or more favorable timing and methods of payment; and +(c) Have +substantially equivalent economic value to such Award (determined at the time of the Change of Control). +ARTICLE 14. +AMENDMENT AND TERMINATION OF THE PLAN +14.1 Amendment, Modification, Suspension, and Termination. The Committee or the Board may, at any time and from +time to time, alter, amend, modify, suspend or terminate the Plan in whole or in part; provided, however, that: +(a) Consistent +with the provisions of Section 4.4 and except in connection with a corporate transaction involving the Company (including, without limitation, a +Change of Control or any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the +terms of outstanding Awards may not be amended to reduce the Option Price of outstanding Options or the Grant Price of outstanding SARs, and may not be amended to cancel outstanding Options or SARs in +exchange for cash in circumstances where the current FMV is less than the Option Price or Grant Price, or in exchange for other Awards with an Option Price or Grant Price that is less than the Option +Price or Grant Price of the original Options or SARs without stockholder approval. +(b) No +amendment or modification which would increase the total number of Shares available for issuance under the Plan or the total number of shares available for ISOs +under the Plan shall be effective unless approved by the stockholders of the Company. +(c) To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment or modification shall be effective unless +approved by the stockholders of the Company in accordance with the applicable law, regulation, or securities exchange or market requirement. +14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make +adjustments in the terms and conditions of, and the criteria provided in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in +Section 4.4 hereof) affecting the Company or the financial statements of the Company, or in recognition of changes in applicable laws, regulations or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Awards +and the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants under the Plan. To the extent such adjustments affect +Awards +A-22 +Table of Contents +to +Covered Employees intended to be Performance Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +14.3 No Impairment of Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary, no +amendment, modification, suspension or termination of the Plan shall in any manner adversely affect in any material way any outstanding Award previously granted under the Plan without the written +consent of the Participant holding such Award. +ARTICLE 15. +SECURITIES REGISTRATION +15.1 Securities Registration. In the event that the Company shall deem it necessary or desirable to register +under the Securities Act, or any other applicable statute, any Awards or any Shares with respect to which an Award may be or shall have been granted, or to qualify any such Awards or Shares under the +Securities Act or any other statute, then the affected Participants shall cooperate with the Company and take such action as is necessary to permit registration or qualification of such Awards or +Shares. +15.2 Representations. Unless the Company determines that the following representation is unnecessary, each +person receiving an Award under the Plan may be required by the Company, as a condition to the issuance of Shares pursuant to the Award, to make a representation in writing that (i) he or she +is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the Securities +Act, and (ii) before any transfer in connection with the resale of such Shares, an exemption from registration of such transaction under the Securities Act shall be established to the +satisfaction of the Company. The Company may also require that any certificates or book-entry accounts for such Shares contain restrictive legends or stop-transfer orders reflecting the foregoing. +ARTICLE 16. +TAX WITHHOLDING +In connection with Awards granted under the Plan, the Company and any Affiliate shall have the power and the right to deduct or withhold, or +require a Participant to remit to the Company or any Affiliate, amounts sufficient to satisfy any federal, state and local withholding tax requirements with respect to any taxable event as a result of +the Plan and Awards granted under the Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant making other +arrangements, in either case on such conditions as the Committee specifies. The Company may in its discretion make loans to Participants of funds sufficient to satisfy any such withholding tax +requirements, provided that any such loan shall comply with all applicable laws, rules and regulations and no such loan shall be made to a Director or executive officer of the Company in violation of +Section 13(k) of the Exchange Act, as adopted pursuant to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any Affiliate shall have the right to require that any recipient +or permitted transferee of an Award under the Plan who is not an Employee shall be responsible for the payment of all amounts required to satisfy all federal, state, and local withholding taxes +applicable to such persons with respect to such Award. +ARTICLE 17. +SUCCESSORS +Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder, shall be binding on any successor to +the Company or Affiliate, respectively, whether the +A-23 +Table of Contents +existence +of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company or Affiliate, +as applicable. +ARTICLE 18. +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee, or an officer or employee who +assists in administering the Plan, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or +her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act +under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in any such action, +suit or proceeding against him or her, provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend +it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's certificate +of incorporation or bylaws, as a matter of law or otherwise, or any power that the Company or an Affiliate may have to indemnify them or hold them harmless. +ARTICLE 19. +GENERAL PROVISIONS +19.1 Forfeiture Events. Without limiting in any way the generality of the Committee's power to specify any +terms and conditions of an Award consistent with law, the Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to +reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events +may include, but not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and +Affiliate policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection or other agreements that may apply to the Participant, or other conduct +by the Participant that is detrimental to the business or reputation of the Company or Affiliates. Nothing contained herein prohibits the Participant from: (1) reporting possible violations of +federal law or regulations, including any possible securities laws violations, to any governmental agency or entity; (2) making any other disclosures that are protected under the whistleblower +provisions of federal law or regulations; or (3) otherwise fully participating in any federal whistleblower programs, including but not limited to any such programs managed by the U.S. +Securities and Exchange. +19.2 Evidence of Restrictions. The certificates or book-entry accounts for Shares issued under the Plan may +include or be subject to any legend or stop-transfer order that the Committee deems appropriate to reflect any restrictions on transfer of such Shares. +19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares +issued under the Plan prior to: +(a) Obtaining +any approvals from governmental agencies that the Company determines are necessary or advisable; and +A-24 +Table of Contents +(b) Completion +of any registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental body that the Company +determines to be necessary or advisable, and the listing or approval for trading of such Shares on any applicable securities exchange or market. +19.4 Uncertificated Shares. Where the Plan provides for the issuance of stock certificates to evidence the +issuance or transfer of Shares, such Shares may be evidenced on an uncertificated basis to the extent not prohibited by applicable law or stock exchange rules. +19.5 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments +that the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be +construed to create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative or any other person. Awards shall be +general unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company, the Award shall be a general unsecured obligation of the Affiliate and not +an obligation of +the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured general creditor of +the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or separate fund shall be +established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement +Income Security Act of 1974. +19.6 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award +Agreement. In the event that any fractional Shares would otherwise result from the application of the terms of an Award, the Company shall instead pay cash in lieu of fractional Shares on such basis +as the Committee may determine in its discretion. +19.7 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the +Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program +or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant's rights under any such other plan, policy, program or arrangement. +19.8 No Constraint on Corporate Action. Nothing in this Plan shall be construed to (i) limit, impair or +otherwise affect the Company's or an Affiliate's right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or +dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) limit the right or power of the Company or an Affiliate to take any action which such entity deems to be +necessary or appropriate. +19.9 Severability. In the event that any provision of the Plan shall be held to be illegal or invalid for any +reason, the illegality or invalidity thereof shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been +included. +19.10 Requirements of Law. The granting of Awards and the issuance of Shares pursuant to an Award shall be +subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges or markets as may be required. The Company or an Affiliate shall +receive the consideration required by law for the issuance of Awards under the Plan. The +A-25 +Table of Contents +inability +of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, which authority is necessary for the lawful issuance and sale of any Shares hereunder, shall +relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. +19.11 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and +governed by the laws of the State of Delaware, excluding any conflicts or choice of law principles which might otherwise result in construction or interpretation of the Plan or an Award Agreement +under the substantive law of another jurisdiction. +19.12 Recovery of Compensation in Connection with Financial Restatement. Notwithstanding any other provision of +this Plan or any applicable Award Agreement to the contrary, if the Board determines that the Company is required to restate its financial statements due to material noncompliance with any financial +reporting requirement under the law, whether such noncompliance is the result of misconduct or other circumstances, a Participant will be required to reimburse the Company for any amounts earned or +payable with respect to an Award to the extent required by and otherwise in accordance with applicable law and any Company policies. Without limiting the foregoing, all Awards granted or other +compensation paid by the Company under the Plan will be subject to any compensation recapture policies required by applicable law (including the Sarbanes-Oxley Act of 2002) or that are established by +the Board or the Committee from time to time, in their respective sole discretion, including any clawback policy adopted or implemented by the Board or Committee in respect of the Dodd-Frank Wall +Street Reform and Consumer Protection Act of 2010 and such regulations as are promulgated thereunder from time to time to the extent required therein and the implementing regulations. +ARTICLE 20. +SECTION 409A OF THE CODE +Awards issued under the Plan are intended to be exempt from or comply with Section 409A of the Code, and, accordingly, to the maximum +extent permitted, the Plan and each Award shall be interpreted and administered in accordance with that intent. Notwithstanding anything to the contrary in the Plan or any Award Agreement, to the +extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to +the Plan during the six (6) month period immediately following the Participant's termination of service shall instead be paid on the first payroll date after the six-month anniversary of the +Participant's separation from service (or the Participant's death, if earlier). Nothing in the Plan or any Award Agreement will be construed to impose on either the Company or the Committee any +obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any +liability to any Participant for such tax or penalty. +This +Equity Incentive Compensation Plan, as amended and restated herein, was adopted by the Board of Directors of SM Energy Company on April 5, 2018, subject to approval of the +Company's stockholders effective May 22, 2018. +A-26 +. Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q A The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 4. 1. The Board of Directors has nominated the below eight persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been nominated to serve as director other than the nominees listed below. + For Against Abstain For Against Abstain For Against Abstain 01 - Larry W. Bickle 02 - Stephen R. Brand 03 - Loren M. Leiker 04 - Javan D. Ottoson 05 - Ramiro G. Peru 06 - Julio M. Quintana 07 - Rose M. Robeson 08 - William D. Sullivan For Against Abstain ForAgainst Abstain 2. The proposal to ratify the appointment by the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2018. 3. To approve, on a non-binding advisory basis, the compensation philosophy, policies and procedures, and the compensation of our Company’s named executive officers, as disclosed in the accompanying Proxy Statement. 4. The proposal to approve the amendment and restatement of the Equity Incentive Compensation Plan, including an amendment to increase the total number of shares authorized for issuance under the plan. B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. + 1 U P X 02T16A Annual Meeting Proxy Card X IMPORTANT ANNUAL MEETING INFORMATION +. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on May 22, 2018. The Proxy Statement and our 2017 Annual Report on Form 10-K are available at: http://www.viewproxy.com/sm-energy/2018/. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — SM Energy Company 1775 Sherman Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders to be held on May 22, 2018. The undersigned hereby appoints A. Wade Pursell, David W. Copeland, and James B. Lebeck, or any of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares of SM Energy Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 22, 2018, and at any reconvened meeting after any adjournment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. This proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted “FOR” all director nominees in Proposal 1 and “FOR” Proposals 2, 3 and 4. This proxy also confers discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting, including concerning any adjournment of the meeting. As of the date of the accompanying proxy statement, SM Energy Company’s management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, including concerning any adjournment of the meeting, this proxy will be voted in accordance with the recommendations of SM Energy Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-18-002750/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-18-002750/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..9a329d4ac8afe7ccc740be6d871c67329f72a43b --- /dev/null +++ b/raw/proxies/0000893538/0001047469-18-002750/proxy_rpt.txt @@ -0,0 +1,25 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, arrangement, +or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, (b) the +aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of our Related +Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than 5% of +our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in +good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are consistent +with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as otherwise +described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, but are not +limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we obtain products +or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on terms comparable +to those obtained from or provided to employees generally. We had no transactions that required approval under our Related Person Transactions Policy during 2017. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-19-002238/proxy.txt b/raw/proxies/0000893538/0001047469-19-002238/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1b8c1e28b6fb9143255a94b8c1da3bc57725e5d8 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-19-002238/proxy.txt @@ -0,0 +1,3337 @@ +DEF 14A +1 +a2238243zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Proxy Statement and Notice of +2019 Annual Meeting of Stockholders +May 29, 2019 +Denver, Colorado +Table of Contents +Dear SM Energy Stockholder, +On +behalf of the Board of Directors, I thank you for your continued support of SM Energy and I am pleased to invite you to attend SM Energy's 2019 Annual Meeting of Stockholders. We +appreciate the opportunity to update you on our Board's corporate governance philosophy and practices, as well as the other items discussed in our Proxy Statement. +Overseeing SM Energy's Strategic Transformation +Our Board is committed to providing effective oversight of the Company's strategic plan and working with management to execute our plan. Facing +a difficult commodity price environment, starting in 2016 our Board and management team worked closely together to initiate and execute a multi-year strategic transformation of our business. Our +primary focus has been on transitioning our asset portfolio through the strategic acquisition of top tier assets and divestiture of non-core assets. This shift has allowed us to generate strong margin +expansion and de-lever our balance sheet. While our industry remains in a challenging commodity price environment and our stock price performance in 2018 was not positive, we believe that our +transformed asset portfolio and focus on capital efficiency position us for long-term value growth in 2019 and beyond. +Responding to Investor Feedback +Our Board is committed to maintaining an open and continuous dialogue with our stockholders. This past year, we initiated an expanded +stockholder engagement effort to solicit input, answer questions and ensure that the Board has the information required to understand and address stockholder concerns. We contacted stockholders owning +approximately 75% of our outstanding shares and met with stockholders owning approximately 22% of our outstanding shares, as well as two proxy advisory firms. +Our +Board welcomed the diversity of viewpoints and candid feedback shared by our stockholders. We were disappointed in the level of investor support for our 2018 advisory vote on +executive compensation, and appreciate the constructive dialogue regarding the context of our recent compensation decisions, including the Compensation Committee's exercise of negative discretion to +more closely align our executive compensation with market conditions, Company performance and our investors' experience. We have continued to refine our short and long-term incentive programs based on +discussions with our stockholders, our Compensation Committee's independent compensation consultants and management to establish appropriate incentives and more closely align our executive +compensation program with our investors' experience. +In +addition to compensation matters, our stockholders were interested in discussing the Company's risk oversight processes and approach to sustainability matters, and how our Board +composition and refreshment focus aligns with our long-term strategic goals. The rich dialogue with our stockholders was +shared with the entire Board and used as an important reference point for discussion and decision-making on those and other topics. +Commitment to Sustainable Business Practices +Our Board plays an active role in overseeing our corporate stewardship efforts, including community engagement, environmental, health and +safety performance, and responsible development of the key resources that drive our business. This year we will publish our second annual corporate responsibility report in which we discuss our +philosophy and approach to creating stockholder value, +Table of Contents +operating +our assets responsibly, and protecting the environment and the health and safety of our employees, contractors and neighbors. +Board Composition and Refreshment +The members of our Board of Directors are your elected representatives and we seek to represent your long-term interests. We have directors who +bring a diverse range of independence, fresh perspectives, institutional knowledge and industry and other expertise to our Board. This year's Board nominees reflect the diligent work of our Nominating +and Corporate Governance Committee. We would like to take this opportunity to welcome Carla Bailo, who brings technical and executive leadership insights and a distinct perspective on the future of +transportation fuels to the Board. As the addition of Ms. Bailo reflects, the Board believes its refreshment is important. Reflecting the Board's focus on refreshment and self-evaluation, we +recently adopted revisions to our Corporate Governance Guidelines that require heightened analysis of the nomination of directors who have reached the age of 72, and generally require the retirement +of a director who has reached the age of 75. +We Ask for your Support +We value your input and take seriously the trust that you have placed in us through your continued investment in SM Energy. Your vote is +important to us. We ask for your continued support as we work together to deliver long-term, sustainable, and capital efficient growth in value for all stockholders. +Sincerely, +William +D. Sullivan +Chairman of the Board +Table of Contents +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +WEDNESDAY, MAY 29, 2019 +To +All Stockholders: +The +2019 Annual Meeting of Stockholders of SM Energy Company (the "Annual Meeting") is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, +Colorado 80203, on Wednesday, May 29, 2019, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +nine individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. hold +an advisory vote to approve the compensation of our named executive officers; +3. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2019; and +4. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on April 8, 2019, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2019 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the Annual Meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon +other verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form +that is sent to you, or a brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on April 8, 2019. We +can use that to verify your beneficial ownership of our common stock and admit you to the Annual Meeting. If you intend to vote at the Annual Meeting, you also will need to bring a legal proxy from +your bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please complete, sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel +and Corporate Secretary +Denver, +Colorado +April 15, 2019 +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 29, 2019 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2019 Annual Meeting of Stockholders, and the Form 10-K for the fiscal +year ended December 31, 2018, are available at http://www.viewproxy.com/sm-energy/2019/. +Table of Contents +TABLE OF CONTENTS +Page +Overview +1 +Background +1 +How to Vote +1 +Purposes of the Annual Meeting +2 +Proxy Statement Summary +3 +Corporate Governance +5 +General +5 +Board and Committee Independence +6 +Board Leadership Structure +6 +Board and Committee Meetings +7 +Committee Functions +8 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Communications with the Board +12 +Proposal 1—Election of Directors +12 +Director Nominee Summary +14 +Director Nominees +15 +Stockholder Engagement and Feedback +23 +Stockholder Feedback and Responsiveness +23 +Key Topics of Discussion +23 +Corporate Responsibility and Sustainability +25 +Information About Executive Officers +25 +Executive Compensation +27 +Compensation Discussion and Analysis +27 +Compensation Committee Report +48 +Executive Compensation Tables +48 +Potential Payments Upon Termination or Change of Control +55 +Equity Compensation Plans +57 +Director Compensation +58 +General +58 +2018 Director Compensation +59 +Proposal 2—Advisory Vote on Executive Compensation +60 +Proposal 3—Ratification of the Appointment of Ernst & +Young LLP as our Independent Registered Public Accounting Firm for 2019 +62 +Compensation Committee Interlocks +62 +Certain Relationships and Related Transactions +63 +Policies and Procedures on Transactions with Related Persons +63 +Transactions with Related Persons +63 +Security Ownership of Certain Beneficial Owners and Management +64 +Common Stock +64 +Restricted Stock Units and Performance Share Units +65 +Section 16(a) Beneficial Ownership Reporting Compliance +66 +Report of the Audit Committee +67 +Independent Registered Public Accounting Firm +68 +Audit Committee Pre-Approval Policy and Procedures +68 +Stockholder Proposals for the 2020 Annual Meeting of Stockholders +69 +2018 Annual Report +70 +Table of Contents +Voting and Other Matters +70 +Who Can Vote +70 +Differences Between Stockholders of Record and Street Name Holders +70 +How to Vote +71 +Revoking a Proxy +71 +Quorum +72 +Voting Requirements; Vote Treatment +72 +Payment of Proxy Solicitation Costs +73 +Other Available Information +73 +Stockholders Sharing the Same Address +73 +Table of Contents +OVERVIEW +SM ENERGY COMPANY +2019 ANNUAL MEETING OF STOCKHOLDERS +Wednesday, +May 29, 2019 +3:30 P.M. MT +J.D. Hershner Room +Wells Fargo Bank +1700 Lincoln Street +Denver, CO 80203 +Background +This Proxy Statement contains information about the 2019 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company. Our Board +of Directors ("Board") is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," +"us," and "our" refer to SM Energy Company and its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2018 ("2018 Annual Report"), are being distributed and made available on or about April 15, 2019, to all stockholders of record as of the close of business on April 8, 2019. In +accordance with rules and regulations adopted by the United States Securities and Exchange Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the +Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be mailed by intermediaries on or about April 15, 2019, to beneficial owners of our common stock. Stockholders +will have the ability to access the proxy materials on a website referred to in the Notice or may request that we send them a printed set of the proxy materials by following the instructions in the +Notice. The Notice will also provide instructions on how to vote your shares. +How to Vote +Vote online +per the instructions on your proxy card or voting +instruction card. +Vote by phone by calling +the applicable phone number +on your proxy card or voting +instruction card. +If you have received a printed +version of these proxy materials, +you may vote by signing, dating, +and returning your proxy card +by mail. +You +may also attend the Annual Meeting and vote in person. We strongly encourage you to vote. For more information about voting your shares, see "Voting and Other Matters" on +page 70 of this Proxy Statement. +Table of Contents +Purposes of the Annual Meeting +Our stockholders will be asked to vote on the following matters at the Annual Meeting: +Management Proposals +Voting +Recommendation +1. +Election of the nine directors named in this Proxy Statement, each to serve until the next annual meeting of stockholders. +FOR EACH +DIRECTOR NOMINEE +2. +Advisory vote to approve executive compensation of our named executive officers. +FOR +3. +Ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2019. +FOR +4. +Such other business that may properly come before the Annual Meeting. +TO BE DETERMINED +2 +Table of Contents +PROXY STATEMENT SUMMARY +Business Strategy Execution +During the second year of our three-year portfolio transformation, we continued the coring-up of our portfolio to focus on our two high-return +assets, reduced long-term debt, divested non-core assets, generated a significant increase in our operating margin, enhanced stockholder value through proved reserve additions, and set the foundation +for long-term, sustainable and capital efficient growth in 2019 and beyond. We expect to continue our upward trajectory for production and cash flows while targeting free cash flow generation in the +second half of 2019. +2018 Operational and Financial Highlights +(1) 2018 compared to 2017 +(2) Based on retained assets +Highly Skilled and Experienced Board of Directors +Our active, engaged and diverse Board is focused on ethical behavior and adherence to our core values. We continue to separate the roles of our +Chairman of the Board and our Chief Executive Officer, and our Board remains focused on oversight of risk management, cybersecurity, and environmental, social and governance matters. Our +non-management directors are independent and appropriately tenured to provide an effective balance of fresh perspectives and experience. +* As of December 31, 2018. For purposes of this chart, a full year of credit is given for the year in which the respective directors +are appointed. +3 +Table of Contents +Executive Compensation – Pay for Performance +We continued our commitment to pay-for-performance. In 2018, the Compensation Committee adopted a change to our LTIP design that replaces +the absolute TSR component of PSU payout with a measurement of cash flow growth per debt adjusted share relative to our peer group. Our Compensation Committee believes that this modified design, which combines relative TSR with a cash flow growth per +debt adjusted share metric, incentivizes our continuing efforts to generate high returns on capital invested and appropriately aligns our executive compensation results with stockholder returns. +Stockholder Engagement +Our Board is committed to maintaining an open dialogue with our stockholders to receive ongoing feedback on our business strategy, governance +practices, executive compensation program, commitment to sustainability and other matters of importance to our stockholders. As part of this commitment, our Board and management team initiated an +expanded stockholder engagement effort in 2018 focused on governance issues to solicit input, answer questions and ensure that the Board has the information required to understand and address +stockholder concerns. In 2018, the Chairman of our Board, Mr. Sullivan, along with our CEO, Mr. Ottoson, and other members of our management team met with stockholders owning +approximately 22% of our outstanding shares, as well as two proxy advisory firms. We originally contacted stockholders owning approximately 75% of our outstanding shares seeking to engage, many of +whom expressed their satisfaction with our strategy, governance and executive compensation practices and that they had no need to meet with our team at the time. +4 +Table of Contents +Commitment to Core Values and Corporate Responsibility: The SM Energy +Culture +We are committed to honoring our core values, including conducting our business with ethics and integrity and in compliance with applicable +laws and regulations. +Our +corporate responsibility report, which is available on our website at www.sm-energy.com , describes our philosophy and approach to +creating stockholder value and operating our assets responsibly, while striving to protect the environment and the health and safety of our employees, contractors and neighbors, all consistent with +these core values. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its committees, +Corporate Governance Guidelines, a Financial Code of Ethics (the "Financial Code") and a Code of Business Conduct and Conflict of Interest Policy (the "Code of Conduct"). These documents provide the +framework for our corporate governance and serve to promote the high ethical standards expected by our stockholders. A complete copy of these documents is available on our website or in print, free of +charge, to any stockholder who requests it by contacting our Corporate Secretary. Our Board regularly reviews corporate governance developments and modifies our governance policies and documents as +appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer and controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for any person subject to the Financial Code be made only by the Audit +Committee of the Board and disclosed as required by law, SEC rules and regulations, and New York Stock Exchange +5 +Table of Contents +("NYSE") +rules. Material changes to, or waivers from, the Financial Code for any person subject to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such +change or waiver. To date, the Audit Committee has not granted any waiver of the Financial Code. +Board and Committee Independence +Our Board is comprised of a majority of independent directors. Four directors, Ms. Bailo, Mr. Ottoson, Mr. Peru, and +Ms. Robeson, joined the Board in the last five years. The Board has determined that Ms. Bailo, Mr. Bickle, Mr. Brand, Mr. Leiker, Mr. Peru, +Mr. Quintana, Ms. Robeson, and Mr. Sullivan are independent and do not have any material relationship with us other than as a director and stockholder. In reviewing and making its +determination as to the independence of its members, our Board considered past employment, remuneration, and any other relationship with us, as +well as the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee (the "NCG Committee") of our Board are each comprised solely of independent +directors under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our leadership structure has reflected our Board's decision to separate the roles of Chief Executive Officer (sometimes +referred to herein as "CEO") and Chairman of the Board. Mr. Sullivan, an independent director serving on our Board since 2004, who has other public company board experience and over +39 years of experience working with oil and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Javan D. Ottoson serves as our +Chief Executive Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board, +facilitating communications among the directors, setting the Board meeting agenda in consultation with our Chief Executive Officer, presiding at meetings and executive sessions of our Board and +Executive Committee meetings, and serving as a liaison between our management and directors, while allowing our Chief Executive Officer to focus on leading the Company. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of CEO and Chairman of the Board separate or whether to permit one person to serve in both +capacities. Our NCG Committee annually evaluates our leadership structure and makes recommendations to our Board. While recognizing that different board leadership structures may be appropriate at +different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has determined that our current leadership structure is preferable and in the best +interests of our stockholders. +As +of the filing date of this Proxy Statement, our Board has eight independent members, plus one non-independent member, Mr. Ottoson. A number of our independent directors have +served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As discussed above, our Board has +three committees comprised solely of independent directors, and each has a different independent director serving as its chair. The specific experiences, qualifications, attributes, and skills of each +independent director, which enable him or her to effectively serve on his or her respective Board committees, are +6 +Table of Contents +described +in each director nominee's biographical information. We believe that the independent and experienced directors that make up our Board, the specific experiences and skills that they provide, +and the overall leadership of the Board by the Chairman of our Board are beneficial to our stockholders. +Board and Committee Meetings +Our Board met six times during 2018. Our non-management directors routinely meet in executive session immediately after regularly scheduled +meetings of the Board or as otherwise deemed necessary, and met five times during 2018. Each incumbent director participated in 100% of the Board meetings and in 100% of his or her respective +committee meetings. It is our policy that each director is expected to attend the annual meeting of our stockholders, and each director then serving on our Board attended the 2018 Annual Meeting of +Stockholders. The following table identifies the members of each committee, as of March 1, 2019, and sets forth the number of meetings held in 2018: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Carla J. Bailo* +Larry W. Bickle +Stephen R. Brand +Loren M. Leiker +Javan D. Ottoson +Ramiro G. Peru +Julio M. Quintana +Rose M. Robeson +William D. Sullivan +Number of meetings held in 2018 +6 +3 +9 +0 +Chair +Member +* +Ms. Bailo was appointed on October 6, 2018, and attended all Audit Committee meetings during 2018 after her appointment. +7 +Table of Contents +Committee Functions +Audit Committee +The Audit Committee assists our Board in fulfilling its responsibilities for oversight of our financial reporting and internal control +processes. Pursuant to the Audit Committee charter, members are prohibited from serving on more than three audit committees of public companies (one of which is ours), and no Audit Committee member +currently serves on more than three such committees. The Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our +quarterly and annual financial results. The Audit Committee reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of +audit fees, the scope and adequacy of our system of internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal +audit function, cybersecurity risks, and any related party transactions. Each member of the Audit Committee is independent as defined by the NYSE listing standards. While all of the Audit Committee +members are considered financially literate, the Board has determined that four members of the current Audit Committee, Ms. Bailo, Mr. Bickle, Mr. Peru and Ms. Robeson, are +audit committee financial experts as the term is defined by the SEC. For more information see the "Report of the Audit Committee" contained in this Proxy Statement. +Nominating and Corporate Governance Committee +The NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, +to review the structure and composition of all committees of the Board, and to oversee all of our corporate governance functions, including the Board and committee self-evaluation process. +As +has been the case for many years, our Board and each of its committees (other than the Executive Committee) separately evaluated its performance during 2018 using a written +questionnaire, which is subject to annual review for changes in best practices and relevance. The Executive Committee did not complete an evaluation due to its unique, limited purpose and infrequent +meeting schedule. This performance evaluation process was directed by the NCG Committee and the evaluations were discussed and reported to the Board. +In +identifying and recommending potential director nominees to the Board, the NCG Committee considers such factors as character, judgment, diversity, age, expertise, industry +experience, length of service, independence, and other board commitments. Most recently, the NCG Committee retained a third-party firm that was directed to identify for consideration diversity +candidates from outside the oil and gas industry, with technology, and preferably transportation, experience, as well as an understanding of the future direction of electrification and energy use. Our +Board is aware that maintaining a balanced and diverse membership contributes to stronger board dynamics and culture. Based on the factors above and the desire to add another female member to the +Board, the NCG Committee identified and recommended Ms. Bailo as a director nominee. +The +NCG Committee is also charged with oversight of succession planning for the Company's CEO and other executive officers. In fulfilling this responsibility, NCG Committee is committed +to ensuring that an effective process is in place to provide continuity of executive leadership into the future. At least annually, the NCG Committee reviews CEO and senior leadership succession and +development and discusses with our CEO emergency and expected succession planning for senior leadership positions. Our CEO and each senior executive annually provides recommendations of +8 +Table of Contents +potential +successors to the NCG Committee. For additional information on the functions performed by the NCG Committee, see "Director Nominations and Qualifications" below. +Compensation Committee +The Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our +employee benefit plans. The Compensation Committee approves and/or recommends to the Board the compensation arrangements for our CEO and other senior management and directors, adoption of compensation +plans in which our officers and directors are eligible to participate, and the granting of equity-based compensation or other benefits under compensation plans. The "Compensation Discussion and +Analysis" section of this Proxy Statement describes these responsibilities and the manner in which they are discharged. +Executive Committee +The Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by +the Board, provided that such matters are not in conflict with our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is responsible +for day-to-day risk management. We believe this division of responsibilities is the most effective approach for evaluating and addressing the risks we face, and that the current Board leadership +structure, with Mr. Sullivan serving as our Chairman of the Board and Mr. Ottoson serving as our Chief Executive Officer, supports this approach by facilitating communication between +management and the Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more efficiently +facilitates communication of the views of the independent directors, and contributes to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice President +and General Counsel, Executive Vice President—Operations, and such other employees appointed from time to time by our Chief Executive Officer. This committee meets regularly to update our +enterprise risk management process and plan (the "ERM Plan"), utilizing the Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating +information gathered during our business strategy sessions. We keep minutes of these meetings, and regularly report the activities of this committee to the Board. We document risk prevention or +mitigation steps for the material risks identified based upon projected likelihood and impact of any occurrence of the particular risk. We review the ERM Plan with our Board annually. +We +also have a Financial Risk Management Committee comprised of our President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, Executive Vice +President—Operations and Vice President—Marketing and such other employees appointed from time to time by our Chief Executive Officer. This committee meets quarterly and more +frequently, as necessary, to discuss our interest rate and commodity hedging activities and, as appropriate, to approve additional hedges or other changes to our hedging program. We keep minutes of +these meetings, and regularly report the activities of the committee to the Audit Committee. +9 +Table of Contents +The Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee +reviews and +discusses with management our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the +specific guidelines and policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include review and/or approval of our oil, natural +gas and natural gas liquids commodity price hedging policy, interest rate risk management, and our insurance programs, as appropriate. In addition, our internal auditors, who report directly to the +Audit Committee with respect to internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes and activities. The Audit Committee also +has oversight responsibility for the integrity of our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal +and regulatory requirements. The Audit Committee also oversees and contributes to the Board's understanding of information technology and cybersecurity risks. In addition, the Compensation Committee +and its compensation consultants annually review our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly +to the full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying and +recommending nominees to the Board for election as directors. The NCG Committee selects nominees based on a variety of factors, including the nominee's character, judgment, diversity, age, expertise, +industry experience, length of service, independence, and other board commitments. As set forth in the director qualification standards included in our Corporate Governance Guidelines and reflected in +the discussion below, the Board should collectively have broad and relevant experience in high-level business policymaking and a commitment to represent the long-term interests of our stockholders. +These standards also provide that each director should have experience in positions of responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In +addition, our Corporate Governance Guidelines provide that a director who retires or experiences a significant change in his or her professional or business responsibilities, including a change in his +or her principal occupation, position or business affiliation, should, if requested by the NCG Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the +NCG Committee and the Board may review the continued appropriateness of Board membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and +delivered to the Board a resignation letter that is contingent upon (a) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the +shares of capital stock present in person or by proxy in an election of directors at the 2019 Annual Meeting of Stockholders; and (b) acceptance of his or her resignation by the Board in +accordance with the policies and procedures adopted by the Board for such purpose. +Under +the framework of our Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee routinely engages consultants and considers suggestions from incumbent directors, management, and our stockholders. The NCG +10 +Table of Contents +Committee +screens all potential candidates in the same manner regardless of the source of the recommendation. For more information about the search for and appointment of our most recent +director, Ms. Bailo, please see the "Nominating and Corporate Governance Committee" subheading under the "Board and Committee Meetings" heading above. +The +NCG Committee believes that the Board should reflect diversity in its broadest sense and the Charter of the NCG Committee provides that, in addition to the other factors discussed +above, the NCG Committee shall consider diversity in identifying individuals qualified to become Board members. In considering diversity, the NCG Committee considers the Board as a whole, without +reference to specific representative directors, with the overall objective of having a group of directors that includes diverse viewpoints, that can work in a collaborative and effective manner, and +that can best contribute to our long-term success. The NCG Committee believes that current Board members and director nominees reflect our commitment to diversity. Following the 2019 Annual Meeting, +assuming all nine of the current nominees are elected to the Board, we will have two Hispanic directors, one who has served since 2006 and one who has served since 2014, and two female directors, one +who has served since 2014 and one who has served since 2018. +In +addition to the considerations discussed above, the Board understands that director tenure and board refreshment are important to our stockholders and should be regularly evaluated +in establishing an effective and well-functioning Board. In furtherance of this, the Board recently approved revisions to the Company's Corporate Governance Guidelines that require the NCG Committee +to discuss annually with any director that has reached the age of 72 his or her interest in continuing to serve as a director, and his or her contributions to the Board. With respect to each director +that has reached the age of 72, following such discussion, the NCG Committee shall make a recommendation to the Board as to whether it is appropriate for such director to stand for reelection. The +Board shall determine annually, by a majority-plus-one vote (i.e., an affirmative vote of the minimum number of directors constituting an absolute majority of the Board plus one additional +vote), whether to nominate such person for reelection. Further, the recent revisions to the Corporate Governance Guidelines provide that each independent director must retire in conjunction with the +annual meeting of stockholders following his or her 75 th birthday, unless the Board unanimously waives this requirement based on a determination that it is in the best interests +of our stockholders for such person to be nominated for reelection. +In +light of increased demands on public company directors and the desire for new and diverse independent director candidates in order to regularly refresh the Board as a whole, the NCG +Committee understands the importance of a comprehensive director onboarding process. Under the direction of our Corporate Secretary, with oversight and in consultation with the Chair of the NCG +Committee, new directors receive wide-ranging exposure to the various aspects of our business and Company, as well as detailed overview of the Company's policies and governing documents. New director +onboarding is tailored to the specific qualifications and experience of the applicable director in order to allow him or her to meaningfully contribute to the work of the Board from the beginning of +the director's term. Most recently, the newest member of our Board, Ms. Bailo, successfully integrated into the Board, the Audit Committee, and the Company and, as a result of our successful +efforts to recruit Ms. Bailo from outside the industry, her onboarding emphasized an overview of the upstream oil and gas exploration and production industry, as a whole. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4 of our By-Laws, which requires, among other things, detailed information concerning the +stockholder making the proposal (and the beneficial owner on whose behalf the proposal is made, if any), the name and address of the stockholder, specific information concerning +11 +Table of Contents +such +stockholder's interests in our securities and a commitment to serve the full term if nominated and elected. In addition, the notice must include the recommended candidate's name, biographical +data, qualifications, details regarding any material monetary agreements between the stockholder and the proposed nominee and a written questionnaire completed by the proposed nominee. We will furnish +copies of our By-Laws to any person who requests them without charge. Requests for copies should be directed to our Corporate Secretary. For additional information about stockholder nominations, +including nominations for the 2020 Annual Meeting of Stockholders, see "Stockholder Proposals for the 2020 Annual Meeting of Stockholders." No stockholder director nominations were received in +connection with the Annual Meeting. +Communications with the Board +The Board welcomes questions or comments about our Company. Stockholders and other interested parties may contact our Board as a whole, only +the non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients' attention in care of SM Energy Company, Attn: Corporate Secretary, 1775 +Sherman Street, Suite 1200, Denver, CO 80203. All stockholder communications will be provided to the named addressee or if none to the Chair of the NCG Committee, who will facilitate the review +of such communications. +PROPOSAL 1—ELECTION OF DIRECTORS +All +of our directors are elected annually. At the Annual Meeting, nine directors are to be elected to serve until the 2020 Annual Meeting of Stockholders and until their respective +successors are elected and qualified, or until their earlier resignation or removal. Based on the recommendations of +12 +Table of Contents +the +NCG Committee, the Board has nominated the following individuals for election as directors at the Annual Meeting: +Carla J. Bailo +Ramiro G. Peru +Larry W. Bickle +Julio M. Quintana +Stephen R. Brand +Rose M. Robeson +Loren M. Leiker +William D. Sullivan +Javan D. Ottoson +Each +nominee is currently a director and, with the exception of Ms. Bailo, who was appointed by the Board on October 6, 2018 (after the date of our 2018 Annual Meeting of +Stockholders), all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy Statement and has indicated a willingness to +serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if such a situation arises prior to the Annual Meeting, the proxy holders will vote for the +election of such other person(s) as may be nominated by the Board. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of the oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, public +and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance Guidelines. The +specific experiences, qualifications, attributes, and skills of each nominee are described in each nominee's biographical information below. In addition, the nominees, whose experiences cover various +aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our Company, and have a demonstrated ability to work +collaboratively with open and candid discussion. +Set +forth below for each director as of the filing date of this Proxy Statement is a summary of such directors' key attributes and experiences that contribute to our Board's success, as +well as biographical information, including his or her principal occupation, business experience, and public company directorships held during the last five years. There are no family relationships +between any of our directors and any executive officer. +Among +other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in executive leadership; the oil, gas, and natural gas liquids exploration and +production industry; finance and accounting; risk management; operations management; strategic planning; business development; regulatory and governmental affairs; corporate governance; human capital +management; sustainability; executive compensation; and public policy—qualities that, when coupled with those highlighted below, led the NCG Committee and the Board to conclude that these +individuals should continue to serve as our directors at this time in light of our business, structure, long-term strategy, and the overall energy industry environment. In addition to the foregoing, +these nominees also +13 +Table of Contents +have +specific experience in certain areas we believe are particularly relevant to us in our industry at this time, as highlighted in the following table: +Geology & +Exploration +Finance & +Capital +Management +Environmental, +Social and +Governance Matters +Enterprise Risk +Management & +Hedging +Data Analytics +Cybersecurity & +Technology +Strategy & +Project Management +Carla Bailo +Larry Bickle +Stephen Brand +Loren Leiker +Javan Ottoson +Ramiro Peru +Julio Quintana +Rose Robeson +William Sullivan +Director Nominee Summary +All non-management director nominees +are independent. +Our director nominees provide an effective balance of +fresh perspectives and experience with the Company. +* As of December 31, 2018; for purposes of this chart, a full year of credit is given for the year in which the respective director is +appointed. +14 +Table of Contents +Director Nominees +Carla J. Bailo +Director since 2018 +Member, Audit Committee +Age: 58 +Position, Principal Occupation and Business Experience: +Ms. Bailo currently serves as Chief Executive Officer of the Center for Automotive Research, a position she has held since 2017. In addition to her role at the Center +for Automotive Research, Ms. Bailo has been President and Chief Executive Officer of ECOS Consulting LLC since 2014. Ms. Bailo also served as Assistant Vice President of Mobility Research and Business Development of Ohio State +University from 2015 to 2017. Prior to her appointment as Assistant Vice President of Mobility Research and Business Development of Ohio State University, Ms. Bailo was the Senior Vice President, R&D Americas, Nissan North America, Inc. +from 2011 to 2014. Prior to that appointment, she held a variety of technical and managerial positions with Nissan Motor Company Limited. Ms. Bailo started her career in 1978 at General Motors Company and held the position of Engineer, Vehicle +Test, General Motors Truck & Bus until 1988. +Key Attributes, Experience and Skills: +Ms. Bailo brings to the Board a diverse technical and executive leadership background, including a unique perspective on the +future of transportation fuels. Ms. Bailo has significant financial and risk management experience, which provides a strong foundation for her role as a member of the Audit Committee. Furthermore, as a result of her executive level experience, +Ms. Bailo has extensive human resources management and corporate governance skills, in addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of Directors" heading. +15 +Table of Contents +Larry W. Bickle +Director since 1995 +Member, Audit and Compensation Committees +Age: 73 +Position, Principal Occupation and Business Experience: +Mr. Bickle is a retired public company CEO and private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, +he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, +Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (NYSE: TPC) a gas storage, transportation, and marketing company that he co-founded. He also served on the Board of Directors of UNS Energy Company (NYSE: UNS) +and currently serves as a member of the Board of Managers of Quantum Natural Gas Storage, LLC. +Key Attributes, Experience and +Skills: +Mr. Bickle brings to the Board over 35 years of experience in various aspects of the oil and +gas midstream industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Mr. Bickle also brings +specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operation, and extensive experience with both state and federal +regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which serves as the basis for Mr. Bickle's designation as an audit committee financial expert and +provides a strong foundation for his service on the Audit Committee. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of Directors" heading, Mr. Bickle's previous service on +other public company boards enhances his strong corporate governance background. +As a result of Mr. Bickle's extensive industry experience and comprehensive knowledge +of the Company, and following discussions with Mr. Bickle about his interest in continuing to serve as a director and his contributions to the Company, the NCG Committee recommended to the Board, and the Board has unanimously determined (other +than Mr Bickle, who abstained), that it is appropriate and in the best interests of the Company's stockholders to nominate Mr. Bickle for election by the stockholders at the Annual Meeting. +16 +Table of Contents +Stephen R. Brand +Director since 2011 +Member, Compensation (Chair) and Nominating and Corporate Governance Committees +Age: 69 +Position, Principal Occupation and Business Experience: +Mr. Brand was a director of GeoScale, a privately held firm that provides advanced technology solutions and services to the E&P sector for solving subsurface +problems in complex geologic formations from 2014 until 2017. He was also on the Advisory Board of OmniEarth, which provides advanced analytics of earth imaging and offers a unique solution as a service platform to assess and manage data that can be +used in a predictive role from 2014 until 2018. Mr. Brand was also Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. At the +end of 2010, Mr. Brand retired as Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in +October 2007, Mr. Brand served as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Mr. Brand started his career in 1976 as a geologist with Phillips Petroleum Company and thereafter served in +various roles of increasing responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Key Attributes, Experience and Skills: +Mr. Brand has over +41 years of experience in the energy industry, including extensive experience in the development of exploration and development programs, project management, and in strategic planning and research programs for upstream, downstream, and "new" +stream technologies. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of Directors" heading, he also has valuable human resources management skills and experiences, which provide +a strong foundation for his role as Chair of the Compensation Committee and are significant in the oversight of our compensation management functions. +17 +Table of Contents +Loren M. Leiker +Director since 2012 +Member, Audit, Nominating and Corporate Governance and Executive Committees +Age: 65 +Position, Principal Occupation and Business Experience: +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in +the United States. Mr. Leiker served EOG as Senior Executive Vice President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil +and Gas Company. Mr. Leiker started his career in 1977 at Tenneco, Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of +Vermilion Energy Inc. (VET: Toronto) since December 2012, a director of Navitas Midstream Partners since May 2014, and served as a director of Midstates Petroleum Company, Inc. (NYSE: MPO) from December 2011 until his resignation in March +2015. +Key Attributes, Experience and Skills: +Mr. Leiker brings to the Board over 41 years of experience in various aspects of the oil and gas exploration and production industry, including extensive experience +in exploration activities similar to ours, and a deep understanding of upstream operations and asset management technologies, which provide a strong foundation for his service on the Audit Committee and are important in the oversight of our financial +reporting and financial and operational risk management functions. In addition to the skills discussed above, including in the presented under the "Proposal 1—Election of Directors" heading, Mr. Leiker's service on other public company +boards enhances his strong corporate governance background. +18 +Table of Contents +Javan D. Ottoson +Director since 2014 +Member, Executive Committee +Age: 60 +Position, Principal Occupation and Business Experience: +Mr. Ottoson joined the Company in December 2006 as Executive Vice President and Chief Operating Officer. Mr. Ottoson was appointed President of the company in +October 2012 and Chief Executive Officer of the company in February 2015. Mr. Ottoson has been in the energy industry for over 36 years. From April 2006 until he joined the company in December 2006, Mr. Ottoson was Senior Vice +President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. +Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a homebuilding company +in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and +Development, ARCO Permian. +Key Attributes, Experience and Skills: +The Board of Directors chose Mr. Ottoson to lead SM Energy as President and Chief Executive Officer and to serve on the Board because he is a proven leader with the +strong technical skills and leadership vision necessary to create value for our stockholders. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of Directors" heading, +Mr. Ottoson's vision, experiences and familiarity with our operations are critical to our success as we continue to execute on our strategic transition toward the acquisition and development of top tier assets. +Ramiro G. Peru +Director since 2014 +Member, Audit and Compensation Committees +Age: 63 +Position, Principal Occupation and Business Experience: +Mr. Peru served as Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation from 2004 to 2007 (and its Senior Vice President and Chief Financial +Officer from 1999-2004). He joined Phelps Dodge in 1979 and held various finance and accounting positions prior to his appointment as Chief Financial Officer. Mr. Peru currently serves on the Board of Directors of Anthem, Inc. (NYSE: ANTM) +and of UNS Energy Corporation, a subsidiary of Fortis, Inc. +Key Attributes, Experience and Skills: +Mr. Peru brings to the Board significant financial expertise, much of which he obtained through his over 32 years of +experience in the mining industry. Mr. Peru's service as chairman of the audit committee of another publicly traded company enhances his significant financial management and accounting oversight experience, and his board service with Anthem, +Inc. and UNS Energy Corporation provide significant insights into the rapidly changing healthcare system as well as renewable energy and power generation technologies. As a result of his executive level experience, Mr. Peru also has +extensive human resources management skills, which are an important foundation for his service on the Compensation Committee. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of +Directors" heading, Mr. Peru's service on other public company boards enhances his strong corporate governance background. +19 +Table of Contents +Julio M. Quintana +Director since 2006 +Member, Nominating and Corporate Governance (Chair) and Compensation Committees +Age: 59 +Position, Principal Occupation and Business Experience: +Mr. Quintana currently serves on the Board of Directors of Newmont Mining Company (NYSE: NEM) and of Basic Energy Services (NYSE:BAS). Mr. Quintana served as the +President and Chief Executive Officer of Tesco Corporation (NASDAQ: TESO), from 2005 until his retirement in January 2015, and served on Tesco's Board of Directors from September 2004 to May 2015. Prior to his appointment as President and Chief +Executive Officer, Mr. Quintana served as Executive Vice President and Chief Operating Officer of Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for +Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. +Key Attributes, Experience and Skills: +Mr. Quintana brings to the Board over 38 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of +drilling and asset management technologies, and broad human resources management skills and experience, which provide a strong foundation for his role on the Compensation Committee and are important in the oversight of our financial reporting and +financial and operational risk management functions. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal 1—Election of Directors" heading, Mr. Quintana's service on other public company +boards enhances his strong corporate governance background. +20 +Table of Contents +Rose M. Robeson +Director since 2014 +Member, Audit (Chair), Nominating and Corporate Governance and Executive Committees +Age: 58 +Position, Principal Occupation and Business Experience: +Ms. Robeson currently serves on the Board of Directors of Newpark Resources, Inc. (NYSE:NR) and Antero Midstream Corporation (NYSE: AM). Ms. Robeson served as +Senior Vice President and Chief Financial Officer of DCP Midstream GP, LLC, the General Partner of DCP Midstream Partners, LP, from 2012 until her retirement in 2014. Ms. Robeson also served as Group Vice President and Chief +Financial Officer of DCP Midstream LLC from 2002 to 2012. Prior to her appointment as CFO of DCP Midstream, LLC, Ms. Robeson was the Vice President and Treasurer. Prior to joining DCP Midstream, LLC, Ms. Robeson was with +Kinder Morgan, Inc. (formerly KN Energy, Inc.) from 1996 to 2000 and held the position of Vice President & Treasurer. Ms. Robeson served as a director of American Midstream GP, LLC, the general partner of American +Midstream Partners, LP (NYSE: AMID) from June 1, 2014, until her resignation on June 14, 2016, and served as a director of Tesco Corporation (NASDAQ: TESO) from October 29, 2015, until December 15, 2017, when Nabors +Industries Ltd. completed its acquisition of Tesco. +Key Attributes, Experience and Skills: +Ms. Robeson brings to the Board over 32 years of broad experience in various aspects of the oil and gas industry, +including exploration and production, midstream, refining, and marketing. She has executive leadership experience as well as significant financial management, risk management and accounting oversight experience, which provides a strong foundation for +her role as Chair of the Audit Committee and is important in the oversight of our financial reporting and financial risk management functions. In addition to the skills discussed above, including in the skills matrix presented under the "Proposal +1—Election of Directors" heading, Ms. Robeson's service on other public company boards enhances her strong corporate governance background. +21 +Table of Contents +William D. Sullivan +Director since 2004 +Chairman of the Board of Directors Member, Executive Committee +Age: 62 +Position, Principal Occupation and Business Experience: +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, +for over 20 years. Mr. Sullivan retired from Anadarko in August 2003. Mr. Sullivan has been a director since August 2007, and Non-executive Chairman of the Board since May 2015, of Tetra Technologies, Inc. (NYSE: TTI), an oil and +gas services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of CSI Compressco Partners GP, Inc., which is the general partner of CSI Compressco, L.P. (NASDAQ: CCLP), a publicly traded +limited partnership providing wellhead compression-based production enhancement services. CSI Compressco GP, Inc. is a minority-owned subsidiary of Tetra Technologies, Inc. From March 2006 to September 2018, Mr. Sullivan served as +a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing oil and natural gas properties. From February 2007 +until May 2015, Mr. Sullivan was a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, +compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, +Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International +Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +Key Attributes, Experience and Skills: +Mr. Sullivan brings to the Board over 39 years of +strong and broad experience in the oil and gas industry, with particular expertise in the exploration and production sector of the industry. His experience as an exploration and production senior executive enables him to contribute significant +independent insights on our business and operations, and the economic environment and long-term strategic issues that we face. In addition to the skills discussed above, including in the presented under the "Proposal 1—Election of Directors" +heading, his human resources management skills and experience are important in the oversight of our compensation management functions, and his service on other public company boards of directors provides a strong corporate governance background. +These skills and experiences provide a strong foundation for Mr. Sullivan's role as Chairman of the Board. +Recommendation of the Board: +The Board recommends voting " FOR " the election of all the nominees listed above. +22 +Table of Contents +STOCKHOLDER ENGAGEMENT AND FEEDBACK +Stockholder Feedback and Responsiveness +Our Board is committed to maintaining an open dialogue with our stockholders to receive ongoing feedback on our business strategy, governance +practices, executive compensation program, commitment to sustainability and other matters of importance to our stockholders. Representatives of the Board and management regularly engage with +stockholders through conference attendance, telephone calls and one-on-one meetings. As we have undertaken a strategic transformation over the past several years, the Board has been actively engaged +in ensuring that our governance, +compensation and sustainability practices remain aligned with our changing business and that our practices meet or exceed the expectations of our Board and stockholders. Investor feedback through +conversations and proxy voting has been an important reference point for discussion and decision-making on those topics. +This +past year, we were disappointed that our 2018 advisory vote on executive compensation received support from only 74% of our stockholders that voted. In response, the Board and our +management team initiated an expanded stockholder engagement effort focused on executive compensation and other governance issues to solicit input, answer questions and ensure that the Board has the +information required to more fully understand and address stockholder concerns. +As +part of this engagement effort, we communicated with stockholders owning approximately 75% of our outstanding shares. Stockholders owning approximately 22% of our outstanding shares +accepted our offer to engage, as did two proxy advisory firms. A significant number of our stockholders declined our invitation to meet, indicating to us that they were satisfied with our current +compensation and other governance practices and that a meeting was not necessary. These discussions were led by the Chairman of our Board, Mr. Sullivan, joined by our CEO, Mr. Ottoson, +and other members of management. The Chair of the Compensation Committee, Mr. Brand, also joined certain meetings. All feedback from these meetings was shared with and discussed by our full +Board. +Key Topics of Discussion +Our Board welcomed the diversity of viewpoints and candid feedback shared by our stockholders. Executive compensation was a topic of discussion +in many of our meetings and we shared important context for Compensation Committee decisions in recent years. In addition, we discussed the Committee's decision, which was based in part upon input +from stockholders as well as our independent compensation consultant, to modify our LTIP design beginning in 2018 to include a cash flow growth per debt adjusted share metric as part of the earned +percentage applicable to our PSUs, which closely aligns with our strategic transformation strategy by incentivizing return on capital invested. +In +addition to compensation matters, our stockholders were interested in discussing the Company's risk oversight processes, board refreshment and diversity efforts, and our approach to +23 +Table of Contents +sustainability +matters. This rich dialogue with our stockholders was discussed with our Board. We responded to what we heard, as detailed in this table: +What We Heard +What We Did +Stockholders appreciated our discussion of the rationale for adding the cash flow growth per debt adjusted share metric as part of the earned percentage applicable to our PSUs. +Additional disclosure in this Proxy Statement to explain the rationale for the selection of this metric, which incentivizes generating high returns on capital invested, and other measures of our progress +and success. +Some stockholders who had voted against Say on Pay last year indicated that they had not understood the Compensation Committee's approach to adjusting CEO pay downward in 2016 due to business conditions and then upward in 2017 as a result of +significant progress made in our business transformation. +Increased disclosure in this Proxy Statement regarding the thoughtful process our Compensation Committee follows to make adjustments to CEO pay, and the negative discretion that was used during 2018 to reflect stockholder experience for the +year. +Stockholders were interested to hear how our Compensation Committee considers peer group selection and how peer selection influences compensation outcomes. +Increased disclosure in this Proxy Statement regarding the Committee's rigorous peer group selection process in addition to increased disclosure of how metric selection may be affected by a changing commodity price environment. +Stockholders wanted to learn more about our Board's risk oversight and management processes. +Increased disclosure in this Proxy Statement of our Board's process for oversight of risk and added supplemental disclosure regarding risk management processes. +Stockholders appreciated our thoughtful approach to corporate governance, board composition, diversity and refreshment, as well as our split of the Chairman and CEO roles. +Continued to seek new perspectives on the Board, including adding a new independent female Board member with differentiated skills and experience; remain committed to maintaining a Board structure that makes sense for our Company and reflects +stockholders' feedback. +Sustainability is a top line concern for many of our investors. +Increased disclosure in this Proxy Statement concerning our focus on sustainability; published our second annual corporate responsibility report with new disclosures on a variety of topics important to our stockholders; committed to continued +oversight of sustainability topics by the entire Board. +24 +Table of Contents +CORPORATE RESPONSIBILITY AND SUSTAINABILITY +At +SM Energy, we accept that our stakeholders trust us to conduct business in a way that is consistent with our reputation of operating in a responsible and ethical +manner that will serve to protect our employees and contractors, and the lands on which we operate, while supporting the communities in which we live and work. We recognize that operating in this +industry is a privilege and we take that seriously. We manage our business in a way that minimizes risk to our communities and promotes social, environmental and economic benefits, while continuously +striving to be a good steward of our natural resources. For more information on our corporate responsibility and sustainability efforts, please see our corporate responsibility report on our website +at www.sm-energy.com under the "Corporate Responsibility" link. We expect to publish our second annual corporate responsibility report in early 2019. +Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +INFORMATION ABOUT EXECUTIVE OFFICERS +The +following table sets forth the names, ages (as of April 1, 2019) and positions of SM Energy's executive officers: +Name +Age +Position +Javan D. Ottoson +60 +President, Chief Executive Officer and Director +A. Wade Pursell +54 +Executive Vice President and Chief Financial Officer +Herbert S. Vogel +58 +Executive Vice President—Operations +David W. Copeland +62 +Executive Vice President, General Counsel and Corporate Secretary +Kenneth J. Knott +54 +Senior Vice President—Business Development and Land and Assistant Secretary +Mary Ellen Lutey +47 +Senior Vice President and Regional Manager +Lehman E. Newton, III +63 +Senior Vice President and Regional Manager +Patrick A. Lytle +38 +Controller, Principal Accounting Officer and Assistant Secretary +David J. Whitcomb +56 +Vice President—Marketing +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice President +and +Chief Operating Officer. Mr. Ottoson was appointed as Chief Executive Officer of the Company in February 2015 and President of the Company in October 2012. Mr. Ottoson has been in the +energy industry for over 37 years. From April 2006 until he joined the Company in December 2006, Mr. Ottoson was Senior Vice President-Drilling and Engineering at Energy +Partners, Ltd., an independent oil and natural gas exploration and production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. +Mr. Ottoson managed Permian Basin assets for Pure Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, +Mr. Ottoson owned and operated a homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including +serving as President of ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +25 +Table of Contents +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice +President and Chief Financial Officer. +Mr. Pursell was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and development solutions to +offshore energy producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief Financial Officer of Helix. He +joined Helix in May 1997, as Vice President-Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with Arthur Andersen LLP, serving lastly as an Experienced +Manager specializing in the offshore services industry. Mr. Pursell has over 31 years of experience in the energy industry. +Herbert S. Vogel. Mr. Vogel was appointed as Executive Vice President—Operations of the +Company in August 2014. Mr. Vogel +joined the Company in March 2012 as Senior Vice President—Portfolio Development and Technical Services, and has over 34 years of experience in the oil and gas business. He joined +the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous +roles included COO-NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. Mr. Vogel +started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations management, new ventures +development, and business unit management at ARCO and BP. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice President and +General Counsel. He was appointed as the Company's Corporate Secretary in July 2011 and Executive Vice President in May 2013. Mr. Copeland has 37 years of experience in the legal +profession, including 28 years as internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as +an executive officer and general counsel, and later as its Senior Counsel through December 2010. From August 1997 through March 2004, Mr. Copeland served as an executive officer and general +counsel of two energy companies he co-founded in Midland, Texas. Mr. Copeland started his career in 1982 with the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Kenneth J. Knott. Mr. Knott was appointed Senior Vice President—Business Development and +Land and Assistant Secretary in August +2014. Mr. Knott was appointed Vice President—Land and Assistant Secretary in October 2012 and was appointed Vice President of Business Development & Land and Assistant +Secretary in August 2008. Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional +Land Manager when the office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Senior Vice President and Regional Manager in May +2015 for the South Texas & Gulf Coast +region. From December 2012 to May 2015, she served as Vice President and Regional Manager for the Company's Mid-Continent region. She joined SM Energy in June 2008 as North Rockies Asset Manager, +where she managed the Company's activities in the Williston Basin. Ms. Lutey has over 27 years of experience in the energy industry. Prior to joining SM Energy, Ms. Lutey's +previous roles included Senior Reservoir Engineer with Chesapeake Energy Corporation where she was responsible for the resource development of the Fayetteville Shale in Arkansas; Team Lead for +Engineering and Geoscience with ConocoPhillips Canada where she was responsible for the technical and business performance of two multi-discipline groups in Western Canada; and Team Lead for +Engineering and Geoscience with Burlington Resources Canada where she managed the growth and development of resource plays in Western Canada. +26 +Table of Contents +Patrick A. Lytle. Mr. Lytle was appointed Controller in November 2018 and Principal Accounting +Officer in December 2018. Mr. Lytle has +held roles of increasing responsibility since first joining the Company in 2007. Most recently, Mr. Lytle served as Senior Director, Financial Planning & Analysis and Assistant Secretary +of the Company. Prior to that, he was the Director of the Company's Financial Planning and Financial Reporting functions. Prior to joining the Company, Mr. Lytle was an Audit Manager with +Hiratsuka & Schmitt, LLP. Mr. Lytle is a certified public accountant in the State of Colorado. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager for +the Midland, Texas office, was appointed Vice +President and Regional Manager of the Permian region in June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 40 years of experience in +the energy industry. Prior to joining SM Energy, Mr. Newton's previous roles included 22 years with ARCO in various engineering, operations and management roles, including as Asset +Manager, ARCO's East Texas operations, Vice President, Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian; Project Manager for one of Chevron's largest +Lower 48 projects; Business Development Manager for Pure +Resources; and he was a founding partner in Westwin Energy, an independent Permian Basin exploration and production company. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. +Mr. Whitcomb joined SM Energy in +November 1994 as Gas Contract Analyst and was named Assistant Vice President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time +his title was changed to Assistant Vice President and Director of Marketing. +No +family relationships exist between any executive officer and any director, any other executive officer, or any person nominated to become such, except that Ms. Lutey's husband +is the Company's Vice President—Information Technology. Further details regarding the compensation paid to Ms. Lutey's husband are described under "Certain Relationships and Related +Transactions." No executive officer has been involved in any legal proceeding that occurred within the last ten years and that is material to an evaluation of their ability or integrity as an +executive officer. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation program for our Chief Executive Officer, Chief Financial Officer and +each of our three other most highly compensated executive officers employed at the end of the 2018 fiscal year, whom we collectively refer to in this "Executive Compensation" section as our "NEOs" or +"Named Executive Officers." This section also discusses our recent engagement effort with our stockholders, our compensation decisions in the context of the prior years' commodity price cycle, and our +strategic transformation process. +Our +NEOs for fiscal year 2018 were: +• Javan D. Ottoson, President and Chief Executive Officer • A. Wade Pursell, Executive Vice President and Chief Financial Officer +• Herbert S. Vogel, Executive Vice President—Operations • David W. Copeland, Executive Vice President, General Counsel +and Corporate Secretary +• Mary Ellen Lutey, Senior Vice President and Regional Manager +27 +Table of Contents +This +Compensation Discussion and Analysis is divided into seven sections: +Section 1— +Aligning Strategy and Responding to Stockholders—Objectives of Our Executive Compensation Program +Section 2— +2018 Business Results, Commodity Price Environment and Executive Compensation Impacts +Section 3— +Competitive Positioning +Section 4— +Primary Elements of Compensation +Section 5— +Compensation Determination Process +Section 6— +Other Compensation Items +Section 7— +Other Matters +SECTION 1—ALIGNING STRATEGY AND RESPONDING TO STOCKHOLDERS—OBJECTIVES OF OUR EXECUTIVE COMPENSATION PROGRAM +Stockholder Engagement and Responsiveness +This past year, we were disappointed that our 2018 advisory vote on executive compensation received support from only 74% of stockholders that +voted. In response, the Board and our management team initiated an expanded stockholder engagement effort focused on gathering feedback on our compensation program, among other topics. +Our +Board welcomed the diversity of viewpoints and candid feedback shared by our stockholders. In many of our discussions, stockholders focused on the 2018 vote on executive +compensation and we shared important context for recent compensation decisions. Specifically, we shared our view that the Compensation Committee has been diligent about aligning executive compensation +with each stage of our strategic transformation, while also seeking to align executive compensation with our stockholders' experience in an ever-changing commodity price environment. In addition to +this historical context, we discussed the Committee's decision to modify our LTIP design beginning in 2018 to include a cash flow growth per debt adjusted share metric as part of the earned percentage +applicable to our PSUs, which incentivizes return on capital and closely aligns with our strategic transformation strategy. The rich dialogue with stockholders was shared with our Board and the Board +acted on what it heard, including through the Compensation Committee's exercise of negative discretion with respect to the CEO's STIP payout for 2018 performance and the award of a below-target 2018 +LTIP grant for our CEO. For more information on our stockholder engagement effort and the actions that we took in response to feedback we received, please see the "Stockholder Engagement and Feedback" +heading above. +Executive Compensation Objectives +Our overall executive compensation program is designed to generate superior returns for our stockholders and to align executive pay with +Company performance throughout industry cycles, and consequently with our investors' experience. The objectives of our executive compensation program are to: +• provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented leaders; +• link realized compensation to the achievement of our short-term and long-term financial and strategic objectives, and returns to our investors; +28 +Table of Contents +• align performance incentives with the long-term interests of our stockholders; +• ensure programs are cost effective and financially efficient; and +• maintain high standards of corporate governance and consistent with evolving best practices. +Stockholder-Focused Program Principles +Apart from the Compensation Committee's recent response to stockholder feedback, the Compensation Committee strives to design our compensation +programs to align executive compensation with our stockholders' experience, including employment of the following practices, several of which we believe set us apart from typical market +practice: +• rigorous goal setting, measurement and accountability; +• annual incentive plan performance targets typically set at or above prior year actuals; +• targets aligned with market expectations; +• long-term incentive plan requirement of above median performance to earn target payout; +• long-term incentive plan requirement of positive TSR for above target payout under both performance metrics (relative TSR and cash flow growth +per debt adjusted share); and +• 75% of executive equity compensation is performance-based. +Compensation Program and Corporate Governance Highlights +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and qualitative +factors and review not only "what" is achieved, but also "how" it is achieved. Our recent stockholder engagement efforts, as discussed throughout this Proxy Statement, served an important role in +conducting this evaluation and ensuring that our executive compensation and governance practices meet or exceed the expectations of our Board and stockholders. Some highlights of our executive +compensation program are: +29 +Table of Contents +BEST PRACTICES WE EMPLOY: +PRACTICES WE DO NOT EMPLOY: +ü +Target the Median : We generally target pay opportunities for our executives at the market median. +c +No Tax Gross-ups : We do not provide golden parachute excise tax payments or other tax gross-ups. +ü +Pay for Performance : The significant majority of our executive pay is variable and linked to meeting our short-term and long-term financial and strategic goals and to creating +long-term stockholder value. +c +Limited Severance : We typically do not provide severance benefits in the event of termination without cause, unless it is related to a change in control. +ü +Equity-Weighted Compensation : A significant portion of executive compensation is in the form of equity, with 75% of our NEOs target equity value delivered in performance-based +awards. +c +Double-Trigger Change of Control Severance : We do not provide "single-trigger" cash severance or equity vesting acceleration upon a change in control. +ü +Compensation Risk Assessment : The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by its independent compensation consultant to +ensure our plans are designed appropriately and do not encourage excessive risk taking, while considering market changes and peer group comparisons. +c +Prohibited Transactions : We do not permit officers, employees or directors to enter into transactions that "hedge" the value of our securities owned by them, hold our securities in +margin accounts, pledge our securities to secure indebtedness, or buy or sell options or derivatives with respect to our securities. +ü +Proper Incentives : Our LTIP design includes a capital efficiency metric that incentivizes and recognizes our on-going commitment to making high returns on capital +invested. +c +No Dividends on Unearned Equity : We do not pay dividends on unearned restricted stock and performance share units. +ü +Independent Compensation Consultant : The Compensation Committee retains an independent compensation consultant who provides no other services to our Company. +ü +Equity Ownership Requirements : We require executive officers and directors to maintain meaningful ownership of our stock to ensure their interests are closely aligned with the +long-term financial interests of our stockholders. +ü +Clawback Policy : We have adopted a clawback policy applicable to our NEOs. +ü +Equity Award Caps : Performance-based PSUs capped at target if TSR is negative for the performance period. +30 +Table of Contents +SECTION 2—2018 BUSINESS RESULTS, COMMODITY PRICE ENVIRONMENT AND EXECUTIVE COMPENSATION DECISIONS +During +2018, we continued the successful execution of our strategic transformation. We reduced long-term debt and partially funded our 2018 capital program with the +proceeds from divestitures of our remaining non-core properties, and focused on the development of our core acreage positions in our two high-return assets, the Midland Basin and Eagle Ford shale. +Further, we added proved reserves and generated significant operating margin improvements through capital efficiency gains and production increases, while at the same time increasing financial +flexibility and liquidity by paying off approximately $325 million of long-term debt and refinancing existing debt, and maintaining a zero balance on our revolving credit facility throughout +2018. +The +graph below illustrates the Company's stock price as compared to NYMEX oil prices during the period from the beginning of 2017 through 2018. As reflected in the graph, despite our +successful operational performance and execution of the Company's business strategy, the Company's stock price, and consequently stockholder returns, have been unstable as a result of volatility in +the overall oil price environment. +The +Compensation Committee has carefully considered our stockholders' overall experience in designing our executive compensation program and aligning its expected outcomes with that +experience. Accordingly, our 2018 decisions on executive compensation included the following key actions, which demonstrate that Mr. Ottoson's compensation is significantly aligned with our +stockholders' experience and performance: +• negative discretion applied to the CEO's 2018 STIP payout; • negative discretion applied to the target grant value of the CEO's 2018 +LTIP award; and • zero payout under the 2015-2018 PSUs, reflecting our negative TSR performance during the period and the rigorous nature of our long-term +incentive plan. +31 +Table of Contents +SECTION 3—COMPETITIVE POSITIONING +Comparative Peer Group +Selection of a comparative peer group is foundational to the design of a rational executive compensation program. One of the objectives of our +executive compensation program is to ensure that total compensation opportunities provided to our executive officers are competitive with the companies against which we compete for business +opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies using the General Industry Classification Standard Industry Code include standard measures such as +revenue, operating cash flow, enterprise value, and market capitalization, as well as the magnitude of each company's offshore and international operations. Secondary criteria, such as peer groups +identified by proxy advisory firms and companies that may differ in size and scale but directly compete with the Company for talent, are also considered. F. W. Cook identifies peer companies that are +within a specific and reasonable range of our Company for at least four of these criteria and that have corporate structures similar to ours. F. W. Cook presents multiple peer group alternatives, and +the Compensation Committee, with input from F. W. Cook, selects a peer group that includes the 15-20 companies that best fit the selection criteria, excluding those companies from the peer group from +the previous year that no longer satisfy the selection criteria. In March 2018, the Compensation Committee approved the peer group used for 2018 compensation comparisons, which consisted of the +following companies: +Cabot Oil & Gas Corporation +Energen Resources Corporation +Oasis Petroleum, Inc. +Callon Petroleum Company +Extraction Oil & Gas, Inc. +QEP Resources, Inc. +Carrizo Oil & Gas, Inc. +Jagged Peak Energy Inc. +Range Resources Corporation +Cimarex Energy Company +Laredo Petroleum Inc. +Whiting Petroleum Corporation +Denbury Resources Incorporated +Newfield Exploration Company +Wildhorse Resource Development Corp. +WPX Energy Inc. +As +compared to the peer group used for 2017 compensation purposes, Callon Petroleum Company, Extraction Oil & Gas, Inc., Jagged Peak Energy Inc. and Wildhorse +Resource Development Corp., while Concho Resources Inc., Continental Resources, Inc. and EP Energy Corporation were removed. The changes to the Company's 2018 peer group achieve the goal +of positioning the Company more closely to the median with respect to revenue, market capitalization, enterprise value, and net asset value, while considering the secondary criteria discussed above. +Competitive Compensation Analysis +In 2018, F. W. Cook analyzed competitive pay trends among the peer group, along with data from relevant, third-party, independent compensation +surveys focused on the exploration and production industry. Findings from this analysis indicated that the target total direct compensation (base salary plus target annual bonus plus target LTIP grant) of Messrs. Ottoson, Pursell, and Vogel was near +the market median, Ms. Lutey's target total direct compensation was between the market median and the 75 th percentile, and Mr. Copeland's target total direct +compensation was just below the market 25 th percentile. Based on this analysis, F. W. Cook recommended to the Compensation Committee that Mr. Copeland's LTIP grant target +be increased. +Findings +from F. W. Cook's 2018 competitive compensation analysis were among the many factors considered by the Compensation Committee in its review of base salary, STIP targets and +target LTIP values for each of our NEOs. After reviewing this comparative compensation data, the Compensation +Committee elected to increase the base salaries for our NEOs in recognition of individual performance and consistent with our company-wide merit increases. +32 +Table of Contents +SECTION 4—PRIMARY ELEMENTS OF COMPENSATION +The primary elements of our executive compensation program and the purpose of each component are summarized in the following table. Our executive +compensation +program is comprised of the same components as the compensation program for other employees with similar tenure with the Company. The only material differences are the target pay levels and the +proportion of each component in the total pay mix. +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual individual and corporate performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; reward long-term Company performance and capital efficiency +Total Direct Compensation Mix +The charts below show the 2018 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts illustrate, +87% and 77% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied to +performance ( i.e. , "at risk"). +33 +Table of Contents +2018 Performance Highlights, Incentives and Results +The graphic below illustrates certain 2018 operational and financial highlights, as well as the relationship between our STIP and LTIP +performance metrics and our incentive plan results. +* Reflects +the application of negative discretion in the Compensation Committee's decisions regarding the CEO's STIP payout for 2018 performance and a below-target 2018 LTIP +award grant. +** Reflects +that the 2015-2018 PSU performance period resulted in a zero multiplier with no payout earned. +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of each +individual executive and compensates for the individual executive's day-to-day contributions to our success. Based on competitive market data, the +34 +Table of Contents +Compensation +Committee elected to increase the base salaries for our NEOs by 3.0% to 4.5% in order to recognize individual performance and consistent with our Company-wide merit increases. +Name +2017 Salary +2018 Salary +Ottoson +$ +824,000 +$ +852,840 +Pursell +$ +460,410 +$ +476,524 +Vogel +$ +453,200 +$ +473,594 +Copeland +$ +413,030 +$ +425,421 +Lutey +(1) +$ +338,499 +(1) Ms. Lutey +was not an NEO in 2017. +Short-Term Incentive Plan +Short-Term Incentive Plan—Design +Our STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives and the individual performance of each NEO. These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are +established as annual goals. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes in our business. Payments under +our STIP are in the form of annual cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +Return +on capital is an important consideration in the structure of our STIP and is reflected in three primary mechanisms: first , the +quantitative goals the Compensation Committee adopts are based on our operating plan and budget for the year, which requires expected minimum return thresholds for each well drilled and completed; second , the finding and development cost metric reflects one component of our return on capital by calculating the efficiency of each capital dollar we +spend; and third , the Compensation Committee has the discretion to negatively adjust for certain metrics to the extent we achieve results in this area +as a result of exceeding our capital expenditure budget. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses generally range from zero to two times a participant's target percentage based on the Compensation Committee's assessment of our +performance and that of each of our NEOs. In addition, the maximum award permitted under our Cash Bonus Plan for any participant is $2,000,000. Target bonuses for 2018 as percentages of base salary +for the NEOs were as set forth in the following table. With the exception of Ms. Lutey, who was not an NEO in 2017, none of the NEO's 2018 target bonus levels changed as compared to their +target bonus levels in 2017. +Name +2018 Target +Bonus Level, +% of Base +Salary +Ottoson +120 +% +Pursell +90 +% +Vogel +90 +% +Copeland +70 +% +Lutey +70 +% +35 +Table of Contents +Short-Term Incentive Plan—2018 Performance +In determining the 2018 annual cash bonus awards for our NEOs, the Compensation Committee examined our performance under five quantitative and +two qualitative metrics that are described below. The Compensation Committee's evaluation of our performance under the five quantitative metrics resulted in an initial multiplier of 1.08 times each +NEO's target bonus level, as set forth in this table: +Factor +Weight +Initial +Target +Revised +Target (1) +Actual +% of +Target +Production Volume (MMBOE) +.20 +44.4 +43.2 +43.2 +100 +% +Proved Developed Reserve Additions (MMBOE) +.20 +76.1 +76.1 +77.7 +108 +% +Finding and Development Costs ($ per BOE) +.20 +$16.63 +$16.63 +$17.10 +90 +% +Cash Flow ($ in millions) +.20 +$858.3 +$831.6 +$886.8 +128 +% +Cash Operating Costs ($ per BOE) +.20 +$14.02 +$13.70 +$13.33 +112 +% +Result +108 +% +(1) Targets +adjusted for retained assets following 2018 asset divestitures. +Metric +Result +Commentary +Production Volume +at target +The production volume target represents the volume of oil, gas and NGLs estimated to be produced under our 2018 business plan. This measure is important because proceeds from the sale of production generate essentially +all of our revenue. +Proved Developed Reserve Additions +out-performed target by 2.1% +The proved developed reserve additions target represents the proved developed reserves estimated to be added from projects funded under our capital program during 2018. This measure is important because proved developed +reserves are the primary source of future production and cash flow for us and, as such, relate directly to the value of our Company. +Finding and Development Costs +underperformed target by 2.8% +Finding and development costs are a measure of the efficiency of our capital program in adding value. The finding and development costs target represents the estimated cost of proved developed reserve additions on a +dollar per barrel of oil equivalent ("BOE") basis projected under our 2018 business plan. +Cash Flow +out-performed target by 6.6% +Our cash flow target is calculated based on Adjusted EBITDAX, which represents net income (loss) before interest expense, other non-operating income or expense, income taxes, depletion, depreciation, amortization and +asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, change in the Net Profits Plan liability, gains and losses +on divestitures, gains or losses on extinguishment of debt, and material inventory impairments. This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a +key factor in stockholder value creation. +Cash Operating Costs +out-performed target by 2.7.% +Our cash operating costs are calculated as the sum of our lease operating expense, ad valorem taxes, workover expenses, transportation, production taxes, and general and administrative expenses (less stock compensation +expense), on a per BOE basis. +36 +Table of Contents +In +addition to the quantitative metrics, the Compensation Committee assessed our 2018 performance in two qualitative areas. With respect to each of these qualitative measures, the +Compensation Committee may adjust the initial result obtained from its evaluation of the quantitative measures, either upward or downward, as described below. An adjustment of 0.0 represents +performance in line with expectations during the year. +Environmental, Health, and Safety (EHS) —With respect to the EHS qualitative measure, the Compensation Committee may +adjust the initial quantitative +result either upward or downward within a range of –0.05 to 0.05. In 2018, our health and safety performance was top-quartile in the areas of statistical measurement that we track, +including the lowest total recordable incident rate in the prior 11 years. As a result of the Company's outstanding EHS performance, the Compensation Committee awarded credit of 0.04 for this +qualitative measure in 2018. +Exploration Success and Inventory Growth —With respect to the Exploration Success and Inventory Growth qualitative +measure, the Compensation Committee +may adjust the initial quantitative result either upward or downward within a range of –0.1 to 0.1. The Company successfully tested prospective resources and utilized new technologies +to enhance well economics during 2018. As a result, the Compensation Committee determined that the Company met its exploration success and inventory growth objectives in 2018, but did not exceed them, +and therefore did not make an adjustment for this qualitative measure in 2018. +Following +the Compensation Committee's evaluation of the Company's quantitative STIP metrics and the initial result of a 1.08 multiplier, and after adjusting this multiplier based on +the qualitative metrics of +0.04 for EHS and 0.0 for Exploration Success and Inventory Growth, the Compensation Committee applied a 1.12 times multiplier to the overall target bonus level for the +NEOs. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is assigned the weighting disclosed in the above table; however, because quantitative goals must be determined at the beginning +of the year, the Compensation Committee's exercise of judgment and discretion protects the STIP from having an illogical outcome if circumstances change during the year such that the formulaic goals +no longer comport with reasonable outcomes. +The +Compensation Committee considered all the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs. With respect to our +CEO, the Committee exercised negative discretion and reduced the bonus to below target in order to more closely align our CEO's award with stockholders' experience during 2018. +Target STIP +Actual STIP +Name +Salary Paid +in 2018 +(% of Base +Salary) +% of Base +Salary +Amount +Ottoson +$846,185 +120 +% +118 +% +$1,000,000 +Pursell +$472,805 +90 +% +101 +% +$476,588 +Vogel +$468,888 +90 +% +107 +% +$502,000 +Copeland +$422,562 +70 +% +78 +% +$331,288 +Lutey +$336,224 +70 +% +78 +% +$263,300 +37 +Table of Contents +Long-Term Incentive Plan +Introduction +Our LTIP program is an equity compensation program that utilizes performance share units, or PSUs, and restricted stock units, or RSUs, to +compensate our NEOs and other key employees for efficient capital management and long-term growth in our net asset value. Awards of +PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"), which our stockholders have approved. +2015-2018 Performance Period Results +At the completion of the 2015-2018 performance period, the PSUs granted on July 1, 2015, were settled using an earned percentage of 0%. +We achieved this result based upon (a) our annualized absolute TSR for the performance period of –19.8%, which resulted in an earned percentage of 0%, and (b) our TSR +underperformed the peer index for the period by –6.33%, which did not change the earned percentage. Therefore, no compensation was realized by the NEOs as a result of PSUs granted for +the 2015-2018 performance period. +2018-2021 Performance Period Design and Awards +The target value of LTIP awards to our NEOs were approved by the Compensation Committee during the second quarter of 2018. In its determination +of the total pool value for 2018, the Compensation Committee considered various factors, including historical fair value transfer (or the percentage of market capitalization transferred to employees +annually in the form of stock-based awards and other forms of ownership in our Company, "FVT") under our long-term incentive compensation system compared to our peer group companies, input from F. W. +Cook on expected trends in FVT for the subject period, and shares available under our Equity Plan. +Our +LTIP program in effect during 2018 for our NEOs was heavily weighted to performance-based equity, reflecting our pay for performance philosophy. For our NEOs, 75% of the LTIP target +value consisted of performance-based PSUs, and 25% consisted of time-based RSUs. Participants were awarded RSUs and PSUs during the third quarter of 2018, for the performance measurement period +beginning July 1, 2018, and ending June 30, 2021. The chart below reflects the current structure of our +38 +Table of Contents +LTIP, +including the replacement of absolute TSR with a cash flow growth per debt adjusted share metric, which incentivizes our continuing efforts to generate high returns on capital invested: +Restricted Stock Units +RSUs are granted with a three-year vesting schedule, with one-third of the RSUs in each grant vesting on each of the first three anniversaries +of the award date. RSUs are settled in shares of our common stock at the time of vesting. +Performance Share Units +As discussed and presented in the graphic above, beginning in 2018, the Compensation Committee maintained the relative TSR metric but replaced +absolute TSR with cash flow growth per debt adjusted share relative to the Performance Peer Group as a factor to determine the earned percentage for our PSUs. The Compensation Committee believes that +this change is in the best interest of the Company and our stockholders because it employs a specific return on capital metric as part of our LTIP design, which we believe incentivizes and recognizes +management's continuing efforts to deploy capital in an efficient manner. Target payout will be earned only if relative performance is above the median of the Performance Peer Group over the +performance period. If our absolute TSR is negative, the overall payout for the PSUs (including the relative cash flow growth per debt adjusted share component) will not exceed the target. +The +number of shares of our common stock issued to settle PSUs at the end of the 2018-2021 performance period will equal the number of PSUs multiplied by the "earned percentage." The +earned percentage for both performance metrics is outlined in the payout matrix below, subject to a maximum of 200% and a minimum of 0%: +3-Year Performance Period +