eri_def14a-060512.htm
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant x
Filed by a party other than the Registrant ¨
Check the appropriate box:
¨ Preliminary Proxy Statement
¨ Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
¨ Definitive additional materials
¨ Soliciting material under Rule 14a-12
Energy Recovery, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|
¨
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
|
|
(1)
|
Title of each class of securities to which transaction applies:
|
|
(2)
|
Aggregate number of securities to which transactions applies:
|
|
(3)
|
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
|
|
(4)
|
Proposed maximum aggregate value of transaction:
|
|
¨
|
Fee paid previously with preliminary materials:
|
|
¨
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
|
|
(1)
|
Amount previously paid:
|
|
(2)
|
Form, Schedule or Registration Statement No.
|
Energy Recovery, Inc.
Notice of Annual Meeting of Stockholders
To Be Held June 5, 2012
Dear Stockholders,
The 2012 Annual Meeting of Stockholders of Energy Recovery, Inc., a Delaware corporation (the “Company” or “ERI”) will be held on Tuesday, June 5, 2012, at 10:00 a.m. Pacific Daylight Time. The Annual Meeting will take place at the Company’s headquarters, located at 1717 Doolittle Drive, San Leandro, CA 94577.
Only stockholders who owned stock at the close of business on April 9, 2012, can attend and vote at the meeting or any postponement or adjournment of the meeting. The purpose of the meeting is:
|
|
·
|
the election of Mr. Paul Cook, Dr. Marie-Elisabeth Paté-Cornell, and Mr. Fred Olav Johannessen as Class I directors to serve until our 2015 annual meeting (or until their successors are elected and qualified),
|
|
|
·
|
the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the year ending December 31, 2012,
|
|
|
·
|
an advisory vote on executive compensation,
|
|
|
·
|
approval of the Amended and Restated 2008 Equity Incentive Plan and re-approval of the material terms related to performance-based compensation, and
|
|
|
·
|
other business that may properly come before the meeting and any adjournment or postponement.
|
These items of business are more fully described in the attached Proxy Statement, which is part of this Notice.
At the meeting, we will also report on our 2011 business results and other matters of potential interest to our shareholders.
By Order of the Board of Directors,
Thomas S. Rooney, Jr.
President and Chief Executive Officer
San Leandro, California
April 27, 2012
Whether or not you expect to attend the annual meeting of stockholders in person, you are urged to vote as promptly as possible to ensure your representation and the presence of a quorum at the annual meeting.
Stockholders of record can vote their shares by using the internet or the telephone. Instructions for using these convenient services are set forth on the enclosed proxy card. Stockholders may also vote their shares by marking, signing, dating, and returning the proxy card in the enclosed postage-prepaid envelope.
If you send in your proxy card and then decide to attend the annual meeting to vote your shares in person, you may still do so. Your proxy is revocable in accordance with the procedures set forth in the proxy statement.
|
TABLE OF CONTENTS
|
|
| |
Page
|
|
PROXY STATEMENT
|
1
|
|
Why am I receiving these materials?
|
1
|
|
How do I vote?
|
1
|
|
How many votes do I have?
|
2
|
|
Can I change my vote after submitting my proxy?
|
2
|
|
What if I return a proxy card but do not make specific choices?
|
2
|
|
Who pays for the expenses related the preparation and mailing of the Proxy Statement?
|
2
|
|
Who can vote at the Annual Meeting?
|
2
|
|
Will there be any other items of business on the agenda?
|
2
|
|
How many votes are required for the approval of each item?
|
3
|
|
What is the quorum requirement?
|
3
|
|
What is a record holder?
|
3
|
|
What is a beneficial owner?
|
3
|
|
How are votes counted?
|
4
|
|
Who counts or tabulates the votes?
|
4
|
|
How do I access the proxy material and annual report via the Internet?
|
4
|
|
PROPOSAL NO. 1 — ELECTION OF DIRECTORS
|
5
|
|
PROPOSAL NO. 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
7
|
|
Principal Accountant Fees and Services
|
7
|
|
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
|
7
|
|
PROPOSAL NO. 3 — ADVISORY VOTE ON EXECUTIVE COMPENSATION
|
8
|
|
PROPOSAL NO. 4 — APPROVAL OF THE AMENDED AND RESTATED 2008 EQUITY INCENTIVE PLAN AND RE-APPPROVAL OF MATERIAL TERMS RELATED TO PERFORMANCE-BASED COMPENSATION
|
9
|
|
BOARD AND CORPORATE GOVERNANCE MATTERS
|
17
|
|
Board of Directors
|
17
|
|
Director Independence
|
17
|
|
Relationships Among Directors or Executive Officers
|
17
|
|
Committees and Meetings of the Board of Directors
|
17
|
|
The Audit Committee
|
18
|
|
The Compensation Committee
|
18
|
|
The Nominating and Corporate Governance Committee
|
19
|
|
Board Leadership Structure and Role in Risk Management
|
20
|
|
Compensation Committee Interlocks and Insider Participation
|
20
|
|
Communication between Stockholders and Directors
|
20
|
|
Director Compensation
|
21
|
|
Director Compensation for Year Ended December 31, 2011
|
21
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
23
|
|
EXECUTIVE COMPENSATION
|
26
|
|
Compensation Discussion and Analysis
|
26
|
|
Results on Our 2011 Say on Pay Vote
|
26
|
|
Executive Summary
|
26
|
|
Executive Compensation Decision-Making
|
28
|
|
Employment Terms Negotiated in 2011 for our CEO and CFO
|
30
|
|
Base Salaries for Other Named Executive Officers
|
31
|
|
Annual Cash Incentive Compensation
|
32
|
|
2011 Cash Incentive Plan
|
33
|
|
2012 Cash Incentive Plan
|
35
|
|
Equity-Based Incentive
|
36
|
|
Benefits
|
36
|
|
Severance and Termination Compensation
|
37
|
|
Change in Control Severance Plan
|
38
|
|
Tax Deductibility
|
38
|
|
Compensation Committee Report
|
39
|
|
Summary Compensation Table
|
39
|
|
Grants of Plan-Based Awards in 2011
|
42
|
|
Employment Arrangements with Named Executive Officers
|
43
|
|
Outstanding Equity Awards As of December 31, 2011
|
46
|
|
Option Exercises and Stock Vested in 2011
|
49
|
|
Potential Payments Upon Termination or Change in Control
|
49
|
|
Key Defined Terms of the Change in Control Plan
|
51
|
|
Benefits under the Change in Control Plan
|
52
|
|
Additional Benefits Due to Mr. Sanchez-Blanco Under His Employment Agreement
|
53
|
|
EQUITY COMPENSATION PLANS
|
54
|
|
REPORT OF THE AUDIT COMMITTEE
|
54
|
|
DIRECTORS AND MANAGEMENT
|
55
|
|
RELATED PERSON POLICIES AND TRANSACTIONS
|
59
|
|
CODE OF BUSINESS CONDUCT AND ETHICS
|
59
|
|
STOCKHOLDER PROPOSALS
|
59
|
|
OTHER MATTERS
|
60
|
|
Section 16(a) Beneficial Ownership Reporting Compliance
|
60
|
|
Other Matters
|
60
|
| Form 10-K ANNUAL REPORT |
60
|
|
APPENDIX A — ENERGY RECOVERY, INC. AMENDED AND RESTATED 2008 EQUITY INCENTIVE PLAN (As Adopted April 23, 2012)
|
|
ENERGY RECOVERY, INC.
1717 Doolittle Drive
San Leandro, California 94577
PROXY STATEMENT
Why am I receiving these materials?
We are inviting you to attend an Annual Meeting of the stockholders of Energy Recovery, Inc. and vote on:
|
|
·
|
the election of Mr. Paul Cook, Dr. Marie-Elisabeth Paté-Cornell, and Mr. Fred Olav Johannessen as Class I directors to serve until our 2015 annual meeting (or until their successors are elected and qualified),
|
|
|
·
|
the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the year ending December 31, 2012,
|
|
|
·
|
an advisory vote on executive compensation,
|
|
|
·
|
approval of the Amended and Restated 2008 Equity Incentive Plan and re-approval of the material terms related to performance-based compensation, and
|
|
|
·
|
other business that may properly come before the meeting and any adjournment or postponement.
|
This year’s Annual Meeting will take place on Tuesday, June 5, 2012, at 10:00 a.m. local time. The meeting will be held at the Company’s main office at 1717 Doolittle Drive, San Leandro, California, U.S.A.
This Proxy Statement, the accompanying proxy, and our Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Annual Report”) were first sent by mail to stockholders on or about April 27, 2012.
How do I vote?
If you are a record holder of our common shares, you can vote either in person at the Annual Meeting or by proxy whether or not you attend the Annual Meeting. If you plan to vote in person, you must bring the enclosed proxy card and proof of identification to the meeting.
To vote by proxy, you must either:
|
|
·
|
fill out the enclosed proxy card, date and sign it, and return it in the enclosed postage-paid envelope,
|
|
|
·
|
vote by telephone (instructions for this are on the proxy card), or
|
|
|
·
|
vote by Internet (instructions for this are on the proxy card).
|
To ensure that your vote is counted, please submit your vote by June 4, 2012.
If your shares are held for you in an account with a broker or other nominee, you will receive voting instructions from your nominee rather than a proxy card. To vote, please follow the voting instructions sent by your broker or other nominee. If you return your voting instructions timely, your broker or other nominee will then include your vote in the appropriate proxy card held by the record holder. If your shares are held in the name of a broker or other nominee, you cannot vote in person at the Annual Meeting unless you first obtain a legal proxy from your nominee and present it at the Annual Meeting.
How many votes do I have?
On each matter to be voted upon, you have one (1) vote for each share of common stock you own as of April 9, 2012 (the “Record Date”).
Can I change my vote after submitting my proxy?
If you are the record holder of your shares, you can withdraw or revoke your proxy at any time before the final vote at our Annual Meeting by:
|
|
·
|
delivering to the Company (to the attention of Alexander J. Buehler, the Company’s Secretary) a written notice of revocation or a duly executed proxy bearing a later date,
|
|
|
·
|
submitting a new proxy via the Internet or telephone in accordance with the instructions on your original form of proxy, or
|
|
|
·
|
attending the Annual Meeting and voting in person, in which case you must specifically revoke any previously returned proxy before you vote in person. Attending the Annual Meeting in person will not by itself revoke any prior proxy.
|
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” our three director nominees and “FOR” the other proposals made in this Proxy Statement. If any other matter is properly presented at the meeting, the Company representative authorized to vote on your behalf as your proxy will vote your shares using his or her best judgment.
Who pays for the expenses related to the preparation and mailing of the Proxy Statement?
The Company will bear the costs of soliciting proxies, including the costs for the preparation, assembly, printing, and mailing of the Proxy Statement and related proxy materials. In addition, the Company will reimburse brokerage firms and other nominees representing beneficial owners of shares for their expenses in forwarding solicitation materials to beneficial owners of those shares. Proxies may be solicited by certain of the Company’s directors, officers, and regular employees, without additional compensation, either personally, by telephone, facsimile, or telegram.
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on April 9, 2012, the Record Date, will be entitled to notice of, and to vote at, our Annual Meeting. On the Record Date, the Company had 52,091,396 shares of common stock outstanding.
Will there be any other items of business on the agenda?
We do not know of any business to be considered at the meeting other than the proposals described in this Proxy Statement. However, the proxy holders (who are management representatives named in the proxy card) may vote using their discretion with respect to any other matters properly presented for a vote at the meeting.
How many votes are required for the approval of each item?
|
|
·
|
For the election of three directors in Proposal No. 1, the candidates who receive the greatest number of votes cast at the Annual Meeting will be elected, provided a quorum is present; and
|
|
|
·
|
The affirmative vote of a majority of the shares of the Company’s common stock present and entitled to vote is required to approve Proposal No. 2, ratification of the appointment of our independent registered public accounting firm, to approve on an advisory basis Proposal No. 3, the advisory vote on executive compensation, and to approve Proposal No. 4, approval of the Amended and Restated 2008 Equity Incentive Plan and re-approval of material terms related to performance-based compensation, provided a quorum is present.
|
What is the quorum requirement?
A “quorum” of stockholders must be present for us to hold a valid meeting of stockholders. Stockholders representing a majority (more than 50%) of the voting power of our outstanding common stock as of the Record Date, present in person or represented by proxy, constitute a quorum for the transaction of business at the Annual Meeting.
Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote in person at the meeting. Shareholders who submit signed and dated proxies without specifying their votes and broker “non-votes” described below will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date.
What is a record holder?
If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered a “record holder” of those shares. In this case, you will receive a form of proxy card for record holders along with the other proxy materials.
What is a beneficial owner?
If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are registered with American Stock Transfer & Trust Company in the “street name” of the brokerage account, bank, or other nominee, and you are considered the “beneficial owner” of those shares. If you are a beneficial owner, your broker or other nominee will send you a form of voting instructions (rather than a proxy card) along with the other proxy materials.
As a beneficial owner, you have the right to direct your broker, bank, or other entity on how to vote your shares by using the voting instruction form included in the mailing or by following the instructions on the voting instruction card for voting via the Internet or telephone.
If there are multiple beneficial owners in the same household, your broker or other nominee may send only one copy of the proxy materials to your household. If you would like a separate copy of either document, please contact Zeny Cembrano at (510)746-2594 or at 1717 Doolittle Drive, San Leandro, California 94577.
If you are receiving multiple copies of these materials and would like to receive a single copy in the future, please contact your broker, bank, or other nominee, or the Company’s investor relations department to request a single copy only in the future.
How are votes counted?
All shares of common stock represented by valid proxies will be voted in accordance with their instructions. In the absence of instructions, proxies will be voted “FOR” Proposals 1, 2, 3, and 4.
Brokers, banks, and other nominees may submit a proxy card for shares of common stock that they hold for a beneficial owner, but decline to vote on certain items because they have not received instructions from the beneficial owner. These are called “Broker Non-Votes” and are not included in the tabulation of the voting results for the election of directors or for purposes of determining the number of votes cast with respect to a particular proposal. Consequently, Broker Non-Votes do not have an effect on the vote.
Brokers have the discretion to vote such shares for which they have not received voting instructions from the beneficial owners on routine matters, but not on non-routine matters. The routine matter up for vote this year is the ratification of the independent registered public accounting firm (Proposal No. 2).
A broker is prohibited from voting on a non-routine matter unless the broker receives specific voting instructions from the beneficial owner of the shares. The election of directors (Proposal No. 1), the advisory vote on executive compensation (Proposal No. 3), and the vote on our equity compensation plan (Proposal No. 4) are non-routine matters, and your broker cannot vote your shares on these proposals unless you have timely returned applicable voting instructions to your broker.
Abstentions have no effect on the outcome of voting for Proposal No. 1, election of directors. Abstentions are treated as shares present or represented and voting regarding Proposals No. 2, 3, and 4, so abstentions have the same effect as negative votes on those proposals.
Who counts or tabulates the votes?
The votes of stockholders attending the Annual Meeting and voting in person will be counted or tabulated by an independent inspector of election. For our meeting, a representative of Georgeson Inc. will tabulate votes cast by proxy.
How do I access the proxy material and annual report via the Internet?
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 5, 2012.
This proxy statement and the 2011 Annual Report are available electronically at http://www.edocumentview.com/ERII
We are mailing physical copies of our proxy statement, proxy, and 2011 Annual Report to our stockholders. However, you may also access these materials at the website noted above.
If you have previously chosen to receive the Proxy Statement and the 2011 Annual Report over the Internet, you will be receiving an e-mail on or about April 26, 2012, with information on how to access stockholder information and instructions for voting over the Internet. Stockholders of record may vote via the Internet until 11:59 p.m. Eastern Daylight Time, June 4, 2012.
If a stockholder’s shares are registered in the name of a brokerage firm and the stockholder has not elected to receive the Proxy Statement and Annual Report over the Internet, the stockholder may still be eligible to vote shares electronically over the Internet. Many brokerage firms participate in programs that provide eligible stockholders who receive a paper copy of the Proxy Statement and Annual Report the opportunity to vote via the Internet. If a stockholder’s brokerage firm participates in a program, a form from the broker will provide voting instructions.
Stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies. Stockholders of record wishing to receive future stockholder materials electronically can elect this option by following the instructions provided when voting over the Internet at http://proxy.georgeson.com.
Upon electing to view future proxy statements and annual reports over the Internet, stockholders will receive an e-mail notification next year with instructions containing the Internet address of those materials. The choice to view future proxy statements and annual reports over the Internet will remain in effect until the stockholder contacts their broker or the Company to rescind the instructions. Internet access does not have to be elected each year.
Stockholders who elected to receive this Proxy Statement electronically over the Internet and who would now like to receive a paper copy of this Proxy Statement so that they may submit a paper proxy in lieu of an electronic proxy should contact either their broker or the Company.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
As set by the Board of Directors under the Bylaws of the Company, the authorized number of directors of the Company will be eight as of the date of the 2012 Annual Meeting.
The Nominating and Corporate Governance Committee of the Board of Directors has recommended, and the Board of Directors has nominated, the three nominees listed below for election as Class I directors at the Annual Meeting. If elected, each newly elected director will serve until the 2015 annual meeting of stockholders and until each director’s successor is duly elected and qualified, or until the director’s earlier removal or resignation.
Each of the nominees is currently a director of the Company, and each of the nominees named below has consented, if elected as a director of the Company, to serve until his/her term expires.
In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner as will assure the election of as many of the nominees listed below as possible. In such event, the specific nominees to be voted for will be determined by the proxy holders. The Board has no reason to believe that any of the persons named below will be unable or unwilling to serve as a director, if elected. Each of the three nominees for director who receives the greatest number of votes will be elected.
Set forth below are the names, ages, and certain biographical information relating to the Class I director nominees as of April 9, 2012.
|
Name of Nominee
|
|
Age
|
|
Position with Company
|
Director Since
|
|
Paul Cook (1)
|
|
87
|
|
Director
|
2008
|
|
Marie-Elisabeth Paté-Cornell (1)
|
|
63
|
|
Director
|
2009
|
|
Fred Olav Johannessen (1) (2)
|
|
58
|
|
Director
|
1995
|
|
(1)
|
Member of the Compensation Committee.
|
|
(2)
|
Member of the Audit Committee.
|
Paul M. Cook has served as a member of the Board of Directors since July 2008. Mr. Cook is the founder of Raychem Corporation, a pioneer in material science based on radiation chemistry. Mr. Cook served as its chief executive officer and chairman of the board for 33 years and oversaw Raychem’s growth through innovation and market creation into a $1.6 billion global enterprise. Mr. Cook is the chairman of Global Translation, Inc., a private company that provides automated translation services for television stations and networks, a position he has held since December 2006. Mr. Cook is a member of the National Academy of Engineering and the American Academy of Science. He is a member of the Bay Area Business Hall of Fame and received the National Medal of Technology in 1988. Mr. Cook holds a B.S. in Engineering from Massachusetts Institute of Technology. The Board selected Mr. Cook as a member after its initial public offering because of his successful tenure as founder and chief executive officer of a high-growth technology company, his expertise in material science and markets, and his strategic and organizational business acumen.
Marie-Elisabeth Paté-Cornell has served as a director of the Company since February 2009. Dr. Paté-Cornell is a professor at Stanford University in the Department of Management Science and Engineering. She served as this department’s chair from January 2000 until 2011. She was a professor at Stanford’s Department of Industrial Engineering and Engineering Management from September 1991 to December 1999 and became chair of that department in September 1997, a position she held until December 1999. She has been a member of the Board of Trustees of Aerospace Corporation since 2004 and of InQtel since 2006. She was elected as a member of the board of Draper Laboratory at Massachusetts Institute of Technology in 2009. Dr. Paté-Cornell is also a member of the National Academy of Engineering. She received a B.S. in Mathematics and Physics from the University of Marseilles in France, a M.S. and Engineering Degree from the Institute Polytechnique in Grenoble, France, a M.S. in Operations Research from Stanford University, and a Ph.D. in Engineering-Economic Systems from Stanford University. The Board selected Dr. Paté-Cornell as a member because of her leadership role at a major U.S. university, her academic background in management science and engineering, her work in public policy, and her specialized knowledge of risk analysis and management.
Fred Olav Johannessen has served as a member of the Board of Directors since August 1995. Mr. Johannessen is the founder and owner of Nordiska Literary Agency, a Danish company that licenses theater productions and musicals in Scandinavia. Mr. Johannessen has served on the Board of Directors of Thalia Teater AS, a private theater production company in Norway, since June 1985. He has also been a member of the Board of Directors of Folin, a private European company that invests in literary agencies, since March 1999. He joined the Board of Directors of SynchroNet Logistics Inc., a maritime technology service provider, in 2010. Prior to his work in theater, Mr. Johannessen worked as a securities analyst and owned and managed several radio stations in Scandinavia. Mr. Johannessen earned his M.S. in Finance from Colorado State University. The Board selected Mr. Johannessen as a member because of his early investment in the Company, his prior experience as a securities analyst, his financial know-how, and his entrepreneurship.
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
BDO USA, LLP has been appointed by the Audit Committee to continue as the Company’s independent registered public accounting firm for the year ending December 31, 2012. Although the Company is not required to seek stockholder approval of its selection of independent registered public accounting firm, the Board believes that the practice constitutes sound corporate governance. If the appointment is not ratified, the Audit Committee will investigate the reasons for stockholder rejection and will reconsider its selection of its independent registered public accounting firm.
A representative of BDO USA, LLP is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement and to respond to appropriate questions.
Principal Accountant Fees and Services
The following table summarizes total fees that BDO USA, LLP, our independent registered public accounting firm, billed to us for its work in connection with fiscal years ended December 31, 2011 and 2010.
| |
|
2011
|
|
|
2010
|
|
|
Audit Fees (1)
|
|
$ |
431,305 |
|
|
$ |
454,847 |
|
|
Audit-Related Fees
|
|
|
— |
|
|
|
— |
|
|
Tax Fees (2)
|
|
|
7,500 |
|
|
|
3,360 |
|
|
All Other Fees
|
|
|
|
|
|
|
— |
|
|
Total
|
|
$ |
438,805 |
|
|
$ |
458,207 |
|
|
(1)
|
Audit fees represent fees for professional services related to the performance of the audit of our annual financial statements, review of our quarterly financial statements, and consents on SEC filings.
|
|
(2)
|
Tax fees include professional services related to the preparation of tax returns and for related compliance and consulting services.
|
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee pre-approves audit, audit-related, tax, and non-audit services provided by our independent registered public accounting firm, BDO USA, LLP and will not approve services that are impermissible under applicable laws and regulations. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision of that member to pre-approve specific services must be reported to the full Audit Committee at its next scheduled meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE YEAR ENDING DECEMBER 31, 2012.
PROPOSAL NO. 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Compensation Discussion and Analysis beginning on page 26 of this proxy statement describes the Company’s executive compensation program and the decisions made by the Compensation Committee for our fiscal year ended December 31, 2011 with respect to the executive officers named in the Summary Compensation Table on page 39. The Board of Directors is asking our stockholders to cast a non-binding advisory vote on the following resolution:
“RESOLVED, that the stockholders of Energy Recovery, Inc. approve the compensation of the executive officers named in the Summary Compensation Table for 2011, as disclosed in the Company’s proxy statement for the 2012 Annual Meeting of stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the executive compensation tables, and the related footnotes and narrative accompanying the tables).”
We believe that the compensation of our executive officers and directors in 2011 facilitated the necessary transition of our senior management team and provided appropriate incentive for key employees to drive product innovation, market diversification, cost reduction, and sales activity to position the Company for the future. For 2011, financial results were reflective of a severe downturn in the desalination market, with revenue and profitability negatively affected by macroeconomic and geopolitical events around the world.
Importantly, we have entered 2012 with significant new sales orders related to mega-project activity around the world, a new management team, a reduced cost structure, a fully integrated manufacturing capability, an enhanced portfolio of quiet products and intellectual property, and a strategic plan to diversify into new markets.
Significant compensation decisions in 2011 included the following:
|
|
·
|
We evaluated and revised director compensation as of July 1 to establish an appropriate composition of fees and equity-based compensation;
|
|
|
·
|
The base salary of our new president and chief executive officer, Thomas S. Rooney, Jr., was established through negotiations and with consideration of a number of factors including Mr. Rooney’s past experience as a chief executive officer of a U.S. publicly-traded company;
|
|
|
·
|
The base salary of our new chief financial officer, Alexander J. Buehler, was established through negotiations and taking into consideration Mr. Buehler’s existing compensation package and his expatriate status in a foreign country;
|
|
|
·
|
With the new chief executive officer on board, we transitioned our former Executive Chairman, Hans Peter Michelet, to a director and chairman role;
|
|
|
·
|
Excluding new hires, base salaries for our other named executive officers generally remained the same as compared to 2010, which reflected our current market reality and level of profitability;
|
|
|
·
|
Excluding new hire grants meant to attract key members of the management team along with the aforementioned director grants, no equity awards were granted to existing employees in 2011; and
|
|
|
·
|
With input from the new chief executive officer, the Compensation Committee and the Board of Directors made a decision to partially fund the bonus pool for new and existing executives because certain objectives were met in 2011 that supported the Company’s strategic plan, discussed in more detail under “Compensation, Discussion and Analysis” below in this proxy statement.
|
We believe that the compensation decisions enumerated above allowed the Company to attract and retain key employees, create and initiate execution of a strategic plan, and reward executive officers for their respective contributions. For these reasons, the Board of Directors is asking our stockholders to vote “FOR” this proposal. Although your vote on this proposal is advisory and non-binding, the Compensation Committee values the views of our stockholders and will take into account the outcome of the vote when considering future compensation decisions for our named executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL NO. 3.
PROPOSAL NO. 4
APPROVAL OF THE AMENDED AND RESTATED 2008 EQUITY INCENTIVE PLAN AND
RE-APPROVAL OF MATERIAL TERMS RELATED TO PERFORMANCE-BASED
COMPENSATION
The Board of Directors is requesting that our stockholders vote in favor of approving the Energy Recovery, Inc. Amended and Restated 2008 Equity Incentive Plan (the “Plan”) to allow the Company to retain the ability to grant “performance-based” awards under the Plan that would be fully deductible for federal income tax purposes. In addition, if approved by our stockholders, the Plan, which was approved by our Board of Directors on April 23, 2012, will amend and restate the Energy Recovery, Inc. 2008 Equity Incentive Plan (the “Initial Plan”) in its entirety, effective as of the date of stockholder approval, generally to implement technical amendments to comply with current law and to improve the Company’s corporate governance practices.
Status of the Plan
The Initial Plan was originally adopted by our Board of Directors in March 2008 and was approved by our stockholders immediately prior to the effectiveness of the initial public offering of our common stock. The Plan currently authorizes the Company to issue up 10,000,000 shares of common stock to its employees, outside directors, and consultants, of which 3,989,484 shares remain available as of March 31, 2012 for the grant of new awards. The stockholders are not being requested to approve any increase to the number of shares of common stock currently reserved for issuance under the Plan.
Code Section 162(m) Stockholder Approval
To preserve our ability to deduct in full for federal income tax purposes compensation that certain of our executive officers may recognize in connection with performance-based awards that may be granted in the future under the Plan, the stockholders are being asked to approve certain material terms of the Plan related to such awards. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer or to any of the three other most highly compensated officers of a publicly-held company other than the chief financial officer. Code Section 162(m), which applies to public companies, provides an exemption from this limit for “qualified performance-based compensation” payable under a plan satisfying certain requirements that has been approved by the public company’s stockholders.
For companies that become publicly traded in connection with an initial public offering, such as our company, stockholder approval is required to be obtained upon the expiration of a limited transition period following a company’s initial public offering in order to preserve the ability to fully deduct certain performance-based awards. The Company is seeking stockholder approval of the Plan because the transition period under Code Section 162(m) for our company will expire on the date of this year’s annual stockholder meeting. The Company’s stockholders are being requested to approve, among other provisions:
|
|
·
|
the eligibility requirements for participation in the Plan;
|
|
|
·
|
the performance criteria upon which performance awards may be based; and
|
|
|
·
|
the maximum numbers of shares for which stock options, stock appreciation rights (SARs), and stock units based on attainment of performance goals may be granted to an employee in any fiscal year.
|
Material Changes to the Initial Plan
The Plan was also amended to implement changes intended to improve our corporate governance practices, among other amendments. The following items highlight the material changes to the Initial Plan.
|
|
·
|
The Plan eliminates the “evergreen” share replenishment provision of the share reserve under the Initial Plan, which provided for an automatic annual increase to the number of shares available for issuance under the Plan by the lowest of (a) 5% of the total number of shares then outstanding, (b) 2,500,000 shares, or (c) a number of shares determined by the Board of Directors. The stockholders are not being requested to approve an increase to the number of shares reserved for issuance under the Plan.
|
|
|
·
|
The Plan prohibits, without stockholder approval, re-pricing of options and SARs and exchanging of any underwater option or SAR for the grant of a new option or stock appreciation right with a lower exercise price, a cash payment, or another award under the Plan.
|
|
|
·
|
The Plan prohibits the return to the share reserve under the Plan for future issuance under the Plan (i) shares covered by an award that are surrendered in payment of the award exercise price or tax withholding obligations incident to the exercise of the award, (ii) shares that are not issued or delivered as a result of net settlement of an outstanding option or SAR, and (iii) shares that are repurchased on the open market with the proceeds of the exercise of an option.
|
|
|
·
|
The Plan limits the term of stock options and SARs to ten years.
|
|
|
·
|
The Plan’s term is indefinite, subject to termination by the Board of Directors.
|
Material Terms of the Plan
The Plan is intended to promote our long-term success and the creation of stockholder value by encouraging employees, directors, and consultants to focus on critical long-range objectives; encouraging the attraction and retention of employees, directors, and consultants with exceptional qualifications; and linking employees, directors, and consultants directly to stockholder interests through increased stock ownership.
The Board of Directors believes that the Plan is in the best interest of the stockholders and of the Company. The following summary of certain major features of the Plan is qualified in its entirety by reference to the actual text of the Plan, which is attached to this proxy statement as Appendix A.
Key Terms of the Plan at a Glance
|
Plan Term:
|
The Plan will become effective on the date that the stockholders approve the Plan and continue in effect until the date that the Board of Directors terminates the Plan.
|
|
Eligible Participants:
|
Employees and consultants of the Company, our subsidiaries, and affiliates and non-employee directors generally are eligible to receive each type of award offered under the Plan, except as set forth below with respect to incentive stock options (“ISOs”) within the meaning of Section 422 of the Code.
Only common-law employees of the Company, a parent, or a subsidiary are eligible to receive ISOs under the Plan.
|
|
Shares Available for Awards:
|
10,000,000 shares over the term of the plan, subject to adjustment in the event of certain capitalization events of the Company.
3,989,484 shares remain available as of March 31, 2012 for grant of new awards.
|
|
Award Types
|
(1) Stock options
(2) SARs
(3) Restricted shares
(4) Stock units
|
|
Award Terms:
|
Options and SARs will have a term of no longer than ten years.
|
|
ISO Limits:
|
No more than the maximum number of shares reserved for issuance may be granted as ISOs under the Plan.
|
|
162(m) Share Limits:
|
Code Section 162(m) requires, among other things, that the maximum number of shares awarded to an individual must be approved by the stockholders in order for the awards granted under the Plan to be eligible for treatment as performance-based compensation that will not be subject to the $1 million limitation on tax deductibility for compensation paid to certain specified executive officers.
Accordingly, the Plan limits awards granted to an individual employee in any calendar year to awards that in the aggregate cover no more than 500,000 shares of common stock, except that a newly hired employee is eligible to be granted one or more awards which in the aggregate cover up to 800,000 shares.
|
|
Vesting:
|
Determined by the Compensation Committee within limits set forth in the Plan.
|
|
Not Permitted:
|
(1)
(2)
(3)
(4)
|
Granting stock options or SARs at a price below fair market value of our common stock on the date of grant.
Re-pricing or reducing the exercise price of an underwater stock option or SAR without stockholder approval.
Exchanging underwater stock options or SARs for (i) the grant of new options or SARs with a lower exercise price, (ii) a cash payment, or (iii) any other award without stockholder approval.
Adding shares back to the number of shares available for issuance when a SAR or stock option is net settled, when shares are retained or delivered to us to pay the exercise price and/or tax obligations associated with an award, or when we repurchase shares on the open market using the proceeds from payment of the exercise price in connection with the exercise of an outstanding stock option.
|
Summary of the Plan
Term of the Plan. The Plan will become effective upon approval by the stockholders and continue in effect until our Board of Directors decides to terminate the Plan.
Share Reserve. The maximum number of shares that we have authorized for issuance under the Plan is 10,000,000 shares.
Any award intended to comply with Code Section 162(m) is limited to an aggregate of 500,000 shares per individual in a single calendar year, except that a newly hired employee may receive one or more awards intended to comply with Code Section 162(m) of up to 800,000 shares in the first calendar year of employment. All shares available under the Plan may be issued upon the exercise of incentive stock options.
In general, if options or other awards granted under the Plan are forfeited or terminate for any other reason before being exercised or settled, then the shares subject to such options or awards will again become available for awards under the Plan.
The following shares will be counted against the maximum number of shares reserved for issuance and will not be returned to the Plan: (i) shares covered by an award that are surrendered in payment of the exercise price or to satisfy tax withholding obligations arising from the exercise, (ii) shares that are not issued upon the net settlement of a SAR or stock option, or (iii) shares that are repurchased in the open market with the proceeds of the exercise of a stock option.
Administration of the Plan. The Plan is administered by the Compensation Committee of our Board of Directors, which will have complete discretion to make all decisions relating to the interpretation and operation of the Plan. The Committee will have the discretion to determine who will receive an award, the type of award, the number of shares that will be covered by the award, the vesting requirements of the award, if any, and all other features and conditions of the award. The Committee may implement rules and procedures that differ from those described below in order to adapt the Plan to the requirements of countries other than the United States. Any action taken or determination made by the Committee will be final, binding, and conclusive on all affected persons. Within the limits set forth by the Plan, the Committee may also re-price outstanding options and modify outstanding awards in other ways.
Eligibility. Any employee, consultant, or non-employee director may be selected by the Committee to participate in the Plan. Except as set forth below with respect to ISOs, all awards may be granted by the Committee to any employee, consultant, or non-employee director who performs services for us or our parent, subsidiary, or affiliate and who is determined by the Committee to be eligible for an award. As of March 31, 2012, we had 98 employees, including five executive officers and seven non-employee directors who were eligible to participate in the Plan. As of March 31, 2012, we maintained relationships with two consultants who were eligible to participate in the Plan.
Awards. Awards granted under the Plan may include any of the following:
|
|
·
|
non-qualified options are options to purchase shares of our common stock at an exercise price of not less than 100% of the fair market value per share on the date of grant. On March 30, 2012, the closing price of the common stock on NASDAQ was $2.30 per share;
|
|
|
·
|
ISOs are options designed to meet certain tax code provisions that provide favorable tax treatment to optionees if certain conditions are met. ISOs are issued at an exercise price not less than 100% of the fair market value per share (or 110% of the fair market value per share if issued to 10% stockholders) on the date of grant and may only be granted to employees;
|
|
|
·
|
stock units are rights to receive a specified number of shares of our common stock, the fair market value of such common stock in cash, or a combination of cash and shares upon expiration of the vesting period specified for such stock units by the Committee;
|
|
|
·
|
restricted shares are shares of common stock which are issued to the participant subject to such forfeiture and other restrictions as the Committee, in its sole discretion, determines. Restricted shares may not be transferred by the participant prior to the lapse of such restrictions; and
|
|
|
·
|
stock appreciation rights are rights to receive shares of our common stock, cash, or a combination of shares and cash, the value of which is equal to the spread or excess of (i) the fair market value per share on the date of exercise over (ii) the exercise price on the date of grant with respect to a specified number of shares of common stock.
|
Performance Awards. The Committee may grant performance awards to employees, consultants, or non-employee directors based on performance criteria measured over a specified period of one or more years. Awards may, but need not, include performance criteria that satisfy Code Section 162(m). To the extent that awards are intended to qualify as “performance-based compensation” under Code Section 162(m), the performance criteria will be based on stock price appreciation (in the case of stock options or SARs) or on one or more of the following factors (in the case of stock units and restricted shares), each of which may be adjusted as provided in the Plan:
|
|
·
|
operating profits (including EBITDA)
|
|
|
·
|
profit returns and margins,
|
|
|
·
|
stockholder return and/or value,
|
Vesting of Awards and Exercise of Options and Stock Appreciation Rights. Options and SARs vest at the time or times determined by the Committee. In most cases, our options vest over the four-year period following the date of grant. Vesting may accelerate in the event of death or disability.
Restricted shares and stock units vest at the time or times determined by the Committee and may be subject to service-based or performance-based vesting conditions. Vesting may accelerate in the event of death or disability.
Transferability. Except as otherwise provided by the Committee, no award may be assigned, transferred, or otherwise disposed of by a participant other than by will, by the laws of descent and distribution, or pursuant to beneficiary designation procedures approved from time to time by the Committee.
Adjustments. In the event of a subdivision of the outstanding common stock, a declaration of a dividend payable in common stock, or a combination or consolidation of the outstanding common stock, corresponding adjustment will be made automatically to (i) the number of shares reserved for issuance under the Plan; (ii) the individual calendar year limitation under Code Section 162(m); and (iii) the number of shares subject to and, if applicable, exercise price of outstanding awards. The Committee will also make such other adjustments, in its sole discretion, that it deems appropriate in the case of other capitalization events.
Dissolution or Liquidation. Awards that have not been exercised or settled, as applicable, will be terminated immediately prior to the dissolution or liquidation of the Company.
Change in Control. The Committee may provide for the vesting acceleration of an award upon a change in control of the Company, whether or not the award is assumed by the successor corporation or upon a termination of a participant’s employment. A change in control includes:
|
|
·
|
a merger of our company after which our stockholders own 50% or less of the surviving corporation or its parent company;
|
|
|
·
|
a sale of all or substantially all of our assets;
|
|
|
·
|
a change in the composition of the Board of Directors, as a result of which less than 50% of the incumbent directors either had been directors two years before the change in composition of the Board or were appointed or nominated by the Board by a majority of the directors who had been directors two years before or had been selected in this manner; or
|
|
|
·
|
an acquisition of 50% or more of our outstanding stock by any person or group other than a person related to our company, such as a holding company owned by our stockholders.
|
In the event that we are a party to a merger or consolidation in which options or awards are not assumed or replaced with comparable awards by the surviving corporation, all outstanding options or awards will be subject to the agreement of merger or consolidation, which shall provide for one or more of the following:
|
|
·
|
the acceleration of vesting of 100% of the then unvested portion of the common stock subject to any outstanding options and stock appreciation rights;
|
|
|
·
|
the cancellation of all outstanding options and stock appreciation rights in exchange for a payment to the holders thereof equal to the excess of (i) the fair market value of the common shares subject to such options and stock appreciation rights over (ii) their exercise price. Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent; and
|
|
|
·
|
The cancellation of all outstanding stock units and a payment to the holders thereof equal to the fair market value of the common stock subject to such stock units. Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent.
|
Amendment and Termination of the Plan. The Board of Directors may amend or terminate the Plan at any time. No amendment can be effective prior to its approval by our stockholders to the extent that such approval is required by applicable legal requirements or any exchange on which our common stock is listed.
U.S. Federal Tax Consequences
The federal tax rules applicable to awards under the Plan are summarized below. This summary omits the tax laws of any municipality, state, or foreign country in which a participant resides.
Stock Options. Stock option grants under the Plan may be intended to qualify as incentive stock options under Code Section 422 or may be non-qualified stock options governed by Code Section 83. Generally, federal income tax is not due from a participant upon the grant of a stock option, and a deduction is not taken by the Company. Under current tax laws, if a participant exercises a non-qualified stock option, he or she will have taxable income equal to the difference between the fair market value of the common stock on the exercise date and the stock option exercise price. The Company is entitled to a corresponding deduction on our income tax return. A participant will not have any taxable income upon exercising an incentive stock option after the applicable holding periods have been satisfied (except that the alternative minimum tax may apply), and the Company will not receive a deduction when an incentive stock option is exercised. The treatment for a participant of a disposition of shares acquired through the exercise of a stock option depends on how long the shares were held and whether the shares were acquired by exercising an incentive stock option or a non-qualified stock option. We may be entitled to a deduction in the case of a disposition of shares acquired under an incentive stock option before the applicable holding periods have been satisfied.
Restricted Shares/Stock Units. Generally, taxes are not due when a restricted share award or stock unit is initially made, but the award becomes taxable when it is no longer subject to a “substantial risk of forfeiture” (it becomes vested or transferable), in the case of a restricted share award, or when shares are issued in connection with vesting, in the case of a stock unit. Income tax is paid on the value of the shares or stock units at ordinary rates when the restrictions lapse and then at capital gain rates when the shares are sold. However, no later than 30 days after a participant receives an award of restricted shares, pursuant to Code Section 83(b), the participant may elect to recognize taxable ordinary income in an amount equal to the fair market value of the stock at the time of receipt. Provided that the election is made in a timely manner, the participant will not recognize any additional income when the restrictions on the stock lapse.
Code Section 409A of the tax code provides additional tax rules governing non-qualified deferred compensation. Generally, Code Section 409A will not apply to awards granted under the Plan, but may apply in some cases to stock units.
As described above, awards granted under the Plan may be structured to qualify as performance-based compensation under Code Section 162(m). To qualify, stock options and other awards must be granted under the Plan by a committee consisting solely of two or more outside directors (as defined under the Code Section 162 regulations) and satisfy the Plan’s limit on the total number of shares that may be awarded to any one participant during any calendar year. For awards other than stock options and SARs to qualify, the grant, issuance, vesting, or retention of the award must be contingent upon satisfying one or more of the performance criteria set forth in the Plan as established and certified by a committee consisting solely of two or more outside directors. In addition, the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by the stockholders. For purposes of Code Section 162(m), the material terms include (i) the individuals eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based, and (iii) the maximum amount of compensation that can be paid to an individual under the performance goal. With respect to the various types of awards under the Plan, each of these aspects is discussed above, and stockholder approval of the Plan will be deemed to constitute approval of each of these aspects of the Plan for purposes of the approval requirements of Code Section 162(m).
New Plan Benefits
No awards have been granted or promised under the Plan. Awards under the Plan are made at the discretion of the Compensation Committee, and future awards are therefore not determinable at this time.
The following table shows, for each of the individuals and groups indicated, the aggregate number of shares subject to options and restricted stock units that have been granted to the individuals and groups indicated below under the Initial Plan since its inception through March 31, 2012:
|
Name of Individual or Group
|
Number of
Restricted
Stock Units
Granted
|
Number of
Shares
Underlying
Options
Granted
|
|
Thomas S. Rooney, Jr.
|
|
1,403,982
|
|
Alexander J. Buehler
|
|
612,389
|
|
Borja Sanchez-Blanco
|
20,000
|
444,867
|
|
Deno Bokas
|
|
61,549
|
|
Nocair Bensalah
|
|
83,943
|
|
Current executive officers as a group
|
20,000
|
2,606,730
|
| |
|
|
|
Paul Cook
|
29,500
|
139,042
|
|
Arve Hanstveit
|
|
139,042
|
|
Fred Olav Johannessen
|
|
139,042
|
|
Robert Yu Lang Mao
|
|
64,042
|
|
Hans Peter Michelet
|
|
289,042
|
|
Marie-Elisabeth Paté-Cornell
|
|
139,042
|
|
Dominique Trempont
|
|
139,042
|
|
Current non-employee directors as a group
|
29,500
|
1,048,294
|
| |
|
|
|
G.G. Pique
|
|
500,000
|
|
Thomas Willardson
|
4,000
|
110,000
|
|
Carolyn Bostick
|
6,000
|
110,000
|
|
Timothy Dyer
|
|
168,624
|
|
Terrill Sandlin
|
4,000
|
41,000
|
|
Former executive officers as a group
|
14,000
|
929,624
|
| |
|
|
|
All employees, including officers other than executive officers, as a group
|
26,000
|
2,663,450
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL NO. 4.
BOARD AND CORPORATE GOVERNANCE MATTERS
Board of Directors
The Board of Directors is divided into three classes, with each class serving for a staggered three-year term. As of the date of the 2012 Annual Meeting, the Board of Directors will consist of three Class I directors, Mr. Paul Cook, Dr. Marie-Elisabeth Paté-Cornell, and Mr. Fred Olav Johannessen; two Class II directors, Mr. Arve Hanstveit and Mr. Hans Peter Michelet; and three Class III directors, Mr. Robert Yu Lang Mao, Mr. Thomas S. Rooney, Jr., and Mr. Dominique Trempont.
At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The current term of the Class I directors ends at the annual meeting in June 2012, and the term of the Class I directors who are elected at the upcoming 2012 Annual Meeting will end at the annual meeting in 2015. The term of Class II directors ends at the annual meeting in 2013. The term of Class III directors ends at the annual meeting in 2014.
Director Independence
Our Board of Directors has determined that Mr. Cook, Mr. Hanstveit, Mr. Johannessen, Mr. Mao, Dr. Paté-Cornell, and Mr. Trempont, representing a majority of our directors, are “independent directors” as defined in the listing rules of the NASDAQ Global Market LLC. Consistent with the principles of the NASDAQ listing rules, the Board has also determined that ownership of the Company’s stock by a director is not inconsistent with a determination of independence.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the directors or executive officers of the Company.
Committees and Meetings of the Board of Directors
During the year ended December 31, 2011, the Board of Directors met twelve times. The Board has three committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. During the year ended December 31, 2011, no director attended fewer than 75% of all the meetings of the Board or its committees on which he or she served after becoming a member. The Company encourages, but does not require, its directors to attend the annual meeting of stockholders.
The Audit Committee
The Audit Committee held six meetings in the year ended December 31, 2011. The Committee consists of Mr. Hanstveit, Mr. Johannessen, Mr. Mao, and Mr. Trempont (chair).
The Audit Committee is responsible for assisting the full Board of Directors in fulfilling its oversight responsibilities relating to:
|
|
·
|
overseeing the accounting and financial reporting processes and audits of our financial statements;
|
|
|
·
|
selecting and hiring our independent registered public accounting firm and approving the audit and non-audit services to be performed by our independent registered public accounting firm;
|
|
|
·
|
assisting the Board of Directors in monitoring the integrity of our financial statements, our internal accounting and financial controls, our compliance with legal and regulatory requirements, and the qualifications, independence, and performance of our independent registered public accounting firm;
|
|
|
·
|
providing to the Board of Directors information and materials to make the Board aware of significant financial and audit-related matters that require attention; and
|
|
|
·
|
reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and annual and quarterly reports on Form 10-K and 10-Q.
|
The Board has determined that all members of the Audit Committee are independent directors as defined in the listing rules of NASDAQ. The Board has further determined that Mr. Trempont is an “audit committee financial expert” as defined by SEC rules. The Board of Directors has adopted and approved a charter for the Audit Committee, a copy of which can be viewed on the Company’s website at www.energyrecovery.com.
The Compensation Committee
The Compensation Committee held six meetings in the year ended December 31, 2011. The members of the Compensation Committee are: Mr. Cook, Mr. Hanstveit (chair), Mr. Johannessen, Dr. Paté-Cornell, and Mr. Trempont. The Compensation Committee is responsible for, among other things:
|
|
·
|
reviewing and approving, with respect to our chief executive officer and other executive officers, annual base salaries, annual incentive bonuses, equity compensation, employment agreements, severance arrangements, change of control agreements/provisions, and any other benefits, compensation, or arrangements; and
|
|
|
·
|
administering our equity compensation plans.
|
The Board has determined that all members of the Compensation Committee are independent directors as defined in the listing rules of NASDAQ. The Board of Directors has adopted and approved a charter for the Compensation Committee, a copy of which can be viewed on the Company’s website at www.energyrecovery.com.
The Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, which held one meeting in the year ended December 31, 2011, consists of Mr. Hanstveit and Mr. Trempont (chair). The Nominating and Corporate Governance Committee is responsible for:
|
|
·
|
assisting the Board of Directors in identifying prospective director nominees and recommending to the Board the director nominees for each annual meeting of stockholders;
|
|
|
·
|
evaluating the performance of current members of the Board of Directors;
|
|
|
·
|
developing principles of corporate governance and recommending them to the Board of Directors;
|
|
|
·
|
recommending to the Board of Directors persons to be members of each committee; and
|
|
|
·
|
overseeing the evaluation of the Board of Directors and management.
|
The Nominating and Corporate Governance Committee operated under a written charter setting forth the functions and responsibilities of the Committee. A copy of the charter can be viewed on the Company’s website at www.energyrecovery.com.
The Nominating and Corporate Governance Committee considers and makes recommendations to the Board of Directors regarding any stockholder recommendations for candidates to serve on the Board of Directors. Stockholders wishing to recommend candidates for consideration by the Nominating and Corporate Governance Committee may do so by writing to the Secretary of the Company at 1717 Doolittle Drive, San Leandro, California 94577 and providing: (a) the candidate’s name, biographical data, and qualifications, (b) a document indicating the candidate’s willingness to act if elected, and (c) evidence of the nominating stockholder’s ownership of the Company’s common stock at least 120 days prior to the next annual meeting to assure time for meaningful consideration by the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee does not have a policy of considering diversity specifically or formally in identifying nominees for directors. In the past, when new directors have been added to our Board of Directors, the Board or Nominating and Corporate Governance Committee has endeavored to select director candidates who have business, scientific or regulatory specializations; technical skills; or other backgrounds that increased the range of experience and diversity of perspectives within our Board of Directors in ways that pertain to our current and future business goals. The Committee also considers diversity in terms of gender, ethnic background, and national origin.
There are no differences in the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder or the Nominating and Corporate Governance Committee itself. The Company does not pay any third party to identify or assist in identifying or evaluating potential nominees.
In reviewing potential candidates for the Board, the Nominating and Corporate Governance Committee considers numerous factors including:
|
|
·
|
whether or not the person has any relationships that might impair his or her independence, such as any business, financial, or family relationships with the Company, its management, its stockholders, or their affiliates;
|
|
|
·
|
whether or not the person serves on boards of, or is otherwise affiliated with, competing companies;
|
|
|
·
|
whether or not the person is willing to serve as, and willing and able to commit the time necessary for the performance of the duties of, a director of the Company; and
|
|
|
·
|
the contribution that the person can make to the Board and the Company, with consideration being given to the person’s experience in the fields of energy, technology, and manufacturing as well as leadership or entrepreneurial experience in business or education.
|
Of greatest importance is the individual’s integrity and ability to bring to the Company experience and knowledge in areas related to the Company’s current and future business. The Board intends to continue using these criteria to evaluate candidates for election to the Board. The Board has determined that all members of the Nominating and Corporate Governance Committee are independent directors as defined in the listing rules of NASDAQ.
Board Leadership Structure and Role in Risk Management
The offices of chairman and chief executive officer at our company are held by different individuals. Mr. Michelet is currently chairman of the board and has served as our board chairman since September 2004. Mr. Rooney has served as our president and chief executive officer since February 2011. Mr. Rooney was appointed by the Board as a director in February 2011 and elected as a director by the shareholders in June 2011. The Company believes that having the roles of chief executive officer and chairman of the board filled by different individuals enhances our internal system of checks and balances and the Board’s oversight role. The practice also enables the chief executive officer to focus on the Company’s operations.
The Board’s role in risk oversight includes approving material expenditures and significant changes in company business practices. The Board also receives and approves reports on key product development projects, organizational matters, and strategic initiatives. In addition, the Audit Committee periodically considers and approves the company’s corporate investment policy and practices. The Audit Committee also oversees and reviews related-person transactions.
Compensation Committee Interlocks and Insider Participation
None of our current executive officers serve on the Compensation Committee or the Board of Directors of another entity whose executive officer(s) serve(s) on the Company’s Compensation Committee or Board of Directors.
Communication between Stockholders and Directors
Our Board of Directors currently does not have a formal process for stockholders to send communications to the Board. The Company, however, makes every effort to ensure that the views of stockholders are heard by the Board or individual directors and that the Company responds to stockholders on a timely basis. The Board of Directors does not recommend that formal communication procedures be adopted at this time because it believes that informal communications are sufficient to communicate questions, comments, and observations that could be useful to the Board. However, stockholders wishing to formally communicate with the Board of Directors may send communications directly to Alexander J. Buehler, Chief Financial Officer c/o Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, California 94577.
Director Compensation
In July 2011, the annual retainer for each non-employee member of our Board of Directors was increased from $40,000 to $50,000, paid in quarterly installments. The increase was due to the restoration of the annual retainer to 2009 levels after a 20% reduction in 2010.
The additional annual retainer for the chairs of our committees was changed as follows: Audit Committee chair increased from $4,000 to $15,000; Compensation Committee chair increased from $4,000 to $10,000; and Nominating and Corporate Governance Committee chair increased from $4,000 to $5,000, each paid in quarterly installments. The increases were due to the restoration of annual retainers to 2009 levels after a 20% reduction in 2010 and the alignment of the retainer fee based on responsibilities.
The annual retainer for our non-employee director serving as chairman of the board is $250,000, also paid in quarterly installments. The chairman of the board’s retainer was determined based on the following: the restoration of his annual retainer to the 2009 level after a 20% reduction in 2010, a need for continuity during the transition to a new management team, his history with the Company, his knowledge of the Company’s products, and to offset the forfeiture of his housing allowance for the maintenance of two households.
We have granted our non-employee directors the following equity awards. Mr. Cook and Mr. Trempont, upon joining our Board of Directors in 2008, and Dr. Paté-Cornell, upon joining our Board of Directors in 2009, each received options to purchase 100,000 shares of our common stock. In 2009, the Board also awarded Mr. Hanstveit and Mr. Johannessen options to purchase 100,000 shares of our common stock as part of their compensation for continuing to serve as non-employee directors. Upon joining the Board in September 2010, Mr. Mao received options to purchase 25,000 shares of our common stock and will receive further grants of options to purchase shares of our common stock on or around each of the first, second, and third anniversaries of his appointment to the Board.
In June 2011, we granted options to purchase 39,042 shares of our common stock to each of our non-employee directors. These options will vest in one year.
All of the options to purchase shares of common stock granted to our directors before 2011 have a four-year vesting period, with 25% of the shares vesting one year after the vesting commencement date. After that date, 1/48 of the shares vest every month. All options to directors were granted at the fair market value on the date of the award.
In August 2010, the Company issued 29,500 shares of restricted stock awards to Mr. Cook in consideration of his consulting services to the Company.
Director Compensation for the Year Ended December 31, 2011
The table below summarizes the compensation paid to non-employee directors for the year ended December 31, 2011. Mr. Pique, who served as chief executive officer until February 16, 2011, and also served as a director until the date of the 2011 annual meeting, is not included in the table below because he received compensation in 2011 only as an employee and did not receive additional compensation for services provided as a director. Mr. Rooney, who served as chief executive officer beginning in February 2011 and also as director after his appointment by the Board in February 2011 and election by the shareholders in June 2011, is also not included in the table below because he received compensation in 2011 only as an employee and did not receive additional compensation for services provided as a director:
|
Director
|
|
Fees
Earned
and Paid
in Cash
|
|
|
Option
Awards
(1)
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
Paul Cook
|
|
$ |
45,000 |
|
|
$ |
45,000 |
|
|
|
|
|
$ |
90,000 |
|
|
Arve Hanstveit
|
|
$ |
52,000 |
(2) |
|
$ |
45,000 |
|
|
|
|
|
$ |
97,000 |
|
|
Fred Olav Johannessen
|
|
$ |
45,000 |
|
|
$ |
45,000 |
|
|
|
|
|
$ |
90,000 |
|
|
Robert Yu Lang Mao
|
|
$ |
45,000 |
|
|
$ |
45,000 |
|
|
|
|
|
$ |
90,000 |
|
|
Hans Peter Michelet
|
|
$ |
125,000 |
|
|
$ |
45,000 |
|
|
$ |
115,399 |
(3) |
|
$ |
285,399 |
|
|
Marie-Elisabeth Paté-Cornell
|
|
$ |
45,000 |
|
|
$ |
45,000 |
|
|
|
|
|
|
$ |
90,000 |
|
|
Dominique Trempont
|
|
$ |
59,000 |
(4) |
|
$ |
45,000 |
|
|
|
|
|
|
$ |
104,000 |
|
|
(1)
|
The amount in the Option Awards column sets forth the fair value on the grant date of the option awards granted in 2011. These amounts do not state cash payments realized by the individual. The method and assumptions used to calculate the fair value on the grant date of our equity awards is discussed in Note 2 of our notes to our financial statements included in our Annual Report on Form 10-K. As of December 31, 2011, the number of shares underlying vested and unvested stock options held by each of the directors was: Paul Cook, 139,042; Arve Hanstveit, 139,042; Fred Olav Johannessen, 139,042; Robert Yu Lang Mao, 64,042; Hans Peter Michelet, 289,042; Marie-Elisabeth Paté-Cornell, 139,042; and Dominique Trempont, 139,042. As of December 31, 2011, Mr. Cook also had 29,500 restricted stock awards.
|
|
(2)
|
Mr. Hanstveit is a director and the chair of the Compensation Committee.
|
|
(3)
|
Mr. Michelet was employed as our executive chairman through June 2011 and is currently a non-employee director serving as chairman of the board. The amount set forth in the “All Other Compensation” column for him is his total compensation from the Company for 2011 while he was our executive chairman, which consists of $100,000 in salary through June 2011, a $15,000 housing allowance, and a $399 life insurance premium paid by the Company.
|
|
(4)
|
Mr. Trempont is a director and the chair of the Audit Committee and the Nominating and Corporate Governance Committee.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 9, 2012 for (i) each person who is known by the Company to beneficially own more than 5% of the Company’s common stock, (ii) each of the Company’s directors, (iii) each of the officers appearing in the “Summary Compensation Table” on Page 39, and (iv) all directors and executive officers as a group.
To the Company’s knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. The address of each executive officer and director is c/o Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577.
|
5% or Greater Common Stock Holders
|
|
Shares
Beneficially
Owned (1)
|
|
|
Percent of
Class (2)
|
|
|
Marius Skaugen (3)
Parkv.57 c/o B. Skaugen AS 0256
Oslo, Norway
|
|
|
7,641,103 |
|
|
|
14.7 |
% |
|
Samana Capital, L.P. (4)
35 Ocean Reef Drive, Suite 142
Key Largo, FL 33037
|
|
|
3,779,094 |
|
|
|
7.3 |
% |
|
Invesco Ltd. (5)
1555 Peachtree Street NE
Atlanta, GA 30309
|
|
|
3,219,453 |
|
|
|
6.2 |
% |
|
BlackRock, Inc. (6)
40 East 52nd Street
New York, NY 10022
|
|
|
2,813,140 |
|
|
|
5.4 |
% |
|
Directors, Named Executive Officers, and Current Group
|
|
|
|
|
|
|
|
|
|
Arve Hanstveit (7)
|
|
|
1,729,166 |
|
|
|
3.3 |
% |
|
Fred Olav Johannessen (8)
|
|
|
1,481,283 |
|
|
|
2.8 |
% |
|
Hans Peter Michelet (9)
|
|
|
751,646 |
|
|
|
1.4 |
% |
|
Borja Sanchez-Blanco (10)
|
|
|
329,923 |
|
|
|
* |
|
|
Thomas S. Rooney, Jr. (11)
|
|
|
328,125 |
|
|
|
* |
|
|
Dominique Trempont (12)
|
|
|
250,306 |
|
|
|
* |
|
|
Paul Cook (13)
|
|
|
147,716 |
|
|
|
* |
|
|
Alexander J. Buehler (14)
|
|
|
100,000 |
|
|
|
* |
|
|
Marie-Elisabeth Paté-Cornell (15)
|
|
|
81,250 |
|
|
|
* |
|
|
Deno Bokas (16)
|
|
|
29,270 |
|
|
|
* |
|
|
Robert Yu Lang Mao (17)
|
|
|
17,777 |
|
|
|
* |
|
|
All current named executive officers and directors as a group (11 persons) (18)
|
|
|
5,310,192 |
|
|
|
9.9 |
% |
|
Former Director and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
G.G. Pique (19)
|
|
|
1,006,333 |
|
|
|
1.9 |
% |
|
Timothy S. Dyer (20)
|
|
|
75,426 |
|
|
|
* |
|
|
Carolyn F. Bostick (21)
|
|
|
3,500 |
|
|
|
* |
|
|
Terrill Sandlin (22)
|
|
|
2,416 |
|
|
|
* |
|
|
Thomas D. Willardson (23)
|
|
|
1,916 |
|
|
|
* |
|
*Less than 1%
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (“SEC”). In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options and warrants held by that person that are currently exercisable, or exercisable within 60 days after April 9, 2012, are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person.
|
|
(2)
|
Percent of class is based on the number of shares of Common Stock outstanding as of April 9, 2012, the Record Date, which was 52,091,396 shares.
|
|
(3)
|
Based on a Schedule 13G/A and a Form 4 filed with the SEC on March 19, 2010 and April 29, 2010, respectively, which together showed 7,641,103 shares beneficially owned by Arvarius AS and 7,641,103 shares beneficially owned by Mr. Skaugen, the controlling stockholder of Arvarius. Each reported shared voting and dispositive power over the shares respectively reported for that beneficial owner. The shares reported by Arvarius include 800,000 shares that may be acquired under warrants exercisable within 60 days after April 9, 2012.
|
|
(4)
|
Based on a Schedule 13G/A filed with the SEC on February 14, 2012, which reported 3,779,094 shares beneficially owned by Samana Capital, L.P.; Morton Holdings, Inc., the general partner of Samana Capital, L.P.; and Philip B. Korsant. Each reported shared voting and dispositive power over the shares respectively reported for that beneficial owner.
|
|
(5)
|
Based on a Schedule 13G filed with the SEC on February 13, 2012, which reported Invesco Ltd. as having sole voting and dispositive power over the 3,219,453 shares beneficially owned by it through its subsidiary, Invesco PowerShares Capital Management.
|
|
(6)
|
Based on a Schedule 13G filed with the SEC on February 9, 2012, which reported 2,813,140 shares beneficially owned by BlackRock, Inc. having sole voting and dispositive power.
|
|
(7)
|
Consists of 1,500,000 shares held of record by Mr. Hanstveit; 150,000 shares held of record by Mr. Hanstveit’s daughters; and options to purchase 79,166 shares of common stock that are exercisable within 60 days of April 9, 2012. Mr. Hanstveit has shared voting and investment power over the shares that are owned by his daughters.
|
|
(8)
|
Consists of 1,019,500 shares held of record by Mr. Johannessen; 25,000 shares held of record by Mr. Johannessen’s wife; 120,000 shares held of record by Mr. Johannessen’s child; 55,417 shares held of record by Gallissas Ltd.; 182,200 shares held of record by Kalamaris Invest AS; and options to purchase 79,166 shares of common stock that are exercisable within 60 days of April 9, 2012. Mr. Johannessen has shared voting and investment power over the shares that are owned by his child. Mr. Johannessen is the sole shareholder of Gallissas Ltd. and is a controlling stockholder of Kalamaris Invest AS.
|
|
(9)
|
Consists of 553,730 shares held of record by Mr. Michelet and options to purchase 197,916 shares of common stock that are exercisable within 60 days of April 9, 2012.
|
|
(10)
|
Consists of 15,550 shares held of record by Mr. Sanchez-Blanco, 833 restricted stock units that will vest, and options to purchase 313,540 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(11)
|
Consists of options to purchase 328,125 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(12)
|
Consists of 146,140 shares held of record by Mr. Trempont, 6,250 shares held by a household member, and options to purchase 97,916 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(13)
|
Consists of 49,800 shares held of record by Mr. Cook and options to purchase 97,916 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(14)
|
Consists of options to purchase 100,000 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(15)
|
Consists of options to purchase 81,250 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(16)
|
Consists of options to purchase 29,270 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(17)
|
Consists of 7,361 shares held of record by Mr. Mao as trustee of The R. Mao Trust and options to purchase 10,416 shares of common stock that are exercisable within 60 days of April 9, 2012.
|
|
(18)
|
Consists of 3,894,678 shares held of record by the 11 executive officers and directors as a group, 833 restricted stock units and shares of restricted stock that will vest, and options to purchase 1,414,681 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(19)
|
Consists of 37,000 shares held of record by Mr. Pique; 117,500 shares held of record by Mr. Pique as trustee of The Pique Bachman Income Security Trust; 56,000 shares held of record by Mr. Pique’s wife; a warrant held by Mr. Pique to purchase 150,000 shares of common stock that is exercisable within 60 days of April 9, 2012; and options to purchase 645,833 shares of common stock that are exercisable within 60 days of April 9, 2012. Mr. Pique disclaims beneficial ownership of the 56,000 shares held of record by his wife.
|
|
(20)
|
Consists of options to purchase 75,426 shares of common stock that may be exercised within 60 days of April 9, 2012.
|
|
(21)
|
Consists of 3,500 shares held of record by Ms. Bostick.
|
|
(22)
|
Consists of 2,416 shares held of record by Mr. Sandlin.
|
|
(23)
|
Consists of 1,916 shares held of record by Mr. Willardson.
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Results of Our 2011 Say on Pay Vote
In the proxy statement for our 2011 annual meeting of stockholders, we asked our stockholders for an advisory vote to approve the executive compensation disclosed in the proxy statement. Of the votes cast on that proposal counting (for this purpose) shares voted for, against, and abstain, approximately 95.6% were voted in favor of our “say on pay” proposal
We considered this favorable result as support for our executive compensation policies and practices and did not implement any changes in our executive compensation policies for 2010 as a result of this vote. For 2011, we implemented a compensation framework necessary to attract and retain key employees; craft a strategic plan to drive value for the enterprise; initiate implementation of initiatives specific to cost reduction, technological innovation, and growth; and reward key employees for their respective contributions in the context of this new plan. In the latter part of 2011, we refined our total compensation philosophy, implementing a revised short-term incentive plan (or annual cash incentive plan) tied to corporate financial and individual objectives along with a long-term incentive plan (or equity program) that targets recurring annual grants for certain key employees to better align with long-term value creation. These new plans became effective in 2012 and are described more fully below.
In the related “say on when” vote in 2011, we proposed, and a strong majority of the advisory votes cast approved, holding our “say on pay” vote annually. As previously reported, we intend to hold a “say on pay” advisory vote at each annual meeting until we review the results of our next “say on when” vote in 2017.
Executive Summary
Our compensation program for executive officers principally relies upon base salary, annual cash incentives, and equity-based incentives to reward these individuals for achieving objectives linked to our strategic, financial, innovative, organizational, and other goals. For our continuing named executive officers in 2012, total compensation is allocated among base salary, target annual cash incentive, and equity-based compensation as demonstrated in the table entitled “Distribution of Total Compensation for 2012” below. The following summary should be read in connection with the additional discussion in this section and the information provided in the compensation tables and narrative discussion that follow this section.
|
Distribution of Total Compensation for 2012
|
|
Named Executive Officer
|
Base Salary
|
Target Annual
Cash Incentive
|
Equity-Based
Compensation
|
|
Thomas S. Rooney, Jr.
|
30 - 35%
|
30 - 35%
|
30 - 35% (1)
|
|
Alexander J. Buehler
|
40 - 45%
|
25 - 30%
|
30 - 35%
|
|
Borja Sanchez-Blanco
|
40 - 50%
|
25 - 35%
|
20 - 30%
|
|
|
(1)
|
Excludes the impact of the 2012 option grant related to his 2011 Offer Letter.
|
Management Transition. In February 2011, our Board of Directors appointed Thomas S. Rooney, Jr. to serve as chief executive officer and a director. In June 2011, Mr. Rooney was elected by the shareholders to continue as a director. In May 2011, the Board appointed Alexander J. Buehler to serve as chief financial officer. Borja Sanchez-Blanco served in 2011 as executive vice president of sales, marketing, and business development, after which his title was changed to senior vice president of sales in 2012.
In this section and in the compensation tables that follow this section, we also include compensation information for five named executive officers who served during all or part of 2011, but who no longer serve as executive officers. These executive officers include: G.G. Pique, who served as chief executive officer until February 2011; Thomas D. Willardson, who served as chief financial officer until May 2011; Carolyn F. Bostick, who served as general counsel and corporate secretary until November 2011; Terrill Sandlin, who served as vice president of manufacturing through the end of 2011; and Timothy S. Dyer, who after a full year of service in 2011, transitioned from chief technology officer in early 2012 into a critical position responsible for ceramics engineering initiatives as part of the manufacturing team.
2011 Business Developments. The following business developments were important factors underlying compensation decisions for executive officers in 2011 and relate primarily to building the management team, reducing costs for the enterprise, and driving technological innovation to reinforce our position in our core desalination market and diversify into new strategic markets of significant addressable size:
1. In early 2011, we named Thomas S. Rooney, Jr. as president and chief executive officer and Alexander J. Buehler as chief financial officer. Accordingly, their 2011 compensation was based primarily on the negotiated terms of their employment as more fully discussed below.
2. Also in 2011 and following the appointments of a new CEO and new CFO, we hired three seasoned executives to drive penetration into new strategic markets beyond desalination, with a focus on oil & gas, water market applications outside of desalination, and other end markets for ceramic materials. As part of ongoing cost reduction efforts, we eliminated the position of general counsel and outsourced a large component of our legal function. In 2012, we hired a new vice president of manufacturing, Nocair Bensalah, and named a new chief technology officer, Dr. Prem Krish
3. During 2011, we completed the consolidation of our two manufacturing plants, closing our facility in Michigan and integrating all production operations at our corporate headquarters and manufacturing center in California. Likewise, we planned and implemented other cost reduction initiatives including the downsizing of our branch sales office in Spain and the reorganization of various corporate functions to drive efficiencies.
4. In addition to the consolidation of manufacturing facilities in California, we validated internal production capability for all ceramic components used in PXTM devices, achieving full vertical integration that is expected to enhance efficiencies and decrease costs. We are now in a position to manufacture all ceramic components from alumina powder to finished goods, thus eliminating our reliance on outside vendors and improving our unit cost position.
5. Specific to technological innovation, we successfully launched a new and improved PXTM device, known as the PX-Q300TM. This new product offers customers substantial sound reduction compared to previous versions, thereby improving our competitive position in the desalination market. Concurrent with the product launch, we refined our value proposition with messaging that reinforces uptime and efficiency while providing transparent and quantifiable financial differentiation. Additionally, we received three new patents related to the PXTM technology and approval for the amendment of a prior patent, further strengthening our portfolio of intellectual property. Finally, we initiated the development of new centrifugal product lines for applications in certain oil and gas processing markets.
6. As a result of product enhancements, a refined value proposition, and a rebounding market, we announced significant new sales orders in 2011 and early 2012 related to mega-project activity around the world.
Base Salaries. The base salary for Mr. Rooney, our chief executive officer was $400,000 in 2011 (and will remain unchanged in 2012), and he was paid a one-time sign-on bonus of $150,000 in connection with his initial employment arrangement. The base salary for Mr. Buehler, our chief financial officer, was $300,000 in 2011 (and will be $305,000 in 2012), and he was also paid a one-time sign-on bonus of $100,000 in connection with his initial employment arrangement. These amounts were determined through negotiation at the time of employment. As an international employee working for our Spanish subsidiary, Mr. Sanchez-Blanco’s base salary is denominated in Euro and remained unchanged in 2011 at €253,000 (and will be €259,000 in 2012). Mr. Sanchez-Blanco’s 2011 base salary is equal to $351,892 based on the average interbank exchange rate in 2011 (€1.00/$1.39).
The base salaries for the former officers during their periods of service in 2011 remained unchanged from 2010, except that Mr. Dyer received a modest increase in base salary. Other than Mr. Dyer, who is continuing in an engineering role, the other former officers were entitled to severance or other transition payments discussed below in this section and set forth in the “Summary Compensation Table” under “All Other Compensation.”
Annual Cash Incentives. We paid annual cash incentives for 2011 under our non-equity compensation plan to Mr. Rooney ($150,000); Mr. Buehler ($87,500); Mr. Sanchez-Blanco (€44,022), an amount equal to $61,229 based on the average interbank exchange rate in 2011 (€1.00/$1.39); and Mr. Dyer ($10,000). The factors underlying these payments are discussed under “Annual Cash Incentive Compensation” below. Cash incentive payments were not made to the other named executive officers.
Equity-Based Incentives. In 2011, pursuant to the negotiated terms of their employment, the Compensation Committee approved awards of stock options to Mr. Rooney (in the amount of 800,000 shares granted on February 18, 2011, and 250,000 shares granted on January 4, 2012) and Mr. Buehler (in the amount of 400,000 shares granted on June 1, 2011). We did not grant any other equity compensation awards to named executive officers in 2011. In February 2012, as part of an annual grant program, the Compensation Committee granted stock options to Messrs. Rooney, Buehler, Sanchez-Blanco, and Dyer described below under “Equity-Based Incentives.”
Executive Compensation Decision-Making
The Compensation Committee annually reviews our executive compensation philosophy, approves the components of executive officer compensation, and establishes strategic and financial objectives for the chief executive officer. At the request of the Committee, our chief executive officer provides recommendations for base salary, annual cash incentives, and equity-based incentives for the other executive officers in consultation with senior human resources staff. When the Committee deems appropriate, our chief executive officer attends and participates in Committee meetings, except when his own compensation is under consideration, due to his direct knowledge of individual performance and his role in setting annual performance goals for the other executive officers. The only executive officers who had a role in determining or recommending 2011 compensation for directors and named executive officers were Thomas S. Rooney, Jr., our chief executive officer, and Carolyn F. Bostick, our former general counsel and corporate secretary.
We do not benchmark our executive compensation against a peer group of companies. Although we are still a relatively small company, we operate in a global industry (for the year ended December 31, 2011, 90% of our net revenue was derived from sales outside of the U.S.). The market for executive talent is specialized, considering our needs for cross-border management expertise, relevant industry knowledge, and experience working for U.S. publicly-traded companies. We have no direct competitors of a comparable size and in a similar stage of development that are publicly traded on a U.S. or other major stock exchange. Consequently, we believe that there is no set of directly related and comparable companies operating in similar labor markets against which benchmarking for executive compensation purposes would be meaningful.
Nevertheless, the Compensation Committee periodically reviews salary and other data from companies in the water, manufacturing, and high-tech industries; companies of a comparable size in terms of revenue and market capitalization; companies in a comparable stage of growth; and other companies located in the greater San Francisco Bay Area, where our headquarters is centered. The Committee uses this data as a reference to assess and consider relevant trends in executive compensation.
As part of the compensation negotiations with our new chief executive officer, Mr. Rooney, and as part of the Committee’s determination of executive compensation for 2011, the Committee consulted the following two sets of compensation data. The first set consists of average salary and other compensation data compiled by Richard Olivieri, an independent consultant, from three salary surveys:
(1) Economic Research Institute’s Salary Assessor Survey and Executive Compensation Assessor Survey for companies in the water supply industry, including Consolidated Water Co. Ltd., American States Water Company, Mueller Water Products, Allegheny Generating Company, World Water & Power Corporation, and Clean Energy Fuels Corporation;
(2) Radford Benchmark Survey and Radford Executive Compensation Survey for approximately 50 private and publicly-traded companies with less than 200 employees, including Airgo Networks, Inc., Alien Technology, Fluidigm, Centerbeam, Novariant, Qualys, SABA, Saratoga Systems, Satmetrix Systems, and WJ Communications; and
(3) CompAnalyst Survey for manufacturing companies with annual revenues of approximately $100 million (the names of sample companies were not available to us).
The second set consists of data compiled by senior human resources staff from the following 15 publicly-traded peer companies identified for us in 2009 by Frederic W. Cook & Co.:
American Superconductor Corporation
Badger Meter Inc.
Consolidated Water Co. Ltd.
Energy Conversion Devices, Inc.
Evergreen Solar Inc.
Fuel Systems Solutions, Inc.
Fuel Tech, Inc.
FuelCell Energy Inc.
Gorman-Rupp Co.
Graham Corp.
Met-Pro Corp.
PMFG, Inc.
Quantum Fuel Systems Technologies Worldwide Inc.
Sun Hydraulics Corp.
AeroVironment, Inc.
Frederic W. Cook & Co. selected these companies because they viewed them to be comparable to our company in terms of revenue and market capitalization and as a result of their product mix in the clean energy, water treatment, or natural resources sectors.
Employment Terms Negotiated in 2011 for our CEO and CFO
As reported in our 2011 annual proxy statement, our former chief executive officer, G.G. Pique, initiated discussions in late 2010 about his possible retirement, and our Board of Directors initiated an executive search that led to the appointment of Mr. Rooney as our new president and chief executive officer on February 16, 2011. He was appointed to the Board several days later and elected to the Board by the shareholders at the Company’s annual meeting in June 2011.
Under the terms of Mr. Rooney’s offer letter dated February 14, 2011, his compensation included the following:
|
|
·
|
an annual base salary of $400,000;
|
|
|
·
|
a one-time sign-on bonus of $150,000 less deductions authorized or required by law; if he chooses to resign from the Company for any reason (other than “Good Reason” as defined in the Company’s Change in Control Severance Plan then in effect) within the first twenty-four (24) months of his employment, he agrees to return to the Company a pro-rata share of this sign-on bonus equal to the number of months remaining in the 24-month period at the time of resignation divided by 24;
|
|
|
·
|
an annual bonus in an amount up to 100% of his annual base salary depending on his percentage achievement of Company and individual objectives; and
|
|
|
·
|
a multi-year equity grant consisting of options to purchase 800,000 shares of the Company’s common stock granted on February 18, 2011 and options to purchase an additional 250,000 shares of common stock granted on January 4, 2012, both subject to our standard four-year vesting schedule commencing on February 16, 2011 and both under the 2008 Equity Incentive Plan.
|
Other details of Mr. Rooney’s compensation package are discussed below under the caption entitled “Employment Arrangements with Named Executive Officers.”
Mr. Rooney’s compensation was established through negotiations and in consideration of a number of factors, including Mr. Rooney’s past experience as a chief executive officer of a U.S. publicly-traded company, his past success at driving revenue growth by fostering innovation and successfully entering new markets, his analytical and other skills, his compensation in his previous positions, the compensation of his predecessor at the Company, the compensation requirements of other candidates, market conditions, and the competitive compensation data noted above.
Of key importance was the Company’s goal of becoming a multi-product, multi-market enterprise and the Board’s wish to provide Mr. Rooney with strong financial incentives to lead the Company into new, unproven markets, other areas of advanced technology, and through multiple stages of growth. The Board recognized that to attract and retain a new chief executive officer with the required experience and skill set, the Company would have to increase the overall compensation for the position. To ensure that the shareholders receive value for the higher compensation, the Board favored an increase in bonus and equity-based incentives over a significant increase in base salary.
Accordingly, Mr. Rooney’s annual base salary is in the range of the annual base salary of his predecessor, Mr. Pique. Under our cash incentive plan, Mr. Rooney was eligible for an annual bonus in an amount up to 100% of his annual base salary for achieving certain strategic and financial objectives. The equity component of Mr. Rooney’s compensation was similarly designed to maximize his incentive to create value for shareholders in the form of stock price appreciation in both the short and long term. To incentivize him to develop new sources of revenue growth, even during the industry downturn, the Board granted him a large equity award during his first year with the Company. The award was divided into two parts, a grant of 800,000 options in February 2011 and a grant of 250,000 options in January 2012. This award will align his compensation with the creation of shareholder value and provide for long-term retention in the context of successful long-term performance. In 2012, Mr. Rooney’s base salary and target bonus of 100% (at full achievement of Company and individual objectives) remains unchanged, and his equity-based compensation (for subsequent annual recurring grants) is $400,000.
On May 23, 2011, Alexander J. Buehler joined the Company as chief financial officer. Under the terms of Mr. Buehler’s offer letter dated April 13, 2011 (“Offer Letter”), Mr. Buehler’s compensation included the following:
|
|
·
|
an annual base salary of $300,000;
|
|
|
·
|
a one-time sign-on bonus in the amount of $100,000 less deductions authorized or required by law if he was able to begin employment on or before May 23, 2011; if he chooses to resign from the Company for any reason (other than “Good Reason” as defined in the Company’s Change in Control Severance Plan then in effect) within the first twenty-four (24) months of his employment, he agrees to return to the Company a pro-rata share of this sign-on bonus equal to the number of months remaining in the 24-month period at the time of resignation divided by 24;
|
|
|
·
|
an annual bonus in an amount up to 50% of his annual base salary dependent upon his achievement of Company and individual objectives;
|
|
|
·
|
relocation expense reimbursement of up to $30,000 for expenses in excess of $50,000;
|
|
|
·
|
an option to purchase 400,000 shares of the Company’s common stock under the 2008 Equity Incentive Plan subject to our standard four-year vesting schedule; and
|
|
|
·
|
recurring equity grants consisting of options to purchase shares of the Company’s common stock under the 2008 Equity Incentive Plan valued at $200,000 per year subject to our standard four-year vesting schedule.
|
Other details of Mr. Buehler’s compensation package are discussed below under the caption entitled “Employment Arrangements with Named Executive Officers.” Mr. Buehler’s compensation was established through negotiations and taking into consideration his existing compensation package, his expatriate status in a foreign country, his strategic and analytical skills, and his experience in driving value creation in international business environments in the water and oil & gas industries. In 2012, Mr. Buehler’s base salary will increase to $305,000, his annual bonus target for full achievement of Company and individual objectives will increase to 60%, and the value of his equity-based compensation will increase to $240,000 (for recurring equity grants).
Base Salaries for Other Named Executive Officers
Base salaries are designed to provide our executives with a stable source of income commensurate with their responsibility, experience, and performance.
Borja Sanchez-Blanco, our executive vice president of sales, marketing, and business development, is employed by our Spanish subsidiary, ERI Iberia, Ltd. In 2011, Mr. Sanchez-Blanco led sales efforts for our mega-projects group and oversaw activity for our OEM Sales and Service groups. His annual salary for 2011 was €253,000, unchanged from 2010, and an amount equal to $351,892 based on the average interbank exchange rate in 2011 (€1.00/$1.39). Mr. Sanchez-Blanco’s base salary for 2012 will increase to €259,000, which is reflective of a substantial increase in MPD sales activity in the fourth quarter of 2011. Mr. Sanchez-Blanco’s title was changed from executive vice president of sales, marketing, and business development to senior vice president of sales to focus his efforts on the increasing opportunity for mega-project activity around the world.
The base salaries for the former chief financial officer, Mr. Willardson ($275,000), and the former general counsel, Ms. Bostick ($240,000), remained the same as their base salaries in 2010.
On January 1, 2011, Timothy S. Dyer’s base salary was increased from $210,000 in 2010 to $220,000 after a six-month performance evaluation pursuant to his promotion to chief technology officer in June 2010. On February 24, 2012, the Company announced that Mr. Dyer, who had served as chief technology officer and was a named executive officer in the 2011 annual proxy statement, would transition out of the chief technology role and into a critical position to drive key engineering initiatives as part of the manufacturing team. Mr. Dyer’s base salary for 2012 will remain unchanged.
In 2011, the base salary of Terrill Sandlin, our former vice president of manufacturing, remained unchanged at $195,000. On December 31, 2011, Mr. Sandlin resigned his position as vice president of manufacturing, and the Company hired Nocair Bensalah as his replacement. Details of the severance package provided to Mr. Sandlin can be found below in the section entitled “Severance and Termination Compensation.”
The annual base salary of our former chief executive officer, Mr. Pique, was restored to its 2009 level of $350,000 in 2011, increasing from $280,000 in 2010 until his transitional employment ended in May 2011.
Annual Cash Incentive Compensation
Our annual cash incentive plan is designed primarily to motivate and reward executives in achieving critical financial and organizational objectives in support of the company’s annual budget and strategic plan. Actual cash incentive payments for 2011 and paid in March 2012 to each named executive officer are set forth in the “Summary Compensation Table” below under the column for “Non-Equity Incentive Plan Compensation”. We refer to these amounts in the discussion below for convenience as a “bonus.”
2011 Cash Incentive Plan
The objectives for our named executive officers under the 2011 cash incentive plan are itemized in the table below. The column “Target Bonus for 100% Goal Achievement” in the table sets forth the targeted bonus for each officer if 100% of his or her objectives are achieved. The column “Maximum Bonus Allowable” establishes the maximum bonus that the officer could receive in the event that results exceed the objectives.
|
Named Executive Officer
|
|
2011 Objectives
|
|
Maximum
Bonus
Allowable
|
|
Target
Bonus for
100% Goal
Achievement
|
|
Thomas S. Rooney, Jr.
|
|
·Establish and increase the Company’s visibility and presence in the investor community
·Develop management team to complete strategic plan and initiate execution of strategic imperatives
·Lead initiative of diversifying product portfolio and launching penetration into new strategic markets of significant addressable size
|
|
100% of base salary less 2011 sign-on bonus and prorated for whole months of service during 2011
|
|
100% of base salary less 2011 sign-on bonus and prorated for whole months of service during 2011
|
|
Alexander J. Buehler
|
|
·Lead planning and execution of cost-reduction initiatives
·Build finance team to enhance managerial reporting, drive accountability by small business unit, and improve financial operations
·Lead efforts to create strategic plan and annual budget and drive implementation thereof
|
|
50% of base salary prorated for whole months of service during 2011
|
|
50% of base salary prorated for whole months of service during 2011
|
|
Borja Sanchez-Blanco
|
|
·Meet or exceed annual revenue plan
·Meet or exceed annual orders plan
·Implement CRM by Q2 to capture all customers, prospects and opportunities, and develop sales reports and metrics
·Support the creation of revenue streams outside of our core desalination business
·Achieve sales expense budget while accomplishing the developmental goals specified above
|
|
30% of base salary
|
|
30% of base salary
|
|
Timothy S. Dyer
|
|
·Commercialize long-life PX device and Quiet PX device to increase price and market share
·Develop prototype of energy recovery device with applications in oil & gas segment
·Complete integration of pump and turbocharger product portfolio
·Achieve R&D budget while accomplishing the developmental goals specified above
|
|
30% of base salary
|
|
30% of base salary
|
The Compensation Committee determined that, based upon performance measured against the objectives summarized above, the following cash payments would be made in March 2012 under the 2011 annual cash incentive plan:
|
Name
|
|
% Achievement
|
|
$ Incentive
Payment
|
|
|
Thomas S. Rooney, Jr.
|
|
90% achievement prorated for ten months of service with the sign-on bonus deducted in accordance with offer letter
|
|
$ |
150,000 |
|
|
Alexander J. Buehler
|
|
100% achievement prorated for seven months of service
|
|
$ |
87,500 |
|
|
Borja Sanchez-Blanco
|
|
58% achievement
|
|
$ |
61,229 |
(1) |
|
Timothy S. Dyer
|
|
15% achievement
|
|
$ |
10,000 |
|
|
|
(1)
|
This amount represents €44,022 converted into dollars based on the average interbank exchange rate for 2011 (€1.00/$1.39).
|
Our former chief executive officer, Mr. Pique, was not a participant in the 2011 cash incentive plan, and the other named executive officers not listed above effectively forfeited their participation in the plan in connection with the end of their employment in 2011. Consequently, their objectives and potential bonuses are not material.
2012 Cash Incentive Plan
In 2012, we adopted a revised annual incentive plan under which our executive officers and other key employees are eligible to receive annual cash incentive awards. The Compensation Committee believes that this annual cash incentive plan fulfills the part of our compensation philosophy that rewards our executives and key employees for the achievement of short-term initiatives tied to both corporate financial performance and individual objectives. The Compensation Committee further believes that achievement in 2012 of more than the minimum discretionary bonus pool described below will be significantly more difficult than achievement of the performance targets for the 2011 plan due to the following features of the 2012 plan: challenging individual objectives for executive officers, addition of a corporate performance objective based on adjusted operating income (loss), and a requirement to improve this budgeted measure by a significant amount to achieve the target amount of the bonus pool.
Each participant in the plan is assigned an incentive award target that is expressed as a percentage of his or her base salary. The targets for executive officers must be approved by the Compensation Committee. For 2012 and with respect to the named executive officers from 2011 who continue to serve as executive officers, Mr. Rooney has an award target of $400,000 (100% of his base salary), Mr. Buehler has an award target of $183,000 (60% of his base salary), and Mr. Sanchez-Blanco has an award target of €155,400 (60% of his base salary), an amount equal to $216,143 based on the average interbank exchange rate in 2011 (€1.00/$1.39).
The corporate profitability target in 2012 is to achieve an adjusted operating income (loss) target approved by the Board of Directors. This is defined in the plan as consolidated operating income (loss) determined under U.S. GAAP, excluding the accrued bonus expense under the plan, costs associated with an acquisition or board-approved restructuring, losses resulting from a board decision to discontinue or liquidate a business operation, gains and losses from dispositions of defined business or capital assets, refinancing of debt, losses from the write-down of intangible assets due to impairment, any income statement effect from a defined change in accounting principles, other extraordinary or unpredicted items approved by the Compensation Committee, and any other material income or loss, the realization of which is not directly attributable to the actions of senior management.
The profitability target for 2012 is a loss figure, and the plan does not require a positive adjusted operating income in order to meet the financial performance objective.
As of February 2012, the annual bonus pool for 2012 is a dollar sum of the aggregate target percentage of base salaries for all plan participants, and 100% of this sum is allocable to plan participants in accordance with the formula described further below if the profitability target is achieved. If actual financial performance is less than the minimum performance threshold, the total bonus pool will be equal to the minimum discretionary funding as approved by the Compensation Committee. If actual financial performance exceeds the minimum performance threshold, the allocable annual bonus pool is then increased above the minimum discretionary funding based on a linear function.
There is no maximum amount set for the annual bonus pool, and actual payments could be less than or more than the target annual bonus pool established for 2012. However, the Compensation Committee, in its discretion, may adjust any bonus award, including increasing the amount of the bonus award or reducing the amount of the bonus award (including to zero).
To receive an award under the plan, an executive officer must achieve individual performance objectives established at the onset of the plan year. These individual performance objectives are generally based on the individual’s position, his/her goals, and strategic objectives. Individual performance objectives may be a combination of both financial and non-financial measures.
After the end of the plan year, the Compensation Committee will assess the achievement of the individual objectives for the named executive officers. Each named executive would be eligible to receive a cash payment (subject to the discretion of the Compensation Committee described above) equal to:
|
|
·
|
base salary, multiplied by
|
|
|
·
|
target % of base salary, multiplied by
|
|
|
·
|
the bonus pool allocation ratio, multiplied by
|
|
|
·
|
the % achievement of individual objectives,
|
where the bonus pool allocation ratio is the actual annual bonus pool computed from the final adjusted operating income result divided by the annual bonus pool based on the aggregate target percentages of participants’ base salaries. For new participants hired in 2012 who do not serve a full year, the Compensation Committee will also prorate the amount payable to the time in months that the individual worked for the Company during the year.
Equity-Based Incentive
The Company grants stock options to new executives and other key employees to provide incentives to increase shareholder value pursuant to the Company’s 2008 Equity Incentive Plan. The Company did not grant equity awards under the plan to named executive officers in 2011, except for the stock option grants to Mr. Rooney and Mr. Buehler in connection with their terms of employment negotiated in 2011 and described above under “Employment Terms Negotiated in 2011 for our CEO and CFO.”
On February 16, 2012, as part of an annual stock option grant program for employees, the Compensation Committee granted options to purchase the Company’s common stock to the following named executive officers: Mr. Rooney, in the amount of 353,982 options; Mr. Buehler, in the amount of 212,389 options; Mr. Sanchez-Blanco, in the amount of 154,867 options; and Mr. Dyer, in the amount of 22,124 options. The vesting schedule for these grants provides that 25% of the options vest one year after continuous active service after the vesting commencement date, and thereafter, 1/48 of the options vest at the end of each month of active service. The Compensation Committee refined its philosophy on total compensation in 2011, wherein total compensation is comprised of three components: base salary; short-term incentives, where the company utilizes its cash incentive plan; and long-term incentives, where the Company utilizes equity-based incentives. Accordingly, for 2011 the Compensation Committee determined an appropriate value for recurring equity grants as a component of total compensation as previously outlined in the table entitled “Distribution of Total Compensation for 2011” using the Black Scholes valuation method to determine the number of options.
Benefits
In 2011, our named executive officers based in the United States were eligible to participate in our standard benefits programs on the same basis provided to all of our other U.S. employees, including medical, dental, and vision insurance; short- and long-term disability insurance; and health and dependent care flexible spending accounts. Mr. Sanchez-Blanco was eligible to participate in standard benefits programs on the same basis provided to all other employees of our Spanish affiliate. All named executive officers and other executives are offered special life and accidental death and dismemberment insurance benefits. In 2012, we updated long-term disability benefits, which resulted in an increase in coverage for certain executive officers.
We also maintain a tax-qualified 401(k) plan, which provides for broad-based employee participation in the United States. Under the 401(k) plan, all of our U.S. employees are eligible to receive matching company contributions at the discretion of the Compensation Committee of the Board of Directors within IRS guidelines. The matching contribution in 2011 was 50% of the first 6% contributed by the employee, capped at an amount equal to 3% of each participant’s pretax base compensation, and calculated and paid on an annual basis subject to the approval of the Compensation Committee and applicable federal limits. On March 5, 2012, the Compensation Committee approved the discretionary matching contribution for 2011. For subsequent periods, the Compensation Committee will evaluate performance in accordance with the annual budget as part of this approval process. Matching contributions will vest over a four-year period at the rate of 25% per year. We do not provide defined benefit pension plans or defined contribution retirement plans to our named executive officers other than the 401(k) plan.
Severance and Termination Compensation
We do not currently have individual employment agreements with our named executive officers, except for Thomas S. Rooney, Jr., Alexander J. Buehler, and Borja Sanchez-Blanco. All named executive officers were participants in our change in control severance plan described under the next caption below. The terms of Mr. Rooney’s and Mr. Buehler’s employment with the Company include severance-related provisions set forth in their respective offer letters. Mr. Sanchez-Blanco is employed by our Spanish subsidiary and has severance-related provisions in his employment agreement that reflect common practice under Spanish employment law. Severance-related terms for Mr. Rooney, Mr. Buehler, and Mr. Sanchez-Blanco are summarized below following the “Grants of Plan-Based Awards” table.
Upon his resignation as a full-time employee, the Company paid Mr. Pique a retirement bonus in the amount of $565,000, payable in two installments. The purpose of the retirement bonus was to reward Mr. Pique for his eleven (11) years of service with the Company, during nine (9) of which he served as its chief executive officer, and for his critical role in the success of the Company’s initial public offering in July 2008. The award was also designed to compensate Mr. Pique for his lower-than-competitive base salary and equity awards during his tenure as chief executive officer.
Effective as of his last day as a member of the Board, Mr. Pique was retained as a consultant, a service he will provide until April 2013. In exchange for his consulting services, Mr. Pique’s unvested options will continue to vest and remain outstanding and exercisable as long as he provides continuous consulting services to the Company. These options are described in the notes following the “Outstanding Equity Awards at December 31, 2011” table below.
Upon his resignation as a full-time employee, the Company paid Mr. Willardson a bonus in the amount of $30,000, a severance equivalent to twelve (12) months of base salary ($275,000) payable in one lump-sum installment, and payment for the cost of group employee benefit coverage continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) to the same extent previously provided by the Company’s group plans through December 31, 2011, or until Mr. Willardson becomes eligible for group insurance benefits from another employer, whichever occurs first. The purpose of the severance payment was to reward Mr. Willardson for his years of service with the Company, his service as chief financial officer, the completion of transition work prior to his resignation, and his role in the success of the Company’s initial public offering in July 2008.
Effective November 30, 2011, upon her resignation as a full-time employee, and in exchange for a signed and unrevoked release agreement, the Company paid Ms. Bostick severance payment equivalent to twelve (12) months of base salary ($240,000) payable in two installments. The purpose of the severance payment was to reward Ms. Bostick for her years of service with the Company, her service as general counsel, and for her role in leading the corporate governance and compliance efforts of the Company after its initial public offering in July 2008.
Effective December 31, 2011, upon his resignation as a full-time employee, and in exchange for a signed and unrevoked release agreement, the Company paid Mr. Sandlin severance including the following aspects: a single lump-sum payment in the amount of $63,300.96; the sum of twelve (12) months base salary ($195,000) payable in bi-weekly installments corresponding with the Company’s regular pay schedule; and payment for the cost of group employee benefit coverage continuation under COBRA to the same extent previously provided by the Company’s group plans through June 30, 2013, or until Mr. Sandlin becomes eligible for group insurance benefits from another employer, whichever occurs first. The purpose of the severance payment was to reward Mr. Sandlin for his years of service with the Company, his service as vice president of manufacturing, and for his role in establishing manufacturing capabilities.
Change in Control Severance Plan
In August 2009, the Company’s Board of Directors adopted a Change in Control Severance Plan for key employees. In March 2012, the Board adopted a revised Change in Control Severance Plan (“the CIC Plan”) for highly-paid employees. On December 31, 2012 and on each anniversary thereafter, the CIC Plan will be extended automatically for an additional year unless the Compensation Committee of the Board of Directors delivers written notice, at least six months prior to the end of each such term, to each participant that the CIC Plan will not be extended.
Each of the named executive officers currently serving participates in the CIC Plan, while none of the former officers listed in the tables below are participants in the 2012 CIC Plan described below.
The CIC Plan is summarized under the caption “Potential Payments Upon Termination or Change of Control” below following the compensation tables. Designed as a retention tool, the CIC Plan protects participating executives from economic harm in the event that their employment is actually or constructively terminated after a change in control of the Company. Under this “double trigger” approach, participating executives are eligible for severance and other benefits under the CIC Plan if they are terminated without “Cause” or leave for “Good Reason,” as those terms are defined below, within eighteen (18) months after a change in control of the company.
Tax Deductibility
Section 162(m) of the Internal Revenue Code (the “Code”) generally disallows a tax deduction to public corporations for compensation in excess of $1 million paid for any fiscal year to certain executive officers. Performance-based compensation is not subject to the $1 million deduction limit if certain requirements are met. Our Compensation Committee may consider the impact of Code Section 162(m) when designing our cash and equity bonus programs, but may elect to provide compensation that is not fully deductible as a result of Code Section 162(m) if it determines that the program is in our best interests.
To maintain the flexibility to grant performance-based equity awards under our 2008 Equity Incentive Plan that will be fully deductible for federal income tax purposes, the Company must submit its plan for stockholder approval and obtain approval of the material terms of the plan in accordance with the applicable tax regulations as more fully set forth under “Proposal No. 4, Approval of the Amended and Restated 2008 Equity Incentive Plan and Re-Approval of Material Terms Related to Performance-Based Compensation.”
Compensation Committee Report
This report is not deemed to be soliciting material filed with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into a document filed with the SEC.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) set forth above with the Company’s management. Based on the review and discussions, the Compensation Committee recommended to the Company’s Board of Directors that the CD&A be included in this proxy statement.
MEMBERS OF THE COMPENSATION COMMITTEE
Arve Hanstveit, Chair
Paul M. Cook
Fred Olav Johannessen
Marie-Elisabeth Paté-Cornell
Dominique Trempont
Summary Compensation Table
The table below summarizes the compensation information with respect to the named executive officers for the applicable fiscal years ending December 31, 2011; December 31, 2010; and December 31, 2009.
Effective February 16, 2011, G.G. Pique retired from his position as chief executive officer, and the Board of Directors appointed Thomas S. Rooney, Jr. as the Company’s chief executive officer and as a director. Mr. Rooney was elected to the Board by shareholder vote in June 2011. Thomas D. Willardson resigned from his position as chief financial officer and was succeeded by Alexander J. Buehler in that position, effective May 23, 2011. On October 21, 2011, Carolyn F. Bostick resigned her position as general counsel in connection with the Company’s decision to discontinue that position and outsource most of its legal functions. Effective December 31, 2011, Terrill Sandlin resigned his position as vice president of manufacturing. This position has been filled by Nocair Beneslah as of January 1, 2012. Effective February 24, 2012, Timothy S. Dyer transitioned out of the chief technology position and into an engineering position. The chief technology position has been filled by Dr. Prem Krish. SEC rules require the inclusion of the former officers listed in this paragraph in the compensation tables below except as otherwise noted.
|
Name
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)(6)
|
|
|
Option
Awards
($)(6)
|
|
|
Non-Equity Incentive
Plan Compensation
($)
|
|
|
All
Other
Compensation
($)(8)
|
|
|
Total
($)
|
|
|
Thomas S. Rooney, Jr.,
|
2011
|
|
$ |
350,000 |
(1) |
|
$ |
150,000 |
(3) |
|
|
— |
|
|
$ |
1,259,697 |
|
|
$ |
150,000 |
(7) |
|
$ |
11,570 |
|
|
$ |
1,921,267 |
|
|
President and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander J. Buehler, ,
|
2011
|
|
$ |
181,250 |
(1) |
|
$ |
100,000 |
(3) |
|
|
— |
|
|
$ |
510,137 |
|
|
$ |
87,500 |
(7) |
|
$ |
5,159 |
|
|
$ |
884,046 |
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borja Sanchez-Blanco,
|
2011
|
|
$ |
351,892 |
(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
61,229 |
(7) |
|
$ |
34,722 |
|
|
$ |
447,843 |
|
|
Senior Vice President
|
2010
|
|
$ |
335,153 |
(2) |
|
|
— |
|
|
|
— |
|
|
$ |
298,282 |
|
|
|
— |
|
|
$ |
1,208 |
|
|
$ |
634,643 |
|
|
of Sales
|
2009
|
|
$ |
353,327 |
(2) |
|
|
— |
|
|
$ |
142,600 |
|
|
$ |
172,566 |
|
|
|
— |
|
|
$ |
8,942 |
|
|
$ |
677,435 |
|
Former Officers Included Pursuant to SEC Rules
|
G.G. Pique,
|
2011
|
|
$ |
175,000 |
(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
570,507 |
|
|
$ |
745,507 |
|
|
President and Chief
|
2010
|
|
$ |
280,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
7,317 |
|
|
$ |
287,317 |
|
|
Executive Officer
|
2009
|
|
$ |
350,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1,735,670 |
|
|
|
— |
|
|
$ |
7,530 |
|
|
$ |
2,093,200 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas D. Willardson,
|
2011
|
|
$ |
114,583 |
(1) |
|
$ |
30,000 |
(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
280,662 |
|
|
$ |
425,245 |
|
|
Chief Financial
|
2010
|
|
$ |
275,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
182,475 |
|
|
|
— |
|
|
$ |
8,920 |
|
|
$ |
466,395 |
|
|
Officer
|
2009
|
|
$ |
275,000 |
|
|
|
— |
|
|
$ |
28,520 |
|
|
$ |
34,513 |
|
|
|
— |
|
|
$ |
11,111 |
|
|
$ |
349,144 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolyn F. Bostick,
|
2011
|
|
$ |
206,154 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
247,848 |
|
|
$ |
454,002 |
|
|
General Counsel
|
2010
|
|
$ |
240,000 |
|
|
|
— |
|
|
|
— |
|
|
$ |
85,564 |
|
|
|
— |
|
|
$ |
7,356 |
|
|
$ |
332,920 |
|
| |
2009
|
|
$ |
240,000 |
|
|
|
— |
|
|
$ |
42,780 |
|
|
$ |
51,770 |
|
|
$ |
72,000 |
|
|
$ |
7,836 |
|
|
$ |
414,386 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrill Sandlin,
|
2011
|
|
$ |
195,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
265,936 |
|
|
$ |
460,936 |
|
|
Vice President of
|
2010
|
|
$ |
195,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
7,359 |
|
|
$ |
202,359 |
|
|
Manufacturing
|
2009
|
|
$ |
187,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
58,500 |
|
|
$ |
7,373 |
|
|
$ |
252,873 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Dyer,
|
2011
|
|
$ |
220,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
10,000 |
(7) |
|
$ |
46,349 |
|
|
$ |
276,349 |
|
|
Chief Technology
|
2010
|
|
$ |
210,000 |
|
|
$ |
1,500 |
(5) |
|
|
— |
|
|
$ |
192,779 |
|
|
|
— |
|
|
$ |
33,171 |
|
|
$ |
437,450 |
|
|
Officer
|
2009
|
|
$ |
158,333 |
|
|
$ |
59,634 |
(5) |
|
|
— |
|
|
$ |
116,662 |
|
|
$ |
31,667 |
|
|
$ |
6,625 |
|
|
$ |
372,921 |
|
|
(1)
|
These annual base salaries have been prorated based on the number of months of service during 2011 as follows: Mr. Rooney (annual base salary ($400,000) prorated for ten and one-half (10.5) months of service); Mr. Buehler (annual base salary ($300,000) prorated for seven and one-quarter (7.25) months of service); Mr. Pique (annual base salary ($350,000) prorated for six (6) months of service; and Mr. Willardson (annual base salary ($275,000) prorated for five (5) months of service.
|
|
(2)
|
The base salary of Mr. Sanchez-Blanco for each of 2011, 2010, and 2009 was €253,000. The figures here represent the value of his annual salary in U.S. dollars based on the average interbank exchange rates for 2011 (€1.00/$1.39), 2010 (€1.00/$1.32) and 2009 (€1.00/$1.39), respectively.
|
|
(3)
|
The 2011 amounts for Mr. Rooney and Mr. Buehler represent the sign-on bonuses discussed in the “Compensation Discussion and Analysis” section of this Proxy.
|
|
(4)
|
The 2011 amount for Mr. Willardson represents bonus payment for completion of transition work to the new chief financial officer.
|
|
(5)
|
In 2010, Mr. Dyer received an employee hire referral bonus of $1,500. In 2009, Mr. Dyer received a sign-on bonus upon hire on March 1, 2009 of $57,000 and an employee referral bonus of $2,634.
|
|
(6)
|
The amounts in the “Stock Awards” and the “Option Awards” column set forth the grant date fair value of awards granted in the years indicated and do not state cash payments or value realized by the individual. The methodology and assumptions used to calculate the grant date fair value is discussed in Note 2 of the notes to our financial statements included in our Annual Report on Form 10-K.
|
|
(7)
|
In 2012, Mr. Rooney, Mr. Buehler, and Mr. Dyer received cash incentive bonuses for 2011 of $150,000, $87,500, and $10,000, respectively. The cash incentive bonus amount for Mr. Sanchez-Blanco was €44,022, valued in U.S. dollars based on the average interbank exchange rate for 2011 (€1.00/$1.39).
|
|
(8)
|
“All Other Compensation” in the “Summary Compensation Table” above includes the following components:
|
|
Name
|
|
Year
|
|
Life
Insurance
Premium
($)
|
|
|
Housing
Allowance
($)
|
|
|
401K
Matching
($)
|
|
|
Other
($)
|
|
|
Total
($)
|
|
|
Thomas S. Rooney, Jr.
|
|
2011
|
|
$ |
570 |
|
|
|
— |
|
|
$ |
11,000 |
|
|
|
— |
|
|
$ |
11,570 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander J. Buehler
|
|
2011
|
|
$ |
399 |
|
|
|
— |
|
|
$ |
4,760 |
|
|
|
— |
|
|
$ |
5,159 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borja Sanchez-Blanco
|
|
2011
|
|
$ |
1,208 |
|
|
|
— |
|
|
|
|
|
|
$ |
33,514 |
(A) |
|
$ |
34,722 |
|
| |
|
2010
|
|
$ |
1,208 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
1,208 |
|
| |
|
2009
|
|
$ |
1,334 |
|
|
|
— |
|
|
|
— |
|
|
$ |
7,608 |
(A) |
|
$ |
8,942 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G.G. Pique
|
|
2011
|
|
$ |
285 |
|
|
|
— |
|
|
$ |
5,222 |
|
|
$ |
565,000 |
(B) |
|
$ |
570,507 |
|
| |
|
2010
|
|
$ |
670 |
|
|
|
— |
|
|
$ |
6,647 |
|
|
|
— |
|
|
$ |
7,317 |
|
| |
|
2009
|
|
$ |
634 |
|
|
|
— |
|
|
$ |
6,896 |
|
|
|
— |
|
|
$ |
7,530 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas D. Willardson
|
|
2011
|
|
$ |
342 |
|
|
|
— |
|
|
$ |
5,320 |
|
|
$ |
275,000 |
(B) |
|
$ |
280,662 |
|
| |
|
2010
|
|
$ |
670 |
|
|
|
— |
|
|
$ |
8,250 |
|
|
|
— |
|
|
$ |
8,920 |
|
| |
|
2009
|
|
$ |
634 |
|
|
|
— |
|
|
$ |
10,477 |
|
|
|
— |
|
|
$ |
11,111 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolyn F. Bostick
|
|
2011
|
|
$ |
627 |
|
|
|
— |
|
|
$ |
7,221 |
|
|
$ |
240,000 |
(B) |
|
$ |
247,848 |
|
| |
|
2010
|
|
$ |
670 |
|
|
|
— |
|
|
$ |
6,686 |
|
|
|
— |
|
|
$ |
7,356 |
|
| |
|
2009
|
|
$ |
634 |
|
|
|
— |
|
|
$ |
7,202 |
|
|
|
— |
|
|
$ |
7,836 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrill Sandlin
|
|
2011
|
|
$ |
684 |
|
|
|
— |
|
|
$ |
6,951 |
|
|
$ |
258,301 |
(B) |
|
$ |
265,936 |
|
| |
|
2010
|
|
$ |
670 |
|
|
|
— |
|
|
$ |
6,689 |
|
|
|
— |
|
|
$ |
7,359 |
|
| |
|
2009
|
|
$ |
634 |
|
|
|
— |
|
|
$ |
6,739 |
|
|
|
— |
|
|
$ |
7,373 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Dyer
|
|
2011
|
|
$ |
684 |
|
|
$ |
39,157 |
|
|
$ |
6,508 |
|
|
|
— |
|
|
$ |
46,349 |
|
| |
|
2010
|
|
$ |
223 |
|
|
$ |
25,908 |
|
|
$ |
7,040 |
|
|
|
— |
|
|
$ |
33,171 |
|
| |
|
2009
|
|
$ |
528 |
|
|
|
— |
|
|
$ |
6,097 |
|
|
|
— |
|
|
$ |
6,625 |
|
|
|
(A)
|
In 2011, the other compensation amount represents $26,014 in sales commissions and $7,500 in personal tax preparation services offered to Mr. Sanchez-Blanco as part of his agreement to relocate to our Spanish affiliate. The 2009 amount also represents personal tax preparation services.
|
|
|
(B)
|
In 2011, the amount represents the severance payment in connection with termination of employment as discussed in the “Compensation Discussion and Analysis” section of this Proxy.
|
Grants of Plan-Based Awards in 2011
The following table sets forth information concerning non-equity incentive plan grants to the named executive officers during 2011. The non-equity incentive plan consists of the 2011 cash incentive plan described in the “Compensation Discussion and Analysis” section above. The actual amounts realized in respect of the non-equity plan incentive awards are reported in the “Summary Compensation Table” under the “Non-Equity Incentive Compensation Bonus Plan” column. The table also sets forth information with respect to stock awards and option awards granted by our Company during 2011.
| |
|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards (1)
|
|
|
All Other Stock Awards:
Number of Shares of Stock or
|
|
|
All Other Option Awards:
Number of Securities Underlying
|
|
|
Exercise
or Base
Price of Option
|
|
|
Grant
Date Fair Value of Stock and
Options
|
|
| Name |
|
Grant
Date
|
|
|
|
|
|
|
|
|
|
|
Units
(#)
|
|
|
Options
(#)
|
|
|
Awards
($/sh)
|
|
|
Awards
($)(2)
|
|
|
Thomas S. Rooney, Jr.
|
|
|
|
|
— |
|
|
$ |
183,333 |
|
|
$ |
183,333 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
2/18/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800,000 |
|
|
$ |
3.41 |
|
|
$ |
1,259,697 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander J. Buehler
|
|
|
|
|
— |
|
|
$ |
87,500 |
|
|
$ |
87,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
6/1/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
$ |
2.58 |
|
|
$ |
510,137 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borja Sanchez-Blanco
|
|
|
|
|
— |
|
|
$ |
105,568 |
(3) |
|
$ |
105,568 |
(3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Dyer
|
|
|
|
|
— |
|
|
$ |
66,000 |
|
|
$ |
66,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(1)
|
In 2011, under our cash incentive plan, Mr. Rooney was eligible to earn a bonus in an amount not to exceed 100% of his base salary, prorated for ten months of service, less his sign-on bonus; Mr. Buehler was eligible to earn a bonus in an amount not to exceed 50% of his base salary, prorated for seven months of service; and Mr. Sanchez-Blanco and Mr. Dyer were eligible to earn a bonus in an amount not to exceed 30% of their base salaries.
|
|
(2)
|
Amounts reflect the aggregate grant date fair value of stock awards and option awards granted in 2011, calculated in accordance with SFAS No. 123(R) without regard to estimated forfeitures. See Note 2 of Notes to Consolidated Financial Statements for a discussion of assumptions made in determining the grant date fair value of our stock awards and option awards.
|
|
(3)
|
The base salary of Mr. Sanchez-Blanco is denominated in Euro. These amounts represent percentages of his annual base salary converted into dollars based on the average interbank exchange rate for 2011 (€1.00/$1.39).
|
Employment Arrangements with Named Executive Officers
Thomas S. Rooney, Jr.
In February 2011, the Company entered into an employment agreement with Mr. Rooney in the form of an Offer Letter. Under the Offer Letter, we employ Mr. Rooney for an indefinite period of time. Mr. Rooney’s initial base salary was set at $400,000, and he also received a one-time sign-on bonus of $150,000. If he chooses to resign from the Company for any reason (other than “Good Reason” as defined in the Company’s Change in Control Severance Plan then in effect) within the first twenty-four (24) months of his employment, he agrees to return to the Company a pro-rata share of his sign-on bonus equal to the number of months remaining in the 24-month period at the time of resignation divided by 24.
The Offer Letter provides Mr. Rooney with an annual performance bonus opportunity in an amount up to 100% of his base salary. His bonus potential under the 2011 cash incentive plan was reduced by the amount of his sign-on bonus in accordance with the Offer Letter.
Under the Offer Letter, Mr. Rooney received options to purchase 800,000 shares of the Company’s common stock on February 18, 2011 and options to purchase 250,000 shares of the Company’s common stock on January 4, 2012. Both option grants vest over four (4) years with twenty five percent (25%) of the shares vesting one year after the vesting commencement date, which was the first day of his employment for both awards. After that date, one forty-eighth (1/48th) of the shares vest each month. In the event of a Change in Control (as defined in the CIC Plan, which is discussed below under the caption “Potential Payments Upon Termination or Change of Control”), he will be paid an additional lump-sum payment of $400,000 less deductions required or permitted by applicable law on the next regular Company payroll date following the Change of Control.
In the event of an involuntary termination other than for Cause, as defined in the CIC Plan, as amended, Mr. Rooney is entitled to the following severance benefits:
|
|
·
|
a lump-sum payment of any and all base salary due and owing to him through the date of termination, plus an amount equal to his earned but unused vacation through the date of termination and all earned but unpaid and un-deferred bonus attributable to the year that ends immediately before the year in which the termination occurs;
|
|
|
·
|
a lump-sum payment equal to (i) eighteen (18) months of base salary if his termination occurs within the first eighteen (18) months of employment or a lump-sum payment equal to (ii) twelve (12) months of base salary if his termination occurs after the first eighteen (18) months of employment based on his annual base salary in effect as of the date of the employment termination; and
|
|
|
·
|
the immediate vesting of twenty-five percent (25%) of all unvested equity compensation held by him as of the date of termination, including unvested equity compensation where the amount payable is based on the satisfaction of performance criteria to the extent such vesting acceleration would not cause any award intended to constitute “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, to fail to so qualify. The vesting acceleration is to occur in the following order: stock options and similar equity awards would vest before “full” value equity awards and, within each category of awards, equity awards would vest in the order that they were granted.
|
These severance benefits are conditioned on his signing a release in favor of the Company and are reduced by deductions required or permitted by applicable law.
Alexander J. Buehler
In April 2011, the Company entered into an employment agreement with Mr. Buehler in the form of an Offer Letter. Under the Offer Letter, we employ Mr. Buehler for an indefinite period of time. Mr. Buehler‘s initial base salary was set at $300,000, and he also received a one-time sign-on bonus of $100,000. If he chooses to resign from the Company for any reason (other than “Good Reason” as defined in the Company’s Change in Control Severance Plan then in effect) within the first twenty-four (24) months of his employment, he agrees to return to the Company a pro-rata share of his sign-on bonus equal to the number of months remaining in the 24-month period at the time of resignation divided by 24.
The Offer Letter provides Mr. Buehler with an annual performance bonus opportunity in an amount up to 50% of his base salary dependent upon his achievement of Company and individual objectives. The Offer Letter also provided Mr. Buehler with reimbursement for relocation expenses up to $30,000 for expenses in excess of $50,000.
Under the Offer Letter, Mr. Buehler was granted options to purchase 400,000 shares of the Company’s common stock under the 2008 Equity Incentive Plan on June 1, 2011 and will receive recurring equity grants consisting of options to purchase shares under the 2008 Equity Incentive Plan valued at $200,000 per year subject to the Company’s standard four-year vesting schedule.
In the event of an involuntary termination other than for Cause, as defined in the CIC Plan, as amended, Mr. Buehler is entitled to the following severance benefits:
|
|
·
|
a lump-sum payment of any and all base salary due and owing to him through the date of termination, plus an amount equal to his earned but unused vacation through the date of termination; and
|
|
|
·
|
a lump-sum payment equal to (i) twelve (12) months of base salary if his termination occurs within the first twenty-four (24) months of employment or a lump-sum payment equal to (ii) six (6) months of base salary if his termination occurs after the first twenty-four (24) months of employment based on his annual base salary in effect as of the date of the employment termination.
|
Borja Sanchez-Blanco
In August 2007, our Spanish affiliate, Energy Recovery Iberia, Ltd, entered into an employment agreement with Mr. Sanchez-Blanco, a common practice under the laws of Spain and as part of a relocation package from the United States to Spain. Under the employment agreement, our affiliate employs Mr. Sanchez-Blanco for an indefinite period of time. Mr. Sanchez-Blanco’s initial base salary was set at €253,000, an amount equal to $351,892 for 2011 based on the average interbank exchange rate in 2011 (€1.00/$1.39). Since he became a named executive officer in March 2009, his salary has been reviewed annually by Mr. Pique, Mr. Rooney, and the Compensation Committee for adjustments.
Under the terms of his employment agreement, Mr. Sanchez-Blanco is entitled to the following benefits in the event of an involuntary termination other than for cause:
|
|
·
|
lump-sum payment of any and all base salary due and owing to him through the date of termination, plus an amount equal to his earned but unused vacation through the date of termination, reimbursement for all reasonable expenses, and any earned but unpaid bonus;
|
|
|
·
|
three (3) months prior, written notice or payment equal to the amount of salary due for the difference between the period of notice given and the required notice; and
|
|
|
·
|
lump-sum payment of an amount equal to seven (7) days of salary for each year of service based on his initial employment date with the Company as of December 1, 2005, up to a maximum of six (6) months salary, less deductions required by law.
|
In the event of a termination of employment for cause as defined under the laws of Spain, Mr. Sanchez-Blanco will be entitled to receive:
|
|
·
|
a lump-sum payment of any and all base salary due and owing to him through the date of termination;
|
|
|
·
|
an amount equal to earned but unused vacation through the date of termination and reimbursement of all reasonable expenses; and
|
|
|
·
|
any earned but unpaid bonus.
|
If the above termination for cause as defined under the laws of Spain is found to be unfair by a final court judgment, Mr. Sanchez-Blanco would also be entitled to twenty (20) days salary for each year of service dating back to his December 1, 2005 start date with the company up to a maximum of twelve (12) months salary.
In the event that Mr. Sanchez-Blanco terminates his employment for cause under the laws of Spain, he will be entitled to receive:
|
|
·
|
lump-sum payment of any and all base salary due and owing to him through the date of termination, plus an amount equal to his earned but unused vacation through the date of termination, reimbursement for all reasonable expenses, and any earned but unpaid bonus; and
|
|
|
·
|
a lump-sum payment of an amount equal to seven (7) days of salary for each year of service based on his initial employment date with the company as of December 1, 2005, up to a maximum of six (6) months salary, less deductions required by law.
|
Upon termination for any reason, Mr. Sanchez-Blanco is also entitled to an amount equal to six (6) months salary in exchange for a one-year post-contractual duty not to compete with the Company in addition to the benefits set forth above.
Outstanding Equity Awards As of December 31, 2011
The following table presents certain information concerning equity awards held by our named executive officers as of December 31, 2011.
| |
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable (1)
|
|
|
Option
Exercise
hourPrice ($)
|
|
|
Option Expiration
Date
|
|
|
Number of Shares or Units of Stock That Have Not Vested
(#)(2)
|
|
|
Market Value of Shares or Units of Stock That Have Not Vested
($)
|
|
|
Thomas S. Rooney, Jr.
|
|
|
— |
|
|
|
800,000 |
(3) |
|
$ |
3.41 |
|
|
02/17/2021
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander J. Buehler
|
|
|
— |
|
|
|
400,000 |
(4) |
|
$ |
2.58 |
|
|
05/31/2021
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borja Sanchez-Blanco
|
|
|
80,000 |
(5) |
|
|
— |
|
|
$ |
1.00 |
|
|
12/14/2015
|
|
|
|
|
|
|
|
| |
|
|
30,000 |
(6) |
|
|
— |
|
|
$ |
2.65 |
|
|
12/08/2016
|
|
|
|
|
|
|
|
| |
|
|
93,958 |
(7) |
|
|
16,042 |
(7) |
|
$ |
8.50 |
|
|
06/30/2018
|
|
|
|
|
|
|
|
| |
|
|
30,208 |
(8) |
|
|
19,792 |
(8) |
|
$ |
7.13 |
|
|
06/30/2019
|
|
|
|
|
|
|
|
| |
|
|
20,833 |
(9) |
|
|
29,167 |
(9) |
|
$ |
6.09 |
|
|
04/15/2020
|
|
|
|
|
|
|
|
| |
|
|
25,000 |
(10) |
|
|
55,000 |
(10) |
|
$ |
3.45 |
|
|
09/15/2010
|
|
|
|
|
|
|
|
| |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,917 |
(11) |
|
$ |
20,426 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G.G. Pique
|
|
|
150,000 |
(12) |
|
|
— |
|
|
$ |
1.00 |
|
|
11/1/2015
|
|
|
|
|
|
|
|
|
|
| |
|
|
250,000 |
(13) |
|
|
— |
|
|
$ |
2.65 |
|
|
12/8/2016
|
|
|
|
|
|
|
|
|
|
| |
|
|
333,333 |
(14) |
|
|
166,667 |
(14) |
|
$ |
7.31 |
|
|
04/2/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas D. Willardson
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
(15) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolyn F. Bostick
|
|
|
33,750 |
(16) |
|
|
— |
|
|
$ |
6.31 |
|
|
11/16/2018
|
|
|
|
|
|
|
|
|
|
| |
|
|
9,062 |
(17) |
|
|
— |
|
|
$ |
7.13 |
|
|
06/30/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
(15) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy S. Dyer
|
|
|
10,312 |
(18) |
|
|
4,688 |
(18) |
|
$ |
7.31 |
|
|
04/02/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
968 |
(19) |
|
|
532 |
(19) |
|
$ |
8.18 |
|
|
05/05/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
11,250 |
(20) |
|
|
8,750 |
(20) |
|
$ |
5.25 |
|
|
09/03/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
11,250 |
(21) |
|
|
18,750 |
(21) |
|
$ |
3.40 |
|
|
06/02/2020
|
|
|
|
|
|
|
|
|
|
| |
|
|
25,000 |
(10) |
|
|
55,000 |
(10) |
|
$ |
3.45 |
|
|
09/15/2020
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrill Sandlin
|
|
|
5,000 |
(5) |
|
|
— |
|
|
$ |
1.00 |
|
|
12/14/2015
|
|
|
|
|
|
|
|
|
|
| |
|
|
30,000 |
(6) |
|
|
— |
|
|
$ |
2.65 |
|
|
12/08/2016
|
|
|
|
|
|
|
|
|
|
| |
|
|
25,625 |
(22) |
|
|
4,375 |
(22) |
|
$ |
8.50 |
|
|
06/30/2018
|
|
|
|
|
|
|
|
|
|
| |
|
|
812 |
(23) |
|
|
188 |
(23) |
|
$ |
9.22 |
|
|
09/02/2018
|
|
|
|
|
|
|
|
|
|
| |
|
|
6,041 |
(24) |
|
|
3,959 |
(24) |
|
$ |
7.13 |
|
|
06/30/2019
|
|
|
|
|
|
|
|
|
|
| |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,584 |
(25) |
|
$ |
4,087 |
|
| |