INDEPENDENCE CONTRACT DRILLING, INC. PERFORMANCE UNIT AWARD AGREEMENT FREE CASH FLOW / TOTAL SHAREHOLDER RETURN
INDEPENDENCE CONTRACT DRILLING, INC.
PERFORMANCE UNIT AWARD AGREEMENT
FREE CASH FLOW / TOTAL SHAREHOLDER RETURN
100% CASH SETTLEMENT
Grantee: ____
For purposes of this Agreement, each of Performance Period I, Performance Period II and Performance Period III shall be considered a “Performance Period”, and each of Performance Period I Determination Date, Performance Period II Determination Date and Performance Period III Determination Date shall be considered a “Determination Date”.
It is understood that Earned RSU’s are also subject to a three-year time-based vesting requirement that begins on the Effective Date, as described in paragraph 3 below.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Xxxxxxx has hereunto executed this Agreement as of the date set forth above.
INDEPENDENCE CONTRACT DRILLING, INC.
By:
Name:X. Xxxxxxx Xxxxxxxx, Xx.
Title:Executive Vice President & Chief Financial Officer
Address for Notices:
Independence Contract Drilling, Inc.
00000 Xxx 000, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Chief Executive Officer
GRANTEE
Address for Notices:
Executive’s then current address shown in the Company’s records.
Exhibit A
Methodology for Calculating Earned RSUs
1. Definitions. For purposes of determining the number of RSUs that are deemed to be Earned RSUs and the number of Earned RSUs that shall vest on the Vesting Date, the following definitions shall apply:
TSR = (Ending Price – Beginning Price + cash dividends (if any) per share paid*)
Beginning Price
* | Stock dividends paid in securities rather than cash in which there is a distribution of less than 25 percent of the outstanding shares (as calculated prior to the distribution) shall be treated as cash for purposes of this calculation. |
To the extent a security of the Company or any member of the Peer Group is not listed or traded on the NYSE, “NYSE” as used above shall mean the principal national securities exchange or quotation service on which the security is listed or quoted. TSR of the Company or of any member of the Peer Group shall be equitably adjusted, as determined by the Committee, to reflect any spin-off, stock split, reverse stock split, stock dividend, recapitalization, reclassification or other similar change in the number of outstanding shares of common stock.
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2. Committee Methodology. The RSUs and Target RSUs shall be trifurcated into three equal parts, with one-third being allocated to each Performance Period (to avoid partial shares, the portion of RSUs and Target RSUs allocated to a specific Performance Period shall be reduced to the nearest whole number, with the excess rolling forward into the next sequentially ordered Performance Period). The Committee shall calculate the number of Earned RSU’s applicable to each Performance Period as soon as reasonably practicable following expiration of the applicable Performance Period and issuance of the Company’s audited financial statements for the applicable Performance Period, and in all events as soon as practicable in order to determine the number of Earned RSU’s existing on the Vesting Date.
Calculation of Earned RSUs
Subject to Exhibit C, for the applicable Performance Period, the Committee shall calculate the number of Earned RSUs for such Performance Period as follows:
| i. | Performance Period I: Multiply the number of Target RSUs allocable to Performance Period I by the Multiplier in the FCF Chart below, with such answer being the Earned RSUs for the Performance Period I. To the extent the number of RSUs allocated to Performance Period I exceed the Earned RSU’s for Performance Period I, such excess RSUs shall be immediately and automatically forfeited. |
| ii. | Performance Period II: Multiply the number of Target RSUs allocable to Performance Period II by the FCF Multiplier in the chart below, with such answer being the Earned RSUs for the Performance Period II. To the extent the number of |
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| RSUs allocated to Performance Period II exceed the Earned RSU’s for Performance Period II, such excess RSUs shall be immediately and automatically forfeited. |
| iii. | Performance Period III: Multiply the number of Target RSUs allocable to Performance Period III by the Free Cash Flow Multiplier in the chart above, with such answer being the Earned RSUs for the Performance Period III. To the extent the number of RSUs allocated to Performance Period III exceed the Earned RSU’s for Performance Period III, such excess RSUs shall be immediately and automatically forfeited. |
FREE CASH FLOW MULTIPLIER | |||
BELOW ENTRY: Free Cash Flow below 80% of the applicable Annual Budget Free Cash Flow | ENTRY: Free Cash Flow equal to 80% of the applicable Annual Budget Free Cash Flow | TARGET: Free Cash Flow equal to the applicable Annual Budget Cash Flow | OA: Free Cash Flow equal or exceeding 120% of the applicable Annual Budget Free Cash Flow |
FCF Multiplier = 0% | FCF Multiplier = 25% | FCF Multiplier = 100% | FCF Multiplier = 175% |
If Free Cash Flow calculated during an applicable Performance Period falls between Entry, Target, or OA as set forth in the table below, the FCF Multiplier for such Performance Period shall be calculated based upon interpolation.
If any calculation with respect to the number of RSUs that are earned, and thus the number of shares of Common Stock to be issued hereunder or cash to be paid would result in a fractional share or dollar amount, the number of shares of Common Stock to be issued or dollar amount to be paid shall be rounded down to the nearest whole share.
Calculation of the TSR Multiplier
Subject to Exhibit C, for purposes of determining the number of vested Earned RSUs on the Vesting Date, the Committee shall:
(b)Rank the Company and each member of the Peer Group based on Total Shareholder Return with the entity having the highest Total Shareholder Return ranking in the first position and the entity with the lowest Total Shareholder Return ranking in the ninth position.
(c)Determine the TSR Multiplier to be utilized in determining the number of Earned RSUs that vest based on the TSR Multiplier Schedule below:
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TSR Multiplier Schedule | |
F | Payout Multiplier |
1 | 1.15 |
2 | 1.15 |
3 | 1.10 |
4 | 1.05 |
5 | 1.00 |
6 | 0.95 |
7 | 0.90 |
8 | 0.85 |
9 | 0.85 |
Determining the Number of Vested Earned RSUs
Subject to Exhibit C, the Committee shall calculate the number of Earned RSUs that vest by summing the total number of Earned RSUs applicable to Performance Period 1, Performance Period II and Performance Period III (the “Aggregate Earned RSUs”).
To determine the total number of Earned RSUs that vest on the Vesting Date, the Committee shall multiply the number of Aggregate Earned RSUs by the TSR Multiplier. Any RSUs granted hereunder that do no vest shall be immediately forfeited.
3.Peer Group Changes.
If a member of the Peer Group declares bankruptcy or ceases to be publicly traded as a result of bankruptcy, it shall be deemed to remain in the Peer Group until the expiration of the Performance Period and shall occupy the lowest ranking in the Payout Schedule. If, as a result of a merger, acquisition or a similar corporate transaction, in which any member of the Peer Group ceases to be publicly traded, the Committee may in its sole discretion, revise the makeup of the Peer Group and calculate the resulting Total Shareholder Return for such affected member of the Peer Group, adjusting accordingly, the associated TSR Multipliers in a manner consistent with the methodologies contained herein.
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Exhibit B
Certain Definitions.
(1) | “Change of Control” shall mean: |
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50 percent or more of either (A) the then outstanding shares of common stock or membership interests of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors or managers (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection A, the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company or any acquisition by the Company; or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (3) any acquisition by any corporation pursuant to a transaction that complies with clauses (1), (2) and (3) of subsection (i) of this definition; or
(ii) individuals, who, as of the date hereof constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders or members, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for purpose of this subsection (ii), any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”) in each case, unless, following such Corporate Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting
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Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, any Permitted Transaction (defined below) that would otherwise constitute a Change of Control under clause (i) or (iii) above as a result of any Permitted Holder(s) (defined below) or its or their Affiliate(s) (as defined in the Plan) acquiring such beneficial ownership interest in the outstanding voting securities of the Company or the surviving company with respect to a Corporate Transaction shall not be considered a Change of Control for purposes of this Agreement.
For purposes of the definition of Change of Control, a “Permitted Holder” shall mean any holder of the Company’s Floating Rate Convertible Senior Secured PIK Toggle Notes due 2026 (the “Convertible Notes”) as of the Effective Date; and “Permitted Transaction” shall mean any transaction or series of transactions involving the repayment, refinancing, exchange, conversion, extension, or extinguishment of the Convertible Notes, or any combination thereof; provided however, a Permitted Transaction shall not include any Corporate Transaction in which either: (i) the outstanding voting securities of the surviving entity in such Corporate Transaction are not registered under the Securities Act of 1934, as amended, immediately after giving effect to the Corporate Transaction; or (ii) the Permitted Holders and the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction do not beneficially own in the aggregate more than 50% of the outstanding voting securities of the corporation or surviving entity resulting from such Corporate Transaction.
(2)“Cause” shall mean Grantee’s:
(i)willful and continued failure to comply with the reasonable written directives of the Company for a period of thirty (30) days after written notice from the Company;
(ii)willful and persistent inattention to duties for a period of thirty (30) days after written notice from the Company, or the commission of acts within employment with the Company amounting to gross negligence or willful misconduct;
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(iii)misappropriation of funds or property of the Company or committing any fraud against the Company or against any other person or entity in the course of employment with the Company;
(iv)misappropriation of any corporate opportunity, or otherwise obtaining personal profit from any transaction which is adverse to the interests of the Company or to the benefits of which the Company is entitled;
(v)conviction of a felony involving moral turpitude;
(vi)willful failure to comply in any material respect with the terms of any employment agreement with the Company and such non-compliance continues uncured after thirty (30) days after written notice from the Company; or
(vii)chronic substance abuse, including abuse of alcohol, drugs or other substances or use of illegal narcotics or substances, for which Grantee fails to undertake treatment immediately after requested by the Company or to complete such treatment and which abuse continues or resumes after such treatment period, or possession of illegal narcotics or substances on Company premises or while performing Grantee’s duties and responsibilities.
For purposes of this definition, no act, or failure to act, by Grantee will be considered “willful” if done, or omitted to be done, by Grantee in good faith and in the reasonable belief that the act or omission was in the best interest of the Company or required by applicable law. Any termination for Cause shall be communicated by Notice of Termination. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific provisions in the definition of “cause” or “good reason” relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Grantee's employment under the provision so indicated and (iii) if the date of termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Company to set forth in the notice of termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company from asserting such fact or circumstance in enforcing the Grantee's or the Company's rights hereunder.
(3) “Good Reason” shall mean without the express written consent of Grantee, the occurrence of any of the following:
(i)any action or inaction that constitutes a material breach by the Company of this Agreement and such action or inaction continues uncured after thirty (30) days following written notice from the Grantee;
(ii)a change in the geographic location at which Grantee must perform services to a location more than fifty (50) miles from the location at which Grantee normally performs such services as of the date of the occurrence of the Change of Control; or (iii) a reduction in Grantee’s annual salary or total cash compensation levels in effect immediately prior to the occurrence of the Change of Control or failure of Grantee to participate in the
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long-term incentive programs of the ultimate parent company following such Change of Control; or
(iii) any action or inaction by the Company that would constitute good reason as expressly defined under the employment agreement, if any, between Company and Grantee in effect on Effective Date hereof.
Notwithstanding anything herein to the contrary, the interim assignment of Xxxxxxx’s position, authority, duties, or responsibilities to any person while Xxxxxxx is absent from his duties during any period of disability shall not constitute a Good Reason for Grantee to terminate his employment with the Company. In addition, the Grantee’s termination of employment shall not constitute Good Reason unless Grantee notifies the Company of the condition or event constituting Good Reason within ninety days (90) days of the condition’s occurrence (unless unknown to Grantee) and the Company fails to cure the conditions, to the extent curable, specified in the notice within thirty (30) days following such notification. Any termination of employment by the Grantee for Good Reason shall be communicated by a Notice of Termination.
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Exhibit C
Change of Control
If prior to the Vesting Date, a Change of Control occurs, and the Grantee has remained continuously employed by the Company Group from the Effective Date to the date of such Change of Control, then, notwithstanding any other provision of this Agreement to the contrary, the following shall apply with respect to the number of RSUs that vest on the date of the Change of Control.
Termination without Cause or for Good Reason.
Notwithstanding any other provision of this Agreement to the contrary, if, Company Group terminates Grantee’s employment with the Company Group without “Cause” or Grantee terminates employment with the Company for “Good Reason”, the following shall apply with respect to the number of RSUs that vest on the date of such termination of employment (the “Termination Date”).
| a. | If the Termination Date occurs prior to the Performance Period I Determination Date, all Target RSUs (to the extent not previously forfeited) in all Performance Periods shall be deemed vested as of the Termination Date. Any unvested RSUs shall be deemed immediately forfeited. |
| b. | If the Termination Date occurs prior to the Performance Period II Determination Date, all Earned RSUs (to the extent not previously forfeited) subject to Performance Period I as well as all Target RSUs subject to Performance Period II (to the extent not previously forfeited) and all Target RSUs subject to Performance Period III (to the extent not previously forfeited) shall be deemed vested as of the |
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| date of the Termination Date. Any unvested RSUs shall be deemed immediately forfeited. |
| c. | If the Termination Date occurs after the Performance Period II Determination Date, all Earned RSUs subject to Performance Period I (to the extent not previously forfeited) and Performance Period II (to the extent not previously forfeited) and all Target RSUs subject to Performance Period III (to the extent not previously forfeited) shall be deemed vested. Any unvested RSUs shall be deemed immediately forfeited. |
For purposes of this Agreement, “Cause” and “Good Reason” shall have the meaning assigned to in Exhibit B to this Agreement.
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Exhibit D
Restrictive Covenants
In consideration for the grant of RSU’s hereunder, which are expected to vest during Xxxxxxx’s employment with the Company Group over the vesting period, as well as the protection of the Company Group’s goodwill and Confidential Information, Xxxxxxx agrees to the following:
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For purposes of clarity, it is understood that the provisions of this paragraph (c) are not applicable if Xxxxxxx’s employment with the Company Group is terminated by the Company Group without Cause or Grantee terminates employment with the Company Group for Good Reason.
In addition, it is understood that the provisions of this paragraph C shall terminate in all respects on the fourth anniversary of the date of the Agreement to which this Exhibit D is a part.
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