Item 10. Directors, Executive Officers, and Corporate Governance.
Corporate Governance and Director Independence
Our general partner, Compressco Partners GP Inc., is an indirect, wholly owned subsidiary of TETRA Technologies, Inc. (“TETRA”) and has sole responsibility for conducting our business and managing our operations. The members of our general partner’s board of directors (our “Board”) oversee our operations. Unitholders are not entitled to elect the members of our Board or directly or indirectly participate in our management or operation. All of the members of our Board are appointed by Compressco, Inc., a wholly owned subsidiary of TETRA, and we do not hold annual unitholder meetings for the election of our Board. References in this Part III to the “Board,” “directors,” "executive officers," or “officers” refer to the Board, directors, executive officers, and officers of our general partner, unless otherwise indicated.
Our Board has adopted Corporate Governance Guidelines that outline important policies and practices regarding our governance and provide a framework for the functioning of the Board and its committees. The Corporate Governance Guidelines and the charters of the Audit Committee and Conflicts Committee are available in the Corporate Governance section of the Investor Relations area of our website at www.compressco.com. In addition, our Board and our general partner have adopted a Code of Conduct and a Financial Code of Ethics, copies of which are also available in the Corporate Governance section of the Investor Relations area of our website at www.compressco.com. We will post on our website all waivers to or amendments of our Code of Conduct and Financial Code of Ethics that are required to be disclosed by applicable law or the listing requirements of the NASDAQ. We will provide to our unitholders, without charge, printed copies of the foregoing materials upon written request to Investor Relations, Compressco Partners, L.P., 101 Park Avenue, Suite 1200, Oklahoma City, Oklahoma, 73102.
The NASDAQ does not require a listed limited partnership like us to have a majority of independent directors on the Board or to establish a compensation committee or a nominating committee. Our Board currently consists of six directors, three of whom, D. Frank Harrison, James R. Larson, and William D. Sullivan, are independent as defined under the listing standards of the NASDAQ.
Directors and Executive Officers
Our Board’s directors hold office until the earlier of their death, resignation, removal or disqualification or until their successors have been appointed. Our executive officers serve at the discretion of our Board. There are no family relationships among any of our directors or executive officers. The following table shows information regarding our current directors and executive officers. Directors are appointed for one-year terms.
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Name
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Age
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Position with Compressco Partners GP
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Geoffrey M. Hertel
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69
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Chairman of the Board of Directors
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Stuart M. Brightman
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57
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Director
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D. Frank Harrison
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66
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Independent Director
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James R. Larson
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64
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Independent Director
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William D. Sullivan
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57
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Independent Director
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Ronald J. Foster
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57
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President and Director
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James P. Rounsavall
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49
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Chief Financial Officer, Treasurer and Secretary
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Kevin W. Book
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39
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Vice President of International Operations
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Mark L. Corlee
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63
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Vice President of Field Services
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Sheri J. Vanhooser
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54
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Vice President of Sales and Business Development
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Biographical summaries of the directors and executive officers, including the experiences, qualifications, attributes, and skills of each director that have been considered by the Board in determining that these individuals should serve as directors, are set forth below. See “Beneficial Ownership of Certain Unitholders and Management”
included under Item 12 of this Annual Report for information regarding the number of common units owned by each individual.
Geoffrey M. Hertel
has served as Chairman of the Board of our general partner since October 31, 2008. Mr. Hertel
has also served as a member of TETRA’s board of directors since 1984. Mr. Hertel previously served as TETRA’s president from May 2000 through May 2009, and as its chief executive officer from May 2001 through May 2009. From May 2009 through his retirement in January 2012, Mr. Hertel remained employed by TETRA, assisting in strategic planning. From January 2000 to May 2001 Mr. Hertel served as TETRA’s chief operating officer, and from January 1994 to 2000, as its executive vice president – finance and administration. Mr. Hertel joined TETRA in March 1993 as senior vice president – finance and administration, and from 1981 to 1984, he was associated with TETRA as a nonvoting director and a special consultant to the board. He has served as president and a director of Fairway Petroleum, Inc., a private oil and gas company, since 1980, and as a director of Life-Tech, Inc., a private manufacturer of medical devices, since 1991. From 1972 to 1984, Mr. Hertel held various positions with Rotan Mosle, Inc., an investment banking firm, including senior vice president – corporate finance. Mr. Hertel received his B.A. degree in Finance and his Master of Business Administration degree from Michigan State University.
Mr. Hertel’s long-term involvement with us as a former chief executive officer of TETRA and as chairman of our Board contributes an in-depth knowledge of our operations and a sense of strategic continuity to our Board. Mr. Hertel has considerable experience in corporate finance and strategic planning, as well as with the oil and gas services industry and the oil and gas exploration and production industry.
Stuart M. Brightman
has served as a director of our general partner since October 31, 2008. Mr. Brightman has served as TETRA’s president and chief executive officer since May 2009, at which time Mr. Brightman was also elected as a member of TETRA’s board of directors. He served as TETRA’s executive vice president and chief operating officer from April 2005 through May 2009. From April 2004 to April 2005, Mr. Brightman was self-employed. Mr. Brightman served as president of the Dresser Flow Control division of Dresser, Inc. from April 2002 until April 2004. Dresser Flow Control, which manufactures and sells valves, actuators, and other equipment and provides related technology and services for the oil and gas industry, had revenues in excess of $400 million in 2004. From November 1998 to April 2002, Mr. Brightman was president of the Americas Operation of the Dresser Valve Division of Dresser, Inc. He served in other capacities during the earlier portion of his career with Dresser, from 1993 to 1998. From 1982 to 1993, Mr. Brightman served in several financial and operational positions with Cameron Iron Works and its successor, Cooper Oil Tools. Mr. Brightman received his B.S. degree from the University of Pennsylvania and his Master of Business Administration degree from the Wharton School of Business.
Mr. Brightman has more than thirty years of experience in manufacturing and services businesses related to the oil and gas industry. He has experience in corporate finance and in the management of capital intensive operations. Mr. Brightman’s service as TETRA’s president and chief executive officer also provides our Board with an in-depth source of knowledge regarding our operations, our executive management team, and the effectiveness of our compensation programs.
D. Frank Harrison
has served as an independent director of our general partner and as Chairman of the Conflicts Committee of our general partner’s Board and a member of the Audit Committee of our general partner’s Board since April 2012. Mr. Harrison is an owner and the managing partner of Eufaula Energy, LLC, a privately held company that invests in oil and gas interests. Mr. Harrison served as chairman of the board of directors (since 2007) and as chief executive officer and a director (since 2005) of Bronco Drilling Company, Inc. until the acquisition of Bronco by Chesapeake Energy in June 2011. Bronco was a publicly traded company that provided contract drilling and well services. From 2002 to 2005, Mr. Harrison served as an agent for the purchase of oil and gas properties for entities controlled by Wexford Capital LLC. From 1999 to 2002, Mr. Harrison served as president of Harding and Shelton, Inc., a privately held oil and natural gas exploration, drilling and development firm. Mr. Harrison currently serves on the board of directors of the Oklahoma Independent Petroleum Association. He received his Bachelor of Science degree in Sociology from Oklahoma State University.
Mr. Harrison has significant management experience in the exploration and production of oil and gas in the U.S. Mr. Harrison also has substantial experience in serving on the board of a publicly held corporation operating in the oil and gas industry, which provides cross board experience and perspective.
James R. Larson
has served as an independent director of our general partner and as Chairman of the Audit Committee of our general partner’s Board since July 2011. Mr. Larson has served as a member of the Conflicts Committee of our general partner’s Board since April 2012.
Since January 1, 2006, Mr. Larson has been retired.
From September 2005 until January 1, 2006, Mr. Larson served as senior vice president of Anadarko Petroleum Corporation. From December 2003 to September 2005, Mr. Larson served as senior vice president, finance and chief financial officer of Anadarko. From 2002 to 2003, Mr. Larson served as senior vice president, finance of Anadarko where he oversaw treasury, investor relations, internal audits and acquisitions and divestitures. From 1995 to 2002, Mr. Larson served as vice president and controller of Anadarko where he was responsible for accounting, financial reporting, budgeting, forecasting, and tax. Prior to that, he held various tax and financial positions within Anadarko after joining the company in 1981. Mr. Larson is a current member of the American Institute of Certified Public Accountants, Financial Executives International, and the Tax Executives Institute. Mr. Larson also serves on the Board of EV Management, LLC, general partner of EV Energy GP, L.P., which is the general partner of EV Energy Partners, L.P.,
a Houston-based publicly traded limited partnership engaged in acquiring, producing, and developing oil and gas properties. He received his BBA degree in business from the University of Iowa.
Mr. Larson has significant management experience in the exploration and production of oil and gas on an international as well as domestic level. Mr. Larson also has substantial experience in corporate finance matters and in serving on the board of a publicly traded limited partnership operating in the oil and gas industry.
William D. Sullivan
is an independent director of our general partner and has served as a member of the Audit Committee of our general partner’s Board since July 2011. Mr. Sullivan has served as a member of TETRA’s board of directors since August 2007. Mr. Sullivan currently serves on TETRA’s nominating and corporate governance and management and compensation committees. Mr. Sullivan is the non-executive chairman of the board of directors of SM Energy Company, a publicly traded exploration and production company. Mr. Sullivan is also a director and serves on the audit, nominating and corporate governance and conflicts, and compensation committees of Legacy Reserves GP, LLC, the general partner of Legacy Reserves, LP, a publicly traded limited partnership holding oil and gas producing assets. Mr. Sullivan is a director and serves on the conflicts and audit committees of Targa Resources Partners GP, LLC, the general partner of Targa Resources Partners LP, a publicly traded limited partnership focused on mid-stream gas gathering, processing, liquids fractionation, and transportation. From 1981 through August 2003, Mr. Sullivan was employed in various capacities by Anadarko Petroleum Corporation, most recently as executive vice president, exploration and production. Mr. Sullivan has been retired since August 2004. Mr. Sullivan received his B.S. degree in Mechanical Engineering from Texas A&M University.
Mr. Sullivan has significant management experience in mid-stream oil and gas operations and in the exploration and production of oil and gas on an international and domestic level. Mr. Sullivan also has substantial experience in executive compensation matters and in serving on the boards of publicly held corporations and publicly traded limited partnerships operating in the oil and gas industry, which provides cross board experience and perspective.
Ronald J. Foster
has served as President and a director of our general partner since October 31, 2008. Mr. Foster served as President and a director of Compressco, Inc. from October 1, 2008 until October 1, 2012. From August 2002 to September 2008, Mr. Foster served as Senior Vice President of Sales and Marketing of Compressco, Inc. Mr. Foster has over 30 years of energy-related work experience that includes positions with Wood Group, Halliburton and Dresser. He is an active member of several regional industry trade organizations, including the American Petroleum Institute (API), the Society of Petroleum Engineers (SPE) and the Oklahoma Independent Petroleum Association (OIPA). Mr. Foster attended Oklahoma State University, earning a B.S. degree in Economics.
Mr. Foster’s long-term involvement with us, first in sales and marketing and currently as our President,
provides our Board with an in-depth source of knowledge regarding our customers, our operations, and the markets and geographies in which we operate.
James P. Rounsavall
has served as Chief Financial Officer of our general partner since April 2012. Mr. Rounsavall served as Chief Financial Officer of Compressco, Inc. from April 2012 until October 1, 2012. From July 2011 through April 2012, Mr. Rounsavall served as Controller of our general partner and Controller of Compressco, Inc. From June 2008 until July 2011, Mr. Rounsavall served as the controller and in various other roles for Mustang Engineering, a global provider of engineering and construction services supporting the oilfield, chemical, process, and industrial industries. From March 2008 until June 2008, Mr. Rounsavall provided consulting services. From March 2006 until March 2008, Mr. Rounsavall served as regional controller, and later as regional vice president of finance of Worley Parsons Corporation, a global provider of engineering and professional services. From 1998 until
2006, Mr. Rounsavall served in various roles with Halliburton Company, ultimately serving as controller, U.S. Western area. Prior to that Mr. Rounsavall was with Weatherford Enterra and Ernst & Young. Mr. Rounsavall received a Bachelor of Accountancy from the University of Houston and a Bachelor of Science in Business Administration from the University of Arkansas. Mr. Rounsavall is a Certified Public Accountant.
Kevin W. Book
has served as Vice President of International Operations of our general partner since October 31, 2008 and also served as Vice President – International Operations of Compressco, Inc. from May 2008 until October 1, 2012. Mr. Book joined Compressco, Inc. in 2001 and served a significant role in establishing and growing Compressco Canada, Inc., from its inception to its current level of activity. In May 2008 Mr. Book was promoted to Vice President – International Operations of Compressco, Inc. from Vice President – Canada. Mr. Book has over eleven years of experience in the oil and gas industry. Mr. Book holds a B.S. degree in Petroleum Engineering with Special Distinction from the University of Oklahoma, and a B.S. degree in Mathematics with Distinction from the University of Alberta.
Mark L. Corlee
has served as Vice President of Field Services of our general partner since January 12, 2014. Mr. Corlee joined Compressco Partners in July 2013 as head of field services. Mr. Corlee served in senior management level positions with UE Powertrain from October 2004 until April 2012, including as director of business development from October 2004 through March 2008, as vice president from March 2008 through June 2009, and as president from June 2009 through April 2012. Mr. Corlee has over 30 years of experience in service, sales, manufacturing, and design of rotating equipment for the oil and gas industry. Mr. Corlee received a BBA degree from Southwestern Oklahoma State University.
Sheri J. Vanhooser
has served as Vice President of Sales and Business Development of our general partner since October 15, 2010 and, prior to that time, as Vice President of Marketing Development of our general partner since October 31, 2008. Ms. Vanhooser also served as Vice President of Marketing and Business Development for Compressco (from July 2008 until October 2012). From July 2007 through July 2008, Ms. Vanhooser served as a Senior Marketing Analyst for Compressco. From January 2007 to July 2007, Ms. Vanhooser operated her own consulting company, Superior Energy Solutions, where she provided consulting services to various companies in the natural gas industry. From 1993 to January 2007, Ms. Vanhooser served as President of DRV Energy, an EPA small volume manufacturer/converter of vehicles to natural gas and propane. Ms. Vanhooser has over 16 years of experience in marketing and the natural gas industry. Ms. Vanhooser received her B.S. degree in Biology/General Physical Science from Oklahoma Christian University.
Board Meetings and Committees
During 2013, the Board held seven meetings. The standing committees of the Board during 2013 consisted of an Audit Committee and a Conflicts Committee that was formed in April 2012. During 2013, the Audit Committee held four meetings, and the Conflicts Committee did not meet separately.
Audit Committee.
The Audit Committee is currently composed of Mr. Larson, as Chairman, and Messrs. Harrison and Sullivan. The purposes of the Audit Committee are to (i) oversee the financial and reporting processes of the Partnership and the general partner, and the audit of the Partnership’s financial statements, (ii) assist the Board in fulfilling its oversight responsibilities with regard to the integrity of the Partnership’s financial statements, the Partnership’s and the general partners’ compliance with legal and regulatory requirements, the qualifications, independence and performance of the Partnership’s independent registered public accounting firm, and the effectiveness and performance of the Partnership’s and the general partner’s internal audit function, and (iii) perform such other functions as the Board may assign from time to time. The Audit Committee has sole authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related fees and terms, and approve any non-audit service to be performed by our independent registered public accounting firm. To promote the independence of its audit, the Audit Committee consults separately and jointly with the independent registered public accounting firm, our internal auditor, and management.
As required by NASDAQ and SEC rules regarding audit committees, the Board has reviewed the qualifications of the Audit Committee and has determined that no current committee member has a relationship with us that might interfere with the exercise of his independence from us or our affiliates. Included within such determination, the Board has determined that Messrs. Larson, Harrison, and Sullivan are independent as defined in Section 10A of the Exchange Act and the listing standards of the NASDAQ. In addition, the Board has determined
that Mr. Larson, the Chairman of the Audit Committee, is an audit committee financial expert within the definition established by the SEC.
Conflicts Committee.
The Conflicts Committee, which was formed in April 2012, is currently composed of Mr. Harrison, as Chairman, and Mr. Larson. The purposes of the Conflicts Committee are to (i) as requested by the Board, review and evaluate any potential conflicts of interest between us and our general partner or its affiliates or us and TETRA or its subsidiaries or affiliates, and (ii) carry out any other duties assigned by the Board that relate to potential conflicts of interest between us and our general partner or its affiliates or us and TETRA or its subsidiaries or affiliates. The Conflicts Committee has the sole authority to retain and terminate any consultants, attorneys, independent accountants or other service providers to assist it in the evaluation of conflicts matters, including the sole authority to approve their
fees and other terms of retention.
As required by the First Amended and Restated Agreement of Limited Partnership of Compressco Partners, L.P. (the Partnership Agreement), the Board has reviewed the independence of Messrs. Harrison and Larson and has determined that each of them meets the independence standards established thereunder as required for service on the Conflicts Committee. Included within such determination, the Board has also determined that each of Messrs. Harrison and Larson is independent as defined in Section 10A of the Exchange Act and the listing standards of the NASDAQ.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our common units to file initial reports of ownership and reports of changes in ownership of common units (Forms 3, 4 and 5) with the SEC and the NASDAQ. Executive officers, directors, and greater than 10% holders are required by SEC regulations to furnish us with copies of all such forms they file.
To our knowledge, and based solely on our review of the copies of such reports and written representations provided to us by certain reporting persons that no reports on Form 5 were required, we believe that during the fiscal year ended December 31, 2013, all Section 16(a) filing requirements applicable to our executive officers, directors, and 10% holders were complied with in a timely manner.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Our general partner is an indirect, wholly owned subsidiary of TETRA and has sole responsibility for conducting our business and managing our operations. All of our executive officers and other personnel necessary for the operation of our business are employed or compensated by our general partner, our subsidiaries, or TETRA and its subsidiaries. We may refer to such individuals as “our employees” in this Compensation Discussion and Analysis.
This Compensation Discussion and Analysis (“CD&A”) is designed to provide an understanding of our compensation philosophy and objectives and insight into the process by which our specific compensation practices are established. Historically, including the year ended December 31, 2013, the Management and Compensation Committee of TETRA’s Board of Directors (the “Management and Compensation Committee”), has been responsible for the oversight of compensation programs that apply to a broad-base of our employees, and for specific compensation decisions that relate to the President and other officers of our general partner named in the Summary Compensation Table (collectively, the “Named Executive Officers” or “NEOs”) and other employees of our general partner or TETRA designated as our senior officers (together with our NEOs, “Senior Management”). We have not formed, and do not intend to form, a compensation committee, and for the immediate future the Board intends to continue to delegate oversight of certain aspects of our compensation programs to the Management and Compensation Committee. Our general partner’s executive officers serve at the discretion of the Board.
Our relationship with our general partner and TETRA relating to the personnel necessary to operate our business is governed by the Omnibus Agreement dated June 20, 2011 among us, our general partner and TETRA (the “Omnibus Agreement”). Under the terms of the Omnibus Agreement, we reimburse our general partner and TETRA for all expenses incurred on our behalf, including the compensation of employees of our general partner and TETRA who perform services on our behalf. The compensation expense allocated to us in 2013 with respect
to each of our NEOs was 100% of their total compensation, since each of our NEOs devote virtually all of their business time to our operations. Accordingly, the compensation disclosed herein for our NEOs reflects all of the compensation expense that is payable by us under the Omnibus Agreement with regard to such individuals. Please read the section titled “Certain Relationships and Related Party Transactions,” below for additional information regarding our reimbursement of expenses.
Executive Summary
We are a provider of compression-based production enhancement services, which are used in both conventional wellhead compression applications and unconventional compression applications and, in certain circumstances, well monitoring and sand separation services. We provide our services to a broad base of natural gas and oil exploration and production companies operating throughout many of the onshore producing regions of the United States. We have significant operations in Mexico and Canada and a growing presence in certain countries in South America, Europe, and the Asia-Pacific region.
As a result of our relationship with TETRA, the compensation of our NEOs is structured in a manner similar to TETRA’s compensation of its executive officers. In addition, the compensation policies and practices of our general partner are similar to those of TETRA. Our 2013 financial performance and operations were impacted by decreased activity levels in Mexico, compared to the prior year, and increased demand for compression services in the U.S., Argentina and Canada. This increased demand, which more than offset decreased activity levels in Mexico, combined with the continuing positive impact of cost reduction efforts implemented in 2012 and maintained throughout 2013, resulted in increased profitability compared to 2012.The Management and Compensation Committee gave significant weight to this improved profitability in its consideration of our executive compensation.
The following are some of the key actions and decisions with respect to our executive compensation program for 2013 that were made by the Board and the Management and Compensation Committee, as well as the ongoing compensation practices that we follow, which we believe contribute to good governance.
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Grants of Long-Term Performance Phantom Unit Awards to Senior Management. C
onsistent with our philosophy of basing a significant portion of our Senior Managements' compensation on our financial performance, during 2013, our Board elected to increase the long-term portion of our Senior Managements' performance-based equity awards. During 2012, performance-based equity consisted of performance phantom units that vested based on a one-year performance period. Performance-based equity awards granted to our Senior Management in 2013 consisted 25% of performance phantom units that may be earned based on our attainment of a distributable cash flow per outstanding unit performance objective for the 2013 fiscal year, and 75% of performance phantom units that may be earned based on our attainment of a distributable cash flow per outstanding unit performance objective for the three-year period ending on December 31, 2015. In addition to these performance-based awards, during 2013, members of our Senior Management each received an award of phantom units that vest ratably over a period of three years based on continued employment over such three-year period.
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Adoption of Procedures for Grants of Awards.
In May 2012, our Board and the Management and Compensation Committee each adopted the Procedures for Grants of Awards under the Compressco Partners, L.P. Incentive Compensation Plans (the "Grant Procedures") to assist in the administration of our equity compensation plans. The Grant Procedures provide guidelines under which our Board and the Management and Compensation Committee may make annual and other awards to our eligible employees, non-employee directors, and consultants.
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Insider Trading Policy.
The Compressco Partners GP Inc. Insider Trading Policy provides guidelines with respect to transactions in our securities for the purpose of promoting compliance with applicable securities laws. All of our directors, officers, employees, and consultants are subject to the policy. The policy prohibits purchases of our common units on margin, short sales of common units, and the buying or selling of puts or calls on our common units.
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2013 Target Compensation
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The following pie charts show the target allocation of the base salary, annual performance incentive, and long-term performance incentive elements of our President's and other NEOs' compensation for fiscal year 2013:
* All Other Compensation includes the employer paid portion of life, health, and disability insurance benefits, matching contributions under our 401(k) Retirement Plan, cash payment of accrued distributions paid upon vesting of restricted unit awards that relate to our common units, and for Mr. Book and Ms. Vanhooser, an annual car allowance.
2013 Actual Compensation
. For fiscal year 2013, actual cash compensation paid to our President, Mr. Foster, was $361,118, consisting of $286,000 in base salary,$71,605 as the earned portion of his 2013 annual performance award under TETRA's Cash Incentive Compensation Plan, and a discretionary non-plan bonus of $3,513. Mr. Foster was also granted two long-term awards of phantom units during 2013 with a combined grant date fair value of $300,022 (50% of which may be earned based on our attainment of a distributable cash flow per outstanding unit performance objective as of year-end 2015, and 50% of which vest ratably over a three-year period following the date of grant based on continued employment over such three-year period), and an award of annual performance phantom units with a target value of $50,010, approximately 12.5% of which (or $6,267) was earned based on the level of our attainment of the distributable cash flow per outstanding unit performance objective attained for fiscal year 2013. In addition, Mr. Foster received $30,451 of other compensation during 2013.
The following pie charts show the allocation of the elements of Mr. Foster's actual compensation and the allocation of the elements of our other NEOs' average actual compensation for fiscal year 2013, as set forth in the Summary Compensation Table:
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All Other Compensation includes the employer paid portion of life, health, and disability insurance benefits, matching contributions under our 401(k) Retirement Plan, cash payment of accrued distributions paid upon vesting of restricted unit awards that relate to our common units, and for Mr. Book and Ms. Vanhooser, an annual car allowance.
Oversight of Executive Compensation Program
The Board has appointed the Management and Compensation Committee to discharge many of its responsibilities relating to the compensation of our executive officers. The Management and Compensation Committee is composed entirely of independent, non-management members of TETRA’s Board of Directors, and each member is compensated by fees and equity compensation from TETRA. With the exception of Mr. Sullivan, who is also a director of our general partner and receives compensation for his services to us in the form of cash director fees and equity compensation granted under the Compressco Partners, L.P. 2011 Long Term Incentive Plan, no Management and Compensation Committee member participates in any of our employee compensation programs. In its annual review process, TETRA’s Board of Directors has determined that none of the Management and Compensation Committee members have any material
business relationships with us.
Similar to its responsibilities with regard to TETRA’s employees, the responsibilities of the Management and Compensation Committee with regard to our employees include the following:
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establishing a compensation philosophy to support our overall business strategy and objectives and a compensation strategy to attract and retain executive talent, motivate executive officers to improve their performance and our financial performance, and otherwise implement the compensation philosophy;
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annually reviewing and establishing annual and long-term performance goals and objectives for our Senior Management that are intended to implement our compensation philosophy and strategy;
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annually evaluating the performance of our NEOs against established performance goals and objectives;
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annually reviewing the compensation of our NEOs, including annual salary, performance-based cash incentive awards, and other cash incentive opportunities including long-term incentive opportunities against each NEOs' individual performance evaluation, and any other matter relating to the compensation of the NEOs which the Management and Compensation Committee considers appropriate;
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reviewing at least annually all equity-based compensation plans and arrangements, including the amount of equity remaining available for issuance under those plans, and making recommendations to the Board regarding the need to amend existing plans or to adopt new plans for the purposes of implementing the Management and Compensation Committee’s goals regarding equity-based compensation;
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reviewing at least annually all non-equity-based components of compensation paid to or available to the NEOs, which may include salary, cash incentives (both performance-based and otherwise), long-term incentive compensation, perquisites, and other personal benefits, to determine the appropriateness of each component in light of our compensation philosophy and strategy;
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reviewing all employment, severance, change of control, or other compensation agreements or arrangements to be entered into or otherwise established with our NEOs;
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reviewing and discussing with management our annual CD&A for inclusion in our annual proxy statement or Form 10-K;
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reviewing matters relating to management succession, including compensation related issues; and
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evaluating whether any compensation consultant retained by the Management and Compensation Committee has any conflict of interest in accordance with applicable regulatory requirements.
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Overview of Compensation Philosophy and Objectives
In order to recruit and retain highly qualified and competent individuals as Senior Management, we strive to maintain a compensation program that is competitive in the labor markets in which we operate. Our guiding philosophy is to maintain an executive compensation program that will attract, retain, motivate, and reward highly qualified and talented individuals to enable us to perform better than our competitors. The following are our key objectives in setting the compensation programs for our Senior Management:
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design competitive total compensation programs that enhance our ability to attract and retain knowledgeable and experienced Senior Management;
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motivate our Senior Management to deliver outstanding financial performance and meet or exceed general and specific business, operational, and individual performance objectives;
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establish salary and annual cash incentive compensation levels that reflect competitive market practices in relevant markets and are generally within the median range for the relevant peer group;
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provide long-term incentive compensation opportunities that are consistent with our overall compensation philosophy;
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provide a significant percentage of total compensation that is “at risk,” or “variable,” based on predetermined performance measures and objectives; and
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ensure that a significant portion of the total compensation package is determined by equity value, thus assuring an alignment of Senior Management with our unitholders.
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Implementation and Management of Compensation Programs
Role of the Management and Compensation Committee.
Our Board has appointed the Management and Compensation
Committee to discharge many of its responsibilities relating to the compensation of our executive officers. With regard to certain actions that must be taken directly by our Board, the Management and Compensation Committee provides recommendations to the Board that are consistent with our compensation philosophy, programs, and objectives, which are largely a reflection of TETRA’s compensation philosophy, programs, and objectives.
The Management and Compensation Committee has the authority to retain compensation consultants, outside counsel, or other advisors to assist the committee in the discharge of its duties. In any given year, the Management and Compensation Committee bases its decision on whether to retain a compensation consultant on factors including prevailing market conditions, regulatory changes governing executive compensation, and the quality of any other relevant data that may be available. If a compensation consultant is engaged with respect to our compensation programs, the Chairman of the Management and Compensation Committee maintains a direct line of communication with the consultant and arranges meetings with the consultant that may include other members of the committee and/or our President, TETRA’s CEO and certain members of TETRA’s senior management. Through this communication with the Chairman of the Management and Compensation Committee, the consultant reports to, and acts at the discretion of, the Management and Compensation Committee.
Role of Compensation Consultant.
At various times since 2009, the Management and Compensation Committee has retained the services of Frost HR Consulting to provide analysis of TETRA's compensation programs and assist the committee in its consideration of prospective changes to those programs, including programs that apply to our NEOs and other Senior Management. Frost HR Consulting does not provide other services to us, to our general partner, or to TETRA, has procedures in place to prevent conflicts of interest, and does not have a business or personal relationship with any of the executive officers of our general partner, any of TETRA’s executive officers, or any member of the Management and Compensation Committee. The individual consultants involved in the engagement do not own our limited partner units, nor do they own TETRA’s common stock. The Management and Compensation Committee discussed these considerations and concluded that there were no conflicts of interest with respect to the consulting services provided by Frost HR Consulting.
In December 2012, the Management and Compensation Committee met to review and discuss our President’s year-end compensation report and to consider prospective changes to 2013 compensation for our NEOs. The Management and Compensation Committee had previously elected not to engage Frost HR Consulting during 2012 to provide a specific analysis of the compensation of our NEOs for the 2013 fiscal year. However, Mr. Foster, as an executive officer of TETRA, was included in the analysis performed by Frost HR Consulting in connection with the Management and Compensation Committee’s review of TETRA’s 2012 compensation programs.
Role of our President.
Our President makes recommendations to the Management and Compensation Committee with regard to salary adjustments and the annual and long-term incentives to be provided to our Senior Management, excluding himself. Based upon his judgment and experience and in consultation with TETRA’s CEO, taking into consideration available industry-based compensation surveys and other compensation data and analysis, including data provided by the Management and Compensation Committee’s consultant, if one is retained for that year, our President annually reviews with the Management and Compensation Committee specific compensation recommendations for Senior Management. In preparation for these evaluations, our President prepares a year-end compensation report that includes industry-based compensation data, data generated by any compensation consultant engaged by the Management and Compensation Committee, and our President’s personal evaluation of the performance of each member of Senior Management. The President’s compensation report presents current and historical annual base salaries, annual incentive targets, annual incentives earned and the values of outstanding equity-based and other long-term compensation in a tally sheet format, to provide the
Management and Compensation Committee with a detailed picture of how the various components of total compensation paid or to be paid to each member of Senior Management, including himself, aggregate in the current year and over a multi-year period.
In its review of our President’s compensation report and its consideration of whether changes in compensation recommended by the President are in line with our overall compensation philosophy, current competitive market conditions, and current economic conditions, the Management and Compensation Committee considers the President’s performance evaluations of and compensation recommendations for each member of Senior Management as well as its own performance evaluations of Senior Management, the performance evaluation and compensation recommendations of TETRA’s CEO, and, if a compensation consultant is retained for that year, the analysis and report of the compensation consultant. The Management and Compensation Committee reviews our President’s compensation report among themselves and with our President and TETRA’s CEO and approves any prospective changes in compensation for Senior Management other than our President. The Management and Compensation Committee, in an executive session that includes TETRA’s CEO, establishes the compensation for our President. If changes in base salary for members of Senior Management are approved, the Management and Compensation Committee generally gives our President discretion as to when the prospective changes are made effective during the following year.
Timing of Compensation Decisions.
Our President typically distributes his year-end compensation report to the Management and Compensation Committee, TETRA’s CEO, and our Board prior to TETRA’s December board and committee meetings. The Management and Compensation Committee reviews our President’s compensation report, information and recommendations provided by its compensation consultant, if any for that year, and such other information as it considers relevant, and typically approves prospective changes in compensation for employees over which it has decision-making authority that may be implemented during the following year at the discretion of our President. Also at its December meeting, the Management and Compensation Committee typically reviews a preliminary estimate of the aggregate amount of annual cash incentive compensation that may be awarded based on performance during the current year. Based upon audited full-year financial results, the actual aggregate amount of the annual cash incentive compensation to be paid is finalized and approved and the specific amounts to be paid to our Senior Management, including Mr. Foster, are reviewed and approved by the Management and Compensation Committee typically at a meeting in February of the following year.
Compensation Elements
We strongly believe that Senior Management should be compensated with a package that includes the following three elements: salary, performance-based cash incentive compensation, and equity incentive compensation. A significant portion of the total prospective compensation paid to each member of Senior Management should be tied to measurable financial and operational objectives. These objectives may include absolute performance and performance relative to a peer group. During periods when performance meets or exceeds established objectives, Senior Management should be paid at or above the levels targeted for such objectives. When objectives are not met, incentive award payments, if any, should be less than levels targeted for such objectives. The Management and Compensation Committee seeks to structure a balance between achieving strong short-term annual results and ensuring long-term viability and success. To reinforce the importance of this balance, we provide each member of Senior Management with both short-term and long-term incentives. Historically, short-term incentive opportunities for Senior Management have been in the form of annual cash incentives based on both objective performance criteria and subjective criteria. In 2012, our Senior Management’s short-term incentive opportunities were expanded to include equity awards, the value of which is determined by our attainment of an established financial performance objective at the end of the applicable performance period. While the mix of salary, annual cash incentives, and long-term incentives earned by Senior Management can vary from year to year depending on individual performance and on our overall performance, the Management and Compensation Committee believes that long-term incentives, the potential future value of which is heavily contingent on our long-term success, should constitute a significant portion of total compensation each year.
Salary.
We believe that a competitive salary program is an important factor in our ability to attract and retain talented Senior Management employees. The Management and Compensation Committee typically reviews relevant compensation data and analysis provided by its compensation consultant, if one is retained for that year, or by management if no compensation consultant is engaged, to ensure that our salary program is competitive. In this respect, the Management and Compensation Committee uses the survey data and compensation offered by peer companies as a market check on the salaries and other elements of compensation it establishes. The
Management and Compensation Committee reviews the salaries of all members of our Senior Management at least annually. Base salaries may be adjusted for performance, which may be individual or company-wide performance, expansion of duties, and changes in market salary levels. In considering salary adjustments each year, the Management and Compensation Committee gives weight to the foregoing factors, with particular emphasis on corporate performance goals, our President’s analysis of each individual’s performance, and his specific compensation recommendations. However, the Management and Compensation Committee does not rely on formulas and considers all factors when considering salary adjustments.
In its December 2012 review of our NEO’s base salary levels, the Management and Compensation Committee considered our significantly improved operational and financial performance during 2012, our President’s evaluation of each individual’s contribution to this improvement, and with regard to our President, the committee considered the evaluation of our President’s performance provided by TETRA’s CEO. In considering prospective changes to base salary levels for 2013, the Management and Compensation Committee weighed each of these factors and approved 4% increases in base salary levels for Messrs. Foster and Book. For Mr. Rounsavall, whose base salary was increased in April 2012 in connection with his appointment to the position of Chief Financial Officer, the Management and Compensation Committee approved a 2% increase in base salary. For Ms. Vanhooser, the Management and Compensation Committee approved an 8% increase in connection with the expanded scope of our business development efforts. The following table sets forth the 2013 base salaries for our currently serving NEOs:
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|
|
|
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|
Name
|
|
Title
|
|
2013 Base Salary
|
Ronald J. Foster
|
|
President
|
|
$
|
286,000
|
|
James P. Rounsavall
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
198,900
|
|
Kevin W. Book
|
|
Vice President of International Operations
|
|
213,200
|
|
Sheri J. Vanhooser
|
|
Vice President of Sales and Business Development
|
|
160,000
|
|
Performance-Based Cash Incentives.
NEOs and other key employees of Compressco are eligible to receive annual performance-based cash incentive awards pursuant to TETRA’s Cash Incentive Compensation Plan. The Cash Incentive Compensation Plan was adopted by TETRA’s Board of Directors in 2010 to
provide greater focus on TETRA’s strategic business objectives, further its compensation philosophy, emphasize pay-for-performance, and provide competitive compensation opportunities.
Annual Performance-Based Cash Incentives
.
While the amount of each award paid to members of our Senior Management under TETRA’s Cash Incentive Compensation Plan is subject to the discretion of the Management and Compensation Committee, the plan provides for cash award opportunities, calculated as a percentage of base salary, based on financial and non-financial performance measures. For each annual incentive award opportunity, a threshold, target, and stretch performance objective is established for each applicable performance measure and the amount of the award payment that may be received is based on the level of achievement of such performance objectives, subject to the discretion of the Management and Compensation Committee. In addition, recipients of annual incentive awards have the opportunity to participate in an additional cash award pool that may be established under the Cash Incentive Compensation Plan for achievement in excess of designated stretch performance objectives.
As part of its December 2012 review of NEO compensation, the Management and Compensation Committee reviewed a preliminary estimate of the aggregate amount of annual cash incentive compensation to be awarded based on 2012 performance under TETRA’s Cash Incentive Compensation Plan, and discussed the overall effectiveness of the plan in furthering our compensation philosophy. In its consideration of changes for the 2013 plan year, the Management and Compensation Committee did not specifically benchmark Cash Incentive Compensation Plan award opportunities relative to any survey or peer group data. The committee elected not to increase the percentages of base salary that determine the threshold, target, and stretch amounts of annual cash incentive opportunities for our NEOs for the 2013 plan year from the percentages of base salary initially established in 2010.
Under the Cash Incentive Compensation Plan, financial and non-financial performance measures may be based on the performance criteria described in the plan or on such other measures as may be determined by the Management and Compensation Committee. Performance measures for 2013 annual incentive awards to our NEOs include: (i) our distributable cash flow; (ii) our profit before taxes; (iii) the net number of compressor units we
placed into service during 2013; (iv) health, safety, and environmental metrics; and (v) personal objectives. The following table sets forth the 2013 annual incentive award opportunities established by the Management and Compensation Committee as a percentage of base salary for our President and other current NEOs under the Cash Incentive Compensation Plan:
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|
|
|
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|
|
|
|
|
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Threshold
|
|
Target
|
|
Stretch
|
Ronald J. Foster
|
|
9
|
%
|
|
45
|
%
|
|
72
|
%
|
James P. Rounsavall
|
|
5
|
%
|
|
25
|
%
|
|
40
|
%
|
Kevin W. Book
|
|
5
|
%
|
|
25
|
%
|
|
40
|
%
|
Sheri J. Vanhooser
|
|
5
|
%
|
|
25
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%
|
|
40
|
%
|
For the 2013 plan year, the specific target performance objectives and the relative weight of each performance measure established by the Management and Compensation Committee for annual cash incentive awards were: (i) distributable cash flow of $36.5 million, weighted 35%; (ii) profit before taxes of $26.9 million, weighted 15%; (iii) a net number of compressor units placed into service of 340 units, weighted 20%; (iv) health, safety, and environmental metrics that represented, in most cases, a minimum 10% improvement versus prior year results, weighted 20%; and (v) personal objectives, weighted 10%.
Our financial and operation performance during 2013 was characterized by decreased activity levels in Mexico, compared to the prior year, and increased demand for compression services in the U.S., Argentina and Canada. Despite this increased demand, which more than offset decreased activity levels in Mexico, we did not reach the threshold level of performance required to earn payment under the net sets performance measure. Our financial results in 2013 continued to benefit from cost reduction efforts implemented in 2012 and maintained throughout 2013. Due in large part to this focus on controlling costs, our profit before taxes for 2013 was $19.8 million, or 73.6% of the target performance objective established by the Management and Compensation Committee, and our 2013 distributable cash flow was $32.5 million, or 89.0% of the target performance objective established by the Management and Compensation Committee. In addition, after reviewing our health, safety, and environmental performance as measured by eight separate performance objectives, the Management and Compensation Committee determined that we reached 82.5% of our target performance objectives for the 2013 plan year.
In its consideration of the level of achievement of the personal objectives component of our NEOs’ 2013 performance measures, the Management and Compensation Committee weighed each individual’s contribution to our annual performance and our longer-term strategic goals, and other subjective factors. Given our success in maintaining profitability despite decreased activity in Mexico, the committee approved payments ranging from 66.7% to 100% of the target personal objective award opportunities for our NEOs.
The following table sets forth the amounts earned by our NEOs for each performance measure established by the Management and Compensation Committee for the 2013 plan year:
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|
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|
|
|
|
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|
|
|
|
|
|
2013 Plan Year Performance Measures
|
|
|
|
|
Profit
Before
Taxes
|
|
Distributable
Cash Flow
|
|
Net Sets
|
|
Health, Safety
&
Environmental
|
|
Personal
Objectives
|
|
Total
Earned
Award
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of objective attained
|
|
73.6
|
%
|
|
89.0
|
%
|
|
*
|
|
|
82.5
|
%
|
|
85.0
|
%
|
|
|
|
amount earned
|
|
$
|
5,710
|
|
|
$
|
31,789
|
|
|
$
|
—
|
|
|
$
|
23,166
|
|
|
$
|
10,940
|
|
|
$
|
71,605
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of objective attained
|
|
73.6
|
%
|
|
89.0
|
%
|
|
*
|
|
|
82.5
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%
|
|
66.7
|
%
|
|
|
|
amount earned
|
|
$
|
2,206
|
|
|
$
|
12,282
|
|
|
$
|
—
|
|
|
$
|
8,951
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|
|
$
|
3,317
|
|
|
$
|
26,756
|
|
Kevin W. Book
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of objective attained
|
|
73.6
|
%
|
|
89.0
|
%
|
|
*
|
|
|
82.5
|
%
|
|
100.0
|
%
|
|
|
|
amount earned
|
|
$
|
2,365
|
|
|
$
|
13,165
|
|
|
$
|
—
|
|
|
$
|
9,594
|
|
|
$
|
5,330
|
|
|
$
|
30,454
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of objective attained
|
|
73.6
|
%
|
|
89.0
|
%
|
|
*
|
|
|
82.5
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%
|
|
75.0
|
%
|
|
|
|
amount earned
|
|
$
|
1,775
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|
|
$
|
9,880
|
|
|
$
|
—
|
|
|
$
|
7,200
|
|
|
$
|
3,000
|
|
|
$
|
21,855
|
|
|
|
*
|
Results were below the threshold level of performance and no amounts were earned.
|
Discretionary Non-Plan Bonuses.
In addition to the annual cash incentive earned for 2013 performance under TETRA's Cash Incentive Compensation Plan , our Board of Directors approved the payment of discretionary non-plan bonuses of $3,513, $1,464, $1,171 and $1,171 to Messrs. Foster, Rounsavall and Book and to Ms. Vanhooser, respectively, in acknowledgment of achievement of actual 2013 distributable cash flow per outstanding unit slightly in excess of the estimated 2013 result used to determine payout of the one-year performance phantom unit awards granted in May 2013 under our equity incentive plan, discussed below.
Equity Incentive Awards.
Equity incentives, historically awards of TETRA stock options and restricted stock, and currently awards of Compressco Partners restricted units, phantom units, and performance phantom units, comprise a significant portion of our NEOs’ total compensation package. The Management and Compensation Committee seeks to strike a balance between achieving short-term annual results and ensuring strong long-term success through its use of equity awards, which are geared toward longer-term performance as they generally, though not always, vest ratably over a three-year period, and their values are materially affected by market price appreciation of the underlying security.
In June 2011, our Board adopted the Compressco Partners, L.P. 2011 Long Term Incentive Plan (the “2011 Plan”). The purpose of the 2011 Plan is to promote our interests by enabling us to grant incentive compensation awards based on our units to employees, officers, consultants, and directors who provide services to us. The 2011 Plan is also intended to enhance our ability to attract and retain the services of individuals who are essential to our growth and profitability, and to encourage those individuals to devote their best efforts to advancing our business. The 2011 Plan seeks to achieve these purposes by providing for grants of restricted units, phantom units, unit awards, and other unit-based awards.
Our Board has appointed the Management and Compensation Committee to administer the 2011 Plan and grant awards under the plan as it relates to individuals who, with respect to the Partnership, are not subject to Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. Our Board has retained the authority to grant awards to individuals who, with respect to the Partnership, are subject to Section 16 of the Exchange Act (“Section 16 Reporting Persons”), and to administer the 2011 Plan and awards thereunder as they relate to such individuals. Subject to the provisions of the 2011 Plan, the Management and Compensation Committee or our Board, as applicable, may (i) designate participants to whom awards may be granted; (ii) determine the type or types of awards to be made; (iii) determine the number of units covered by an award and the terms or conditions of an award, consistent with the terms of the 2011 Plan; (iv) determine whether, to what extent, and under what circumstances awards may be vested, settled, exercised, cancelled, or forfeited; (v) interpret and administer the 2011 Plan, and any instrument or agreement relating to an award made under the 2011 Plan; (vi) establish, amend, suspend, or waive any rules and regulations and appoint such agents as it deems appropriate for the proper administration of the 2011 Plan; (vii) make any other determination and take any other action that it deems necessary or advisable for the administration of the 2011 Plan; and (viii) correct any defect, supply any omission, or reconcile any inconsistency in the 2011 Plan or in any award under the plan.
Our Board and the Management and Compensation Committee have each adopted the Procedures for Grants of Awards Under the Compressco Partners, L.P. Incentive Compensation Plans (the “Grant Procedures”) to assist in the administration of our equity compensation plans. The Grant Procedures provide guidelines under which our Board and the Management and Compensation Committee may make annual and other awards to our eligible employees, non-employee directors, and consultants. With respect to the annual awards, it is presently contemplated that a grant of awards will be made to eligible employees and non-employee directors in May of each year. The Management and Compensation Committee will determine, after consultation with our Board and our President, the aggregate numbers of awards that will be made available in a particular broad-based grant each year. The Management and Compensation Committee will also determine for all participants other than Section 16 Reporting Persons and recommend to our Board for all Section 16 Reporting Persons, the vesting schedule(s), performance measures, and specific target performance objectives applicable to performance-based awards, forms of restrictions, and any other terms and conditions that may be applicable to awards, including terms and conditions applicable to any unit distribution rights or distribution equivalent rights that may be granted in tandem with an award of restricted units or phantom units. Our Board will review the recommended terms as they relate to Section 16 Reporting Persons and may adjust such terms. Following our Board’s consideration of the awards, our President will propose individual grants of particular types of awards totaling up to the aggregate numbers of such awards previously authorized by the Management and Compensation Committee. It is presently contemplated that such annual awards will have a grant date of May 27th.
The Management and Compensation Committee and our Board, as applicable, will review and consider the individual grants proposed by our President and make any adjustments they consider appropriate. The Management and Compensation Committee will approve all final individual awards, except those awards proposed to be granted to Section 16 Reporting Persons, at a meeting of the committee or by unanimous consent in lieu of a meeting. The Management and Compensation Committee will recommend to our Board the approval of the proposed awards to Section 16 Reporting Persons. Our Board will review and consider the individual grants to Section 16 Reporting Persons recommended by the Management and Compensation Committee, make any adjustments it considers appropriate, and approve all final individual awards to Section 16 Reporting Persons at a meeting of the Board or by a unanimous consent in lieu of a meeting.
With respect to the contemplated annual awards to be made to non-employee directors, it is anticipated that such awards will consist of restricted units or phantom units, as our Board may determine. Each award to a non-employee director will have an aggregate market value as of the date of grant in an amount determined by our Board. The value of such annual equity award is currently set at $60,000. Such annual awards will be approved at a meeting of the Board or by a unanimous consent in lieu of a meeting, and it is presently contemplated that such annual awards will have a grant date of May 27th. Unless otherwise determined by the Board, one-third portions of such awards will become vested on the date of grant, and additional one-third portions of such awards will vest on January 4th and May 27th of the subsequent year.
Awards other than annual grants may be made in accordance with the Grant Procedures. The Management and Compensation Committee and the Board will consider refraining from making regularly scheduled and other awards if the committee, the Board, or our executive management are aware of any material, non-public information regarding us or our affiliates.
On May 27, 2013, the Management and Compensation Committee and our Board approved awards of phantom units to our Senior Management and a broad-base of our employees. Each phantom unit award was granted in tandem with distribution equivalent rights (“DERs”) that entitle the award holder to receive an additional number of units equal in value to any distributions we pay during the period the award is outstanding times the number of units subject to the award. The phantom units and tandem DERs will vest ratably over the three-year period following the date of grant. In addition, consistent with our philosophy of basing a significant portion of our Senior Management's compensation on performance, also on May 27, 2013, our Board granted two separate awards of performance phantom units with tandem DERs to members of our Senior Management. The first of the two performance-based awards (the "1-year performance phantom units") covered the performance period of January 1, 2013 through December 31, 2013, and under such award, up to 200% of the "Target" number of phantom units granted under the award could be earned based on our actual distributable cash flow (“DCF”) per outstanding unit for the performance period relative to the following performance objectives established by our Board:
|
|
|
|
DCF per Outstanding Unit for the Year Ending Dec. 31, 2013
|
|
Percentage of
Phantom Units Earned
|
Less than $2.00
|
|
0%
|
$2.15
|
|
50%
|
$2.30 (Target)
|
|
100%
|
$2.45
|
|
150%
|
>$2.60 (Maximum)
|
|
200%
|
For DCF per outstanding unit amounts that fall between any of the performance objectives set forth above, straight line interpolation is used to determine the specific percentage of phantom units earned. On January 17, 2014, our Board estimated that our DCF per outstanding unit for the 2013 performance period was approximately $2.03 and accordingly determined that 12.5% of the 1-year performance phantom units had been earned.
The second of the two performance-based awards granted by our Board on May 27, 2013 (the "3-year performance phantom units"), covers the performance period of January 1, 2013 through December 31, 2015. Under such award, up to 200% of the "Target" number of phantom units granted may be earned based on our actual DCF per outstanding unit for the year ending December 31, 2015, relative to performance objectives established by our Board.
The following table sets forth the number of phantom units, 1-year performance phantom units, and 3-year performance phantom units awarded to our NEOs during 2013 and the aggregate grant date fair value of such awards as determined in accordance with FASB ASC Topic 718:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Phantom Units
|
|
Number of 1-year Performance Phantom Units
|
|
Number of 3-year
Performance
Phantom Units
|
|
Aggregate Grant
Date Fair Value
Of Unit Awards
|
Ronald J. Foster
|
|
7,397
|
|
|
2,466
|
|
|
7,397
|
|
|
$
|
350,033
|
|
James P. Rounsavall
|
|
3,082
|
|
|
1,028
|
|
|
3,082
|
|
|
$
|
145,854
|
|
Kevin W. Book
|
|
2,466
|
|
|
822
|
|
|
2,466
|
|
|
$
|
116,691
|
|
Sheri J. Vanhooser
|
|
3,452
|
|
|
822
|
|
|
2,466
|
|
|
$
|
136,687
|
|
While the Management and Compensation Committee does consider the general compensation practices of other companies in the oil and gas services industry in establishing equity incentive compensation opportunities, it does not specifically benchmark the value of equity awards relative to any survey, peer group, or other compensation data. The Management and Compensation Committee does, however, annually review the equity compensation practices of other companies in our industry in order to gain a general impression of the proportionate share of equity award value in the total compensation packages they offer.
Tax Deductibility of Compensation
With respect to the deduction limitations under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”), we are a limited partnership and do not meet the definition of a “corporation” under Section 162(m). Nonetheless, the taxable compensation paid to each of the NEOs in 2012 was less than the Section 162(m) threshold of $1,000,000.
Retirement, Health and Welfare Benefits
Our employees, as employees of a TETRA affiliate, are eligible to participate in a variety of health and welfare and retirement programs. TETRA is the sponsor of each of these benefit programs.
Members of our Senior Management are generally eligible for the same benefit programs on the same basis as the broad-base of our employees. Our health and welfare programs are intended to protect employees against catastrophic loss and to encourage a healthy lifestyle. These health and welfare programs include medical, wellness, pharmacy, dental, life insurance, short-term and long-term disability insurance, and insurance against accidental death and disability.
401(k) Plan.
Due to our relationship with TETRA, our employees are eligible to participate in TETRA’s 401(k) Retirement Plan (the “401(k) Plan”), which is intended to supplement a participant’s personal savings and social
security. Under the 401(k) Plan, eligible employees may contribute on a pretax basis up to 70% of their compensation, subject to an annual maximum established under the Code. Our general partner makes a matching contribution under the 401(k) Plan equal to 50% of the first 6% of a participant’s annual compensation that is contributed to the 401(k) Plan. All employees (other than nonresident aliens) who have reached the age of eighteen and have completed six months of service with us are eligible to participate in the 401(k) Plan.
Nonqualified Deferred Compensation Plan.
Certain of our Senior Management, directors, and certain other key employees have the opportunity to participate in TETRA’s Executive Nonqualified Excess Plan, which is an unfunded, deferred compensation program. Under the program, participants may defer a specified portion of their annual total cash compensation, including salary and performance-based cash incentive, subject to certain established minimums. The amounts deferred increase or decrease depending on the deemed investment elections selected by the participant from among various hypothetical investment election options. Deferral contributions and earnings credited to such contributions are 100% vested and may be distributed in cash at a time selected by the participant and irrevocably designated on the participant’s deferral form. In-service distributions may not be withdrawn until two years following the participant’s initial enrollment. Notwithstanding the participant’s deferral election, the participant will receive distribution of his deferral account if the participant becomes disabled or dies, or upon a change in control. None of our NEOs participated in the Executive Nonqualified Excess Plan during 2013.
Perquisites
Perquisites (“perks”) are not a material component of our compensation. In general, NEOs do not receive reimbursements for the private use of country clubs, meals, airline and travel costs other than those costs allowed for all employees, or for tickets to sporting events or entertainment events, unless such tickets are used for business purposes. Mr. Book and Ms. Vanhooser receive car allowances each year, as do all of our sales and field service personnel who are not using company-owned vehicles.
Further, our NEOs do not receive allowances or reimbursements for hunting and fishing camp costs or home security expenses. During 2013, except for the car allowances for Mr. Book and Ms. Vanhooser, no NEO received an allowance for any of the above or a reimbursement for any expense incurred for non-business purposes.
Severance Plan and Termination Payments
With the exception of the Change of Control Agreement with Mr. Foster, as of the filing date of this Annual Report, we do not have a defined severance plan for, or any agreement with, any NEO that would require us to make any termination payments.
Employment Agreements
Our NEOs have entered into standard form employment agreements that are substantially identical to the form of agreement executed by all employees. Each of these employment agreements provide that the executives are employed on an “at will” basis, and for an indefinite period of time. Both we and the NEOs may terminate the agreement at any time. The agreements prohibit the NEOs from disclosing our or our affiliates’ confidential information during the employment relationship period or at any time following the employment period. The agreements do not provide for severance or change of control payments, nor do they establish the amounts of specific compensation elements such as salary or bonus.
Change of Control Agreements
On May 30, 2013, we entered into a change of control agreement (the “COC Agreement”) with Mr. Foster. The COC Agreement has an initial two-year term, with automatic one-year extensions on the second anniversary of the effective date and every anniversary date thereafter, unless a cancellation notice is given at least 90 days prior to the expiration of the then applicable term. Under the COC Agreement, we have an obligation to provide certain benefits to Mr. Foster upon a qualifying termination event that occurs in connection with or within two years following a “change of control” of Compressco or TETRA. A qualifying termination event under the COC Agreement includes the termination of Mr. Foster’s employment with us other than for Cause (as that term is defined in the COC Agreement) or termination by Mr. Foster for Good Reason (as that term is defined in the COC Agreement). For an overview of the specific terms and conditions of Mr. Foster's COC Agreement, please read the section titled "Potential Payments upon a Change of Control or Termination" in this Item 11, below.
Indemnification Agreements
We and each of our current directors and our NEOs have executed an indemnification agreement that provides that we will indemnify them to the fullest extent permitted by our First Amended and Restated Certificate of Limited Partnership, Bylaws, and applicable law. The indemnification agreement also provides that our directors and officers will be entitled to the advancement of fees as permitted by applicable law and sets out the procedures required for determining entitlement to and obtaining indemnification and expense advancement. In addition, our charter documents provide that each of our directors and officers and any person serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise shall be indemnified to the fullest extent permitted by law in connection with any threatened, pending, or completed action, suit, or proceeding (including civil, criminal, administrative, or investigative proceedings) arising out of or in connection with his or her services to us or to another corporation, partnership, joint venture, trust, or other enterprise, at our request. We purchase and maintain insurance on behalf of any person who is a director or officer of the aforementioned corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as an officer or director, subject to the terms and conditions of that insurance. In addition, Messrs. Brightman, Foster, Hertel, and Sullivan, in their capacities as directors and/or executive officers of TETRA, have executed indemnification agreements with TETRA that are substantially similar to the indemnification agreements executed by each of them in connection with their services to us, and they benefit from the protection of similar insurance.
Changes for Fiscal Year 2014
In December 2013, the Management and Compensation Committee met to review and discuss our President’s year-end compensation report and to consider prospective changes to 2014 compensation for our NEOs. The Management and Compensation Committee elected not to engage a compensation consultant during 2013 to provide an analysis of our compensation program. However, Mr. Foster, as an executive officer of TETRA, was included in the analysis of industry-based compensation survey data compiled for the Management and Compensation Committee's December 2013 review and included in the TETRA's CEO's year-end compensation report.
Salary
.
As discussed under "Compensation Elements" above, in its December 2012 review of our NEOs' base salary levels, the Management and Compensation Committee approved 4% increases in base salary levels for Messrs. Foster and Book, a 2% increase in base salary for Mr. Rounsavall, and an 8% increase in base salary for Ms. Vanhooser. In April of 2013, TETRA's CEO implemented a 90-day deferral of 2014 annual base salary merit increases that would otherwise have been granted to a significant majority of TETRA's non-Senior Management employees. Following this decision, and with input from the Management and Compensation Committee, our President implemented a similar 90-day deferral of his own annual base salary merit increase and annual base salary merit increases for our other NEOs that otherwise would have been made effective prior to the end of January, 2014. In its December 2013 review of our Senior Management compensation, the Management and Compensation Committee considered our strong operational and financial performance during 2013, our President’s evaluation of each individual’s contribution to this performance, and with regard to our President, the committee considered the evaluation of our President’s performance provided by TETRA’s CEO. In considering prospective changes to base salary levels for 2014, the Management and Compensation Committee weighed each of these factors and approved increases in base salary of 4% for each of our NEOs, subject to the 90-day deferral discussed above. The following table sets forth the 2014 base salaries that are expected to be made effective in April 2014, for our NEOs:
|
|
|
|
|
|
Name
|
|
2014 Base Salary
|
Ronald J. Foster
|
|
$
|
297,440
|
|
James P. Rounsavall
|
|
206,856
|
|
Kevin W. Book
|
|
221,728
|
|
Sheri J. Vanhooser
|
|
166,400
|
|
Cash Incentive Compensation Plan
. As part of its December 2013 review of the compensation of our NEOs, the Management and Compensation Committee reviewed a preliminary estimate of the aggregate amount of annual cash incentive compensation to be awarded under TETRA’s Cash Incentive Compensation Plan based on 2013 performance, and discussed the overall effectiveness of the plan in furthering our compensation
philosophy. In its consideration of changes for the 2014 plan year, the Management and Compensation Committee did not specifically benchmark Cash Incentive Compensation Plan award opportunities relative to any survey or other compensation data. The Management and Compensation Committee elected not to increase the percentages of base salary that determine the threshold, target, and stretch amounts of annual cash incentive opportunities for our NEOs for the 2014 plan year from the percentages of base salary initially established in 2010.
The following table sets forth the 2014 annual incentive award opportunities established by the Management and Compensation Committee as a percentage of base salary for our President and other NEOs under the Cash Incentive Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
Target
|
|
Stretch
|
Ronald J. Foster
|
|
9
|
%
|
|
45
|
%
|
|
72
|
%
|
James P. Rounsavall
|
|
5
|
%
|
|
25
|
%
|
|
40
|
%
|
Kevin W. Book
|
|
5
|
%
|
|
25
|
%
|
|
40
|
%
|
Sheri J. Vanhooser
|
|
5
|
%
|
|
25
|
%
|
|
40
|
%
|
Under TETRA's Cash Incentive Compensation Plan, financial and non-financial performance measures may be based on the performance criteria described in the plan or on such other measures as determined by the Management and Compensation Committee. One of the primary factors that contributed to our ability to maintain profitability in 2013 was the continued benefit of cost reduction efforts implemented in 2012 and maintained throughout 2013. To support our continued focus on these efforts, the Management and Compensation Committee elected to designate general and administrative cost reduction as an individual performance goal applicable to all participants in the Cash Incentive Compensation Plan for the 2014 fiscal year. In addition, the Management and Compensation Committee elected to decrease the weighting of the health, safety, and environmental performance measure from 20% in 2013 to 15% in 2014, and increase the weighting of the personal objectives performance measure to 15% from 10% in 2013, in order to bring the portion of our annual incentive that is based on safety metrics into closer alignment with annual bonuses provided by other companies within the oil and gas services industry. Performance measures for 2014 annual incentive awards to our NEOs include: (i) distributable cash flow; (ii) profit before taxes; (iii) the net number of compressor units placed into service during 2014; (iv) health, safety, and environmental metrics; and (v) personal objectives. The Management and Compensation Committee assigned relative weightings to each of our NEO's 2013 performance measures of 35% on distributable cash flow, 15% on profit before taxes, 20% on the net number of compressor units placed into service during 2014, 15% on health, safety, and environmental metrics, and 15% on personal objectives. For each of our NEOs and other members of Senior Management, the general and administrative cost reduction individual performance goal will comprise a minimum 25% of the weighted portion of each participant's personal objectives.
Equity Incentive Awards
. It is anticipated that future awards of phantom units and performance phantom units will generally be made to our NEOs and other members of Senior Management on an annual basis. We anticipate that such awards will be granted under our 2011 Long Term Incentive Plan.
Management and Compensation Committee Report
Our general partner, Compressco Partners GP Inc., does not have a compensation committee. The Board of Directors of Compressco Partners GP Inc., the general partner of Compressco Partners, L.P., has reviewed and discussed the Compensation Discussion and Analysis with management and, based upon such review and discussion, has approved the Compensation Discussion and Analysis for inclusion in this Annual Report on Form 10-K.
Submitted by the Board of Directors of Compressco Partners GP Inc.,
Geoffrey M. Hertel, Chairman
Stuart M. Brightman
Ronald J. Foster
D. Frank Harrison
James R. Larson
William D. Sullivan
Compensation of Executive Officers
Summary Compensation
The following table sets forth the compensation earned by (i) our President (“Principal Executive Officer”), (ii) our Chief Financial Officer (“Principal Financial Officer”), and (iii) each of our two most highly compensated executive officers (each a “Named Executive Officer”) for the fiscal year ended December 31, 2013.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Unit Awards
(1)
|
|
Option Awards
|
|
Non-Equity
Incentive Plan Comp.
(2)
|
|
All Other Comp.
(3)
|
|
Total
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Ronald J. Foster
|
|
2013
|
|
$
|
286,000
|
|
|
$
|
3,513
|
|
|
$
|
350,033
|
|
|
$
|
—
|
|
|
$
|
71,605
|
|
|
$
|
30,451
|
|
|
$
|
741,602
|
|
President
|
|
2012
|
|
275,000
|
|
|
—
|
|
|
175,293
|
|
|
—
|
|
|
146,273
|
|
|
18,208
|
|
|
614,774
|
|
|
|
2011
|
|
250,000
|
|
|
6,146
|
|
|
548,168
|
|
|
—
|
|
|
53,854
|
|
|
13,119
|
|
|
871,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James P. Rounsavall
|
|
2013
|
|
$
|
198,600
|
|
|
$
|
1,464
|
|
|
$
|
145,854
|
|
|
$
|
—
|
|
|
$
|
26,756
|
|
|
$
|
15,695
|
|
|
$
|
388,369
|
|
CFO
|
|
2012
|
|
190,962
|
|
|
—
|
|
|
81,804
|
|
|
—
|
|
|
57,623
|
|
|
14,141
|
|
|
344,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin W. Book
|
|
2013
|
|
$
|
212,569
|
|
|
$
|
1,171
|
|
|
$
|
116,691
|
|
|
$
|
—
|
|
|
$
|
30,454
|
|
|
$
|
28,929
|
|
|
$
|
389,814
|
|
VP of Int'l Operations
|
|
2012
|
|
204,658
|
|
|
—
|
|
|
81,804
|
|
|
—
|
|
|
60,578
|
|
|
25,310
|
|
|
372,350
|
|
|
|
2011
|
|
200,550
|
|
|
3,748
|
|
|
180,200
|
|
|
—
|
|
|
24,001
|
|
|
24,245
|
|
|
432,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
2013
|
|
$
|
157,405
|
|
|
$
|
1,171
|
|
|
$
|
136,687
|
|
|
$
|
—
|
|
|
$
|
21,855
|
|
|
$
|
23,326
|
|
|
$
|
340,444
|
|
VP of Sales & Business
|
|
2012
|
|
148,500
|
|
|
—
|
|
|
81,804
|
|
|
—
|
|
|
43,882
|
|
|
21,033
|
|
|
295,219
|
|
Development
|
|
2011
|
|
135,000
|
|
|
—
|
|
|
180,200
|
|
|
—
|
|
|
19,831
|
|
|
17,894
|
|
|
352,925
|
|
|
|
(1)
|
The amounts included in the “Unit Awards” column reflect the aggregate grant date fair value of awards granted during the fiscal years ended December 31, 2013, 2012, and 2011, as applicable, in accordance with FASB ASC Topic 718. The grant date fair value of performance phantom unit awards granted in 2013 and included in the total for 2013 is reported based on the probable outcome of the performance conditions on the grant date. The value of the 2013 performance phantom unit awards assuming achievement of the maximum performance level would have been: Mr. Foster, $400,042; Mr. Rounsavall, $166,702; Mr. Book, $133,360; and, Ms. Vanhooser, $133,360. Phantom unit awards and performance phantom unit awards granted under the Compressco Partners equity plan during 2013 relate to our common units and are valued at $20.28 per common unit in accordance with FASB ASC Topic 718.
|
|
|
(2)
|
The amounts included in the “Non-Equity Incentive Plan Compensation” column for 2013, 2012, and 2011 reflect the actual amount of the annual cash incentive earned for performance during that year and paid in March of the following year under TETRA’s Cash Incentive Compensation Plan.
|
|
|
(3)
|
The amounts reflected represent the employer paid portion of life, health, and disability insurance benefits, matching contributions under our 401(k) Retirement Plan, annual car allowances during 2013, 2012, and 2011, and accrued distributions paid during 2013 and 2012 upon vesting of restricted unit awards that relate to our common units.
|
Grants of Plan Based Awards
The following table discloses the actual number of phantom unit awards and performance phantom unit awards granted under the Compressco Partners, L.P. 2011 Long Term Incentive Plan during the fiscal year ended December 31, 2013 to each Named Executive Officer, including the grant date fair value of these awards, and the threshold, target, and maximum amounts of the annual non-equity (cash) incentive granted under TETRA’s Cash Incentive Compensation Plan during the fiscal year ended December 31, 2013 to each Named Executive Officer.
Grants of Plan Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
(1)
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards
(2)
|
|
All Other Stock Awards: Number of Units
|
|
Grant Date Fair Value of Stock and Option Awards
(3)
|
Name
|
|
Grant Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($)
|
Ronald J. Foster
|
|
2/26/2013
|
|
$
|
25,740
|
|
|
$
|
128,700
|
|
|
$
|
257,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/27/2013
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
7,397
|
|
$
|
150,011
|
|
|
|
5/27/2013
|
(5)
|
|
|
|
|
|
|
77
|
|
2,466
|
|
4,932
|
|
|
|
$
|
50,010
|
|
|
|
5/27/2013
|
(6)
|
|
|
|
|
|
|
231
|
|
7,397
|
|
14,794
|
|
|
|
$
|
150,011
|
|
James P. Rounsavall
|
|
2/26/2013
|
|
$
|
9,945
|
|
|
$
|
49,725
|
|
|
$
|
99,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/27/2013
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,082
|
|
$
|
62,503
|
|
|
|
5/27/2013
|
(5)
|
|
|
|
|
|
|
32
|
|
1,028
|
|
2,056
|
|
|
|
$
|
20,848
|
|
|
|
5/27/2013
|
(6)
|
|
|
|
|
|
|
96
|
|
3,082
|
|
6,164
|
|
|
|
$
|
62,503
|
|
Kevin W. Book
|
|
2/26/2013
|
|
$
|
10,660
|
|
|
$
|
53,300
|
|
|
$
|
106,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/27/2013
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,466
|
|
$
|
50,010
|
|
|
|
5/27/2013
|
(5)
|
|
|
|
|
|
|
26
|
|
822
|
|
1,644
|
|
|
|
$
|
16,670
|
|
|
|
5/27/2013
|
(6)
|
|
|
|
|
|
|
77
|
|
2,466
|
|
4,932
|
|
|
|
$
|
50,010
|
|
Sheri J. Vanhooser
|
|
2/26/2013
|
|
$
|
8,000
|
|
|
$
|
40,000
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/27/2013
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,452
|
|
$
|
70,007
|
|
|
|
5/27/2013
|
(5)
|
|
|
|
|
|
|
26
|
|
822
|
|
1,644
|
|
|
|
$
|
16,670
|
|
|
|
5/27/2013
|
(6)
|
|
|
|
|
|
|
77
|
|
2,466
|
|
4,932
|
|
|
|
$
|
50,010
|
|
|
|
(1)
|
The estimated possible payouts under non-equity incentive plan awards granted on February 26, 2013 are the threshold, target, and maximum amounts of the annual cash incentive granted for 2013 performance under TETRA’s Cash Incentive Compensation Plan. The actual amount of annual cash incentive earned for 2013 performance and paid in March 2014 for each of the NEOs was: Foster $71,605; Rounsavall $26,756; Book $30,454; and, Vanhooser $21,855.
|
|
|
(2)
|
The equity incentive plan awards granted on May 27, 2013 are the threshold, target, and maximum numbers of our common units that may be earned under performance phantom unit awards granted under the Compressco equity plan. "Threshold" is the lowest possible payout (3.125% of the award) and "maximum" is the highest possible payout (200% of the award).
|
|
|
(3)
|
The FASB ASC Topic 718 value of the phantom unit and performance phantom unit awards granted under the Compressco equity plan is $20.28 per unit. Performance phantom units are shown at target value.
|
|
|
(4)
|
Phantom unit awards granted under the Compressco Partners equity plan vest over a three-year period at a rate of one-third per year beginning on the first anniversary date of the award based on continued employment over such three-year period. Each phantom unit was granted in tandem with a distribution equivalent right (“DER”) that entitles the award holder to receive an additional number of units equal in value to any distributions we pay during the period the award is outstanding times the number of units subject to the award.
|
|
|
(5)
|
Performance phantom unit awards granted on May 27, 2013 may be earned under the Compressco Partners equity plan based on the level of achievement of the distributable cash flow per outstanding unit performance objective for the one-year performance period of January 1, 2013 through December 31, 2013 (the specific performance objective applicable to this award is described in “Compensation Discussion and Analysis – Equity Incentive Awards”). A 12.5% portion of the award was settled on January 31, 2014 based on an estimated level of attainment of the performance objective for the one-year performance period. Each performance phantom unit was granted in tandem with a DER that entitles the award holder to receive an additional number of units equal in value to any distributions we pay during the period the award is outstanding times the number of units subject to the award.
|
|
|
(6)
|
Performance phantom unit awards granted on May 27, 2013 may be earned under the Compressco Partners equity plan based on the level of achievement of the distributable cash flow per outstanding unit performance objective for the three-year performance period ending on December 31, 2015. Each performance phantom unit was granted in tandem with a DER that entitles the award holder to receive an additional number of units equal in value to any distributions we pay during the period the award is outstanding times the number of units subject to the award.
|
Outstanding Equity Awards at Fiscal Year End
The following table shows outstanding stock option awards previously awarded by TETRA and classified as exercisable as of December 31, 2013 for each Named Executive Officer. The table also discloses the number and value of unvested restricted unit awards and phantom unit awards granted under the Compressco Partners, L.P. 2011 Long Term Incentive Plan as of December 31, 2013.
Outstanding Equity Awards at Fiscal Year End Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
(1)
|
|
Unit Awards
|
|
|
Number of Securities
Underlying
Unexercised Options
|
|
Option Exercise Price
|
|
Option Expiration Date
|
|
Number of Units that Have Not Vested
|
|
Market Value of Units that Have Not Vested
(2)
|
|
Equity Incentive Plan Awards: Number of Unearned Units that Have Not Vested
(3)
|
|
Equity Incentive Plan Awards: Market Value or Payout Value of Unearned Units that Have Not Vested
(3)
|
Name
|
|
Options Exercisable
|
|
Options Unexercisable
|
|
|
|
|
|
|
|
|
(#)
|
|
(#)
|
|
($/Share)
|
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Ronald J. Foster
|
|
8,334
|
|
|
—
|
|
|
$
|
8.3000
|
|
|
7/15/2014
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
10,201
|
|
|
—
|
|
|
$
|
9.2067
|
|
|
12/28/2014
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
4,000
|
|
|
—
|
|
|
$
|
23.0550
|
|
|
4/12/2016
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
4,000
|
|
|
—
|
|
|
$
|
28.0750
|
|
|
5/12/2016
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
8,000
|
|
|
—
|
|
|
$
|
21.1000
|
|
|
5/20/2018
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
31,500
|
|
|
—
|
|
|
$
|
4.1700
|
|
|
4/9/2019
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
14,500
|
|
|
—
|
|
|
$
|
10.2000
|
|
|
5/20/2020
|
|
|
|
|
|
|
|
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
10,140
|
|
(4)
|
$
|
204,220
|
|
|
|
|
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
5,281
|
|
(5)
|
$
|
106,359
|
|
|
|
|
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
7,397
|
|
(6)
|
$
|
148,976
|
|
|
|
|
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,397
|
(7)
|
$
|
148,976
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
1,333
|
|
(4)
|
$
|
26,847
|
|
|
|
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
2,465
|
|
(5)
|
$
|
49,645
|
|
|
|
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
3,082
|
|
(6)
|
$
|
62,071
|
|
|
|
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,082
|
(7)
|
$
|
62,071
|
|
Kevin Book
|
|
10,500
|
|
|
—
|
|
|
$
|
9.2667
|
|
|
12/9/2014
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
2,000
|
|
|
—
|
|
|
$
|
23.0550
|
|
|
4/12/2016
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
2,000
|
|
|
—
|
|
|
$
|
28.0750
|
|
|
5/12/2016
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
5,000
|
|
|
—
|
|
|
$
|
21.1000
|
|
|
5/20/2018
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
6,000
|
|
|
—
|
|
|
$
|
4.1700
|
|
|
4/9/2019
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
3,250
|
|
|
—
|
|
|
$
|
10.2000
|
|
|
5/20/2020
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
|
|
|
|
|
|
|
|
3,333
|
|
(4)
|
$
|
67,127
|
|
|
|
|
|
Kevin Book
|
|
|
|
|
|
|
|
|
|
2,465
|
|
(5)
|
$
|
49,645
|
|
|
|
|
|
Kevin Book
|
|
|
|
|
|
|
|
|
|
2,466
|
|
(6)
|
$
|
49,665
|
|
|
|
|
|
Kevin Book
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,466
|
(7)
|
$
|
49,665
|
|
Sheri J. Vanhooser
|
|
5,000
|
|
|
—
|
|
|
$
|
21.1000
|
|
|
5/20/2018
|
|
|
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
6,000
|
|
|
—
|
|
|
$
|
4.1700
|
|
|
4/9/2019
|
|
|
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
3,175
|
|
|
—
|
|
|
$
|
10.2000
|
|
|
5/20/2020
|
|
|
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
3,333
|
|
(4)
|
$
|
67,127
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
2,465
|
|
(5)
|
$
|
49,645
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
3,452
|
|
(6)
|
$
|
69,523
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,466
|
(7)
|
$
|
49,665
|
|
|
|
(1)
|
All outstanding option awards relate to TETRA’s common stock. Under the terms of TETRA’s equity plans, the option exercise price must be greater than or equal to 100% of the closing price of the common stock on the date of grant.
|
|
|
(2)
|
All outstanding unit awards relate to our common units. Market value is determined by multiplying the number of units that have not vested by $20.14, the closing price of our common units on December 31,
2013.
|
|
|
(3)
|
The number of units earned under these performance phantom unit awards will be determined based on actual level of achievement of an established performance objective as of December 31, 2015. The amounts shown in these columns assume achievement of the target performance objective. Market value is determined by multiplying the target number of unearned units that have not vested by $20.14, the closing price of our common units on December 31, 2013.
|
|
|
(4)
|
The restricted unit award vested 33.34% on January 4, 2012, 33.33% on January 4, 2013, and 33.33% on January 4, 2014.
|
|
|
(5)
|
The phantom unit award vested 33.34% on May 27, 2013, and will vest an additional 33.33% of the award on each of May 27, 2014 and 2015.
|
|
|
(6)
|
The phantom unit award will vest 33.34% on May 27, 2014, and will vest an additional 33.33% of the award on each of May 27, 2015 and 2016.
|
|
|
(7)
|
The performance phantom unit award for the performance period of January 1, 2013 through December 31, 2015 may be settled pursuant to the terms of the award in January 2016 if applicable performance objectives are met. The number of units shown is the target number of units that may be issued under the award.
|
Option Exercises and Stock Vested
The following table sets forth certain information regarding restricted unit awards and performance phantom unit awards under the Compressco Partners, L.P. 2011 Long Term Incentive Plan that became vested or were earned, and restricted stock awards under TETRA’s equity plans that became vested, for each of our Named Executive Officers during the fiscal year ended December 31, 2013.
Option Exercises and Stock Vested Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock or Unit Awards
|
Name
|
|
Number of Shares
Acquired on Exercise
|
|
Value
Realized on Exercise
|
|
Number of Shares
or Units Acquired on Vesting
|
|
Value
Realized on Vesting
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Ronald J. Foster
|
|
—
|
|
|
$
|
—
|
|
|
19,743
|
|
(1)
|
$
|
226,864
|
|
James P. Rounsavall
|
|
—
|
|
|
$
|
—
|
|
|
5,148
|
|
|
$
|
60,224
|
|
Kevin Book
|
|
—
|
|
|
$
|
—
|
|
|
7,468
|
|
(2)
|
$
|
84,056
|
|
Sheri J. Vanhooser
|
|
—
|
|
|
$
|
—
|
|
|
7,460
|
|
(3)
|
$
|
84,001
|
|
|
|
(1)
|
For Mr. Foster, the number of shares or units vested includes 1,425 shares of TETRA's common stock.
|
|
|
(2)
|
For Mr. Book, the number of shares or units vested includes 320 shares of TETRA's common stock.
|
|
|
(3)
|
For Ms. Vanhooser, the number of shares or units vested includes 312 shares of TETRA's common stock.
|
Nonqualified Deferred Compensation
TETRA maintains the TETRA Technologies, Inc. Executive Nonqualified Excess Plan, an unfunded, nonqualified deferred compensation plan that allows participants to defer a portion of their base salaries and performance-based compensation. As of December 31, 2013, none of the Named Executive Officers had elected to participate in this plan.
Potential Payments upon a Change of Control or Termination
With the exception of the Change of Control Agreement with Mr. Foster, as of the filing date of this Annual Report, we do not have a defined severance plan for, or any agreement with, any Named Executive Officer that would require us to make any termination payments. We have previously entered into employment agreements with each Named Executive Officer that are substantially identical to the form of agreement executed by all of our employees. These agreements evidence the at-will nature of employment, and do not guarantee term of employment, salary, severance, or change of control payments. Under the Compressco Partners, L.P. 2011 Long Term Incentive Plan, our Board of Directors, in its sole discretion, may accelerate the vesting of restricted units, phantom units, and performance phantom units held by our Named Executive Officers upon termination of their employment. For purposes of the following disclosure, we have assumed that all outstanding unit awards would be accelerated if the Named Executive Officer's employment was terminated in connection with a change of control, or upon the death, disability, or retirement of such officer.
Change of Control Agreement with Mr. Foster.
On May 30, 2013, we entered into a change of control agreement (the “COC Agreement”) with Mr. Foster. The COC Agreement has an initial two-year term, with an automatic one-year extension on the second anniversary of the effective date (or any anniversary date thereafter) unless a cancellation notice is given at least 90 days prior to the expiration of the then applicable term. Under the COC Agreement, we have an obligation to provide certain benefits to Mr. Foster upon a qualifying termination event that occurs in connection with or within two years following a “change of control” of Compressco or TETRA. A qualifying termination event under the COC Agreement includes the termination of Mr. Foster’s employment with us other than for Cause (as that term is defined in the COC Agreement) or termination by Mr. Foster for Good Reason (as that term is defined in the COC Agreement).
Under the COC Agreement, if a qualifying termination event occurs in connection with or within two years following a change of control, we have an obligation to pay Mr. Foster the following cash severance amounts: (i)(A) an amount equal to Mr. Foster’s earned but unpaid Annual Bonus (as that term is defined in the COC Agreement) attributable to the immediately preceding calendar year and earned but unpaid Long Term Bonus (as that term is defined in the COC Agreement) attributable to the performance period ended as of the end of the immediately preceding calendar year to the extent such amounts would have been paid to Mr. Foster had he remained employed by us, and in each case only to the extent the performance goals for each such bonus were achieved for the respective performance period, plus (B) Mr. Foster’s prorated target Annual Bonus for the current year, plus (C) an amount equal to Mr. Foster’s target Long Term Bonus for each outstanding award; plus (ii) the product of 2 times the sum of Mr. Foster’s Base Salary and target Annual Bonus amount for the year in which the qualifying termination event occurs; plus (iii) an amount equal to the aggregate premiums and any administrative fees applicable to Mr. Foster due to an election of continuation of coverage that he would be required to pay if he elected to continue medical and dental benefits under the group health plan for Mr. Foster and his eligible dependents without subsidy from us for a period of two years following the date of Mr. Foster’s qualifying termination of employment. The COC Agreement also provides for full acceleration of any outstanding restricted unit awards, phantom unit awards, and other unit-based awards upon Mr. Foster’s qualifying termination of employment to the extent permitted under the applicable plan. All payments and benefits due under the COC Agreement are conditioned upon the execution and nonrevocation by Mr. Foster of a release for our benefit. All payments under the COC Agreement are subject to reduction as may be necessary to avoid exceeding the amount allowed under Section 280G of the Internal Revenue Code of 1986, as amended.
The COC Agreement also contains certain confidentiality provisions and other restrictions applicable to Mr. Foster. In addition to restrictions upon improper disclosure and use of Confidential Information (as defined in the COC Agreement), Mr. Foster agrees that for a period of two years following a termination of employment for any reason, he will not solicit our employees or otherwise engage in a competitive business with us as more specifically set forth in the COC Agreement. Such obligations are only applicable to Mr. Foster if he receives the severance benefits described above.
The following table quantifies the potential payments to Named Executive Officers who were employed by us as of December 31, 2013, under the contracts, agreements, or plans discussed above in various scenarios involving a change of control or termination of employment, assuming a December 31, 2013 termination date. In addition to the amounts reflected in the table, the Named Executive Officers would receive upon termination any salary earned through December 31, 2013, and any benefits they would otherwise be entitled to under TETRA's 401(k) Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash Severance Payment
|
|
Bonus Payment
|
|
Accelerated Vesting of Unit Awards
(3)
|
|
Continuation of Health Benefits
|
|
Total
|
Ronald J. Foster
|
|
|
|
|
|
|
|
|
|
|
Death/disability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
608,530
|
|
|
$
|
—
|
|
|
$
|
608,530
|
|
Retirement
|
|
—
|
|
|
—
|
|
|
608,530
|
|
|
—
|
|
|
608,530
|
|
Termination for cause
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
No cause or voluntary termination
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Termination upon a change of control
|
|
829,400
|
|
(1)
|
82,160
|
|
(2)
|
608,530
|
|
|
31,930
|
|
|
1,552,020
|
|
|
|
|
|
|
|
|
|
|
|
|
James P. Rounsavall
|
|
|
|
|
|
|
|
|
|
|
Death/disability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200,635
|
|
|
$
|
—
|
|
|
$
|
200,635
|
|
Retirement
|
|
—
|
|
|
—
|
|
|
200,635
|
|
|
—
|
|
|
200,635
|
|
Termination for cause
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
No cause or voluntary termination
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Termination upon a change of control
|
|
—
|
|
|
—
|
|
|
200,635
|
|
|
—
|
|
|
200,635
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Book
|
|
|
|
|
|
|
|
|
|
|
Death/disability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
216,102
|
|
|
$
|
—
|
|
|
$
|
216,102
|
|
Retirement
|
|
—
|
|
|
—
|
|
|
216,102
|
|
|
—
|
|
|
216,102
|
|
Termination for cause
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
No cause or voluntary termination
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Termination upon a change of control
|
|
—
|
|
|
—
|
|
|
216,102
|
|
|
—
|
|
|
216,102
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheri J. Vanhooser
|
|
|
|
|
|
|
|
|
|
|
Death/disability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
235,960
|
|
|
$
|
—
|
|
|
$
|
235,960
|
|
Retirement
|
|
—
|
|
|
—
|
|
|
235,960
|
|
|
—
|
|
|
235,960
|
|
Termination for cause
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
No cause or voluntary termination
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Termination upon a change of control
|
|
—
|
|
|
—
|
|
|
235,960
|
|
|
—
|
|
|
235,960
|
|
|
|
(1)
|
Represents a multiple of base salary plus target annual cash bonus, as provided under the terms of his COC Agreement.
|
|
|
(2)
|
Includes earned annual cash incentive for the 2013 performance period, his 2013 discretionary cash bonus, and the value of phantom performance units earned for the one-year performance period ended December 31, 2013, all of which would have been unpaid as of December 31, 2013.
|
|
|
(3)
|
Our 2011 Long Term Incentive Plan allows acceleration upon termination following a change of control and upon death, disability, or retirement at the discretion of our Board of Directors (with regard to Named Executive Officers). Under the terms of Mr. Foster's COC Agreement, acceleration would automatically occur upon a qualifying termination of employment following a change of control. The value of accelerated unit awards is calculated by multiplying the number of accelerated units by $20.14, the closing price of our common units on December 31, 2013.
|
Director Compensation
As of January 1, 2013, each director who is not an employee of our general partner, TETRA, or any of its subsidiaries, receives non-cash compensation of $60,000 per year for attending regularly scheduled board meetings. In order to remain competitive in director compensation, effective May 27, 2013, the Board approved the addition of cash director fees in the amount of $15,000 per year, paid quarterly. The non-cash compensation is paid for the upcoming service year in the form of phantom unit awards that have an intended value of $60,000, prorated for any newly elected director to such director's date of election. Directors who are appointed as the chairmen of our Conflicts Committee and Audit Committee receive additional compensation of $5,000 and $10,000 per year, respectively, prorated from their respective dates of appointment, which is also paid in the form of phantom unit awards. All such awards of phantom units are granted under our 2011 Long Term Incentive Plan. Directors are reimbursed for out-of-pocket expenses incurred in connection with their service as directors.
Directors who are also our officers or employees, or officers or employees of TETRA, do not receive any compensation for duties performed as our directors. Consequently, neither Mr. Foster, our President, nor Mr.
Brightman, the President and Chief Executive Officer of TETRA, was compensated for his service to us as a director during 2013.
On May 27, 2013, the Board approved awards of 2,959 phantom units with an aggregate grant date fair market value of $60,009 to Messrs. Harrison, Hertel, Larson, and Sullivan for their service as directors during the May 2013 through May 2014 service year. Also on May 27, 2013, with regard to the May 2013 through May 2014 service year, Mr. Harrison received an additional award of 247 phantom units with a grant date fair market value of $5,009 for his service as chairman of the Conflicts Committee, and Mr. Larson received an additional award of 493 phantom units with a grant date fair market value of $9,998 for his service as chairman of the Audit Committee. One-third of all of the phantom units so awarded were immediately vested on May 27, 2013, and additional one-third portions of each award vest on January 4, 2014 and May 27, 2014. A phantom unit is a notional unit that entitles the director to receive a common unit of the Partnership upon vesting of the phantom unit. Each award of phantom units to Messrs. Harrison, Hertel, Larson, and Sullivan was granted in tandem with distribution equivalent rights (“DERs”) that entitle the award holder to receive an additional number of units equal in value to any distributions we pay during the period the award is outstanding times the number of unvested phantom units subject to the award. DERs are subject to the same vesting restrictions and risk of forfeiture applicable to the corresponding phantom units. It is anticipated that directors will be appointed to the Board in May of each calendar year.
The following table discloses the cash, equity awards, and other compensation earned, paid, or awarded, as the case may be, to each of our non-employee directors during the fiscal year ended December 31, 2013.
Director Compensation Table
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or Paid
in Cash
(1)
|
|
Unit Awards
(2)
|
|
All Other
Compensation
(3)
|
|
Total
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
D. Frank Harrison
|
|
$
|
11,250
|
|
|
$
|
65,018
|
|
|
$
|
25
|
|
|
$
|
76,293
|
|
Geoffrey M. Hertel
|
|
11,250
|
|
|
60,009
|
|
|
30
|
|
|
71,289
|
|
James R. Larson
|
|
11,250
|
|
|
70,007
|
|
|
20
|
|
|
81,277
|
|
William D. Sullivan
|
|
11,250
|
|
|
60,009
|
|
|
30
|
|
|
71,289
|
|
|
|
(1)
|
The amounts in this column reflect payments earned in the second, third, and fourth quarters of 2013 following the Board's May 27, 2013 approval of annual cash payments of $15,000 to each eligible director, to be paid on a quarterly basis.
|
|
|
(2)
|
Phantom units granted on May 27, 2013 are valued at $20.28 per common unit in accordance with FASB ASC Topic 718.
|
|
|
(3)
|
Includes payment of cash amounts representing the fractional portions of common units due upon settlement of dividend equivalent rights granted in tandem with phantom unit awards.
|
Compensation Policies and Risk Management
To the extent that risks may arise from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on us, we are required to discuss our policies and practices for compensating our employees (including our employees that are not Named Executive Officers) as they relate to our risk management practices and risk-taking incentives. We have determined that our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on us, thus no such disclosure exists at this time. We seek to structure a balance between achieving strong short-term annual results and ensuring long-term viability and success by providing both annual and long-term incentive opportunities. We believe that providing both short- and long-term awards also helps to minimize any risk to us or our unitholders that could arise from excessive focus on short-term performance. Our general partner’s board of directors is aware of the need to routinely assess our compensation policies and practices and will make a determination as to the necessity of this particular disclosure on an annual basis.
Management and Compensation Committee Interlocks and Insider Participation
As previously discussed, our general partner’s Board is not required to maintain, and does not maintain, a compensation committee. During 2013, Messrs. Brightman and Foster, who were directors of our general partner, were also executive officers of TETRA. All compensation decisions with respect to Mr. Brightman are made by TETRA and he does not receive any compensation directly from us or from our general partner. All compensation decisions with respect to Mr. Foster are made by TETRA and our general partner as described above, with the exception of equity awards under the Compressco Partners, L.P. 2011 Long Term Incentive Plan which, if awarded,
are granted by our general partner’s Board. Please read Item 13, “Certain Relationships and Related Party Transactions, and Director Independence” below, for information about relationships among us, our general partner, and TETRA.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Beneficial Ownership of Certain Unitholders and Management
The following table sets forth certain information with respect to the beneficial ownership of our units as of December 31, 2013 with respect to each person that beneficially owns five percent (5%) or more of our outstanding units, and as of March 7, 2014, with respect to (i) our directors; (ii) our Named Executive Officers; and (iii) our directors and executive officers as a group.
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Name and Business Address of Beneficial Owner
|
|
Common Units Beneficially Owned
|
|
Percentage
of Common Units
(1)
|
|
Subordinated Units Beneficially Owned
|
|
Percentage of Subordinated Units
(2)
|
|
Percentage of Total Units Beneficially Owned
(3)
|
|
|
|
|
|
|
|
|
|
|
|
TETRA Technologies, Inc.
(4)
24955 Interstate 45 North
The Woodlands, TX 77380
|
|
6,427,257
|
|
|
69.3
|
%
|
|
6,273,970
|
|
|
100.0
|
%
|
|
81.7
|
%
|
OppenheimerFunds, Inc.
(5)
Two World Financial Center
225 Liberty Street
New York, NY 10281
|
|
844,344
|
|
|
9.1
|
%
|
|
—
|
|
|
—
|
|
|
5.4
|
%
|
Stuart M. Brightman
|
|
17,500
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Ronald J. Foster
|
|
27,653
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
D. Frank Harrison
|
|
7,738
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Geoffrey M. Hertel
|
|
96,323
|
|
|
1.0
|
%
|
|
—
|
|
|
—
|
|
|
*
|
|
James R. Larson
|
|
10,932
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
William D. Sullivan
|
|
24,713
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Kevin W. Book
|
|
13,024
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Mark L. Corlee
|
|
—
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
James P. Rounsavall
|
|
6,496
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Sheri J. Vanhooser
|
|
10,369
|
|
|
*
|
|
|
—
|
|
|
—
|
|
|
*
|
|
Directors and executive officers as a group (10 persons)
|
|
214,748
|
|
|
2.3
|
%
|
|
—
|
|
|
—
|
|
|
1.4
|
%
|
|
|
(1)
|
Reflects common units beneficially owned as a percentage of 9,279,293 common units outstanding.
|
|
|
(2)
|
Reflects subordinated units beneficially owned as a percentage of 6,273,970 subordinated units outstanding.
|
|
|
(3)
|
As a percentage of total limited partner interest.
|
|
|
(4)
|
The common units and subordinated units beneficially owned by TETRA Technologies, Inc. are directly held of record by our general partner and TETRA International Incorporated, each a wholly owned subsidiary of TETRA Technologies, Inc. Each of our general partner and TETRA International Incorporated has sole voting and investment power over the common and subordinated units held by them. As a result, TETRA Technologies, Inc. has indirect, sole voting and investment power over the common and subordinated units held by our general partner and TETRA International Incorporated.
|
|
|
(5)
|
Pursuant to a Schedule 13G/A dated February 6, 2014, OppenheimerFunds, Inc. has shared voting power and shared dispositive power with respect to 844,344 of our common units.
|
The following table sets forth certain information with respect to the beneficial ownership of the common stock of TETRA as of March 7, 2014 with respect to (i) our directors; (ii) our Named Executive Officers; and (iii) our directors and executive officers as a group.
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and Nature of Beneficial Ownership
|
|
|
|
Percentage of Class
|
Stuart M. Brightman
|
|
895,798
|
|
|
(1)
|
|
1.1
|
%
|
Ronald J. Foster
|
|
88,283
|
|
|
(2)
|
|
*
|
|
D. Frank Harrison
|
|
—
|
|
|
|
|
*
|
|
Geoffrey M. Hertel
|
|
707,521
|
|
|
(3)
|
|
*
|
|
James R. Larson
|
|
—
|
|
|
|
|
*
|
|
William D. Sullivan
|
|
98,210
|
|
|
|
|
*
|
|
Kevin W. Book
|
|
39,980
|
|
|
(4)
|
|
*
|
|
Mark L. Corlee
|
|
—
|
|
|
|
|
*
|
|
James P. Rounsavall
|
|
—
|
|
|
|
|
*
|
|
Sheri J. Vanhooser
|
|
14,487
|
|
|
(5)
|
|
*
|
|
Directors and executive officers as a group (10 persons)
|
|
1,844,279
|
|
|
(6)
|
|
2.3
|
%
|
|
|
(1)
|
Includes 628,639 shares subject to options exercisable within 60 days of March 7, 2014.
|
|
|
(2)
|
Includes 80,535 shares subject to options exercisable within 60 days of March 7, 2014.
|
|
|
(3)
|
Includes 182,000 shares subject to options exercisable within 60 days of March 7, 2014.
|
|
|
(4)
|
Includes 28,750 shares subject to options exercisable within 60 days of March 7, 2014.
|
|
|
(5)
|
Includes 14,175 shares subject to options exercisable within 60 days of March 7, 2014.
|
|
|
(6)
|
Includes 934,099 shares subject to options exercisable within 60 days of March 7, 2014.
|
Equity Compensation Plan Information
The following table provides information as of December 31, 2013, regarding compensation plans (including individual compensation arrangements) under which our common units are authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants or Rights
|
|
|
|
Weighted Average
Exercise Price of
Outstanding Options,
Warrants, or Rights
|
|
Number of Securities
Remaining Available for Future
Issuance under Equity Comp.
Plans (Excluding Securities
Shown in the First Column)
|
Equity compensation plans approved by security holders
|
|
—
|
|
|
|
|
$
|
—
|
|
|
—
|
|
Equity compensation plans not approved by security holders
(1)
|
|
94,108
|
|
|
(2)
|
|
$
|
—
|
|
|
1,256,749
|
|
Total:
|
|
94,108
|
|
|
|
|
$
|
—
|
|
|
1,256,749
|
|
|
|
(1)
|
Consists of the 2011 Long Term Incentive Plan, which was approved by the Board of our general partner in connection with the initial public offering. Please read Item 11 of this Annual Report on Form 10-K for additional information regarding the 2011 Long Term Incentive Plan.
|
|
|
(2)
|
Represents phantom unit awards and performance phantom unit awards outstanding under the 2011 Long Term Incentive Plan. These phantom unit awards and performance phantom unit awards do not have an exercise price. The table above does not include 38,917 restricted units subject to awards outstanding under the 2011 Long Term Incentive Plan.
|
Please see “Compensation Discussion and Analysis – Compensation Elements – Equity Incentive Awards” under Item 11 of this Annual Report for information about the material features of the 2011 Long Term Incentive Plan, which information is incorporated by reference in this Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Transactions
Review, Approval or Ratification of Transactions with Related Persons.
The related person transactions in which we engaged in 2013 were typically of a recurring, ordinary course nature, were previously
made known to the Board of our general partner, and generally were of the sort contemplated by the Omnibus Agreement dated June 20, 2011, among us, our general partner and TETRA Technologies, Inc. (the “Omnibus Agreement”) and other related party agreements entered into in connection with our initial public offering. We do not have formal, specified policies for the review, approval or ratification of transactions required to be reported under paragraph (a) of Regulation S-K Item 404. However, because related person transactions may result in potential conflicts of interest among management and board-level decision makers, our Partnership Agreement does set forth procedures that the general partner may utilize in connection with resolutions of potential conflicts of interest, including the referral of such matters to an independent conflicts committee for its review and approval or disapproval of such matters.
The Conflicts Committee, which was formed in April 2012, is currently composed of two directors of the Board of our general partner, each of whom has been deemed by the Board to meet the independence standards established under
the Partnership Agreement.
The purposes of the Conflicts Committee are to carry out certain duties set forth in our Partnership Agreement and the Omnibus Agreement, and to carry our any other duties delegated by the Board that involve or relate to conflicts of interest between us and TETRA, including its operating subsidiaries. The Conflicts Committee has sole authority to retain and terminate any consultants, attorneys, independent accountants or other service providers to assist it in the evaluation of conflicts matters.
The Conflicts Committee is charged with acting on an informed basis, in good faith and with an honest belief that any action taken by the committee is in our best interests. In taking any such action, including the resolution of a conflict of interest, the conflicts committee will be authorized to consider any factors it determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances.
Transactions with Related Persons.
During the twelve months ended December 31, 2013, we made payments to Curtis1000, a provider of marketing, human resources and safety services, of approximately $30,000. The sales representative of Curtis1000 responsible for our business is the wife of Ronald J. Foster, the President of our general partner. We believe the costs of the services provided by Curtis1000 are comparable to the costs that would be charged by an unaffiliated third party.
Transactions with our General Partner and its Affiliates.
As of March 11, 2014, TETRA and certain of its subsidiaries, including our general partner, owned 6,437,791 common units and 6,273,970 subordinated units, which together constitute an 82.1% limited partner interest in us, and an approximate 2% general partner interest in us. TETRA is, therefore, a “related person” to us as such term is defined by the SEC.
Distributions and Payments to the General Partner and its Affiliates.
We will generally make cash distributions 98% to unitholders on a pro rata basis, including our general partner and certain subsidiaries of TETRA, as the holders of 6,427,257 common units and 6,273,970 subordinated units, and approximately 2% to our general partner. In addition, if distributions exceed the minimum quarterly distribution and other higher target distribution levels, TETRA and our general partner will be entitled to increasing percentages of the distributions up to 48% of the distributions above the highest target distribution level.
For the year ended December 31, 2013, we paid aggregate distributions of approximately $10.9 million on our common units, $10.7 million on our subordinated units and $0.5 million on our general partner interest to TETRA and our general partner. On February 14, 2014, we paid a quarterly distribution with respect to the period from October 1, 2013 through December 31, 2013 of approximately $2.8 million on our common units, $2.7 million on our subordinated units and $0.1 million on our general partner interest to TETRA and our general partner.
Contribution Agreement.
In connection with the closing of the Offering, we entered into a contribution, conveyance and assumption agreement with TETRA, our general partner, Compressco, and TETRA International Incorporated, each of which is a wholly owned subsidiary of TETRA (the “Contribution Agreement”). The Contribution Agreement provided for a series of conveyances, contributions and distributions by the various parties to the Contribution Agreement of substantially all of the business, operations and related assets and liabilities of our Predecessor including, among others, the following transactions:
|
|
•
|
Our general partner contributed to us, as a capital contribution, (a) all of the equity securities of Compressco Field Services, Inc.’s (“CFSI”) operating subsidiaries, which were contributed to the general partner pursuant to the Contribution Agreement, and (b) the business conducted by CFSI and its operating
|
subsidiaries, together with related assets and liabilities, which were contributed to the general partner pursuant to the Contribution Agreement, in exchange for (i) a 2.0% general partner interest in us, (ii) all of our incentive distribution rights, (iii) 5,303,546 common units, (iv) 5,521,094 subordinated units, and (v) the right to receive up to 400,500 additional common units if such common units were not purchased by the underwriters of the Offering within 30 days of the Offering.
|
|
•
|
TETRA International contributed to us (a) all of TETRA International’s equity interests in two of its operating subsidiaries, and (b) certain equipment of TETRA International, in exchange for (i) 723, 211 common units, and (ii) 752,876 subordinated units.
|
|
|
•
|
We assumed and repaid $32.2 million of intercompany indebtedness using a portion of the proceeds generated by the Offering.
|
|
|
•
|
We used approximately $8.1 million of the proceeds from the offering to reimburse TETRA for certain expenses incurred in connection with the Offering.
|
Omnibus Agreement.
Our ongoing relationship with TETRA and our general partner is governed by the Omnibus Agreement. Pursuant to the terms of the Omnibus Agreement, TETRA and our general partner are reimbursed for direct costs incurred in operating and maintaining our business and allocated expenses for personnel who perform corporate, general and administrative services on our behalf. TETRA and our general partner do not receive any management fee or other compensation for management of us. The Omnibus Agreement (other than the indemnification obligations described under “Indemnification for Environmental and Related Liabilities,” below) will terminate upon the earlier to occur of (i) a change in control of TETRA or our general partner, or (ii) June 20, 2014, unless we, our general partner and TETRA elect to extend the term of the agreement.
Subcontract Services
Under the Omnibus Agreement, we or TETRA and our general partner may, but neither is under any obligation to, perform for the other such production enhancement or other oilfield services on a subcontract basis as are needed or desired by the entity retaining such services, for such periods of time and in such amounts as may be mutually agreed upon by us and TETRA and our general partner. Any such services are required to be performed on terms that are either (i) approved by the conflicts committee of our general partner’s board of directors, (ii) no less favorable to us than those generally being provided to or available from non-affiliated third parties, as determined by our general partner, or (iii) fair and reasonable to us, taking into account the totality of the relationships between us and TETRA, as determined by our general partner. For the year ended, December 31, 2013, in connection with our operations in Argentina, a subsidiary of TETRA provided services to a subsidiary of ours on a subcontract basis for approximately $0.5 million.
Sales, Leases or Exchanges of
Equipment
Under the Omnibus Agreement, we or TETRA and our general partner may, but neither is under any obligation to, sell, lease or like-kind exchange to the other such production enhancement or other oilfield services equipment as is needed or desired by the acquiring entity to meet its production enhancement or other oilfield services obligations, in such amounts, in such conditions and for such periods of time as may be mutually agreed upon by us and our general partner. Any such sales, leases or in-kind exchanges are required to be on terms that are either (i) approved by the conflicts committee of our general partner’s board of directors, (ii) no less favorable to us than those generally being provided to or available from non-affiliated third parties, as determined by our general partner, or (iii) fair and reasonable to us, taking into account the totality of the relationships between us and TETRA, as determined by our general partner. In addition, unless otherwise approved by the conflicts committee of our general partner’s board of directors, TETRA may purchase newly fabricated equipment from us, but only for a price not less than the sum of the total costs (other than any allocations of general and administrative expenses) incurred by us in manufacturing such equipment plus a fixed margin percentage thereof, and TETRA may purchase from us previously fabricated equipment for a price that is not less than the sum of the net book value of such equipment plus a fixed margin percentage thereof. For the year ended December 31, 2013, the approximate dollar value of the amounts involved in transactions between us and TETRA that were related to the sale, lease or exchange of equipment was as follows:
|
|
•
|
Pursuant to an equipment sharing agreement between two of our subsidiaries and a subsidiary of TETRA in connection with operations in Mexico, our subsidiaries charged TETRA's subsidiary equipment rental amounts of approximately $1.3 million and TETRA’s subsidiary charged our subsidiaries equipment rental
|
amounts of approximately $4.3 million during 2013. In addition, another TETRA subsidiary charged our subsidiaries $0.4 million during 2013 for parts purchased for use by our subsidiaries in Mexico.
|
|
•
|
In addition to the foregoing, we also provide early production services to a customer in Argentina. A subsidiary of TETRA charged a subsidiary of ours in Argentina approximately $0.5 million during 2013 for equipment leased from TETRA's subsidiary to our subsidiary in Argentina related to those operations.
In connection with our operations in Argentina, our subsidiary invoiced another subsidiary of TETRA for reimbursement of expenses incurred on behalf of TETRA's subsidiary of approximately $1.0 million during 2013. In addition, one of our subsidiaries charged a subsidiary of TETRA approximately $0.8 million for equipment leased from our subsidiary to TETRA's subsidiary in Argentina.
|
Provision of Personnel and Services
Our business operations are conducted by our general partner’s employees and certain employees of TETRA’s Mexico-based subsidiaries. In addition, TETRA and our general partner provide certain corporate, general and administrative services to us that are reasonably necessary for the conduct of our business. Such corporate, general and administrative services include legal, accounting and financial reporting, treasury, insurance administration, claims processing and risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit and tax services. Under the Omnibus Agreement, the services TETRA and our general partner provide to us must be substantially similar in nature and quantity to the services TETRA and our general partner previously provided to our successor entity and can be no lower in quantity than is reasonably necessary to assist us in the management and operation of our business. For the year ending December 31, 2013, TETRA and our general partner charged us approximately $25.9 million in reimbursement for such services.
Indemnification for Environmental and Related Liabilities
Under the Omnibus Agreement, subject to certain limitations, TETRA and our general partner have indemnified us against certain potential environmental claims, losses, and expenses associated with TETRA’s operation of our Predecessor entity prior to the completion of the Offering, and we have indemnified TETRA and our general partner for environmental claims arising following the completion of the Offering regarding the businesses contributed by TETRA and our general partner to us. TETRA and our general partner have also indemnified us for liabilities related to certain defects in title to our assets and certain consents and permits necessary to own and operate such assets, and tax liabilities attributable to TETRA’s operation of our assets prior to the completion of the Offering.
Director Independence
Please see Part III, Item 10 of this annual report (“Corporate Governance and Director Independence”) for a discussion of director independence matters, which discussion is incorporated by reference into this Item 13.
Item 14. Principal Accounting Fees and Services.
Fees Paid to Principal Accounting Firm
The following table sets forth the aggregate fees for professional services rendered to us by our principal accounting firm, Ernst & Young LLP, for the fiscal years ended December 31, 2013, and 2012, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Audit fees
|
|
$
|
375,000
|
|
|
$
|
350,000
|
|
Audit related fees
|
|
—
|
|
|
—
|
|
Tax fees
(1)
|
|
80,000
|
|
|
99,000
|
|
Total fees
|
|
$
|
455,000
|
|
|
$
|
449,000
|
|
|
|
(1)
|
Consists of fees for international tax compliance review in 2013 and 2012.
|
Before approving these fees, our Audit Committee considered whether the provision of services by Ernst & Young LLP that are not related to the audit of our financial statements was compatible with maintaining the independence of Ernst & Young LLP, and concluded that it was.
Audit Committee Pre-Approval of Audit and Non-Audit Services
The Audit Committee of our general partner has adopted a Pre-Approval Policy with respect to services which may be performed by our independent registered public accounting firm (the “Audit Firm”). This policy lists specific audit-related services as well as any other services that our Audit Firm is authorized to perform and sets out an estimated range of the dollar limits for each specific service, which may not be exceeded without additional Audit Committee authorization. The Audit Committee receives periodic reports on the nature of the services provided by the Audit Firm and to determine if such services are in compliance with the Pre-Approval Policy. The Audit Committee reviews the policy at least annually in order to approve services and limits for the current year. Any service that is not clearly enumerated in the policy must receive specific pre-approval by the Audit Committee or by its Chairman, to whom such authority has been conditionally delegated, prior to engagement.