April 25, 201923, 2020
Dear Fellow Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders to be held on Wednesday, June 5, 20193, 2020 at 10:00 a.m., Central Daylight Time, at 1400 Woodloch Forest Drive, Suite 300, The Woodlands, Texas 77380. The other directors and officers join me in extending this invitation. We are sensitive to the public health and travel concerns our stockholders may have and recommendations that public health officials may issue in light of the evolving coronavirus (COVID-19) situation. As a result, we may impose additional procedures or limitations on meeting attendees (beyond those described herein) or may decide to hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting). We plan to announce any such updates on our proxy website at www.iproxydirect.com/ESTE, and we encourage you to check this website prior to the meeting if you plan to attend.
It is important that your shares are represented at the meeting. If you are unable to attend the meeting but have questions or comments about our operations, we would like to hear from you.
To assure that your shares will be voted at the meeting, please complete, sign, date and return your proxy card in the postage-paid envelope provided, or vote electronically via the Internet or by telephone using the instructions on the proxy card. Submitting your proxy will not affect your right to vote in person if you attend the meeting.
Sincerely,
 | |||
FRANK A. LODZINSKI | |||
Your vote is important.
Please vote by using the Internet, the telephone,
or by signing, dating, and returning the proxy card.
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, Texas 77380
NOTICE OF THE | ||
| Date: | June | ||||
| Time: | 10:00 a.m. CDT | ||||
| Place: | 1400 Woodloch Forest Drive, Suite 300 The Woodlands, Texas 77380 | ||||
| Matters to be voted on: | 1. | To elect | |||
| 2. | To approve | ||||
| 3. | To | ||||
| 4. | To transact such other business as may properly come before the | ||||
Stockholders of record at the close of business on April 22, 2019,20, 2020, will be entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof. A complete list of our stockholders entitled to vote at the meeting will be available for examination at our offices in The Woodlands, Texas during ordinary business hours for a period of ten (10) days prior to the Annual Meeting.
It is important that your shares be represented and voted at the Annual Meeting. Stockholders are urged to vote their shares by one of the following methods whether or not they plan to attend the Annual Meeting: (1) vote via the Internet or by telephone using the instructions on the proxy card, or (2) complete, sign, date and return the enclosed proxy card in the self-addressed envelope (the self-addressed envelope requires no postage if mailed in the United States).
By Order of the Board of Directors,
/S/ WILLIAM A. WIEDERKEHR, JR.
WILLIAM A. WIEDERKEHR, JR.
Corporate Secretary
April 25, 2019
23, 2020
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE JUNE Pursuant to rules of the Securities and Exchange Commission, we are providing access to our proxy materials, on or about April | ||||
| 2020 PROXY STATEMENT SUMMARY | ||||
| PROPOSAL 1 - ELECTION OF | ||||
| PROPOSAL 2 - | ||||
| PROPOSAL 3 - | ||||
| CORPORATE GOVERNANCE | ||||
| GENERAL | ||||
| OUR BOARD OF DIRECTORS | ||||
| DIRECTOR ATTENDANCE | ||||
| CONTROLLED COMPANY | ||||
| DIRECTOR INDEPENDENCE | ||||
| BOARD OF DIRECTORS DIVERSITY | ||||
| STOCKHOLDER-RECOMMENDED DIRECTOR CANDIDATES | ||||
| BOARD LEADERSHIP | ||||
| EXECUTIVE SESSIONS | ||||
| BOARD RISK OVERSIGHT | ||||
| COMMUNICATIONS WITH DIRECTORS | ||||
| BOARD COMMITTEES | ||||
| CORPORATE CODE OF BUSINESS CONDUCT AND ETHICS | ||||
| DELINQUENT SECTION 16(A) REPORTS | ||||
| ENVIRONMENTAL, SOCIAL, AND GOVERNANCE | ||||
| SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS | ||||
| COMPENSATION OF DIRECTORS | ||||
| MANAGEMENT | ||||
| EXECUTIVE COMPENSATION | ||||
| SUMMARY COMPENSATION TABLE | ||||
| OUTSTANDING EQUITY AWARDS AT YEAR END | ||||
| EMPLOYMENT CONTRACTS AND POTENTIAL PAYMENTS UPON A TERMINATION OF EMPLOYMENT OR A CHANGE IN CONTROL | ||||
| INDEPENDENT PUBLIC ACCOUNTANTS | ||||
| FEES PAID TO MOSS ADAMS LLP | ||||
| AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES | ||||
| AUDIT COMMITTEE REPORT | ||||
| CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | ||||
| FLATONIA ENERGY, LLC | ||||
| ENCAP INVESTMENTS, L.P. | ||||
| REGISTRATION RIGHTS AGREEMENT | ||||
| EXCHANGE RIGHT | ||||
| VOTING AGREEMENT | ||||
| POLICIES AND PROCEDURES FOR APPROVAL OF RELATED PARTY TRANSACTIONS | ||||
| GENERAL INFORMATION ABOUT THE ANNUAL MEETING | ||||
| VOTING INSTRUCTIONS AND INFORMATION | ||||
| STOCKHOLDER PROPOSALS | ||||
| ANNUAL REPORT ON FORM 10-K | ||||
| ELIMINATING DUPLICATIVE PROXY MATERIALS | |||
| INCORPORATION BY REFERENCE | |||
| ANNEX A | |||
| FORM OF PROXY | |||
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
| Annual Meeting of Stockholders | |||
| ● | Time: | 10:00 a.m. Central Daylight Time | |
| ● | Date: | June | |
| ● | Place: | 1400 Woodloch Forest Drive, Suite 300 The Woodlands, Texas 77380 | |
| ● | Record date: | April | |
| ● | Voting: | Stockholders as of the record date are entitled to vote. Each share of Class A Common Stock and Class B Common Stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. The Class A Common Stock and the Class B Common Stock vote together as one class. | |
| Meeting Agenda | |||
| ● | Election of | ||
| ● | |||
| ● | |||
| Voting Matters | Recommendation of the Board | Page Reference (for more detail) | ||
| Election of Class | FOR EACH NOMINEE | |||
| FOR | ||||
| Name | Class (1) | Age | Director Since | Position with the Company | Experience/ Qualifications | Independent | Audit Committee Membership | Compensation Committee Membership | ||||||||
| Frank A. Lodzinski | I | 69 | 2014 | Chairman and Chief Executive Officer | Leadership, Industry Expertise, Operations and Experience | |||||||||||
| Ray Singleton | I | 68 | 1989 | Director | Industry Expertise, Operations and Experience | |||||||||||
| Wynne M. Snoots, Jr. | I | 58 | 2017 | Director | Finance and Industry Expertise | |||||||||||
| Douglas E. Swanson, Jr. | II | 47 | 2014 | Director | Finance and Industry Expertise | |||||||||||
| Brad A. Thielemann | II | 42 | 2014 | Director | Finance and Industry Expertise | X | X | |||||||||
| Zachary G. Urban | II | 41 | 2014 | Director | Accounting and Finance | X | X | |||||||||
| Jay F. Joliat | III | 62 | 2014 | Director | Finance, Industry Expertise and Experience | X | X | X | ||||||||
| Phillip D. Kramer | III | 63 | 2016 | Director | Accounting, Finance and Experience | X | X | X | ||||||||
| Robert L. Zorich | III | 69 | 2014 | Director | Finance, Industry Expertise and Experience | |||||||||||
OUR BOARDBUSINESS
Earthstone Energy, Inc., a Delaware corporation (“Earthstone” and together with our consolidated subsidiaries, the “Company,” “our,” “we,” “us,” or similar terms), is a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition, drilling and development of undeveloped leases, asset and corporate acquisitions and mergers. Our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the United States. At present, our assets are located in the Midland Basin of west Texas and the Eagle Ford Trend of south Texas.
Our primary focus is concentrated in the Midland Basin of west Texas, a high oil and liquids rich resource basin which provides us with multiple horizontal targets with proven production results, long-lived reserves and historically high drilling success rates. We have approximately 29,100 net acres in the core of the Midland Basin that are highly contiguous on a project by project basis which allow us to drill multi-well pads.
Our current business strategy is to focus on the economic development of our existing acreage, increase our acreage and horizontal well locations in the Midland Basin and increase stockholder value through the following:
developing our acreage and profitably growing our production while seeking to achieve free cash flow*;
operating our properties efficiently and continuing to improve our operating margins;
deploying capital efficiently by drilling multi-well pads, reducing drilling times and increasing completions per day;
operating our assets in a safe and environmentally sensitive manner;
continuing to hedge commodity prices as opportunities arise;
pursuing value-accretive acquisition and corporate merger opportunities, which could increase the scale of our operations;
maximizing operating margins and corporate level cash flows by minimizing operating and overhead costs;
expanding our acreage positions and drilling inventory in our primary areas of interest through acquisitions and farm-in opportunities, with an emphasis on operated positions;
blocking up acreage to allow for longer horizontal lateral drilling locations which provide higher economic returns; and
maintaining a strong balance sheet and financial flexibility.
Our Strengths
We believe that the following strengths are beneficial in achieving our business goals:
extensive horizontal development potential in one of the most oil rich basins of the United States;
experienced management team with substantial technical and operational expertise;
ability to attract technical personnel with experience in our core area of operations;
history of successful acquisition and merger transactions;
operating control over the majority of our production and development activities;
conservative balance sheet; and
commitment to cost efficient operations.
2019 Highlights
In addition to our drilling program described above, the following are additional highlights of our 2019 activities compared to activity in 2018:
Full year 2019 average daily sales volumes of 13,429 Boepd exceeded our production goals and increased 35%
Increased drilling efficiencies by drilling multi-well pads and longer lateral length wells averaging 10,700 feet in the Midland Basin
Improved frac efficiency from 8 to 12 stages per day
Reduced total drilling and completion costs by approximately 16%
Increased Proved Developed reserves by 33%
Increased Adjusted EBITDAX* by 51%
Improved our operating margins by 10%
Realized $15.9 million from our hedge positions thereby mitigating commodity price volatility
Strong balance sheet and liquidity position with $155 million of undrawn capacity on a $325 million senior secured revolving credit facility and a cash balance of $13.8 million as of December 31, 2019
Our team performed exceptionally well in 2019 culminating in record levels of production and Adjusted EBITDAX* for both the fourth quarter and full year 2019. Our focus on cost control and operational execution throughout our organization demonstrates our
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ability to drive peer-leading margins and improved capital efficiency thereby extracting value from our assets. We are extremely proud of our 2019 results and in our operations despite challenges due to the market environment.
2020 Outlook
The recent outbreak of COVID-19 and the price war between Saudi Arabia and Russia have presented our industry with a difficult operating environment. Similar to the oil price crash of 2014 and 2015, commodity prices are again under enormous pressure with unprecedented market volatility. However, we believe that we are well-positioned to survive, as we have in previous historical industry downturns. With the recent dramatic drop in oil prices, we believe we are in an enviable position with no long-term contracts, low leverage, and a very strong hedge position, which affords us the flexibility to adjust our capital plan quickly with no adverse impact on our current financial position. We recently took action to reduce our capital program to $50 - $60 million for 2020. We also initiated actions in an effort to reduce our 2020 overhead by an estimated 25% from 2019. Additionally, we restructured certain oil swaps to add protection to our 2021 cash flows by adding 1,000 Bopd of WTI swaps in 2021 at $55.65 per Bbl. Simultaneously, we reduced 2020 hedge volumes from 8,000 Bopd to 7,000 Bopd beginning in March 2020. All aforementioned hedges are fixed price swaps that afford us meaningful downside protection. After adjusting for these changes, our oil swap position for the full year of 2020 is 7,164 Bopd, hedged at a WTI price of $60.99/Bbl, which is approximately 81% of the midpoint of our estimated oil production guidance.
In addition, we recently completed our regularly scheduled redetermination of our borrowing base under our senior secured revolving credit facility (“Credit Facility”) with our borrowing base set at $275 million, representing a 15% decrease from our previous borrowing base of $325 million. As of March 31, 2020, we had outstanding borrowings under our Credit Facility of $152 million, which represents a reduction of 11% compared to the $170 million in outstanding borrowings as of December 31, 2019. Our only debt is borrowings under our Credit Facility.
With the set of actions described above, we believe we will survive the current industry downturn, while acknowledging extreme commodity price volatility and recognizing other materially adverse factors influencing capital access including investor, environmental, social concerns and governance considerations. Accordingly, we have commenced activities transitioning us and we strive to become better stewards of our resources. We remain optimistic we will operate through this downturn and be able to take advantage of opportunities that lie ahead.
*Represents a non-GAAP measure. See reconciliation of non-GAAP measures in our 2019 Annual Report on Form 10-K.
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PROPOSAL 1 - ELECTION OF TWO CLASS II DIRECTORS
Our business and affairs are managed under the direction of our Board of Directors (the “Board”(“Board”). Our Third Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), specifies that we shall not have less than three nor more than nine directors. Currently, our Board has nine members. Under our Certificate of Incorporation, each director holds office until the annual meeting of stockholders at which such director’s class is up for re-election and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal. Our Certificate of Incorporation provides that our Board is classifieddivided into three classes: Class I, Class II and Class III, with each class having a three-year term of officeclasses to allow for staggered three-year terms. The term of office of the Class II directors expires at the 2020 annual meeting (the “Annual Meeting”) and the election of their successors.
In April 2020, Douglas E. Swanson, Jr. announced his intention not to stand for re-election to the Board at the Annual Meeting. Mr. Swanson’s decision was not the result of a disagreement with the Company on any matter relating to the Company’s operations, policies or practices. The Company thanks Mr. Swanson for his distinguished service to the Company. As discussed more fully belowa result, the Board determined to reduce the number of members of the Board from nine to eight. In April 2020, the Company entered into an amendment (the “VA Amendment”) to that certain voting agreement dated May 9, 2017 (the “Voting Agreement”), by and among the Company, EnCap Investment L.P. (“EnCap”) and Bold Energy Holdings, LLC (“Bold Holdings”) whereby EnCap will have the ability to request that the Board be expanded by an additional member and will be able to designate such additional member in addition to its other rights under “Proposal 1—Election of Threethe Voting Agreement.
Our Board has nominated two Class I Directors,” Messrs. Lodzinski, Singleton and Snoots have been nominatedII directors for reelectionelection at this Annual Meeting becauseto hold office until the 2023 annual meeting and the election of their successors. Both of the expirationnominees currently serve as directors. Each agreed to be named in this proxy statement and to serve if elected.
In the election of directors, each proxy will be voted for each of the termClass II director nominees unless the proxy withholds authority to vote for any or all of their class,the Class I, onII director nominees.
We have no reason to believe that any of the Class II director nominees will be unable or unwilling for good cause to serve if elected. If any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of Class II directors.
Additional information regarding Messrs. Thielemann and Urban and all of our classified board.other directors, can be found under the “Our Board of Directors” section, the “Security Ownership of Management and Certain Beneficial Owners” section, and the “Compensation of Directors” section of this proxy statement.
Directors are elected by a plurality vote of the shares present in person or represented by proxy at the Annual Meeting, meaning that the director nominee with the most affirmative votes for a particular slot is elected for that slot. Any shares not voted (whether by withholding the vote, broker non-vote or otherwise) have no impact in the election of the Class II directors. If you sign your proxy card but do not give instructions with respect to the voting of directors, your shares will be voted for Messrs. Thielemann and Urban. However, if you hold your shares in street name and do not instruct your broker how to vote in the election of Class II directors, your shares will constitute a broker non-vote and will not be voted for either of the Class II director nominees. See the section of this proxy statement entitled “General Information about the Annual Meeting – Voting Instructions and Information – Election of Directors.”
The following provides summary information about each of our directors, including biographical data for at least the past five years and an assessment of the skills and qualifications of each director.
director nominees:
BRAD A. THIELEMANN Age: Director Since: 2014 Board Committee: ☐ Compensation | Mr. Thielemann has served as a director since December 2014. He is a Partner at EnCap. Prior to joining EnCap in 2006, he worked in the Investor Relations and Strategic Planning Groups at Plains All American Pipeline, L.P. Prior to that, he was an Associate at EnCap from 2000 to 2003 and a Treasury Analyst at Dynegy. Mr. Thielemann holds an M.B.A. from Duke University and a B.A. in Business Administration from the University of Texas at Austin. He serves on the boards of several EnCap portfolio companies, previously served on the board of the Houston Producers’ Forum and is a member of the Independent Petroleum Association of America. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Thielemann to the Board, determined that his extensive experience in the oil and gas industry, including serving on the boards of private oil and gas exploration and production companies provides significant contributions to the Board. As a partner at EnCap, Mr. Thielemann is uniquely positioned to provide the Board with insight and advice on a full range of strategic, financial and governance matters. | |
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ZACHARY G. URBAN Age: Director Since: 2014 Board Committee: ☐ Audit | Mr. Urban has served as a director since December 2014. Since |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Urban to the Board, determined that his extensive investment experience across diverse industries | |
In light of the individual skills and qualifications of each of our Class Our Board unanimously recommends that stockholders vote FOR each of our Class |
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PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATIONTHE AMENDMENT TO THE EARTHSTONE ENERGY, INC. AMENDED AND RESTATED 2014 LONG-TERM INCENTIVE PLAN PROPOSAL
At the annual meeting of our stockholders on June 6, 2018, the Earthstone Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan (the “2014 Plan”) was approved and adopted by our stockholders. Our Board approved an amendment (the “Amendment”) to the 2014 Plan, subject to stockholder approval, to increase the number of shares of our Class A Common Stock authorized to be issued under the 2014 Plan by three million shares. See the “Amendment No. 1 to the Earthstone Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan” attached as Annex A to this proxy statement. If the Amendment is committedapproved by stockholders, we intend to high quality governance. Asfile, pursuant to the Securities Act of 1933, as amended (the “Securities Act”), a partregistration statement on Form S-8 to register the additional shares available for delivery under the 2014 Plan as soon as practicable after the Annual Meeting.
Description and Text of the Proposed Amendment
Our Board has determined that, commitment,to give us the ability to attract and retain the executive and key employee talent necessary for our continued growth and success, the number of shares of our Class A Common Stock available for issuance under the 2014 Plan should be increased by three million shares, and is proposing an amendment to effect such an increase. In evaluating the amount of the increase in the number of shares available under the 2014 Plan, the Board considered our employee headcount and the Board believes that equity incentives, if fully achieved, should be a larger portion of overall compensation. In approving and recommending the increase in the number of shares of Class A Common Stock authorized for issuance under the 2014 Plan, the Board concluded such increase was advisable and in accordanceour best interests to provide us with maximum flexibility to use equity awards to continue to support our growth strategy and maintain our ability to attract and retain talented executives and employees. Because the amount and timing of specific equity awards in the future is dependent on our employee headcount, management performance, competitive compensation practices, our stock price and a variety of other factors, some of which are beyond our control, it is not possible to determine when or if the currently proposed increase in shares under the 2014 Plan will be exhausted or the amount of subsequent dilution that may ultimately result from such awards.
To effect the increase in the aggregate number of shares of our Class A Common Stock that may be issued under the 2014 Plan, it is proposed that the first sentence of Section 3.1 of the 2014 Plan be deleted in its entirety and replaced with the rulesfollowing:
“Subject to the limitations set forth herein, 9,400,000 shares of Common Stock are reserved for issuance pursuant to Awards made under this Plan.”
Summary of Principal Terms of the 2014 Plan
The following is a summary description of the material features of the 2014 Plan, as proposed to be amended (the “Amended Plan”). The statements made in this proxy statement regarding the Amendment to the 2014 Plan should be read in conjunction with and are qualified in their entirety by reference to the 2014 Plan, a copy of which is available as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission (the ““SEC”) on June 6, 2018. Prior filings with the SEC”), are available through our stockholders are being asked to approve an advisory resolution on the compensation of our named executive officers, as reportedwebsite at www.earthstoneenergy.com or in this proxy statement. At our 2013 annual meeting of stockholders, our stockholders approved an advisory resolution that we would hold an advisory vote on executive compensation every three years, hence the advisory vote at this Annual Meeting. Our next advisory vote on executive compensation will be no later than our 2022 annual meeting of stockholders.printed form upon request by any stockholder.
Under the achievement of short-termAmended Plan, we may grant stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance units, performance bonuses, stock awards and long-term strategic and operational goals. In addition, 50% of equityother incentive awards are predicated on total stockholder returns over a three-year period in relation to a specified peer group.
The Amended Plan provides that a maximum of 9,400,000 shares of our Class A Common Stock may be issued in conjunction with awards granted under the Amended Plan. At December 31, 2019, 2,185,074 shares of our Class A Common Stock remained available for awards to be granted under the Amended Plan. On April 22, 2020, the closing price of a share of our Class A Common Stock on the NYSE was $1.69. Shares of Class A Common Stock cancelled, settled in cash, forfeited, withheld, or tendered by the participant to satisfy exercise prices or tax withholding obligations will be available for delivery pursuant to other awards.
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The Amended Plan limits the aggregate number of shares of our Class A Common Stock that may be issued pursuant to any awards to any eligible director in any calendar year to 500,000 shares. One of the requirements for the favorable tax treatment available to incentive stock options under the Internal Revenue Code of 1986, as amended (the “Code”), is that the Amended Plan must specify, and our stockholders must approve, the maximum number of shares available for issuance pursuant to incentive stock options. As a result, in order to provide flexibility, the Amended Plan provides that up to 1,000,000 shares of Class A Common Stock may be issued pursuant to incentive stock options. The shares issued under the Amended Plan will be authorized but unissued shares or shares currently held (or subsequently acquired) as treasury shares.
The Amended Plan expires on June 6, 2028, and no awards may be granted under the Amended Plan after that date. However, the terms and conditions of the Amended Plan will continue to apply after that date to all Amended Plan awards granted prior to that date until they are no longer outstanding.
Administration
Our Board has delegated and authorized the compensation committee (the “Compensation Committee”) to administer the Amended Plan. Except as set forth in the Amended Plan, the Compensation TableCommittee serves at the pleasure of the Board. Compensation actions and awards are recommended by the Compensation Committee, subject to approval of the full Board.
With respect to awards to be made to any of our non-employee directors, the Compensation Committee will determine:
which of such persons should be granted awards;
the terms of proposed grants or awards to those selected to participate;
the exercise price for options and stock appreciation rights;
any limitations, restrictions and conditions upon any awards; and
rules for the administration of the Amended Plan and resolution of any disputes that may arise under the Amended Plan.
In connection with the administration of the Amended Plan, the Compensation Committee, with respect to awards to be made to any officer, employee or consultant who is not one of our non-employee directors, will:
determine which employees and other persons will be granted awards under the Amended Plan;
grant the awards to those selected to participate;
determine the exercise price for options and stock appreciation rights; and
prescribe any limitations, restrictions and conditions upon any awards.
In addition, our Compensation Committee will:
interpret the Amended Plan; and
make all other determinations and take all other actions that may be necessary or advisable to implement and administer the Amended Plan.
The Compensation Committee may allocate or delegate its responsibilities to the extent permitted by applicable law or stock exchange rules.
Types of Awards
The Amended Plan permits the Compensation Committee to make several types of awards and grants, including awards of shares of restricted stock, awards of restricted stock units, the grant of options to purchase shares of our Class A Common Stock, awards of stock appreciation rights (“SARs”), awards of performance units, awards of performance bonuses, stock awards and other incentive awards.
Restricted Stock. Restricted shares of our Class A Common Stock may be granted under the Amended Plan subject to such terms and conditions, including forfeiture and vesting provisions, time and performance-based restrictions, and restrictions against sale, transfer or other disposition as the Compensation Committee may determine to be appropriate at the time of making the award. In addition to or in lieu of any time vesting conditions determined by the Compensation Committee, vesting and/or the grant of restricted stock awards may be subject to our achievement of specified performance criteria. In addition, the Compensation Committee may direct that share certificates representing restricted stock be inscribed with a legend as to the restrictions on sale, transfer or other disposition, and may direct that the certificates, along with a stock power signed in blank by the participant, be delivered to and held by us until such restrictions lapse. Shares of restricted stock will generally vest upon the occurrence of a change of control.
Restricted Stock Units. A restricted stock unit entitles the recipient to receive a payment from us, following the lapse of restrictions on the award, equal to the fair market value of a share of our Class A Common Stock. The Amended Plan provides for payment in
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the form of shares of our Class A Common Stock or cash. Restricted stock units may be granted under the Amended Plan subject to such terms and conditions, including forfeiture and vesting provisions, as well as time and performance-based restrictions, as the Compensation Committee may determine to be appropriate at the time of making the award. In addition to or in lieu of any time vesting conditions determined by the Compensation Committee, vesting and/or the grant of restricted stock units may be subject to our achievement of specified performance criteria. Restricted stock units would generally vest upon the occurrence of a change of control.
The Amended Plan also permits the Compensation Committee to grant tandem cash dividend rights or dividend unit rights with respect to restricted stock units. A cash dividend right is a contingent right to receive an amount in cash equal to the cash distributions made by us with respect to a share of our Class A Common Stock during the period the tandem restricted stock unit is outstanding. A grant of cash dividend rights may provide that such cash payments shall be paid directly to the participant at the time of payment of the related dividend, be credited to a bookkeeping account subject to the same vesting and payment provisions as the tandem restricted stock unit award (with or without interest in the discretion of the Compensation Committee), or be subject to such other provisions or restrictions as determined in the discretion of the Compensation Committee. A dividend unit right is a contingent right to have an additional number of restricted stock units credited to a participant in respect of a restricted stock unit award equal to the number of shares of our Class A Common Stock that could be purchased at fair market value with the amount of each cash distribution made by us with respect to a share of our Class A Common Stock during the period the tandem restricted stock unit is outstanding. A grant of dividend unit rights shall be subject to the same vesting and payment provisions as the tandem restricted stock unit award.
Stock Options. Stock options are contractual rights entitling an optionee who has been granted a stock option to purchase a stated number of shares of Class A Common Stock at an exercise price per share determined at the date of the grant. Options are evidenced by stock option agreements with the respective optionees. The exercise price for each stock option granted under the Amended Plan will be determined by the Compensation Committee at the time of the grant. The Compensation Committee will also determine the duration of each option; however, no option may be exercisable more than ten years after the date the option is granted. Within the foregoing limitations, the Compensation Committee may, in its discretion, impose limitations on the exercise of all or some options granted under the Amended Plan, such as specifying minimum periods of time after grant during which options may not be exercised. The Amended Plan generally provides for acceleration of the right of a participant to exercise his or her stock option in the event we experience a change of control.
The Amended Plan provides that the stock options may either be incentive stock options within the meaning of Section 422 of the Code, or nonqualified options, which are stock options other than incentive stock options.
Incentive Stock Options. Incentive stock options may be granted only to our employees or employees of our subsidiaries, and must be granted at a per share exercise price not less than the fair market value of Class A Common Stock on the date the incentive stock option is granted. In the case of an incentive stock option granted to a stockholder who owns shares of our outstanding stock of all classes representing more than 10% of the total combined voting power of all of our outstanding stock of all classes entitled to vote in the election of directors, the per share exercise price may not be less than 110% of the fair market value of the Class A Common Stock on the date the incentive stock option is granted and the related compensation tablesterm of such option may not exceed five years. As required by Section 422 of the Code, the aggregate fair market value, determined at the time an incentive stock option is granted, of Class A Common Stock with respect to which incentive stock options may be exercised by an optionee for the first time during any calendar year under all of our incentive stock option Amended Plans may not exceed $100,000.
Nonqualified Options. Nonqualified options are stock options which do not qualify as incentive stock options under Section 422 of the Code. Nonqualified options may be granted to directors and consultants, as well as to employees, or those directors, consultants, and employees of subsidiaries in which we have a controlling interest. The exercise price for nonqualified options will be determined by the Compensation Committee at the time the nonqualified options are granted, but may not be less than the fair market value of our Class A Common Stock on the date the nonqualified option is granted. Nonqualified options are not subject to any of the restrictions described above with respect to incentive stock options. Incentive stock options and nonqualified options are treated differently for federal income tax purposes as described below under “Tax Treatment.”
The Amended Plan provides that the exercise price of stock options may be paid (1) in cash, (2) subject to the prior approval by the Compensation Committee, in whole shares of Class A Common Stock, (3) subject to the prior approval by the Compensation Committee, by withholding shares of Class A Common Stock which otherwise would be acquired on exercise, or (4) subject to the prior approval by the Compensation Committee, by a combination of the foregoing, equal in value to the exercise price. The Compensation Committee may also permit a stock option to be exercised by a broker-dealer acting on behalf of a participant through procedures approved by the Compensation Committee, as applicable.
Stock Appreciation Rights. Awards of SARs entitle the recipient to receive a payment from us equal to the amount of any increase in the fair market value of the shares of our Class A Common Stock subject to the SAR award between the date of the grant of the SAR award and fair market value of these shares on the exercise date. The Amended Plan provides for payment in the form of shares of
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our Class A Common Stock or cash. The Amended Plan generally provides for acceleration of the right of a participant to exercise his or her SAR in the event we experience a change of control.
Performance Unit Awards. Performance units entitle the recipient to receive a certain target, maximum or minimum value in cash or Class A Common Stock per unit upon the achievement of performance goals established by the Compensation Committee.
Performance Bonuses. A performance bonus entitles the recipient to receive a cash bonus upon the attainment of one or more performance targets established by the Compensation Committee. The Amended Plan permits payment of performance bonuses in the form of cash or our Class A Common Stock.
Stock Awards. A stock award entitles the recipient to shares of our Class A Common Stock not subject to vesting or forfeiture restrictions. Stock awards are awarded with respect to such number of shares of our Class A Common Stock and at such times as the Compensation Committee may determine, and the narrative in this proxy statement.”Compensation Committee may require a participant to pay a stipulated purchase price for each share of our Class A Common Stock covered by a stock award.
Other Incentive Awards. The Amended Plan permits the grant of other incentive awards based upon, payable in or otherwise related to, in whole or in part, shares of our Class A Common Stock if the Compensation Committee determines that such other incentive awards are consistent with the purposes of the Amended Plan. Such other incentive awards may include, but are not limited to, Class A Common Stock awarded as a bonus, dividend equivalents, convertible or exchangeable debt securities, other rights convertible or exchangeable into Class A Common Stock, purchase rights for Class A Common Stock, awards with value and payment contingent upon our performance or any other factors designated by the Compensation Committee, and awards valued by reference to the book value of our Class A Common Stock or the value of securities or the performance of specified subsidiaries. Long-term cash awards are also permitted under the Amended Plan. Cash awards are also permitted as an element of or a supplement to any awards permitted under the Amended Plan. Awards are permitted in lieu of obligations to pay cash or deliver other property under the Amended Plan or under other Amended Plans or compensation arrangements, subject to any applicable provision under Section 16 of the Exchange Act.
Transferability
Awards under the Amended Plan are not transferrable other than by will or by the laws of descent and distribution. Nonqualified Options are transferable on a limited basis, only with prior approval or authorization of the Compensation Committee. In no event may a stock option be exercised after the expiration of its stated term.
Termination
Stock options, restricted stock, restricted stock units, SARs, performance units, performance bonuses and other incentive awards which have not vested will generally terminate immediately upon the holder’s termination of employment with us or any of our subsidiaries or affiliates, unless the Compensation Committee specifies otherwise in an award agreement or elects to accelerate the vesting of the award. Unless the Compensation Committee specifies otherwise in an award agreement, if an employee’s employment with us or any of our subsidiaries or affiliates terminates as a result of death or disability, the employee (or personal representative in the case of death) may exercise any vested incentive stock options for a period of up to one year after such termination and any vested nonqualified option during the remaining term of the option. Unless the Compensation Committee specifies otherwise in an award agreement, if an employee’s employment with us or any of our subsidiaries or affiliates terminates for any other reason, the employee may exercise any vested option for a period of up to three months after such termination. Unless the Compensation Committee specifies otherwise in an award agreement, if a consultant ceases to provide services to us or any of our subsidiaries or affiliates or a director terminates service as our director, the unvested portion of any award will be forfeited unless otherwise accelerated by the Compensation Committee. Unless the Compensation Committee specifies otherwise in an award agreement, a consultant or director may have three years following the date he or she ceases to provide consulting services or ceases to be a director, as applicable, to exercise any nonqualified options which are otherwise exercisable on the date of termination of service. No stock option or SAR may be exercised following the expiration date of the stock option or SAR.
Dilution; Substitution
The Amended Plan provides protection against substantial dilution or enlargement of the rights granted to holders of awards in the event of stock splits, recapitalizations, mergers, consolidations, reorganizations or similar transactions. The Amended Plan provides that, upon the occurrence of a change of control event, the Compensation Committee would have discretion, without the consent of any participant or holder of an award, to the extent permitted by applicable law, to cancel awards and make payments in respect thereof in cash; replace awards with other rights or property selected by the Compensation Committee; provide that awards will be assumed by a successor or survivor entity (or a parent or subsidiary thereof) or be exchanged for similar rights or awards based on the equity of the successor or survivor (or a parent or subsidiary thereof); adjust outstanding awards as appropriate to reflect the change of control
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event; accelerate any vesting schedule to which an award is subject; provide that awards are payable; and/or provide that awards terminate upon such event.
Amendment
The Board may amend the Amended Plan, or any part of the Amended Plan, at any time and for any reason. However, without stockholder approval, the Amended Plan may not be amended in a manner that would (i) materially increase the number of shares that may be issued under the Amended Plan, (ii) materially modify the requirements as to eligibility for participation in the Amended Plan, (iii) materially increase the benefits to participants provided by the Amended Plan, (iv) decrease the exercise price for an outstanding stock option or SAR, or (v) must otherwise be approved by the stockholders in order to comply with national securities exchange rules.
Tax Treatment
The following is a brief description of the U.S. federal income tax consequences, under existing law, with respect to awards that may be granted under the Amended Plan. This votesummary is based on current U.S. federal income tax laws and is not intended to addressprovide or supplement tax advice to eligible employees or other participants. This summary is not intended to be exhaustive and does not describe state, local or foreign consequences, employment withholding tax consequences, or the effect, if any, specificof gift, estate and inheritance taxes.
Restricted Stock. A recipient of restricted stock generally will not recognize taxable income until the shares of restricted stock become freely transferable or are no longer subject to a substantial risk of forfeiture. At that time, the excess of the fair market value of the restricted stock over the amount, if any, paid for the restricted stock is taxable to the recipient as ordinary income. If a recipient of restricted stock subsequently sells the shares, he or she generally will realize capital gain or loss (long-term or short-term depending on the holding period) in the year of such sale in an amount equal to the difference between the amount realized from the sale and his or her basis in the stock, equal to the price paid for the stock, if any, plus the amount previously included in income as ordinary income with respect to such restricted shares.
A recipient has the opportunity, within certain limits, to fix the amount and timing of the taxable income attributable to a grant of restricted stock. Section 83(b) of the Code permits a recipient of restricted stock, which is not yet required to be included in taxable income, to elect, within 30 days of the award of restricted stock, to include in ordinary income immediately the difference between the fair market value of the shares of restricted stock at the date of the award and the amount paid for the restricted stock, if any. The election permits the recipient of restricted stock to fix the amount of ordinary income that must be recognized by virtue of the restricted stock grant. Subject to Section 162(m) of the Code, we generally will be entitled to a deduction in the year the recipient is required (or elects) to recognize income by virtue of receipt of restricted stock, equal to the amount of taxable income recognized by the recipient.
Restricted Stock Units. A recipient of restricted stock units generally will not recognize taxable income until the recipient receives cash and/or the transfer of shares in satisfaction of the restricted stock unit award. At that time, an amount equal to the aggregate of any cash and the fair market value of any shares received is taxable to the recipient as ordinary income. If a recipient of restricted stock units subsequently sells any shares so transferred, he or she generally will realize capital gain or loss (at long-term or short-term rates depending on the holding period) in the year of such sale in an amount equal to the difference between the amount realized from the sale and his or her basis equal to the amount previously included in income as ordinary income with respect to such shares received in satisfaction of a restricted stock unit award. Subject to Section 162(m) of the Code, we generally will be entitled to a deduction in the year the recipient is required to recognize income by virtue of receipt of cash or shares, equal to the amount of taxable income recognized by the recipient.
Incentive Stock Options. An optionee will not realize taxable income upon the grant of an incentive stock option. As long as the optionee has been an employee of us or of one of our permissible corporate subsidiaries from the date of grant through the date the incentive stock option is exercised and if the incentive stock option is exercised during his or her period of employment and within three months after termination, the optionee will not recognize taxable income upon exercise. Upon exercise, however, the amount by which the fair market value of the shares with respect to which the incentive stock option is exercised (determined on the date of exercise) exceeds the exercise price paid will be an item of tax preference to which the alternative minimum tax may apply, depending on each optionee’s individual circumstances. If the optionee does not dispose of the shares of Class A Common Stock acquired by exercising an incentive stock option within two years from the date of the grant of the incentive stock option or within one year after the shares are transferred to the optionee, when the optionee later sells or otherwise disposes of the stock, any amount realized by the optionee in excess of the exercise price will be taxed as a long-term capital gain and any loss will be recognized as a long-term capital loss. We generally will not be entitled to an income tax deduction with respect to the grant or exercise of an incentive stock option.
If any shares of Class A Common Stock acquired upon exercise of an incentive stock option are resold or disposed of before the expiration of the prescribed holding periods (i.e., two years from grant and one year from exercise), the optionee will realize ordinary
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income instead of capital gain. The amount of the ordinary income realized will generally be equal to the lesser of (i) the excess of the fair market value of the stock on the exercise date over the exercise price; or (ii) in the case of a taxable sale or exchange, the amount of the gain realized upon the sale over the exercise price. Any additional gain would generally be either long-term or short-term capital gain, depending on whether the applicable capital gain holding period has been satisfied. In the event of a premature disposition of shares of stock acquired by exercising an incentive stock option, subject to Section 162(m) of the Code, we generally would be entitled to a deduction equal to the amount of ordinary income realized by the optionee.
If an optionee uses already owned shares of Class A Common Stock to pay the exercise price under an incentive stock option, the resulting tax consequences will depend upon whether the already owned shares of Class A Common Stock are “statutory option stock,” and, if so, whether the statutory option stock has been held by the optionee for the applicable holding period referred to in Section 424(c)(3)(A) of the Code. In general, “statutory option stock” is any stock acquired through the exercise of an incentive stock option or an option granted pursuant to an employee stock purchase Amended Plan, but not stock acquired through the exercise of a nonqualified stock option. If the stock is statutory option stock with respect to which the applicable holding period has been satisfied, no income will be recognized by the optionee upon the transfer of the stock in payment of the exercise price of an incentive stock option. If the stock used to pay the exercise price is statutory option stock with respect to which the applicable holding period has not been satisfied, the transfer of the stock will be a premature disposition, as described above, which will result in the recognition of ordinary income by the optionee in an amount equal to the excess of the fair market value of the statutory option stock at the time the incentive stock option covering the stock was exercised over the amount paid for the stock.
If an optionee effects a net exercise of an incentive stock option by surrendering a portion of the shares of stock with respect to which the option is exercisable to pay the exercise price, the surrender of the stock will be a premature disposition, as described above, which will result in the recognition of ordinary income by the optionee in an amount equal to the fair market value of the surrendered stock.
Nonqualified Options. An optionee will not realize taxable income upon the grant of a nonqualified option. At the time the optionee exercises the nonqualified option, the amount by which the fair market value, at the time of exercise, of the shares with respect to which the nonqualified option is exercised exceeds the exercise price paid upon exercise will constitute ordinary income to the optionee in the year of such exercise. Subject to Section 162(m) of the Code, we generally will be entitled to a corresponding income tax deduction in the year of exercise equal to the ordinary income recognized by the optionee. If the optionee thereafter sells such shares, the difference between any amount realized on the sale and the fair market value of the shares at the time of exercise will be taxed to the optionee as a capital gain or loss, at short-term or long-term rates depending on the length of time the stock was held by the optionee before sale.
If an optionee uses already owned shares of Class A Common Stock to pay the exercise price under a nonqualified option, the number of shares received pursuant to the nonqualified option which is equal to the number of shares delivered in payment of the exercise price will be considered received in a nontaxable exchange, and the fair market value of the remaining shares received by the optionee upon the exercise will be taxable to the optionee as ordinary income. If the already owned shares of Class A Common Stock are not “statutory option stock” or are statutory option stock with respect to which the applicable holding period referred to in Section 424(c)(3)(A) of the Code has been satisfied, the shares received pursuant to the exercise of the nonqualified option will not be statutory option stock. However, if the already owned shares of Class A Common Stock are statutory option stock with respect to which the applicable holding period has not been satisfied, it is not presently clear whether the exercise will be considered a premature disposition of the statutory option stock, whether the shares received upon exercise will be statutory option stock, or how the optionee’s basis will be allocated among the shares received.
Stock Appreciation Rights. A recipient of SARs will not realize taxable income upon the grant of a SAR. At the time the recipient exercises the SAR, an amount equal to the aggregate of any cash and the fair market value of any shares received is taxable to the recipient as ordinary income in the year of such exercise. Subject to Section 162(m) of the Code, we generally will be entitled to a corresponding income tax deduction in the year of exercise equal to the ordinary income recognized by the recipient. If the recipient thereafter sells any shares received upon exercise, the difference between any amount realized on the sale and the fair market value of the shares at the time of exercise will be taxed to the recipient as a capital gain or loss, at short-term or long-term rates depending on the length of time the stock was held by the recipient before sale.
Performance Units and Performance Bonuses. A recipient of performance units or a performance bonus generally will not realize taxable income upon the grant of such award. The recipient will recognize ordinary income upon the receipt of cash and/or the transfer of shares in satisfaction of the award of performance units or performance bonus in an amount equal to the aggregate of any cash and the fair market value of any shares received. Subject to Section 162(m) of the Code, we generally will be entitled to a corresponding income tax deduction equal to the ordinary income recognized by the recipient. If the recipient thereafter sells any shares received in satisfaction of the award, the difference between any amount realized on the sale and the fair market value of the shares at the time of their receipt will be taxed to the recipient as a capital gain or loss, at short-term or long-term rates depending on the length of time the stock was held by the recipient before sale.
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Stock Awards. A recipient of a stock award will recognize ordinary income upon the receipt of shares in an amount equal to the fair market value of any shares received over the amount, if any, paid for the shares. Subject to Section 162(m) of the Code, we generally will be entitled to a corresponding income tax deduction equal to the ordinary income recognized by the recipient. If a recipient subsequently sells the shares, he or she generally will realize capital gain or loss (at long-term or short-term rates depending on the holding period) in the year of such sale in an amount equal to the difference between the net proceeds from the sale and the fair market value of the shares at the time of receipt plus the price paid for the stock, if any.
Other Incentive Awards. The specific tax consequences applicable with respect to other incentive awards granted under the Amended Plan will depend on the terms and conditions applicable to the award.
Code Section 162(m). Under Section 162(m) of the Code, no deduction is allowed in any taxable year of the Company for compensation but ratherin excess of $1 million paid to our overall“covered employees.” A “covered employee” is any individual who has served at any time after December 31, 2016 as our chief executive officer, chief financial officer, or other executive officer whose compensation policieshas been reported in our proxy statement, regardless of whether any such individual is still employed by us.
Code Section 409A. The Amended Plan and procedures relatingany awards granted under it are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Code and its related Treasury Regulations and guidance. If any provision of the Amended Plan or award granted under the Amended Plan is determined not to comply with Section 409A, the Compensation Committee has authority to take any actions necessary and appropriate for compliance. No payments that would constitute “deferred compensation” upon termination of employment or other service under Section 409A will be made under the Amended Plan unless the termination is also a “separation from service” under Section 409A. If a participant is a “specified employee” under Section 409A, the commencement of any payments or benefits under the award will be deferred until six months plus one day following the date of the participant’s termination or, if earlier, death (or such other period as required to comply with Section 409A). The Company will not be liable for any additional tax, interest or penalties imposed on a participant by Section 409A of the Code or damages for failing to comply with Section 409A.
The foregoing is only a summary of the current effect of certain U.S. federal income taxation upon the participant and us with respect to the grant and exercise of awards or compensation granted under the Amended Plan. Participants are hereby notified that (i) any discussion of U.S. federal tax issues in this proxy statement is not intended to be written or used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Code, and (ii) participants should seek advice based on their particular circumstances from an independent tax advisor.
New Plan Benefits
The benefits that will be awarded or paid in the future under the Amended Plan cannot currently be determined. Awards granted under the Amended Plan after the date of the Annual Meeting are within the discretion of the Compensation Committee, subject to the terms and conditions of the Amended Plan.
In January 2020, the Compensation Committee awarded restricted stock unit awards and performance stock units (“Performance Units”) pursuant to performance awards to our named executive officers. Accordingly, yourThe performance awards were granted subject to the stockholders of the Company approving the Amendment to increase the number of shares of Class A Common Stock available for awards under the 2014 since 2014 did not have enough shares available for performance awards without the Amendment. In the event that the Amendment is not approved by stockholders, then the performance awards will be null and void. Thus, approval by the stockholders of the proposal to approve and adopt the Amendment also includes approval of the performance awards.
As of April 23, 2020, the following number of Performance Units had been granted under the Amended Plan to the individuals described in the table below:
| Name and Position | Number of Performance Units (1) | |
| Robert J. Anderson, President and as of April 1, 2020, Chief Executive Officer and President | 262,500 | |
| Steven C. Collins, Executive Vice President, Completions and Operations | 150,000 | |
| Executive Officers (as a group, including Messrs. Anderson and Collins) | 862,500 | |
| Non-Executive Officers (as a group) | 181,300 | |
| (1) | The performance awards are subject to approval of stockholders of this Proposal 2 at the Annual Meeting. If the Amendment is approved, then the awards, subject to meeting the performance criteria, may result in payment of up to an aggregate of 1,043,800 shares of Class A Common Stock if 100% of the target Performance Units are earned. |
Equity Compensation Plan Information
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The following table provides information related to our Class A Common Stock which may be issued under our existing equity compensation plans as of December 31, 2019, including the 2014 Plan:
| PLAN CATEGORY | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) | |||||||
Equity compensation plans approved by security holders: (1) | 1,943,421 | (1) | $ | — | (2) | 2,185,074 | ||||
| Equity compensation plans not approved by security holders: | — | — | — | |||||||
| Total | 1,943,421 | $ | — | (2) | 2,185,074 | |||||
| (1) | Represents the number of shares of Class A Common Stock underlying outstanding time-based restricted stock unit awards and performance-based performance stock unit awards and assumes a 100% issuance related to the performance stock units which have a range of 0% to 200% based on the results of the performance attributes of the award. | |
| (2) | The outstanding restricted stock unit awards do not have an exercise price. | |
Approval by the Stockholders of the Proposal
Approval of the proposal to approve and adopt the Amendment requires the affirmative vote of the holders of a majority in voting power of the shares represented in person or by proxy at the Annual Meeting and voting on such proposal; provided that a quorum is present.
Our Board believes that approval and adoption of the Amendment will not directly affect or otherwise limit any existing compensation or award arrangementpromote our interests and the interests of anythe stockholders and continue to enable us to attract, retain and reward persons important to our success and to provide incentives based on the attainment of our named executive officers. Because your vote is advisory, it will not be binding uponcorporate objectives and increases in shareholder value. Members of the Board are eligible to participate in the 2014 Plan, and thus, have a personal interest in the Compensation Committee. Our Board, including the Compensation Committee, will, however, take into account the outcomeapproval and adoption of the “say on pay” vote when considering future compensation arrangements.
Amendment.
Our Board unanimously recommends that stockholders vote FOR |
PROPOSAL 3 – ADVISORY VOTE ON THE FREQUENCYRATIFICATION OF
The CompensationAudit Committee would similarly benefit from this longer time period between advisory votes. Three years will giveof the Compensation Committee sufficient time to fully analyze our compensation program (as compared to our performance over that same period) and to implement necessary changes. In addition, this period will provideBoard has selected Moss Adams LLP (“Moss Adams”) as the time necessaryindependent registered public accounting firm of the Company for implemented changes to take effect2020. Moss Adams has audited the Company’s consolidated financial statements since 2018. The 2019 audit of the Company’s consolidated financial statements and the effectiveness of such changes to be properly assessed. The greater time period between votes will also allow the Compensation Committee to consider various factors that impact ourinternal control over financial performance, stockholder sentiments and executive payreporting was completed on a long-term basis. March 11, 2020.
The Board believes anything less thanis submitting the selection of Moss Adams for ratification at the Annual Meeting. The submission of this matter for approval by stockholders is not legally required, but the Board and the Audit Committee believe the submission provides an opportunity for stockholders through their vote to communicate with the Board and the Audit Committee about an important aspect of corporate governance. If the stockholders do not ratify the selection of Moss Adams, the Audit Committee may reconsider the selection of that firm as the Company’s auditors. Even if the selection is ratified, the Audit Committee in its discretion may select a triennial vote will yielddifferent registered public accounting firm at any time during the year if it determines that such a short-term mindset, detract fromchange would be in the long-termbest interests and goals of the Company and could result in additional burden and expense in preparing for, evaluating and responding to more frequent proposals. our stockholders.
For further information and discussion, see Independent Public Accountants section of this document.
The Company does not anticipate that representatives of Moss Adams will be present at the Annual Meeting; however, if they are present, Moss Adams may cast yourrespond to appropriate questions and make such statements as they may desire.
The affirmative vote of the holders of a majority in voting power of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on your preferred voting frequency by selecting the option of holding an advisory vote on executive compensation “EVERY 3 YEARS,” as recommended by the Board, “EVERY 2 YEARS” or “EVERY 1 YEAR,” or you may “ABSTAIN.” Your votethis Proposal will be required for approval; provided that a quorum is not intended to approve or disapprove the recommendation of the Board. Rather, we will consider the stockholders to have expressed a preference for the option that receives the most votes.
present.
Our Board unanimously recommends that stockholders vote FOR |
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CORPORATE GOVERNANCE
General
Our business and affairs are managed under the direction of our Board. Our Certificate of Incorporation provides that our Board is classified into three classes: Class I, Class II and Class III, with each class having a three-year term of office. Messrs. Lodzinski, Singleton and Snoots serve as Class I directors. Messrs. Swanson, Thielemann and Urban serve as Class II directors, and Messrs. Joliat, Kramer and Zorich serve as Class III directors.
In April 2020, Mr. Swanson announced his intention not to stand for re-election to the Board at the Annual Meeting. As a result, the Board determined to reduce the number of members of the Board from nine members to eight members. The Company also entered into the VA Amendment, whereby EnCap will have the ability to request that the Board be expanded by an additional member and will be able to designate such additional member in addition to its other rights under the Voting Agreement.
We are committed to high quality corporate governance, which helps us compete more effectively, sustain our success and build long-term stockholder value. The Board reviews the Company’s policies and business strategies, and advises and counsels the executive officers who manage the Company.
The full text of the charters of our Audit Committee and Compensation Committee, our Corporate Governance Guidelines, and our Code of Ethics can be found at www.earthstoneenergy.com. Copies of these documents also may be obtained from our Corporate Secretary.
Governance is a continuing focus at the Company, starting with the Board and extending to management and all employees. The Company is governed by a Board of Directors and committees of the Board that meet throughout the year. Directors discharge their responsibilities at Board and committee meetings and also through telephone contact and other communications with management.
Our Board of Directors
Our business and affairs are managed under the direction of our Board. Our Third Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), specifies that we shall not have less than three nor more than nine directors. Currently, our Board has nine members and will be reduced to eight members effective as of the Annual Meeting. Under our Certificate of Incorporation, each director holds office until the annual meeting of stockholders at which such director’s class is up for re-election and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal. Our Certificate of Incorporation provides that our Board is classified into three classes: Class I, Class II and Class III, with each class having a three-year term of office to allow for staggered three-year terms.
As discussed more fully above under “Proposal 1—Election of Two Class II Directors,” Messrs. Thielemann and Urban have been nominated for reelection at this Annual Meeting because of the expiration of the term of their class, Class II, on our classified board.
Below is information about each of our directors, including biographical data for at least the past five years and an assessment of the skills and qualifications of each director.
| Name | Class (1) | Age | Director Since | Position with the Company | Experience/ Qualifications | Independent | Audit Committee Membership | Compensation Committee Membership | ||||||||
| Frank A. Lodzinski | I | 70 | 2014 | Chairman and Chief Executive Officer Director (through April 1, 2020) and Executive Chairman (commencing April 1, 2020) | Leadership, Industry Expertise, Operations and Experience | |||||||||||
| Ray Singleton | I | 69 | 1989 | Director | Industry Expertise, Operations and Experience | |||||||||||
| Wynne M. Snoots, Jr. | I | 59 | 2017 | Director | Finance and Industry Expertise | |||||||||||
Douglas E. Swanson, Jr. (2) | II | 48 | 2014 | Director | Finance and Industry Expertise | |||||||||||
| Brad A. Thielemann | II | 43 | 2014 | Director | Finance and Industry Expertise | X | X | |||||||||
| Zachary G. Urban | II | 42 | 2014 | Director | Accounting and Finance | X | X | |||||||||
| Jay F. Joliat | III | 63 | 2014 | Director | Finance, Industry Expertise and Experience | X | X | X | ||||||||
| Phillip D. Kramer | III | 64 | 2016 | Director | Accounting, Finance and Experience | X | X | X | ||||||||
| Robert L. Zorich | III | 70 | 2014 | Director | Finance, Industry Expertise and Experience | |||||||||||
(1) | Class I directors serve until our annual meeting in 2022 and Class III directors serve until our annual meeting in 2021. |
(2) | Mr. Swanson will not be standing for reelection at the Annual Meeting. |
For Class II Director Nominees for Election at the Annual Meeting, see Proposal 1 above.
Class II Directors Not Standing for Reelection at the Annual Meeting
DOUGLAS E. SWANSON, JR. Age: 48 Director Since: 2014 | Mr. Swanson has served as a director since December 2014. He is a Managing Partner at EnCap and serves on the firm’s upstream investment and management committees. Prior to joining EnCap in 1999, he was in the corporate lending division of Frost National Bank, specializing in energy-related service companies, and was a financial analyst in the corporate lending group of Southwest Bank of Texas. Mr. Swanson serves on the board of each of Montage Resources Corporation (formerly Eclipse Resources Corporation) and several EnCap portfolio companies. Mr. Swanson is a member of the Independent Petroleum Association of America and the Texas Independent Producers and Royalty Owners Association. Mr. Swanson holds a B.A. in Economics and an M.B.A., both from the University of Texas at Austin. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Swanson to the Board, determined that his extensive experience in the oil and gas exploration and production industry, including serving on the boards of public and private oil and gas companies provides significant contributions to the Board. As a managing partner at EnCap, Mr. Swanson is uniquely positioned to provide the Board with insight and advice on a full range of strategic, financial and governance matters. | |
Continuing Class I Directors Whose Terms Expire in 2022
FRANK A. LODZINSKI Chairman and Chief Executive Officer (through April 1, 2020) and Executive Chairman (commencing April 1, 2020) Age: 70 Director Since: 2014 | Mr. Lodzinski has served as our Chairman since December 2014 and as Executive Chairman since April 1, 2020. He served as our Chief Executive Officer from December 2014 through March 2020. He also served as our President from December 2014 through April 2018. Previously, he served as President and Chief Executive Officer of Oak Valley Resources, LLC (“Oak Valley”) from its formation in December 2012 until the closing of its strategic combination with Earthstone in December 2014. Prior to his service with Oak Valley, Mr. Lodzinski was Chairman, President and Chief Executive Officer of GeoResources, Inc. from April 2007 until its merger with Halcón Resources Corporation (“Halcón”) in August 2012 and from September 2012 until December 2012 he conducted pre-formation activities for Oak Valley. He has over 47 years of oil and gas industry experience. In 1984, he formed Energy Resource Associates, Inc., which acquired management and controlling interests in oil and gas limited partnerships, joint ventures and producing properties. Certain partnerships were exchanged for common shares of Hampton Resources Corporation in 1992, which Mr. Lodzinski joined as a director and President. Hampton was sold in 1995 to Bellwether Exploration Company. In 1996, he formed Cliffwood Oil & Gas Corp. and in 1997, Cliffwood shareholders acquired a controlling interest in Texoil, Inc., where Mr. Lodzinski served as Chief Executive Officer and President. In 2001, Mr. Lodzinski was appointed Chief Executive Officer and President of AROC, Inc., to direct the restructuring and ultimate liquidation of that company. In 2003, AROC completed a monetization of oil and gas assets with an institutional investor and began a plan of liquidation in 2004. In 2004, Mr. Lodzinski formed Southern Bay Energy, LLC, the general partner of Southern Bay Oil & Gas, L.P., which acquired the residual assets of AROC, Inc., and he served as President of Southern Bay Energy, LLC upon its formation. The Southern Bay entities were merged into GeoResources in April 2007. Mr. Lodzinski has served as a director and member of the nominating and governance committee, audit committee and compensation committee of Yuma Energy, Inc. (“Yuma”) since April 2019 and previously served on its audit committee from September 2014 to October 2016 and its compensation committee from October 2016 to April 2019. On April 15, 2020, Yuma, together with its subsidiaries, filed voluntary Chapter 11 petitions for relief under the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas. Mr. Lodzinski holds a BSBA degree in Accounting and Finance from Wayne State University in Detroit, Michigan. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Lodzinski to the Board, determined that his leadership and intimate knowledge of the oil and gas industry, our structure, and our operations, provide the Board with company-specific experience and expertise. | |
RAY SINGLETON Age: 69 Director Since: 1989 | Mr. Singleton has been one of our directors since July 1989. From December 2014 through June 2018, he served as our Executive Vice President - Northern Region. Previously, he served as our President and Chief Executive Officer from March 1993 until the closing of our strategic combination with Oak Valley Resources, LLC in December 2014. Mr. Singleton joined us in 1988 as a Production Manager/Petroleum Engineer. From 1983 until 1988, he owned and operated an engineering consulting firm (Singleton & Associates) serving the needs of 40 small oil and gas clients. During this period, he was engaged by the Company on various projects in south Texas and the Rocky Mountain region. Mr. Singleton is a petroleum engineer with over 40 years of experience in the oil and gas industry. Mr. Singleton began his career with Amoco Production Company in 1973 as a production engineer. He was subsequently employed by Champlin Petroleum as a drilling, completion and production engineer from 1980 to 1983. His professional experience includes acquisition evaluation and economics, along with drilling, completion and production engineering in both Texas and the Rocky Mountain region. In addition, he possesses over 25 years of C-suite experience. Mr. Singleton received a B.S. degree in Petroleum Engineering from Texas A&M University in 1973, and received an MBA from Colorado State University’s Executive MBA Program in 1992. He is a member of the National Association of Corporate Directors and the Society of Petroleum Engineers. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing Mr. Singleton’s qualifications to serve on the Board, considered, among other things, his experience and expertise in the oil and gas industry, including the operating, management or executive positions he has held with the Company and other oil and gas companies, and his extensive knowledge of the Company’s business, all of which has proven to be beneficial to us. | |
WYNNE M. SNOOTS, JR. Age: 59 Director Since: 2017 | Mr. Snoots has served as a director since May 2017. He is a Partner at EnCap. Prior to joining EnCap in January 2001, Mr. Snoots was one of three partners of Paradigm Development & Trade, Inc., a private company focused on generating and monetizing exploration prospects located along the Gulf Coast of Louisiana. For the two years prior to his involvement in Paradigm, Mr. Snoots served as President of Magellan Exploration, LLC, a private portfolio company. He previously spent seven years with Enron Capital & Trade Resources in the Producer Finance Group, most recently as a Vice President. Mr. Snoots began his career as a petroleum engineer with Texas Oil and Gas Corporation. He received a Master of Business Administration from the University of Texas at Austin and holds a B.S. in Petroleum Engineering from the University of Oklahoma. Mr. Snoots serves on the board of directors of several EnCap portfolio companies and is a member of the Independent Petroleum Association of America and the Houston Producers' Forum. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Snoots to the Board, determined that his extensive experience in the oil and gas exploration and production industry, including managing and serving on the boards of numerous oil and gas companies provides significant contributions to the Board. As a partner at EnCap, Mr. Snoots is uniquely positioned to provide the Board with insight and advice on a full range of strategic, financial and governance matters. | |
Continuing Class III Directors Whose Terms Expire in 2021
JAY F. JOLIAT Age: 63 Director Since: 2014 Board Committees: ☐ Audit ☐ Compensation | Mr. Joliat has served as a director since December 2014. For more than the past 35 years, Mr. Joliat has been an independent investor and developer in commercial, industrial and apartment real estate, residential home building, restaurant ownership and management. He has had direct and extensive experience in placement of venture private equity in generic pharmaceuticals, medical devices or procedures, and for over 30 years, oil and gas E&P in particular. He has been the CEO and CIO of Joliat & Company, Inc. since October 1988. He has been the CEO of Joliat Ventures, LLC since January 1998. Since January 1981, Mr. Joliat has served as Treasurer of Beefcarver Restaurants, Inc., and has been its CEO since 1989. He formed and managed his own registered investment management company early in his career after having held VP and/or SVP positions at E.F. Hutton, Dean Witter Reynolds, and LPL Financial. He holds a Bachelor’s Degree in Management and Finance from Oakland University (1982) and became a Certified Investment Management Analyst (CIMA) in 1983 after completing the requisite IMCA curriculum from the Wharton School of Business at the University of Pennsylvania. From 1996 through 2003, Mr. Joliat served on the Board of Directors of Caraco Pharmaceutical Laboratories Ltd., and served in various capacities on its audit, executive and compensation committees. From 2007 through August 2012, Mr. Joliat served on the Board of Directors of GeoResources, Inc., and served in various capacities on the audit, nominating and compensation committees until its merger with Halcón in August 2012. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Joliat to the Board, determined that his business experience in management and investments, as well as previously serving on the boards of directors of SEC-reporting companies, brings a unique perspective as an outside investor in oil and gas entities. His management skills, understanding of public and private capital markets, and financial acumen provide the Board with a valuable resource for planning corporate strategy. | |
PHILLIP D. KRAMER Age: 64 Director Since: 2016 Board Committees: ☐ Audit ☐ Compensation | Mr. Kramer has served as a director since October 2016. He served as an Executive Vice President of Plains All American Pipeline, L.P. (“PAA”), an energy infrastructure and logistics company based in Houston, Texas, from November 2008 until February 2017. He also served as Executive Vice President and Chief Financial Officer of PAA from 1998 until 2008. He was a director and chairman of the audit committee of PetroLogistics GP, the general partner of PetroLogistics LP, from July 2012 until its sale in July 2014. Mr. Kramer has served on the board of directors of Oasis Midstream Partners since their initial public offering in September 2017. He graduated from the University of Oklahoma in 1978 with a degree in accounting and was previously a Certified Public Accountant. He is currently on the board of advisors of Price College of Business at the University of Oklahoma. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Kramer to the Board, determined that his management experience, understanding of public and private capital markets, and financial background provide the Board with a valuable resource for planning corporate strategy. | |
ROBERT L. ZORICH Age: 70 Director Since: 2014 | Mr. Zorich has served as a director since December 2014. Mr. Zorich is a Managing Partner and co-founder of EnCap. He serves on the firm’s upstream investment and management committees and has been actively involved in all aspects of the firm’s management and growth since its inception in 1988. EnCap is a leading private equity firm focused on the upstream and midstream sectors of the oil and gas industry in North America, having raised 19 institutional oil and gas investment funds, totaling in excess of $27 billion of capital. Over its history, the firm has created over 220 oil and gas companies and currently manages capital on behalf of more than 250 U.S. and international investors, including public and private pension funds, insurance companies, sovereign wealth funds, university endowments and foundations. Prior to the formation of EnCap, Mr. Zorich was a Senior Vice President in charge of the Houston office of Trust Company of the West, then a large, privately-held pension manager. Previously, Mr. Zorich co-founded MAZE Exploration, Inc., a private oil and gas company headquartered in Denver. For the first seven years of his career, Mr. Zorich was employed by Republic Bank as a Vice President and Division Manager in the energy group. Mr. Zorich serves on the boards of several EnCap portfolio companies. He is also a member of the Board of Directors of Montage Resources Corporation (formerly Eclipse Resources Corporation) and previously served on the board of Oasis Petroleum Inc. and its predecessor entities from March 2007 until March 2012. In addition, he serves on the investment committee of EnCap Flatrock Midstream. Mr. Zorich’s community involvement includes serving as a member of the Leadership Cabinet of Texas Children’s Hospital, as well as serving on the boards of the Workfaith Connection and the Memorial Assistance Ministries Endowment. He is a member of the Independent Petroleum Association of America, the Houston Producers’ Forum and Texas Independent Producers and Royalty Owners Association. Mr. Zorich holds a B.A. in Economics from the University of California at Santa Barbara and a Master’s Degree in International Management (with distinction) from the American Graduate School of International Management in Phoenix, Arizona. |
SKILLS AND QUALIFICATIONS: The Board of Directors, in reviewing and assessing the contributions of Mr. Zorich to the Board, determined that his significant experience with financing, forming, and guiding numerous oil and gas companies while serving as a co-founder and managing partner of EnCap provides significant contributions to the Board. His insights and relationships have proven valuable towards guiding corporate strategies and pursuing growth opportunities. | |
Director Attendance
During 2018, each2019, all but one of the Company's directors attended at least 75 percent of all meetings of the Board and committees of which the director was a member. During 2018,2019, our Board held four meetings.meetings of which Mr. Swanson attended two. In addition, the Board acts from time to time by unanimous written consent in lieu of holding a meeting. During 2018,2019, the Board effected ninefive actions by unanimous written consent.
While we do not have a formal policy regarding our Board members’ attendance at the annual meeting of stockholders, we encourage their attendance. In 2018, four2019, three directors attended our annual meeting of stockholders.
Controlled Company
Beginning in May 2017, our Board determined that we were a “controlled company” as defined under the corporate governance rules of the New York Stock Exchange (the “NYSE”“NYSE”) since more than 50% of our outstanding voting power was held by EnCap.EnCap (see Security Ownership Of Management And Certain Beneficial Owners below). As a “controlled company,” we are exempt from certain rules otherwise applicable to companies whose securities are listed on the NYSE, including: (a) the requirement that the Company have a majority of independent directors; (b) the requirement that nominations to the Board be either selected or recommended by a nominating committee consisting solely of independent directors; and (c) the requirement that the Company’s officers’ compensation be either determined or recommended by a compensation committee consisting solely of independent directors.
Director Independence
The current Board consists of nine directors, twoone of whom werewas employed by the Company in 2018 (Messrs. Lodzinski and Singleton, who retired from his position as Executive Vice President on June 30, 2018)2019 (Mr. Lodzinski). In April 2019,2020, the Board conducted an annual review and affirmatively determined that certain non-employee directors (Messrs. Joliat, Kramer, Thielemann and Urban) were “independent” as that term is defined in the listing standards of the NYSE. The Board made a subjective determination as to each independent director that no relationship exists, which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out their responsibilities as a director. In making these determinations, the Board reviewed and discussed information provided with regard to each director’s business and personal activities as they may relate to the Company and its management. Further, the Board determined that Mr. Lodzinski is not independent because, in 2019, he isserved as the Chief Executive Officer of the Company and Mr. Singleton is not independent since he was employed by the Company within the past three years. The Board determined that Mr. Snoots is not independent because he is a member of the Board of Managers of Bold Energy Holdings, LLC (“Bold Holdings”), which holds 33,956,524 shares of Class B Common Stock. The Board determined that Messrs. Swanson and Zorich are not independent because they are each a managing partner of EnCap, and thus, may be deemed to beneficially own our Class A Common Stock and
Class B Common Stock that is beneficially owned by EnCap (approximately 61.0%60.4% of the outstanding Class A Common Stock on a fully-diluted as-converted basis). See “Security Ownership of Management and Certain Beneficial Owners.”
Board of Directors Diversity
The Board does not have a formal diversity policy. The Board considers candidates that will make the Board, as a whole, reflective of a range of talents, skills, diversity and expertise.
Stockholder-Recommended Director Candidates
The Board is responsible for identifying individuals qualified to become Board members and nominees for directorship are selected by the Board. The Board takes into account many factors, including a general understanding of marketing, finance and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of the Company’s business on a technical level; and educational and professional background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of experience, represent stockholder interests through the exercise of sound judgment.
Although the Board is willing to consider candidates recommended by our stockholders, it has not adopted a formal policy with regard to the consideration of any director candidates recommended by our stockholders. The Board believes that a formal policy is not necessary or appropriate because the current Board already has a diversity of business background and industry experience. Additionally, the Board does not have a formal diversity policy in place for the director nomination process, but instead considers diversity of a candidate’s viewpoints, professional experience, education and skill set as a factor in the consideration and assessment of a candidate as set forth above.
In accordance with our Bylaws, stockholders wishing to recommend a director candidate to serve on the Board may do so by providing advance written notice to the Board, which identifies the candidate and includes the information described below. The notice should be sent to the following address: Earthstone Energy, Inc., Attention: Corporate Secretary, 1400 Woodloch Forest Drive, Suite 300,
The Woodlands, Texas 77380. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Director Nomination Recommendation.”
The notice must contain the following information as to each proposed nominee:
name, age, business address and residence address of the nominee;
principal occupation or employment of the nominee;
class or series and number of shares of our capital stock that are owned beneficially or of record by the nominee; and
any other information relating to the nominee that would require disclosure in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act.
The notice must also contain the following information as to the stockholder giving the notice:
name and record address of such stockholder;
class or series and number of shares of our capital stock that are owned beneficially or of record by such stockholder;
all other ownership interests of such stockholder relating to us, including derivatives, hedged positions, synthetic and temporary ownership techniques, swaps, securities, loans, timed purchases and other economic and voting interests;
a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder;
a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such stockholder’s notice; and
any other information relating to such stockholder that would require disclosure in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act.
In addition to the foregoing requirements, such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. Each proposed nominee will be required to complete a questionnaire, in a form to be provided by us, to be submitted with the stockholder’s notice. We may also require any proposed nominee to furnish such other information as we may reasonably require in order to determine the eligibility of such proposed nominee to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.
Board Leadership
Our Board is responsible for the control and direction of the Company. The Board represents the Company’s stockholders and its primary purpose is to build long-term stockholder value. In April 2020, Mr. Anderson became Chief Executive Officer (in addition to serving as President) and Mr. Lodzinski currently serves as bothbecame the Executive Chairman of the Board and Chief Executive Officer of the Company.Board. The Board believes that this leadership structure, which separates the Chairman and the Chief Executive Officer roles, is appropriate at this time in light of our operating environment. As Executive Chairman, Mr. Lodzinski is best situatedremains involved in key matters, such as major transactions, and continues to serve as Chairman becauseadvise Mr. Anderson and the rest of the executive management team. In Mr. Lodzinski’s role and given that he is the director most familiar with the Company’sour business and operations and is also the person most capable of effectively identifying strategic priorities and leading the discussion and execution of corporate strategy.strategy, the Board believes that Mr. Lodzinski continues to be best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. In this combined role, the Board believes that Mr. Lodzinski is able to foster clear accountability and effective decision making. The Board believes, at present, that the combined role of Chairman and Chief Executive Officer strengthensmaking, strengthen the communication between the Board and management and providesprovide a clear roadmap for stockholder communications. Further, as the individual with primary responsibility for managingthat has managed the day-to-day operations (through April 1, 2020) and has detailed knowledge of our operations and activities, Mr. Lodzinski is best positioned to chair regular Board meetings and ensure that key business issues and risks are brought to the attention of our Board. We therefore believe that the creation of a lead independent director position is not necessary at this time.
Executive Sessions
Our Corporate Governance Guidelines provide that the non-management directors will have regularly scheduled meetings in executive sessions without management participation. In the event that the non-management directors include directors who are not independent, then at least once a year, we will have an executive session including only independent directors. Since the Chairman of the Board is not independent, the Board recommends an independent director to preside at these meetings.
Board Risk Oversight
Our Board has ultimate responsibility for general oversight of risk management processes. The Board receives regular reports from Mr. LodzinskiAnderson and certain executive officers on areas of risk facing the Company. Our risk management processes are intended to
identify, manage and control risks so that they are appropriate considering our scope, operations and business objectives. The full Board (or the appropriate Committee in the case of risks in areas for which responsibility has been delegated to a particular Committee) engages with the appropriate members of management to enable its members to understand and provide input to and oversight of our risk identification, risk management and risk mitigation strategies. The Audit Committee also meets without management present to, among other things, discuss the Company’s risk management culture and processes. In the event a Committee receives a report from a member of management regarding areas of risk, the Chairperson of the relevant Committee will report on the discussion to the full Board to the extent necessary or appropriate. This enables the Board to coordinate risk oversight, particularly with respect to interrelated or cumulative risks that may involve multiple areas for which more than one committee has responsibility.
Communications with Directors
Stockholders and other interested parties may communicate with any of our independent directors, including the Committee Chairs, by using the following address:
Earthstone Energy, Inc.
Board of Directors
c/o William A. Wiederkehr, Jr., Corporate Secretary
1400 Woodloch Drive, Suite 300
The Woodlands, Texas 77380
E-mail: billw@earthstoneenergy.com
The Corporate Secretary of the Company reviews communications to the independent directors and forwards the communications to the independent directors as appropriate. All such communications should identify the author as a stockholder and clearly state whether the intended recipients are all members of the Board or just certain specified individual directors. Our Corporate Secretary will make copies of all such communications and circulate them to the appropriate director or directors. Communications involving substantive accounting or auditing matters will be immediately forwarded to the Chairperson of the Audit Committee. Communications that pertain to non-financial matters will be forwarded promptly to the appropriate Committee. Certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded such as: business solicitation or advertisements; product related inquiries; junk mail or mass mailings; resumes or other job-related inquiries; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications.
Board Committees
To assist it in carrying out its duties, the Board has delegated certain authority to an Audit Committee and a Compensation Committee as the functions of each are described below. Each member of the Audit and Compensation Committees has been determined by the Board to be “independent” for purposes of the listing standards of the NYSE and the rules of the SEC, including the heightened “independence” standard required for members of the Audit Committee. Additionally, our Board has determined that each member of the Compensation Committee is an “outside director” as defined for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and Messrs. Kramer, Joliat and Urban are each a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act.
Audit Committee
The Audit Committee provides oversight of the Company’s accounting policies, internal controls, financial reporting practices and legal and regulatory compliance.compliance, including approval of the Company’s Code of Ethics and any related party transactions. Among other things, the Audit Committee appoints our independent auditor and evaluates its independence and performance; maintains a line of communication between the Board, our management and the independent auditor; and oversees compliance with the Company’s policies for conducting business, including ethical business standards.
During 2018,2019, the members of our Audit Committee were Messrs. Joliat (Chairperson), Kramer and Urban, and the Audit Committee held five meetings of whichand all three of its members attended foureach of the meetings and two members attendedmeetings. During 2019, the Audit Committee effected one of the meetings.action by unanimous written consent. The Board has determined that Mr. Joliat is an “audit committee financial expert” as that term is defined in the listing standards of the NYSE and applicable rules of the SEC.
Compensation Committee
The Compensation Committee oversees the development and administration of the Company’s compensation policies and programs. The primary function of this Committee is to review and approve executive compensation and benefit programs. Additionally, the Compensation Committee approves the compensation of our named executive officers, including the Chief Executive Officer. The Compensation Committee has retained a compensation consultant, Longnecker & Associates, Inc. (the “Compensation Consultant”) to assist the Committee in oversight and review of compensation policies of the Company. Our Chief Executive Officer and President areis expected to recommend to the Compensation Committee the compensation for our named executive officers.
The members of the Compensation Committee are Messrs. Kramer (Chairperson), Joliat and Thielemann. During 2018,2019, the Compensation Committee held four meetings and all three of its members attended each of the meetings. During 2019, the Compensation Committee effected three actions by unanimous written consent.
Nominating Committee
In 2018,2019, our Board did not have a separate nominating committee. In May 2017, the Company became a “controlled company” under the NYSE corporate governance standards. Although not required, the Board is currently reviewing the potential formation of a nominating committee.
Corporate Code of Business Conduct and Ethics
Our Board adopted a Code of Business Conduct and Ethics (“Code of Ethics”Ethics”), which provides general statements of our expectations regarding ethical standards that we expect our directors, officers and employees to adhere to while acting on our behalf. Among other things, the Code of Ethics provides that:
we will comply with all laws, rules and regulations;
our directors, officers, and employees are to avoid conflicts of interest and are prohibited from competing with the Company or personally exploiting our corporate opportunities;
our directors, officers, and employees are to protect our assets and maintain our confidentiality;
we are committed to promoting values of integrity and fair dealing; and
we are committed to accurately maintaining our accounting records under generally accepted accounting principles and timely filing our SEC periodic reports and our tax returns.
Our Code of Ethics also contains procedures for employees to report, anonymously or otherwise, violations of the Code of Ethics.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors and certain executive officers, and persons who beneficially own more than ten percent of our combined Class A Common Stock and Class B Common Stock, to file initial reports of ownership and reports of changes in ownership of our Class A Common Stock, Class B Common Stock and our other equity securities with the SEC. As a practical matter, the Company assists its directors and officers by monitoring transactions and completing and filing Section 16 reports on their behalf. Based solely on a review of the copies of such forms in our possession and on written representations from reporting persons, we believe that, during 2018,2019, all of our named executive officers, directors and greater than ten percent holders filed the required reports on a timely basis under Section 16(a) of the Exchange Act, except for Messrs. Anderson, Lodzinski, Oviedo and SingletonMr. Urban who did not each timely file one Form 4 and each of them subsequently filed a Form 5 related to shares withheldhe held for the benefit of another (a previous employer) and no longer had a direct pecuniary interest in such shares.
Environmental, Social and Governance
Sustainability Position Statement
We believe that it is our responsibility to conduct business in line with our core values of operating with high ethics, integrity and respect for our employees and contractors, the environment we all share, and the communities in which we live and work. As part of our “do the right thing” approach, our goal is to manage our business in a way that minimizes risk and protects people, land, air and water, while providing economic benefits to landowners, lessors, communities and our stakeholders. We recognize that operating in this industry is a privilege, and for decades, we have set high operating standards and have worked hard to earn our reputation for excellence among members of the oil and gas industry and communities in which we operate.
Environment
Our commitment to uphold high standards of environmental stewardship and responsible practices is at settlementthe core of our operations. We believe it is essential to conduct business in accordance with all applicable environmental laws and regulations and implement quality applications when such laws and regulations do not exist. The combined mission for tax withholding purposes.protection of land, air, water and people is one that we take seriously.
With a goal of continuous improvement, our field operations staff uses best practices and the latest in technologies, many of which help us to reduce our environmental impact and improve our outcomes. All lease operators receive specialized environmental training focused on air quality compliance, waste management, spill prevention, and other areas of environmental compliance. In particular, we have taken meaningful steps to reduce our greenhouse gas emissions through reduced flaring, enhanced vapor recovery, an improved leak detection and repair program, and reduced truck hauling though the increased use of pipelines for oil and water transportation.
We are also working with the industry, the community and our partners to establish and refine our practices and share our culture of respect for the environment. Below are some of the responsible steps and best practices that we employ to safeguard the environment:
Minimizing air emissions by installing Vapor Recovery Units (“VRUs”) in conjunction with tank battery construction
Targeting Zero Flaring by connecting natural gas pipelines ahead of flowback and first production, which negates need for flaring
Started implementation of Leak Detection & Repair (“LDAR”) program in 2019 to further minimize air emissions
Shifted to utilization of silos for handling of frac sand to reduce the presence of free-floating silica dust and create a safer work environment
Reducing truck hauls, and therefore CO2 emissions, in the Midland Basin by increasing operated oil on pipelines from the wellhead from 13% of production in 2019 to ~42% of production in 2020
Plan for 100% of water disposal on pipeline in the Midland Basin to reduce truck hauls, which, in turn, reduces CO2 emissions
Extensive use of multi-well pads and long laterals to reduce surface footprint and impact
Protect groundwater sources by adopting best practices for drilling, well design and well casing
Spill Prevention Policy/ Preventative Measures/ Procedures for minimizing impact of spills
| ◦ | Spill Prevention, Containment and Countermeasure (“SPCC”) plans in place for all facilities |
| ◦ | In 2020, we began implementing active leak detection on operated pipelines |
Health and Safety
The health, safety and wellbeing of our employees, contractors, and everyone impacted by our operations is of paramount importance to all of us at Earthstone. We believe that it is our responsibility to employ best practices for safety procedures and provide a safe workplace, as well as strive to ensure that each and every one of our employees and contractors understands the importance of the role each plays in maintaining a safe work environment. Through leadership and commitment to training, safety has become imbedded in our culture and is a critical component of our success. We are very pleased and proud that in 2019, we had zero reportable work-related injuries.
Contractors and vendors are held to the same high safety standards that we require of employees. As part of this mandate, we monitor these partners to make certain that proper procedures are maintained and that contractors comply with regulatory requirements and guidelines.
In response to the emergence of the COVID-19 pandemic, we continue to monitor and take seriously the guidelines of health experts and are adhering to the highest possible standards issued by the World Health Organization (WHO) and Centers for Disease Control (CDC) as well as governments and regulators across our areas of operations. We have implemented a number of measures to safeguard the health of our employees, contractors and the community, while continuing to operate responsibly and maintaining the resiliency of the Company.
Community
Earthstone is dedicated to making a positive impact on the communities in which we live, work and operate. Our employees are encouraged to seek out organizations and initiatives they wish to support. Our employees donate their time and financial support to a wide range of charities, community organizations and activities, such as food banks, school supply drives, toy drives, natural disaster recovery, and other local events. In many cases, their efforts are supplemented with generous financial support from Earthstone.
We also work hard each day to promote safe, healthy and ethical business practices to earn the trust of the people in our communities. We believe that our success is achieved through safe and responsible operations, and by treating landowners and lessors as valued business partners that deserve our utmost respect.
Our People
At Earthstone, we know that our people drive our success, and we are committed to providing a rewarding and productive work environment and a culture of respect for our employees. We value the perspectives, experiences and ideas contributed by all employees and pledge to foster their professional growth by embracing the following principles:
A culture of empowerment, transparency, and cooperation is embraced
All employees, customers, suppliers, and community members are treated fairly
Integrity and ethical behavior are demanded
Diversity of perspectives and ideas is acknowledged and valued
Communication is open and civil
Conflict is addressed early and productively
Professional and personal development is encouraged
Teamwork is fostered
Respect for others, the community and environment is valued
Collaboration and openness to new ideas is appreciated
Governance
We have a highly experienced and engaged Board that is dedicated to sound corporate governance principles. Although considered a controlled company under the guidelines of the NYSE and exempt from certain actions, the Company and the Board are committed to achieving long-term stockholder value by adhering to the highest level of ethical standards. As part of this commitment, the Board has adopted charters, policies and codes of conduct, which can be accessed from the Company’s website at https://investor.earthstoneenergy.com/corporate-governance/default.aspx.
Key governance actions taken by the Company include the following:
The Board Chair position is split from the CEO position;
The independent members of the Board meet regularly without the presence of management;
Our independent accountant, reports directly to the Audit Committee;
The Company has a Compensation Committee that meets regularly and reports to the full Board;
The Company has an ethics policy (Code of Ethics), and an insider trading policy, to which our key corporate decision-makers must strictly adhere; and
All directors, officers and employees must affirm annually in writing their acceptance of the Code of Ethics.
We will continue to evaluate our corporate governance policies to ensure that they reflect our commitment to good corporate governance.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table includes all holdings of our Class A Common Stock and Class B Common Stock, as of April 22, 2019,20, 2020, of our directors and our named executive officers, our directors and named executive officers as a group, and all those known by us to be beneficial owners of more than five percent of our outstanding shares of Class A Common Stock or Class B Common Stock. Unless otherwise noted, the mailing address of each person or entity named below is 1400 Woodloch Forest Drive, Suite 300, The Woodlands, Texas 77380.
Shares Beneficially Owned by Certain Beneficial Owners and Management (1)(2) | Shares Beneficially Owned by Certain Beneficial Owners and Management (1)(2) | |||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Combined Voting Power (3) | Class A Common Stock | Class B Common Stock | Combined Voting Power (3) | |||||||||||||||||||||||||||||||
| Name | Number | Percent of Class (4) | Number | Percent of Class (5) | Number | Percent | Number | Percent of Class (4) | Number | Percent of Class (5) | Number | Percent | ||||||||||||||||||||||||
| Named Executive Officers: | ||||||||||||||||||||||||||||||||||||
Frank A. Lodzinski (6) | 322,333 | 1.1 | % | — | — | 322,333 | * | 418,847 | 1.4 | % | — | — | 437,885 | * | ||||||||||||||||||||||
| Robert J. Anderson | 133,453 | * | — | — | 133,453 | * | 215,305 | * | — | — | 215,305 | * | ||||||||||||||||||||||||
| Timothy D. Merrifield | 156,644 | * | — | — | 156,644 | * | ||||||||||||||||||||||||||||||
| Steven C. Collins | 147,931 | * | — | — | 147,931 | * | ||||||||||||||||||||||||||||||
| Directors: | ||||||||||||||||||||||||||||||||||||
| Non-Management Directors: | ||||||||||||||||||||||||||||||||||||
| Jay F. Joliat | 139,063 | * | — | — | 139,063 | * | 160,051 | * | — | — | 160,051 | * | ||||||||||||||||||||||||
| Phillip D. Kramer | 26,612 | * | — | — | 26,612 | * | 47,600 | * | — | — | 47,600 | * | ||||||||||||||||||||||||
| Ray Singleton | 531,322 | 1.8 | % | — | — | 531,322 | * | 552,310 | 1.9 | % | — | — | 552,310 | * | ||||||||||||||||||||||
Wynne M. Snoots, Jr. (7) | — | — | 33,956,524 | 95.9 | % | 33,956,524 | 52.8 | % | — | * | 33,956,524 | 96.9 | % | 33,956,524 | 52.3 | % | ||||||||||||||||||||
Douglas E. Swanson, Jr. (7) | 5,250,552 | 18.2 | % | 33,956,524 | 95.9 | % | 39,207,076 | 61.0 | % | 5,250,552 | 17.6 | % | 33,956,524 | 96.9 | % | 39,207,076 | 60.4 | % | ||||||||||||||||||
Brad A. Thielemann (7) | — | — | — | — | — | * | — | * | — | — | — | * | ||||||||||||||||||||||||
| Zachary G. Urban | 30,027 | * | — | — | 30,027 | * | 10,565 | * | — | — | 10,565 | * | ||||||||||||||||||||||||
Robert L. Zorich (7) | 5,250,552 | 18.2 | % | 33,956,524 | 95.9 | % | 39,207,076 | 61.0 | % | 5,250,552 | 17.6 | % | 33,956,524 | 96.9 | % | 39,207,076 | 60.4 | % | ||||||||||||||||||
| Officers and Directors as a Group (eleven persons): | 6,590,006 | 22.8 | % | 33,956,524 | 95.9 | % | 40,546,530 | 63.0 | % | |||||||||||||||||||||||||||
| Officers and Directors as a Group (11 persons): | 6,803,161 | 22.8 | % | 33,956,524 | 96.9 | % | 40,759,685 | 62.8 | % | |||||||||||||||||||||||||||
| Beneficial Owners of More than Five Percent: | ||||||||||||||||||||||||||||||||||||
EnCap Investments L.P. (7) | 5,250,552 | 18.2 | % | 33,956,524 | 95.9 | % | 39,207,076 | 61.0 | % | 5,250,552 | 17.7 | % | 33,956,524 | 96.9 | % | 39,207,076 | 60.4 | % | ||||||||||||||||||
Flatonia Energy, LLC (8) | 2,957,288 | 10.2 | % | — | — | 2,957,288 | 4.6 | % | 1,752,020 | 5.9 | % | — | — | 1,752,020 | 2.7 | % | ||||||||||||||||||||
T. Rowe Price Associates, Inc. (9) | 2,422,355 | 8.4 | % | — | — | 2,422,355 | 3.8 | % | 1,650,263 | 8.2 | % | — | — | 1,650,263 | 2.5 | % | ||||||||||||||||||||
| * | Less than one percent. |
(1) | Subject to the terms of the First Amended and Restated Limited Liability Company Agreement (the |
(2) | This table lists beneficial ownership of voting securities as calculated under SEC rules. Otherwise, except to the extent noted below, each director, named executive officer or entity has sole voting and investment power over the shares reported. None of the shares are pledged as security by the named person. |
(3) | Represents the percentage of voting power of our Class A Common Stock and Class B Common Stock voting together as a single class. Each share of Class B Common Stock has no economic rights, but entitles the holder thereof to one vote for each EEH Unit held by such holder. |
(4) | The percentage is based upon |
(5) | The percentage is based upon |
(6) |
(7) | Six affiliated investment funds (the |
(8) | Based solely on a Schedule 13D/A filed with the SEC on April 1, 2020, in which Flatonia Holdings, LLC (“Flatonia Holdings”) reported sole dispositive power over 1,752,020 shares of Class A Common Stock. Flatonia Holdings |
(9) | Based solely on a Schedule 13G/A filed with the SEC on February 14, |
| PLAN CATEGORY | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) | ||||||
| Equity compensation plans approved by security holders: | 1,063,495(1) | —(2) | 3,951,706 | ||||||
| Equity compensation plans not approved by security holders: | — | — | — | ||||||
| Total | 1,063,495 | — | 3,951,706 | ||||||
COMPENSATION OF DIRECTORS
Directors who are employees of the Company, as well as directors who are employed by EnCap, receive no additional compensation for serving on the Board. The following describes our compensation program for four of the non-employee members of the Board, Jay F. Joliat, Phillip D. Kramer, Zachary G. Urban and Ray Singleton (beginning July 1, 2018):Singleton: (i) an annual cash retainer of $60,000,$75,000, and (ii) an annual equity grant in the equivalent of approximately $120,000$150,000 per year that vests in four equal quarterly installments.
Director Compensation in 20182019
The following table sets forth the aggregate compensation paid to our non-employee directors related to their services for the year ended December 31, 2018:2019:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards (1)(2) ($) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards (1)(2) ($) | Total ($) | ||||||||||||
Jay F. Joliat (3) | 104,000 | — | 104,000 | |||||||||||||||
Phillip D. Kramer (3) | 103,000 | — | 103,000 | |||||||||||||||
Jay F. Joliat (3) (5) | 115,000 | 118,080 | 233,080 | |||||||||||||||
Phillip D. Kramer (3) (6) | 110,000 | 118,080 | 228,080 | |||||||||||||||
Ray Singleton | 30,000 | 52,585 | 82,585 | 75,000 | 118,080 | 193,080 | ||||||||||||
| Wynne M. Snoots, Jr. | — | — | — | — | — | — | ||||||||||||
| Douglas E. Swanson, Jr. | — | — | — | — | — | — | ||||||||||||
| Brad A. Thielemann | — | — | — | — | — | — | ||||||||||||
Zachary G. Urban (3) | 88,000 | — | 88,000 | |||||||||||||||
Zachary G. Urban (3) (4) | 95,000 | 118,080 | 213,080 | |||||||||||||||
| Robert L. Zorich | — | — | — | — | — | — | ||||||||||||
| (1) | Reflects the full grant date fair value of the restricted stock unit awards granted in |
| (2) | No Directors had any unvested restricted stock unit awards outstanding at December 31, |
| (3) | Messrs. Joliat, Kramer and Urban each received $20,000 in fees, respectively, for service on a special committee of the Board to explore a potential transaction with Sabalo Energy, LLC. |
| (4) | All of Mr. |
| (5) | Mr. Joliat’s compensation includes an annual cash retainer of $20,000 to serve as the chairman of the Audit Committee. |
| (6) | Mr. Kramer’s compensation includes an annual cash retainer of $15,000 to serve as the chairman of the Compensation Committee. |
MANAGEMENT
The following table sets forth the names and ages of all of our executive officers, the positions and offices with us held by such persons and the months and years in which continuous service as executive officers began:
| Name | Executive Officer Since | Age | Position | |||
| Frank A. Lodzinski | December 2014 | Chairman | ||||
| Robert J. Anderson | December 2014 | President and Chief Executive Officer | ||||
| Tony Oviedo | February 2017 | Executive Vice President, Accounting and Administration | ||||
| Mark Lumpkin, Jr. | August 2017 | Executive Vice President and Chief Financial Officer | ||||
| December 2014 | Executive Vice President, Completions and Operations | |||||
| Timothy D. Merrifield | December 2014 | Executive Vice President, Geological and Geophysical | ||||
See “Our Board of Directors” above for biographical information of Mr. Lodzinski.
Robert J. Anderson is a petroleum engineer with over 30 years of diversified domestic and international oil and gas experience. He has served as our Chief Executive Officer and President since April 2020, having previously served as President since April 2018. From December 2014 through April 2018, he served as our Executive Vice President, Corporate Development and Engineering. Previously, he served in a similar capacity with Oak Valley from March 2013 until the closing of its strategic combination with the Company in December 2014. Prior to joining Oak Valley, he served from August 2012 to February 2013 as Executive Vice President and Chief Operating Officer of Halcón. Mr. Anderson was employed by GeoResources, Inc. from April 2007 until its merger with Halcón in August 2012, ultimately serving as a director and Executive Vice President, Chief Operating Officer –- Northern Region. He was involved in the formation of Southern Bay Energy in September 2004 as Vice President, Acquisitions until its merger with GeoResources in April 2007. From March 2004 to August 2004, Mr. Anderson was employed by AROC, a predecessor company to Southern Bay Energy, as Vice President, Acquisitions and Divestitures. From September 2000Prior to FebruaryMarch 2004 he was employed byin technical and supervisory roles with Anadarko Petroleum Corporation, as a petroleum engineer. In addition, he has worked with major oil companies including ARCO International/Vastar Resources, and independent oil companies, including Hugoton Energy, Hunt Oil Hugoton Energy, and Pacific Enterprises Oil Company. His professional experience of over 30 years includes acquisition evaluation, reservoir and production engineering, field development, project economics, budgeting and planning, and capital markets. His domestic acquisition and divestiture experience includes Texas and Louisiana (offshore and onshore), Mid-Continent, and the Rocky Mountain states, and his international experience includes Canada, South America, and Russia. Mr. Anderson has a B.S. degree in Petroleum Engineering from the University of Wyoming and an MBA from the University of Denver.
Tony Oviedo has served as our Executive Vice President –- Accounting and Administration (Principal Accounting Officer) since February 10, 2017. Mr. Oviedo has over 30 years of professional experience with both private and public companies. Prior to joining the Company, he was employed by GeoMet, Inc., where, since 2006, he served as the Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Controller. In addition, prior to joining GeoMet, Mr. Oviedo was employed by Resolution Performance Products, LLC, where he was Compliance Director and has held positions as Chief Accounting Officer, Controller, and Director of Financial Reporting with various companies in the oil and gas industry. Prior to the aforementioned experience, he served in the audit practice of KPMG LLP’s Energy Group. Mr. Oviedo holds a Bachelor’s degree in Business Administration with a concentration in accounting and tax from the University of Houston and is a Certified Public Accountant in the state of Texas.
Mark Lumpkin, Jr. has over 2122 years of experience including over 1415 years of oil and gas finance experience. He has served as our Executive Vice President and Chief Financial Officer since August 2017. Immediately prior to joining Earthstone, he served as Managing Director at RBC Capital Markets in the Oil and Gas Corporate Banking group, beginning in 2011 with a focus on upstream and midstream debt financing. From 2006 until 2011, he was employed by The Royal Bank of Scotland (“RBS”) in the Oil and Gas group within the Corporate and Investment Banking division, focusing primarily on the upstream subsector. Prior to RBS, he spent two years focused on capital markets and mergers and acquisitions primarily in the upstream sector at a boutique investment bank. Mr. Lumpkin graduated with a B.A. degree in Economics from Louisiana State University and graduated with a Master of Business Administration degree with a Finance concentration from Tulane University.
Steven C. Collins is a petroleum engineer with over 2930 years of operations and related experience. He has served as our Executive Vice President, Completions and Operations since December 2014. Previously, he served in a similar capacity with Oak Valley from its formation in December 2012 until the closing of its strategic combination with the Company in December 2014. Prior to employment by Oak Valley, he served from August 2012 to November 2012 as a consultant to Halcón. Mr. Collins was employed by GeoResources, Inc. from April 2007 until its merger with Halcón in August 2012 and directed field operations, including well completion, production and workover operations. Prior to employment by GeoResources, he served as Vice President of Operations for Southern Bay, AROC, and Texoil, and as a petroleum and operations engineer at Hunt Oil Company and Pacific Enterprises Oil Company. His experience includes Texas, Louisiana (onshore and offshore), North Dakota, Montana, and the Mid-Continent. Mr. Collins graduated with a B.S. degree in Petroleum Engineering from the University of Texas.
Timothy D. Merrifield has over 3839 years of oil and gas industry experience. He has served as our Executive Vice President, Geology and Geophysics since December 2014. Previously, he served in a similar capacity with Oak Valley from its formation in December 2012 until the closing of its strategic combination with the Company in December 2014. Prior to employment by Oak Valley, he served from August 2012 to November 2012 as a consultant to Halcón upon its merger with GeoResources, Inc. in August 2012. From April 2007 to August 2012, Mr. Merrifield led all geology and geophysics efforts at GeoResources. He has held previous roles at AROC, Forceenergy,Force Energy, Great Western Resources and other independents. His domestic experience includes Texas, Louisiana (onshore and offshore), North Dakota, Montana, New Mexico, Rocky Mountain States, and the Mid-Continent. In addition, he has international experience in Peru and the East Irish Sea. Mr. Merrifield attended Texas Tech University.
There are no arrangements or understandings between any of Messrs. Lodzinski, Anderson, Collins, Lumpkin, Merrifield Mury and Oviedo, or any other person pursuant to which such person was selected as an officer. None of Messrs. Lodzinski, Anderson, Collins, Lumpkin, Merrifield Mury and Oviedo has any family relationship with any director or other executive officer of the Company or any person nominated or chosen by the Company to become a director or executive officer.
EXECUTIVE COMPENSATION
Overview
The following discussion provides information about the compensation program for our principal executive officer and our other two most highly-compensated executive officers (collectively, the “named“named executive officers”officers” or “NEOs”“NEOs”), and is intended to place in perspective the information contained in the executive compensation tables that follow this discussion. This discussion provides a general description of the material elements of our compensation program and specific information about its various components.
Compensation Philosophy and Objectives
We operate in a highly competitive and challenging environment and must retain, attract and motivate talented individuals with the requisite technical and managerial skills to successfully pursue our business strategy. The objectives of our compensation program are to:
Encourage growth in our oil and natural gas reserves and production;
Encourage growth in cash flow and profitability;
Survive and preserve value and upside potential for shareholders during industry and economic downturns, including present conditions related to both;
Mitigate risks in our business related to compensation by balancing fixed compensation with short-term and potentially long-term incentive compensation; and
Enhance total stockholder returns through a compensation program that attracts and retains highly qualified executive officers.
Elements of Ourour Executive Compensation Program
Base Salary. Base salary is the principal fixed component of our compensation program, and has historically been reviewed in the first quarter of each year. It is intended to provide our named executive officers with a regular source of income to compensate them for their day-to-day efforts in managing the Company. Base salary is primarily used to retain and attract highly talented individuals. Base salary varies depending on the named executive officer’s experience, responsibilities, education, professional standing in the industry, changes in the competitive marketplace and the importance of the position to the Company.
Long-Term Incentives. Long-term incentives may be awarded to(“LTIP”) are equity-based awards granted under our named executive officers under the 2014 Plan, which was approved by our stockholders in June 2018.Plan. Under our 2014 Plan, the BoardCompensation Committee has the flexibility to choose among a number of forms of long-term incentive compensation, including stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, performance bonuses, or other incentive awards. In the past, the Company has granted restricted stock unit (“RSU”) awards and performance stock unit (“Performance Unit”) awards to employees and restricted stock unitRSU awards to non-employee directors under theour 2014 Plan.
Other Benefits. All employees may participate in our 401(k) Retirement Savings Plan (“401(k) Plan”Plan”). Each employee may make before-tax contributions in accordance with the limits established by the Internal Revenue Service. We provide our 401(k) Plan to help our employees attain financial security by providing them with a program to save a portion of their cash compensation for retirement in a tax efficient manner. Our matching contribution is an amount equal to 100% of the employee’s elective deferral contribution not to exceed 6% of the employee’s base compensation. All full-time employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance.
Roles of our Executives and the BoardCompensation Committee
The Compensation Committee is comprised solely of independent directors and has overall responsibility for the compensation of our named executive officers. The Compensation Committee monitors our director and named executive officer compensation and benefit plans, policies and programs to ensure that they are market competitive and consistent with our compensation philosophy and objectives, along with our corporate governance guidelines. Generally, through December 31, 2019, our Chief Executive Officer, Mr. Lodzinski, and our President, Mr. Anderson, makehave made recommendations to the Compensation Committee regarding the base salary, short-termAIP and long-term incentive compensation with respect to the named executive officers based on analysis and assessment of
competitive markets and their performance. The Compensation Committee, in its sole discretion, may accept, modify or reject any or all such recommendations. The Compensation Committee will consider such recommendations and independently consider compensatory matters related to all of the named executive officers with input and advice from its compensation consultant,the Compensation Consultant.
Role of our Independent Compensation Consultant
The Compensation Committee has historically retained Longnecker & Associates, Inc. (the “Compensation Consultant”) to advise on executive compensation and, in that capacity to, among other things, make recommendations regarding an appropriate compensation peer group, to assist the Compensation Committee in establishing a competitive executive compensation program and to make recommendations and provide analysis regarding the compensation of executive management, including the named executive officers. In accordance with the NYSE rules, the Compensation Committee annually considers the independence of Compensation Consultant from Company management based upon various factors, including the magnitude of any fees received from the Company relative to the Compensation Consultant’s annual gross revenues; whether the individuals that advise the Compensation Committee participate directly or by collaboration with others within the Compensation Consultant in the provision of any services or products to the Company; whether the Compensation Consultant provided any products or services to any executive officer of the Company; and whether the individuals that advise the Compensation Committee own any Company securities. In conducting its evaluation, the Compensation Committee obtains from, and relies upon, responses from the Compensation Consultant relating to the foregoing. After considering these various factors and the Compensation Consultant’s responses, the Compensation Committee determined that the Compensation Consultant was independent of Company management during the relevant periods covered by this report. No conflicts of interest or issues involving the independence of the Compensation Consultant arose during the periods covered by this report.
The Compensation Consultant is engaged by, and reports directly to, the Compensation Committee in carrying out its duties, and works with our President when preparing materials for the Compensation Committee. During 2019, representatives of the Compensation Consultant attended Compensation Committee meetings, met with the Compensation Committee without management being present and provided third-party data, analysis, advice and expertise on executive compensation matters and competitive executive compensation programs. We considered and relied upon this data, the Compensation Consultant’s analyses of the data and its recommendations in establishing our compensation peer group and compensation programs, including the mix and amount of compensation utilized for our executive management, including the named executive officers.
In assisting the Compensation Committee, the Compensation Consultant generates reports that include a compilation of compensation data based upon our compensation peer group and particularized data for industry participants to the extent the Compensation Consultant determines that such additional data would prove useful.
Our Compensation Committee annually reconsiders, with the advice and assistance of the Compensation Consultant, the composition of our compensation peer group and will recommend changes to the peer group so that it reflects, in the estimation of the Compensation Consultant and our Compensation Committee, a mix of companies that share pertinent characteristics with our Company and that are potential competitors with us for management talent. Changes to the composition of our compensation peer group may occur in response to, among other things, changes in our business, including assets, production levels, revenues, oil and natural gas reserves and production mix, market capitalization and enterprise value, and as a consequence of business combinations involving members of our peer group. The Compensation Consultant advises us on the composition of our compensation peer group and provides reports and analyses on their compensation and benefits practices.
Factors Considered in Setting Executive Compensation
To achieve the objectives of our compensation program, the Compensation Committee believes that the compensation of each of our named executive officers should reflect the performance of the Company as a whole and the contributions of the individual named executive officer in relation to our success. In other words, our compensation program is based on the idea of pay for performance. Additionally, when evaluating our executive compensation, the Compensation Committee considers the results of the Company’s most recent Say-on-Pay advisory vote. The following is a summary of the factors considered in setting compensation for our named executive officers in addition to the factors discussed above under each element of our compensation program.
Other Compensation Practices
Accounting and Tax Considerations. Our Compensation Committee reviews and takes into account current tax, accounting and securities regulations as they relate to the design of our compensation programs and related decisions. Section 162(m) of the Code imposes a limit, with certain exceptions, on the amount that a publicly held corporation may deduct in any tax year for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year.
Stock Ownership Guidelines, Hedging Prohibitions and Pledging Limitations. We do not currently have ownership requirements or a stock retention policy for our named executive officers or non-management directors. The Board has adopted a policy that
effectively prohibits directors, officers and employees, including named executive officers, and contractors from engaging in hedging transactions, by prohibiting such persons from purchasing or selling put or call options, short sales, prepaid variable forward contracts, equity swaps, collars and exchange funds put or call options, and collars. The Board has adopted a policy requiring our named executive officers and members of the Board to obtain Board approval prior to pledging, or using as collateral, our common stock in order to secure personal loans or other obligations, which includes holding shares of our common stock in a margin account.
We will continue to review periodically best practices in this area and re-evaluate our position with respect to stock ownership guidelines, hedging restrictions and pledging limitations.
Comparison to Peers. The Compensation Committee with input from the Compensation Consultant establishes a peer group of companies for purposes of evaluating and determining our executive compensation. We believe that the components and compensation levels of our executive compensation are generally similar to, but more conservative than, our peers. In addition, particularly with the modifications to our 2020 compensation program, we believe we have greater alignment with our stockholders. We believe that the elements and compensation levels of our 2020 executive compensation are competitive with or below the 50th percentile of our peers and total compensation is highly dependent on both management’s performance and absolute increases in share value.
For executive compensation decisions in January 2020, the Compensation Committee with input from the Compensation Consultant and based on a range of financial characteristics, used the following peer companies to determine market competitive compensation levels and plan practices. The following companies were included in the “2020 Peer Group”:
| Company | Ticker |
| Abraxas Petroleum Corporation | AXAS |
| Bonanza Creek Energy, Inc. | BCEI |
| Callon Petroleum Company | CPE |
| Carrizo Oil & Gas, Inc. | CRZO |
| HighPoint Resources Corporation | HPR |
| Jagged Peak Energy Inc. | JAG |
| Laredo Petroleum, Inc. | LPI |
| Lilis Energy, Inc. | LLEX |
| Lonestar Resources US Inc. | LONE |
| Montage Resources Corporation | MR |
| Northern Oil and Gas, Inc. | NOG |
| Penn Virginia Corporation | PVAC |
| Ring Energy, Inc. | REI |
| Rosehill Resources Inc. | ROSE |
| SandRidge Energy, Inc. | SD |
| SilverBow Resources, Inc. | SBOW |
| SRC Energy Inc. | SRCI |
Clawback Provisions. Although we do not presently have any formal policies or practices that provide for the recovery of prior incentive compensation awards that were based on financial information later restated as a result of the Company’s material non-compliance with financial reporting requirements, in such event we reserve the right to seek all recoveries currently available under law. The Board has included a provision in our equity grant agreements whereby the equity grants to named executive officers are subject to any clawback policies the Company may adopt which may result in the reduction, cancellation, forfeiture or recoupment of such grants if certain specified events occur, including, but not limited to, any accounting restatement due to any material non-compliance with financial reporting regulations by the Company.
Summary View of Our Executive Compensation Program
| Compensation Element | Description (through 2019) | Recent Changes | ||
| Base Salary | • Fixed pay determined by position and level of responsibility • Targeted to be conservative within peer group | Salaries remained at 2019 levels with no salary increases for 2020 and, effective April 1, 2020, Mr. Lodzinski volunteered to reduce his annual base salary by 50%. | ||
| Annual Performance-based Cash Incentive | • cash bonus paid annually based upon executive performance • 100% discretionary based | 2020 AIP awards changed to 50% discretionary and 50% performance-based. | ||
| Long-Term Equity-Based Compensation: | ||||
| - Performance Units | • Aligns executive officers' interests with those of our stockholders • Rewards long-term performance relative to industry peers • Cliff vest at the end of three years based on TSR(1) relative to a peer group over that period | The January 2020 grants were modified to further enhance alignment with our stockholders. The performance component of the total mix of LTIP awards was increased to 75%, from 50% and the performance metric also changed to an annualized TSR metric from a TSR(1) relative to our peer group. | ||
| - Restricted Stock Units | • Makes our compensation program competitive from a total remuneration standpoint; • Encourages executive retention • Vest ratably on a quarterly basis over three years | In accordance with the change of total restricted stock units, the 2020 RSU awards decreased to 25% from 50% of the 2020 LTIP awards to further enhance alignment with our stockholders | ||
| Other Employee Benefits | Benefits available to all employees, including medical, dental and 401(k) plan with employer matching of first 6% of eligible compensation contributed | |||
| Change of Control and Severance Benefits | Provide financial security to help ensure that officers remain focused on our performance and the continued creation of shareholder value rather than on the potential uncertainties associated with their own employment | |||
| (1) | TSR is Total Shareholder Return and described below. |
Discussion of our Executive Compensation for 2018, 2019 and 2020
Discussion of 2018 Executive Compensation:
In 2018, base salaries were adjusted from 2017 levels to be more competitive with our peer group. The 2018 base salaries are listed in the table below for our NEOs.
The AIP awards for 2018 performance were granted on a discretionary basis. The Company’s execution of its capital plan and operating performance, among other factors, were taken into consideration by the Compensation Committee in determining the 2018 AIP awards. The 2018 AIP awards are listed in the “Summary Compensation Table” below.
The LTIP awards granted in 2018 consisted of time-vested RSU awards (50%) and performance stock unit (“Performance Unit”) awards (50%). The RSU awards vest on a quarterly basis over a three-year period with an initial vesting on June 30, 2018. The Performance Unit awards provided for cliff vesting after a three-year performance period (February 28, 2021). The number of Performance Units that vest is subject to increases or decreases, depending on relative corporate stock value of the Class A Common Stock in relation to the corporate stock values of the 2018 Peer Group (as defined below). The number of Performance Units that will be earned depends on the Company’s relative standing in the 2018 Peer Group as follows:
| 1. | No Performance Units earned below the 35th percentile. |
| 2. | 50% of Performance Units earned at 35th percentile. |
| 3. | 100% of Performance Units earned at 50th percentile. |
| 4. | 150% of Performance Units earned at 75th percentile. |
| 5. | 200% of Performance Units earned at 90th percentile. |
| 6. | Such Performance Units adjust on a pro-rata basis within such brackets. |
For purposes of the 2018 Performance Unit awards, the 2018 Peer Group was determined based on a range of similar-sized companies primarily oil-weighted in their focus and growth strategy. Additionally, these companies were generally focused in similar geographic basins as the Company. The following companies were selected as the “2018 Peer Group”:
| Company | Ticker |
| Abraxas Petroleum Corporation | AXAS |
| Approach Resources Inc. | AREX |
| Bonanza Creek Energy, Inc. | BCEI |
| Callon Petroleum Company | CPE |
| Carrizo Oil & Gas, Inc. | CRZO |
| Halcón Resources Corporation | HK |
| Laredo Petroleum, Inc. | LPI |
| Lillis Energy, Inc. | LLEX |
| Penn Virginia Corporation | PVAC |
| QEP Resources, Inc. | QEP |
| Resolute Energy Corporation | REN |
| Ring Energy, Inc. | REI |
Discussion of 2019 Executive Compensation:
In 2019, the Compensation Committee reviewed base salaries of the named executive officers in consultation with the Compensation Consultant and input from our Chief Executive Officer and President. After such review, base salaries were increased as executive officer compensation was generally below the 50th percentile of our peer group. The AIP awards for 2019 performance were 100% discretionary and the Compensation Committee considered the Company’s operating performance, among other factors. The following table reflects adjustments to the base salaries and the amount of the 2019 AIP awards.
2019 Salary Adjustments and AIP Awards
| Salaries | ||||||
| Name | Title | Prior | Adjustment | Revised | AIP Award | |
| Frank A. Lodzinski | Chairman / CEO | $ 480,000 | $ 20,000 | $ 500,000 | $ 400,000 | |
| Robert J. Anderson | President | $ 350,000 | $ 70,000 | $ 420,000 | $ 350,000 | |
| Steven C. Collins | EVP Operations | $ 280,000 | $ 40,000 | $ 320,000 | $ 240,000 | |
The LTIP awards granted in 2019 consisted of time-vested RSUs which were 50% of the LTIP award and Performance Unit awards which were 50% of the LTIP award. The RSU awards provided for quarterly vesting over a three-year period with an initial vesting on March 31, 2019. The Performance Unit awards provided for a performance period of February 1, 2019 through January 31, 2022. The number of Performance Units that vest will be subject to increases or decreases, depending on relative corporate stock value of the Class A Common Stock in relation to the relative corporate stock values of the 2019 Peer Group (as defined below). The number of such Performance Units that will be earned will depend on the Company’s relative standing in the 2019 Peer Group as follows:
| 1. | No Performance Units earned below the 35th percentile. |
| 2. | 50% of Performance Units earned at 35th percentile. |
| 3. | 100% of Performance Units earned at 50th percentile. |
| 4. | 150% of Performance Units earned at 75th percentile. |
| 5. | 200% of Performance Units earned at 90th percentile. |
| 6. | Such Performance Units to be adjusted on a pro-rata basis within such brackets. |
In the event that greater than 100% of the Performance Units are earned, such additional amount may be paid in cash rather than the issuance of shares of Class A Common Stock.
For purposes of the 2019 Performance Unit awards, the 2019 Peer Group was adjusted from the prior year due to companies being acquired or financially impaired. The adjusted peer group was selected based on a range of similar-sized companies primarily oil-weighted in their focus and growth strategy. These companies are generally focused in similar geographic basins as the Company. After input from the Compensation Consultant, the Compensation Committee selected the following companies as the “2019 Peer Group”:
| Company | Ticker |
| Abraxas Petroleum Corporation | AXAS |
| Callon Petroleum Company | CPE |
| Carrizo Oil & Gas, Inc. | CRZO |
| Halcón Resources Corporation | HK |
| Jagged Peak Energy, Inc. | JAG |
| Laredo Petroleum, Inc. | LPI |
| Lillis Energy, Inc. | LLEX |
| Matador Resources Company | MTDR |
| QEP Resources, Inc. | QEP |
| Ring Energy, Inc. | REI |
| Rosehill Resources Inc. | ROSE |
| SM Energy Company | SM |
Elements of 2020 Executive Compensation:
In January 2020 prior to the COVID-19 pandemic and the commodity price war between Russia and Saudi Arabia, the Compensation Committee evaluated the Company’s 2020 executive compensation program. It was determined that base salaries for executive officers would not be adjusted and would be held constant at the 2019 levels except that, effective April 1, 2020, Mr. Lodzinski volunteered to reduce his annual base salary by 50%.
The Compensation Committee determined to change the AIP awards for 2020 performance from 100% discretionary in 2019 to 50% discretionary and 50% performance-based. The target amount of the AIP award is based on a percentage of the named executive officer’s salary (and can vary from one named executive officer to another) and the discretionary payout can range from 0% to 100% of such target amount, while the performance-based payout can range from 0% to 150% of such target amount, resulting in a total payout range of 0% to 125% of such target amount in aggregate. The Compensation Committee will determine the discretionary portion of the AIP awards based on strategic goals and management’s ability to increase the Company’s scale with financial discipline. The performance-based portion of the AIP awards will be determined based on three performance metrics and the weight of such metrics within the performance portion of the AIP awards are as follows: (1) well-head economics (50%), (2) Adjusted EBITDAX (30%), and (3) average production (20%). Based on the COVID-19 pandemic and the recent commodity price war between Russia and Saudi Arabia, we believe that the various metrics for the 2020 AIP awards will be difficult to achieve.
The following is a table of LTIP awards granted in 2020 for our NEOs:
| Name | Aggregate Long-Term Equity Incentive ($ amount) | Time-Vested RSU Award (# of RSUs) | Performance Unit Award (# of Target Units) |
| Frank A. Lodzinski | $300,000 | 57,100 | — |
| Robert J. Anderson | $2,100,000 | 100,000 | 262,500 |
| Steven C. Collins | $1,200,000 | 57,100 | 150,000 |
The 2020 RSU awards vest on a quarterly basis over a three-year period with an initial vesting on March 31, 2020.
The 2020 Performance Unit awards are subject to the stockholder approval of Proposal 2. The Performance Units are eligible to be earned based on the annualized TSR of the Class A Common Stock during a three-year period beginning on February 1, 2020. Between 0x to 2.0x of the Performance Units are eligible to be earned based on our achieving an annualized TSR based on the following pre-established goals:
| Company’s Annualized TSR | TSR Multiplier |
| 23.9% or greater | 2.0 |
| 14.5% | 1.0 |
| 8.4% | 0.5 |
| Less than 8.4% | 0.0 |
In the event that greater than 1.0x of the Performance Units are earned, such additional Performance Units may be paid in cash rather than the issuance of shares of Class A Common Stock. Based on the COVID-19 pandemic and the recent commodity price war between Russia and Saudi Arabia, we believe that the target annualized TSR of 14.5% included in the 2020 Performance Unit awards will be difficult to achieve.
Summary Compensation Table
The following table presents, for the years ended December 31, 20182019 and 2017,2018, the compensation of our named executive officers. There has been no compensation awarded to, earned by or paid to any employees required to be reported in any table or column in the fiscal years covered by any table, other than what is set forth in the following table:
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (1) (2) ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||
| Frank A. Lodzinski | 2018 | $ | 450,000 | $ 770,000(3) | $ | 1,721,250 | $ | — | $ | 2,941,250 | |||||||||||||
| Chairman and Principal Executive Officer | 2017 | $ | 274,750 | $ | — | $ | 1,366,500 | $ | 120 | $ | 1,641,370 | ||||||||||||
| (also President through April 2018) | |||||||||||||||||||||||
| Robert J. Anderson | 2018 | $ | 380,000 | $ 635,000(3) | $ | 1,090,125 | $ | 16,500 | $ | 2,121,625 | |||||||||||||
| President | 2017 | $ | 277,500 | $ | 233,754 | $ | 911,000 | $ | 11,950 | $ | 1,434,204 | ||||||||||||
| (Executive Vice President, Corporate Development and Engineering through April 2018) | |||||||||||||||||||||||
| Timothy D. Merrifield | 2018 | $ | 280,000 | $ 390,000(3) | $ | 631,125 | $ | 16,500 | $ | 1,317,625 | |||||||||||||
| Executive Vice President, Geological and Geophysical | 2017 | $ | 240,750 | $ | 219,270 | $ | 546,600 | $ | 10,335 | $ | 1,016,955 | ||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (1) (2)($) | All Other Compensation ($) | Total ($) | ||||||||||||||||
| Frank A. Lodzinski | 2019 | $ | 498,333 | $ | 400,000 | $ | 2,893,118 | $ | — | $ | 3,791,451 | |||||||||||
| Chief Executive Officer (through April 1, 2020) | 2018 | $ | 450,000 | 770,000(3) | $ | 1,721,250 | $ | — | $ | 2,941,250 | ||||||||||||
| (also Principal Executive Officer through April 1, 2020) | ||||||||||||||||||||||
| Robert J. Anderson | 2019 | $ | 414,167 | $ | 350,000 | $ | 1,928,745 | $ | 16,800 | $ | 2,709,712 | |||||||||||
| President (through April 1, 2020) (Principal Executive Officer commencing April 1, 2020) | 2018 | $ | 380,000 | 635,000(3) | $ | 1,090,125 | $ | 16,500 | $ | 2,121,625 | ||||||||||||
| Steven C. Collins | 2019 | $ | 316,667 | $ | 275,000 | $ | 1,060,928 | $ | 28,300 | $ | 1,680,895 | |||||||||||
| Executive Vice President, Completions and Operations | ||||||||||||||||||||||
| (1) | Reflects the full grant date fair value of the restricted stock unit awards and performance stock unit awards granted pursuant to the 2014 Plan in |
| (2) | The following table provides information about time-based |
| Restricted Stock Unit Awards | Performance Stock Unit Awards | |||||||||||||||||
| 2019 Awards | Restricted Stock Unit Awards | Performance Stock Unit Awards | Total Awards | |||||||||||||||
| Name | Granted (#) | Value ($)(a) | Granted (#) | Value ($)(a) | Granted (#) | Value ($)(a) | Granted (#) | Value ($)(a) | Value ($) | |||||||||
| Frank A. Lodzinski | 100,000 | 452,000 | 75,000 | 399,000 | 184,275 | 1,179,360 | 184,275 | 1,713,758 | 2,893,118 | |||||||||
| Robert J. Anderson | 65,000 | 293,800 | 47,500 | 214,700 | 122,850 | 786,240 | 122,850 | 1,142,505 | 1,928,745 | |||||||||
| Timothy D. Merrifield | 38,333 | 173,265 | 27,500 | 124,300 | ||||||||||||||
| Steven C. Collins | 67,575 | 432,480 | 67,575 | 628,448 | 1,060,928 | |||||||||||||
| 2018 Awards | Restricted Stock Unit Awards | Performance Stock Unit Awards | Total Awards | |||||||||||||||
| Name | Granted (#) | Value ($)(a) | Granted (#) | Value ($)(a) | Value ($) | |||||||||||||
| Frank A. Lodzinski | 75,000 | 690,000 | 75,000 | 1,031,250 | 1,721,250 | |||||||||||||
| Robert J. Anderson | 47,500 | 437,000 | 47,500 | 653,125 | 1,090,125 | |||||||||||||
| (a) | Amount shown represents the fair value of the |
| (3) | Includes a one-time bonus awarded in February 2018 for Messrs. Lodzinski |
Outstanding Equity Awards at Year End
The following table provides information concerning unvested restricted stock unit awards, unearned performance stock unit awards and equity incentive plan awards for our named executive officers that were outstanding as of December 31, 2018.2019.
Outstanding Equity Awards at 20182019 Fiscal Year-End
| Restricted Stock Unit Awards | Performance Stock Unit Awards | Restricted Stock Unit Awards | Performance Stock Unit Awards | |||||||||||||
| Name | Number of shares or units that have not vested | Market value of shares or units of stock that have not vested ($)(1) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(1) | Number of shares or units that have not vested | Market value of shares or units of stock that have not vested ($)(1) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(1) | ||||||||
| Frank A. Lodzinski | 100,000 | 452,000 | 75,000 | 339,000 | 166,660 | 1,054,578 | 259,275 | 1,641,211 | ||||||||
| Robert J. Anderson | 65,000 | 293,800 | 47,500 | 214,700 | 110,026 | 696,465 | 170,350 | 1,078,316 | ||||||||
| Timothy D. Merrifield | 38,333 | 173,265 | 27,500 | 124,300 | ||||||||||||
| Steven C. Collins | 60,467 | 382,756 | 92,575 | 586,000 | ||||||||||||
| (1) | Amount shown represents the fair value of the shares of performance-based RSUs. |
| (2) | The table below shows the vesting dates for the respective unvested |
| Vesting Date | Mr. Lodzinski | Mr. Anderson | Mr. Merrifield | Mr. Lodzinski | Mr. Anderson | Mr. Collins | ||||||
| March 31, 2019 | 18,750 | 12,292 | 7,292 | |||||||||
| June 30, 2019 | 18,750 | 12,291 | 7,291 | |||||||||
| September 30, 2019 | 18,750 | 12,292 | 7,292 | |||||||||
| December 31, 2019 | 18,750 | 12,291 | 7,292 | |||||||||
| March 31, 2020 | 18,750 | 12,292 | 7,292 | 34,106 | 22,529 | 12,714 | ||||||
| June 30, 2020 | 6,250 | 3,959 | 2,291 | 21,606 | 14,197 | 7,715 | ||||||
| September 30, 2020 | 6,250 | 3,958 | 2,292 | 21,606 | 14,195 | 7,714 | ||||||
| December 31, 2020 | 6,250 | 3,958 | 2,292 | 21,607 | 14,196 | 7,715 | ||||||
| March 31, 2021 | 6,250 | 3,959 | 2,291 | 21,606 | 14,196 | 7,715 | ||||||
| June 30, 2021 | 15,356 | 10,238 | 5,631 | |||||||||
| September 30, 2021 | 15,356 | 10,237 | 5,631 | |||||||||
| December 31, 2021 | 15,357 | 10,238 | 5,632 | |||||||||
