SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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| ☐ | Definitive Additional Materials |
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| ☐ | Soliciting Material Pursuant to §240.14a-12 |
LONESTAR RESOURCES US INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Lonestar Resources US Inc.
NOTICE &
PROXY STATEMENT
Annual Meeting of Stockholders
May 23, 201926, 2020
10:00 a.m. (Central Time)
LONESTAR RESOURCES US INC.
111 BOLAND STREET, SUITE 301
FORT WORTH, TEXAS 76107
April 9, 201916, 2020
To Our Stockholders:
You are cordially invited to attend the 20192020 Annual Meeting of Stockholders (the “Annual Meeting”“Annual Meeting”) of Lonestar Resources US Inc. at 10:00 a.m. local time, on Thursday,Tuesday, May 23, 2019,26, 2020, at 111 Boland Street, Suite 301, Fort Worth, Texas 76107.
The Notice of Meeting and Proxy Statement on the following pages describe the matters to be presented at the Annual Meeting. If you would like to attend the Annual Meeting, you must call 1-817-921-1889 no later than 5:00 p.m. Central Time on May 21, 201919, 2020 to have your name placed on the attendance list. Please see the section called “Who Can Attend the 2019 Annual Meeting of Stockholders?” on page eight of the proxy statement for more information about how to attend the meeting in person.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the Annual Meeting. Therefore, I urge you to promptly vote and submit your proxy by phone, via the Internet, or, if you received paper copies of these materials, by signing, dating and returning the enclosed proxy card in the enclosed envelope, which requires no postage if mailed in the United States. If you have previously received our Notice of Internet Availability of Proxy Materials, then instructions regarding how you can vote are contained in that notice. If you have received a proxy card, then instructions regarding how you can vote are contained on the proxy card. If you decide to attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy.
Thank you for your support.
Sincerely,
Frank D. Bracken, III
Chief Executive Officer
Table of Contents
Notice of Annual Meeting of Stockholders
To Be Held Thursday,Tuesday, May 23, 201926, 2020
LONESTAR RESOURCES US INC.
111 BOLAND STREET, SUITE 301
FORT WORTH, TEXAS 76107
The Annual Meeting of Stockholders (the “Annual Meeting”“Annual Meeting”) of Lonestar Resources US Inc., a Delaware corporation (the “Company”“Company”), will be held at 10:00 a.m. Central Time on Thursday,Tuesday, May 23, 2019,26, 2020, at 111 Boland Street, Suite 301, Fort Worth, Texas 76107, for the following purposes:
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| 1. | Election of Frank D. Bracken, III, Henry B. Ellis, Daniel R. Lockwood, Matthew B. Ockwood, Stephen H. Oglesby, Phillip Z. Pace, John H. Pinkerton and Randy L. Wolsey as directors to serve until the 20202021 Annual Meeting of Stockholders, and until their respective successors shall have been duly elected and qualified; |
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| 2. | Ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019;2020; and |
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| 3. | Amendment of our Amended and Restated 2016 Incentive Plan to increase the number of shares available for issuance under such plan, provide for further annual automatic increases in the number of shares available for issuance, and extend the term of such plan; and |
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4. | Transaction of such other business as may properly come before the Annual Meeting or any continuation, postponement, or adjournment of the Annual Meeting. |
Holders of record of our Class A Voting Common Stock and our Series A-1 Convertible Participating Preferred Stock are entitled to notice of and to vote at the Annual Meeting, or any continuation, postponement or adjournment of the Annual Meeting. A complete list of these stockholders will be open to the examination of any stockholder at our principal executive offices at 111 Boland Street, Suite 301, Fort Worth, Texas, 76107, for a period of ten days prior to the Annual Meeting and on the day of the Annual Meeting. The Annual Meeting may be continued or adjourned from time to time without notice other than by announcement at the Annual Meeting.
It is important that your shares be represented regardless of the number of shares you may hold. Whether or not you plan to attend the Annual Meeting in person, we urge you to vote your shares via the toll-free telephone number or over the Internet, as described in the enclosed materials. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the enclosed return envelope. Promptly voting your shares will ensure the presence of a quorum at the Annual Meeting and will save us the expense of further solicitation. Submitting your proxy now will not prevent you from voting your shares at the Annual Meeting if you desire to do so, as your proxy is revocable at your option.
By Order of the Board of Directors
Gregory R. Packer
Vice President, General Counsel & Corporate Secretary
Fort Worth, Texas
April 9, 201916, 2020
Proxy Statement
LONESTAR RESOURCES US INC.
111 BOLAND STREET, SUITE 301
FORT WORTH, TEXAS 76107
This proxy statement is furnished in connection with the solicitation by the Board of Directors (the “Board”“Board”) of Lonestar Resources US Inc. of proxies to be voted at our Annual Meeting of Stockholders to be held on Thursday,Tuesday, May 23, 201926, 2020 (the “Annual Meeting”“Annual Meeting”), at 111 Boland Street, Suite 301, Fort Worth, Texas 76107 at 10:00 a.m. Central Time, and at any continuation, postponement, or adjournment of the Annual Meeting. Holders of record of shares of Class A Voting Common Stock, $0.001 par value per share (“Class A Common Stock”Stock”) and Series A-1 Convertible Participating Preferred Stock, $0.001 par value per share (“Series A-1 Preferred Stock”Stock”) as of the close of business on March 29, 201931, 2020 (the “Record Date”“Record Date”), will be entitled to notice of and to vote at the Annual Meeting and any continuation, postponement, or adjournment of the Annual Meeting. Each share of Class A Common Stock is entitled to one vote on any matter presented to stockholders at the Annual Meeting. The holder of Series A-1 Preferred Stock will vote together as a single class with holders of Class A Common Stock on all matters before the Annual Meeting. The holder of Series A-1 Preferred Stock will be entitled to the number of votes equal to the number of shares of Class A Common Stock that such holder would hold on an as-converted basis on the Record Date. As of the Record Date, there were (i) 24,773,64325,270,595 shares of Class A Common Stock outstanding, and (ii) 93,849102,585 shares of Series A-1 Preferred Stock outstanding, which are convertible into 15,641,50017,097,500 shares of Class A Common Stock, for a total of 40,415,14342,196,057 shares of Class A Common Stock (including the Series A-1 Preferred Stock on an as-converted basis) entitled to vote at the Annual Meeting.
This proxy statement and the Company’s Annual Report to Stockholders for the year ended December 31, 20182019 (the “2018“2019 Annual Report”) will be released on or about April 9, 2019,16, 2020, to our stockholders onas of the Record Date.
In this proxy statement, “Lonestar”, “Company”, “we”, “us”, and “our” refer to Lonestar Resources US Inc., and where applicable, our predecessor entity, Lonestar Resources Limited.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON THURSDAY,TUESDAY, MAY 23, 201926, 2020
This Proxy Statement and our 20182019 Annual Report to Stockholders are available at www.proxyvote.com
Stockholders may receive directions to attend the meeting in person by calling 1-817-921-1889.
PROPOSALS
At the Annual Meeting, our stockholders will be asked:
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| 1. | To elect Frank D. Bracken, III, Henry B. Ellis, Daniel R. Lockwood, Matthew B. Ockwood, Stephen H. Oglesby, Phillip Z. Pace, John H. Pinkerton and Randy L. Wolsey as directors to serve until the 2020 Annual Meeting of Stockholders, and until their respective successors shall have been duly elected and qualified; |
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| 2. | To ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the year ending December 31, 2019;2020; and |
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| 3. | To amend our Amended and Restated 2016 Incentive Plan to increase the number of shares available for issuance under such plan, provide for further annual automatic increases in the number of shares available for issuance, and extend the term of such plan; and |
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4. | To transact such other business as may properly come before the Annual Meeting or any continuation, postponement, or adjournment of the Annual Meeting. |
We know of no other business that will be presented at the Annual Meeting. If any other matter properly comes before the stockholders for a vote at the Annual Meeting, however, the proxy holders named on the Company’s proxy card will vote your shares in accordance with their best judgment.
RECOMMENDATIONS OF THE BOARD
The Board recommends that you vote your shares as indicated below. If you return a properly completed proxy card, or vote your shares by telephone or Internet, your shares of Class A Common Stock or Series A-1 Preferred Stock, as applicable, will be voted on your behalf as you direct. If not otherwise specified, the shares of Class A Common Stock or Series A-1 Preferred Stock, as applicable, represented by the proxies will be voted, and the Board recommends that you vote:
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| 1. | FOR the election of Frank D. Bracken, III, Henry B. Ellis, Daniel R. Lockwood, Matthew B. Ockwood, Stephen H. Oglesby, Phillip Z. Pace, John H. Pinkerton and Randy L. Wolsey as directors; and |
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| 2. | FOR the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and |
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3. | FOR the amendment of our Amended and Restated 2016 Incentive Plan to increase the number of shares available for issuance under such plan, provide for further annual automatic increases in the number of shares available for issuance, and extend the term of such plan.2020. |
If any other matter properly comes before the stockholders for a vote at the Annual Meeting, the proxy holders named on the Company’s proxy card will vote your shares in accordance with their best judgment.
INFORMATION ABOUT THIS PROXY STATEMENT
Why you received this proxy statement. You are viewing or have received these proxy materials because the Board is soliciting your proxy to vote your shares at the Annual Meeting. This proxy statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission (“SEC”SEC”) and that is designed to assist you in voting your shares.
Notice of Internet Availability of Proxy Materials. As permitted by SEC rules, Lonestar is making this proxy statement and its 20182019 Annual Report available to its stockholders electronically via the Internet. On or about April 9, 2019,16, 2020, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Internet Notice”“Internet Notice”) containing instructions on how to access this proxy statement and our 20182019 Annual Report and vote online. If you received an Internet Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request them. Instead, the Internet Notice instructs you on how to access and review all of the important information contained in the proxy statement and 20182019 Annual Report. The Internet Notice also instructs you on how you may submit your proxy over the Internet. If you received an Internet Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials contained on the Internet Notice.
Printed Copies of Our Proxy Materials. If you received printed copies of our proxy materials, then instructions regarding how you can vote are contained on the proxy card included in the materials.
Householding. The SEC’s rules permit us to deliver a single set of proxy materials to one address shared by two or more of our stockholders. This delivery method is referred to as “householding” and can result in significant cost savings. To take advantage of this opportunity, we have delivered only one set of proxy materials to multiple stockholders who share an address, unless we received contrary instructions from the impacted stockholders prior to the mailing date. We agree to deliver promptly, upon written or oral request, a separate copy of the proxy materials, as requested, to any stockholder at the shared address to which a single copy of those documents was delivered. If you prefer to receive separate copies of the proxy materials, contact Broadridge Financial Solutions, Inc. (“Broadridge”Broadridge”) via telephone at 1-800-579-1639, via internet at www.proxyvote.com, or via email at sendmaterial@proxyvote.com.
If you are currently a stockholder sharing an address with another stockholder and wish to receive only one copy of future proxy materials for your household, please contact Broadridge at the above phone number, website or email address.
Questions and Answers about the 20192020 Annual Meeting of Stockholders
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
The Record Date for the Annual Meeting is March 29, 2019.31, 2020. You are entitled to vote at the Annual Meeting only if you were a stockholder of record at the close of business on that date, or if you hold a valid proxy for the Annual Meeting. Each outstanding share of Class A Common Stock is entitled to one vote for all matters before the Annual Meeting. The holder of Series A-1 Preferred Stock will vote together as a single class with the holders of Class A Common Stock on all matters before the Annual Meeting. The holder of Series A-1 Preferred Stock will be entitled to the number of votes equal to the number of shares of Class A Common Stock that such holder would hold on an as-converted basis on the Record Date. As of the Record Date, there were (i) 24,773,64325,270,595 shares of Class A Common Stock outstanding, and (ii) 93,849102,585 shares of Series A-1 Preferred Stock outstanding, which are convertible into 15,641,50017,097,500 shares of Class A Common Stock, for a total of 40,415,14342,368,095 shares of Class A Common Stock (including the Series A-1 Preferred Stock on an as-converted basis) entitled to vote at the Annual Meeting.
WHAT IS THE DIFFERENCE BETWEEN BEING A "RECORD HOLDER" AND HOLDING SHARES IN "STREET NAME"?
A record holder holds shares in his or her name. Shares held in “street name” means shares that are held in the name of a bank or broker on a person’s behalf.
AM I ENTITLED TO VOTE IF MY SHARES ARE HELD IN "STREET NAME"?
Yes. If your shares are held by a bank or a brokerage firm, you are considered the “beneficial owner” of those shares held in “street name.” If your shares are held in street name, these proxy materials are being provided to you by your bank or brokerage firm, along with a voting instruction card if you received printed copies of our proxy materials. As the beneficial owner, you have the right to direct your bank or brokerage firm how to vote your shares, and the bank or brokerage firm is required to vote your shares in accordance with your instructions. If your shares are held in street name, you may not vote your shares in person at the Annual Meeting, unless you obtain a legal proxy from your bank or brokerage firm.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE ANNUAL MEETING?
A quorum must be present at the Annual Meeting for any business to be conducted. The presence at the Annual Meeting, in person or by proxy, of the holders of the Company’s Class A Common Stock and, on an as-converted basis, Series A-1 Preferred Stock, representing a majority in voting power of all of the shares of stock entitled to vote at the meeting, will constitute a quorum.
WHO CAN ATTEND THE ANNUAL MEETING OF STOCKHOLDERS?
You may attend the Annual Meeting only if you were a Lonestar stockholder of record at the close of business on March 29, 2019,31, 2020, or if you hold a valid proxy for the Annual Meeting. If you would like to attend the Annual Meeting, you must call 1-817-921-1889 no later than 5:00 p.m. Central Time on May 21, 201925, 2020 to have your name placed on the attendance list. In order to be admitted into the Annual Meeting, your name must appear on the attendance list and you must present government-issued photo identification (such as a driver’s license). If your bank or broker holds your shares in street name, you will also be required to present proof of beneficial ownership of our Class A Common Stock on the Record Date, such as the Internet Notice you received from your bank or broker, or a bank or brokerage statement or a letter from your bank or broker showing that you owned shares of our Class A Common Stock at the close of business on the Record Date.
WHAT IF A QUORUM IS NOT PRESENT AT THE ANNUAL MEETINGS?
If a quorum is not present at the scheduled time of the Annual Meeting, the Chairperson of the Annual Meeting may adjourn the Annual Meeting to another place, if any, date, or time.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE INTERNET NOTICE OR MORE THAN ONE SET OF PROXY MATERIALS?
It means that your shares are held in more than one account at the transfer agent and/or with banks or brokers. Please vote all of your shares. To ensure that all of your shares are voted, for each Internet Notice or set of proxy materials, please submit your proxy by phone, via the Internet, or, if you received printed copies of the proxy materials, by signing, dating and returning the enclosed proxy card in the enclosed envelope.
HOW DO I VOTE?
We recommend that stockholders vote by proxy even if they plan to attend the Annual Meeting and vote in person. If you are a stockholder of record, there are three ways to vote by proxy:
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| * | by Telephone-You can vote by telephone by calling 1-800-579-1639 and following the instructions on the proxy card; |
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| * | by Internet-You can vote over the Internet at www.proxyvote.com by following the instructions on the Internet Notice or proxy card; or |
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| * | by Mail-You can vote by mail by signing, dating and mailing the proxy card, which you may have received by mail. |
Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 1:00 a.m., Central Time, on May 23, 2019.2020.
If your shares are held in street name through a bank or broker, you will receive instructions on how to vote from the bank or broker. You must follow their instructions in order for your shares to be voted. Telephone and Internet voting also may be offered to stockholders owning shares through certain banks and brokers. If your shares are not registered in your own name and you would like to vote your shares in person at the Annual Meeting, you should contact your bank or broker to obtain a legal proxy and bring it to the Annual Meeting in order to vote.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY?
Yes.
If you are a registered stockholder, you may revoke your proxy and change your vote:
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| * | by submitting a duly executed proxy bearing a later date; |
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| * | by granting a subsequent proxy through the Internet or telephone; |
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| * | by giving written notice of revocation to the Secretary of Lonestar prior to or at the Annual Meeting; or |
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| * | by voting in person at the Annual Meeting. |
Your most recent proxy card or telephone or Internet proxy is the one that is counted. Your attendance at the Annual Meeting by itself will not revoke your proxy unless you give written notice of revocation to the Secretary before your proxy is voted or you vote in person at the Annual Meeting.
If your shares are held in street name, you may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker, or you may vote in person at the Annual Meeting by obtaining a legal proxy from your bank or broker and submitting the legal proxy along with your ballot.
WHO WILL COUNT THE VOTES?
A representative of Broadridge Financial Solutions, Inc., our inspector of election, will tabulate and certify the votes.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
If you submit a proxy but do not indicate any voting instructions, the persons named as proxies will vote in accordance with the recommendations of the Board. The Board’s recommendations are indicated on page 2 of this proxy statement, as well as with the description of each proposal in this proxy statement.
WILL ANY OTHER BUSINESS BE CONDUCTED AT THE ANNUAL MEETING?
We know of no other business that will be presented at the Annual Meeting. If any other matter properly comes before the stockholders for a vote at the Annual Meeting, however, the proxy holders named on the Company’s proxy card will vote your shares in accordance with their best judgment.
HOW MANY VOTES ARE REQUIRED FOR THE APPROVAL OF THE PROPOSALS TO BE VOTED UPON AND HOW WILL ABSTENTIONS AND BROKER NON-VOTES BE TREATED?
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| Proposal | | Votes Required | | Effect of Votes Abstentions and Broker Non-Votes |
Proposal 1: Election of Directors | | A director nominee will be elected to the Board if the votes of the Company’s Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis, cast “FOR” the nominee exceed the votes cast “AGAINST” the nominee. | | Abstentions and broker non-votes will have no effect. |
Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm | | The favorable vote of a majority of the votes cast affirmatively or negatively by holders of the Company’s shares of Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis. | | Abstentions will have no effect. We do not expect any broker non-votes on this proposal. |
Proposal 3: Amendment of our Amended and Restated 2016 Incentive Plan to increase the number of shares available for issuance under such plan, provide for further annual automatic increases in the number of shares available for issuance, and extend the term of such plan
| | The favorable vote of a majority of the votes cast affirmatively or negatively by holders of the Company’s shares of Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis. | | Abstentions and broker non-votes will have no effect. |
WHAT IS AN ABSTENTION AND HOW WILL ABSTENTIONS BE TREATED?
An “Abstention” represents a stockholder’s affirmative choice to decline to vote on a proposal. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Abstentions are not considered to be votes cast and, accordingly, will have no effect on the vote for Proposals 1 2 and 3.2.
WHAT ARE BROKER NON-VOTES AND DO THEY COUNT FOR DETERMINING A QUORUM?
Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker (1) has not received voting instructions from the beneficial owner and (2) lacks discretionary voting power to vote those shares. A broker is entitled to vote shares held for a beneficial owner on routine matters, such as the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm, without instructions from the beneficial owner of those shares. On the other hand, absent instructions from the beneficial owner of such shares, a broker is not entitled to vote shares held for a beneficial owner on non-routine matters, such as the election of directors and the amendment of our Amended and Restated 2016 Incentive Plan.directors. Broker non-votes count for purposes of determining whether a quorum is present.
WHERE CAN I FIND THE VOTING RESULTS OF THE 20192020 ANNUAL MEETING OF STOCKHOLDERS?
We plan to announce preliminary voting results at the Annual Meeting and we will report the final results in a Current Report on Form 8-K, which we intend to file with the SEC after the Annual Meeting.
PROPOSALS TO BE VOTED ON – PROPOSAL 1
Election of Directors
At the Annual Meeting, eight (8) directors are to be elected to hold office until the Annual Meeting of Stockholders to be held in 2020 and until such director’s successor is duly elected and qualified or until such director’s earlier death, resignation or removal.
We currently have eight (8) directors on our Board. Our current directors are Frank D. Bracken, III, who has served on our Board since January 2012, Henry B. Ellis, who has served on our Board since October 2016, Daniel R. Lockwood, who has served on our Board since May 2014, Matthew B. Ockwood, who has served on our Board since November 2017, Stephen H. Oglesby, who has served on our Board since March 2017, Phillip Z. Pace, who has served on our Board since June 2017, John H. Pinkerton, who has served on our Board since March 2015 and Randy L. Wolsey, who has served on our Board since January 2017. The Board has nominated eight directors for election as directors at the Annual Meeting.
Our Bylaws provide that the authorized number of directors may be changed by action of the Board or the stockholders. Subject to certain share-ownership requirements, Chambers Energy Capital III, LP (“Chambers”Chambers”) has the right to designate a limited number of nominees for election to the Board of Directors. Chambers currently has the right to designate up to two nominees and has designated Matthew B. Ockwood and Phillip Z. Pace for election to our Board.
If you submit a proxy but do not indicate any voting instructions, the persons named as proxies will vote the shares of Class A Common Stock or Series A-1 Preferred Stock represented thereby for the election as directors of the persons whose names and biographies appear below. All of the persons whose names and biographies appear below are currently serving as our directors. In the event any of the nominees should become unable to serve, or for good cause will not serve, as a director, it is intended that votes will be cast for a substitute nominee designated by the Board or the Board may elect to reduce its size. The Board has no reason to believe that the nominees named below will be unable to serve if elected. Each of the nominees has consented to being named in this proxy statement and to serve if elected.
VOTE REQUIRED
A Director nominee will be elected to the Board if the votes of the Company’s Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis, cast “FOR” the nominee exceed the votes cast “AGAINST” the nominee. If any nominee for director receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election, our Bylaws require that such person tender his resignation to the Board. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose and will have no effect on the election of Director nominees.
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| The Board of Directors unanimously recommends a vote FOR the election of the eight director nominees named below. |
PROPOSAL 1 – ELECTION OF DIRECTORS
NOMINEES FOR DIRECTORS (TERMS TO EXPIRE AT THE 2020 ANNUAL MEETING)
The current members of the Board who are also nominees for election to the Board as directors are as follows:
| | | Name | | Age | | Served as a Director Since | | Position(s) with Lonestar | | Age | | Served as a Director Since | | Position(s) with Lonestar |
| Frank D. Bracken, III..................................................................... | | 55 | | 2012 | | Chief Executive Officer and Director | | 56 | | 2012 | | Chief Executive Officer and Director |
| Henry B. Ellis................................................................................. | | 69 | | 2016 | | Director | | 70 | | 2016 | | Director |
| Daniel R. Lockwood...................................................................... | | 61 | | 2014 | | Director | | 62 | | 2014 | | Director |
| Phillip Z. Pace................................................................................ | | 55 | | 2017 | | Director | | 56 | | 2017 | | Director |
| Matthew B. Ockwood.................................................................... | | 35 | | 2017 | | Director | | 36 | | 2017 | | Director |
| Stephen H. Oglesby........................................................................ | | 69 | | 2017 | | Director | | 70 | | 2017 | | Director |
| John H. Pinkerton........................................................................... | | 65 | | 2015 | | Chairman | | 66 | | 2015 | | Chairman |
| Randy L. Wolsey............................................................................ | | 69 | | 2017 | | Director | | 70 | | 2017 | | Director |
The principal occupations and business experience, for at least the past five years, of each nominee for election at the 20192020 Annual Meeting are as follows:
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| FRANK D. BRACKEN, III | | | Age 5556 |
Frank D. Bracken, III is our Chief Executive Officer. Mr. Bracken has served in this position since January 2012 and has served as a director and Chief Executive Officer of Lonestar Resources, Inc., our wholly-owned subsidiary, since January 2012. Mr. Bracken previously served as Senior Managing Director of Sunrise Securities from September 2008 to December 2011 and as Managing Director of Jefferies LLC from November 1999 to August 2008. During that time, Mr. Bracken led oil and natural gas transactions, spanning from public and private equity and debt offerings to joint ventures in the Haynesville Shale to one of the first purchases of a publicly-traded oil & gas company by a private equity firm. As Chief Financial Officer and a member of the board of directors at Gerrity Oil & Gas Corp, an NYSE-listed exploration and production company, Mr. Bracken was responsible for corporate budgeting and development, acquisitions, equity and debt financing in public and private offerings, and acquisitions and divestitures. Mr. Bracken holds a Bachelor of Arts degree from Yale University. Mr. Bracken’s background in finance, his extensive experience in various types of transactions including equity and debt financing as well as acquisition and divestitures, particularly in the energy industry, makes him qualified to serve on our board of directors.
Henry B. Ellis has served as a director since October 2016. Mr. Ellis has served as managing director and Chief Executive Officer of Bassett California Co. & The Bassett Company since 1977. He previously served as a director of several other boards including Bluebonnet Savings Bank and State National Bank and served as President of Mbank, El Paso and Chairman and CEO of Grayson County Bank. Mr. Ellis received his Bachelor of Arts degree in Business Administration from Texas Christian University. We believe that Mr. Ellis’ financial experience in the banking industry qualifies him for service on our board of directors.
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| DANIEL R. LOCKWOOD | | | Age 6162 |
Daniel R. Lockwood has served as a director since May 2014. He also serves as Vice-President of New Tech Global and is responsible for overseeing and managing NTG engineering and project management services. Mr. Lockwood is a graduate of the Colorado School of Mines with a degree in Petroleum Engineering. Mr. Lockwood joined New Tech Engineering in 2000 and brings with him more than 35 years of engineering and management experience and is considered one of the industry’s leading experts in Shale Operations. We believe that Mr. Lockwood’s engineering and management experience in the oil and gas industry qualifies him for service on our board of directors.
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| MATTHEW B. OCKWOOD | | | Age 3536 |
Matthew B. Ockwood has served as a director since November 2017. Mr. Ockwood has been a Managing Director of Chambers Energy Capital, a Houston-based investment firm focused on opportunistic credit investments in the energy industry, since December 2016. While at Chambers Energy Capital, Mr. Ockwood has led or participated in the execution of dozens of distinct oil and gas transactions ranging from secured debt to common equity. Prior to joining Chambers Energy Capital, Mr. Ockwood was employed by Lehman Brothers from 2006 to 2008 where he worked in the Natural Resources investment banking group. Mr. Ockwood holds a B.B.A in Finance, summa cum laude, and a Certificate in Leadership Study and Development from Texas A&M University. We believe that Mr. Ockwood’s financial experience in the investment banking industry for a diverse set of energy clients qualifies him for service on our board of directors.
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| STEPHEN H. OGLESBY | | | Age 6970 |
Stephen H. Oglesby has served as a director since March 2017. Before joining the company, Mr. Oglesby served as Head of Energy, US Commercial Bank at Citibank, where he managed multiple offices and oversaw financial services provided to various private and public companies in the oil and gas industry, from December 2003 to January 2017. Mr. Oglesby previously served on the board of directors of various private companies, including Advanced Coiled Tubing, where he served as Chairman of the board of directors, Blackwell Plastics, and Goodman Manufacturing. Mr. Oglesby holds a Bachelor of Science in Accounting from Southern Illinois University. We believe that Mr. Oglesby is qualified to serve on our board of directors because of his extensive experience in financial services for diversified corporate and energy clients, and his background in finance and accounting.
Phillip Z. Pace has served as a director since June 2017. Mr. Pace has been a Partner of Chambers Energy Capital, a Houston-based investment firm focused on opportunistic credit investments in the energy industry since March 2009. Mr. Pace has extensive experience in energy finance, including 19 years in oil and gas equity research. Mr. Pace joined Lehman Brothers in September 2008 after his retirement from Credit Suisse as Vice Chairman of the energy investment banking group. Mr. Pace received his Bachelor of Business Administration degree in Finance from Texas A&M University and has the Chartered Financial Analyst designation. We believe that Mr. Pace’s financial experience in the investment banking industry for a diverse set of energy clients qualifies him for service on our board of directors.
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| JOHN H. PINKERTON | | | Age 6566 |
John H. Pinkerton has served as a director since March 2015 and became Chairman of the Board in August 2016. He has been a director of Range Resources Corporation (NYSE: RRC), a petroleum and natural gas exploration and production company, since 1988 and was Chairman of its board of directors from 2008 until January 2015. He joined Range as President in 1990 and served as Chief Executive Officer from 1992 until 2012. Prior to joining Range, Mr. Pinkerton served in various capacities at Snyder Oil Corporation for twelve years, including the position of Senior Vice President. Mr. Pinkerton received his Bachelor of Arts degree in Business Administration from Texas Christian University, where he now serves on the board of trustees, and a Master’s degree from the University of Texas at Arlington. During his 27-year tenure Range Resources grew from its small cap origins to be a $13 billion-dollar enterprise with a pre-eminent position in the Marcellus Shale. As CEO of Range Resources, Mr. Pinkerton established the technical expertise to enable a drilling-led strategy complemented by bolt-on acquisitions where synergies would enhance growth. This resulted in a rapid and impressive increase in the scale of the business, and seven consecutive years of double-digit growth in both production and reserves (adjusted for debt). Mr. Pinkerton has widespread skill in the management, acquisition and divestiture of oil and gas properties-including related corporate financing activities-hedging, risk analysis and the evaluation of drilling programs. He has represented the industry in policy matters, serving on the executive committee of America’s Natural Gas Alliance. We believe that Mr. Pinkerton’s experience at oil and natural gas exploration companies qualify him for service on our board of directors.
Randy L. Wolsey has served as a director since January 2017. Mr. Wolsey is the founder and since February 2015 has been a co-owner of Lone Oak Minerals, a private company involved in acquisition and selling of oil and gas minerals. Since January 2012, he has also been the owner of Solana, a private company involved in oil and gas and real estate investments. He is also the founder and since June 2006 has been a co-owner of Tanglewood Exploration, a private company involved in oil and gas exploration and production. He previously held management positions at companies including Glen Rose Oil & Gas and Justin Exploration. Mr. Wolsey received his Bachelor of Arts degree in Political Science from Midwestern State University. We believe that Mr. Wolsey’s experience in the oil and gas industry qualifies him for service on our board of directors.
There are no family relationships among any of our executive officers or directors.
PROPOSAL 2
Ratification of Appointment of Independent Registered Public Accounting Firm
Our Audit and Risk Committee has appointed BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.2020. Our Board has directed that this appointment be submitted to our stockholders for ratification. Although ratification of our appointment of BDO USA, LLP is not required, we value the opinions of our stockholders and believe that stockholder ratification of our appointment is a good corporate governance practice.
BDO USA, LLP also served as our independent registered public accounting firm for the fiscal year ended December 31, 2018.2019. Neither the accounting firm nor any of its members has any direct or indirect financial interest in or any connection with us in any capacity other than as our auditors, providing audit and non-audit related services. A representative of BDO USA, LLP is expected to attend the Annual Meeting and to have an opportunity to make a statement and be available to respond to appropriate questions from stockholders.
In the event that the appointment of BDO USA, LLP is not ratified by the stockholders, the Audit and Risk Committee will consider this fact when it appoints the independent auditors for the fiscal year ending December 31, 2020. Even if the appointment of BDO USA, LLP is ratified, the Audit and Risk Committee retains the discretion to appoint a different independent auditor at any time if it determines that such a change is in the interests of the Company.
VOTE REQUIRED
This proposal requires the favorable vote of a majority of the votes cast affirmatively or negatively by holders of the Company’s outstanding shares of Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis. Abstentions are not considered to be votes cast and, accordingly, will have no effect on the outcome of the vote on this proposal. Because brokers have discretionary authority to vote on the ratification of the appointment of BDO USA, LLP we do not expect any broker non-votes in connection with this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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| The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm. |
Report of the Audit and Risk Committee of the Board of Directors
The Audit and Risk Committee has reviewed the Company’s audited financial statements for the fiscal year ended December 31, 20182019 and has discussed these financial statements with management and the Company’s independent registered public accounting firm. The Audit and Risk Committee has also received from, and discussed with, the Company’s independent registered public accounting firm various communications that such independent registered public accounting firm is required to provide to the Audit and Risk Committee, including the matters required to be discussed by statement on Auditing Standard No. 1301, as adopted by the Public Company Accounting Oversight Board (“PCAOB”PCAOB”).
The Company’s independent registered public accounting firm also provided the Audit and Risk Committee with a formal written statement required by PCAOB Rule 3526 (Communications with Audit Committees Concerning Independence) describing all relationships between the independent registered public accounting firm and the Company, including the disclosures required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit and Risk Committee concerning independence. In addition, the Audit and Risk Committee discussed with the independent registered public accounting firm its independence from the Company.
Based on its discussions with management and the independent registered public accounting firm, and its review of the representations and information provided by management and the independent registered public accounting firm, the Audit and Risk Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
Henry G. Ellis (Chair)
Stephen H. Oglesby
Randy L. Wolsey
Independent Registered Public Accounting Firm Fees and Other Matters
The following table summarizes the fees of BDO USA, LLP, our independent registered public accounting firm, and its affiliates, billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:
| | Fee Category | | 2018 | | 2017 | | 2019 | | 2018 |
| Audit Fees......................................................................................................................................... | | $ | 796,750 |
| | $ | 779,709 |
| __ | $ | 717,870 |
| | $ | 796,750 |
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| Audit-Related Fees............................................................................................................................ | | — |
| | — |
| | — |
| | — |
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| Tax Fees............................................................................................................................................ | | 169,675 |
| | 169,725 |
| | 92,495 |
| | 169,675 |
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| All Other Fees................................................................................................................................... | | — |
| | — |
| | — |
| | — |
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| Total Fees.......................................................................................................................................... | | $ | 966,425 |
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| $ | 949,434 |
| | $ | 810,365 |
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| $ | 966,425 |
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AUDIT FEES
Audit fees consist of fees billed for the audit of our annual consolidated financial statements, the review of the interim consolidated financial statements, and related services that are normally provided in connection with registration statements. Such services can only be provided by our principal accountants.
AUDIT-RELATED FEES
There were no such fees incurred in 20182019 or 2017.2018.
TAX FEES
Tax fees consist of fees for professional services, including tax consulting, planning and compliance performed by BDO USA, LLP and its affiliates.
ALL OTHER FEES
We did not incur any other fees in 20182019 or 2017.2018.
AUDIT AND RISK COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Audit and Risk Committee has adopted a policy (the “Pre-Approval Policy”“Pre-Approval Policy”) which sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by the independent auditor may be pre-approved. The Pre-Approval Policy generally provides that we will not engage BDO USA, LLP to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the Audit and Risk Committee (“specific pre-approval”pre-approval”) or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy (“general pre-approval”pre-approval”). Unless a type of service to be provided by BDO USA, LLP has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the Audit and Risk Committee or by a designated member of the Audit and Risk Committee to whom the committee has delegated the authority to grant pre-approvals. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval. For both types of pre-approval, the Audit and Risk Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. The Audit and Risk Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. On an annual basis, the Audit and Risk Committee reviews and generally pre-approves the services (and related fee levels or budgeted amounts) that may be provided by BDO USA, LLP without first obtaining specific pre-approval from the Audit and Risk Committee. The Audit and Risk Committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.
PROPOSAL 3
Amendment of our Amended and Restated 2016 Incentive Plan to Increase the Number of Shares Available for Issuance, Provide for Further Annual Automatic Increases in the Number of Shares Available for Issuance, and Extend the Term of the Plan
The Company’s Amended and Restated 2016 Incentive Plan (the “A&R 2016 Plan”) was adopted and approved by a majority in interest of our stockholders on May 24, 2018. The A&R 2016 Plan, as approved in May 2018, provides for the grant of stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units and other stock or cash-based awards to our employees, consultants and directors up to an aggregate of 3,000,000 shares of our Class A Common Stock. The A&R 2016 Plan is described in more detail below.
The A&R 2016 Plan reserved a number of shares for issuance that we expected to be sufficient for grants previously made under the plan and for grants to be made through the 2018 calendar year. We anticipated that approval of additional shares for grants to be made in the future would be necessary and we are now seeking that approval.
In this proposal, we are asking our stockholders to approve an amendment to the A&R 2016 Plan (the “Plan Amendment”) to (i) increase the number of shares of our Class A Common Stock available for issuance thereunder by 800,000 shares, such that, upon approval of the Plan Amendment, a total of 3,800,000 shares of our Class A Common Stock would be authorized for issuance under the A&R 2016 Plan, (ii) provide that on January 1 of each year, beginning with January 1, 2020 and ending with January 1, 2024, the number of shares available for issuance under the A&R 2016 Plan will automatically be increased by either (A) a number of shares equal to 3% of the total number of shares of our Class A Voting Common Stock outstanding on an as-converted basis as of the end of the immediately preceding calendar year, or (B) a lesser amount as may be determined by the Board or a committee thereof, and (iii) extend the term of the A&R 2016 Plan until the five year anniversary of the date the Plan Amendment was approved by the Board. The Board approved the Plan Amendment in April 2019, subject to approval by our stockholders at this meeting. A copy of the A&R 2016 Plan, as proposed to be amended, is attached to this proxy statement as Exhibit A.
The A&R 2016 Plan is not being amended in any respect, other than as described above.
If the Plan Amendment is not approved by our stockholders, it will not become effective. In such event, the A&R 2016 Plan will remain in effect in the form approved in May 2018 and we will continue to make grants thereunder to the extent shares remain or again become available.
VOTE REQUIRED
This proposal requires the favorable vote of a majority of the votes cast affirmatively or negatively by holders of the Company’s outstanding shares of Class A Common Stock and Series A-1 Preferred Stock, voting together as a single class and with the Series A-1 Preferred Stock voting on an as-converted basis. Abstentions and broker non-votes are not considered to be votes cast for the foregoing purpose, and, accordingly, will have no effect on the outcome of the vote on this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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| The Board of Directors unanimously recommends a vote FOR the Plan Amendment. |
PROPOSAL 3 – INCENTIVE PLAN AMENDMENT
PURPOSE AND BACKGROUND FOR THE DETERMINATION OF ADDITIONAL SHARES
The purpose of the A&R 2016 Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership and other incentive opportunities. We believe that the A&R 2016 Plan is essential to our success. Equity awards are intended to motivate high levels of performance, align the interests of our employees, directors, and consultants with those of our stockholders by giving these individuals the perspective of an owner with an equity stake in our Company and provide a means of recognizing their contributions to the success of our Company. Our Board and our leadership team believe that long-term equity incentive awards are necessary to remain competitive in the market and are essential to recruiting and retaining the highly qualified employees who help our Company meet its goals.
In its determination to approve the Plan Amendment, the Board considered a number of factors, including a review of our historical grant practices, anticipated future equity grant needs, as well as burn rate, dilution and overhang metrics. Specifically, we considered:
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* | As of December 31, 2018, a total of 840,776 shares remained available for issuance under the A&R 2016 Plan. This represented approximately 2.1% of our outstanding shares (on a fully converted basis). As of the Record Date, there were 921,458 shares remaining available for issuance under the A&R 2016 Plan. |
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* | Following grants made in early 2019, we had nearly exhausted the number of shares available for issuance under the A&R 2016 Plan and did not have shares available to make any additional meaningful awards to any executives or key employees. Therefore, if additional shares are not approved, we will lose an important compensation tool aligned with shareholder interests to attract, motivate and retain highly qualified talent. |
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* | The total aggregate equity value of the 800,000 initial additional authorized shares being requested under the A&R 2016 Plan, based on the closing price for our Class A Common Stock on December 31, 2018 of $3.65 per share is $2,920,000. |
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* | Based on the number of shares of our Class A Voting Common Stock outstanding on an as-converted basis as of December 31, 2018 (24,645,825 shares outstanding plus 91,784 shares of Series A-1 Preferred Stock outstanding, which are convertible into 15,297,333 shares of Class A Common Stock, for a total of 39,943,158 shares of Class A Common Stock (including the Series A-1 Preferred Stock on an as-converted basis), the 3% annual increase in the number of authorized shares being requested under the A&R 2016 Plan would have resulted in an additional 1,198,295 shares authorized for issuance under the A&R 2016 Plan each year for a period of 10 years, noting that this amount will increase or decrease each year based on changes in our outstanding shares of Class A Voting Common Stock, on an as-converted basis. Assuming the number of our outstanding shares of Class A Voting Common Stock remains constant over the 10 year period, an additional 11,982,947 shares would become available for issuance over the life of the A&R 2016 Plan, which shares, based on the closing price for our Class A Common Stock on December 31, 2018 of $3.65 per share, have an aggregate value of $43,737,757. |
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* | As of December 31, 2018, our end-of-year overhang rate, calculated by dividing (i) the number of shares subject to equity awards outstanding at the end of the fiscal year plus the number of shares remaining available for issuance under the A&R 2016 Plan by (ii) the number of Company shares outstanding at the end of the fiscal year on a fully diluted basis (including outstanding warrants), was approximately 7.4%. If approved, the issuance of the initial additional 800,000 shares to be reserved under the A&R 2016 Plan would dilute the holdings of shareholders by an additional 2.0% on a fully diluted basis, based on the number of shares of our Class A Common Stock outstanding as of December 31, 2018 and each additional annual increase in the shares to be reserved under the A&R 2016 Plan will further dilute the holdings of shareholders by up to an additional approximately 3% each year for the 10 year life of the Plan based on the number of shares of our Class A Common Stock outstanding as of December 31, 2018. If the Plan Amendment is approved, we expect our overhang at the end of fiscal year 2018 will be approximately 9.4% on a fully diluted basis (including the initial 800,000 shares that will be reserved for issuance under the A&R 2016 Plan upon approval of the Plan Amendment, but not including the annual increases thereafter). We believe this amount, along with the annual increases in the share reserve, to be appropriate in light of market competitive equity compensation levels, taking into account our current circumstances. |
The numbers and amounts reflected in the foregoing discussion assume that all shares subject to stock appreciation rights (i.e., on a one-for-one basis) are subject to outstanding awards and are not available to additional awards under the A&R 2016 Plan. However, depending upon our stock price at the time of exercise of the stock appreciation rights, all or a portion of the shares subject to these awards will again become available for additional awards under the A&R 2016 Plan.
KEY FEATURES OF THE A&R 2016 PLAN
The A&R 2016 Plan contains a number of features that we believe are consistent with good practices in equity compensation and which we believe protect our shareholders’ interests with respect to the awards that we have granted and expect to grant under the plan. These features include:
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* | Without shareholder approval, the A&R 2016 Plan prohibits any alteration or amendment that operates to increase the total number of shares of that may be issued under the plan (other than adjustments in connection with certain corporate reorganizations and other events) or to change the designation or class of persons eligible to receive awards under the plan. |
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* | The A&R 2016 Plan does not have single-trigger accelerated vesting provision for change in control. |
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* | Awards may not be repriced, replaced or regranted through cancellation or modification without shareholder approval if the effect would be to reduce the exercise price for the shares under the award. |
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* | A grant-date fair value limit of $500,000 per year will apply to awards to non-employee directors, with certain exceptions. Additional annual award limits will also apply for other participants. For additional information, see the discussion below under “Description of the A&R 2016 Plan-Award Limits.” |
ADDITIONAL INFORMATION ABOUT THE A&R 2016 PLAN
As of December 31, 2018, there were 1,011,046 Restricted Stock Units and 1,010,000 Stock Appreciation Rights outstanding under the A&R 2016 Plan. Our outstanding Stock Appreciation Rights had a weighted average exercise price of $6.30 and weighted average remaining years to expiration of 3.5 years. The closing price of our Class A Common Stock as of March 29, 2019 was $4.01. The terms and conditions of all future awards under the A&R 2016 Plan will be determined by the Administrator in its discretion.
DESCRIPTION OF THE A&R 2016 PLAN
The following sets forth a description of the material features and terms of the A&R 2016 Plan, as proposed to be amended. The following summary is qualified in its entirety by reference to the full text of the A&R 2016 Plan, as amended, which is attached hereto as Exhibit A.
Authorized Shares; Share Counting Provisions
If approved, an aggregate of 3,800,000 shares of Class A Common Stock will be reserved for issuance under the A&R 2016 Plan upon approval of the Plan Amendment. In addition, if the Plan Amendment is approved, the A&R 2016 Plan will provide that on January 1 of each year, beginning with January 1, 2020 and ending with January 1, 2029, the number of shares available for issuance under the A&R 2016 Plan will automatically be increased by either (A) a number of shares equal to 3% of the total number of shares of our Class A Voting Common Stock outstanding on an as-converted basis as of the end of the immediately preceding calendar year, or (B) a lesser amount as may be determined by the Board or a committee thereof. Shares issued under the A&R 2016 Plan may be authorized but unissued shares, shares purchased on the open market or treasury shares. Not more than 25,000,000 shares of Class A Common Stock reserved for issuance may be issued under the A&R 2016 Plan upon the exercise of incentive stock options.
If an award under the A&R 2016 Plan (including an award granted under the 2016 Plan prior to the Restatement) expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring shares covered by the award at a price not greater than the price (as adjusted to reflect any equity restructuring) paid by the participant for the shares or not issuing any shares covered by the award, the unused shares covered by the award will again be available for award grants under the A&R 2016 Plan. In addition, shares delivered to the Company to satisfy the exercise or purchase price of an award and/or to satisfy tax withholding obligation (including shares retained by the Company from the award being exercised or purchased and/or creating the tax obligation) will again be available for award grants under the A&R 2016 Plan. Dividend equivalents paid in cash will not be counted against the number of shares reserved under the A&R 2016 Plan.
Awards granted under the A&R 2016 Plan in substitution for any options or other stock or stock-based awards granted by an entity before the entity’s merger or consolidation with us or our acquisition of the entity’s property or stock will not reduce the shares available for grant under the A&R 2016 Plan, but will count against the maximum number of shares that may be issued upon the exercise of incentive stock options.
Administration
The A&R 2016 Plan is administered by our Board, which may delegate its duties and responsibilities to one or more committees of our directors and/or officers (referred to collectively as the plan administrator), subject to the limitations imposed under the A&R 2016 Plan, Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), stock exchange rules and other applicable laws. The plan administrator has the authority to take all actions and make all determinations under the A&R 2016 Plan, to interpret the A&R 2016 Plan and award agreements and to adopt, amend and repeal rules for the administration of the A&R 2016 Plan as it deems advisable. The plan administrator also has the authority to determine which eligible service providers receive awards, grant awards and set the terms and conditions of all awards under the A&R 2016 Plan, including any vesting and vesting acceleration provisions, subject to the conditions and limitations in the A&R 2016 Plan.
Award Limits
The maximum aggregate grant date fair value, as determined in accordance with FASB ASC Topic 718 (or any successor thereto), of all equity and cash-based awards granted to a non-employee director for services as a director under the A&R 2016 Plan during any fiscal year may not exceed $500,000 per year (or $1,000,000 in the fiscal year of a director’s initial service).
Eligibility
Employees, consultants and non-employee directors of the Company or any of its subsidiaries will be eligible to receive awards under the A&R 2016 Plan. As of December 31, 2018, approximately 73 employees and 7 non-employee directors were eligible to receive awards under the 2016 Plan.
Types of Awards
The A&R 2016 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards. Awards to eligible individuals shall be subject to the terms of an individual award agreement between the Company and the individual. A brief description of each award type follows.
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* | Stock Options. Stock options may be granted under the A&R 2016 Plan, including both incentive stock options and non-qualified stock options, which provide the holder a right to purchase shares of Class A Common Stock at a specified exercise price. The exercise price per share for each stock option will be set by the plan administrator, but will not be less than the fair market value on the date of the grant (or 110% of the price of an incentive stock option in the case of an individual who, on the date of the grant, owns or is deemed to own shares representing more than 10% of the stock of the Company). The term of any option award may not be longer than ten years (or five years in the case of an incentive stock option granted to a 10% stockholder of the Company). The plan administrator will determine the time period for exercise of each award, including the time period for exercise following a termination of service by the recipient, subject to the ten-year limitation.
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* | Stock Appreciation Rights. The plan administrator is authorized to grant stock appreciation rights (“SARs”) to eligible recipients in its discretion, on such terms and conditions as it may determine, consistent with the A&R 2016 Plan. A stock appreciation right entitles the holder to exercise the stock appreciation right to acquire shares of the Company’s Class A Common Stock upon exercise within a specified time period from the date of the grant. Subject to the provisions of the stock appreciation right award agreement, the recipient may receive from the Company an amount determined by multiplying the difference between the price per share of the stock appreciation right and the value of the share on the date of exercise by the number of shares of Class A Common Stock subject to the award. The maximum term for which stock appreciation rights may be exercisable under the A&R 2016 Plan is ten years.
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* | Restricted Stock. The plan administrator may make awards of restricted stock to eligible individuals in such amounts and at purchase prices to be established by the plan administrator in connection with each award. Such awards will be subject to restrictions and other terms and conditions as are established by the plan administrator. Upon issuance of restricted stock, recipients generally have the rights of a stockholder with respect to such shares, subject to the limitations and restrictions established by the plan administrator in the individual award agreement. Such rights generally include the right to receive dividends and other distributions in relation to the award.
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* | Restricted Stock Units. The A&R 2016 Plan authorizes awards of restricted stock units to eligible individuals in amounts and at purchase prices and upon such other terms and conditions as are established by the plan administrator for each award. Restricted stock unit awards entitle recipients to acquire shares of the Company’s Class A Common Stock in the future under certain conditions. Holders of restricted stock units generally have no rights of ownership or as stockholders in relation to the award, unless and until the restrictions lapse and the restricted stock unit award vests in accordance with the terms of the grant. Restricted stock units may be accompanied by the right to receive the equivalent value of dividends paid on shares of the Company’s Class A Common Stock prior to the delivery of the underlying shares (i.e., dividend equivalent rights). The plan administrator may provide that settlement of restricted stock units will occur upon or as soon as reasonably practicable after the restricted stock units vest or will instead be deferred, on a mandatory basis or at the participant’s election, in a manner intended to comply with Section 409A of the Code.
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* | Other Stock or Cash Based Awards. Other stock or cash-based awards are awards of cash, fully vested shares of the Company’s Class A Common Stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of the Company’s Class A Common Stock. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation otherwise payable to any individual who is eligible to receive awards. The plan administrator will determine the terms and conditions of other stock or cash-based awards, including any purchase price, performance goals (which may be based on performance criteria), transfer restrictions and vesting conditions.
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Performance-Based Awards
For purposes of the A&R 2016 Plan, one or more performance criteria may be used in setting performance goals applicable to stock or cash based awards, which performance criteria may include but will not be limited to: net earnings (either before or after interest, taxes, depreciation and amortization), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), return on net assets, return on stockholders’ equity, return on assets, return on capital, return on sales, gross or net profit margin, expenses or expense levels, total shareholder return, internal rate of return (“IRR”), financial ratios (including those measuring liquidity, activity, profitability or leverage), working capital, earnings per share, price per share, market capitalization, any GAAP financial performance measures, inventory management, measures related to A&R balance and write-offs, timeliness and/or accuracy of business reporting, approval or implementation of strategic plans, financing and other capital raising transactions, debt levels or reductions, cash levels, acquisition activity, investment sourcing activity, marketing initiatives, projects or processes, achievement of customer satisfaction objectives, net asset value, net asset value per share, capital expenditures, net borrowing, debt leverage levels, credit quality or debt ratings, economic value added, individual business objectives, growth in production, added reserves, growth in reserves, inventory growth, environmental health and safety performance, effectiveness of hedging programs, improvements in internal controls and policies, and retention and recruitment of employees, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the Company’s performance or the performance of a subsidiary, division, business segment or business unit of the Company or a subsidiary or based upon performance relative to performance of other companies or upon comparisons of any performance indicators relative to performance of other companies. The A&R 2016 Plan also permits the plan administrator to provide for objectively determinable adjustments to the applicable performance criteria in setting such performance goals.
Prohibition on Repricing
Under the A&R 2016 Plan, the plan administrator may not, without the approval of the Company’s stockholders, authorize the repricing of any outstanding option or stock appreciation right to reduce its price per share, cancel any option or stock appreciation right in exchange for cash or another award when the price per share exceeds the fair market value of the underlying shares, or take any other action with respect to an option or stock appreciation right that the Company determines would be treated as a repricing under the rules and regulations of the principal U.S. stock exchange on which the shares of Class A Common Stock are listed.
Certain Transactions
The plan administrator has broad discretion to take action under the A&R 2016 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting the Company’s Class A Common Stock, such as dividends or other distributions (whether in the form of cash, Class A Common Stock, other securities, or other property), reorganizations, mergers, consolidations, change in control events and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with the Company’s stockholders known as “equity restructurings,” the plan administrator will make equitable adjustments to outstanding awards. No adjustment or other action will be authorized for awards that are intended to qualify as QPBC, which would cause such awards to fail to continue to qualify as QPBC, unless the plan administrator determines that the award should not so qualify. Notwithstanding the preceding section, in the event of a change in control in which outstanding awards are not continued, converted, assumed or replaced by the Company or the successor to the Company in the change in control, such awards shall become fully exercisable and all forfeiture, repurchase and other restrictions on such awards shall lapse immediately prior to the change in control.
Amendment and Termination
The plan administrator may amend, suspend or terminate the A&R 2016 Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the A&R 2016 Plan, may materially and adversely affect an award outstanding under the A&R 2016 Plan without the consent of the affected participant. Our Board is required to obtain stockholder approval for any amendment to the A&R 2016 Plan to the extent necessary to comply with applicable laws. If the Plan Amendment is approved, the A&R 2016 Plan will remain in effect until April 2024, unless earlier terminated by our Board. If the Plan Amendment is not approved, the the A&R 2016 Plan will remain in effect until March 22, 2026, unless earlier terminated by our Board. No awards may be granted under the A&R 2016 Plan after its termination.
Forfeiture and Claw-backs
All awards (including any proceeds, gains or other economic benefit obtained in connection with any award) made under the A&R 2016 Plan are subject to any claw-back policy implemented by the Company, including any claw-back policy adopted to comply with the requirements of applicable law (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or award agreement.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is based on an analysis of the Code as currently in effect, existing laws, judicial decisions, administrative rulings, regulations and proposed regulations, all of which are subject to change. Moreover, the following is only a summary of United States federal income tax consequences. Actual tax consequences to participants may be either more or less favorable than those described below depending on the participant’s particular circumstances.
Incentive Stock Options. No income will be recognized by a participant for United States federal income tax purposes upon the grant or exercise of an incentive stock option. The basis of shares transferred to a participant upon exercise of an incentive stock option is the price paid for the shares. If the participant holds the shares for at least one year after the transfer of the shares to the participant and two years after the grant of the option, the participant will recognize capital gain or loss upon sale of the shares received upon exercise equal to the difference between the amount realized on the sale and the basis of the stock. Generally, if the shares are not held for that period, the participant will recognize ordinary income upon disposition in an amount equal to the excess of the fair market value of the shares on the date of exercise over the amount paid for the shares, or if less (and if the disposition is a transaction in which loss, if any, will be recognized), the gain on disposition. Any additional gain realized by the participant upon the disposition will be a capital gain. The excess of the fair market value of shares received upon the exercise of an incentive stock option over the option price for the shares is an item of adjustment for the participant for purposes of the alternative minimum tax. Therefore, although no income is recognized upon exercise of an incentive stock option, a participant may be subject to alternative minimum tax as a result of the exercise.
Non-qualified Stock Options. No income is expected to be recognized by a participant for United States federal income tax purposes upon the grant of a non-qualified stock option. Upon exercise of a non-qualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the amount paid for the shares. Income recognized upon the exercise of a non-qualified stock option will be considered compensation subject to withholding at the time the income is recognized, and, therefore, the participant’s employer must make the necessary arrangements with the participant to ensure that the amount of the tax required to be withheld is available for payment. Non-qualified stock options are designed to provide the employer with a deduction equal to the amount of ordinary income recognized by the participant at the time of the recognition by the participant, subject to the deduction limitations described below.
Stock Appreciation Rights. There is expected to be no United States federal income tax consequences to either the participant or the employer upon the grant of SARs. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of payment pursuant to SARs in an amount equal to the aggregate amount of cash and the fair market value of any Class A Common Stock received. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.
Restricted Stock. If the restrictions on an award of shares of restricted stock are of a nature that the shares are both subject to a substantial risk of forfeiture and are not freely transferable (within the meaning of Section 83 of the Code), the participant will not recognize income for United States federal income tax purposes at the time of the award unless the participant affirmatively elects to include the fair market value of the shares of restricted stock on the date of the award, less any amount paid for the shares, in gross income for the year of the award pursuant to Section 83(b) of the Code. In the absence of this election, the participant will be required to include in income for United States federal income tax purposes on the date the shares either become freely transferable or are no longer subject to a substantial risk of forfeiture (within the meaning of Section 83 of the Code), the fair market value of the shares of restricted stock on such date, less any amount paid for the shares. The employer will be entitled to a deduction at the time of income recognition to the participant in an amount equal to the amount the participant is required to include in income with respect to the shares, subject to the deduction limitations described below. If a Section 83(b) election is made within 30 days after the date the restricted stock is received, the participant will recognize ordinary income at the time of the receipt of the restricted stock, and the employer will be entitled to a corresponding deduction, equal to the fair market value of the shares at the time, less the amount paid, if any, by the participant for the restricted stock. If a Section 83(b) election is made, no additional income will be recognized by the participant upon the lapse of restrictions on the restricted stock, but, if the restricted stock is subsequently forfeited, the participant may not deduct the income that was recognized pursuant to the Section 83(b) election at the time of the receipt of the restricted stock.
Dividends paid to a participant holding restricted stock before the expiration of the restriction period will be additional compensation taxable as ordinary income to the participant subject to withholding, unless the participant made an election under Section 83(b). Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the dividends includible in the participant’s income as compensation. If the participant has made a Section 83(b) election, the dividends will be dividend income, rather than additional compensation, to the participant.
If the restrictions on an award of restricted stock are not of a nature that the shares are both subject to a substantial risk of forfeiture and not freely transferable, within the meaning of Section 83 of the Code, the participant will recognize ordinary income for United States federal income tax purposes at the time of the transfer of the shares in an amount equal to the fair market value of the shares of restricted stock on the date of the transfer, less any amount paid therefore. The employer will be entitled to a deduction at that time in an amount equal to the amount the participant is required to include in income with respect to the shares, subject to the deduction limitations described below.
Restricted Stock Units. There will be no United States federal income tax consequences to either the participant or the employer upon the grant of restricted stock units. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of cash and/or transfer of shares of Class A Common Stock in payment of the restricted stock units in an amount equal to the aggregate of the cash received and the fair market value of the shares of Class A Common Stock so transferred. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.
Generally, a participant will recognize ordinary income subject to withholding upon the payment of any dividend equivalents paid with respect to an award in an amount equal to the cash the participant receives. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.
Limitations on the Employer’s Compensation Deduction. Section 162(m) of the Code limits the deduction certain employers may take for otherwise deductible compensation payable to certain executive officers of the employer to the extent the compensation paid to such an officer for the year exceeds $1 million.
Excess Parachute Payments. Section 280G of the Code limits the deduction that the employer may take for otherwise deductible compensation payable to certain individuals if the compensation constitutes an “excess parachute payment.” Excess parachute payments arise from payments made to disqualified individuals that are in the nature of compensation and are contingent on changes in ownership or control of the employer or certain affiliates. Accelerated vesting or payment of awards under the A&R 2016 Plan upon a change in ownership or control of the employer or its affiliates could result in excess parachute payments. In addition to the deduction limitation applicable to the employer, a disqualified individual receiving an excess parachute payment is subject to a 20% excise tax on the amount thereof.
Application of Section 409A of the Code. Section 409A of the Code imposes an additional 20% tax and interest on an individual receiving non-qualified deferred compensation under a plan that fails to satisfy certain requirements. For purposes of Section 409A, “non-qualified deferred compensation” includes equity-based incentive programs, including some stock options, stock appreciation rights and restricted stock unit programs. Generally speaking, Section 409A does not apply to incentive stock options, non-discounted non-qualified stock options and stock appreciation rights if no deferral is provided beyond exercise, or restricted stock.
The awards made pursuant to the A&R 2016 Plan are expected to be designed in a manner intended to comply with the requirements of Section 409A of the Code to the extent the awards granted under the A&R 2016 Plan are not exempt from coverage. However, if the A&R 2016 Plan fails to comply with Section 409A in operation, a participant could be subject to the additional taxes and interest.
State and local tax consequences may in some cases differ from the federal tax consequences. The foregoing summary of the United States federal income tax consequences in respect of the A&R 2016 Plan is for general information only. Interested parties should consult their own advisors as to specific tax consequences of their awards.
The A&R 2016 Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended, and is not intended to be qualified under Section 401(a) of the Code.
PLAN BENEFITS
The benefits or amounts that may be received or allocated to participants under the A&R 2016 Plan will be determined at the discretion of the plan administrator and are not currently determinable. The following table sets forth the outstanding restricted stock awards and stock appreciation rights that each of the individuals and groups identified in the table above held as of December 31, 2018 under the A&R 2016 Plan.
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| Group | | Number of Restricted Stock Units Outstanding as of December 31, 2018 (1) | | Number of Stock Appreciation Rights Outstanding as of December 31, 2018 (2) |
| Frank D. Bracken, III, Chief Executive Officer.............................. | | 190,000 |
| | 250,000 |
|
| Barry D. Schneider, Chief Operating Officer.................................. | | 105,000 |
| | 135,000 |
|
| Gregory R. Packer, Vice President, General Counsel & Corporate Secretary........................................................................... | | 42,045 |
| | 12,500 |
|
| All current executive officers.......................................................... | | 101,000 |
| | 92,500 |
|
| All current directors who are not executive officers....................... | | 160,000 |
| | 200,000 |
|
| All employees who are not current executive officers.................... | | 404,500 |
| | 312,500 |
|
| Total................................................................................................. | | 1,002,545 |
| | 1,002,500 |
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(1) | In addition to the amounts shown in this column, the following individuals and groups have received the following number of restricted stock units that vested prior to December 31, 2018: Mr. Bracken: 60,000; Mr. Schneider: 30,000; Mr. Packer: 11,363; All current executive officers: 24,000; Current directors who are not executive officers: 40,000; and All employees who are not current executive officers: 120,200. |
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(2) | In addition to the amounts shown in this column, the following individuals and groups have received the following number of stock appreciation rights that vested prior to December 31, 2018: Mr. Bracken: 60,000; Mr. Schneider: 30,000; All current executive officers: 24,000; Current directors who are not executive officers: 40,000; and All employees who are not current executive officers: 112,000. |
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of December 31, 2018, with respect to our equity compensation plans under which Class A Common Stock is authorized for issuance:
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| Plan Category | | Number of securities to be issued upon vesting of restricted stock and exercise of stock appreciation rights(1) (a) | | Weighted-average exercise price of outstanding options, warrants and rights(2) (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3) (c) |
Equity compensation plans approved by security holders.................................................. | | 1,011,046 |
| | $ | 6.30 |
| | 1,850,776 |
|
Equity compensation plans not approved by security holders................................................... | | — |
| | — |
| | — |
|
| Total........................................................................ | | 1,011,046 |
| | $ | 6.30 |
| | 1,850,776 |
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(1) | Amount shown includes 0 shares issuable upon exercise of outstanding stock appreciation rights, which generally may be settled either in stock or in cash at the holder’s election. The number of shares issuable was determined based upon our closing stock price on December 31, 2018, which was $3.65. The amount shown also includes 1,011,046 shares subject to outstanding restricted stock units. |
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(2) | Amount shown reflects the weighted average exercise price of outstanding stock appreciation rights, of which there were 1,010,000 outstanding as of December 31, 2018. Our outstanding restricted stock units do not have an exercise price. |
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(3) | Amount shown includes 1,010,000 shares subject to outstanding stock appreciation rights, which shares are not included in column (a).
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Executive Officers
The following table identifies our current executive officers:
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Name | | Age | | Position |
Frank D. Bracken, III.1....................................................... | | 5556 | | Chief Executive Officer and Director |
Barry D. Schneider2........................................................... | | 5657 | | Chief Operating Officer |
Jason N. Werth3................................................................... | | 4344 | | Chief Accounting Officer |
Jana Payne4......................................................................... | | 5758 | | Vice President-Geosciences |
Gregory R. Packer5............................................................. | | 3940 | | Vice President, General Counsel & Corporate Secretary |
Thomas H. Olle6.................................................................. | | 6465 | | Vice President-Reservoir Engineering |
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1 | See biography on page 12 of this proxy statement. |
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2 | Barry D. Schneider is our Chief Operating Officer. Mr. Schneider has served in this position since May 2014. Prior to joining us, Mr. Schneider held the position of Vice President-Northern Region for Denbury Resources, Inc. from January 2012 to May 2014. Mr. Schneider was at Denbury for 15 years and held positions of increasing responsibility. After holding the positions of Vice President, Production & Operations, Mr. Schneider was promoted to Vice President-East Region in October 2009 and held that position until January 2012 when he became responsible for Denbury’s Northern Region business unit. Prior to Denbury, Mr. Schneider was employed by Wiser Oil and Conoco-Philips. Mr. Schneider received his B.S. in Natural Gas Engineering from Texas A&M-Kingsville in 1985. |
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3 | Jason N. Werth is our Chief Accounting Officer. Mr. Werth has served in this position since February 2018. From March 2016 to January 2018, Mr. Werth held the position of Director of Audit at Denbury Resources, Inc., where he had also previously served as SEC Reporting Manager from June 2010 to October 2011, and as Assistant Controller of Corporate Accounting from November 2011 to February 2016. Prior to Denbury, Mr. Werth held controller and other accounting positions at Grande Energy and Orix Capital. Mr. Werth started his professional career in public accounting with Arthur Andersen LLP and later PricewaterhouseCoopers LLP, where he was an assurance manager. Mr. Werth holds Bachelor of Business Administration and Masters of Science degrees from Texas A&M University. He is a licensed Certified Public Accountant in the State of Texas. |
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4 | Jana Payne was appointed our Vice President-Geosciences in November 2015, bringing over 25 years of experience in the oil and gas industry. Prior to joining us, Ms. Payne held the position of Senior Exploitation Manager and Geologist at Halcon Resources, Inc., an independent energy company, from November 2012 to May 2015. Ms. Payne spent eight years at Petrohawk Energy Inc. from June 2004 to October 2012 (and subsequently BHP Billiton following its acquisition of Petrohawk) as Geologic Manager and Senior Geologist, where her initial mapping of the Eagle Ford shale led to the discovery of the first commercial Eagle Ford Shale well and acquisition of over 300,000 acres by the Company. Ms. Payne’s early career was as a geologist at Marathon Oil Co. and Petroleum Geo-Services, Inc. Ms. Payne has published works in learned journals and holds an MSc and BSc in geology from the University of Texas at Arlington. |
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5 | Gregory R. Packer was appointed our Vice President, General Counsel & Corporate Secretary in October 2017. Prior to his appointment, Mr. Packer held the position of Senior Vice President, General Counsel & Corporate Secretary of Howard Energy Partners, a midstream company with operations in the Eagle Ford shale, Marcellus shale and Permian Basin from 2013 to 2017. Before joining Howard Energy, Mr. Packer practiced corporate and securities law at Latham & Watkins LLP, where he represented public and private companies and private equity sponsors in a wide range of transactions, including company formation, private and public mergers and acquisitions, as well as accessing equity and debt markets through private and public offerings, including initial public offerings. Mr. Packer is a graduate of the University of Chicago Law School, where he was a Lowenstein Scholar. Prior to attending law school, Mr. Packer obtained both Master’s and Bachelor’s degrees in accounting from Brigham Young University, where he was a G. Roger Victor Scholar. |
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6 | Thomas H. Olle is our Vice President-Reservoir Engineering. Mr. Olle has served in this position since May 2017. Prior to that, Mr. Olle served as our Senior Vice President-Operations from August 2010. Mr. Olle has over 35 years of oil and gas industry experience in multiple facets of the business, such as reservoir management and management of unconventional resource development projects including horizontal well field development and tertiary recovery projects. Mr. Olle also has significant experience with reserve evaluation and reporting, production engineering and operations, and business development functions including acquisitions, divestitures and new ventures. During his tenure at Encore Acquisition Company, Mr. Olle served as Vice President-Strategic Solutions and also held executive positions responsible for asset management and engineering. He also served as Senior Engineering Advisor for Burlington Resources from December 1985 to March 2002 and District Reservoir Engineer for Southland Royalty Company from May 1982 to December 1985. Mr. Olle holds a Bachelor’s of Science in Mechanical Engineering with Highest Honors from the University of Texas in Austin. |
None of our executive officers is related to any other executive officer or to any of our directors.
Corporate Governance
GENERAL
The Board has adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics and charters for our Nominating and Corporate Governance Committee, Audit and Risk Committee and Compensation Committee to assist the Board in the exercise of its responsibilities and to serve as a framework for the effective governance of the Company. You can access our current committee charters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics in the “Governance” section of the “Shareholder Information” page of our website located at www.lonestarresources.com, or by writing to our Secretary at our offices at 111 Boland Street, Suite 301, Fort Worth, Texas, 76107.
BOARD COMPOSITION
Our Board currently consists of eight members: Frank D. Bracken, III, Henry B. Ellis, Daniel R. Lockwood, Matthew B. Ockwood, Stephen H. Oglesby, Phillip Z. Pace, John H. Pinkerton and Randy L. Wolsey. As set forth in our Bylaws, each of our directors is elected to serve from the time of election and qualification until the next annual meeting following such election and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal.
On June 15, 2017, we entered into an Amended and Restated Securities Purchase Agreement (the “SPA”“SPA”) with Chambers pursuant to which we sold to Chambers shares of two newly-created classes of preferred stock referred to collectively as the “Series A Preferred Stock.” On the same day, the we closed the transactions contemplated by the SPA (the “SPA Closing”“SPA Closing”). Pursuant to the terms of the SPA, (a) for so long as Chambers and other persons or entities who become holders of the securities issued or issuable under the SPA and who have previously been approved by the Company in its sole discretion (together with Chambers, the “Approved Holders”“Approved Holders”) beneficially own (i) at least 20% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, or (ii) at least 30% of the number of shares of Series A Preferred Stock issued to Chambers at the SPA Closing and at least 15% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, the Approved Holders will have the right to designate two directors to the Board; and (b) for so long as the Approved Holders beneficially own (i) at least 10% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, or (ii) at least 15% of the number of shares of Series A Preferred Stock issued to Chambers at the SPA Closing and at least 5% of the total number of outstanding shares of Class A Common Stock, on an as-converted basis, the Approved Holders will have the right to designate one director to the Board. Pursuant to the terms described above, Chambers currently has the right to designate two nominees and has designated Matthew B. Ockwood and Philip Z. Pace as director nominees for election to our Board. If a vacancy is created on the Board as a result of the death, disability, retirement, resignation or removal of any Chambers designee, the Approved Holders have the right to nominate a replacement director.
During the 2018 calendar year, John H. Murray and Dr. Christopher Rowland additionally served on our Board pursuant to that certain Board Representation Agreement (the “Board Representation Agreement”) by and between the Company and EF Realisation Company Limited (“EF Realisation”). However, on October 9, 2018, EF Realisation notified the Company that it had progressed its voluntary liquidation and distribution of assets to certain of its shareholders (the “EF Realisation Liquidation”), which included the sale or distribution of all of EF Realisation’s Class A Common Stock. Following the EF Realisation Liquidation, EF Realisation is no longer a shareholder of the Company. Accordingly, and pursuant to the Board Representation Agreement, John H. Murray and Dr. Christopher Rowland (the “EF Realisation Directors”) each submitted their resignations to the Board on October 10, 2018 and October 9, 2018, respectively. Under the terms of the Board Representation Agreement, the EF Realisation Directors were required to submit each Board resignation when EF Realisation's ownership of Class A Common Stock fell below 15% and 10%, respectively, which occurred as a result of the EF Realisation Liquidation. The EF Realisation Directors confirmed that their resignations were not the result of any dispute or disagreement with the Company or the Board on any matter relating to the operations, policies or practices of the Company.
Any vacancies or newly created directorships on the Board may be filled only by a majority vote of the remaining directors on the Board.
DIRECTOR INDEPENDENCE
Henry B. Ellis, Matthew B. Ockwood, Stephen H. Oglesby, Phillip Z. Pace, John H. Pinkerton and Randy L. Wolsey qualify as independent under the rules of The Nasdaq Stock Market LLC (the “Nasdaq Rules”“Nasdaq Rules”). In addition, John H. Murray was deemed independent for the time he served as a director in 2018. The independence definition under the Nasdaq Rules includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq Rules, our Board has made a subjective determination as to each independent director that no relationships exist, which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. Specifically, the Board considered that Mr. Ockwood is a Managing Director, and Mr. Pace is a Partner, of Chambers, which owned 100% of the Company’s Series A-1 Preferred Stock, and 36.7%40% of the Company’s Class A Common Stock, on an as-converted basis, as of the Record Date. In addition, the Board considered that an individual who sold the Company a piece of property adjacent to the Company’s corporate headquarters in February 2019 was indebted to certain trusts that name the children of Mr. Pinkerton as beneficiaries. The Company believes that a portion of the proceeds of this sale have been used to repay such debts outstanding, though the Company has no interest or influence over any particular outcome.
Our Audit and Risk Committee, our Compensation Committee and our Nominating and Corporate Governance Committee are each currently composed entirely of independent directors.
There are no family relationships among any of our directors or executive officers.
DIRECTOR CANDIDATES
The Nominating and Corporate Governance Committee is responsible for identifying and reviewing the qualifications of potential director candidates and recommending to the Board those candidates to be nominated for election to the Board, subject to any obligations and procedures governing the nomination of directors to the Board that may be included in the Board Representation Agreement, the SPA and any other stockholders agreement to which we may enter into.
To facilitate the search process for director candidates, the Nominating and Corporate Governance Committee may solicit our current directors and executives for the names of potentially qualified candidates or may ask directors and executives to pursue their own business contacts for the names of potentially qualified candidates. The Nominating and Corporate Governance Committee may also consult with outside advisors or retain search firms to assist in the search for qualified candidates or consider director candidates recommended by our stockholders. Once potential candidates are identified, the Nominating and Corporate Governance Committee reviews the backgrounds of those candidates, evaluates candidates’ independence from us and potential conflicts of interest and determines if candidates meet the qualifications desired by the committee of candidates for election as director.
In accordance with our Corporate Governance Guidelines, in evaluating the suitability of individual candidates, the Nominating and Corporate Governance Committee will consider (i) minimum individual qualifications, including a high level of personal and professional integrity, strong ethics and values and the ability to make mature business judgments and (ii) all other factors it considers appropriate, which may include experience in corporate management, experience as a board member of other public companies, relevant professional or academic experience, diversity, leadership skills, financial and accounting background, executive compensation background and whether the candidate has the time required to fully participate as a director of the Company. Our Corporate Governance Guidelines provide that the Board should monitor the mix of specific experience, qualifications and skills of its directors in order to assure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of the Company’s business and structure.
Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting the names of the recommended individuals, together with appropriate biographical information and background materials, to the Nominating and Corporate Governance Committee, c/o Secretary, 111 Boland Street, Suite 301, Fort Worth, TX, 76107. In the event there is a vacancy, and assuming that appropriate biographical and background material has been provided on a timely basis, the Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.
COMMUNICATIONS FROM STOCKHOLDERS
The Board will give appropriate attention to written communications that are submitted by stockholders and will respond if and as appropriate. Our Secretary is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the directors as he considers appropriate.
Communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that our Secretary and Chairman of the Board consider to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which we tend to receive repetitive or duplicative communications. Stockholders who wish to send communications on any topic to the Board should address such communications to the Board in writing: c/o Secretary, Lonestar Resources US Inc., 111 Boland Street, Suite 301, Fort Worth, Texas, 76107.
BOARD LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT
Our Board exercises its discretion in combining or separating the roles of Chairman of the Board and Chief Executive Officer as it deems appropriate in light of prevailing circumstances. Our Board is currently chaired by Mr. Pinkerton. Our Board believes that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of the Board from management, creates an environment that encourages objective oversight of management’s performance and enhances the effectiveness of the Board as a whole. As such, Mr. Bracken serves as our Chief Executive Officer while Mr. Pinkerton serves as the Chairman of the Board.
Risk assessment and oversight are an integral part of our governance and management processes. Our management is responsible for our day-to-day risk management activities. Our Board oversees the implementation of risk mitigation strategies by management and encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks, including cybersecurity risks, at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the Board at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks. Our Board is apprised of particular risk management matters in connection with its general oversight and approval of corporate matters and significant transactions. Our Board administers this oversight function directly through the Board as a whole, as well as through various standing committees of the Board that address risks inherent in their respective areas of oversight. The Board does not believe that its role in the oversight of our risks affects the Board’s leadership structure. With regard to cybersecurity, we seek to maintain the security of computers, computer networks and data storage resources, and regularly review and discuss best practices with regard to cybersecurity.
PERIODIC BOARD EVALUATION
Our Corporate Governance Guidelines require the Nominating and Corporate Governance Committee to oversee a periodic assessment of the Board and its committees.
CODE OF ETHICS
We have a written Code of Business Conduct and Ethics (the “Code“Code of Ethics”Ethics”) that applies to our directors, officers and employees. We have posted a current copy of the Code of Ethics in the “Governance” section of the “Shareholder Information”“Shareholders” page of our website, www.lonestarresources.com. In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq Rules concerning any amendments to, or waivers from, any provision of the Code of Ethics.
ATTENDANCE BY MEMBERS OF THE BOARD OF DIRECTORS AT MEETINGS
There were 64 meetings of the Board during the fiscal year ended December 31, 2018.2019. During the fiscal year ended December 31, 2018,2019, each director attended at least 75% of the aggregate of all meetings of the Board and meetings of the committees on which the director served during the period in which he served as a director.
Under our Corporate Governance Guidelines, which is available on our website at www.lonestarresources.com, a director is expected to spend the time and effort necessary to properly discharge his or her responsibilities. Accordingly, a director is expected to regularly prepare for and attend meetings of the Board and all committees on which the director sits (including separate meetings of the independent directors), with the understanding that, on occasion, a director may be unable to attend a meeting. A director who is unable to attend a meeting of the Board or a committee of the Board is expected to notify the Chairman of the Board or the Chairman of the appropriate committee in advance of such meeting, and, whenever possible, participate in such meeting via teleconference in the case of an in-person meeting.
We do not maintain a formal policy regarding director attendance at the Annual Meeting. All directors attended the 20182019 Annual Meeting of Stockholders, either in person or by telephone. Absent compelling circumstances, all directors are expected to attend annual meetings in person or telephonically.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 2018, John H. Murray (prior to his resignation),2019, John H. Pinkerton, Randy L. Wolsey and Phillip Z. Pace served as members of the Compensation Committee. No executive officer of the Company served as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board or Compensation Committee.
Committees of the Board
Our Board has established three standing committees-Audit and Risk, Compensation and Nominating and Corporate Governance-each of which operates under a written charter that has been approved by our Board. The members of each of the Board committees and committee Chairs are set forth in the following chart:
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| Name | | Audit & Risk | | Compensation | | Nominating and Corporate Governance |
| Frank D. Bracken, III................................................................................ | | — | | — | | — |
| Henry B. Ellis............................................................................................ | | Chair | | — | | X |
| Daniel R. Lockwood................................................................................. | | — | | — | | — |
| Matthew B. Ockwood............................................................................... | | — | | — | | — |
| Stephen H. Oglesby................................................................................... | | X | | — | | X |
| Phillip Z. Pace........................................................................................... | | — | | X | | — |
| John H. Pinkerton...................................................................................... | | — | | Chair | | Chair |
| Randy L. Wolsey....................................................................................... | | X | | X | | — |
AUDIT AND RISK COMMITTEE
Our Audit and Risk Committee’s responsibilities include, but are not limited to:
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| * | appointing, retaining, overseeing, approving the compensation of, and assessing the independence of our independent registered public accounting firm and any other registered public accounting firm that may be engaged for audit, attestation and related services; |
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| * | reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; |
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| * | discussing the Company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies; |
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| * | discussing with the independent registered public accounting firm audit problems or difficulties; |
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| * | discussing our risk assessment and management policies; |
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| * | reviewing and approving related person transactions; |
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| * | reviewing and pre-approving audit and non-audit services proposed to be performed by the independent registered public accounting firm, as further described on page 15 of this proxy statement; and |
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| * | establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting or auditing matters. |
The Audit and Risk Committee charter is available on our website at www.lonestarresources.com. The members of the Audit and Risk Committee are Mr. Ellis, Mr. Oglesby and Mr. Wolsey, all of whom meet the independence requirements under Rule 10A-3 promulgated under the Exchange Act and the Nasdaq Rules, including those related to Audit and Risk Committee membership. Mr. Ellis serves as the Chairperson of the Audit and Risk Committee. The members of our Audit and Risk Committee meet the requirements for financial literacy under the applicable Nasdaq Rules. Our Board has determined that Mr. Ellis is an “audit committee financial expert” as defined by Item 407(d)(5)(ii) of Regulation S-K.
The Audit and Risk Committee met nine times in 2018.2019.
COMPENSATION COMMITTEE
Our Compensation Committee is responsible for, among other matters:
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| * | reviewing and setting or making recommendations to the Board regarding the compensation of the CEO and the other executive officers; |
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| * | reviewing and approving or making recommendations of the Board regarding our cash and equity incentive plans and arrangements; |
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| * | reviewing and making recommendations to our Board with respect to director compensation; and |
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| * | reviewing and discussing with management our compensation disclosures if required by SEC rules. |
Pursuant to the Compensation Committee’s charter, which is available on our website at www.lonestarreources.com, the Compensation Committee has the authority to retain or obtain the advice of compensation consultants, legal counsel and other advisors to assist in carrying out its responsibilities. The Compensation Committee may delegate its authority under its charter to a subcommittee as it deems appropriate from time to time. The Compensation Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it deems appropriate, including the authority to request any officer, employee or adviser of the Company to meet with the Compensation Committee or any advisers engaged by the Compensation Committee. In addition to the foregoing and other authority expressly delegated to the Compensation Committee in the charter, the Compensation Committee may also exercise any other powers and carry out any other responsibilities consistent with the charter, the purposes of the Compensation Committee, the Company’s bylaws and applicable Nasdaq Rules.
The members of our Compensation Committee are Mr. Pace, Mr. Pinkerton and Mr. Wolsey. Mr. Pinkerton serves as the Chairperson of the Compensation Committee. Each of Mr. Pace, Mr. Pinkerton and Mr. Wolsey qualifies as independent under the Nasdaq Rules, including the Nasdaq Rules regarding compensation committee membership.
Neither the Compensation Committee nor management engaged a compensation consultant in 2018. The Compensation Committee engaged a compensation consultant in 2019. The Compensation Committee has not engaged a compensation consultant in 2020. While the Company’s executives will communicate with the Compensation Committee and the Board regarding executive compensation issues, the Company’s executive officers do not participate in final executive compensation decisions.
The Compensation Committee met three times in 2018.2019.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Our Nominating and Corporate Governance Committee’s responsibilities include:
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| * | identifying individuals qualified to become members of our Board, consistent with criteria approved by our Board, except where the Company is legally required by contract, bylaw or otherwise to provide third parties with the right to designate directors, including pursuant to the SPA (for so long as such agreement is in effect); |
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| * | reviewing, at least annually, the Board committee structure and, except where the Company is legally required by contract, bylaw or otherwise to provide third parties with the right to designate directors to serve on committees of the Board, including pursuant to the SPA (for so long as such agreement is in effect), recommending to the Board for its approval directors to serve as members of each committee; |
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| * | overseeing the periodic self-evaluations of management and the Board and its committees; and |
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| * | developing and recommending to our Board a set of corporate governance guidelines and principles. |
The Nominating and Corporate Governance Committee charter is available on our website at www.lonestarresources.com. Our Nominating and Corporate Governance Committee consists of Mr. Ellis, Mr. Oglesby, and Mr. Pinkerton, with Mr. Pinkerton serving as the Chairperson. All members of our Nominating and Corporate Governance Committee qualify as independent under the Nasdaq Rules. The Nominating and Corporate Governance Committee has the authority to consult with outside advisors or retain search firms to assist in the search for qualified candidates or consider director candidates recommended by our stockholders.
The Nominating and Corporate Governance Committee met one time in 2018.2019.
Executive and Director Compensation
EXECUTIVE COMPENSATION
Named Executive Officers
We are currently considered a “smaller reporting company” for purposes of the SEC’s executive compensation disclosure rules. In accordance with such rules, we are providing a Summary Compensation table and an Outstanding Equity Awards at Fiscal Year-End table as well as narrative disclosures regarding our executive compensation program. The individuals covered by this executive compensation disclosure are our chief executive officer and our two other most highly compensated executive officers. For 2018,2019, our named executive officers were:
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| * | Frank D. Bracken, III, Chief Executive Officer; |
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| * | Barry D. Schneider, Chief Operating Officer; and |
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| * | Gregory R. Packer, Vice President, General Counsel & Corporate Secretary. |
Our compensation committee strives to align Lonestar’s compensation strategy with company performance and stockholder interests and ensure that it is equitable for participants. Compensation for named executive officers includes a fixed component (consisting of base salaries, 401(k) plan contributions and other health and welfare benefits), discretionary annual cash bonus opportunities and long-term equity incentive awards, and such other benefits as discussed below.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of our principal executive officer and the two most highly compensated executive officers other than our principal executive officer for 20182019 and 2017:
2018:
| | | Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock(1) Awards ($) | | Option(1) Awards ($) | | All Other Compensation ($) | | Total ($) | | Year | | Salary ($) | | Bonus ($) | | Stock(1) Awards ($) | | Option(1) Awards ($) | | All Other Compensation ($) | | Total ($) |
| Frank D. Bracken, III | | 2018 | | 600,000 |
| | 900,000(5) |
| | 446,000 |
| | 219,000 |
| | 30,742(2) |
| | 2,195,742 |
| | 2019 | | 600,000 |
| | 489,000(5) |
| | 1,322,000 |
| | — |
| | 48,114(2) | | 2,459,114 |
|
| Chief Executive Officer......................... | | 2017 | | 600,000 |
| | 600,000 |
| | 900,000 |
| | 467,454 |
| | 23,987 |
| | 2,591,441 |
| | 2018 | | 600,000 |
| | 900,000 |
| | 446,000 |
| | 219,000 |
| | 30,742 | | 2,195,742 |
|
| Barry D. Schneider | | 2018 | | 420,000 |
| | 420,000(5) |
| | 267,600 |
| | 131,400 |
| | 32,999(3) |
| | 1,271,999 |
| | 2019 | | 420,000 |
| | 100,000(5) |
| | 792,000 |
| | — |
| | 31,431(3) | | 1,343,431 |
|
| Chief Operating Officer......................... | | 2017 | | 420,000 |
| | 315,000 |
| | 450,000 |
| | 233,727 |
| | 30,274 |
| | 1,449,001 |
| | 2018 | | 420,000 |
| | 420,000 |
| | 267,600 |
| | 131,400 |
| | 32,999 | | 1,271,999 |
|
Gregory R. Packer Vice President, General Counsel & Corporate Secretary................................ | | 2018 | | 300,000 |
| | 225,000(5) |
| | 111,500 |
| | 27,375 |
| | 11,000(4) |
| | 674,875 |
| |
| Gregory R. Packer | | | 2019 | | 322,500 |
| | 175,000(5) |
| | 396,000 |
| | — |
| | 3,850(4) | | 897,350 |
|
| Vice President, General Counsel & Corporate Secretary................................ | | | 2018 | | 300,000 |
| | 225,000 |
| | 111,500 |
| | 27,375 |
| | 11,000 | | 674,875 |
|
| |
| (1) | Amounts reflect the full grant-date fair value of restricted stock units (shown under the heading Stock Awards) and stock appreciation rights (shown under the heading Option Awards) in each case granted during 2019 and 2018 in accordance with FASB ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock awards and option awards made to executive officers in Note 12 of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. |
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| (2) | For 2018,2019, includes $7,742$10,614 for executive medical coverage, $14,000 representing Mr. Bracken’s auto allowance and $9,000$23,500 representing company-matched 401(k) contributions. |
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| (3) | For 2018, $9,9992019, $11,781 for executive medical coverage, $12,000 representing Mr. Schneider’s auto allowance and $11,000$7,650 representing company-matched 401(k) contributions. |
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| (4) | For 2018,2019, includes $11,000$3,850 representing Mr. Packer's company-matched 401(k) contributions. |
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| (5) | Amount shown reflects annual bonuses for services in 2018.2019. |
Narrative Disclosure to the Summary Compensation Table
For 20182019 the principal elements of compensation provided to the named executive officers were base salaries, annual cash bonuses, restricted stock unit awards, stock appreciation rights, and retirement, health, welfare and additional benefits.
No Employment Agreements. Currently none of our executive officers are parties to any employment agreement or compensatory arrangement, other than customary indemnification agreements.
Base Salary. Base salaries are generally set at levels deemed necessary to attract and retain individuals with superior talent commensurate with their relative expertise and experience. No base salary increases were made in 2018.
Annual Cash Bonuses. Annual cash awards are used to motivate and reward our executives. Our executives are eligible to receive a discretionary annual cash bonus, which for 20182019 is not based on any specific performance metrics or criteria other than the achievement of production goals related to the Company’s performance. Unless otherwise determined, awards have historically been subject to an individual’s continued employment through the date of payment of the award.
Restricted Stock Unit Awards. Restricted stock units represent a right to receive stock at the end of a specified vesting period. We use restricted stock units to motivate and retain our executives. On April 6, 2018,March 28, 2019, we granted awards of restricted stock units covering 100,00100,000 shares to Mr. Bracken, 60,000200,000 shares to Mr. Schneider and 25,000100,000 shares to Mr. Packer. TheIn addition, on June 6, 2019, we granted an additional 400,000 shares to Mr. Bracken. Each of the foregoing restricted stock units vest over a three-year period, with 40% vesting on the first anniversary of issuance,March 28, 2019, and 30% on each of the second and third anniversaries of issuance,such date, such that the restricted stock units will be fully vested on the third anniversary of issuance.March 28, 2019. Restricted stock units will be paid in Class A Voting Common Stock or cash at our option after the vesting of the applicable restricted stock unit. We determine the fair value of granted restricted stock units based on the market price of our Class A Voting Common Stock on the date of grant. Compensation expense for granted restricted stock units is recognized over the vesting period.
Stock Appreciation Rights Awards. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. On April 6, 2018, we grantedWe did not grant any awards of stock appreciation rights covering 100,000 shares to Mr. Bracken, 60,000 shares to Mr. Schneider and 12,500 shares to Mr. Packer. Theduring the 2019 calendar year. Prior awards of stock appreciation rights vest over a three-year period, with 40% vesting on the first anniversary of issuance, and 30% on each of the second and third anniversaries of issuance, such that the stock appreciation rights will be fully vested on the third anniversary of issuance. The stockStock appreciation rights will expire five-years after the date of issuance. Stock appreciation rights will be paid in cash or common stock at holder’s election once the stock appreciation rights have vested, with the provision that the Company possesses sufficient liquidity to allow for cash settlement of the stock appreciation rights.
All Other Compensation. In addition to the compensation discussed above, certain executives receive health and welfare plan benefits and an automobile allowance. The Company provides a 401(k) plan to all eligible full-time employees which allows for pre-tax employee contributions up to the maximum allowed by the Internal Revenue Code of 1986, as amended (the “Code”“Code”). The Company supplements the employee’s contribution by providing a matching contribution of 100% of up to the first 4% contributed by each employee. This matching contribution is deposited on each semi-monthly payrollperiodically and is 100% vested to the employee’s account.
Lonestar Resources US Inc. Amended and Restated 2016 Incentive Award Plan. In 2016, we adopted the Amended and Restated 2016 Incentive Plan (the "A&R 2016 Plan") for our employees, consultants and directors and affiliates who perform services for us. The A&R 2016 Plan was amended and restated on May 24, 2018. The purpose of the A&R 2016 Plan is to provide a means to attract and retain individuals to serve as directors, employees and consultants who provide services to us by affording such individuals a means to acquire and maintain ownership of awards, the value of which is tied to the performance of our Class A Voting Common Stock. The A&R 2016 Plan provides for grants of cash payments, stock options, stock appreciation rights, restricted stock or units, bonus stock, dividend equivalents, and other stock-based awards with the total number of shares of stock available for issuance under the A&R 2016 Plan not to exceed 3,000,000 shares. In a proposal to this proxy statement, we are asking our stockholders to approve the Plan Amendment to thebe determined as described below.
The A&R 2016 Plan to increasewas amended and restated on May 23, 2019 (the "Plan Amendment"). The Plan Amendment (i) increased the number of shares of our Class A Common Stockcommon stock available for issuance thereunder by 800,000 shares, so that a total of 3,800,000 shares of our Class A Common Stock would be authorized for issuance under the A&R 2016 Plan upon approval of the Plan Amendment. In addition, the Plan Amendment would provideby 800,000 shares, from 3,000,000 shares to 3,800,000 shares, (ii) provided that on January 1 of each year, beginning with January 1, 2020 and ending with January 1, 2029,2024, the number of shares available for issuance under the A&R 2016 Plan will automatically be increased by either (i)(A) a number of shares equal to 3% of the total number of shares of our Class A Voting Common Stock outstanding on an as-converted basis as of the end of the immediately preceding calendar year, or (ii)(B) a lesser amount as may be determined by the board of directorsBoard or a committee thereof. thereof and (iii) extends the term of the A&R 2016 Plan until the five year anniversary of the date the Plan Amendment was approved by the Board.
The restricted stock unit and stock appreciation right awards described above are granted pursuant to the A&R 2016 Plan.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table reflects information regarding outstanding restricted stock unit awards and stock appreciation rights awards held by our named executive officers as of December 31, 2018:2019:
| | | | | | | Option Awards(1) | | Stock Awards(2)
| | | | Option Awards(1) | | Stock Awards(2)
|
| Name | | Grant Date | | Number of Securities Underlying Unexercised Stock Appreciation Rights (#) Exercisable | | Number of Securities Underlying Unexercised Stock Appreciation Rights (#) Unexercisable | | Exercise Price of Stock Appreciation Rights ($) | | Stock Appreciation Rights: Expiration Date | | Number of Units That Have Not Vested | | Market Value of Units That Have Not Yet Vested ($)(3) | | Grant Date | | Number of Securities Underlying Unexercised Stock Appreciation Rights (#) Exercisable | | Number of Securities Underlying Unexercised Stock Appreciation Rights (#) Unexercisable | | Exercise Price of Stock Appreciation Rights ($) | | Stock Appreciation Rights: Expiration Date | | Number of Units That Have Not Vested | | Market Value of Units That Have Not Yet Vested ($)(3) |
| Frank D. Bracken..................... | | 4/6/2018 | | — |
| | 100,000 |
| | 4.46 |
| | 4/6/2023 |
| | 100,000 |
| | 365,000 |
| | 3/28/2019 | | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | 261,000 |
|
| Chief Executive Officer | | 2/23/2017 | | 60,000 |
| | 90,000 |
| | 7.20 |
| | 2/23/2022 |
| | 90,000 |
| | 328,500 |
| | 6/6/2019 | | — |
| | — |
| | — |
| | — |
| | 400,000 |
| | 1,044,000 |
|
| | | | 4/6/2018 | | 40,000 |
| | 60,000 |
| | 4.46 |
| | 4/6/2023 |
| | 60,000 |
| | 156,600 |
|
| | | | 2/23/2017 | | 105,000 |
| | 45,000 |
| | 7.20 |
| | 2/23/2022 |
| | 45,000 |
| | 117,450 |
|
| Barry D. Schneider................... | | 4/6/2018 | | — |
| | 60,000 |
| | 4.46 |
| | 4/6/2023 |
| | 60,000 |
| | 219,000 |
| | 3/28/2019 | | — |
| | — |
| | — |
| | — |
| | 200,000 |
| | 522,000 |
|
| Chief Operating Officer | | 2/23/2017 | | 30,000 |
| | 45,000 |
| | 7.20 |
| | 2/23/2022 |
| | 45,000 |
| | 164,250 |
| | 4/6/2018 | | 24,000 |
| | 36,000 |
| | 4.46 |
| | 4/6/2023 |
| | 36,000 |
| | 93,960 |
|
| | | | 2/23/2017 | | 52,500 |
| | 22,500 |
| | 7.20 |
| | 2/23/2022 |
| | 22,500 |
| | 58,725 |
|
| Gregory R. Packer.................... | | 4/6/2018 | | — |
| | 12,500 |
| | 4.46 |
| | 4/6/2023 |
| | 25,000 |
| | 91,250 |
| | 3/28/2019 | | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | 261,000 |
|
| Vice President, General Counsel & Corporate Secretary | | 10/16/17 | | — |
| | — |
| | — |
| | — |
| | 17,045 |
| | 62,214 |
| | 4/6/2018 | | 5,000 |
| | 7,500 |
| | 4.46 |
| | 4/6/2023 |
| | 15,000 |
| | 39,150 |
|
| | | | 10/16/17 | | — |
| | — |
| | — |
| | — |
| | 8,523 |
| | 22,245 |
|
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| (1) | Reflects the number of outstanding stock appreciation rights held by the named executive officers as of December 31, 2018.2019. |
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| (2) | The restricted stock units shown in the table above for Mr. Bracken, Mr. Schneider, and Mr. Packer represent the unvested portion of the June 6, 2019, March 28, 2019, April 6, 2018 and February 23, 2017 grants. The restricted stock units vest over a three-year period, following the grant date, with 40% vesting on the first anniversary of issuance,vesting commencement date, and 30% on each of the second and third anniversaries of issuance,the vesting commencement date, such that the restricted stock units will be fully vested on the third anniversary of issuance.the vesting commencement date. |
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| (3) | Represents the market value of each award based on the closing price of $3.65$2.61 of our Class A Voting Common Shares on December 31, 2018,2019, the last trading day of that year. |
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of December 31, 2019, with respect to our equity compensation plans under which Class A Common Stock is authorized for issuance:
|
| | | | | | | | | | |
| Plan Category | | Number of securities to be issued upon vesting of restricted stock and exercise of stock appreciation rights(1) (a) | | Weighted-average exercise price of outstanding options, warrants and rights(2) (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3) (c) |
Equity compensation plans approved by security holders.................................................. | | 1,849,676 |
| | $ | 6.30 |
| | 1,514,776 |
|
Equity compensation plans not approved by security holders................................................... | | — |
| | — |
| | — |
|
| Total........................................................................ | | 1,849,676 |
| | $ | 6.30 |
| | 1,514,776 |
|
| |
| (1) | Amount shown includes 0 shares issuable upon exercise of outstanding stock appreciation rights, which generally may be settled either in stock or in cash at the holder’s election. The number of shares issuable was determined based upon our closing stock price on December 31, 2019, which was $2.61. The amount shown also includes 1,849,676 shares subject to outstanding restricted stock units. |
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| (2) | Amount shown reflects the weighted average exercise price of outstanding stock appreciation rights, of which there were 1,010,000 outstanding as of December 31, 2019. Our outstanding restricted stock units do not have an exercise price. |
| |
| (3) | Amount shown includes 1,010,000 shares subject to outstanding stock appreciation rights, which shares are not included in column (a). |
DIRECTOR COMPENSATION
The board of directors has primary responsibility for establishing non-employee director compensation arrangements, which have been designed to provide competitive compensation necessary to attract and retain high quality non-employee directors and to further align the interests of our directors with those of our stockholders. Arrangements in effect for 20182019 provided each non-employee director compensation with a fixed fee and, for the chairman of the board of directors, a grant of restricted stock units and stock appreciation rights for his service.fee. The following table sets forth the compensation earned by each non-employee Directors during our fiscal year ended December 31, 2018.2019.
| | | Names | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | Options Awards ($)(2) | | Total ($) | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | Options Awards ($)(2) | | Total ($) |
| Henry B. Ellis.............................................................................. | | 60,000 | | — | | — | | 60,000 |
| | 60,000 | | — | | — | | 60,000 |
|
| Daniel R. Lockwood................................................................... | | 50,000 | | — | | — | | 50,000 |
| | 50,000 | | — | | — | | 50,000 |
|
John H. Murray(3)......................................................................... | | 38,630 | | — | | — | | 38,630 |
| |
| Matthew B. Ockwood................................................................. | | — | | — | | — | | — |
| | — | | — | | — | | — |
|
| Stephen H. Oglesby..................................................................... | | 50,000 | | — | | — | | 50,000 |
| | 50,000 | | — | | — | | 50,000 |
|
| Phillip Z. Pace............................................................................. | | — | | — | | — | | — |
| | — | | — | | — | | — |
|
John H. Pinkerton(4)..................................................................... | | — | | 446,000 | | 219,097 | | 665,097 |
| |
Dr. Christopher Rowland(3).......................................................... | | 38,630 | | — | | — | | 38,630 |
| |
John H. Pinkerton(3)..................................................................... | | | — | | — | | — | | — |
|
| Randy L. Wolsey......................................................................... | | 50,000 | | — | | — | | 50,000 |
| | 50,000 | | — | | — | | 50,000 |
|
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| (1) | Represents the cash portion of the annual board fees and chair fees. |
| |
| (2) | Amounts reflect the full grant-date fair value of restricted stock units and stock appreciation rights granted during 20182019 in accordance with FASB ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock awards and option awards made to executive officers in Note 12 of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. |
| |
| (3) | As described in this proxy statement under the heading “Board Composition”, each of John H. Murray and Dr. Christopher Rowland submitted their resignations to the Board on October 10, 2018 and October 9, 2018, respectively. |
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(4) | During 2018, Mr. Pinkerton was granted 100,000 restricted stock units and 100,000 stock appreciation rights. The restricted stock units and stock appreciation rights each vest 40% on April 6, 2019, 30% on April 6, 2020 and 30% on April 6, 2021. The exercise price of the stock appreciation rights is $4.46, and the stock appreciation rights expire on April 6, 2023. As of December 31, 2018,2019, Mr. Pinkerton held 160,00090,000 unvested restricted stock units and 200,000 stock appreciation rights.
|
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to holdings of our Class A Common Stock and Series A-1 Preferred Stock by (i) stockholders who beneficially owned more than 5% of the outstanding shares of our Class A Common Stock or Series A-1 Preferred Stock, and (ii) each of our directors (which includes all nominees), each of our named executive officers and all directors and executive officers as a group as of March 29, 2019,31, 2020, unless otherwise indicated. The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power. Applicable percentage ownership is based on 24,773,64325,270,595 shares of Class A Common Stock and 93,849102,585 shares of Series A-1 Preferred Stock outstanding as of March 29, 2019.31, 2020. Except as described in the footnotes to the table below, in computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares subject to stock appreciation rights, options, warrants, restricted stock units or other rights or conversion privileges held by such person, that may be exercisable or settled for or converted into shares of Class A Common Stock within 60 days of March 29, 201931, 2020 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed below is c/o Lonestar Resources US Inc., 111 Boland Street, Suite 301, Fort Worth, Texas, 76107. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
| | | Names of Beneficial Owner | | Number of Shares of Class A Common Stock Beneficially Owned | | Percentage of Outstanding Class A Common Stock | | Number of Shares of Series A-1 Preferred Stock Beneficially Owned | | Percentage of Outstanding Series A-1 Preferred Stock | | Percentage of Outstanding Class A Common Stock and Series A-1 Preferred Stock on an As-Converted Basis | | Number of Shares of Class A Common Stock Beneficially Owned | | Percentage of Outstanding Class A Common Stock | | Number of Shares of Series A-1 Preferred Stock Beneficially Owned | | Percentage of Outstanding Series A-1 Preferred Stock | | Percentage of Outstanding Class A Common Stock and Series A-1 Preferred Stock on an As-Converted Basis |
| 5% or Greater Stockholders | | | | | | | | | | | | | | | | | | | | |
Chambers Energy Capital III, LP1............................. | | — |
| | — |
| | 93,849 |
| | 100% |
| | 38.7% |
| | — |
| | — |
| | 102,585 |
| | 100% |
| | 40 | % |
Jefferies Financial Group Inc.2.................................. | | 4,478,488 |
| | 18.1% |
| | — |
| | — |
| | 11.1% |
| | 4,478,488 |
| | 18 | % | | — |
| | — |
| | 11 | % |
B. Riley Financial, Inc.3............................................. | | 2,430,251 |
| | 9.8% |
| | — |
| | — |
| | 6.0% |
| |
Sanchez Energy Corporation4.................................... | | 1,500,000 |
| | 6.1% |
| | — |
| | — |
| | 3.7% |
| |
Wasatch Advisors, Inc.3............................................. | | | 2,107,843 |
| | 8 | % | | | | | | 5 | % |
William R. Kruse4...................................................... | | | 2,011,156 |
| | 8 | % | | | | | | 5 | % |
Sanchez Energy Corporation5.................................... | | | 1,500,000 |
| | 6 | % | | — |
| | — |
| | 4 | % |
| Named Executive Officers and Directors | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Frank D. Bracken, III5............................................... | | 200,664 |
| | * |
| | — |
| | — |
| | * |
| |
Barry D. Schneider5................................................... | | 120,949 |
| | * |
| | — |
| | — |
| | * |
| |
Gregory R. Packer5.................................................... | | 18,698 |
| | * |
| | — |
| | — |
| | * |
| |
Frank D. Bracken, III6............................................... | | | 279,766 |
| | 1 | % | | — |
| | — |
| | * |
|
Barry D. Schneider6................................................... | | | 204,674 |
| | * |
| | — |
| | — |
| | * |
|
Gregory R. Packer6.................................................... | | | 22,799 |
| | * |
| | — |
| | — |
| | * |
|
| Directors (other than Mr. Bracken) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Henry B. Ellis............................................................ | | 40,000 |
| | * |
| | — |
| | — |
| | * |
| | 51,200 |
| | * |
| | — |
| | — |
| | * |
|
| Daniel Lockwood...................................................... | | 31,205 |
| | * |
| | — |
| | — |
| | * |
| | 31,205 |
| | * |
| | — |
| | — |
| | * |
|
| Matthew B. Ockwood................................................ | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stephen H. Oglesby................................................... | | 10,000 |
| | * |
| | — |
| | — |
| | * |
| | 15,000 |
| | * |
| | — |
| | — |
| | * |
|
| Phillip Z. Pace........................................................... | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
John H. Pinkerton6..................................................... | | 180,700 |
| | * |
| | — |
| | — |
| | * |
| | 175,700 |
| | * |
| | — |
| | — |
| | * |
|
| Randy L. Wolsey........................................................ | | 15,000 |
| | * |
| | — |
| | — |
| | * |
| | 20,000 |
| | * |
| | — |
| | — |
| | * |
|
| All executive officers and directors as a group (13 persons).................................................................... | | 706,238 |
| | 2.9% |
| | — |
| | — |
| | 1.7% |
| | 913,710 |
| | 4 | % | | — |
| | — |
| | 43 | % |
| |
| 1 | Based on a Schedule 13D/A filed by CEC GP, LLC (“CEC GP”GP”), CEC Fund III GP, LLC (“CEC III”III”), Chambers and J. Robert Chambers on January 11, 2019March 31, 2020 and information known to the Company, the shares reported are held of record by Chambers. J. Robert Chambers is the managing member of CEC GP, which is the sole member of CEC III, which is the general partner of Chambers. Accordingly, each of Mr. Chambers, CEC GP, and CEC III may be deemed to share voting and investment power over the shares held of record by Chambers. Each outstanding share of Series A-1 Stock is convertible into approximately 166.6667 shares of Class A Common Stock, based on a conversion rate specified in the Certificate of Designations for the Series A-1 Stock, resulting in 15,641,50017,097,500 shares of Class A Common Stock outstanding on an as-converted basis as of March 29, 2019,31, 2020, which is not reflected in the first two columns of the table above, but is reflected in the last column. The shares of Series A-1 Preferred Stock beneficially owned and the respective percentage of beneficial ownership of Series A-1 Preferred Stock stated in these columns reflect ownership of shares of Series A-1 Preferred Stock, and not shares of Class A Common Stock issuable upon conversion of shares of Series A-1 Stock at this ratio. The address of each of Mr. Chambers, CEC GP, CEC III and Chambers is c/o Chambers Energy Management, LP, 600 Travis St., Suite 4700, Houston, Texas 77002. |
| |
2 | Based on a Schedule 13G/A filed on February 14, 2019 by Jefferies Financial Group Inc., formerly Leucadia National Corporation, (“Jefferies”Jefferies”), on behalf of itself and its controlled subsidiaries, and information known to the Company, Jefferies reported that it has sole voting and dispositive power with respect to 3,478,261 shares of Class A Common Stock, and shared voting and dispositive power with respect to 500,227 shares of Class A Common Stock and 500,000 shares underlying immediately exercisable warrants to purchase Class A Common Stock held by a controlled subsidiary. The address of Jefferies is 520 Madison Ave., New York, NY 10022. |
| |
3 | Based on a Schedule 13G filed by B. Riley Financial,Wasatch Advisors, Inc. (“BRF”), B. Riley Capital Management, LLC (“BRCM”), BRC Partners Management GP, LLC (“BRPGP”), BRC Partners Opportunity Fund, LP (“BRPLP”), BR Dialectic Capital Management, LLC (“BR Dialectic”) and Dialectic Antithesis Partners, LP (“Dialectic” and, collectively with BRF, BRCM, BRPGP, BRPLP and BR Dialectic, “B.Riley”("Wasatch") on January 23, 2019,February 10, 2020, Wasatch reported that it had sole voting and dispositive power with respect to 2,107,843 shares of Class A Common Stock. The address of Wasatch is 505 Wakara Way, Salt Lake City, UT 84108. |
| |
4 | Based on a Schedule 13G filed by William R. Kruse and Deborah L. Kruse on February 14, 2020, (i) BRF reportsWilliam R. Kruse reported that he had sole voting and dispositive power with respect to 171,240 shares of Class A Common Stock, and shared voting and dispositive power with respect to 2,430,2511,839,916 shares of Class A Common Stock and (ii) BRCM reportsDeborah L. Kruse reported that she had sole voting and dispositive power with respect to 0 shares of Class A Common Stock, and shared voting and dispositive power with respect to 2,430,2511,839,916 shares (iii) BRPGP reports shared voting and dispositive power with respect to 556,353 shares, (iv) BRPLP reports shared voting and dispositive power with respect to 556,353 shares, (v) BR Dialectic reports shared voting and dispositive power with respect to 1,873,898 shares and (vi) Dialectic reports shared voting and dispositive power with respect to 1,873,898 shares. BRPGP is the general partner of BRPLP and BRCM is an investment advisor to BRPLP. BR Dialectic is the general partner of and an investment advisor to Dialectic, BR Dialectic is a wholly-owned subsidiary of BRCM, and BRF is the parent company of BRCM. BRF is the parent company of BRCM.Class A Common Stock. The address of (i) each BRCM, BRPGPWilliam R. Kruse and BRPLPDeborah L. Kruse is 11100 Santa Monica Blvd.,1340 S. Main Street, Suite 800, Los Angeles, California 90025, (ii) each of BR Dialectic and Dialectic is 119 Rowayton Avenue, 2nd Floor, Norwalk, Connecticut 06853 and (iii) BRF is 21255 Burbank Blvd., Suite 400, Woodland Hills, CA 91367.300, Grapevine, TX 76051. |
| |
45
| Based on a Schedule 13G filed by Sanchez Energy Corporation and SN UR Holdings, LLC on November 9, 2017, consists of 1,500,000 shares directly held by SN UR Holdings, LLC, which is a wholly-owned subsidiary of Sanchez Energy Corporation. Sanchez Energy Corporation and SN UR Holdings, LLC each have shared voting and investment power over these shares. The address of Sanchez National Corporation and SN UR Holdings, LLC is 1000 Main Street, Suite 3000, Houston, Texas 77002. |
| |
56
| Each of Mr. Bracken, Mr. Schneider, Mr. Packer and Mr. Pinkerton hold stock appreciation rights that are exercisable at strike prices of $7.20 and/or $4.46. Accordingly, since the exercise of any stock appreciation rights would result in the issuance of zero shares of Class A Common Stock, they have no effect on the table above. |
Certain Relationships
POLICIES AND PROCEDURES FOR RELATED PARTY TRANSACTIONS
Our Board has adopted a written Related Person Transaction Policy and Procedures, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we (including any of our subsidiaries) are, were or will be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person has, had or will have a direct or indirect material interest, which may include, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person.
Under the policy, management is responsible for implementing procedures to obtain information with respect to potential related person transactions, and then determining whether such transactions constitute related person transactions subject to the policy. Management then is required to present to the Audit and Risk Committee each proposed related person transaction. In reviewing and approving any such transactions, our Audit and Risk Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. If advance Audit and Risk Committee approval of a related person transaction is not feasible, then the transaction may be preliminarily entered into by management upon prior approval by the Chairperson of the Audit and Risk Committee, subject to ratification of the transaction by the Audit and Risk Committee at the Audit and Risk Committee’s next scheduled meeting. Any related person transaction must be approved or ratified by the Audit and Risk Committee in order to be consummated or continue, as applicable. Management is responsible for updating the Audit and Risk Committee as to any material changes to any approved or ratified related person transaction and for providing a status report at least annually of all current related person transactions at a regularly scheduled meeting of the Audit and Risk Committee. No director may participate in approval of a related person transaction for which he or she is a related person. All of the transactions, agreements or relationships described in this section occurred prior to the adoption of this policy.
The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding Class A Common Stock or Series A-1 Preferred Stock.
CHAMBERS
On June 15, 2017, we entered into the SPA with Chambers and simultaneously closed the transactions contemplated thereby. Pursuant to the SPA, we sold to Chambers, in a private placement under the Securities Act of 1933, shares of the our newly-created Series A-1 Preferred Stock as well as shares of our Series A-2 Convertible Participating Preferred Stock, par value $0.001 per share (together with the Series A-1 Preferred Stock, the “Series“Series A Preferred Stock”Stock”) which was converted into Series A-1 Preferred Stock on November 3, 2017. The aggregate purchase price under the SPA was $78 million.
Pursuant to the terms of the SPA, (a) for so long as Chambers and other persons or entities who become holders of the securities issued or issuable under the SPA and who have previously been approved by the Company in its sole discretion (together with Chambers, the “Approved Holders”“Approved Holders”) beneficially own (i) at least 20% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, or (ii) at least 30% of the number of shares of Series A Preferred Stock issued to Chambers at the SPA Closing and at least 15% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, the Approved Holders will have the right to designate two directors to the Board; and (b) for so long as the Approved Holders beneficially own (i) at least 10% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, or (ii) at least 15% of the number of shares of Series A Preferred Stock issued to Chambers at the SPA Closing and at least 5% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, the Approved Holders will have the right to designate one director to the Board. Pursuant to the terms described above, Chambers currently has the right to designate two nominees and have designated Matthew B. Ockwood and Phillip Z. Pace for election to our Board. If a vacancy is created on the Board as a result of the death, disability, retirement, resignation or removal of any Designee, the Approved Holders have the right to nominate a replacement director.
For so long as the Approved Holders beneficially own at least 10% of the total number of outstanding shares of the Company’s Class A Common Stock, on an as-converted basis, or at least 15% of the number of Series A Preferred Stock issued to Chambers at the SPA Closing, the Company cannot undertake certain actions without the prior consent of holders of a majority of all shares of the Company’s Class A Common Stock, on an as-converted basis, held by the Approved Holders.
In connection with the SPA Closing and the issuance of shares of Series A Preferred Stock, the Company entered into a registration rights agreement with Chambers (the “Chambers RRA”). Under the Chambers RRA, the Company has agreed to provide to Chambers
certain customary demand and piggyback registration rights relating to Chambers’ ownership of Company stock. The Chambers RRA contains customary terms and conditions, including certain customary indemnification obligations.
JEFFERIES FINANCIAL GROUP INC.
On August 2, 2016, the Company entered into a securities purchase agreement, registration rights agreement and an equity commitment agreement with Juneau Energy, LLC (“Juneau”Juneau”) and Leucadia National Corporation, which has since been renamed Jefferies Financial Group Inc. (“Jefferies”Jefferies”). Pursuant to the registration rights agreement, the Company has agreed to register for resale certain Class A Common Stock issued or issuable to Juneau and Jefferies, including shares of Class A Common Stock issuable upon exercise of warrants. Jefferies agreed, pursuant to the equity commitment agreement, to purchase a certain number of Class A Common Stock in case the Company elected to pursue an equity offering prior to December 31, 2016. Pursuant to the equity commitment agreement, Jefferies purchased 3,478,261 shares of Class A Common Stock (at a cost of $20 million) through our equity offering that closed on December 22, 2016. In connection with Jefferies’ equity commitment, the Company paid Jefferies on January 3, 2017 a $1 million fee. In the event Jefferies purchased not less than its commitment amount, the Company agreed to use commercially reasonable efforts to enter into arrangements to provide Jefferies with the right to appoint one director to the Board of the Company, provided that such right will terminate at such time as Jefferies and its affiliates own a number of shares of Class A Common Stock equal to less than 50% of the shares purchased by Jefferies and its affiliates in such offering. Jefferies has elected to take an observer position on the board of directors, with no voting rights.
SANCHEZ ENERGY
On May 26, 2017, the Company entered into a purchase and sale agreement (the “Original“Original Marquis PSA”PSA” and, as amended by the Amendment to Marquis PSA (as defined below), the “Marquis PSA”“Marquis PSA”) with SN Marquis LLC (“Marquis”Marquis”), a subsidiary of Sanchez Energy Corporation, pursuant to which the Company agreed to acquire certain oil and gas assets in Fayetts, Gonzales and Lavaca Counties, Texas (the “Marquis Assets”“Marquis Assets”) from Marquis. On June 15, 2017, the Company entered into Amendment No. 1 to the Original Marquis PSA (the “Amendment“Amendment to Marquis PSA”PSA”), in order to amend the consideration paid to Marquis and issue shares of Series B Preferred Stock to Marquis instead of shares of Class A Common Stock. On June 15, 2017, the Company completed the transactions contemplated by the Marquis PSA (the “Marquis Closing”“Marquis Closing”) for total consideration of approximately $50 million (net of approximately $6 million in customary purchase price adjustments), consisting of approximately $44 million in cash and 1,500,000 shares of the Company’s Series B Preferred Stock, which was converted into shares of the Company’s Class A Common Stock on a one-to-one basis on November 3, 2017.
In connection with the Marquis Closing, the Company entered into a registration rights agreement with Marquis (the “Marquis RRA”“Marquis RRA”). Pursuant to the Marquis RRA, the Company has agreed to provide to Marquis certain customary demand and piggyback registration rights relating to Marquis’s ownership of Company stock. The Marquis RRA contains customary terms and conditions, including certain customary indemnification obligations.
RESALE REGISTRATION STATEMENT
In accordance with our obligations under our registration rights agreements described above, we filed a registration statement on Form S-3 (File No. 333-221392) (the “Form S-3”“Form S-3”) that was declared effective by the SEC in February 2018. The Form S-3 registered the resale of the shares of Class A Common Stock (or securities exercisable for or convertible into Class A Common Stock) held by Chambers, Jefferies, EF Realisation and Sanchez Energy.
DANIEL R. LOCKWOOD
New Tech Global Ventures, LLC, a company in which our current director Daniel R. Lockwood owns a minority limited partnership interest, has provided field engineering staff and consultancy services for the Company since 2013. The total cost for such services was approximately $1,839,000$1.7 million in 2018.
2019.
JOHN H. PINKERTON
In February 2019, the Company purchased a property adjacent to its corporate office for future expansion for approximately $2.0 million. The transaction was funded with cash from operations. The seller of the property is indebted to certain trusts established in favor of the children of John H. Pinkerton. The Company understands that the seller may have used some of the proceeds of the sale to satisfy such outstanding indebtedness, though the Company has no interest or influence over any particular outcome.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us or will require us to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer.
Interest of Certain Persons in Matters to Be Acted Upon
No person who has served as an officer or director of the Company since the beginning of our last fiscal year, and no associate of such a person, has any substantial interest in the matters to be acted upon at the Annual Meeting, other than (i) an interest in awards that may be granted to our officers and directors under the A&R 2016 Plan, as described with respect to Proposal 3 above, (ii) as a result of his or her role as an officer or director of the Company, or (iii)(ii) in his role as a shareholder in proportion to his percentage shareholding.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act (collectively, the “Reporting Persons”“Reporting Persons”) to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC. All Reporting Persons are required by SEC regulation to furnish us with copies of all reports that such Reporting Persons file with the SEC pursuant to Section 16(a). Based solely on our review of the copies of such forms received by us and upon written representations of the Reporting Persons received by us, we believe that there has been compliance with all Section 16(a) filing requirements applicable to such Reporting Persons with respect to the year ended December 31, 2018, except that one Form 4 reporting one transaction for Jana Payne was filed late.2019.
Stockholders’ Proposals
Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at our 20202021 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Exchange Act must submit the proposal to our Secretary at our offices at 111 Boland Street, Suite 301, Fort Worth, Texas, 76107 in writing not later than December 11, 2019.10, 2020.
Stockholders intending to present a proposal at the 2020 Annual Meeting of Stockholders, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Bylaws. Our Bylaws require, among other things, that our Secretary receive written notice from the stockholder of record of their intent to present such proposal or nomination not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the anniversary of the preceding year’s annual meeting. Therefore, the Company must receive notice of such a proposal or nomination for the 20202021 Annual Meeting of Stockholders no earlier than the close of business on January 24, 202026, 2021 and no later than the close of business on February 23, 2020.27, 2021. The notice must contain the information required by the Bylaws, a copy of which is available upon request to our Secretary. In the event that the date of the 20202021 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after May 23,26, 2020, then our Secretary must receive such written notice not earlier than the close of business on the 120th day prior to the 20202021 Annual Meeting and not later than the close of business on the later of (i) the 90th day prior to the 20202021 Annual Meeting or (ii) if the first public announcement of the date of the 20202021 Annual Meeting is less than 100 days prior to the date of such meeting, the 10th day following the day on which public disclosure of the date of such meeting is first made by the Company.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these or other applicable requirements.
Other Matters
Our Board is not aware of any matter to be presented for action at the Annual Meeting other than the matters referred to above and does not intend to bring any other matters before the Annual Meeting. However, if other matters should come before the Annual Meeting, it is intended that holders of the proxies named on the Company’s proxy card will vote thereon in their discretion.
Solicitation of Proxies
The accompanying proxy is solicited by and on behalf of our Board, whose Notice of Annual Meeting is attached to this proxy statement, and the entire cost of such solicitation will be borne by us. In addition to the use of mail, proxies may be solicited by personal interview, telephone, e-mail and facsimile by our directors, officers and other employees who will not be specially compensated for these services. We will also request that brokers, nominees, custodians and other fiduciaries forward soliciting materials to the beneficial owners of shares held by such brokers, nominees, custodians and other fiduciaries. We will reimburse such persons for their reasonable expenses in connection therewith.
Certain information contained in this proxy statement relating to the occupations and security holdings of our directors and officers is based upon information received from the individual directors and officers.
Lonestar’s Annual Report on Form 10-K
A copy of Lonestar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, including financial statements and schedules thereto but not including exhibits, as filed with the SEC, will be sent to any stockholder of record on March 29, 201931, 2020 without charge upon written request addressed to:
Lonestar Resources US Inc.
Attention: Secretary
111 Boland Street, Suite 301
Fort Worth, Texas 76107
A reasonable fee will be charged for copies of exhibits. You also may access this proxy statement and our Annual Report on Form 10-K at www.proxyvote.com. You also may access our Annual Report on Form 10-K for the year ended December 31, 20182019 at www.lonestarresources.com.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, WE URGE YOU TO VOTE YOUR SHARES VIA THE TOLL-FREE TELEPHONE NUMBER OR OVER THE INTERNET, AS DESCRIBED IN THIS PROXY STATEMENT. IF YOU RECEIVED A COPY OF THE PROXY CARD BY MAIL, YOU MAY SIGN, DATE AND MAIL THE PROXY CARD IN THE ENCLOSED RETURN ENVELOPE. PROMPTLY VOTING YOUR SHARES WILL ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING AND WILL SAVE US THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Directors
Gregory R. Packer, Secretary
Fort Worth, Texas
April 9, 201916, 2020
Exhibit A
LONESTAR RESOURCES US INC.
AMENDED AND RESTATED
2016 INCENTIVE PLAN
ARTICLE I.
PURPOSE
This Plan is a restatement of the Lonestar Resources US Inc. 2016 Incentive Plan, which was adopted by the Board on March 22, 2016 as a successor to the Lonestar Resources Limited 2012 Employee Share Option Plan for use following the re-domiciliation of Lonestar Resources Limited to the United States by means of the Company’s acquisition of Lonestar Resources Limited. The Plan was further amended and restated on May 24, 2017, and again on May 24, 2018, by a majority in interest of the Company’s stockholders. The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership and other incentive opportunities. Capitalized terms used in the Plan are defined in Article XI.
ARTICLE II.
ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.
ARTICLE III.
ADMINISTRATION AND DELEGATION
3.1 Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards. The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.
3.2 Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more Committees or officers of the Company or any of its Subsidiaries. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.
ARTICLE IV.
STOCK AVAILABLE FOR AWARDS
4.1 Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit. Shares issued under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
4.2 Share Recycling. If all or any part of an Award (including for the avoidance of doubt an Award granted prior to the Restatement) expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award, the unused Shares covered by the Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the Company from the Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count against the Overall Share Limit.
4.3 Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 3,000,000 Shares may be issued pursuant to the exercise of Incentive Stock Options.
4.4 Substitute Awards. In connection with an entity’s merger or consolidation with the Company or the Company’s acquisition of an entity’s property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
4.5 Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $500,000 increased to $1,000,000 in the fiscal year of his or her initial service as a non-employee Director. The Administrator may make exceptions to this limit for individual non-employee Directors in extraordinary circumstances, as the Administrator may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee Directors.
ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations in the Plan that apply to Incentive Stock Options. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
5.2 Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right. Notwithstanding the foregoing, if on the last day of the term of an Option or Stock Appreciation Right the Fair Market Value of one Share exceeds the applicable exercise or base price per Share, the Participant has not exercised the Option or Stock Appreciation Right and remains employed by the Company or one of its Subsidiaries and the Option or Stock Appreciation Right has not expired, the Option or Stock Appreciation Right shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with its exercise. In such event, the Company shall deliver to the Participant the number of Shares for which the Option or Stock Appreciation Right was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes; provided, however, any fractional Share shall be settled in cash.
5.3 Duration. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option) (i) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (ii) Shares may not be purchased or sold by the applicable current or former Service Provider due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended for a period of thirty (30) days following the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right unless the exercise would violate an Applicable Law. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right to exercise the Option or Stock Appreciation Right, as applicable, may be terminated by the Company and the Company may suspend the Participant’s right to exercise the Option or Stock Appreciation Right when it reasonably believes that the Participant has participated in any such violation. In addition, if, prior to the end of the term of an Option or Stock Appreciation Right, the Participant is given notice by the Company or any of its Subsidiaries of the termination of his or her employment or other relationship by the Company or any of its Subsidiaries for Cause, and the effective date of such employment or other termination is subsequent to the date of the delivery of such notice, the right to exercise the Option or Stock Appreciation Right, as applicable, shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s employment or other relationship shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment or other relationship (in which case the right to exercise the Option or Stock Appreciation Right, as applicable, shall terminate immediately upon the effective date of such termination of employment or other relationship).
5.4 Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
5.5 Payment Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:
(a) cash, wire transfer of immediately available funds or by check payable to the order of the Company; provided, that, the Company may limit the use of one of the foregoing exercise methods if one or more of the exercise methods below is permitted;
(b) if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of a notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise of the Option and that the broker has been directed to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;
(c) to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;
(d) to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;
(e) to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or
(f) to the extent permitted by the Company, any combination of the above payment forms approved by the Administrator.
ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS
6.1 General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to forfeiture or the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
6.2 Restricted Stock.
(a) Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(b) Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
6.3 Restricted Stock Units.
(a) Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended to comply with Section 409A.
(b) Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(c) Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.
ARTICLE VIII.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
8.1 Equity Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
8.2 Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(a) To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(b) To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(c) To provide that such Award be assumed by the successor or survivor corporation or entity, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation or entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(e) To replace such Award with other rights or property selected by the Administrator; and/or
(f) To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3 Acceleration Upon a Change in Control. Notwithstanding anything in Section 8.2 to the contrary, and except as may otherwise be provided in any applicable Award Agreement or other written agreement between the Company or any of its Subsidiaries and a Participant, if a Change in Control occurs and Awards are not continued, converted, assumed, or replaced by (i) the Company or a Subsidiary or (ii) a Successor Entity, then immediately prior to the Change in Control such Awards shall become fully exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse. Upon, or in anticipation of, a Change in Control, the Administrator may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including but not limited to the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Administrator, in its sole and absolute discretion, shall determine.
8.4 Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.
8.5 General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.
9.2 Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
9.3 Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4 Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.
9.5 Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company; provided, that, the Company may limit the use of one of the foregoing methods if one or more of the exercise methods below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of a notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise of the Award and that the broker has been directed to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any
brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
9.6 Amendment of Award; Prohibition on Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participant’s consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6. Other than pursuant to Sections 8.1 and 8.2, the Administrator shall not without the approval of the Company’s stockholders (a) lower the exercise price per Share of an Option or Stock Appreciation Right after it is granted, (b) cancel an Option or Stock Appreciation Right when the exercise price per Share exceeds the Fair Market Value of one Share in exchange for cash or another Award, or (c) take any other action with respect to an Option or Stock Appreciation Right that the Company determines would be treated as a repricing under the rules and regulations of the principal U.S. national securities exchange on which the Shares are listed.
9.7 Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.
9.8 Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
9.9 Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Option’s grant date, and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
ARTICLE X.
MISCELLANEOUS
10.1 No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2 No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3 Effective Date and Term of Plan; Effect of Restatement. The Plan was initially adopted by the Board on March 22, 2016 (the “Effective Date”), was first amended and restated in 2017, and again amended and restated in 2018. Unless earlier terminated by the Board, the Plan will remain in effect until the fifth anniversary of the Restatement Effective Date, but Awards previously granted may extend beyond that date in accordance with the Plan. The Restatement shall become effective on the date that it is approved by the Board in 2019 (the “Restatement Effective Date"), subject to approval by the Company’s stockholders at the Company’s annual meeting of stockholders in 2019. From and after the Restatement Effective Date, the Plan, as restated by the Restatement, shall govern all Awards hereunder, including Awards granted prior to the Restatement Effective Date, provided, however, that to the extent that any provision of the Plan as in effect after the Restatement conflicts with a term of the Plan as in effect prior to the Restatement and the Restatement would adversely affect a Participant’s rights with respect to an Award granted prior to the Restatement Effective Date, the terms of the Plan as in effect prior to the Restatement shall control (but only to such extent).
10.4 Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after Plan termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
10.5 Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
10.6 Section 409A.
(a) General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(b) Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c) Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
10.7 Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will
indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.
10.8 Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities, whether subject to outstanding Awards or otherwise, during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter (the “Lock-Up Period”). The Company may impose stop-transfer instructions with respect to Shares subject to the foregoing prohibitions until the end of the Lock-Up Period and these restrictions will be binding on the applicable Participant. Further, each Participant shall, if so requested by any underwriter representative, execute a customary lock-up agreement which shall provide such terms as such underwriter representative may in its discretion request, including, without limitation the prohibition on sale and transfer during the Lock-Up Period described in this Section 10.8.
10.9 Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
10.10 Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
10.11 Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
10.12 Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
10.13 Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or the Award Agreement.
10.14 Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.
10.15 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.
10.16 Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.
10.17 Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.
ARTICLE XI.
DEFINITIONS
As used in the Plan, the following words and phrases will have the following meanings:
11.1 “Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.
11.2 “Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3 “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards. For the avoidance of doubt, Options granted under the Plan prior to the Restatement shall constitute Awards hereunder
11.4 “Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
11.5 “Board” means the Board of Directors of the Company.
11.6 “Change in Control” means and includes each of the following:
(a) A transaction or series of transactions occurring after the Effective Date whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such transaction; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) after the Effective Date of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
11.7 “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.8 “Committee” means one or more committees or subcommittees of the Board, which may include one or more Company directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
11.9 “Common Stock” means the Class A common stock of the Company.
11.10 “Company” means Lonestar Resources US Inc., a Delaware corporation, or any successor.
11.11 “Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person.
11.12 “Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.
11.13 “Director” means a Board member.
11.14 “Disability” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
11.15 “Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
11.16 “Employee” means any employee of the Company or its Subsidiaries.
11.17 “Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
11.18 “Exchange Act” means the Securities Exchange Act of 1934, as amended.
11.19 “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
11.20 “Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.
11.21 “Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.
11.22 “Non-Qualified Stock Option” means an Option not intended or not qualifying as an Incentive Stock Option.
11.23 “Option” means an option to purchase Shares.
11.24 “Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.
11.25 “Overall Share Limit” means the sum of (i) 3,800,000 Shares and (ii) an annual increase on the first day of each calendar year beginning January 1, 2020 and ending on and including January 1, 2024, equal to the lesser of (A) 3% of the aggregate number of shares of Common Stock outstanding on an as-converted basis on the final day of the immediately preceding calendar year and (B) such smaller number of Shares as is determined by the Board.
11.26 “Participant” means a Service Provider who has been granted an Award.
11.27 “Performance Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include but shall not be limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), return on net assets, return on stockholders’ equity, return on assets, return on capital, return on sales, gross or net profit margin, expenses or expense levels, total shareholder return, internal rate of return (IRR), financial ratios (including those measuring liquidity, activity, profitability or leverage), working capital, earnings per Share, price per Share, market capitalization, any GAAP financial performance measures, inventory management, measures related to A/R balance and write-offs, timeliness and/or accuracy of business reporting, approval or implementation of strategic plans, financing and other capital raising transactions, debt levels or reductions, cash levels, acquisition activity, investment sourcing activity, marketing initiatives, projects or processes, achievement of customer satisfaction objectives, net asset value, net asset value per share, capital expenditures, net borrowing, debt leverage levels, credit quality or debt ratings, economic value added, individual business objectives, growth in production, added reserves, growth in reserves, inventory growth, environmental health and safety performance, effectiveness of hedging programs, improvements in internal controls and policies, and retention and recruitment of employees, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary, or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative to
performance of other companies. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), in accordance with accounting principles established by the International Accounting Standards Board (“IASB Principles”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP or under IASB Principles. The Committee may provide for exclusion of the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events, (b) asset write-downs, (c) litigation or claim judgments or settlements, (d) acquisitions or divestitures, (e) reorganization or change in the corporate structure or capital structure of the Company, (f) an event either not directly related to the operations of the Company, Subsidiary, division, business segment or business unit or not within the reasonable control of management, (g) foreign exchange gains and losses, (h) a change in the fiscal year of the Company, (i) the refinancing or repurchase of bank loans or debt securities, (j) unbudgeted capital expenditures, (k) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (l) conversion of some or all of convertible securities to Common Stock, (m) any business interruption event, (n) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles, or (o) the effect of changes in other laws or regulatory rules affecting reported results.
11.28 “Plan” means this Amended and Restated 2016 Incentive Plan.
11.29 “Restatement” means the restatement of the Plan as described in the first sentence of Article I hereof.
11.30 “Restricted Stock” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.31 “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.
11.32 “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.
11.33 “Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.34 “Securities Act” means the Securities Act of 1933, as amended.
11.35 “Service Provider” means an Employee, Consultant or Director.
11.36 “Shares” means shares of Common Stock.
11.37 “Stock Appreciation Right” means a stock appreciation right granted under Article V.
11.38 “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
11.39 “Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
11.40 “Termination of Service” means the date the Participant ceases to be a Service Provider.
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