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TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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Halcón Resources Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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Table of Contents
Halcón Resources Corporation
1000 Louisiana St., Suite 1500
Houston, Texas 77002
Telephone (832) 538-0300
NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS
April 4, 2018
To the Stockholders of Halcón Resources Corporation:
The
2018 Annual Meeting of Stockholders (the "Annual Meeting") of Halcón Resources Corporation (the "Company") will be held on Monday, May 14, 2018 at
2:00 p.m., Central Daylight Time, at the Wells Fargo Plaza Auditorium, 1000 Louisiana St., Houston, Texas 77002, for the following purposes:
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1.
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To
elect four Class B directors to serve until the 2021 annual meeting of stockholders in accordance with our certificate of incorporation and bylaws;
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To
ratify the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as our independent registered public accountant
for the fiscal year ending December 31, 2018; and
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3.
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To
transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
If
you were a stockholder as of the close of business on March 16, 2018, you are entitled to notice of, and to vote at, the Annual Meeting and at any adjournment thereof.
We
are pleased to furnish our proxy materials, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, to each stockholder of record, over
the Internet, as permitted by Securities and Exchange Commission rules. This process will enable us to provide you with a convenient way to access our proxy materials, while reducing the amount of
paper necessary to produce these materials, as well as the costs associated with mailing these materials to all stockholders of record. Accordingly, on or about April 4, 2018, the Company
mailed the Notice of Internet Availability of Proxy Materials (the "Notice") to all stockholders of record as of March 16, 2018 and posted its proxy materials on the website referenced in the
Notice. As more fully described in the
Notice, all stockholders may choose to access the proxy materials on the website referred to in the Notice or may request a printed set of the proxy materials.
Your vote is important. Please vote your proxy promptly so your shares can be represented, even if you plan to attend the Annual Meeting. You can vote by Internet
or by telephone by using the voting procedures described in the Notice, or by requesting a printed copy of the proxy materials (including the proxy card), and completing, signing and returning the
proxy card enclosed by mail. All stockholders are cordially invited to attend the Annual Meeting.
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By order of the Board of Directors of
Halcón Resources Corporation:
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Floyd C. Wilson
Chairman of the Board of Directors,
Chief Executive Officer and President
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2018
The
Notice and our proxy materials, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, are available on the Internet at
www.proxyvote.com
and at
http://www.halconresources.com/investors/annual-report-proxy-materials/
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Halcón Resources Corporation
1000 Louisiana St., Suite 1500
Houston, Texas 77002
Telephone (832) 538-0300
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2018
GENERAL INFORMATION
These proxy materials are being furnished to you in connection with the solicitation of proxies by the board of directors of
Halcón Resources Corporation, a Delaware corporation (referred to in this proxy statement as Halcón, the Company, we, us, or our), for use at the annual meeting of
stockholders and any adjournments or postponements thereof to be held on Monday, May 14, 2018 at 2:00 p.m., Central Daylight Time, at the Wells Fargo Plaza Auditorium, 1000 Louisiana
St., Houston, Texas 77002.
Electronic Availability of Proxy Statement and Annual Report
As permitted under the rules of the Securities and Exchange Commission, or the SEC, Halcón is making this proxy statement and its
Annual Report on Form 10-K for the fiscal year ended December 31, 2017 available to its stockholders electronically via the Internet. On or about April 4, 2018,
Halcón mailed a Notice of Internet Availability of Proxy Materials (the "Notice") to its stockholders of record as of the close of business on March 16, 2018, which Notice sets
forth instructions for accessing Halcón's proxy materials electronically and instructions on how a stockholder can request to receive paper or e-mail copies of Halcón's
proxy materials.
Voting and Revocation of Proxies
If you provide specific voting instructions, your shares will be voted as you instruct. Whether you hold shares directly as a stockholder of
record, or beneficially in street name, you may direct how your shares are voted at the annual meeting. If you are a stockholder of record, you may vote by submitting a proxy or by voting in person at
the annual meeting, and if you hold your shares in street name, you may vote by submitting voting instructions to your broker, trustee or other nominee. You may cast your vote by proxy as
follows:
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Internet at
www.proxyvote.com
by following the instructions on the Notice, or if you received
proxy materials by mail, the proxy card;
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Telephone by calling 1-800-690-6903 and following the voice prompts; or
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Mailing the completed, signed and dated proxy card if you received proxy materials by mail, in the pre-addressed postage-paid envelope enclosed
therewith.
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Unless
you otherwise direct in your proxy, the individuals named in the proxy card will vote the shares represented by such proxy in accordance with the recommendations of our board of
directors. If you hold your shares in street name, please refer to the proxy card forwarded by your broker, trustee or other nominee to see which voting options are available to you and for
instructions on how to vote. If you vote by Internet or by telephone, you need not return your proxy card. Proxies granted by telephone or over the Internet, in accordance with the procedures set
forth on the proxy card, will be valid under Delaware law.
If
you sign the proxy card of your broker, trustee or other nominee but do not provide voting instructions, your shares will not be voted unless your broker, trustee or other nominee has
discretionary authority to vote. When a broker, trustee or other nominee holding shares for a beneficial owner is unable to vote on a particular proposal because such broker, trustee or other nominee
does not have discretionary authority to vote in the absence of timely instructions from the beneficial owner, this is referred to as a "broker non-vote."
Out of the two
proposals that will be brought to a vote at our annual meeting, brokers will have discretionary voting authority only with respect to the ratification of the appointment of our independent registered
public accounting firm. It is therefore very important that you indicate on the proxy card of your broker, trustee or other nominee how you want your shares to be voted in the election of the four
director nominees named in this proxy statement
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The
board of directors is not aware of any business to be brought before the annual meeting other than as indicated in the Notice. If any other matter does come before the meeting, the
persons named in the proxy card will vote the shares represented by the proxy in his or her best judgment.
Revocation of Proxy.
A proxy may be revoked by a stockholder at any time prior to it being voted by:
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delivering a revised proxy (by one of the methods described above) bearing a later date;
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voting in person at the annual meeting; or
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notifying our Corporate Secretary of the revocation in writing at our address set forth above in time to be received before the annual meeting.
Attendance
at the meeting alone will not effectively revoke a previously executed and delivered proxy. If a proxy is properly executed and is not revoked by the stockholder, the shares
it represents will be voted at the meeting in accordance with the instructions from the stockholder. If the proxy card is signed and returned without specifying choices, the shares will be voted in
accordance with the recommendations of our board of directors. If your shares are held in an account at a broker, trustee or other nominee, you should contact your broker, trustee or other nominee to
change your vote.
Record Date and Vote Required for Approval.
The record date with respect to this solicitation is March 16, 2018. Our voting stock
consists of
issued and outstanding shares of our common stock. All holders of record of our common stock as of the close of business on March 16, 2018 are entitled to vote at the annual meeting and any
adjournment or postponement thereof for which a new record date has not been established. As of the record date, we had 160,471,626 shares of common stock outstanding and no shares of preferred stock
outstanding. Each share of common stock entitles its holder to one vote on each matter submitted to our stockholders. Our stockholders do not have cumulative voting rights. In accordance with our
bylaws, the holders of a majority of our common stock issued and outstanding and entitled to vote at the annual meeting, represented in person or by proxy, shall constitute a quorum at the annual
meeting. If a quorum is not present at the annual meeting, a vote for adjournment will be taken among the stockholders present or represented by proxy. If a majority of the stockholders present or
represented by proxy vote for adjournment, it is our intention to adjourn the meeting until a later date and to vote proxies received at such adjourned meeting. The place and date to which the annual
meeting would be adjourned would be announced at the meeting, but would in no event be expected to be more than 30 days after the date of the annual meeting.
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Election
of director nominees requires that each director be elected by a majority of the votes present in person or represented by proxy at the annual meeting and entitled to vote on
this matter, thus the number of shares voted "for" a nominee must exceed the number of shares voted "against" such nominee. For purposes of determining the outcome for each nominee broker non-votes
will not be counted as entitled to vote and will have no effect on the outcome of the vote. Abstentions will effectively count as votes "against" because they are considered entitled to vote.
Ratification
of the appointment of Deloitte & Touche LLP as our independent registered public accountant requires the affirmative vote of a majority of the shares of voting
stock present in person or represented by proxy at the meeting and entitled to vote on this matter.
Proxy Solicitation.
We will bear all costs relating to the solicitation of proxies. We have retained Okapi Partners LLC to aid in
the
solicitation of proxies, at an estimated cost of $8,500 plus reimbursement of out-of-pocket expenses, custodial charges in connection with payment by Okapi Partners LLC of charges of brokers
and banks on our behalf, and additional charges which may be incurred in connection with the solicitation of proxies by telephone. Proxies may also be solicited by officers, directors and employees
personally, by mail, or by telephone, facsimile transmission or other electronic means. On request, we will pay brokers and other persons holding shares of stock in their names or in those of
their nominees, which in each case are beneficially owned by others, for their reasonable expenses in sending soliciting material to, and seeking instructions from, their principals.
Submission of Stockholder Proposals.
The deadline for submitting stockholder proposals for inclusion in our proxy statement for our
annual meeting in
2019 is December 6, 2018. See "
Submission of Stockholder Proposals for Our 2019 Annual Meeting of Stockholders
" below for additional information.
We will provide to any stockholder, without charge and upon written request, a copy (without exhibits, unless otherwise specified) of our Annual Report on
Form 10-K, as filed with the SEC for the fiscal year ended December 31, 2017. Any such request should be directed to Quentin R. Hicks, Executive Vice President, Finance, Capital Markets
and Investor Relations at 1000 Louisiana St., Suite 1500, Houston, Texas 77002. The Annual Report on Form 10-K for the fiscal year ended December 31, 2017 is not part of the proxy
solicitation materials.
OUR BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors
Our business and affairs are managed under the direction of our board of directors, or board. Our bylaws specify that we shall not have less
than one nor more than fifteen directors, and our board currently has eight members. Under our amended and restated bylaws, as amended, or "bylaws," and our amended and restated certificate of
incorporation, or "certificate of incorporation," each director holds office until the next annual meeting of stockholders at which such director's class stands for re-election and serves until the
director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal. Our certificate of incorporation, adopted pursuant to the Reorganization Plan,
provides that our board is classified into three classes: Class A, Class B and Class C, each class having a three-year term of office or until their successors are elected and
qualified.
On
July 27, 2016, the Company and certain of its subsidiaries filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S.
Bankruptcy Court in the District of Delaware (the "Bankruptcy Court") to pursue a joint prepackaged plan of reorganization (as amended, the "Reorganization Plan"). On September 8, 2016, the
Bankruptcy Court entered an order confirming
the Reorganization Plan and on September 9, 2016, the Reorganization Plan became effective (the "Reorganization Plan Effective Date") and the Company emerged from chapter 11 bankruptcy.
We refer to this transaction as the "Reorganization." In connection with the Reorganization and in accordance with the Reorganization Plan, upon the Reorganization Plan Effective Date, Floyd C.
Wilson, William J.
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Campbell,
James W. Christmas, Michael L. Clark, Thomas R. Fuller, Darryl L. Schall, Ronald D. Scott, Eric G. Takaha and Nathan W. Walton, were appointed as directors.
On
May 31, 2017, we increased the size of our board from nine to ten members and appointed Sylvia K. Barnes to serve as a Class A director with a term expiring at
our annual meeting of stockholders in 2020 or until her earlier resignation or removal. Ms. Barnes resigned from our board on February 14, 2018. Mr. Takaha resigned from our board
effective as of March 15, 2018. These resignations reduced the size of the board from ten to eight directors. Our certificate of incorporation and bylaws, which were duly adopted pursuant to
the Reorganization Plan, provide for a classified board divided into three (3) classes, with each class serving a three-year term.
Under
Delaware law, stockholders of a corporation with a classified board may only remove a director "for cause" unless the certificate of incorporation provides otherwise. Our
certificate of incorporation provides that any director may be removed, with or without cause, by a majority of the shares entitled to vote at an election of directors, other than the director
designated by the Requisite Unsecured Noteholders (as defined in the Reorganization Plan), which may only be removed prior to the expiration of such director's initial term "for cause." The likely
effect of the classification of the board and the limitations on the removal of directors is an increase in the time required for the stockholders to change the composition of the board. For example,
because only one class of the directors may be replaced by stockholder vote at each annual meeting of stockholders, stockholders seeking to replace a majority of the members of our board will need at
least two annual meetings of stockholders to effect this change.
As
discussed more fully under "
Proposal 1Election of Directors
," four of our current directors, William J. Campbell, James W.
Christmas, Michael L. Clark and Ronald D. Scott, have been nominated for re-election at the 2018 annual meeting because of the expiration of the term of their class, Class B, on our board. If
Messrs. Campbell, Christmas, Clark and Scott each receive a majority of votes cast in favor of his continued service on the board, each will serve a three-year term expiring in 2021.
The
following table sets forth the names and ages of all of our current directors, the positions and offices with us held by such persons, the years in which their current terms as
directors expire and the length of their continuous service as a director:
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Name
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Director
Since
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Age
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Position
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Expiration
of Term
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Floyd C. Wilson
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Feb. 2012
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71
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Chairman of the Board, Chief Executive Officer and President
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2020
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William J. Campbell
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Sep. 2016
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59
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Director
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2018
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James W. Christmas
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Feb. 2012
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70
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Lead Director
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2018
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Michael L. Clark
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Sep. 2016
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46
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Director
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2018
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Thomas R. Fuller
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Feb. 2012
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70
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Director
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2020
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Darryl L. Schall
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Sep. 2016
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Director
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2019
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Ronald D. Scott
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Sep. 2016
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Director
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2018
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Nathan W. Walton
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Sep. 2016
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Director
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2019
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Floyd C. Wilson
has served as Chairman of the Board, Chief Executive Officer and President since February 2012. Mr. Wilson served
as Chairman of the Board and Chief Executive Officer of Petrohawk Energy Corporation from May 2004 until BHP Billiton acquired Petrohawk in August 2011. Mr. Wilson also served as President of
Petrohawk from May 2004 until September 2009. Mr. Wilson was the Chairman and Chief Executive Officer of 3TEC Energy Corporation from August 1999 until its merger with Plains
Exploration & Production Company in June 2003. Mr. Wilson founded W/E Energy Company L.L.C., formerly known as 3TEC Energy Company L.L.C. in 1998 and served as its President until August
1999. Mr. Wilson began his career in the energy business in Houston, Texas in 1970 as a completion engineer. He moved to Wichita, Kansas in 1976 to start an oil and gas operating company, one
of several private energy ventures which preceded the formation of Hugoton Energy Corporation in 1987, where he served as
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Chairman,
President and Chief Executive Officer. In 1994, Hugoton completed an initial public offering and was merged into Chesapeake Energy Corporation in 1998. Mr. Wilson's qualifications to
serve on the board include his role as the Company's Chief Executive Officer and President, his extensive technical experience and wealth of knowledge in the energy industry as well as his many years
of service in a leadership role, as a director, chief executive officer and president of oil and natural gas exploration and production companies provide significant contributions to the Company's
board.
William J. Campbell
has served as a director since September 2016 and currently serves as Chairman of the Compensation Committee and as a
member of the Nominating and Corporate Governance Committee. Mr. Campbell is the Chairman and Chief Executive Officer of Cima Inspection LLC, a 9-year old Pasadena-based Non Destructive
Testing company. He also serves as Managing Director and Co-owner of CB Energy, LLC, an independent oil and gas exploration company founded in 1997. He has over thirty three years of experience
in the legal, investment and energy industries with a diverse background in management, finance/banking, legal, land and marketing. Since 2006, Mr. Campbell has served as owner and managing
director of PPPCo-CB Energy, LLC, a Houston, Texas-based private oil and gas exploration and production company. From 1991 to 1996, Mr. Campbell served as Principal, Vice President and
Corporate Counsel of Houston, Texas-based Fremont Energy Corporation, a Bechtel Family company, where Mr. Campbell managed the company's domestic and international energy asset portfolio and
directed the company's commercial, banking, and legal activities, and from 1985 through 1991, Mr. Campbell served as Counsel and Manager for Bechtel Investments, Inc. in Houston, Texas,
managing its oil and gas marketing and land/legal operations. Mr. Campbell was also the first representative of Bechtel in the J.P. Morgan Corporate Finance Program, New York, New York (1988).
In addition, Mr. Campbell represented Bechtel's outside oil and gas interests by serving as a
Director on the board of directors of BecField Drilling Services, the then largest independent horizontal and directional drilling company in the United States, CurveDrill, Inc. and PetroSource
Corporation, a refining and marketing company with annual revenues over $500 million. Mr. Campbell started his professional career at the Houston, Texas law firm of Reynolds,
Allen & Cook. Mr. Campbell has a Doctorate of Jurisprudence (J.D.) and holds a Bachelor of Business Administration Degree (BBA) in Petroleum Land Management/Finance from the University
of Texas in Austin, Texas. Mr. Campbell is active in community and civic affairs. His service includes: The Kinkaid School Board of Trustees of Houston since 2007, and its Advancement,
Finance & Building Committees since 2002; the Board of Directors of the Houston Country Club from 2005 to 2007; the Institute for Molecular Medicine as a Founding Trustee and Scientific
Advisory Board Member since 2001; the Development Board of the University of Texas Health Science Center since 1991- Chair Emeritus 2002-2003; the Advisory Boards of Tanglewood Bank, NA and the Amegy
Bank of Texas, N.A. since 1998; the Endowment Board, Jr. Warden and Senior Council Representative of St. Martin's Episcopal Church since 2004; the Board of Directors and Treasurer of the Daniel
and Edith Ripley Foundation since 2005; the Board of Directors of the Bayou City Pump Inc. since 2010; the Board of Directors of Erin Energy Corporation and its Audit and Compensation
Committees since 2011; the Advance Team Board of M.D. Anderson since 2005; the Texas Children's Hospital Individuals Committee since 2005; the Memorial Hermann System Board of Directors and its
Finance, Compensation and Chairman-Governance Committees and Memorial Hermann Foundation since 2011 and a Member of the Texas Bar Association. Mr. Campbell's qualifications to serve on the
board include over thirty years of experience in the legal, investment and energy industries, management of domestic and international energy asset portfolios and extensive professional background
provide valuable contributions to the Company's board of directors.
James W. Christmas
has served as a director since February 2012 and currently serves as Lead Independent Director, a position he has held
since January 2015, as Chairman of the Audit Committee and as a member of the Compensation Committee. Mr. Christmas began serving as a director of Petrohawk Energy Corporation on
July 12, 2006, effective upon the merger of KCS Energy, Inc. ("KCS") into Petrohawk. He continued to serve as a director, and as Vice Chairman of the Board of Directors, for Petrohawk
until BHP Billiton acquired all of Petrohawk in August 2011. He also served on the Audit
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Committee
and the Nominating and Corporate Governance Committee. Mr. Christmas served as a member of the Board of Directors of Petrohawk, a wholly-owned subsidiary of BHP Billiton, and as chair
of the Financial Reporting Committee of such board until September 2014. He also serves on the Board of Governors of St. John's University. Mr. Christmas serves as a director of Yuma
Energy, and as Chairman of its Audit Committee and as a member of its Nominating and Corporate Governance Committee. Previously, Mr. Christmas served as a director of Rice Energy, as chairman
of its audit committee and a member of its compensation committee from January 2014 until its merger with EQT Corporation in November 2017. He served as President and Chief Executive Officer of KCS
from 1988 until April 2003 and Chairman of the Board and Chief Executive Officer of KCS since then until its merger into Petrohawk. Mr. Christmas was a Certified Public Accountant in New York
and was with Arthur Andersen & Co. from 1970 until 1978 before leaving to join National Utilities & Industries ("NUI"), a diversified energy company, as Vice President and
Controller. He remained with NUI until
1988, when NUI spun out its unregulated activities that ultimately became part of KCS. As an auditor and audit manager, controller and in his role as CEO of KCS, Mr. Christmas was directly or
indirectly responsible for financial reporting and compliance with SEC regulations, and as such has extensive experience in reviewing and evaluating financial reports, as well as in evaluating
executive and board performance and in recruiting directors. Mr. Christmas's qualifications to serve on the board include his experience as an executive, service as a director and committee
member combined with his extensive audit, accounting and financial reporting experience provide significant contributions to the Company's board.
Michael L. Clark
has served as a director since September 2016 and currently serves as Chairman of the Nominating and Corporate Governance
Committee and as a member of the Compensation Committee. Mr. Clark has also served as a director of Paragon Offshore Ltd., as Chairman of the Corporate Governance and Compensation
Committee and a member of its Audit Committee from July 2017 until its sale to Borr Drilling Limited in March 2018. Mr. Clark is a Chartered Financial Analyst (CFA) Charterholder
with over seventeen years of investing experience focusing on basic materials and oilfield services and equipment equities. Mr. Clark was a Retired Partner of SIR Capital Management, LLC
from 2014 until his departure in 2016 and from 2008 to 2013 served as a Portfolio Manager and Partner. Prior to that, Mr. Clark valued energy equities as a Portfolio Manager at Satellite Asset
Management, LLC from 2005 to 2007 and as an Equity Research Analyst at SAC Capital Management, LLC from 2003 to 2005 and at Merrill Lynch from 1997 to 2002. Mr. Clark began his
career at Deloitte & Touche, LLP, progressing to Senior Auditor. He is a Certified Public Accountant licensed in New York State and also holds the Accredited in Business Valuation (ABV)
credential awarded by the American Institute of Certified Public Accountants. The National Association of Corporate Directors (NACD) recognized him as a NACD Governance Fellow in 2017.
Mr. Clark graduated cum laude from the University of Pennsylvania with a Bachelor of Arts in Economics and earned a Masters of Business Administration in Finance and Economics with Distinction
(Top 10%) from New York University's Stern School of Business. Mr. Clark's qualifications to serve on the board include his wealth of accounting, financial and investment knowledge and
experience in the energy industry provide significant contributions to the Company's board.
Thomas R. Fuller
has served as a director since February 2012 and currently serves as Chairman of the Reserves Committee and as a member
of the Audit Committee. Mr. Fuller served as a director at Petrohawk Energy Corporation from March 6, 2006 until BHP Billiton acquired Petrohawk in August 2011. Mr. Fuller served
on Petrohawk's Reserves Committee and was the Chairman of the Nominating and Corporate Governance Committee. Since December 1988, Mr. Fuller has been a principal of Diverse Energy
Management Co. (or related "Diverse" companies), a private upstream acquisition, drilling and production company which also invests in other energy-related companies. Mr. Fuller has
earned degrees from the University of Wyoming and the Louisiana State University School of Banking of the South and is a Registered Professional Engineer in Texas. He has 48 years of experience
as a petroleum engineer, specializing in economic and reserves evaluation. He has served as an employee, officer, partner or director of various companies, including ExxonMobil, First City National
Bank and Hillin Oil Co. Mr. Fuller currently serves as a director of privately held companies Diverse GP, LLC; Azure Midstream
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Holdings;
and Rimco Royalty Partners LP. Mr. Fuller also has extensive experience in energy-related merger and acquisition transactions, having generated and closed over 90 producing
property acquisitions during his career. As a primary lending officer to many independent energy companies, Mr. Fuller has extensive experience in analyzing and evaluating financial, business
and operational strategies for energy companies. Mr. Fuller's qualifications to serve on the board include decades of petroleum engineering, energy-related acquisitions and analytical
experience and experience in energy company reserve evaluations provide significant contributions to the Company's board.
Darryl L. Schall
has served as a director since September 2016 and currently serves as a member of each of the Audit Committee, the
Nominating and Corporate Governance Committee and the Reserves Committee. Mr. Schall previously served as a Partner and Portfolio Manager in the Ares Private Equity Group, where he was
responsible for managing Ares' special situations strategy until his retirement in January 2017, and subsequently served as an Advisor to Ares Management LLC through July 2017. Prior to joining
Ares in 2009, Mr. Schall worked at Tudor Investment Corporation, where he focused on managing distressed and high yield investments. Previously, Mr. Schall was a Managing Director and
Director of High Yield Research at Trust Company of the West, where he focused on managing portfolios of distressed and high yield debt. In addition, Mr. Schall was a Senior Research Analyst
and Senior Vice President at Dabney/Resnick & Wagner, Inc., a boutique investment firm specializing in high yield and distressed debt. Previously, Mr. Schall was an Investment
Banking Associate of the Corporate Finance Department of Drexel Burnham Lambert Inc. and was a Supervising Senior Accountant with KPMG Peat Marwick. Mr. Schall holds a B.A., cum laude,
from the University of California, Los Angeles, in History and an M.B.A. from the University of Chicago. Mr. Schall also is a Certified Public Accountant. Mr. Schall's qualifications to
serve on the board include his vast experience managing investment portfolios and extensive knowledge financial and accounting matters provide valuable contributions to the Company's board.
Ronald D. Scott
has served as a director since September 2016 and currently serves as a member of the Reserves Committee. Mr. Scott
has over thirty years oil and gas industry experience. Mr. Scott is a director of Gastar Exploration, Inc., a publicly traded energy firm. He serves on the Reserves Committee and the
Compensation Committee of Gastar. In addition, Mr. Scott serves as a director of Blackbrush Oil and Gas, Verdad Resources and Elk Hills Power, all privately held energy companies. Previously,
Mr. Scott was a member of the Board of Directors of Clayton Williams Energy, Inc. serving from September 2016 until the sale of the company in April 2017. He also served as a member of
the Board of Directors of Pardus Energy from June 2016 until the sale of the company in November 2017. Mr. Scott chaired the Reserves Committee and the Compensation Committee while serving on
the Pardus Energy board. Mr. Scott is the Chief Executive Officer of Development Capital Resources. Previously, Mr. Scott served as President and CEO of True Oil Company, a private
equity backed oil and gas firm. Prior to True Oil he worked for Henry Petroleum as President and Chief Operating Officer of that company and its successor companies, Henry Resources and HPC Energy.
During this time, Mr. Scott successfully led the sale and re-start of multiple operating oil and gas entities. Beginning his career with Exxon Corporation, from 1983 to 1995, Mr. Scott
held various supervisory and managerial assignments in Engineering, Operations, Planning and Financial Accounting and Reporting. In addition to the Permian Basin, he had assignments covering
operational areas in the Gulf Coast/Gulf of Mexico region, California and the Rocky Mountains. Mr. Scott was the Technical Manager for Exxon's multi-billion dollar onshore operations in the
Western United States prior to joining Henry
Petroleum. In addition to the above, Mr. Scott served as an independent contract, non-employee consultant to Ares Management from approximately October 2016 to June 2017 providing services as a
contract, independent Operating Advisor. Mr. Scott serves as Vice President of the Board of the Henry Foundation, as a founding member of Educate Midland, a non-profit focused on public
education, and on the board of directors of the Midland, Texas Chamber of Commerce. Mr. Scott holds Master and Bachelor of Science degrees in Engineering from New Mexico State University and is
a Registered Petroleum Engineer in the State of Texas. Mr. Scott's qualifications to serve on the board
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include
his more than thirty years in the oil and gas industry, leadership experience and technical expertise as a petroleum engineer provide significant contributions to the Company's board.
Nathan W. Walton
has served as a director since September 2016. Mr. Walton is a Partner and Co-Head of North American Private
Equity within the Ares Private Equity Group and a member of the Management Committee of Ares Management. He joined the firm in 2006. Mr. Walton serves on the Ares Private Equity Group's ACOF
Investment Committee. He also serves on the Board of Directors of Development Capital Resources, LP, EPIC Midstream Holdings, LP, Gastar Exploration, Inc., Salt Creek
Midstream LLC, Verdad Resources LLC and the parent company of BlackBrush Oil & Gas LP. Mr. Walton holds a B.A. from Princeton University in Politics and an M.B.A.
from the Stanford Graduate School of Business. Mr. Walton's qualifications to serve on the board include his vast knowledge of the oil and natural gas exploration and production industry, his
directorship experience and investment expertise in the energy industry provide significant contributions to the Company's board.
Meetings of Our Board of Directors and Committees of the Board
Our board of directors has the responsibility for establishing our broad corporate policies and for our overall performance. However, the board
is not involved in our day-to-day operations. The board is kept informed of our business through discussions with our Chairman, Chief Executive Officer and President and other officers, by reviewing
analyses and reports provided to it on a regular basis, and by participating in board and committee meetings. Our board held fourteen (14) meetings during 2017, including telephonic meetings,
and acted by unanimous written consent three (3) times, and each director attended at least 75% of the total meetings of the board and the committee(s) on which such director serves during the
period that such director served as a director or on such committee(s).
Our
board currently has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and Reserves. Actions taken by our committees are reported to the full board.
Each committee conducts an annual evaluation of its duties and is expected to conduct an annual review of its charter and also has authority to retain, set the compensation for, and terminate
consultants, outside counsel and other advisers as that committee determines to be appropriate.
Audit Committee.
The members of our Audit Committee are James W. Christmas, Thomas R. Fuller and Darryl L. Schall, with
Mr. Christmas serving
as the chairman. During 2017, Michael L. Clark served on the Audit Committee, until his resignation coinciding with the appointment of Sylvia K. Barnes on May 31, 2017. Upon the resignation of
Ms. Barnes on February 14, 2018, Darryl L. Schall was appointed to serve as a member of the Audit Committee to fill the vacancy created by the resignation of Ms. Barnes. Also,
prior to his resignation on March 15, 2018, Eric G. Takaha served as a member of the Audit Committee, and Thomas R. Fuller was appointed to serve as a member effective March 15, 2018 to
fill the vacancy created by the resignation of Mr. Takaha. Our board has determined that all members of our Audit Committee are financially literate within the meaning of SEC rules, under the
current listing standards of the NYSE and in accordance with our audit committee charter. Our board has also determined that all members of the Audit Committee are independent, within the meaning of
SEC and NYSE regulations for independence for audit committee members, under our corporate governance guidelines, and in accordance with our audit committee charter. Our board has also determined that
Mr. Christmas is an "audit committee financial expert" (as defined under SEC rules) because he possessed: (i) an understanding of generally accepted accounting principles in the United
States of America and financial statements; (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
(iii) experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by our financial statements; (iv) an understanding of internal control over financial reporting; and (v) an understanding of audit
committee functions. Mr. Christmas acquired these attributes by his educational background and by having held various positions that provided relevant experience, as described in his
biographical information under "
Our Board of Directors and Its CommitteesThe Board of Directors
" above.
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The Audit Committee is responsible for oversight of Company risks relating to accounting matters, financial reporting and related legal and regulatory compliance.
The Audit Committee annually considers the qualifications and evaluates the performance of our independent auditor and selects and engages our independent auditor. The Audit Committee meets quarterly
with representatives of the independent auditor and is available to meet at the request of the independent auditor. During these meetings, the Audit Committee receives reports regarding our books of
accounts, accounting procedures, financial statements, audit policies and procedures, internal accounting and financial controls, and other matters within the scope of the Audit Committee's duties.
The Audit Committee reviews the plans for and the results of audits for us and our subsidiaries. The Audit Committee reviews the independence of the independent auditor, and considers and authorizes
the fees for both audit and non-audit services provided by the independent auditor. In 2017, our Audit Committee held four (4) meetings.
The
written charter of the Audit Committee adopted by our board is available on our website at
www.halconresources.com
.
Compensation Committee.
The members of our Compensation Committee are William J. Campbell, James W. Christmas and Michael L. Clark, with
Mr. Campbell serving as the chairman. Our board has determined that each member of the Compensation Committee meets the NYSE standards for independence, and is a "non-employee director" as
defined in Rule 16b-3 under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), an "outside director" as defined for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and meets the enhanced independence requirements set forth in Rule 10C-1 under the Exchange Act.
The
Compensation Committee is entrusted with the overall responsibility for establishing, implementing and monitoring the compensation for our executive officers, administers the
Halcón Resources Corporation 2016 Long-Term Incentive Plan (as amended, the "Plan"), and approves awards and other stock-based grants under the Plan for our executive officers. In 2017,
our Compensation Committee held six (6) meetings, including telephonic meetings.
Our
Compensation Committee engaged Longnecker & Associates, Inc. ("Longnecker"), an outside independent compensation consulting firm, to assist the board and the
Compensation Committee in crafting our total compensation program for our executive officers for 2017 and to assist the board in determining compensation for our non-employee directors. In connection
with its engagement, Longnecker was tasked with, among other things, making recommendations to the Compensation Committee regarding an appropriate compensation peer group, assisting the Compensation
Committee in establishing a competitive executive compensation program and making recommendations and providing analysis regarding the compensation of our executive officers, including the named
executive officers, discussed below under the heading "
Executive Compensation
."
The
written charter of the Compensation Committee adopted by our board is available on our website at
www.halconresources.com
.
Nominating and Corporate Governance Committee.
The members of our Nominating and Corporate Governance Committee are William J. Campbell,
Michael L.
Clark and Darryl L. Schall, with Mr. Clark serving as the chairman. Mr. Fuller served on the Nominating and Corporate Governance Committee until his resignation on March 15, 2018.
Our board has determined that all members of the Nominating and Corporate Governance Committee are independent pursuant to the NYSE rules, under our corporate governance guidelines, and in accordance
with our nominating and corporate governance committee charter.
Our
Nominating and Corporate Governance Committee is responsible for identifying qualified candidates to be presented to our board for nomination as directors, ensuring that our board
and our organizational documents are structured in a way that best serves our practices and objectives, and developing and recommending a set of corporate governance principles. The Nominating and
Corporate
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Governance
Committee may consider candidates for our board from any reasonable source, including a search firm engaged by the Nominating and Corporate Governance Committee, recommendations of the
board, management or, in accordance with the procedures set forth in our bylaws, our stockholders. In 2017, our Nominating and Corporate Governance Committee held five (5) meetings, including
telephonic meetings and acted by unanimous written consent one (1) time.
The
written charter of the Nominating and Corporate Governance Committee adopted by our board is available on our website at
www.halconresources.com
.
Reserves Committee.
The members of our Reserves Committee are Thomas R. Fuller, Darryl L. Schall and Ronald D. Scott, with
Mr. Fuller serving
as the chairman. During 2017, Nathan W. Walton served on the Reserves Committee until his resignation on May 2, 2017 at which time Mr. Schall was appointed to fill such vacancy. Sylvia
K. Barnes also served on the Reserves Committee until her resignation from our board on February 14, 2018. Our Reserves Committee is composed solely of non-employee directors who are
independent under our corporate governance guidelines and in accordance with our reserves committee charter. Our Reserves Committee assists our board with oversight in the preparation by independent
petroleum engineers of annual and any special reserve reports and/or audits of the estimated amounts of our consolidated hydrocarbon reserves and related information. The Reserves Committee selects,
engages and determines funding for the independent petroleum engineers who evaluate our hydrocarbon reserves and also determines their independence from the Company in accordance with, among other
things, the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. In 2017, our Reserves Committee held five
(5) meetings, including telephonic meetings.
The
written charter of the Reserves Committee adopted by our board is available on our website at
www.halconresources.com
.
Corporate Governance Matters
Corporate Governance Web Page and Available Documents.
We maintain a corporate governance page on our website at
www.halconresources.com/investors/corporate-governance
where you can find the following documents:
-
-
our Corporate Governance Guidelines;
-
-
our Code of Ethics for the Chief Executive Officer and Senior Financial Officers;
-
-
our Code of Conduct;
-
-
our Amended and Restated Insider Trading Policy;
-
-
our Regulation FD Policy;
-
-
our Amended and Restated Equity-Based Incentive Grant Policy; and
-
-
charters of our Audit, Compensation, Nominating and Corporate Governance, and Reserves Committees.
Notwithstanding
any reference to our website contained in this proxy statement, the information you may find on our website is not part of this proxy statement. We will provide a printed
copy of these documents, without charge, to stockholders who request copies in writing from Quentin R. Hicks, Executive Vice President, Finance, Capital Markets and Investor Relations,
Halcón Resources Corporation, 1000 Louisiana St., Suite 1500, Houston, Texas 77002.
Director Independence.
The current listing standards of the NYSE require our board to affirmatively determine the independence of each
director and
to disclose such determination in the proxy statement for each annual meeting of our stockholders. The board, on February 28, 2018, affirmatively determined that
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each
of Messrs. Campbell, Christmas, Clark, Fuller, Schall, Scott and Walton is an "independent director" under the guidelines described below and the independence rules of the NYSE codified in
Section 303A of the NYSE Listed Company Manual.
In
connection with its assessment of independence, our board reviewed information regarding relevant relationships, arrangements or transactions between the Company and each director or
parties affiliated with such director. Our board has established the following standards for determining director independence in our corporate governance guidelines:
A
majority of the directors on our board must be "independent." No director qualifies as "independent" unless the board affirmatively determines that the director has no "material
relationship" with Halcón, either directly, or as a partner, stockholder or officer of an organization that has a relationship with Halcón. A "material relationship" is a
relationship that the board determines, after a consideration of all relevant facts and circumstances, compromises the director's independence from management. Our board's determination of
independence must be consistent with all applicable requirements of the NYSE, the SEC, and any other applicable legal requirements. Our board may adopt specific standards or guidelines for
independence in its discretion from time to time, consistent
with those requirements. As set forth in the NYSE Listed Company Manual Section 303A.02, our board must consider the following factors that preclude a finding by the board of a member's or
prospective member's "independence" from Halcón:
1. A
director who is, or who has been within the last three years, an employee of Halcón (including in each case subsidiaries or parent entities in a
consolidated group), or an immediate family member who is, or has been within the last three years, an executive officer, of Halcón;
2. A
director who has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct
compensation from Halcón, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in
any way on continued service); provided, that, compensation received by a director for former service as an interim Chairman or Chief Executive Officer or other executive officer need not be
considered in determining independence under this test, and compensation received by an immediate family member for service as an employee of Halcón need not be considered in
determining independence under this test;
3. (A)
A director is a current partner or employee of a firm that is Halcón's internal or external auditor; (B) a director who has an immediate family
member who is a current partner of such a firm; (C) a director who has an immediate family member who is a current employee of such a firm and who participates in Halcón's audit;
or (D) a director or an immediate family member who was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on Halcón's
audit within that time;
4. A
director or an immediate family member who is, or who has been within the last three years, employed as an executive officer of another company where any of
Halcón's present executive officers at the same time serves or served on that company's Compensation Committee;
5. A
director who is a current employee, or an immediate family member who is a current executive officer, of a company that has made payments to, or received payments from,
Halcón for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000, or 2% of such other company's consolidated gross revenues;
6. Whether
the director has any other relationship with Halcón, either directly or as a partner, stockholder or officer of an organization that has a
relationship with Halcón; and
7. Whether
the director is aware of any other relationships that could potentially interfere, or could appear to interfere, with his exercise of independent judgment in
carrying out the
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responsibilities
of a director, including (i) any transaction, arrangement or relationship, in the last fiscal year, involving the director, including any family members, and any other officer
or director of Halcón; or (ii) any other relationship with Halcón, either directly or as a stockholder, executive officer or partner or an organization that has
such a relationship, including any relationships with charitable, educational, political or other not-for-profit organizations.
For
purposes of determining "independence" of a director based on the tests set forth above, among other things, the following applies:
A. In
applying the test in paragraph 5 above, both the payments and the consolidated gross revenues to be measured are those reported in the last completed fiscal
year. The look-back provision for this test applies solely to the financial relationship between Halcón and the director or immediate family member's current employer;
Halcón is not required to consider former employment of the director or the immediate family member.
B. For
purposes of paragraph 5 above, contributions to tax exempt organizations are not considered "payments," although Halcón still considers the
"materiality" of any such relationship in determining the "independence" of a director.
C. For
purposes of determining "independence," an "immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and
daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares such person's home, and does not include individuals who are no longer immediate family members as
a result of legal separation or divorce, or those who have died or become incapacitated.
Our
corporate governance guidelines set forth our policy with respect to qualifications of the members of the board, the standards of director independence, director responsibilities,
board meetings, director access to management and independent advisors, director orientation and continuing education, director compensation, Chairman and Chief Executive Officer dual
responsibilities, management evaluation and succession, annual performance evaluation of the board, and executive sessions.
Nomination Process.
The Nominating and Corporate Governance Committee will consider stockholder nominees for election as directors. Any
stockholder
nominations must be received by us not less than sixty (60) days nor more than ninety (90) days prior to the annual meeting; provided however, that in the event that less than seventy
(70) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than the close of
business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Nominations should be
delivered to the Nominating and Corporate Governance Committee at the following address: Halcón Resources Corporation Nominating and Corporate Governance Committee, c/o
Halcón Resources Corporation, Attention: Corporate Secretary, 1000 Louisiana St., Suite 1500, Houston, Texas 77002. The stockholder's nomination notice must set forth:
(i) as to each person whom the stockholder proposes to nominate for election or re-election as a director: (a) the name, age, business address and residence address of the person;
(b) the principal occupation or employment and business experience of the person for at least the previous five years; (c) the class and number of shares of our capital stock which are
beneficially owned by the person; and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the
rules and regulations of the SEC under Section 14 of the Exchange Act; and (ii) as to the stockholder giving the notice: (a) the name and record address of the stockholder; and
(b) the class and number of shares of our capital stock beneficially owned by the stockholder. Such submission must be accompanied by the written consent of the proposed nominee to be named as
a nominee and to serve as a director, if elected. We may require any proposed nominee to furnish such other information as may reasonably be required by us to determine the eligibility of such
proposed nominee to serve as a director.
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In
considering possible candidates for election as a director, the Nominating and Corporate Governance Committee is guided by the principles that each director should be an individual of
high character and integrity and have:
-
-
independence;
-
-
wisdom;
-
-
an understanding and general acceptance of our corporate philosophies;
-
-
business or professional knowledge and experience that can address our challenges and opportunities, and contribute meaningfully to the
deliberations of our board of directors;
-
-
a proven record of accomplishment with an excellent organization;
-
-
an inquiring mind;
-
-
a willingness to speak one's mind;
-
-
an ability to challenge and stimulate management; and
-
-
a willingness to commit time and energy to our business affairs.
In
addition to considering possible candidates for election as directors, the Nominating and Corporate Governance Committee may, in its discretion, review the qualifications and
backgrounds of existing directors and other nominees (without regard to whether a nominee has been recommended by stockholders), as well as the overall composition of our board, and recommend the
slate of directors to be nominated for election at the ensuing annual meeting of stockholders. Currently, we do not employ or pay a fee to any third party to identify or evaluate, or assist in
identifying or evaluating, potential director nominees.
The
charter of our Nominating and Corporate Governance Committee provides that the committee will evaluate our corporate governance effectiveness and recommend such revisions as it deems
appropriate to improve our corporate governance. The areas of evaluation may include such matters as the size and independence requirements of our board, board committees, management succession and
planning, and regular meetings of our non-employee directors without management in executive sessions.
The
Nominating and Corporate Governance Committee did not receive any stockholder recommendations for nomination to our board in connection with this year's annual meeting. The
Nominating and Corporate Governance Committee has recommended Messrs. Campbell, Christmas, Clark and Scott, who are current Class B directors, for re-election as the term of their class
is expiring on our classified board.
Board Diversity.
Our board does not have a formal written policy with regard to the consideration of diversity in identifying director
nominees. Our
Nominating and Corporate Governance Committee charter, however, requires the committee to review the composition of the board as a whole and recommend, if necessary, measures to be taken so that our
board not only contains the required number of independent directors, but also reflects the balance of knowledge, experience, skills, expertise, integrity, analytical ability and diversity as a whole
that the committee deems appropriate. This review includes an assessment as to our board's current and anticipated need for directors with specific qualities, skills, experience or backgrounds; the
availability of highly qualified candidates; committee workloads and membership needs; and anticipated director retirements.
Leadership Structure.
Our board currently combines the role of Chairman with the role of Chief Executive Officer and maintains a
separate empowered
lead independent director position ("Lead Director") to further strengthen our governance structure. Our board believes this provides an efficient and effective leadership model for
Halcón. Combining the Chairman and Chief Executive Officer roles
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fosters
clear accountability, effective decision-making and alignment on corporate strategy while reducing the potential for fractured leadership that can undermine successful implementation of
policy.
Our
board believes that the Company is strengthened by the chairmanship of Mr. Wilson, who provides strategic, operational and technical expertise, vision and a proven ability to
lead the Company. Our board believes that, under present circumstances, the interests of the Company and its stockholders are
best served by the leadership and direction of Mr. Wilson as Chairman, Chief Executive Officer and President. Our board recognizes that no single leadership model is right for all companies and
at all times and that, depending on the circumstances, other leadership models, such as a separate independent chairman of the board, might be appropriate.
Mr. James
W. Christmas, who is an independent and non-management director, has served as our Lead Director since January 21, 2015. A Lead Director is elected annually by
our board and serves as a key component of our governance structure, subject to oversight by the independent members of our board. The Lead Director's responsibilities and authority generally
include:
-
-
presiding over all executive sessions of the independent directors and all other board meetings at which the Chairman is not present;
-
-
calling special meetings of the independent directors when necessary and appropriate;
-
-
coordinating the agenda for, and moderating sessions of, the board's independent directors;
-
-
serving as a liaison between the Chairman and the independent directors;
-
-
consulting with the Chairman regarding specific agenda items and additional materials for board meetings suggested by independent board
members;
-
-
approving the scheduling of regular and, where feasible, special meetings of the board to ensure that there is sufficient time for discussion
of all agenda items;
-
-
facilitating communications among the other members of the board;
-
-
consulting with the chairs of the board committees and soliciting their participation to avoid diluting their authority or responsibilities;
and
-
-
performing other duties as the board may from time to time delegate.
Our
corporate governance guidelines currently provide that non-management directors must meet at regularly scheduled executive sessions without management. Mr. Christmas, as Lead
Director, presided over the executive sessions of our non-management directors during 2017. During 2017, our non-management directors held four (4) executive sessions without management
present, and Mr. Christmas presided over each executive session.
Risk Oversight.
It is the job of our Chief Executive Officer and President, Chief Financial Officer, Chief Legal Officer, and other
members of our
senior management to identify, assess, and manage our exposure to risk. In conjunction with our risk oversight program, senior management has retained outside consultants to assist in identifying,
assessing, analyzing and developing plans to mitigate enterprise risks. Our board plays an important role in overseeing management's performance of these functions. Our board has approved the audit
committee charter, which lists the primary responsibilities of the Audit Committee. Those responsibilities require the Audit Committee to discuss with management our major financial risk exposures and
the steps management has taken to monitor and control such exposures, including the substance of any significant litigation, contingencies or claims that had, or may have, a significant impact on the
financial statements. The Audit Committee is also required to discuss with management and review the mechanisms, guidelines and policies that govern the processes by which risk assessment and
management are undertaken.
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Each
of the board's other committees also oversees the management of risks that fall within such committee's area of responsibility. Our Compensation Committee incorporates risk
considerations, including the risk of loss of key personnel, as it evaluates the performance of our Chief Executive Officer and President and other executive officers, reviews management development
and determines compensation structure and amounts. Our Nominating and Corporate Governance Committee focuses on issues and risks relating to board composition, leadership structures, succession
planning and corporate governance matters. The focus of our Reserves Committee is on the integrity of the process of selecting our independent petroleum engineers and whether reports prepared by our
independent petroleum engineers are prepared in accordance with the accepted or required petroleum engineering standards.
Our
board receives reports from its committees regarding the risks considered in their respective areas to ensure that our board has a broad view of our strategy and overall risk
management process. In performing its risk oversight function, each committee has full access to management, as well as the ability to engage advisors. Each committee's charter is available on our
website at
www.halconresources.com
.
Communications with Directors.
Our board welcomes communications from our stockholders and other interested parties. Stockholders and
any other
interested parties may send communications to our board, to any committee of our board, to the Lead Director, or to any director in particular to: c/o Halcón Resources Corporation,
Attention: Corporate Secretary, 1000 Louisiana St., Suite 1500, Houston, Texas 77002. Any correspondence addressed to our board, to any committee of our board, to the Lead Director, or
to any one of the directors in care of our offices is required to be forwarded to the addressee or addressees without review by any person to whom such correspondence is not addressed.
Directors' Attendance at Stockholder Meetings.
Our corporate governance guidelines provide that our directors are encouraged, but not
required, to
attend annual meetings of our stockholders. None of our non-employee directors attended the 2017 annual meeting of stockholders.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Charter of Aircraft.
In the ordinary course of its business, Halcón occasionally charters a private aircraft for business use.
Floyd
C. Wilson, Halcón's Chairman, Chief Executive Officer and President, indirectly owns an aircraft which the Company has chartered from time to time. For a portion of 2017,
Mr. Wilson's aircraft was managed by an independent air charter company unaffiliated with both Mr. Wilson and Halcón. The aircraft in the air charter company's fleet are
available to the public for charter based upon a standard fee schedule established by the air charter company, with the fees dependent primarily upon the type and size of the aircraft utilized and the
duration of the flight. Because the air charter company established fees for the use of the aircraft in its fleet, Mr. Wilson did not receive any greater benefit from Halcón's
charter of the aircraft indirectly owned by him than he would have if any third party were to charter the aircraft. During the course of 2017, Mr. Wilson terminated the independent air charter
company and removed his aircraft from the charter company's fleet, pending his search for a new charter company to manage his aircraft. During this period, fees for the use of Mr. Wilson's
aircraft by the Company were based upon comparable costs that the Company would have incurred in chartering the same type and size of aircraft from an independent third party utilizing data from
several independent third party aircraft leasing companies. The terms for this use were evaluated and approved by the Audit Committee, and subsequently by the disinterested members of our board upon
the recommendation of the Audit Committee, in accordance with the Company's procedures for the review and approval of transactions with related parties. During 2017, Halcón paid
approximately $400,000 for the use of the aircraft indirectly owned by Mr. Wilson.
Gas Purchase and Processing Agreement.
On November 16, 2017, a subsidiary of Halcón entered into a gas purchase and
processing
agreement with Salt Creek Midstream, LLC ("Salt Creek") pursuant to which Halcón will dedicate, for a term of 15 years, all production from its acreage in Ward County,
Texas (that is not otherwise previously dedicated) and certain sections in Winkler County, Texas to natural gas
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gathering
pipeline and processing facilities to be constructed by Salt Creek. The facilities are expected to be completed and placed in service in April 2018. The agreement with Salt Creek was the
culmination of a lengthy process during which Halcón investigated the most efficient method of gathering, processing and marketing its future natural gas production in these areas.
During the course of its investigation, Halcón considered the construction of Company owned gas gathering and processing
facilities, Company owned high pressure pipeline to a third-party processing plant and solicited and received proposals from numerous third parties for long-term gathering and processing options.
Halcón received proposals from eight midstream companies, determined that third party options were more attractive from a variety of business perspectives, and that among the proposals
it received, Salt Creek's was superior. The Salt Creek facilities are not yet operational, and no production has been delivered and no payments have been made or received by Halcón
pursuant to the gas purchase and processing agreement to date.
Certain
funds under the control of Ares Management LLC ("Ares") are the majority owners and controlling parties of Salt Creek. Ares also controls other funds which own in excess
of ten percent (10%) of the stock of the Company. No Ares fund that is a stockholder of the Company has an interest in Salt Creek but one of the Company's directors, who is employed by Ares, and is a
director of the Company, also serves on the board of directors of Salt Creek. Due to these relationships, prior to entering into the gas purchase and processing agreement, the process by which the
Company determined the Salt Creek proposal to be superior to other alternatives, as well as the terms of the agreement, were evaluated and approved in advance by the Audit Committee and the
disinterested members of Halcón's board, in a vote that excluded the director who is employed by Ares in accordance with applicable Company policies, including its Code of Conduct and
Corporate Governance Guidelines (copies of which are available through the Company's website at
www.halconresources.com
), and the Company's procedures
for the review and approval of transactions with related parties.
RELATED PARTY TRANSACTION REVIEW POLICIES AND PROCEDURES
A transaction or series of similar transactions to which we are a party in which the amount involved exceeds $120,000 and involves a director,
executive officer, 5% stockholder or any immediate family members of these persons is evaluated by a special committee of disinterested directors formed by our board to evaluate such transactions. In
addition, our Code of Conduct provides that every employee should disclose any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest to upper
management or the Audit Committee. The Company's Code of Conduct can be found on Halcón's website located at
www.halconresources.com
. The
Audit Committee has the authority to evaluate any such conflicts of interest and recommend actions to be taken by our board in connection with such conflicts of interest or to report the existence of
any such conflicts of interest to the full board for it to take action.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of our voting
securities to file certain reports with the SEC concerning their beneficial ownership of our equity securities. The SEC's regulations also require that a copy of all such Section 16(a) forms
filed must be furnished to us by the executive officers,
directors and greater than 10% stockholders. To our knowledge based solely on a review of copies of reports filed under Section 16(a) during the 2017 fiscal year and furnished to us, our
directors, executive officers and holders of 10% or more of our shares timely filed reports required by Section 16(a), with the exception of Mark J. Mize, Stephen W. Herod, David S. Elkouri,
Jon C. Wright, Quentin R. Hicks, Leah R. Kasparek, Tina S. Obut and Joseph S. Rinando III, each of whom filed a Form 4 on September 18, 2017 relating to shares withheld to satisfy
withholding taxes upon the vesting, on September 12, 2017, of restricted stock grants. These reports were due on September 14, 2017.
16
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CODE OF CONDUCT AND CODE OF ETHICS
The Company's Code of Conduct and Code of Ethics for the Chief Executive Officer and Senior Financial Officers can be found on
Halcón's website located at
www.halconresources.com
. Any stockholder may request a printed copy of such materials by submitting a written
request to Quentin R. Hicks, Executive Vice President, Finance, Capital Markets and Investor Relations, Halcón Resources Corporation, 1000 Louisiana St., Suite 1500, Houston,
Texas 77002. If Halcón amends the Code of Ethics or grants a waiver, including an implicit waiver, from the Code of Ethics, Halcón will disclose the information on its
website. The waiver information will remain on the website for at least twelve months after the initial disclosure of such waiver.
MANAGEMENT
The following table sets forth the names and ages of all of our executive officers, the positions and offices with us currently held by such
persons and the months and years in which continuous service began:
|
|
|
|
|
|
|
|
Name
|
|
Executive
Officer
Since
|
|
Age
|
|
Position
|
Floyd C. Wilson
|
|
Feb. 2012
|
|
|
71
|
|
Chairman of the Board, Chief Executive Officer and President
|
Stephen W. Herod
|
|
May 2012
|
|
|
59
|
|
Executive Vice President, Corporate Development
|
Mark J. Mize
|
|
Feb. 2012
|
|
|
46
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
David S. Elkouri
|
|
May 2012
|
|
|
64
|
|
Executive Vice President and Chief Legal Officer
|
Jon C. Wright
|
|
May 2012
|
|
|
48
|
|
Executive Vice President and Chief Operating Officer
|
Quentin R. Hicks
|
|
Aug. 2013
|
|
|
43
|
|
Executive Vice President, Finance, Capital Markets and Investor Relations
|
Leah R. Kasparek
|
|
May 2012
|
|
|
48
|
|
Senior Vice President, Human Resources and Administration
|
Tina S. Obut
|
|
Feb. 2013
|
|
|
53
|
|
Senior Vice President, Corporate Reserves
|
Our
executive officers are appointed to serve until the meeting of the board following the next annual meeting of stockholders and until their successors have been elected and qualified.
The following paragraphs contain certain information about each of our executive officers other than Mr. Wilson,
whose biographical information is included under the heading "
Our Board of Directors and Its CommitteesThe Board of Directors
" above.
Stephen W. Herod
has served as our Executive Vice President, Corporate Development since May 2012. Mr. Herod served as Executive
Vice President-Corporate Development and Assistant Secretary of Petrohawk Energy Corporation from August 2005 until BHP Billiton acquired Petrohawk in August 2011. Mr. Herod served as Vice
PresidentCorporate Development of Petrohawk from May 2004 until August 2005. Prior to joining Petrohawk, he was employed by PHAWK, LLC from its formation in June 2003 until May
2004. He served as Executive Vice PresidentCorporate Development for 3TEC Energy Corporation from December 1999 until its merger with Plains Exploration & Production Company in
June 2003 and as Assistant Secretary from May 2001 until June 2003. Mr. Herod served as a director of 3TEC from July 1997 until January 2002. Mr. Herod served as the Treasurer of 3TEC
from 1999 until 2001. From July 1997 to December 1999, Mr. Herod was Vice PresidentCorporate Development of 3TEC. Mr. Herod served as President and a director of Shore Oil
Company from April 1992 until the merger of Shore with 3TEC's predecessor in June 1997. He joined Shore's predecessor as Controller in February 1991. Mr. Herod was employed by Conquest
Exploration Company from 1984 until 1991 in various financial management positions, including Operations Accounting Manager. From 1981 to 1984, Superior
17
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Oil
Company employed Mr. Herod as a financial analyst. Mr. Herod has a Bachelor of Science degree in Finance and Management from Oklahoma State University.
Mark J. Mize
has served as Executive Vice President, Chief Financial Officer and Treasurer since February 2012. Mr. Mize served as
Executive Vice PresidentChief Financial Officer and Treasurer of Petrohawk Energy Corporation from August 2007 until BHP Billiton acquired Petrohawk in August 2011. Mr. Mize served
as the Chief Ethics Officer and Insider Trading Compliance Officer for Petrohawk until June 2009. Additionally, he served as Vice President, Chief Accounting Officer and Controller at Petrohawk from
July 2005 until August 2007. Mr. Mize first joined Petrohawk in November 2004 as Controller. Prior to working at Petrohawk, Mr. Mize was the Manager of Financial Reporting of Cabot
Oil & Gas Corporation, a public oil and gas exploration company, from January 2003 to November 2004. He was an Audit Manager with Pricewaterhouse Coopers LLP from 1996 to 2002.
Mr. Mize has a Bachelor degree in Accounting from the University of Houston and is a Certified Public Accountant.
David S. Elkouri
has served as Executive Vice President and Chief Legal Officer since April 2014 and as Chief Ethics Officer and Insider
Trading Compliance Officer since August 2012. Mr. Elkouri served as Executive Vice President, General Counsel from May 2012 to April 2014. Mr. Elkouri served as Executive Vice
PresidentGeneral Counsel and Secretary of Petrohawk Energy Corporation from 2007 until BHP Billiton acquired Petrohawk in August 2011. He also served as Chief Ethics Officer and Insider
Trading Compliance Officer of Petrohawk. From 2004 to 2007, he served as
lead outside counsel for Petrohawk. Prior to that, Mr. Elkouri served as lead outside counsel for 3TEC Energy Corporation from 1999 to 2003. He also served as lead outside counsel for Hugoton
Energy Corporation from 1994 to 1998. Mr. Elkouri is a co-founder of Hinkle Law Firm LLC where he practiced for 20 years prior to joining Petrohawk. Mr. Elkouri is a
graduate of the University of Kansas School of Law where he served as a Research Editor of the Kansas Law Review.
Jon C. Wright
has served as Executive Vice President and Chief Operating Officer since August 2017. Mr. Wright served as Executive
Vice President, Operations from September 2016 to August 2017. Mr. Wright served as Senior Vice President, Operations from December 2014 to September 2016 and as Vice President, Operations from
May 2012 to December 2014. Mr. Wright served as W. Rockies Operations Manager at Newfield Exploration from 2009 until 2012. Mr. Wright also served as Lead, Production for W. Oklahoma and
Lead Drilling for Woodford Shale from 2005 until 2009. Prior to that, Mr. Wright was a Senior Drilling Engineer at BP from 2004 to 2005. He also served as Drilling Engineer from 2001 to 2004.
From 1997 to 2001, he held various drilling positions for Conoco. Mr. Wright has a Bachelor of Science degree in Petroleum Engineering from Texas A&M University and a Master of Business
Administration degree from Rice University.
Quentin R. Hicks
has served as Executive Vice President, Finance, Capital Markets and Investor Relations since January 2018.
Mr. Hicks initially joined Halcón as Director of Financial Planning in August 2012 after GeoResources merged with Halcón. He was promoted to Vice President,
Finance in August 2013. In January 2016, he was promoted to Senior Vice President, Finance and Investor Relations. While with GeoResources, Mr. Hicks served as Director of Acquisitions and
Financial Planning from 2011 to 2012. From 2004 to 2011, he worked in investment banking with Bear Stearns, Sanders Morris Harris and most recently Madison Williams, where he was a Director in their
energy investment banking practice. Prior to that, Mr. Hicks worked as Manager of Financial Reporting for Continental Airlines. He began his career in 1998 working as an auditor for Ernst and
Young LLP. Mr. Hicks graduated from Texas A&M University with a Bachelor of Business Administration and a Master of Science degree in accounting. In addition, he holds a Masters of
Business Administration degree in finance from Vanderbilt University. Mr. Hicks is a Certified Public Accountant.
Leah R. Kasparek
has served as Senior Vice President, Human Resources and Administration since December 2014. Ms. Kasparek served
as Vice President, Human Resources from May 2012 to December 2014. Ms. Kasparek initially joined Halcón as Director of Human Resources in February 2012. Prior to
18
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joining
Halcón, Ms. Kasparek held numerous Human Resources leadership positions across multiple industries including oil and gas, utilities and manufacturing. Ms. Kasparek
served as Director of Human Resources at Southwestern Energy from 2009 to January 2012. She served as Vice President of Human Resources for CenterPoint Energy from 2004 until 2008. From 1996 to 2004,
Ms. Kasparek was employed by Anheuser-Busch Companies and served as Vice President of Human Resources from 2001
until 2004. Ms. Kasparek has a Bachelor of Arts degree from the University of Louisiana at Lafayette and a law degree from the University of Houston Law Center.
Tina S. Obut
has served as Senior Vice President, Corporate Reserves since December 2014. Ms. Obut served as Vice President,
Corporate Reserves from February 2013 to December 2014. Ms. Obut served as Senior Manager of Petroleum Resources at BHP Billiton Petroleum from 2011 to 2012. Prior to that, she served as Senior
Vice President, Corporate Reserves for Petrohawk Energy Corporation from 2006 until its sale to BHP Billiton in 2011. From 2004 to 2006, Ms. Obut served as Manager of Reservoir Engineering
Evaluations at El Paso Production Company. In addition, she held various engineering, managerial and executive positions at Mission Resources, Ryder Scott Company and Chevron from 1989 to 2006.
Ms. Obut has a Bachelor of Science degree in Petroleum Engineering from Marietta College, a Master of Science degree in Petroleum and Natural Gas Engineering from Penn State and a Master of
Business Administration degree from the University of Houston. Ms. Obut is a Licensed Professional Engineer in the State of Texas (#82050).
19
Table of Contents
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information regarding the beneficial ownership of our common stock as of March 16, 2018
by:
-
-
each person to be known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
-
-
each of our named executive officers;
-
-
each of our directors; and
-
-
all of our current executive officers and directors as a group.
As
of March 16, 2018, approximately 160,471,626 million shares of our common stock were outstanding. Unless otherwise noted, the mailing address of each person or entity
named below is 1000 Louisiana St., Suite 1500, Houston, Texas 77002.
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percent
of
Class(1)
|
|
Ares Management LLC(2)
|
|
|
22,249,304
|
|
|
13.8
|
%
|
Franklin Resources, Inc.(3)
|
|
|
13,022,936
|
|
|
8.1
|
%
|
Tyrus Capital S.A.M.(4)
|
|
|
11,447,181
|
|
|
7.1
|
%
|
BlackRock, Inc.(5)
|
|
|
10,558,558
|
|
|
6.6
|
%
|
Floyd C. Wilson(6)
|
|
|
2,598,472
|
|
|
1.6
|
%
|
Stephen W. Herod(7)
|
|
|
658,509
|
|
|
*
|
|
Mark J. Mize(8)
|
|
|
639,722
|
|
|
*
|
|
David S. Elkouri(9)
|
|
|
598,932
|
|
|
*
|
|
Jon C. Wright(10)
|
|
|
484,804
|
|
|
*
|
|
William J Campbell(11)
|
|
|
43,249
|
|
|
*
|
|
James W. Christmas(12)
|
|
|
79,325
|
|
|
*
|
|
Michael L. Clark
|
|
|
43,249
|
|
|
*
|
|
Thomas R. Fuller(13)
|
|
|
53,670
|
|
|
*
|
|
Darryl L. Schall
|
|
|
50,384
|
|
|
*
|
|
Ronald D. Scott(14)
|
|
|
43,249
|
|
|
*
|
|
Nathan W. Walton(15)
|
|
|
|
|
|
*
|
|
All directors and executive officers as a group (15 individuals)
|
|
|
5,972,888
|
|
|
3.7
|
%
|
-
*
-
Less
than 1%.
-
(1)
-
Unless
otherwise indicated, each stockholder has sole voting and investment power with respect to all shares of common stock indicated as being beneficially owned by
such stockholder. Shares of common stock that are not outstanding, but which a designated stockholder has the right to acquire within 60 days, are included in the number of shares beneficially
owned by such stockholder and are deemed to be outstanding for purposes of determining the percentage of outstanding shares beneficially owned by such stockholder, but not for purposes of determining
the percentage of outstanding shares beneficially owned by any other designated stockholder. In all instances where ownership of unvested restricted stock is reported below, the individual has the
sole power to vote such shares but no investment power.
-
(2)
-
The
business address of Ares Management LLC is 2000 Avenue of the Stars, 12
th
Floor, Los Angeles, CA 90067.
20
Table of Contents
-
(3)
-
According
to, and based solely upon, Schedule 13D/A filed by Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin
Advisers, Inc. (collectively, "Franklin") with the SEC on February 15, 2018. The business address for Franklin is One Franklin Parkway, San Mateo, CA 94403.
-
(4)
-
According
to, and based solely upon, Schedule 13G/A filed by Tyrus Capital S.A.M. and Tony Chendraoui (collectively, "Tyrus") with the SEC on
February 14, 2018. The business address for Tyrus is 4 Avenue Roqueville, Monaco, MC 98000.
-
(5)
-
According
to, and based solely upon, Schedule 13G filed by BlackRock, Inc. with the SEC on February 1, 2018. The business address for
BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
-
(6)
-
Includes
250,130 shares of unvested restricted stock. Also includes 7,019 shares held in seventeen trusts for the benefit of Mr. Wilson's children and
grandchildren, of which Mr. Wilson is the trustee and disclaims beneficial ownership of such shares. Does not include 6,583 shares held in three trusts for the benefit of Mr. Wilson's
children, of which Mr. Wilson's wife is the trustee and he disclaims beneficial ownership of such shares.
-
(7)
-
Includes
117,250 shares of unvested restricted stock. Does not include 2,749 shares held in trusts for the benefit of Mr. Herod's minor children, of which
Mr. Herod disclaims beneficial ownership of such shares and has no dispositive or voting power with respect to the shares held by such trusts.
-
(8)
-
Includes
104,220 shares of unvested restricted stock.
-
(9)
-
Includes
104,220 shares of unvested restricted stock.
-
(10)
-
Includes
104,220 shares of unvested restricted stock.
-
(11)
-
The
business address for Mr. Campbell is 5041 Spencer Highway, Suite 701, Pasadena, TX 77505.
-
(12)
-
Does
not include 177 shares of common stock held in three trusts for his children. Mr. Christmas has no dispositive or voting power with respect to the
shares held by such trusts.
-
(13)
-
The
business address for Mr. Fuller is 19500 SH 249, Suite 640, Houston, TX 77070.
-
(14)
-
The
business address for Mr. Scott is 1030 Andrews Highway, Suite 200, Midland, TX 79703.
-
(15)
-
The
business address for Mr. Walton is 2000 Avenue of the Stars, 12
th
Floor, Los Angeles, CA 90067.
EXECUTIVE COMPENSATION
The following discussion of executive compensation contains descriptions of various employment-related agreements and employee benefit plans.
These descriptions are qualified in their entirety by reference to the full text of the referenced agreements and plans, which have been filed by us as exhibits to our reports on Forms 10-K,
10-Q and 8-K filed with the SEC.
The Compensation Committee of our board is composed entirely of independent directors: William J. Campbell (Chairman), James W. Christmas and
Michael L. Clark. Each of Messrs. Campbell, Christmas and Clark served as a member of our Compensation Committee throughout 2017. Our Nominating and
21
Table of Contents
Corporate
Governance Committee conducts an annual review of the composition of each of the committees of our board, including the Compensation Committee, and makes recommendations to our board to the
extent it determines that any changes in the membership of such committees is advisable.
Our
compensation philosophies and programs are designed, structured and administered under the oversight of the Compensation Committee. Among the important responsibilities delegated to
the Compensation Committee by our board is evaluating the performance of, and making recommendations on the compensation of the senior management of the Company, including the performance and
compensation of the executive officers who we refer to as our "named executive officers". For the purposes of our discussion, our named executive officers for 2017 were:
|
|
|
Name
|
|
Title
|
Floyd C. Wilson
|
|
Chairman of the Board, Chief Executive Officer and President (our principal executive officer)
|
Mark J. Mize
|
|
Executive Vice President, Chief Financial Officer and Treasurer (our principal financial officer)
|
Stephen W. Herod
|
|
Executive Vice President, Corporate Development
|
David S. Elkouri
|
|
Executive Vice President and Chief Legal Officer
|
Jon C. Wright
|
|
Executive Vice President and Chief Operating Officer
|
We operate in a highly competitive environment and must recruit, motivate and retain the executive talent required to successfully manage and
grow our business and to achieve our short and long-term business objectives. We use a competitive mix of fixed and at-risk compensation to achieve our goals and to align the interests of senior
management and key employees to those of our stockholders. As a general matter, total compensation for our senior management is targeted between the 50
th
and the
75
th
percentile of our compensation peer group utilizing data and analyses provided by our independent compensation consultant and taking into account our assessment of
management's performance, competitive market conditions and other factors that we deem relevant. We may vary from our targets where we believe doing so is necessary based upon our assessment of the
risks of losing talented management or desirable in order to provide rewards we consider appropriate to measure managements' performance against our goals, and to incentivize management to implement
our business objectives.
We
believe that our compensation program must be flexible due to the dynamic nature of our Company and our industry. We have needed this flexibility to appropriately manage our
compensation throughout the life of our Company. Prior to the industry downturn that began in late 2014, we experienced a period of rapid growth in acreage, reserves and production and competition for
talented management was intense. Then, during the midst of the downturn in 2016, due to dramatically altered industry conditions and prolonged declines in oil and natural gas prices, we downsized and
reorganized, as did many in our industry. During 2017, we experienced dramatic changes to our business model as we divested substantially all of our proved reserves and production in our legacy
properties and acquired our current largely undeveloped acreage position in the Delaware Basin.
Each
of these situations necessitated significant changes to our compensation approach and programs. For instance, during times of rapid growth, we historically targeted compensation in
the upper quartile of our compensation peer group which we considered appropriate to recruit, motivate and retain the executive talent capable of executing a rapid growth business strategy and
managing our business in a competitive environment, and because our stated willingness to embrace consolidation trends in our industry may increase the uncertainty of future employment with us as
compared to some of our competitors. Under different circumstances, as discussed in greater detail below, we targeted
compensation at the 50
th
percentile of our compensation peer group, based, in part, on our assessment of the competitive environment for management talent. During 2016, as the
Company considered possible
22
Table of Contents
scenarios
to improve its balance sheet and capital structure, the retention of our management team was critically important to our potential long-term success and viability and, as a result, certain
compensation arrangements were not necessarily tied to a target of our compensation peer group but instead based upon what was advisable under the circumstances. In summary, our compensation programs
are, and we believe they must remain, adaptable and focused on enabling us to recruit, motivate and retain the executive talent required to successfully manage and grow our business and to achieve our
short and long-term business objectives.
We
believe that "at-risk" compensation helps to align the interests of management with our stockholders and incentivizes management to achieve our short and long-term business
objectives. At-risk compensation includes annual cash incentives with payout dependent upon our Compensation Committee's annual assessment of management performance, and long-term equity incentives.
Long-term equity incentives will typically comprise more than 50% of the value of the total compensation paid to our senior management. We rely principally on time-vested restricted stock and stock
option awards issued under the Halcón Resources Corporation 2016 Long-Term Incentive Plan, as amended, which we refer to as the "Plan". Stock options comprise a component of the equity
awards we issue, and are granted with an exercise price equal to the closing market price of our common stock on the date of grant. Accordingly, stock options become valuable only if our common stock
price increases above the market price on the date of grant following vesting and remains above that price at the time of exercise. Additionally, each equity award that we issue generally vests over a
minimum period of three years, although in connection with our emergence from bankruptcy certain exit awards to management vested on an expedited basis, as discussed in greater detail below. Awards
subject to time vesting are subject to the risk of fluctuations in the trading price of our common stock and the risk of forfeiture if the individual does not remain employed by us through the vesting
of the award.
We
maintain stock ownership guidelines which help align the financial interest of our directors, chief executive officer and president and executive vice presidents with stockholders by
requiring that such individuals directly or indirectly maintain a substantial investment in our common stock. Subject to certain exceptions contained in the stock ownership guidelines policy, all of
the Company's directors and executive officers, including the named executive officers, are in compliance with the stock ownership guidelines. We believe that the structure of our compensation program
helps us achieve our goals and aligns the interests of senior management with those of our stockholders by combining competitive compensation with the opportunity for greater rewards for short-term
performance relative to our business objectives and long-term performance of our common stock.
The Compensation Committee of the board is comprised entirely of independent directors in accordance with the rules of the NYSE. The primary
duties and responsibilities of the Compensation Committee are to establish and implement our compensation policies and programs for senior management, including the named executive officers. The
Compensation Committee has the authority under its charter to select and engage the services of a compensation consultant, independent legal counsel or other advisor after considering certain factors
relevant to independence from management. After conducting its independence assessment, the Compensation Committee has the sole authority to engage, obtain the advice of, oversee, terminate and
determine funding for such independence professional advisers, including but not limited to consulting firms, independent legal counsel or other advisers, as the Compensation Committee determines
appropriate to carry out its functions. A current copy of the Compensation Committee charter is available on our website at
www.halconresources.com
under the section entitled "
InvestorsCorporate Governance
." The Compensation Committee also reviews and assesses the adequacy of its
charter, at least annually, and recommends any proposed changes to our board for approval.
23
Table of Contents
The
Chairman of the Compensation Committee works with our Senior Vice President, Human Resources and Administration to establish an agenda for each meeting of the Compensation Committee
and, with the assistance of outside advisors, to prepare meeting materials. Various members of management, including our Chief Executive Officer and Senior Vice President, Human Resources and
Administration, as well as outside advisors, may be invited to attend all or a portion of a Compensation Committee meeting depending on the nature of the matters to be discussed. Only members of the
Compensation Committee vote on items before the Compensation Committee; however, the Compensation Committee and the board often solicit the views of senior management on compensation matters, in
particular as they relate to the compensation of other members of senior management.
Our success depends on the continued contributions of our senior management and other key employees. Our compensation program is intended to
recruit, motivate and retain the executive talent required to successfully manage and grow our business and to achieve our short and
long-term business strategy by providing compensation that is competitive in relation to our peers while fostering an atmosphere of teamwork, recognizing overall business results and individual merit,
and that supports the attainment of our strategic objectives by tying the interests of senior management and key employees to those of our stockholders through the use of annual cash incentives and
equity-based compensation.
Our compensation program for senior management, including the named executive officers, is designed
to:
-
-
provide compensation that is competitive with our compensation peer group;
-
-
balance short-term and long-term goals through the use of annual cash incentives and grants of long-term equity incentives; and
-
-
deliver a mix of fixed and at-risk compensation the value of which relates to our overall performance and the creation of stockholder value.
Each
element of compensation is considered together with the other elements of compensation to ensure that both that particular element of compensation and our overall compensation
program are consistent with our goals and objectives and that our compensation practices do not encourage management to engage in inappropriate, unnecessary or excessive risk taking. We considered the
following factors in determining senior management compensation for 2017, all of which were considered together, without any weighting:
-
-
the compensation practices of our compensation peer group and analysis of market practices, as prepared for us by our independent compensation
consultant;
-
-
the compensation recommendations of our independent compensation consultant;
-
-
the degree and extent to which senior management achieved our business objectives;
-
-
input from the Company's Chief Executive Officer on the accomplishments of senior management;
-
-
input from members of senior management on their individual contributions; and
-
-
the challenges to our ability to attract, retain and appropriately motivate strong senior management.
The Compensation Committee has historically retained Longnecker & Associates, Inc. ("Longnecker") to advise on executive
compensation and, in that capacity to, among other things, make
24
Table of Contents
recommendations
regarding an appropriate compensation peer group, to assist the Compensation Committee in establishing a competitive executive compensation program and to make recommendations and
provide analysis regarding the compensation of senior management, including the named executive officers. In accordance with the NYSE rules, the Compensation Committee annually considers the
independence of Longnecker from Company management based upon various factors, including the magnitude of any fees received from the Company relative to Longnecker's annual gross revenues; whether the
individuals that advise the Compensation Committee participate directly or by collaboration with others within Longnecker in the provision of any services or products to the Company; whether
Longnecker provided any products or services to any executive officer of the Company; and whether the individuals that advise the Compensation Committee own any Company securities. In conducting its
evaluation, the Compensation Committee obtains from, and relies upon, responses from Longnecker relating to the foregoing. After considering these various factors and Longnecker's responses, the
Compensation Committee determined that Longnecker was independent of Company management during the relevant periods covered by this report. No conflicts of interest or issues involving the
independence of Longnecker arose during the periods covered by this report.
Longnecker
is engaged by, and reports directly to, the Compensation Committee in carrying out its duties, and works with our Senior Vice President, Human Resources and Administration
when preparing materials for the Compensation Committee. During 2017, representatives of Longnecker attended Compensation Committee meetings, met with the Compensation Committee without management
being present and provided third-party data, analysis, advice and expertise on executive compensation matters and competitive executive compensation programs. We considered and relied upon this data,
Longneckers' analyses of the data and its recommendations in establishing our compensation peer group and compensation programs, including the mix and amount of compensation utilized for our senior
management, including the named executive officers. Longnecker also advised the Compensation Committee regarding the form of the employment agreement for senior management originally formulated in
2012 and which we continue to use today.
In
assisting the Compensation Committee, Longnecker generates reports that include a compilation of compensation data based upon our compensation peer group (discussed below) and
particularized data for industry participants to the extent Longnecker determines that such additional data would prove useful. At the direction of the Compensation Committee, Longnecker will also
review any materials relating to compensation that are prepared by senior management and advise the Compensation Committee as to the consistency of management proposals with the committee's
compensation philosophy, programs and objectives.
Our
Compensation Committee annually reconsiders, with the advice and assistance of Longnecker, the composition of our compensation peer group and will recommend changes to the peer group
so that it reflects, in the estimation of Longnecker and our Compensation Committee, a mix of companies that share pertinent characteristics with our Company and that are potential competitors with us
for management talent. Changes to the composition of our compensation peer group may occur in
response to, among other things, changes in our business, including assets, production levels, revenues, oil and natural gas reserves and production mix, market capitalization and enterprise value,
and as a consequence of business combinations involving members of our peer group. Longnecker advises us on the composition of our compensation peer group and provides reports and analyses on their
compensation and benefits practices.
In developing our compensation structure, we review the compensation and benefit practices, as well as levels of pay, of a compensation peer
group of oil and natural gas exploration and development companies selected by the Compensation Committee. In preparation for our 2017 compensation review, Longnecker provided compensation data and
analyses, which included, among other things, (1) the companies reviewed in their analysis of an appropriate compensation peer group recommendation;
25
Table of Contents
(2) compensation
data of the recommended compensation peer group; and (3) particularized data for industry participants to the extent Longnecker determined that such additional data
would prove useful in our compensation process.
We
periodically review, evaluate and update our compensation peer group to provide ongoing comparability for compensation purposes. Adjustments to our compensation peer group are made
due to business combinations or sales of peer group companies, as well as when necessary, in the opinion of our Compensation Committee, to better reflect the companies that compete with us for
management talent and share common characteristics with our business, such as assets, production levels, revenues, oil and natural gas reserves and production mix, market capitalization and enterprise
value. For the compensation structure developed for 2017, the compensation peer group consisted of the following companies:
|
|
|
Callon Petroleum
Company
|
|
QEP Resources,
Inc.
|
Carrizo Oil &
Gas, Inc.
|
|
Resolute Energy
Corporation
|
Clayton Williams Energy,
Inc.
|
|
Sanchez Energy
Corporation
|
EP Energy
Corporation
|
|
Sandridge Energy,
Inc.
|
Matador Resources
Company
|
|
Whiting Petroleum
Corporation
|
Oasis
Petroleum Inc.
|
|
WPX Energy,
Inc.
|
In
conjunction with our consideration of 2018 compensation, including annual cash incentives for 2017 performance, we asked Longnecker to revisit our compensation peer group and provide
advice regarding any recommended changes. As a result, Longnecker recommended changes to our peer group to reflect our current assets, revenues, oil and natural gas reserves and production mix, market
capitalization and enterprise value, primarily attributed to our transformational shift in focus and becoming a single-basin, pure play operator in the Delaware Basin. Based upon the recommendations
of Longnecker, our Compensation Committee approved the following companies to serve as our compensation peer group for 2018:
|
|
|
Approach Resources,
Inc.
|
|
PDC Energy,
Inc.
|
Callon Petroleum
Company
|
|
QEP Resources,
Inc.
|
Carrizo Oil &
Gas, Inc.
|
|
Resolute Energy
Corporation
|
Energen
Corporation
|
|
RSP Permian,
Inc.
|
EP Energy
Corporation
|
|
Sandridge Energy,
Inc.
|
Laredo Petroleum,
Inc.
|
|
SM Energy
Company
|
Matador Resources
Company
|
|
|
The principal elements of our executive compensation program are base salary, annual cash incentives, long-term equity incentives and
post-termination severance (under certain
circumstances), and other benefits and perquisites, consisting of life and health insurance benefits, a qualified 401(k) savings plan, the reimbursement of certain club dues for our Chief Executive
Officer and our Chief Financial Officer, and limited tax gross ups for life insurance, parking and country club membership. From time to time, the Compensation Committee may vary the mix of
compensation utilized, depending upon the Compensation Committee's current view of the most effective method to provide incentives under current market conditions, taking into account the compensation
practices of our compensation peer group and the advice of our independent compensation consultant.
26
Table of Contents
As
noted earlier, we have generally targeted total compensation for our senior management between the 50
th
and the 75
th
percentile of our
compensation peer group. Our approach allows flexibility and is based upon our assessment of many factors. For instance, we have targeted compensation in the upper quartile of our compensation peer
group at times of rapid growth, as we considered it necessary for us to recruit, motivate and retain the executive talent capable of executing a rapid growth business strategy and managing our
business in a competitive environment, in part because we compete for executive talent with a much broader industry group than our compensation peer group, including larger, more established industry
participants, and because our stated willingness to embrace consolidation trends in our industry may increase the uncertainty of future employment with us as compared to some of our competitors.
However, as conditions have changed, our compensation targets have also changed. In making these determinations we take into account, among other factors, corporate performance, projected growth in
the Company, an executive's experience and value to the Company, individual performance and the current competitive environment for talented management. Thus, from time to time, we vary targeted
compensation and the balance of each element of compensation relative to our compensation peer group depending on our assessment of these factors and our view of the most effective means of achieving
our business objectives under the circumstances. While during periods of rapid growth we have historically targeted the 75
th
percentile, in recent years, in response to our
assessment of the factors enumerated above, we have targeted compensation at approximately the 50
th
percentile of our compensation peer group. We maintained this
50
th
percentile target for 2017 for base salaries and long-term equity awards, and we continued to use a mix of restricted stock and stock options consistent with past practice;
however, we paid annual cash incentives to the Chief Executive Officer and other named executive officers for 2017 performance ranging from 150% to 175% of base salaries, which resulted in annual cash
incentives that may result in total cash compensation in excess of the targeted percentile of our compensation peer group. Annual cash incentives for 2017 performance and each of the other elements of
our compensation program, are discussed in greater detail below.
We review base salaries for our Chief Executive Officer and other executives annually to determine if a change is appropriate. In reviewing base
salaries, we consider several factors, including a comparison to base salaries paid for comparable positions in our compensation peer group, the relationship among base salaries paid within our
Company and individual experience and contributions. Our intent is to fix base salaries at levels that we believe are consistent with our compensation program design objectives, which include a
greater emphasis upon the incentive elements of compensation without sacrificing our ability to recruit, motivate and retain executive talent in a competitive environment.
For
2017, base salaries for the named executive officers were reviewed by our Compensation Committee and, with our independent compensation consultant's input and advice, left largely
unchanged at 2016 levels as they approximated the 50
th
percentile of our 2017 compensation peer group for comparable positions, with the exception of a $50,000 per annum increase
for our Chief Executive Officer and President and a $25,000 increase per annum for our Executive Vice President and Chief Legal Officer to align them with our target.
Base
salaries for all of our named executive officers in 2017 were as follows:
|
|
|
|
|
Name
|
|
2017 Base Salary
|
|
Floyd C. Wilson
|
|
$
|
800,000
|
|
Stephen W. Herod
|
|
$
|
450,000
|
|
Mark J. Mize
|
|
$
|
400,000
|
|
David S. Elkouri
|
|
$
|
400,000
|
|
Jon C. Wright
|
|
$
|
400,000
|
|
27
Table of Contents
For
2018, with the exception of an increase in Mr. Wright's base salary of $25,000 per annum, we maintained base salaries of the named executive officers at the levels set forth
above as such amounts remain competitive utilizing our 2018 compensation peer group targeting the 50
th
percentile of that group for comparable positions.
Annual cash incentives for 2017 performance were determined following the end of the year on the basis of management performance during 2017. At
the beginning of the year, the Compensation Committee established certain operating and financial performance metrics, assigned them relative weightings and established annual targets for payout for
each of them. The targeted payouts for each of the named executive officers ranged from 50% of base salary for achieving the minimum annual targets, 100% for achieving more aggressive annual targets
and 200% for achieving the most aggressive, or "stretch," annual targets. The targets at the 100% payout level were intended to be achievable but challenging to reach. As a general matter, the
Compensation Committee assigns a relative weight of approximately 50% to corporate performance and 50% to individual performance in considering annual cash incentives; however, ultimately, any such
award is entirely discretionary, as our Compensation Committee believes retaining discretion over the amount of such awards is imperative in
light of the dynamic nature of the Company's activities, the potential for rapid changes in the business environment and the limitations inherent in quantitative measures of performance under such
circumstances. Further, our Compensation Committee views the successful implementation of our goals as a "team" effort and has therefore not established individualized performance targets or goals,
although our Compensation Committee does recognize that each member of senior management will contribute to the overall success in the achievement of our goals to varying degrees, and it takes these
relative contributions into account when considering compensation generally, and annual cash incentives in particular.
The
operating and financial performance metrics established for 2017 performance were:
-
-
net debt to adjusted EBITDA;
-
-
adjusted cash flow per share;
-
-
drilling and completion capital expenditures relative to production growth per barrel of oil equivalent, or "Boe";
-
-
lease operating expense and workover costs per Boe;
-
-
cash general and administrative costs per Boe; and
-
-
a health and environmental safety metric based on total recordable incident rate and total barrels spilled per million barrels produced.
In
the future, for a variety of reasons, such as to assist in communicating corporate objectives and setting definitive expectations and rewards for senior management, we may elect to
establish bonus targets and performance targets that must be met in whole or in part to qualify for annual cash incentives and in conjunction therewith we may limit the discretion of our Compensation
Committee or board of directors in determining annual cash incentives. However, as a general matter we do not believe that a formulaic or inflexible compensation program will necessarily provide
appropriate incentives or rewards for the performance that we expect and, therefore, particularly given our current business plans and activities, we intend to retain discretion to alter performance
factors and targets as circumstances warrant and, in assessing the performance of the Company or an individual, to take such factors into consideration as we may deem relevant from time to time.
Accordingly, compensation, including annual cash compensation, may vary greatly from year to year and from executive to executive as a consequence of corporate performance and individual contribution
relative to such factors that we may consider important, which may carry varying weight over time depending on the circumstances.
28
Table of Contents
The
limitations of pre-established operating and financial performance metrics were particularly evident in 2017, as during the course of the year, the Company divested substantially all
of its producing oil and natural gas properties in multiple basins, shifted to a single basin operator and reinvested in a largely undeveloped acreage position in the Delaware Basin. Consequently,
operating and financial targets established with respect to the metrics enumerated above were rendered largely meaningless, particularly from the second fiscal quarter onward. For example, performance
on the net debt to adjusted EBITDA metric exceeded the stretch target established at the beginning of the year due to debt repayments from the proceeds of asset divestitures, while metrics based on
costs per Boe were less than the minimum threshold due to the loss of production associated with such divestitures. Accordingly, while the Compensation Committee considered performance against the
operating and financial metrics for such portion of the year as they appeared meaningful, it did not place undue emphasis on them. Rather, the Compensation Committee viewed the accomplishments of
management more broadly, to include:
-
-
effectuating the rapid transition of the Company out of its legacy properties on attractive terms;
-
-
acquiring a focused acreage position in the most competitive oil and natural gas region in the United States on attractive terms;
-
-
increasing the Company's inventory of economical drilling locations;
-
-
improving the Company's balance sheet and leverage profile;
-
-
quickly increasing production on newly acquired properties;
-
-
rapidly executing a drilling program on newly acquired acreage; and
-
-
accomplishing the foregoing while significantly reducing headcount.
Taking
all of these factors into account, the Compensation Committee determined that management performance during 2017 was outstanding under the circumstances. In arriving at its annual
cash incentive award determination, the Compensation Committee also considered the performance of the Company's common stock, as reflected in its trading price and the various factors unrelated to
specific management accomplishments during the year affecting it. In light of all of the above, as well as individual contributions, the Compensation Committee recommended the annual cash incentives
for 2017 performance appearing under the column heading "
Bonus
" in the "
Summary Compensation Table
"
below.
Long-term incentives comprise a significant portion of an executive's compensation package. Long-term incentives are consistent with our
objective of providing an "at-risk" component of compensation. As noted above, our business strategy embraces the consolidation trend in our industry and providing long-term incentive award
opportunities for senior management and key employees both align their interests with those of our stockholders and help to offset the negative implications that such a strategy may have on our
ability to recruit and retain executive talent and key employees.
Historically,
we have awarded grants of restricted stock and stock options to senior management, including the named executive officers. Each of these awards is discussed in more detail
below. We have utilized this combination of awards because of their differing risk and reward characteristics. From time to time, we may utilize a different mix of these awards or utilize other forms
of awards, such as stock appreciation rights, each of which is permitted under the Plan, depending upon the Compensation Committee's current view of the most efficacious method to provide incentives
under current market conditions and taking into account the practices of our compensation peer group. Regardless of the nature of the award, our Compensation Committee recommends, and the board
approves, the type and amount of awards that will be made to all employees, as well as the type and size of individual grants for each member of senior management other than our Chief Executive
Officer and President, whose compensation is approved by the Compensation Committee.
29
Table of Contents
All grants of equity awards are made in accordance with our Equity-Based Incentive Grant Policy, which sets forth the timing of awards and the procedures for
making awards and, in the case of stock options and stock appreciation rights, for determining the exercise price or grant value, respectively, of the award. The amounts granted will vary each year
and are based on our analysis of compensation peer group data and the total compensation package of each member of senior management. Previous awards and grants, whether vested or unvested, may be
considered by the Compensation Committee in establishing the current year's awards, but was not a significant influence in our compensation practices for 2017.
Our
reorganization in 2016 resulted in the cancelation of all outstanding option awards previously granted to senior management and the substantial dilution of their equity interests
(together with all of our other pre-emergence common stockholders) in the Company. The reorganization plan negotiated with our creditors provided that 10% of our newly issued shares of common stock
would be granted as
exit awards under the Plan. Pursuant to the terms of the reorganization plan, exit awards were made in two tranches, one granted on the first full day of trading of the new common stock of the Company
following the effectiveness of the reorganization plan and the other, made in the discretion of the Compensation Committee, in early 2017. The exit awards included a mix of one-thirds restricted stock
and two-thirds stock options. The reorganization plan provided that, with respect to the first tranche, the shares of restricted stock vest in two equal installments, one-half on the date of grant and
one-half on the first anniversary of the date of grant, provided that the recipient has been continuously employed at such date. The stock options vest in three equal installments on each anniversary
of the date of grant, beginning on the first anniversary of the date of grant, also provided that the recipient has been continuously employed at such date. The exercise price of the exit stock
options was equal to the weighted average closing market price of our common stock for seven trading days following the date of grant, in part to mitigate price volatility because the first tranche
was granted immediately following our emergence from reorganization. The long-term incentive information related to the named executive officers during fiscal year 2017 is included in the
"
Summary Compensation Table
" set forth below. Additional information on long-term incentive awards for 2017 is shown in the tables entitled
"
Grants of Plan-Based Awards in 2017
" and "
Outstanding Equity Awards at December 31, 2017
".
Information regarding long-term equity incentives granted to the named executive officers subsequent to fiscal 2017 is set forth below under the heading "
Compensation
Adjustments Subsequent to Fiscal Year End
."
We grant equity awards under the Plan which became effective on September 9, 2016 and originally provided for a total of 10,000,000
shares of common stock. On March 6, 2017, the holders of a majority of our outstanding voting stock approved an amendment to the Plan to increase by 9,000,000 the maximum number of shares of
common stock that we may issue under the Plan (subject to adjustment to prevent dilution or enlargement of the rights of participants under the Plan) from 10,000,000 to 19,000,000, which became
effective on April 6, 2017. The Plan facilitates the issuance of future long-term incentive awards as part of our overall compensation program and is administered by our Compensation Committee.
As
of March 16, 2018, a total of 2,595,975 shares of common stock had been granted as restricted stock and were outstanding, 7,820,169 shares were reserved for the exercise of
outstanding stock options and 4,772,417 shares of our common stock remained available for issuance pursuant to the Plan. The Plan permits granting awards in a wide variety of forms, including options
to purchase our common stock, shares of restricted stock, restricted stock units (granting the recipient the right to receive common stock), shares of incentive stock (common stock issued without a
restriction period), stock appreciation rights, performance units (settled in common stock or cash) and performance bonuses (settled in common stock or cash). We currently utilize as awards under the
Plan only restricted stock and stock options, each of which is discussed in more detail below.
The
Plan will expire on September 9, 2026. No grants will be made under the Plan after that date, but all grants made on or prior to such date will continue in effect thereafter
subject to the terms of the award
30
Table of Contents
and
of the Plan. Our board may, in its discretion, terminate the Plan at any time. The termination of the Plan would not affect the rights of participants or their successors under any awards
outstanding and not exercised in full on the date of termination. The board may at any time, amend the Plan in whole or in part. Any amendment that must be approved by our stockholders to comply with
the terms of the Plan, applicable law or the rules of the principal securities exchange, association or quotation system on which our common stock is then traded or quoted will not be effective unless
and until such approval has been obtained. The board is not permitted, without the further approval of the stockholders, to make any alteration or amendment that would materially increase the benefits
accruing to participants under the Plan, increase the aggregate number of shares that may be issued pursuant to the provisions of the Plan, change the class of individuals eligible to receive awards
under the Plan or extend the term of the Plan.
An important objective of our long-term incentive program is to strengthen the relationship between the long-term value of our stock price and
the potential financial gain for employees. Stock options provide participants with the opportunity to purchase our common stock at a price fixed on the grant date regardless of future market price. A
stock option becomes valuable only if our common stock price increases above the option exercise price and the holder of the option remains employed during the period required for the option to vest,
thus providing an incentive for an option holder to remain employed by us. Stock options link the option holder's compensation to stockholders' interests by providing an incentive to increase the
market price of our stock.
Option
grants to senior management are generally considered annually, at the same time as grants are considered for eligible employees, in February, after our year-end results become
available. Our practice is that the exercise price for each stock option is the market value on the date of grant, which is normally the date that our Compensation Committee approves the award at a
meeting of the Compensation Committee or a trading day after our release of earnings or other material nonpublic information in accordance with our Equity-Based Incentive Grant Policy. Our current
policy provides for grants to be made or priced only during a trading window, as set forth in our Amended and Restated Insider Trading Policy, and within such window only at such time as there is no
material non-public information regarding the Company. Under the Plan, the stock option price may not be less than the fair market value (the closing market price) of the shares on the date of grant.
With respect to
employees who are not executive officers, the Compensation Committee typically delegates the authority to make such grants to our Chief Executive Officer but specifies the total number of shares that
may be subject to grants and the other material terms of the grants. All proposed stock options to new-hire employees are required to be approved by our Compensation Committee. Alternatively, our
Compensation Committee may authorize in writing, in advance of any fiscal quarter, the number of shares underlying stock options that may be granted to new-hire employees for the following fiscal
quarter and provide that our Chief Executive Officer may allocate such stock options at his discretion.
Stock
options generally vest and become exercisable one-third annually after the original grant date. In certain instances, however, stock options may vest on an accelerated basis, such
as in the event an executive's employment is terminated by us without cause or by the executive with good reason, in the event that the executive terminates his employment within a certain period
following a transaction that effects a change in the control of our Company, or in the event of the executive's death or disability while employed by us. Under these circumstances all stock options
held by the executive may automatically vest and become exercisable in accordance with the terms outlined in his or her stock option award agreement or employment agreement, if applicable. The
employment agreements that we have entered into with the named executive officers provide for all stock options held by each executive to automatically vest and become exercisable in the event his
employment is terminated by us without cause, by the executive for good reason or with or without good reason within a two-year period following a change of control of our Company.
31
Table of Contents
There
is a limited term in which an executive can exercise stock options, known as the "option term." The option term is generally ten years from the date of grant, which is the maximum
term of an option permitted under the Plan. At the end of the option term, the right to purchase shares pursuant to any unexercised option expires.
During
2017, each of the named executive officers received a mix of restricted stock and stock options under the Plan. Information on these grants, including the number of shares subject
to each grant and, in the case of stock options, the exercise price, is shown in the table below entitled "
Grants of Plan-Based Awards in 2017
." These
awards represent the second tranche of exit awards made in accordance with the reorganization plan negotiated with our creditors.
Restricted stock awards are shares of our common stock that are awarded with the restriction that the executive remain with us through certain
"vesting" dates. Prior to the restrictions thereon lapsing, the participant may not sell, transfer, pledge, assign or take any similar action with respect to the shares of restricted stock which the
participant owns. Despite the restrictions, each participant will have full voting rights and will receive any dividends or other distributions, if any, with respect to the shares of restricted stock
which the participant owns. Once the restrictions lapse with respect to shares of restricted stock, the participant owning such shares will hold freely-transferable shares, subject only to any
restrictions on transfer contained in our certificate of incorporation, bylaws and insider trading policies, as well as any applicable federal or state securities laws.
Restricted
stock awards to senior management are generally considered annually, at the same time as grants are considered for eligible employees, in February, after our year-end results
become available. Restricted stock awards provide the opportunity for capital accumulation and more predictable long-term incentive value. The purpose of granting restricted stock awards is to
encourage ownership and retention of our senior management and business decisions that may drive stock price appreciation. Recognizing that our business is subject to significant fluctuations in
commodity prices that may cause the market value of our common stock to fluctuate, we also intend the awards to provide an incentive for senior management to remain with us throughout commodity price
and business cycles.
Restricted
stock awards generally vest one-third annually after the original award date, except that the second tranche of the restricted stock awards granted during 2017 as part of the
reorganization plan negotiated with our creditors fully vested concurrently with the remaining one-half of the first tranche which vest occurred on the one year anniversary of the date of grant.
Future vesting requirements impose limitations on the recipient, such that they do not become unconditionally entitled to retain any of the shares of restricted stock subject to vesting until the
applicable vesting date, subject to certain exceptions related to termination of employment. Any unvested restricted stock awards generally are forfeited if the executive terminates employment with
us. In certain instances, however, restricted stock awards may vest on an accelerated basis, such as in the event of the executive's employment is terminated by us without cause or by the executive
with good reason, in the event that the executive terminates his employment within a certain period following a transaction that effects a change in the control of our Company, or in the event of the
executive's death or disability while employed by us. Under these circumstances all restricted stock awards held by the executive may automatically vest in accordance with the terms outlined in the
restricted stock award agreement or the employment agreement, if applicable. The employment agreements that we have entered into with the named executive officers provide for all restricted stock
awards held by an executive to automatically vest in the event his employment is terminated by us without cause or by the executive with good reason.
The
restricted stock grants to the named executive officers during fiscal year 2017 are shown below in the table entitled "
Grants of Plan-Based Awards in
2017
." These awards represent the second tranche of exit awards made in accordance with the reorganization plan negotiated with our creditors.
32
Table of Contents
We do not maintain a defined benefit pension plan or retiree medical program that covers members of senior management. Retirement benefits to
our senior management, including the named executive officers, are currently provided principally through a tax-qualified profit sharing and 401(k) plan (our "Savings Plan"), in which eligible
salaried employees may participate. Pursuant to the Savings Plan, employees may elect to reduce their current annual compensation up to the lesser of 75% or the statutorily prescribed limit of $18,000
in calendar year 2017 ($18,500 in 2018), plus up to an additional $6,000 in the form of "catch-up" contributions for participants age 50 and above, and have the amount of any reduction contributed to
the Savings Plan. Our Savings Plan is intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), so that contributions by us or our
employees to the Savings Plan and income earned on contributions are not taxable to employees until withdrawn from the Savings Plan and so that contributions will be deductible by us when made. We
match 100% of the amount an employee contributes to the Savings Plan, subject to a 10% maximum based on the employee's compensation as defined in the Savings Plan. Members of senior management
participate in the Savings Plan on the same basis as other eligible employees.
The
Savings Plan provides for various investment options, for which the participant has sole discretion in determining how both the employer and employee contributions are invested. The
independent trustee of the Savings Plan then invests the assets of the Savings Plan as directed by participants. The Savings Plan does not provide our employees the option to invest directly in our
securities. The Savings Plan offers in-service withdrawals in the form of after-tax account distributions and age 59.5 distributions. We believe that the Savings Plan supports the objectives of our
compensation structure, including the ability to recruit and retain senior and experienced mid- to late-career executive talent for critical positions within our organization.
The following tables represent outstanding equity awards under the Plan as of December 31, 2017. We do not issue awards under any other
plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options(#)
|
|
Weighted-Average
Exercise Price of
Outstanding
Options
|
|
Average
Remaining
Contractual
Life (Years)
|
|
Stock Options
|
|
|
6,735,903
|
|
$
|
8.84
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be
Issued Upon Vesting(#)
|
|
Restricted Stock
|
|
|
745,507
|
|
As
of December 31, 2017 a total of 7,748,818 shares were available for future grants under the Plan. As of March 16, 2018, approximately 4,772,417 shares of our common
stock are available for future grants under the Plan.
Employment Contracts, Termination of Employment and Change-in-Control Arrangements
We have employment agreements with each member of our senior management, including the named executive officers. Strong competition for
management talent and uncertainty generated by our stated willingness to embrace consolidation trends in our industry led us to conclude that it was appropriate and in our best interests to enter into
such employment agreements. Our independent compensation consultant advised our Compensation Committee regarding the form of the employment agreement used for senior management.
33
Table of Contents
The term of employment of Mr. Wilson is two years, expiring on June 1, 2018. At least ninety days prior to expiration, the Company
must affirmatively determine to renew the agreement for an additional two year period. The Company recently determined to renew Mr. Wilson's employment through June 1, 2020. The term of
employment of each of our other named executive officers is one year, with automatic one-year extensions unless either party provides written notice thirty days prior to expiration of the initial term
or any extension. Our failure to renew an executive's employment agreement will be considered a termination without cause under each employment agreement.
The salary payable to each of the named executive officers during 2017 is the amount set forth under the column entitled
"
2017 Base Salary
" in the table above. The salary of each named executive officer is subject to periodic review and may be increased from
time to time by the Compensation Committee and our board. Each named executive officer is eligible to receive bonuses, grants of stock options, restricted stock or other equity awards as determined in
the discretion of the Compensation Committee and our board. Each of the named executive officers is also entitled to reimbursement for reasonable business expenses and to participate in our life,
health, and dental insurance programs, and all other employee benefit plans which we may, from time to time, make available. We provide limited tax gross-ups for life insurance, parking and country
club memberships.
Our
Chief Executive Officer is entitled under his employment agreement to receive a vehicle allowance and reimbursement for reasonable fees and membership dues for one Houston area
country club. Our Chief Financial Officer is entitled under his employment agreement to be reimbursed for reasonable fees and membership dues for one Houston area country club.
Our
use of expense reimbursement and perquisites as an element of compensation is limited. We do not view these items as a significant element of our compensation structure but do
believe that they can be used in conjunction with base salary to recruit, motivate and retain executive talent in a competitive environment. The Compensation Committee periodically reviews these items
provided to determine if they are appropriate and if any adjustments are warranted.
We may terminate each named executive officer's employment upon disability, and at any time for cause or without cause. Each named executive
officer may terminate his or her employment at any time, and such termination will be deemed to be with "good reason" if it is based on a material reduction in base salary; a material reduction in
authority, responsibilities or duties or those of the supervisor to whom the named executive officer reports; a material reduction in the budget over which the named executive officer retains
authority; a permanent relocation of the named executive officer's principal place of employment to any location outside a fifty mile radius of the location from which named executive officer provides
services to the Company; or any uncured material breaches of the employment agreement by us. If the employment of any of the named executive officers is terminated by death or disability, such named
executive officer (or his or her personal representative in the event of death) is entitled to receive accrued unpaid base compensation, plus an optional bonus to be determined by the Compensation
Committee, and all stock options and other incentive awards held by the named executive officer will become fully vested and immediately exercisable, and all restrictions on any shares of restricted
stock will be removed. If the employment of any of the named executive officers is terminated by us for cause, such named executive officer (or his or her personal representative in the event of
death) is entitled to receive accrued unpaid base compensation.
If
the employment of any named executive officer is terminated by us without cause or by such named executive officer with good reason, and such termination is not within two years after
a change in control,
34
Table of Contents
such
named executive officer will be entitled to the accrued portion of unpaid salary, payment of the greater of a prorated amount of the named executive officer's target bonus for the year in which
the termination occurs or a bonus for such year as may be determined by our Compensation Committee in its sole discretion, a severance payment equal to one year's base salary plus the higher of the
current year target bonus or the bonus paid for the preceding year, payment of the premiums for medical, vision and dental insurance for the executive and his or her dependents for up to one year
following termination, and the full vesting of all unvested options and all restrictions removed from shares of restricted stock.
If
such named executive officer is terminated by us without cause or such named executive officer terminates his or her employment with the Company
with or
without
good reason, and such termination is within two years after a change in control, such named executive officer will be entitled to receive the accrued portion of unpaid
salary, payment of the greater of a prorated amount of the named
executive officer's target bonus for the year in which the termination occurs or a bonus for such year as may be determined by our Compensation Committee in its sole discretion, a severance payment
equal to a multiple (which varies by individual) of base salary plus the higher of the current year target bonus or the bonus paid for the year prior to termination or the year in which the change of
control occurred, payment of the premiums for medical, vision and dental insurance for the executive and his or her dependents for up to eighteen months following termination, and the full vesting of
all unvested options and all restrictions removed from shares of restricted stock. The multiplier for Mr. Wilson is 3.0, for Messrs. Herod, Mize and Elkouri it is 2.5, and for
Mr. Wright it is 2.0. In addition, if a bonus for the named executive officer for the year immediately preceding the termination has been determined but not paid as of the date of termination,
the named executive officer will be paid the bonus so determined; and if such a bonus has not been determined, then the named executive officer will be paid a bonus equal to the greater of such named
executive officer's target bonus for such year, or for the year in which the termination occurs or the change of control occurs, or the bonus paid to executive for the year immediately preceding the
year in which the change of control occurs. If the employment of such named executive officer is terminated by such named executive officer without good reason and not within two years after a change
in control, such named executive officer is entitled to receive accrued unpaid base compensation.
The
employment agreements with the named executive officers generally define a change of control to mean any of the following events:
-
-
any person or group becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 35% of the total voting power of our outstanding voting stock;
-
-
our merger with or consolidation into another entity and, immediately after giving effect to the merger or consolidation, one or both of the
following occurs: (a) less than 50% of the total voting power of the outstanding voting stock of the surviving or resulting entity is then "beneficially owned" in the aggregate by our
stockholders immediately prior to such merger or consolidation, or (b) the individuals who were members of our board of directors immediately prior to the execution of the agreement providing
for the merger or consolidation do not constitute at least a majority of the members of the board of directors of the surviving or resulting entity;
-
-
we sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of our assets to a third party in one transaction or
a series of related transactions;
-
-
individuals who constitute our board of directors cease for any reason to constitute at least a majority of our board of directors unless such
persons were elected, appointed or nominated by a vote of at least a majority of our incumbent directors; or
-
-
the complete liquidation or dissolution of our Company.
In
our view, having the change of control and severance protections helps to maintain the named executive officer's objectivity in decision-making and provides another vehicle to align
the interests of our
35
Table of Contents
named
executive officers with the interests of our stockholders. The disposition of our Williston Basin oil and natural gas properties in September 2017 constituted a sale of substantially all of our
assets and, therefore, a change of control under the terms of our employment agreements with senior management.
The
following table sets forth the estimated amounts that would be payable to each of the named executive officers upon a termination under the scenarios outlined above, excluding
termination for cause or on account of death or disability, assuming that such termination occurred on December 31, 2017 and using the closing price of our common stock at December 31,
2017 for purposes of the calculations as required by the SEC. The dollar amounts set forth under the column heading "
Early Vesting of Restricted
Stock/Options
" correspond to the amounts that would be paid, in addition to accrued and unpaid salary through the date of death or disability, in the event of the death or
disability at year-end of each of the executives. There can be no assurance that these scenarios would produce the same or similar results as those disclosed if a termination occurs in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Payment(1)
|
|
Early Vesting of
Restricted Stock/
Options(2)
|
|
Other(3)
|
|
Total
|
|
Without Cause/For Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd C. Wilson
|
|
$
|
1,600,000
|
|
|
|
|
$
|
37,839
|
|
$
|
1,637,839
|
|
Stephen W. Herod
|
|
$
|
900,000
|
|
|
|
|
$
|
37,839
|
|
$
|
937,839
|
|
Mark J. Mize
|
|
$
|
800,000
|
|
|
|
|
$
|
37,839
|
|
$
|
837,839
|
|
David S. Elkouri
|
|
$
|
800,000
|
|
|
|
|
$
|
25,147
|
|
$
|
825,147
|
|
Jon C. Wright
|
|
$
|
800,000
|
|
|
|
|
$
|
37,839
|
|
$
|
837,839
|
|
Following Change of Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd C. Wilson
|
|
$
|
4,800,000
|
|
|
|
|
$
|
56,758
|
|
$
|
4,856,758
|
|
Stephen W. Herod
|
|
$
|
2,250,000
|
|
|
|
|
$
|
56,758
|
|
$
|
2,306,758
|
|
Mark J. Mize
|
|
$
|
2,000,000
|
|
|
|
|
$
|
56,758
|
|
$
|
2,056,758
|
|
David S. Elkouri
|
|
$
|
2,000,000
|
|
|
|
|
$
|
37,721
|
|
$
|
2,037,721
|
|
Jon C. Wright
|
|
$
|
1,600,000
|
|
|
|
|
$
|
56,758
|
|
$
|
1,656,758
|
|
-
(1)
-
Represents
total annual cash compensation (2017 base salary plus target bonus, which is 100% of base salary for each officer, in accordance with the terms of the
employment agreement), which, in the event of a change of control, has been multiplied by the applicable multiplier set forth in each officer's employment agreement.
-
(2)
-
The
value of unvested restricted stock and stock options that would vest under each termination scenario is based on the closing price of our common stock on
December 31, 2017. No restricted stock grants to named executive officers were unvested through December 31, 2017 and reflects no payout on account of out of money options.
-
(3)
-
Represents
an estimate of health insurance benefits to be provided to the named executive officer and each eligible dependent under each of the scenarios based on
2018 COBRA rates.
Mr. Wilson's employment agreement provides that he will be nominated as a member of our board, and that we will use our best efforts to
cause him to be elected, appointed, or re-elected or re-appointed, as a director.
36
Table of Contents
We have entered into an indemnity agreement with each of our non-employee directors and Messrs. Wilson and Mize. These agreements provide
for us to, among other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses incurred as a
result of a proceeding as to which they may be indemnified and to cover such person under any directors' and officers' liability insurance policy we choose, in our discretion, to maintain. These
indemnity agreements are intended to provide indemnification rights to the fullest extent permitted under applicable indemnification rights statutes in the State of Delaware and are in addition to any
other rights such person may have under our
certificate of incorporation, bylaws and applicable law. We believe these indemnity agreements enhance our ability to recruit and retain knowledgeable and experienced executives and independent,
non-management directors.
We believe that it is in our best interest to pay compensation consistent with our compensation philosophies and objectives, even if it results
in the non-deductibility of some compensation under the Code. Accordingly, deductibility under Section 162(m) of the Code has not influenced our compensation decisions. Further, recent tax law
changes to Section 162(m) of the Code have expanded the limitations on the deductibility of compensation in excess of $1 million paid to certain executives to include our chief financial
officer, as well as our chief executive officer and our three next most highly compensated executive officers, as well as eliminating the exception previously available for certain performance-based
compensation.
Our success depends substantially on the performance of our executive officers and other key employees. The loss of any member of the senior
management team or other key employees could negatively affect our ability to execute our business strategy. Our executives and other key employees have been instrumental in guiding the Company
through a very difficult commodity price cycle and positioning us for the future. Our responsibility is to implement compensation programs that attract and retain the management talent necessary for
the Company execute its business plans and grow stockholder value.
At
the 2017 annual meeting of our stockholders, the compensation of our named executive officers was broadly endorsed by our stockholders, obtaining approval by 83.5% of the votes cast
on our "Say on Pay" proposal (excluding broker non-votes and abstentions). We engage in regular discussions with our stockholders on many aspects of our business, and to the extent that during those
discussions we receive stockholder feedback on our compensation practices, our Compensation Committee will take it into account, along with the advice and guidance of our independent compensation
consultants, as our Compensation Committee endeavors to ensure that our executive compensation programs are consistent with our objective of ensuring we are able to recruit, motivate and retain the
executive talent required to successfully manage and grow our business.
37
Table of Contents
Summary Compensation Table
The table below sets forth information regarding compensation for our named executive officers for the years indicated (commencing with the
first year in which such officer became one of our named executive officers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary(1)
|
|
Bonus(2)
|
|
Stock
Awards(3)
|
|
Option/SAR
Awards(3)
|
|
All Other
Compensation(4)
|
|
Total
|
|
Floyd C. Wilson
|
|
|
2017
|
|
$
|
800,000
|
|
$
|
1,400,000
|
|
$
|
2,405,716
|
|
$
|
2,721,241
|
|
$
|
26,536
|
|
$
|
7,353,493
|
|
Chairman of the Board, Chief
|
|
|
2016
|
|
$
|
750,000
|
|
$
|
3,275,000
|
|
$
|
8,604,750
|
|
$
|
11,463,436
|
|
$
|
31,510
|
|
$
|
24,124,696
|
|
Executive Officer and
|
|
|
2015
|
|
$
|
750,000
|
|
|
|
|
$
|
1,040,495
|
|
$
|
1,120,732
|
|
$
|
27,450
|
|
$
|
2,938,677
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen W. Herod
|
|
|
2017
|
|
$
|
450,000
|
|
$
|
787,500
|
|
$
|
629,688
|
|
$
|
712,269
|
|
$
|
26,536
|
|
$
|
2,605,993
|
|
Executive Vice President,
|
|
|
2016
|
|
$
|
450,000
|
|
$
|
965,000
|
|
$
|
2,252,250
|
|
$
|
3,000,497
|
|
$
|
31,510
|
|
$
|
6,699,257
|
|
Corporate Development
|
|
|
2015
|
|
$
|
450,000
|
|
|
|
|
$
|
378,742
|
|
$
|
407,949
|
|
$
|
26,909
|
|
$
|
1,263,600
|
|
Mark J. Mize
|
|
|
2017
|
|
$
|
400,000
|
|
$
|
600,000
|
|
$
|
629,688
|
|
$
|
712,269
|
|
$
|
41,938
|
|
$
|
2,383,895
|
|
Executive Vice President,
|
|
|
2016
|
|
$
|
400,000
|
|
$
|
946,667
|
|
$
|
2,252,250
|
|
$
|
3,000,497
|
|
$
|
38,461
|
|
$
|
6,637,875
|
|
Chief Financial Officer and
|
|
|
2015
|
|
$
|
400,000
|
|
|
|
|
$
|
375,502
|
|
$
|
404,461
|
|
$
|
34,824
|
|
$
|
1,214,787
|
|
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David S. Elkouri
|
|
|
2017
|
|
$
|
400,000
|
|
$
|
700,000
|
|
$
|
629,688
|
|
$
|
712,269
|
|
$
|
26,536
|
|
$
|
2,468,493
|
|
Executive Vice President
|
|
|
2016
|
|
$
|
375,000
|
|
$
|
937,500
|
|
$
|
2,252,250
|
|
$
|
3,000,497
|
|
$
|
31,510
|
|
$
|
6,596,757
|
|
and Chief Legal Officer
|
|
|
2015
|
|
$
|
375,000
|
|
|
|
|
$
|
298,278
|
|
$
|
321,278
|
|
$
|
26,909
|
|
$
|
1,021,465
|
|
Jon C. Wright
|
|
|
2017
|
|
$
|
400,000
|
|
$
|
700,000
|
|
$
|
516,669
|
|
$
|
584,425
|
|
$
|
18,648
|
|
$
|
2,219,742
|
|
Executive Vice President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
actual base salary paid in the year.
-
(2)
-
Represents
an annual cash incentive bonus paid subsequent to year end 2017 for prior year performance, and with respect to 2016, a retention bonus paid in 2016.
-
(3)
-
Represents
the grant date fair value of awards granted during the indicated year, as determined in accordance with ASC Topic 718. Pursuant to SEC rules, the amounts
shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Please see the discussion of the assumptions made in the valuation of these awards in
"
Note 13Stockholders' Equity
" to the audited consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2017. See "
Grants of Plan-Based Awards in 2017
" for information on awards made in 2017. Generally, the full grant date
fair value is the amount that we would expense in our financial statements over the award's vesting schedule. These amounts reflect our accounting expense, and do not correspond to the actual value
that will be recognized by the named executive officers.
-
(4)
-
For
2017, the amounts reported for "
All Other Compensation
" include amounts provided to the named executive officers as
outlined in the table below, with respect to (a) the matching contribution that we make on account of employee contributions under our 401(k) Savings Plan, (b) premiums paid by the
Company for executive
38
Table of Contents
long-term
disability insurance, (c) tax gross-ups for life insurance, parking payments and country club memberships, and (d) country club membership paid by the Company for
Mr. Mize.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Compensation
($)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
Named Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd C. Wilson
|
|
|
24,000
|
|
|
648
|
|
|
1,888
|
|
|
|
|
Stephen W. Herod
|
|
|
24,000
|
|
|
648
|
|
|
1,888
|
|
|
|
|
Mark J. Mize
|
|
|
18,000
|
|
|
648
|
|
|
8,720
|
|
|
14,570
|
|
David S. Elkouri
|
|
|
24,000
|
|
|
648
|
|
|
1,888
|
|
|
|
|
Jon C. Wright
|
|
|
18,000
|
|
|
648
|
|
|
|
|
|
|
|
Grants of Plan-Based Awards in 2017
The table below sets forth information regarding grants of plan-based awards made to our named executive officers during 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
Fair Value
of Stock
and Option
Awards(4)
|
|
|
|
|
|
|
|
Exercise or
Base Price
of Option
Awards ($/Sh)(3)
|
|
Name
|
|
Grant Date
|
|
Threshold(1)
|
|
Target(#)
|
|
Maximum (#)(1)
|
|
Type of
Award(2)
|
|
Floyd C. Wilson
|
|
|
4/11/2017
|
|
|
|
|
|
620,835
|
|
|
|
|
Options
|
|
$
|
7.75
|
|
$
|
2,721,241
|
|
|
|
|
4/11/2017
|
|
|
|
|
|
310,415
|
|
|
|
|
Restricted Stock
|
|
|
|
|
$
|
2,405,716
|
|
Stephen W. Herod
|
|
|
4/11/2017
|
|
|
|
|
|
162,500
|
|
|
|
|
Options
|
|
$
|
7.75
|
|
$
|
712,269
|
|
|
|
|
4/11/2017
|
|
|
|
|
|
81,250
|
|
|
|
|
Restricted Stock
|
|
|
|
|
$
|
629,688
|
|
Mark J. Mize
|
|
|
4/11/2017
|
|
|
|
|
|
162,500
|
|
|
|
|
Options
|
|
$
|
7.75
|
|
$
|
712,269
|
|
|
|
|
4/11/2017
|
|
|
|
|
|
81,250
|
|
|
|
|
Restricted Stock
|
|
|
|
|
$
|
629,688
|
|
David S. Elkouri
|
|
|
4/11/2017
|
|
|
|
|
|
162,500
|
|
|
|
|
Options
|
|
$
|
7.75
|
|
$
|
712,269
|
|
|
|
|
4/11/2017
|
|
|
|
|
|
81,250
|
|
|
|
|
Restricted Stock
|
|
|
|
|
$
|
629,688
|
|
Jon C. Wright
|
|
|
4/11/2017
|
|
|
|
|
|
133,333
|
|
|
|
|
Options
|
|
$
|
7.75
|
|
$
|
584,425
|
|
|
|
|
4/11/2017
|
|
|
|
|
|
66,667
|
|
|
|
|
Restricted Stock
|
|
|
|
|
$
|
516,669
|
|
-
(1)
-
Awards
granted under the Plan provide only for a single estimated payout. Under the Plan there are no minimum amounts payable for a certain level of performance and
there are no maximum payouts possible above the target. Thus, there are no thresholds or maximums (or equivalent items) applicable to these awards.
-
(2)
-
Represents
shares of restricted stock and stock options issued under the Plan. The shares of restricted stock vested on September 12, 2017. Stock options vest
in three equal installments on each anniversary of the date of grant, beginning on the first anniversary of the date of grant, in each case, provided that the recipient has been continuously employed
at such date.
-
(3)
-
The
exercise price of each award is equal to the closing market price of our common stock on the date of grant.
-
(4)
-
Represents
the full grant date fair value determined in accordance with ASC Topic 718. Please see the discussion of the assumptions made in the valuation of these
awards in "
Note 13Stockholders' Equity
" to the audited consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2017. Generally, the full grant date fair value is the amount that we would expense in our financial statements over the award's vesting
schedule. These amounts reflect our accounting expense, and do not correspond to the actual value that will be recognized by the named executive officers.
39
Table of Contents
Outstanding Equity Awards at December 31, 2017
The following table summarizes the number of securities underlying outstanding plan awards for each named executive officer as of
December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units Or
Other Rights
That Have
Not Vested
|
|
|
|
Option Awards
|
|
|
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable(1)
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
Floyd C. Wilson
|
|
|
620,833
|
|
|
1,241,667
|
|
$
|
9.24
|
|
|
9/12/2026
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
620,835
|
|
$
|
7.75
|
|
|
4/11/2027
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Stephen W. Herod
|
|
|
162,500
|
|
|
325,000
|
|
$
|
9.24
|
|
|
9/12/2026
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
162,500
|
|
$
|
7.75
|
|
|
4/11/2027
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Mark J. Mize
|
|
|
162,500
|
|
|
325,000
|
|
$
|
9.24
|
|
|
9/12/2026
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
162,500
|
|
$
|
7.75
|
|
|
4/11/2027
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
David S. Elkouri
|
|
|
162,500
|
|
|
325,000
|
|
$
|
9.24
|
|
|
9/12/2026
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
162,500
|
|
$
|
7.75
|
|
|
4/11/2027
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Jon C. Wright
|
|
|
133,333
|
|
|
266,667
|
|
$
|
9.24
|
|
|
9/12/2026
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
133,333
|
|
$
|
7.75
|
|
|
4/11/2027
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
-
(1)
-
Stock
options vest in three equal installments on each anniversary of the date of grant, beginning on the first anniversary of the date of grant, in each case,
provided that the recipient has been continuously employed at such date.
Compensation Adjustments Subsequent to Fiscal Year End
Subsequent to December 31, 2017, as part of the analysis of executive compensation that is undertaken annually by our Compensation
Committee, we approved increases in the base salaries of certain of our named executive officers and granted awards to each named executive officer of long-term equity incentives under the Plan. These
incentives were in the form of grants of restricted stock and non-qualified stock options. The restricted stock grants and non-qualified stock options vest in three equal annual increments beginning
on the first anniversary of the grant date. The incremental increase in salary, if applicable, and the number of shares covered by the equity awards for each named executive officer are set forth in
the table below. The exercise price per share for each stock option reflected in the following table is $5.65, which was the closing market price of our common stock on the date of grant,
March 1, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Salary
Increase
|
|
2018
Base Salary
|
|
Stock
Option
Award(#)
|
|
Restricted
Stock
Award(#)
|
|
Floyd C. Wilson
|
|
|
|
|
$
|
800,000
|
|
|
241,500
|
|
|
250,130
|
|
Stephen W. Herod
|
|
|
|
|
$
|
450,000
|
|
|
113,200
|
|
|
117,250
|
|
Mark J. Mize
|
|
|
|
|
$
|
400,000
|
|
|
100,600
|
|
|
104,220
|
|
David S. Elkouri
|
|
|
|
|
$
|
400,000
|
|
|
100,600
|
|
|
104,220
|
|
Jon C. Wright
|
|
$
|
25,000
|
|
$
|
425,000
|
|
|
100,600
|
|
|
104,220
|
|
40
Table of Contents
Option Exercises and Stock Vested
The following table summarizes option exercises and the vesting of restricted stock for our named executive officers in 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares
Acquired
on Exercise
|
|
Value
Realized
on Exercise
|
|
Number of
Shares
Acquired
on Vesting
|
|
Value
Realized
on Vesting(1)
|
|
Floyd C. Wilson
|
|
|
|
|
|
|
|
|
776,040
|
|
$
|
4,842,490
|
|
Stephen W. Herod
|
|
|
|
|
|
|
|
|
203,125
|
|
$
|
1,267,500
|
|
Mark J. Mize
|
|
|
|
|
|
|
|
|
203,125
|
|
$
|
1,267,500
|
|
David S. Elkouri
|
|
|
|
|
|
|
|
|
203,125
|
|
$
|
1,267,500
|
|
Jon C. Wright
|
|
|
|
|
|
|
|
|
166,667
|
|
$
|
1,040,002
|
|
-
(1)
-
The
value realized equals the closing price of our common stock on the date of vesting, multiplied by the number of shares vested.
Equity Compensation Plan Information
The following table sets forth certain information as of December 31, 2017 with respect to compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options and
Rights(A)
|
|
Weighted-
Average
Exercise
Price of
Outstanding
Options and
Rights
|
|
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column(A))
|
|
Equity compensation plans approved by stockholders(1)
|
|
|
7,481,410
|
(2)
|
$
|
8.84
|
|
|
7,748,818
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,481,410
|
(2)
|
$
|
8.84
|
|
|
7,748,818
|
|
-
(1)
-
Represents
information for the Plan.
-
(2)
-
Includes
745,507 shares of restricted stock not yet vested.
Stock Ownership Guidelines Policy
Our board of directors has adopted an Amended and Restated Stock Ownership Guidelines Policy (the "Policy") applicable to our board of
directors, chief executive officer and president and each executive vice president to ensure that they maintain a meaningful economic stake in the Company. The Policy is designed to maintain stock
ownership of our directors and the specified officers at a significant level so as to further align their interests with the interests of our stockholders in value creation. Subject to certain
exceptions contained in the Policy, our directors are required to hold a number of shares of our common stock valued at three times (3x) the annual cash retainer paid to them by the Company, our chief
executive officer and president is required to hold a number of shares of our common stock valued at six times (6x) the base salary paid to him by the Company and the other specified officers are
required to hold a number of shares of our common stock valued at three times (3x) the base salaries paid to them by the Company.
41
Table of Contents
For
purposes of calculating the value of shares owned, each share of stock shall have a deemed value equal to the greater of the price at acquisition or the current market value. For purposes of
calculating the value of unvested restricted shares, the value shall be determined without giving effect to the restriction. Subject to certain exceptions contained in the Policy, all of the Company's
directors and executive officers, including the named executive officers, are in compliance with the Policy.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of
Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Wilson, our
Chairman, Chief Executive Officer and President. For 2017, our last completed fiscal year:
-
-
the median of the annual total compensation of all employees of the Company (other than Mr. Wilson) was $201,569; and
-
-
the annual total compensation of Mr. Wilson was $7,353,493.
Based
on this information, for 2017 the ratio of the annual total compensation of Mr. Wilson to the median of the annual total compensation of all employees was 36 to 1.
To
identify the median of the total annual compensation of all our employees, we utilized a determination date of December 31, 2017, a date within the last three months of the
2017 fiscal year. For purposes of reporting annual total compensation and the ratio of annual total compensation of Mr. Wilson to the median employee, both Mr. Wilson and the median
employee's annual total compensation were calculated consistent with the disclosure requirements of executive compensation under Item 402(c)(2)(x) of Regulation S-K.
DIRECTOR COMPENSATION
2017 Director Compensation
The table below sets forth certain information concerning the compensation earned in 2017 by our non-employee directors for service on our board
of directors and committees of the board of directors during 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Earned or
Paid in Cash
|
|
Stock
Awards(1)(2)
|
|
Option
Awards
|
|
All Other
Compensation
|
|
Total(3)
|
|
William J. Campbell
|
|
$
|
90,000
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
255,005
|
|
Sylvia K. Barnes(4)
|
|
$
|
48,355
|
|
$
|
140,795
|
|
$
|
|
|
$
|
|
|
$
|
189,150
|
|
James W. Christmas
|
|
$
|
125,000
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
290,005
|
|
Michael L. Clark
|
|
$
|
90,646
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
255,651
|
|
Thomas R. Fuller
|
|
$
|
87,500
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
252,505
|
|
Darryl L. Schall
|
|
$
|
78,333
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
243,338
|
|
Ronald D. Scott
|
|
$
|
75,000
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
240,005
|
|
Eric G. Takaha(5)
|
|
$
|
77,500
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
242,505
|
|
Nathan W. Walton
|
|
$
|
71,694
|
|
$
|
165,005
|
|
$
|
|
|
$
|
|
|
$
|
236,699
|
|
-
(1)
-
Represents
the grant date fair value of awards granted during the indicated year, as determined in accordance with ASC Topic 718. Pursuant to SEC rules, the amounts
shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Please see the discussion of the assumptions made in the valuation of these awards in
"
Note 13Stockholders' Equity
" to the audited consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2017. Generally, the full grant date fair value is the amount that we would expense in
42
Table of Contents
our
financial statements over the award's vesting schedule. These amounts reflect our accounting expense, and do not correspond to the actual value that will be recognized by our directors.
-
(2)
-
The
number of restricted stock awards subject to vesting, excluding shares received in lieu of fees, made to each of our directors, with the exception of
Ms. Barnes, for service as a director during 2017 was 25,985.
-
(3)
-
Represents
the numerical sum of the dollar amounts reflected in each other column for each director.
-
(4)
-
Ms. Barnes
resigned from our board on February 14, 2018. The number of restricted stock awards subject to vesting, excluding shares received in lieu of
fees, made to Ms. Barnes for service as a director during 2017 was 23,157.
-
(5)
-
Mr. Takaha
resigned from our board on March 15, 2018.
Discussion of Director Compensation Table
Employee directors receive no additional compensation for service on our board or any committee of the board. All directors receive actual
expense reimbursements associated with attending board and committee meetings. Our director compensation program has been developed with the advice and guidance of our independent compensation
consultant using compensation peer group and market data and consists of two principal elements: (1) annual retainer and committee fees and (2) equity consisting of restricted stock
awards. Our Compensation Committee reviews our director compensation program at least annually using the advice and information provided by our independent compensation consultant. Our non-employee
directors received an award of restricted stock under the Plan with value of $165,005; they will receive annually an award of restricted stock under the Plan having a value of $165,000, which grant
shall be made contemporaneously with our annual meeting of stockholders. Our non-employee directors also receive an annual cash retainer of $70,000, payable on a quarterly basis and pro-rated for
actual service during the year. Our lead independent director receives an additional $25,000 per year, also payable on a quarterly basis and pro-rated for actual service during the year. Additional
annual compensation for each committee chairperson and committee member for all of the committees of our board is set forth below:
|
|
|
|
|
|
|
|
Board Committee
|
|
Committee
Chairperson
Additional
Compensation
|
|
Committee
Member
(excluding
Chairperson)
Additional
Compensation(1)
|
|
Audit
|
|
$
|
25,000
|
|
$
|
7,500
|
|
Compensation
|
|
$
|
15,000
|
|
$
|
5,000
|
|
Nominating and Corporate Governance
|
|
$
|
12,500
|
|
$
|
5,000
|
|
Reserves
|
|
$
|
12,500
|
|
$
|
5,000
|
|
Fees
are paid in four equal quarterly installments and board members may elect to take all or a portion of the cash compensation we pay to them in shares of our common stock, with the
number of shares determined by dividing such fees by the trading price per share of our common stock on the last day of each calendar quarter. Any such election must be made prior to the beginning of
the quarter for which the compensation is to be paid and is irrevocable for that quarter.
-
(1)
-
See
"
2018 Director Compensation
" below for a discussion on modifications to director compensation for 2018.
2018 Director Compensation
After consideration of various factors, including market conditions in our industry generally and the Compensation Committee's decisions
relating to compensation of the Company's executive officers, the
43
Table of Contents
Compensation
Committee recommended to our board for approval, a modification of the additional cash amounts associated with service on a standing committee of the board, reflecting the additional
workload associated with service in such capacities, to increase the additional annual cash retainer for committee member service on the (i) audit committee from $7,500 to $10,000;
(ii) compensation committee from $5,000 to $7,500; (iii) nominating and corporate governance committee from $5,000 to $5,500; and (iv) reserves committee from $5,000 to $5,500,
payable in quarterly installments. On February 28, 2018, the board approved such modifications to non-employee director compensation. All other non-employee director compensation, including the
annual retainer paid to the Lead Director and Committee Chairs, which are set forth above under "
2017 Director Compensation
" and discussed
in somewhat greater detail in "
Discussion of Director Compensation Table
," will remain the same for 2018.
2016 Long-Term Incentive Plan
Non-employee directors are eligible to participate in the Plan discussed above under the heading "
Long-term
Incentives
2016 Long-Term Incentive Plan
." At the time an individual initially becomes a non-employee director, we
grant such director shares of our restricted common stock. The Compensation Committee determinates how many shares of our restricted common stock to grant to a new non-employee director based upon a
number of factors, including the qualifications and background of the director, current market conditions, recommendations of our independent compensation consultant and our evaluation of our
compensation peer group. In addition, effective on the date of the Company's annual meeting of stockholders, we grant to each director the number shares of our restricted common stock the value of
which equals $165,000. For the purposes of determining the value of the shares of restricted stock to be issued, the closing price of the Company's common stock as reported on the date of grant is
used, and in calculating the number of shares of restricted stock to be issued, the number of shares is rounded up to the nearest 100 shares. Grants of restricted stock to non-employee directors vest
on the six month anniversary of the date of grant (subject to acceleration in the event of a change of control) provided that the director serves
continuously on our board through the vesting date. At December 31, 2017, 369,149 non-employee director grants had been fully vested and no shares were not yet vested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From the Reorganization Plan Effective Date, our Compensation Committee has consisted of William J. Campbell (Chairman), James W.
Christmas and Michael L. Clark. No member of the Compensation Committee during 2017 served as one of our officers or employees or of any of our subsidiaries during that year. In addition,
during 2017, none of our executive officers served as a director or as a member of the compensation committee of a company which employs any of our directors.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with management as required by
Item 402(b) of Regulation S-K. Based on our review and discussion with management, we have recommended to the board of directors that the Compensation Discussion and Analysis be included
in this proxy statement.
|
|
|
|
|
MEMBERS OF THE COMMITTEE:
|
|
|
William J. Campbell (Chairman)
James W. Christmas
Michael L. Clark
|
(
The foregoing Compensation Committee Report does not constitute soliciting material and should not be deemed to be filed or incorporated by reference into any
other filing of Halcón under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Halcón specifically
incorporates the Report by reference therein.
)
44
Table of Contents
ACCOUNTANTS AND AUDIT COMMITTEE
Audit Committee Report
Dear
Stockholder:
The
Audit Committee has reviewed and discussed with management of Halcón and Deloitte & Touche LLP ("Deloitte"), the firm serving as the independent
registered public accountant of Halcón, the audited financial statements of Halcón as of, and for the fiscal year ended, December 31, 2017 (the "Audited Financial
Statements"). In addition, we have discussed with Deloitte the matters required to be discussed by the statement on Auditing Standard No. 1301 (
Communications with Audit
Committees
), as adopted by the Public Company Accounting Oversight Board.
The
Audit Committee also has received the written disclosures and the letter from Deloitte required by Independence Standards Board Standard No. 1
(
Independence Discussions with Audit Committees
), as adopted by the Public Company Accounting Oversight Board, and the Audit Committee has discussed
with that firm its independence from Halcón. Upon such review, the Audit Committee has concluded that the independent registered public accountant is independent from
Halcón and its management. We have also discussed with management of Halcón and Deloitte such other matters and received such assurances from them as we deemed
appropriate.
Management
is responsible for Halcón's internal controls and the financial reporting process. Deloitte is responsible for performing an independent audit of
Halcón's financial statements and of its internal control over financial reporting in accordance with generally accepted auditing standards and issuing a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes.
Based
on the foregoing monitoring and oversight process, discussions with management and a review of the report of Deloitte with respect to the Audited Financial Statements, and relying
thereon, the Committee has recommended to the board the inclusion of the Audited Financial Statements in Halcón's Annual Report on Form 10-K for the year ended
December 31, 2017 for filing with the SEC.
The
Audit Committee has considered the requirements of the Sarbanes-Oxley Act of 2002 with respect to the responsibilities of audit committees of public companies. The Audit Committee
and the board of Halcón are committed to compliance with all provisions of that statute and related regulations. Actions
will be taken by the Audit Committee and the board as statutory and regulatory provisions become effective for Halcón and for audit committees and independent registered public
accountants generally.
|
|
|
|
|
MEMBERS OF THE COMMITTEE:
|
|
|
James W. Christmas (Chairman)
Thomas R. Fuller
Darryl L. Schall
|
(The foregoing Audit Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing of
Halcón under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Halcón specifically incorporates the
Report by reference therein.)
Independent Registered Public Accounting Firm
Deloitte is the independent registered public accounting firm selected by our Audit Committee as the independent registered public accountant
for the fiscal years ended December 31, 2017 and 2016. During the years ended December 31, 2017 and 2016, neither the Company nor anyone acting on its behalf consulted Deloitte with
respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's
45
Table of Contents
consolidated
financial statements, or any other matters or reportable events as defined in Items 304(a)(1)(iv) and (v) of Regulation S-K.
Attendance at the Annual Meeting by Deloitte Representative
A representative of Deloitte is expected to be present at the annual meeting of the stockholders. Deloitte will have the opportunity to make a
statement if it desires to do so, and the Deloitte representative is expected to be available to respond to appropriate questions.
Fees
The following table presents fees billed for professional audit services rendered by Deloitte, our principal accounting firm for the years ended
December 31, 2017 and 2016. The table also presents fees for other services rendered by Deloitte during those periods. Except as set forth below, we paid all such fees.
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Audit Fees
|
|
$
|
1,749,783
|
|
$
|
1,679,469
|
|
Audit-Related Fees
|
|
|
123,500
|
|
|
203,013
|
|
Tax Fees
|
|
|
1,624,521
|
|
|
2,654,768
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,497,804
|
|
$
|
4,537,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
used above, the following terms have the meanings set forth below:
Audit Fees.
The fees for professional services rendered by Deloitte for the audit of our annual financial statements, for the review of
the financial
statements included in our quarterly reports on Form 10-Q and for services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements and
private placements, including but not limited to registration statements, for the years ended December 31, 2017 and 2016.
Audit-Related Fees.
The fees for assurance and related services by Deloitte that are for audit, valuation services for acquisitions,
valuation
services related to the Reorganization and valuation services for a specific subsidiary that are reasonably related to the performance of the audit or review of our financial statements and are not
otherwise reported under "Audit Fees."
Tax Fees.
The fees for professional services rendered by Deloitte for tax compliance, tax advice, and tax planning.
All Other Fees.
The fees for products and services provided by Deloitte, other than for the services reported under the headings "Audit
Fees,"
"Audit-Related Fees" and "Tax Fees," for the period in question.
Audit Committee Pre-Approval Policy
All audit fees, audit-related fees and tax fees as described above for the years ended December 31, 2017 and 2016 were pre-approved by
our Audit Committee, which concluded that the provision of such services by Deloitte was compatible with the maintenance of their respective independence in the conduct of their auditing functions.
Our Audit Committee's pre-approval policy provides that pre-approval of all such services must be approved separately by the Audit Committee.
The Audit Committee has not delegated any such pre-approval authority to anyone outside the Audit Committee. Each member of the Audit Committee has the authority to pre-approve non-audit services up
to $200,000 to be performed by our independent registered public accountant.
46
Table of Contents
PROPOSALS FOR CONSIDERATION AT THE ANNUAL MEETING OF STOCKHOLDERS
PROPOSAL 1ELECTION OF DIRECTORS
Our bylaws specify that we shall not have less than one nor more than fifteen directors, and each director holds office until the annual
stockholders' meeting at which such director's class is up for re-election and until the director's successor is duly elected and qualified, or until such director's earlier death, resignation or
removal. As of the date of this proxy statement, our board consists of eight directors, seven of whom have been determined to be independent directors as set forth in the corporate governance rules of
the NYSE codified in Section 303A of the NYSE Listed Company Manual. Our certificate of incorporation provides that our board is classified into three classes: Class A, Class B
and Class C, each class having a three-year term of office.
Four
of our current directors, William J. Campbell, James W. Christmas, Michael L. Clark and Ronald D. Scott, have been nominated for re-election at the 2018
annual meeting because of the expiration of the term of their class, Class B, on our board. If Messrs. Campbell, Christmas, Clark and Scott each receive a majority of votes cast in favor
of his continued service on the board, each will serve a three-year term expiring in 2021.
If
any nominee should for any reason become unable to serve prior to the date of the annual meeting, the shares represented by all valid proxies will be voted for the election of such
other person as the board may designate as a replacement following recommendation by the Nominating and Corporate Governance Committee, or the board may reduce the number to eliminate the vacancy.
Additional
information regarding Messrs. Campbell, Christmas, Clark and Scott, and all of our other directors, can be found under the sections entitled
"
Our Board of Directors and Its Committees
," "
Security Ownership of Certain Beneficial Owners and
Management
," and "
Director Compensation
" of this proxy statement.
Votes Required
Directors are elected by a majority vote of the votes present in person or represented by proxy and entitled to vote, thus the number of shares
vote "for" a nominee must exceed the number of shares voted "against" such nominee. For purposes of determining the outcome for each nominee, broker non-votes will not be counted as entitled to vote
and will have no effect on the outcome of the vote. Abstentions will effectively count as votes "against" because they are considered entitled to vote. If you sign your proxy card but do not give
instructions with respect to the voting of directors, your shares will be voted for Messrs. Campbell, Christmas, Clark and Scott. However, if you hold your shares in street name and do not
instruct your broker how to vote in the election of directors, your shares will constitute a broker non-vote and will not be voted for any of the nominees. See the section of this proxy statement
entitled "
General InformationVoting and Revocation of Proxies
."
The board of directors unanimously proposes and recommends that you vote "FOR" each of the nominees for re-election to the board of
directors.
PROPOSAL 2RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
The Audit Committee has appointed Deloitte & Touche LLP ("Deloitte") as the independent registered public accounting firm to serve
as our independent registered public accountant in respect of the fiscal year ending December 31, 2018. The Audit Committee recommends that our stockholders ratify this appointment.
The
affirmative vote of the majority of the shares present in person or represented by proxy at the annual meeting and voting on Proposal No. 2 shall constitute ratification of
the selection of Deloitte as our
47
Table of Contents
independent
registered public accountant in respect of the fiscal year ending December 31, 2018. If our stockholders do not ratify the appointment of Deloitte, the appointment of an independent
registered public accounting firm to serve as the independent registered public accountant for the fiscal year ending December 31, 2018 will be reconsidered by the Audit Committee.
Representatives
of Deloitte are expected to be present at the meeting and will have an opportunity to address the meeting and respond to appropriate questions.
During
the years ended December 31, 2017 and 2016 and for the subsequent interim period through the date of this report, neither the Company nor anyone acting on its behalf
consulted Deloitte with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the
Company's consolidated financial statements, or any other matters or reportable events as defined in Items 304(a)(1)(iv) and (v) of Regulation S-K.
The board of directors unanimously proposes and recommends that you vote "FOR" the ratification of the appointment of Deloitte & Touche LLP as our
independent registered public accountant for the fiscal year ending December 31, 2018.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR OUR 2019 ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals intended to be presented under Rule 14a-8 under the Exchange Act for inclusion in our proxy statement and
accompanying proxy for our 2019 annual meeting of stockholders, including nomination of an individual for election as a director at the 2019 annual meeting of stockholders, must be received at our
principal executive offices in Houston, Texas, on or before December 6, 2018, and must meet all the requirements of Rule 14a-8. If a stockholder intends to present a proposal at our 2019
annual meeting but has not sought the inclusion of such proposal in our proxy materials, the written proposal must be delivered to our Chief Legal Officer not less than sixty (60) nor more than
ninety (90) days prior to the meeting date. For example, if our 2019 annual meeting of stockholders is held on May 15, 2019, then our Chief Legal Officer must receive the proposal
after February 15, 2019 but before March 16, 2019. If we mail or otherwise provide notice, or public disclosure, of the date of our annual meeting on a date that is less than seventy
(70) days prior to the date of the annual meeting, the stockholder's notice that he or she proposes to bring business before the annual meeting must be received by us no later than the tenth
business day following the
day on which our notice of the annual meeting was mailed, or public disclosure was made, whichever event first occurs. For a description of some of the requirements for suggesting an individual for
consideration by the Nominating and Corporate Governance Committee for election as a director, see "
Our Board of Directors and Its CommitteesCorporate Governance
MattersNomination Process
."
Proposals
and other notices should be sent to:
The
use of certified mail, return receipt requested, is suggested.
OTHER MATTERS
The board knows of no other proposals that may properly be presented for consideration at the annual meeting but, if other matters do properly
come before the annual meeting, and provided you vote your shares using the instructions on the notice of internet availability of proxy materials, or, if you received a paper copy of the proxy card,
by completing, signing, dating and returning the proxy card, thereby consenting to be represented at the annual meeting by proxy, the persons named in the proxy will vote your shares according to
their best judgment.
By
Order of the Board of Directors
of Halcón Resources Corporation
48
VIEW MATERIALS & VOTE w SCAN TO HALCÓN RESOURCES CORPORATION C/O BROADRIDGE P.O. BOX 1342 BRENTWOOD, NY 11717 VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E40420-P05906 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. HALCÓN RESOURCES CORPORATION The Board of Directors recommends you vote FOR the following: For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. ! !! 1. Election of Directors Nominees: 01) William J. Campbell 02) James W. Christmas 03) Michael L. Clark 04) Ronald D. Scott The Board of Directors recommends you vote FOR the following proposal: For Against Abstain ! ! ! 2. To ratify the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as our independent registered public accountant for the fiscal year ending December 31, 2018. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice, Proxy Statement and Form 10-K are available at www.proxyvote.com. E40421-P05906 HALCÓN RESOURCES CORPORATION Annual Meeting of Stockholders May 14, 2018 2:00 PM This proxy is solicited by the Board of Directors The undersigned hereby appoints Floyd C. Wilson and Mark J. Mize, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of HALCÓN RESOURCES CORPORATION that the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at 2:00 PM, CDT on May 14, 2018, at Wells Fargo Plaza Auditorium, 1000 Louisiana St., Houston, TX 77002, and any adjournment or postponement thereof. A majority of the proxies or substitutes present at the meeting may exercise all power granted hereby. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side
*** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 14, 2018. HALCÓN RESOURCES CORPORATION You are receiving this communication because you hold shares in the company named above. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com, scan the QR Barcode on the reverse side, or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. HALCÓN RESOURCES CORPORATION C/O BROADRIDGE P.O. BOX 1342 BRENTWOOD, NY 11717 proxy materials and voting instructions. E40422-P05906 See the reverse side of this notice to obtain Meeting Information Meeting Type:Annual Meeting For holders as of:March 16, 2018 Date: May 14, 2018Time: 2:00 PM, CDT Location: Halcón Resources Corporation Wells Fargo Plaza Auditorium 1000 Louisiana St. Houston,TX 77002
Before You Vote How to Access the Proxy Materials Have the information that is printed in the box marked by the arrow XXXX XXXX XXXX XXXX (located on the following page) XXXX XXXX XXXX XXXX (located on the following page) in the subject line. VIEW MATERIALS & VOTE SCAN TO How To Vote Please Choose One of the Following Voting Methods in the box marked by the arrow XXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. E40423-P05906 Vote In Person: Many stockholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: Go to www.proxyvote.com or from a smartphone, scan the QR Barcode above. Have the information that is printed Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. Proxy Materials Available to VIEW or RECEIVE: NOTICEPROXY STATEMENTFORM 10-K How to View Online: and visit: www.proxyvote.com, or scan the QR Barcode below. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET:www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*:sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before May 2, 2018 to facilitate timely delivery.
The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 01) William J. Campbell 02) James W. Christmas 03) Michael L. Clark 04) Ronald D. Scott The Board of Directors recommends you vote FOR the following proposal: 2. To ratify the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as our independent registered public accountant for the fiscal year ending December 31, 2018. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. E40424-P05906 Voting Items
E40425-P05906
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