DEF 14A of Epsilon Energy Ltd.
Filed Apr 11, 20240001104659-24-046126
PROPOSAL 2: ELECTION OF DIRECTORS
PROPOSAL 2: ELECTION OF DIRECTORS At the 2024 Annual General Meeting, our shareholders will be asked to elect six (6) directors for a one-year term expiring at the next annual meeting of shareholders. Each director will hold office until his or her successor has been elected and qualified or until the director’s earlier death, resignation, or removal. Recommendation of our Board of Directors Our Board of Directors recommends voting “FOR” the election of each of the Director nominees as directors, each of whom shall hold office for a term of one year, expiring at the annual meeting in 2025, or until his or her successor is elected and qualified, or until his or her earlier death, resignation, or removal. Each proxy or vote instruction form will be voted for the election of each of the Director nominees as directors unless the proxy contains contrary instructions. Common shares represented by proxies received by the Board of Directors and not so marked as to withhold authority to vote for any individual nominee or for all nominees will be voted (unless one or more nominees are unable to serve) for the election of the nominees named below. The Board of Directors knows of no reason why any such nominee should be unable or unwilling to serve. Majority Voting Policy In March 2016, the Board adopted a policy to the effect that, in an uncontested election of directors, any nominee who receives a greater number of “withheld” votes than “for” votes will be considered to have not received the support of the shareholders of the Corporation and will be expected to immediately withdraw himself or herself from consideration and, if he or she is then currently a member of the Board, submit his or her resignation to the Board. Upon receipt of such resignation, the Chairman of the Board will meet with the Compensation, Nominating and Corporate Governance Committee, with a view to making a recommendation to the Board. The Board will make its decision within 90 days from the date of resignation. The Board shall accept the resignation unless it determines that exceptional circumstances would warrant the applicable director continuing to serve on the Board. The resignation will be effective when accepted by the Board. A director who submits his or her resignation pursuant to this policy will not participate in any deliberations of the Board or Compensation, Nominating and Corporate Governance Committee with respect to the resignation. Following the Board’s decision on the resignation, the Board will promptly disclose, by way of a news release, its decision whether or not to accept the director’s resignation and, if the Board does not accept the resignation, the full reasons for rejecting the tendered resignation. Executive Officers The names of the executive officers and certain information about such executive officers, including their ages, are set forth below. For information concerning the number of common shares beneficially owned by each officer, see “Security Ownership of Certain Beneficial Owners and Management.”
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| Name | Age | Position | | Jason Stabell | 49 | Chief Executive Officer, Director | | Henry Clanton | 61 | Chief Operating Officer | | J. Andrew Williamson | 36 | Chief Financial Officer |
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| Name, Municipality of Residence | Position and Term | Principal Occupation During the Past Five Years | Number and Percentage of Common Shares | | Jason Stabell Houston, TX USA | Chief Executive Officer and Director since July 2022 | Chief Executive Officer of Epsilon Energy Ltd. since July 2022 and for 24 years previously in various positions in the energy industry with a focus on upstream E&P. Previously served as President and CEO of a privately held E&P company with domestic and international assets. | 439,883 (2.0%) | | Henry Clanton Houston, TX USA | Chief Operating Officer since January 2017 | Chief Operating Officer of Epsilon Energy Ltd. since January 2017 and for over 30 years previously in the upstream E&P sector. Previously served as Managing Partner for a private E&P start-up. | 65,675 (<1%) | | J. Andrew Williamson Houston, TX USA | Chief Financial Officer since July 2022 | Chief Financial Officer of Epsilon Energy Ltd. since July 2022 and for 10 years previously in various positions in the energy industry. Previously served as CFO of a privately held E&P company with domestic and international assets. | 17,784 (<1%) |
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Jason Stabell. Mr. Stabell has worked in the energy industry since 1998 with a focus on upstream E&P. Most recently he served as President and CEO of Merlon International, LLC, a privately held company with assets in the Western Desert of Egypt and US Gulf Coast which was sold in 2019 to a publicly listed UK company where he served as an advisor until 2021. Previously, he served as CFO and ultimately President of privately held Merlon Petroleum Company, which had assets in the US Gulf Coast and Egypt and was sold in 2006. He began his career at Salomon Smith Barney as an analyst in the Planning and Analysis Group. Mr. Stabell has also been active as a private investor for the last several years. He has a BA in Economics from Williams College. He has served on numerous corporate Boards including ESI Energy Services Inc. and Layline Petroleum, LLC. Henry N. Clanton. Mr. Clanton joined the Corporation as its Chief Operating Officer in January 2017. He has over 30 years of experience in the upstream E&P sector. His experience includes financial and technical management over all phases of drilling, completions, production, and field operations. Before joining us, he spent 14 years with a private E&P start-up, ARES Energy, Ltd, which he co-founded and served as a Managing Partner. Previous to that time Mr. Clanton worked with Schlumberger, ARCO Permian, and Coastal Management Company. He holds an MBA and a BS in Petroleum Engineering from Texas A&M University. J. Andrew Williamson. Mr. Williamson has spent his entire career in the energy business. From 2012 to early 2019, he served as Corporate Development Manager then Vice President Finance (CFO) of Merlon International, LLC. More recently, he served as the Corporate Strategy Manager for Petrosantander Inc. Mr. Williamson started his career in management consulting, advising energy clients on transaction due diligence, growth strategy, and cost reduction. He has a BBA in Finance and a BA in Political Science from Southern Methodist University. Nominees for Election to the Board of Directors The names of the nominees for election to the Board of Directors and certain information about such nominees, including their ages, are set forth below. For information concerning the number of shares of common stock beneficially owned by each nominee, see “Security Ownership of Certain Beneficial Owners and Management.”
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| Name | Age | Position | | John Lovoi | 63 | Director, Chairman of the Board | | Jason Stabell | 49 | Director, Chief Executive Officer | | Jason Stankowski | 53 | Director | | Tracy Stephens | 62 | Director | | David Winn | 61 | Director | | Nicola Maddox | 67 | Director |
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| Name, Municipality of Residence | Position and Term | Principal Occupation During the Past Five Years | Number and Percentage of Common Shares | | John Lovoi(1)(2) Houston, TX, USA | Chairman of the Board since July 2013 | Managing partner of JVL Advisors, LLC, a private oil and gas investment advisor, manager of Lobo Baya, LLC, Director of Helix Energy Solutions Group, an operator of offshore oil and gas properties and production facilities and Chairman of Dril-Quip, Inc., a provider of subsea, surface and offshore rig equipment. | 266,579 (1.2%) | | Jason Stabell Houston, TX, USA | Chief Executive Officer and Director since July 2022 | Chief Executive Officer of Epsilon Energy Ltd. since July 2022 and for 24 years previously in various positions in the energy industry with a focus on upstream E&P. Previously served as President and CEO of a privately held E&P company with domestic and international assets. | 439,883 (2.0%) | | Tracy Stephens(2)(3) Houston, TX, USA | Director since May 2017 | Founder and Chief Executive Officer of Westminster Advisors, a CEO advisory services company, since January 2017. Previously Chief Operating Officer of Resources Global Professionals, a large business consulting company. | 49,401 (<1%) | | David Winn(1) Houston, TX, USA | Director since Jan. 2021 | Retired from a 36-year career in public accounting, most recently was an Audit Partner for Grant Thornton LLP, an independent audit, tax, and advisory firm. Previously a Director for PricewaterhouseCoopers LLP. | 20,501 (<1%) | | Jason Stankowski(1)(3) Berkeley, CA, USA | Director since Jan. 2021 | Founder, partner and portfolio manager for Clayton Partners, LLC. Previously, in structured finance, in various roles with CMA Capital Management. He became designated as a Chartered Financial Analyst in 2003. | 347,727 (1.6%) | | Nicola Maddox(2)(3) Houston, TX, USA | Director since May 2023 | Self-employed energy advisor specializing in contract analysis, strategic planning, and negotiation. Previously she was a President at Merlon International, LLC. | 4,045 (<1%) |
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Notes:
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| (1) Proposed member of the Audit Committee. |
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| (2) Proposed member of the Compensation, Nominating and Corporate Governance Committee. |
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| (3) Proposed member of the Conflicts Committee. |
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As of April 11, 2024, the directors and officers of the Corporation owned, directly or indirectly, or exercised control or direction over 1,211,594 common shares, or 5.53% of the outstanding common shares. John Lovoi. Mr. Lovoi has been chairman of our board of directors since July 2013. Mr. Lovoi has been the managing partner of JVL Advisors, LLC, a private natural gas and oil investment advisor (“JVL”), since November 2002. He is a Director of Helix Energy Solutions Group, an operator of offshore natural gas and oil properties and production facilities, the Chairman of Dril-Quip, Inc., a provider of subsea, surface and offshore rig equipment. We believe that Mr. Lovoi is qualified to serve as a member of our board of directors as a result of his background in investment banking, equity research, and asset management, with an emphasis on the global natural gas and oil practice. Jason Stabell. Mr. Stabell has served as chief executive officer and a director for Epsilon Energy Ltd. since July 2022. He has worked in the energy industry since 1998 with a focus on upstream E&P. Most recently he served as President and CEO of Merlon International, LLC, a privately held company with assets in the Western Desert of Egypt and US Gulf Coast which was sold in 2019 to a publicly listed UK company where he served as an advisor until 2021. Previously, he served as CFO and ultimately President of privately held Merlon Petroleum Company, which had assets in the US Gulf Coast and Egypt and was sold in 2006. He has a BA in Economics from Williams College. We believe that Mr. Stabell is qualified to serve as a member of our board of directors as a result of his experience in the natural gas and oil industry. Tracy Stephens. Mr. Stephens has been a director since May 2017. He has also been a member of our Compensation, Nominating and Corporate Governance Committee, and Conflicts Committee since February 2019. He is the founder of Westminster Advisors, a CEO advisory services company, and served as its Chief Executive Officer from January 2018. He was previously employed by Resources Global Professionals, a large business consulting company, from July 2001 to December 2016, and was the Chief Operating Officer the last three years. We believe that Mr. Stephens is qualified to serve as a member of our board of directors as a result of his extensive experience with public companies. David Winn. Mr. Winn has been a director and member of the Audit Committee since January 2021. Mr. Winn recently retired from a 36 year career in public accounting that involved extensive board interaction. From 2003 until July 2020, Mr. Winn was an Audit Partner for Grant Thornton LLP, which is an independent audit, tax, and advisory firm and the U.S. member firm of Grant Thornton International Ltd. During his tenure, Mr. Winn served as audit department head, industry program leader, an engagement partner, quality control reviewer, and was a relationship partner to large clients. Mr. Winn has extensive Securities and Exchange Commission (the “SEC”) reporting experience with registration statements and annual and quarterly filings. Previously Mr. Winn served as a Director for PricewaterhouseCoopers LLP and previously as a Partner with Arthur Andersen LLP. We believe that Mr. Winn is qualified to serve as a member of our board of directors because of his experience in public accounting and public company reporting. Jason Stankowski. Mr. Stankowski has been a director and member of the Audit Committee since January 2021. Mr. Stankowski is the founder and a partner and portfolio manager for Clayton Partners, LLC. He began his career at Prudential Securities in San Francisco and spent eight years in structured finance at CMA Capital Management, where he acted in a number of roles, including specializing in corporate retirement planning, structuring complex investment and financing structures for Fortune 1000 companies. He became designated as a Chartered Financial Analyst in 2003. We believe that Mr. Stankowski is qualified to serve as a member of our board of directors based on his corporate finance and experience in public equity markets. Nicola Maddox. Ms. Maddox has been a director and member of the Compensation, Nominating and Corporate Governance Committee, and Conflicts Committee since May 2023. Ms. Maddox has over forty years’ experience in the oil and gas industry. After receiving her BA in Communications, she was employed by Exxon Minerals starting as an Associate Landman eventually ending in Executive Management positions starting in 1993. She was a co-founder of Centurion Exploration Company in 2004, initially serving as an EVP and then becoming its President, CEO and Chairman of the Board from 2007 to 2009. At Merlon International, LLC, Ms. Maddox was SVP in charge of its Texas subsidiary. She advanced to EVP and ultimately President after Merlon sold its Egyptian subsidiary in 2019. Since 2022, she has been a self-employed energy advisor specializing in contract analysis, strategic planning, and negotiation strategies. We believe that Ms. Maddox is qualified to serve as a member of our board of directors because of her significant industry experience in upstream oil and gas. There is no family relationship, as defined by Item 401 of Regulation S-K (§ 229.401), between any director, executive officer, or person nominated or chosen by us to become a director or executive officer. Criminal Proceedings During the past ten years, none of Epsilon’s executive officers, current directors, or nominees have (i) been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or (ii) been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Bankruptcy During the past ten years (i) no petition has been filed under federal bankruptcy laws or any state insolvency laws by or against any of our current directors or executive officers, (ii) no receiver, fiscal agent or similar officer was appointed by a court for the business or property of any of our current directors or executive officers and (iii) none of our current directors or executive officers were an executive officer of any business entity or a general partner of any partnership at or within two years before the filing of a petition under the federal bankruptcy laws or any state insolvency laws by or against such entity. Cease Trade Orders Other than as set forth herein, no proposed director, within 10 years before the date of this Proxy Statement, has been a director, chief executive officer or chief financial officer of any company that: (a) was subject to: (i) a cease trade order; (ii) an order similar to a cease trade order; or (iii) an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (collectively, an “Order”) that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or (b) was subject to an Order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. Penalties or Sanctions To the knowledge of the Corporation, no director or executive officer of the Corporation, or a shareholder holding a sufficient number of securities of the Corporation to materially affect control of the Corporation (or any personal holding corporation of such persons), has been subject to:
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| (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or |
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| (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. |
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Corporate Governance Policies and Practices Our corporate governance practices and policies are administered by the board of directors and by committees of the board appointed to oversee specific aspects of our management and operations, pursuant to written charters and policies adopted by the board and such committees. The Board of Directors The Board is committed to a high standard of corporate governance practices. The Board believes that this commitment is not only in the best interests of the shareholders but that it also promotes effective decision-making at the Board level. The Board is of the view that its approach to corporate governance is appropriate and complies with the objectives and guidelines relating to corporate governance set out in National Instrument 58-201 adopted by the Canadian securities administrators, or NI 58-201, as well as the governance requirements of the Nasdaq Global Market. In addition, the Board monitors and considers for implementation the corporate governance standards that are proposed by various Canadian regulatory authorities or that are published by various non-regulatory organizations in Canada. The Board has also established a Compensation, Nominating and Corporate Governance Committee and has adopted a Compensation, Nominating and Corporate Governance Charter to ensure the objectives of NI 58-201 and the Nasdaq Global Market are met. The Board is currently composed of six directors who provide us with a wide diversity of business experience. Our Board has determined that John Lovoi, Tracy Stephens, Jason Stankowski, David Winn, and Nicola Maddox are independent in accordance with the listing requirements of the Nasdaq Global Market, representing over 50% of the Board. Each of the independent directors has no direct or indirect material relationship with us, including any business or other relationship, that could reasonably be expected to interfere with the director’s ability to act with a view to our best interests or that could reasonably be expected to interfere with the exercise of the director’s independent judgment. Mr. Jason Stabell is our Chief Executive Officer and therefore is not an independent director. The Board held 12 meetings during 2023, including 7 meetings of the full Board, 1 meeting of the Compensation, Nominating and Corporate Governance Committee, and 4 meetings of the Audit Committee. All Board meetings were conducted with open and candid discussions. As such, directors did not hold any separate meetings, other than Audit and Compensation, Nominating and Corporate Governance Committee meetings. The members of the Board have the ability to meet on their own and are authorized to retain independent financial, legal and other experts as required whenever, in their opinion, matters come before the Board that require an independent analysis by the members of the Board. The Board intends to hold at least four regular meetings each year, as well as additional meetings as required. The Board has not established any required attendance levels for the Board and committee meetings. In setting the regular meeting schedule, care is taken to ensure that meeting dates are set to accommodate directors’ schedules so as to encourage full attendance. The table below provides details regarding the attendance of our current directors during 2023:
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| | Number of Total Board and Committee Meetings | | Director | Attended | | John Lovoi | 9/9 | | Jason Stabell | 7/7 | | Tracy Stephens | 8/8 | | David Winn | 11/11 | | Jason Stankowski | 11/11 | | Nicola Maddox | 3/3 |
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The Board has stewardship responsibilities, including responsibilities with respect to oversight of our investments, management of the Board, monitoring of our financial performance, financial reporting, financial risk management and oversight of policies and procedures, communications and reporting and compliance. In carrying out its mandate, the Board meets regularly and a broad range of matters are discussed and reviewed for approval. These matters include overall plans and strategies, budgets, internal controls and management information systems, risk management as well as interim and annual financial and operating results. The Board is also responsible for the approval of all major transactions, including property acquisitions, property divestitures, equity issuances and debt transactions, if any. The Board strives to ensure that our corporate actions correspond closely with the objectives of its shareholders. The Board will meet at least once annually to review in depth our strategic plan and review our available resources required to carry out our growth strategy and to achieve its objectives. Mandate of the Board. The Board does not have a written mandate. The Board has stewardship responsibilities, including responsibilities with respect to oversight of the Corporation’s investments, management of the Board, monitoring of the Corporation’s financial performance, financial reporting, financial risk management and oversight of policies and procedures, communications and reporting and compliance. In carrying out its mandate, the Board meets regularly and a broad range of matters are discussed and reviewed for approval. These matters include overall plans and strategies, budgets, internal controls and management information systems, risk management as well as interim and annual financial and operating results. The Board is also responsible for the approval of all major transactions, including property acquisitions, property divestitures, equity issuances and debt transactions, if any. The Board strives to ensure that actions taken by the Corporation correspond closely with the objectives of its shareholders. The Board will meet at least once annually to review in depth the Corporation’s strategic plan and review the Corporation’s available resources required to carry out the Corporation’s growth strategy and to achieve its objectives. Position Descriptions. The Board has outlined the responsibilities in respect to our Chief Executive Officer, or CEO. The Board and CEO do not have a written position description for the CEO; however, the CEO’s principal duties and responsibilities are planning our strategic direction, providing leadership, acting as our spokesperson, reporting to shareholders, and overseeing our executive management with respect to operations and finance. The charter for each of the Board committees outlines the duties and responsibilities of the members of each of the committees, including the chair of such committees. See “Board Committees” below. Orientation and Continuing Education. We have not adopted a formalized process of orientation for new Board members. However, all directors have been provided with a base line of knowledge about us that serves as a basis for informed decision making. This includes a combination of written material, in person meetings with our senior management, site visits and other briefings and training, as appropriate. Directors are kept informed as to matters affecting, or that may affect, our operations through reports and presentations at the quarterly Board meetings. Special presentations on specific business operations are also provided to the Board. Code of Ethics and Whistleblower Policy Our Code of Ethics and Whistleblower Policy are available on our website at http://www.epsilonenergyltd.com. Each director is expected to disclose all actual or potential conflicts of interest and refrain from voting on matters in which such director has a conflict of interest. In addition, a director must recuse himself from any discussion or decision on any matter of which the director is precluded from voting as a result of a conflict of interest. The Board has reviewed and approved a disclosure and insider trading policy for us, in order to promote consistent disclosure practices aimed at informative, timely and broadly disseminated disclosure of material information to the market in accordance with applicable securities legislation. The disclosure policy promotes, among other things, the disclosure and reporting of any serious weaknesses which may affect the financial stability and assets of us and our operating entities. The listing standards of the Nasdaq Global Market require the Audit Committee to establish formal procedures for (a) the receipt, retention, and treatment of complaints received by us and our subsidiaries regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by our consultants or employees of concerns regarding questionable accounting or auditing matters. We are committed to achieving compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. In addition, we post on our website all disclosures that are required by law or the listing standards of the Nasdaq Global Market concerning any amendments to, or waivers from, any provision of the code, and is updated as necessary. Assessments The Board does not conduct regular assessments of the Board, its committees or individual directors, however, the Board does periodically review and satisfy itself at meetings that the Board, its committees and its individual directors are performing effectively. Nomination of Directors The mandate of the Compensation, Nominating and Corporate Governance Committee includes consideration of issues related to the selection, nomination, and education of the directors. The Compensation, Nominating and Corporate Governance Committee is currently comprised of Tracy Stephens (chairman), John Lovoi, and Nicola Maddox, all of whom are independent directors as defined in the listing standards of NASDAQ. Director Term Limits The Board has not adopted term limits for directors because of the relatively small size of the Board. The Board is mindful of the ratio of the independent and management Board members and this will be a factor in future Board appointments. The Board has been focused on working closely as a team to develop the skills necessary for the business of the Corporation. The need for a retirement policy is not an immediate concern for the Board. The full Board reviews the need for director term limits intermittently and will institute one should the need arise. The Board is open to possible new Board members who can add value to the Board, bring new or a greater depth of skill sets necessary to successfully oversee the business of the Corporation and who can successfully operate within a team environment. Policies Regarding the Representation of Women on the Board The Corporation does not have a formal policy regarding identification and nomination of women to the Board. The Compensation, Nominating and Corporate Governance Committee generally identifies, evaluates and recommends candidates for nomination as directors with the goal of creating a Board that, as a whole, consists of individuals with various and relevant career experience, industry knowledge and experience, and financial and other specialized expertise.
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The Compensation, Nominating and Corporate Governance Committee takes gender into consideration as part of its overall recruitment and selection process in respect of potential candidates for the Board. Accordingly, when searching for new directors, the Compensation, Nominating and Corporate Governance Committee considers the level of female representation on the Board. Where appropriate, we intend to continue to recruit qualified female candidates as part of the Corporation’s overall recruitment and selection process to fill Board positions, as the need arises, through vacancies, growth or otherwise. The overall recruitment and selection process to fill Board positions has resulted in increasing gender diversity on our Board with the addition of Ms. Nicola Maddox in May 2023. She brings distinguished and varied industry experience that is of great benefit to the Board and the Corporation. Consideration of the Representation of Women in Executive Officer Appointments The Corporation is also sensitive to the representation of women when considering executive officer appointments. As of the date of this Proxy Statement, there are no women occupying executive officer positions with the Corporation. However, the Corporation is committed to ongoing review with respect to the gender diversity of its executive officers. Targets Regarding the Representation of Women on the Board and in Executive Officer Positions The Corporation has not adopted a formal target regarding women in executive officer positions. However, as noted above, the Corporation is committed to promoting diversity and will, in the future, continue to seek to identify talented women to fulfill Board and executive positions. Board Committees The Board has three committees. The committees are the Audit Committee, the Compensation, Nominating and Corporate Governance Committee, and the Conflicts Committee. Each committee has been constituted with independent directors. Audit Committee. The Audit Committee is currently comprised of David Winn (Chairman), John Lovoi, and Jason Stankowski. The Board has proposed that the membership on this committee continue. All members of the Audit Committee are independent and financially literate under the applicable rules and regulations of the SEC and the NASDAQ Global Market. The Audit Committee met four times during the fiscal year ended December 31, 2023. The Audit Committee meets at least on a quarterly basis to review and approve our consolidated financial statements before the financial statements are publicly filed. The Audit Committee reviews our interim unaudited condensed consolidated financial statements and annual audited consolidated financial statements and certain corporate disclosure documents including the Annual Information Form, Management’s Discussion and Analysis, and annual and interim earnings press releases before they are approved by the Board. The Audit Committee reviews and makes a recommendation to the Board in respect of the appointment and compensation of the external auditors and it monitors accounting, financial reporting, control and audit functions. The Audit Committee meets to discuss and review the audit plans of external auditors and is directly responsible for overseeing the work of the external auditors with respect to preparing or issuing the auditors’ report or the performance of other audit, review or attest services, including the resolution of disagreements between management and the external auditors regarding financial reporting. The Audit Committee questions the external auditors independently of management and reviews a written statement of its independence. The Audit Committee must be satisfied that adequate procedures are in place for the review of our public disclosure of financial information extracted or derived from its consolidated financial statements and it periodically assesses the adequacy of those procedures. The Audit Committee must approve or pre-approve, as applicable, any non-audit services to be provided to us by the external auditors. In addition, it reviews and reports to the Board on our risk management policies and procedures and reviews the internal control procedures to determine their effectiveness and to ensure compliance with our policies and avoidance of conflicts of interest. The Audit Committee has established procedures for dealing with complaints or confidential submissions which come to its attention with respect to accounting, internal accounting controls or auditing matters. To date, neither the Board nor the Audit Committee has formally assessed any individual director with respect to their effectiveness and contribution to us in their capacity as a director. Instead, members of the Board have relied on informal conversations among themselves to adequately cover such matters. The Audit Committee is also the primary governing body that is tasked with the evaluation and confirmation of the Corporation’s cybersecurity threat mitigation processes. More specifically, they review the Corporation’s annual IT audits and discuss any potential threats in quarterly meetings. The Audit Committee operates under a written charter that satisfies the applicable standards of the SEC and The Nasdaq Global Market. Committee members are not employees of the Corporation or accountants or auditors by profession. A copy of the Audit Committee Charter can be found on our website at www.epsilonenergyltd.com. Compensation, Nominating and Corporate Governance Committee. The Compensation, Nominating and Corporate Governance Committee is currently comprised of Tracy Stephens (chairman), John Lovoi, and Nicola Maddox. The Board has proposed that the membership on this committee continue. All members of this committee are independent directors. The Compensation, Nominating and Corporate Governance Committee met one time during the fiscal year ended December 31, 2023. The Compensation, Nominating and Corporate Governance Committee’s mandate is to:
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| 1. | Assist and advise the Board regarding its responsibility for oversight of our compensation policy; provided that all determinations on officer compensation will be subject to review and approval by the Board; |
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| 2. | Study and evaluate appropriate compensation mechanisms and criteria; |
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| 3. | Develop and establish appropriate compensation policies and practices for the Board and our senior management, including our security-based compensation arrangements; |
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| 4. | Evaluate senior management; |
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| 5. | Serve in an advisory capacity on organizational and personnel matters to the Board; |
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| 6. | Assist the Board by identifying individuals qualified to serve on the Board and its committees; |
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| 7. | Recommend to the Board the director nominees for the next annual meeting; |
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| 8. | Recommend to the Board members and chairpersons for each committee; |
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| 9. | Develop and recommend to the Board and review from time to time, a set of corporate governance principles and monitor compliance with such principles; and |
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| 10. | Serve in an advisory capacity on matters of governance structure and the conduct of the Board. |
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These responsibilities include reporting and making recommendations to the Board for their consideration and approval. The Compensation, Nominating and Corporate Governance Committee does not have a policy regarding consideration of director candidates recommended by security holders. The Compensation, Nominating and Corporate Governance Committee considers a wide range of factors, including those listed in the paragraph below, in its searches when making nomination recommendations to the Board. Corporate governance also relates to the activities of the Board, the members of which are elected by and are accountable to the shareholders and takes into account the role of the individual members of management who are appointed by the Board and who are charged with the day-to-day management of the Corporation. The Board is committed to sound corporate governance practices, which are both in the interest of its shareholders and contribute to effective and efficient decision making. Our Compensation, Nominating and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the appropriate characteristics, skills and experience required for the Board as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the Compensation, Nominating and Corporate Governance Committee, in recommending candidates for election, and the Board, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including the following:
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| • | personal and professional integrity, ethics and values; |
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| • | experience in corporate management, such as serving as an officer or former officer of a publicly held company; |
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| • | experience as a board member or executive officer of another publicly held company; |
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| • | strong finance experience; |
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| • | diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; |
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| • | diversity of background and perspective, including, but not limited to, with respect to age, gender, race, place of residence and specialized experience; |
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| • | experience relevant to our business industry and with relevant social policy concerns; and |
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| • | relevant academic expertise or other proficiency in an area of our business operations. |
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Currently, our Board evaluates each individual in the context of the Board as a whole, with the objective of assembling a group that can best maximize the success of the business and represent shareholder interests through the exercise of sound judgment using its diversity of experience in these various areas. The Compensation, Nominating and Corporate Governance Committee operates under a written charter that satisfies the applicable standards of the SEC and The Nasdaq Global Market. A copy of such charter can be found on our website at www.epsilonenergyltd.com. The Compensation, Nominating and Corporate Governance Committee does not conduct separate meetings, but instead meets and confers in conjunction with other meetings of the Board. Conflicts Committee. The Conflicts Committee is currently comprised of Tracy Stephens, Jason Stankowski and Nicola Maddox. The Board has proposed that the membership on this committee continue. All members are independent directors under NASDAQ listing rules. The Conflicts Committee has the power to advise the Board with respect to any matters or issues of concern to the Conflicts Committee in connection with any corporate opportunity and the interests of a related or conflicted party that the Conflicts Committee considers necessary or advisable. Incentive Awards The Board adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General Meeting of shareholders, which approval occurred on September 1, 2020 (the “Meeting”). Prohibitions on Hedging, Insider Trading and Pledging Corporation Securities Our Insider Trading Policy provides that our officers, directors, employees, and consultants who are aware of material nonpublic information may not, directly or indirectly, buy or sell securities of the Corporation other than pursuant to a trading plan that complies with Rule 10b5-1 promulgated by the SEC. The Corporation has designated Andrew Williamson, its Chief Financial Officer, as its Insider Trading Compliance Officer (the “Compliance Officer”), whose responsibilities include monitoring and enforcing this policy, along with designating and announcing special trading blackout periods during which some or all “Section 16 Insiders” and other employees are prohibited from trading in the Corporation’s securities. Additionally, the officers, directors, employees and consultants subject to the Insider Trading Policy may not, among other things, transact in puts, calls or other derivative securities involving the Corporation’s common shares, on an exchange or in any other organized market, engage in hedging or monetization transactions, engage in short sales of the Corporation’s securities, and directors, officers, and other employees are prohibited from holding the Corporation’s securities in a margin account or pledging the Corporation’s securities as collateral for a loan. Security Ownership of Certain Beneficial Owners and Management The table set forth below is information with respect to beneficial ownership of common shares as of April 11, 2024, by our named executive officers, by each of our directors, by all our current executive officers and directors as a group, and by each person known to us who beneficially own 5% or more of the outstanding common shares. To our knowledge, unless otherwise indicated, each person named in the table has sole voting and investment power with respect to the common shares identified as beneficially owned. Unless otherwise indicated, the address of each of the individuals named below is c/o Epsilon Energy Ltd., 500 Dallas St., Suite 1250, Houston, Texas 77002.
PROPOSAL 2: ELECTION OF DIRECTORS
| Name of Beneficial Owner | Number of Shares of Common Stock | Percentage of Common Shares Owned | | 5% Stockholders | | | | Solas Capital Management LLC (1) | 3,768,467 | 17.19% | | Palo Duro Energy Fund, LP (2) | 1,461,558 | 6.67% | | Azvalor Asset Management (3) | 1,189,672 | 5.43% | | Named Executive Officers and Directors | | | | Jason Stabell (4) | 439,883 | 2.01% | | Henry Clanton (5) | 65,674 | * | | Andrew Williamson (6) | 17,784 | * | | John Lovoi (7) | 266,579 | 1.22% | | Tracy Stephens (8) | 49,401 | * | | David Winn (9) | 20,501 | * | | Jason Stankowski (10) | 347,727 | 1.59% | | Nicola Maddox (11) | 4,045 | * | | All executive officers and directors as a group (8 persons) | 1,211,594 | 5.53% |
PROPOSAL 2: ELECTION OF DIRECTORS
| * Indicates beneficial ownership of less than 1% of outstanding shares. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (1) Based solely on Schedule 13G, Amendment No. 5, filed on February 14, 2024 with the SEC. Solas Capital Management, LLC (“Solas”) and Frederick Tucker Golden share voting and dispositive power with respect to these shares. Solas Capital Management, LLC, serves as the investment manager to two private funds and as sub-adviser to another private fund, which hold securities for the benefit of their investors, and Mr. Golden, as Portfolio Manager of Solas Capital Management, LLC, who has the power to exercise investment and voting discretion, may be deemed to be the beneficial owner of all shares these funds. The address of Solas Capital Management, LLC is 1063 Post Road, 2nd Floor, Darien, CT 06820. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (2) Based solely on Schedule 13G, Amendment No. 1, filed on February 14, 2024 with the SEC. The reported shares are held by Palo Duro Energy Fund, LP (1,070,913 shares), Palo Duro Investment Partners, LP (292,995 shares) and Matthew Dougherty (97,650 shares). Matthew Dougherty is the CEO of the general partner of Palo Duro Energy Fund, LP and Palo Duro Investment Partners, LP. Each reporting person exercises sole voting and dispositive power with respect to the shares held. The address of the reporting persons is 311 S. Wacker Drive, Suite 2620, Chicago, Illinois 60606. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (3) Based solely on Schedule 13G filed on August 11, 2023 with the SEC. Alvaro Guzmàn de Làzaro, Chief Investment Officer at Azvalor, exercises the voting and dispositive power with respect to the common shares held by Azvalor. The address of Azvalor Asset Management SGIIC SA, or Azvalor, is Paseo de la Castellana 110, 3rd, Madrid, 28046, Spain. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (4) Includes 361,200 shares held by Sisu Investments, LLC, an entity of which Mr. Stabell is the managing member, and 36,000 shares held by Mr. Stabell individually. Mr. Stabell is our Chief Executive Officer. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (5) Mr. Clanton is our Chief Operating Officer. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (6) Mr. Williamson is our Chief Financial Officer. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (7) Includes 208,078 shares held by JVL. Mr. Lovoi is the managing partner of JVL and the chairman of our Board. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (8) Includes 4,400 shares held by Mr. Stephens individually. Mr. Stephens is a member of our Board. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (9) Includes 7,500 shares held by Mr. Winn individually. Mr. Winn is a member of our Board. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (10) Includes 334,726 shares held by Clayton Partners LLC. Mr. Stankowski is a member of our Board and a partner and portfolio manager for Clayton Partners, LLC. |
PROPOSAL 2: ELECTION OF DIRECTORS
| (11) Includes 1,995 shares held by Ms. Maddox individually. Ms. Maddox is a member of our Board. |
PROPOSAL 2: ELECTION OF DIRECTORS
Changes in Control. The Corporation does not know of any arrangement, the operation of which may at a subsequent date result in a change of control of the Corporation.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The following table contains compensation earned in the year ended December 31, 2023 by persons that served as directors during the year:
DIRECTOR COMPENSATION
| | | | Non-Equity | | | | | | Share-Based | Incentive Plan | All Other | | | Name | Fees Earned | Awards | Compensation | Compensation | Total | | John Lovoi | $95,000 | $65,000 | $— | $— | $160,000 | | Tracy Stephens | $65,000 | $65,000 | $— | $— | $130,000 | | David Winn | $70,000 | $65,000 | $— | $— | $135,000 | | Jason Stankowski | $55,000 | $65,000 | $— | $— | $120,000 | | Nicola Maddox | $34,507 | $40,781 | $— | $— | $75,288 | | Jacob Roorda | $52,500 | $65,000 | $— | $— | $117,500 | | Stephen Finlayson | $52,500 | $65,000 | $— | $— | $117,500 |
DIRECTOR COMPENSATION
On a quarterly basis, we compensate each director for services rendered (unless a director elects not to receive payment) and reimburse reasonable out-of-pocket travel expenses when incurred. As of January 1, 2023, board member compensation is fixed at an annual fee of $55,000 paid in cash quarterly and $65,000 as a share-based award valued at the prior year-end share price (vesting evenly over a three year period). The chairman of the board receives an additional $40,000 annual cash fee, the chairman of the audit committee receives an additional $15,000 annual cash fee, and the chairman of the compensation, nominating, and corporate governance committee receives an additional $10,000 annual cash fee.
Directors and Officers Liability Insurance
Directors and Officers Liability Insurance We maintain directors’ and officers’ liability insurance for the protection of our directors and officers against liability incurred by them in their capacities as our directors and officers. The policy provides an aggregate limit of liability of $35,000,000 with a retention held by the Corporation of $1,500,000. The current annual premium for the Directors’ and Officers’ liability insurance is approximately $375,000 and is re-bid annually. The premium is not allocated between Directors and Officers as separate groups.