DEF 14A 1 phx-def14a_20210302.htm DEF 14A phx-def14a_20210302.htm

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

 

Filed by the Registrant

Filed by a Party other than the Registrant

 

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12

 

PHX MINERALS INC.

(Name of Registrant as Specified in its Charter)

_______________________________________________

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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PHX Minerals Inc.

1601 NW Expressway, Suite 1100

Oklahoma City, OK 73118

 

January 21, 2021

 

To the Stockholders of PHX Minerals Inc.,

 

We are pleased to invite you to attend the 2021 Annual Meeting of Stockholders of PHX Minerals Inc. The meeting will begin promptly at 9:00 a.m. Central Standard Time on March 2, 2021 via a live audio-only webcast. Instructions on how to participate in the Annual Meeting are posted at www.proxydocs.com/PHX. Prior registration to attend the Annual Meeting at www.proxydocs.com/PHX is required by 5:00 p.m. Eastern Time on February 26, 2021. Only stockholders who held shares at the close of business on the record date, January 4, 2021, may vote at the Annual Meeting, including any adjournment thereof.

 

We look forward to updating you regarding our accomplishments this last year and our decision to focus on growing our perpetual oil and natural gas mineral ownership through mineral acquisitions and the development of our significant mineral acreage inventory.

 

The attached Notice of Annual Meeting and the accompanying proxy statement describe the matters to be considered at the Annual Meeting. In addition, management will report on the state of our business, and there will be an opportunity for you to ask questions of our mangement.

 

Your vote is important. We encourage you to review this proxy statement and to vote promptly so that your shares will be represented at the meeting. On behalf of everyone at PHX Minerals Inc., we want to thank you, our valued stockholders, for your continued support.

 

Sincerely,

 

 

Chad L. Stephens

President and Chief Executive Officer

 


 

 

Notice of Annual Meeting of Stockholders

To be held March 2, 2021

To the Stockholders of PHX Minerals Inc.:

Notice is hereby given that the annual meeting of the stockholders (“Annual Meeting”) of PHX Minerals Inc. (the “Company”) will be held virtually, on Tuesday, March 2, 2021, at 9:00 a.m. Central Standard Time. The virtual meeting can be accessed at www.proxydocs.com/PHX. At the Annual Meeting, we plan to ask you:  

 

1.

To elect the three nominees named in the accompanying proxy statement to serve as directors on the Company’s Board of Directors until the Company’s 2024 annual meeting of stockholders or until their successors are duly elected and qualified;

 

2.

To approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers;

 

3.

To ratify the selection and appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2021;

 

4.

To approve an amendment to the Amended and Restated Certificate of Incorporation of the Company to increase the authorized number of shares of the Company’s common stock from 24,000,500 shares to 36,000,500 shares;

 

5.

To approve the PHX Minerals Inc. 2021 Long-Term Incentive Plan; and

 

6.

To consider and act upon any other matter as may properly come before the meeting or any adjournment or postponement thereof.

We have set the close of business on January 4, 2021, as the record date for the Annual Meeting and only holders of record of the Company’s common stock at such date will be entitled to vote at the Annual Meeting and any adjournments or postponements thereof. As part of our precautions regarding the COVID-19 pandemic, we are sensitive to the public health and travel concerns that our stockholders may have, as well as any quarantines or other protocols that governments may impose. As a result, the Annual Meeting will be held in a virtual meeting format only. Please note that you will only be able to attend the Annual Meeting by means of remote communication – you will not be able to attend the Annual Meeting if you do not have Internet access. There will not be a physical meeting location. You or your proxyholder will be able to attend the Annual Meeting online, examine a list of our stockholders of record, and submit your questions and vote your shares electronically by visiting www.proxydocs.com/PHX. To be admitted to the Annual Meeting and vote your shares, you must register by the Registration Deadline and provide the Control Number as described in the Internet Availability Notice and proxy card. We have designed the format of the Annual Meeting to ensure that you are afforded the same rights and opportunities to participate as you would have at an in-person meeting.

 


The Annual Meeting webcast will begin promptly at 9:00 a.m. Central Standard Time, on March 2, 2021. Online access to the virtual meeting website will begin at 8:45 a.m. Central Standard Time, and we encourage you to access the Annual Meeting prior to the start time.

Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. As a result, we are mailing to most of our stockholders a Notice of Internet Availability of Proxy Materials (“Notice”) instead of a paper copy of this proxy statement, a proxy card and our 2020 annual report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to vote. All stockholders who do not receive a Notice should receive a paper copy of the proxy materials by mail. We believe that the Notice process allows us to provide our stockholders with information in a more timely manner, reduces our printing and mailing costs, and helps to conserve resources. The Company anticipates the Notice will be mailed to stockholders on or about January 21, 2021.

Whether you plan to attend the Annual Meeting or not, we encourage you to vote by following the instructions on the Notice or, if you received a paper copy of the proxy card, by signing and returning it in the postage-paid envelope. Voting by proxy will ensure your shares are represented at the Annual Meeting. Please review the instructions on the Notice or the information forwarded by your bank, broker or other holder of record regarding each of these voting options.

We thank you for your continued support and look forward to seeing you at the Annual Meeting.

 

By Order of the Board of Directors

Ralph D’Amico, Secretary

 

Oklahoma City, Oklahoma

January 21, 2021

YOUR VOTE IS IMPORTANT.

YOUR VOTE IS IMPORTANT, AND WE ENCOURAGE YOU TO VOTE EVEN IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING. YOU MAY VOTE BY INTERNET OR TELEPHONE USING THE INSTRUCTIONS ON THE NOTICE, OR BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY AND MAILING IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED IF YOU RECEIVED A PAPER COPY OF THE PROXY CARD.

 

 


Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on March 2, 2021. This proxy statement, form of proxy card and the Company’s 2020 Annual Report to Stockholders are available at the following website: www.proxydocs.com/PHX or by writing to the Company at the address above. The Annual Report contains the financial documents of the Company.

 

 

 


 

Table of Contents

 

 

Page

Letter from Chief Executive Officer

 

Notice of Annual Meeting

 

Proxy Statement Summary

1

Questions and Answers About the Annual Meeting and Voting

2

Proposal No. 1 – Election of Three Directors for Three-Year Terms Ending at the Annual Meeting in 2024

9

Directors

9

Directors Nominated for Re-Election at the Annual Meeting

9

Directors Continuing in Office

11

Corporate Governance and Our Board

13

Board Leadership Structure and Lead Independent Director

13

Board Independence

13

Meetings and Committees of the Board of Directors

13

Board Committees

14

Board Role in Risk Oversight

16

Compensation of Directors

16

Director Compensation for Fiscal 2020

18

Share Ownership Guidelines for Directors

18

Related Person Transactions

18

Compensation Committee Interlocks and Insider Participation

19

Codes of Ethics

19

Communications with the Board of Directors

19

Proposal No. 2 – Advisory Vote on Executive Compensation

20

Executive Officers

21

Compensation Discussion and Analysis

22

Executive Compensation Overview

22

Summary of Current Compensation Program

22

Compensation Philosophy and Objectives

24

Role of Compensation Committee and Board

24

Role of the Compensation Consultant

24

Role of Stockholder Say-On-Pay Vote

25

2020 Executive Summary – Business Overview

25

Elements of 2020 Compensation Program

26

Clawback Policy

31

Other Compensation and Benefits

32

Change in Control Executive Severance Agreements

33

Indemnification Agreements

33

Other Compensation Matters

33

Report of the Compensation Committee

33

Executive Compensation

34

Chief Executive Officer Actual Realized Compensation

38

Pay Ratio Disclosure

38

Proposal No. 3 – Approval and Ratification of Selection of Independent Registered Public Accounting Firm

40

Report of the Audit Committee

40

Independent Accountants’ Fees and Services

41

Proposal No. 4 – Approval of Amendment and Restatement of Certificate of Incorporation

42

General

42

 

(i)


 

Description of the Amendment

42

Purpose

42

Potential Anti-Takeover Effects of the Amended and Restated Certificate

43

Additional Amendments Not Requiring Stockholder Approval

43

No Appraisal Rights

43

Proposal No. 5 – Approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan

44

Best Practices

44

Burn Rate and Overhang Disclosure

44

Summary of the 2021 Plan

45

Purpose of the 2021 Plan

45

Shares Subject to the 2021 Plan

46

Administration

46

Eligibility

46

Term of 2021 Plan

47

Term of Awards

47

Stock Options

47

Bonus Stock Awards

47

Stock Appreciation Rights

48

Phantom Stock Awards

48

Restricted Stock Awards

48

Restricted Stock Unit Awards

48

Performance Awards

48

Other Stock or Performance-Based Awards

49

Adjustments upon Changes in Capitalization and Corporate Events

49

General Provisions Applicable to All Awards

50

Amendment; Termination

51

Federal Income Tax Aspects of the 2021 Plan

51

Tax-Qualified Status of the 2021 Plan

53

Section 409A of the Internal Revenue Code

53

Inapplicability of ERISA

53

2021 Plan Benefits

53

Other Matters

54

Stock Ownership of Management and Certain Beneficial Owners

54

Section 16(a) Beneficial Ownership Reporting Compliance

55

Stockholder Proposals

55

Annual Report to Stockholders

56

 

 

Appendix A – Amended and Restated Certificate of Incorporation

A-1

Appendix B – PHX Minerals Inc. 2021 Long-Term Incentive Plan

B-1

 

 

 

 

(ii)


 

Proxy Statement Summary

 

This summary is included to provide an introduction and overview of the information contained in this Proxy Statement. This summary does not contain all of the information you should consider, and you should carefully read the Proxy Statement in its entirety before voting. Additional information regarding the Company and its performance in fiscal year 2020 can be found in our Annual Report on Form 10-K for the year ended September 30, 2020.

 

2021 ANNUAL MEETING OF STOCKHOLDERS

Date and Time:

March 2, 2021, at 9:00 a.m., Central Standard Time

Location:

Virtual access at www.proxydocs.com/PHX

Record Date:

January 4, 2021

Stockholders Entitled to Vote:

Holders of our Class A Common Stock, par value $0.01666 (“Common Stock”) as of the close of business on the Record Date are entitled to vote. Each share of Common Stock is entitled to one vote by proxy or at the Annual Meeting.

 

 PROPOSALS AND BOARD RECOMMENDATIONS

 

 

 

 

Proposal

 

Board
Recommendation

No. 1

 

Election of three directors to serve on the Company’s board of directors for three-year terms ending at the Company’s annual meeting in 2024.

 

FOR each nominee

No. 2

 

Advisory vote to approve the compensation of the Company’s named executive officers.

 

FOR

No. 3

 

Ratification of the selection and appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2021.

 

FOR

No. 4

 

Approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the authorized number of shares of Common Stock from 24,000,500 shares to 36,000,500 shares.

 

FOR

No. 5

 

Approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan

 

FOR

 


(1)


QUESTIONS AND ANSWERS ABOUT
THE ANNUAL MEETING AND VOTING

 

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, our stockholders will act upon the matters outlined in the Notice of Annual Meeting, including (1) the election of three directors to serve on our board of directors (the “Board”) for three-year terms ending at the Annual Meeting in 2024 (this proposal is referred to as the “Election of Directors”); (2) a non-binding, advisory vote to approve the compensation of our named executive officers (this proposal is referred to as “Executive Compensation”); (3) the ratification of the selection and appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2021; (4) the approval of an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 24,000,500 shares to 36,000,500 shares; (5) the approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan; and (6) the transaction of such other business as may arise that can properly be conducted at the Annual Meeting or any adjournment or postponement thereof. Additionally, management will report on our performance during the last fiscal year and respond to questions from our stockholders.

 

What is a proxy?

 

A proxy is another person that you legally designate to vote your stock. If you designate a person or entity as your proxy in a written document, such document is also called a proxy or a proxy card. All duly executed proxies received prior to the Annual Meeting will be voted in accordance with the choices specified thereon and, in connection with any other business that may properly come before the meeting, in the discretion of the persons named in the proxy.

 

What is a proxy statement?

 

A proxy statement is a document that regulations of the United States Securities and Exchange Commission (the “SEC”) requires that we make available to you when we ask you to sign a proxy card to vote your stock at the Annual Meeting. This proxy statement describes matters on which we would like you, as a stockholder, to vote and provides you with information on such matters so that you can make an informed decision.

 

Why did I receive a Notice of Internet Availability of Proxy Materials instead of printed proxy materials?

 

Pursuant to rules adopted by the SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials to our stockholders. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or to request a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. We encourage you to take advantage of the availability of the proxy materials on the Internet in order to help reduce the costs and environmental impact of the Annual Meeting.

 

How can I access the proxy materials over the Internet?

 

Pursuant to rules adopted by the SEC, we provide stockholders access to our proxy materials for the Annual Meeting over the Internet. The proxy materials for the meeting are available at www.proxydocs.com/PHX. To access these materials and to vote, follow the instructions shown on the proxy card, voting instruction card from your broker or the Notice.

 

Can I get paper copies of the proxy materials?

 

You may request paper copies of the proxy materials, including our 2020 annual report, by calling 1-866-648-8133 or e-mailing paper@investorelections.com with “Proxy Materials PHX Minerals Inc.” in the subject line. Include your full name and address, plus the control number located in the shaded bar on the reverse side of the

(2)


Notice received and state that you want a paper copy of the Annual Meeting materials. You also may request paper copies when prompted at www.investorelections.com/PHX.

 

Can I choose the method in which I receive future proxy materials?

 

Below are descriptions of the methods in which stockholders of record may receive future proxy materials or notice thereof:

 

Notice and Access: The Company furnishes proxy materials over the Internet and mails the Notice to most stockholders.

 

Mail: You may request distribution of paper copies of future proxy materials by mail by calling 1-866-648-8133, or by e-mailing paper@investorelections.com with “Proxy Materials PHX Minerals Inc.” in the subject line. Include your full name and address, plus the control number located in the shaded bar on the reverse side of the Notice received and state that you want a paper copy of the Annual Meeting materials. If you are voting electronically at www.proxypush.com/PHX, follow the instructions to enroll for paper copies by mail after you vote.

 

E-mail: If you would like to have earlier access to future proxy materials and reduce our costs of printing and delivering the proxy materials, you can instruct us to send all future proxy materials to you via e-mail. If you request future proxy materials via e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials via e-mail will remain in effect until you change it. If you wish to receive all future materials electronically, please log in to www.proxydocs.com/PHX to enroll or, if voting electronically at www.proxypush.com/PHX, follow the instructions to enroll for electronic delivery.

 

If you are a beneficial owner, you should consult the directions provided by your broker, bank, or other nominee with respect to how you receive your proxy materials and how to vote your shares.

 

Can I vote my shares by completing and returning the Notice?

 

No, the Notice simply instructs you on how to vote. You may vote by Internet or telephone using the instructions on the notice, or by marking, signing and dating the enclosed proxy and mailing it promptly in the postage-paid envelope provided if you received a paper copy of the proxy card.

 

What is “householding”?

 

The SEC permits companies and intermediaries (such as brokers, banks and other nominees) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This practice, known as “householding,” is designed to reduce duplicate mailings and save significant printing and postage costs. If you received a householded mailing this year and you would like to have additional copies of our Notice or paper copies of our proxy statement and annual report (the “Proxy Materials”) mailed to you or you would like to opt out of this practice for future mailings, please submit your request in writing to Computershare, P.O. Box 505000, Louisville, KY 40233-5000, or by telephone by calling 1-800-884-4225, and we will promptly deliver such additional materials to you. You may also contact us in the same manner if you received multiple copies of the Proxy Materials and would prefer to receive a single copy in the future. The Proxy Materials are also available at: www.proxydocs.com/PHX.

 

(3)


What should I do if I receive more than one set of voting materials?

 

Despite our efforts related to householding, you may receive more than one copy of the Notice and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. Similarly, if you are a stockholder of record and hold shares in a brokerage account, you will receive a proxy card and a voting instruction card. Please complete, sign, date and return each proxy card and voting instruction card that you receive to ensure that all your shares are voted at the Annual Meeting.

 

Who is entitled to notice of, and to vote at, the Annual Meeting?

 

Governing laws and our governance documents require our Board to establish a record date in order to determine who is entitled to receive notice of, attend and vote at the Annual Meeting, and any continuations, adjournments or postponements thereof.

 

The record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting is the close of business on January 4, 2021 (the “Record Date”).

 

As of the Record Date, we had 22,389,194 shares of Common Stock outstanding. All holders of Common Stock of record at the close of business on January 4, 2021, will be entitled to vote at the Annual Meeting or any adjournments or postponements.

 

A list of all stockholders of record entitled to vote at our Annual Meeting will be available for examination at least 10 days prior to the Annual Meeting at our principal office located at 1601 NW Expressway, Suite 1100, Oklahoma City, OK 73118, during normal business hours, and will be available for inspection at the Annual Meeting.

 

How do I attend and participate in the Annual Meeting?

 

Attendance at the Annual Meeting is limited to stockholders as of the Record Date. Stockholders can register to attend the Annual Meeting by visiting www.proxydocs.com/PHX. The Annual Meeting will begin promptly at 9:00 a.m. Central Standard Time. We encourage you to allow ample time for online check-in, which will open at 8:45 a.m. Central Standard Time. If you plan to participate, submit questions or vote during the virtual Annual Meeting, you will need the Control Number included in the Internet Availability Notice or proxy card.

 

How can I request technical assistance during the Annual Meeting?

 

If you encounter any difficulties accessing the Annual Meeting during the check-in or during the meeting, please call the technical support number that will be posted on the virtual meeting log-in page at www.proxydocs.com/PHX.

 

Will I be able to ask questions during the Annual Meeting?

 

Stockholders will be able to transmit questions through www.proxydocs.com/PHX. Only stockholders with a valid Control Number will be allowed to ask questions. Questions pertinent to meeting matters will be answered during the Annual Meeting, subject to time constraints.

 

What is a quorum?

 

A quorum is the presence, in person or by proxy, of a majority of the shares of our Common Stock outstanding and entitled to vote as of the Record Date. There must be a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is reached. Proxies received but marked as abstentions or broker non-votes will be included in the calculation of votes considered to be present at the Annual Meeting for the purpose of determining a quorum.

 

(4)


What are the voting rights of our stockholders?

 

Each record holder of Common Stock is entitled to one vote per share of Common Stock on all matters to be acted upon at the Annual Meeting.

 

What is the difference between a stockholder of record and a “street name” holder?

 

Most stockholders hold their shares in “street name” through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned in street name.

 

 

Stockholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares. As the stockholder of record, you have the right to grant your voting proxy directly or to vote in person at the Annual Meeting.

 

 

Street Name Stockholder. If your shares are held in a stock brokerage account or by a bank, fiduciary or other nominee, you are considered the beneficial owner of shares held in “street name.” In this case, such broker, bank or other nominee is considered the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct your broker, bank or nominee how to vote and are also invited to attend the Annual Meeting. If you hold your shares in “street name,” follow the voting instructions provided by your broker, bank or other nominee to vote your shares. Since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a signed proxy from the record holder (your bank, broker or other nominee) giving you the right to vote the shares.

 

How do I vote my shares?

 

Stockholders of Record: Stockholders of record may vote their shares or submit a proxy to have their shares voted by one of the following methods:

 

 

By Proxy. You may give us your proxy by calling the toll-free telephone number or using the Internet as further described on the Notice. Telephone and Internet voting procedures have been designed to verify your identity through a personal identification or control number and to confirm that your voting instructions have been properly recorded. If you received a paper proxy card, you may give us your proxy by completing the proxy card and returning it to us in the U.S. postage-prepaid envelope accompanying the proxy card.

 

 

To Vote During the Annual Meeting. You must do so through www.proxydocs.com/PHX. To be admitted to the Annual Meeting and vote your shares, you must register by the Registration Deadline and provide the Control Number as described in the Notice and proxy card. After completion of your registration by the Registration Deadline, further instructions, including a unique link to access the Annual Meeting, will be emailed to you.

 

Street Name Stockholders: Street name stockholders may vote their shares or direct their broker, bank or other nominee to vote their shares by one of the following methods:

 

 

By Voting Instruction Card. If you hold your shares in street name, your broker, bank or other nominee will explain how you can access a voting instruction card for you to use in directing the broker, bank or other nominee how to vote your shares. The availability of telephone or Internet voting depends on the voting process used by the broker or nominee that holds your shares.

 

 

To Vote During the Annual Meeting with a Proxy from the Record Holder. You may vote during the Annual Meeting if you obtain a legal proxy from your broker, bank or other nominee. Please consult the instruction card or other information sent to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote in person at the Annual Meeting.

(5)


 

 

If you are a stockholder of record, your shares will be voted by the management proxy holder in accordance with the instructions on the proxy card you submit.

 

Can I revoke my proxy or change my vote?

 

Yes. If you are a stockholder of record, you can revoke your proxy at any time before it is voted at the Annual Meeting by doing one of the following:

 

 

submitting written notice of revocation stating that you would like to revoke your proxy to PHX Minerals Inc., Attention: Chad True, 1601 NW Expressway, Suite 1100, Oklahoma City, Oklahoma, 73118, which must be received prior to the Annual Meeting;

 

 

using the same method (by telephone, Internet or mail) that you first used to vote your shares, in which case the later submitted proxy will be recorded and earlier proxy revoked; or

 

 

during the Annual Meeting, notifying the inspector of election that you wish to revoke your proxy and voting your shares during the Annual Meeting. Attendance at the Annual Meeting without submitting a ballot to vote your shares will not revoke or change your vote.

 

If you are a beneficial or street name stockholder, you should follow the directions provided by your broker, bank or other nominee to revoke your voting instructions or otherwise change your vote before the applicable deadline. You may also vote during the Annual Meeting if you obtain a legal proxy from your broker, bank or other nominee as described in “How do I vote my shares” above.

 

What are abstentions and broker non-votes?

 

An Abstention occurs when the beneficial owner of shares, or a broker, bank or other nominee holding shares for a beneficial owner, is present, in person or by proxy, and entitled to vote at the Annual Meeting, but fails to vote or voluntarily withholds its vote for any of the matters upon which the stockholders are voting.

 

Broker “non-votes” are shares held by brokers, banks or other nominees over which the broker, bank or other nominee lacks discretionary power to vote (such as for the election of directors) and for which the broker or nominee has not received specific voting instructions from the beneficial owner. If you are a beneficial owner and hold your shares in “street name,” you will receive instructions from your broker, bank or other nominee describing how to vote your shares. If you do not instruct your broker or nominee how to vote your shares, they may vote your shares as they decide as to each matter for which they have discretionary authority under the rules of the New York Stock Exchange (NYSE). There are non-discretionary matters for which brokers, banks and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. If a broker, bank or other nominee does not have discretion to vote on a particular matter and you have not given timely instructions on how the broker, banker or other nominee should vote your shares, then such broker, bank or other nominee indicates it does not have authority to vote such shares on its proxy and a “broker non-vote” results. Although broker non-votes will be counted as present at the Annual Meeting for purposes of determining a quorum, they are not entitled to vote with respect to non-discretionary matters.

 

If your shares are held in street name and you do not give voting instructions, the record holder will not be permitted to vote your shares with respect to Proposal 1 (Election of Directors), Proposal 2 (Executive Compensation), Proposal 4 (Amendment to Certificate of Incorporation) and Proposal 5 (Approval of Long-Term Incentive Plan), and your shares will be considered broker non-votes with respect to these proposals. If your shares are held in street name and you do not give voting instructions, the record holder will have discretionary authority to vote your shares with respect to Proposal 3 (Ratification of Accounting Firm).

 

What vote is required for the proposals to be approved?

 

 

Proposal 1 (Election of Directors): To be elected, for an uncontested election, each nominee for election as a director must receive the affirmative vote of a majority of the votes cast by the holders of our Common Stock, present or represented by proxy at the Annual Meeting and entitled to vote on the proposal. Votes may be cast “For” or “Against” the election of each nominee. Abstentions and broker non-votes will have no effect on the outcome of this proposal.

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Proposal 2 (Executive Compensation): To consider and vote upon, on a non-binding, advisory basis, a resolution to approve the compensation of our named executive officers as disclosed pursuant to the compensation disclosure rules of the SEC. This non-binding advisory vote will be approved if it receives the affirmative vote of a majority of the votes cast by holders of our Common Stock present or represented by proxy at the Annual Meeting. Abstentions and broker non-votes will have the effect of a vote “AGAINST” approval.

 

Proposal 3 (Ratification of Accounting Firm): Ratification of the selection and appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2021, requires the affirmative vote of a majority of the votes cast by holders of our Common Stock present or represented by proxy at the Annual Meeting. Abstentions will have the effect of a vote “AGAINST” approval. Brokers will have discretionary authority to vote on Proposal 3 and, accordingly, there will be no broker non-votes for this proposal.

 

Proposal 4 (Amendment to Certificate of Incorporation): The amendment to the Company’s Certificate of Incorporation (as described herein) requires the affirmative vote of a majority of shares of Common Stock outstanding as of the Record Date. Abstentions and broker non-votes will have the effect of a vote “AGAINST” approval.

 

 

Proposal 5 (Approval of Long-Term Incentive Plan): The approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan (as described herein) requires the affirmative vote of a majority of shares of Common Stock outstanding as of the Record Date. Abstentions and broker non-votes will have the effect of a vote “AGAINST” approval.

 

How does the Board recommend that I vote?

 

Our Board recommends a vote:

 

FOR each of the nominees for director;

 

 

 

 

FOR the non-binding, advisory approval of named executive officer compensation;

 

 

 

 

FOR the ratification of the selection and appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2021;

 

 

 

 

FOR the approval of an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 24,000,500 to 36,000,500; and

 

 

FOR the approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan.

 

What happens if I provide my signed proxy but do not specify how I want may shares to be voted, or if additional proposals are presented at the Annual Meeting?

 

If you provide us your signed proxy but do not specify how to vote, we will vote your shares as follows:

 

Proposal 1. FOR the election of each director nominee;

 

Proposal 2. FOR the approval, on an advisory basis, of the compensation of our named executive officers;

 

Proposal 3. FOR the ratification of the selection and appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending September 30, 2021;

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Proposal 4. FOR the approval of an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares from 24,000,500 to 36,000,500; and

 

Proposal 5. FOR the approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan.

 

Management knows of no other matters to be brought before the Annual Meeting. However, if any other matters do properly come before the meeting, it is intended that the shares represented by the proxies in the accompanying form will be voted as the Board may recommend.

 

Who will bear the cost of soliciting votes for the Annual Meeting?

 

The cost of soliciting proxies for the Annual Meeting will be paid by the Company. In addition to solicitation by mail, arrangements may be made with brokerage firms, banks or other nominees to send Proxy Materials to beneficial owners. The Company will reimburse these institutions for their reasonable costs in forwarding solicitation materials to such beneficial owners. No solicitation will be made by specially engaged employees or other paid solicitors.

 

May I propose actions for consideration at the 2022 annual meeting of stockholders or nominate individuals to serve as directors?

 

You may submit proposals for consideration at future stockholder meetings, including director nominations. Please read the “Stockholder Proposals” section of this proxy statement for information regarding the submission of stockholder proposals and director nominations for consideration at the Company’s 2022 annual meeting of stockholders.

 

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Proposal No. 1

Election of Three Directors for Three-Year Terms Ending at the Annual Meeting in 2024

Directors

The current directors of the Company and their current Board Committee memberships are as follows:

 

 

 

 

 

Positions/Offices Presently

 

Served As

 

Present

Name

 

Age

 

Held with the Company

 

Director Since

 

Term Ends

Mark T. Behrman (1)(3)

 

58

 

Lead Independent Director

 

2017

 

2023

Lee M. Canaan (1)(3)

 

64

 

Director

 

2015

 

2021

Peter B. Delaney(2)(3)

 

67

 

Director

 

2018

 

2021

Christopher T. Fraser (1)(2)

 

62

 

Director

 

2019

 

2022

John H. Pinkerton (2)(3)(4)

 

66

 

Director

 

2021

 

2022

Chad L. Stephens

 

65

 

Director, Chief Executive Officer

 

2017

 

2023

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Member of the Audit Committee.

(2)

Member of the Compensation Committee.

(3)

Member of the Governance and Nominating Committee.

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John H. Pinkerton was appointed to the Board effective February 1, 2021.

Our Bylaws state that the Board shall be comprised of not less than five members with the exact number determined by resolution of the Board. The Board has set the current size of the Board at six members. The Board is divided into three classes. At each annual stockholders’ meeting, the term of one class expires. Directors in each class ordinarily serve three-year terms, or until the director’s retirement or until his or her successor is elected and qualified.

The Board believes it is in the Company’s best interest to continue to have a classified board structure, with three-year terms for its directors, due to the uniqueness of the Company’s assets and strategies. The Company’s focus on ownership of perpetual fee mineral acres requires business strategies that are more long-term oriented as compared to more traditional oil and gas exploration and production companies. We believe that this requires the Company’s directors to have a long-term outlook and understanding rather than a focus on short-term results. This focus on long-term results will serve the Company well and create value for our stockholders.

Based on the recommendations from the Governance and Nominating Committee, our Board has nominated two continuing directors, Lee M. Canaan and Peter B. Delaney, and one new director, Glen A. Brown, to stand for election to the Board, each to serve a three year term expiring at the 2024 annual meeting or until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal.

Ms. Canaan, Mr. Delaney and Mr. Brown were recommended as nominees for election by the Governance and Nominating Committee and approved by the Board. Each nominee has consented to being named as a nominee in this proxy statement and has indicated a willingness to serve on the Board if elected. However, if any nominee should be unable for any reason to accept nomination or election, it is the intention of the persons named in the proxy to vote such proxies for the election of such other person or persons as the Board may recommend.

Directors Nominated for Election at the Annual Meeting

Below is information about our nominees for election to the Board for three-year terms ending at the Company’s annual meeting in 2024. The biographical information reflects the particular experience, qualifications, attributes and skills that led the Board to conclude that each nominee should stand for election to the Board.

Lee M. Canaan, 64, is the founder and portfolio manager of Braeburn Capital Partners, LLC (a private investment management firm), established in 2003 in Bloomfield Hills, MI. Ms. Canaan has over 35 years of oil and gas and investment management experience, starting her career as an Exploration Geophysicist at Amoco Production Company in Houston, TX, then ARCO in Los Angeles, CA, and AIM/Invesco in Houston, TX. She was elected to the Board in 2015.

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Ms. Canaan currently serves on the board of EQT Corporation, Pittsburgh, PA, (natural gas production company operating exclusively in the Appalachian Basin of the U.S.) and Aethon Energy, LLC, Dallas, TX, (private E&P company with main operations in East Texas and western Louisiana). She has also served on the board of directors of the following publicly held companies: Noble International Ltd., Warren, MI, (a supplier to the automotive industry) from 2000 to 2004, where she served as the Compensation Committee Chairman from 2002 to 2004; Oakmont Acquisition Corporation, Bloomfield Hills, MI, (a special purpose acquisition corporation) from 2005 to 2007; Equal Energy Ltd., Oklahoma City, OK, (oil and gas exploration and production) from 2013 until its sale in 2014; and Rock Creek Pharmaceuticals, Sarasota, FL, (pharmaceutical research and development) from 2014 to 2016, where she also served as the chairman of the Audit and Nominating and Corporate Governance committees. She also served on the board of Philadelphia Energy Solutions, LLC, Philadelphia, PA, from 2018 to 2020 (private downstream energy company and the largest crude oil refining complex on the East Coast of the U.S.). She holds a bachelor’s degree in Geological Sciences from the University of Southern California, a master’s degree in Geophysics from the University of Texas at Austin, and an MBA degree in Finance from The Wharton School of the University of Pennsylvania. She is also a Chartered Financial Analyst.

Ms. Canaan’s qualifications to serve on the Board include her corporate finance, capital markets and merger and acquisition experience; her scientific background in geology and geophysics; her oil and gas exploration knowledge of North American basins; and her experience serving as a director of several public and private companies.

Peter B. Delaney, 67, is currently a principal with Tequesta Capital Partners, an entity which provides funding for various real estate and other ventures. He has held this position since 2016. Mr. Delaney was previously the Chairman and Chief Executive Officer of OGE Energy Corporation (“OGE Energy”) from 2007 to 2015. OGE Energy is a NYSE listed company and the parent company of OG&E, an electric utility provider, and owns a 50% interest in the General Partner of Enable Midstream Partners (NYSE: ENBL). Mr. Delaney was elected President of OGE Energy and as a member of its Board in 2007. Mr. Delaney retired as Chief Executive Officer of OGE Energy in May 2015 to step in as the Interim Chief Executive Officer of Enable Midstream Partners, a position he held until December 2015. From 2002 to 2013, Mr. Delaney also served as Chief Executive Officer of Enogex, an OGE Energy subsidiary, involved in natural gas midstream services, and one of the predecessor companies to Enable Midstream Partners.

During his tenure as Chief Executive Officer, OG&E received numerous industry awards, among them the 2012 Utility of the Year and the 2013 Edison Award, the industry’s highest honor. Mr. Delaney previously completed a 16-year investment banking career on Wall Street, specializing in corporate finance and in providing other advisory services to electric utilities and other energy companies. In addition to extensive capital markets experience, he provided advisory services in tender defense and mergers and acquisitions, Mr. Delaney was a Managing Director of UBS Inc., from 1997 until May 2001.

Mr. Delaney was elected to the Company’s Board in 2018. He has also served on the Board of Directors of the following companies: OGE Energy (Chairman) from 2007 to 2015; Enable Midstream Partners (Chairman) from 2013 to 2017: the Federal Reserve Bank of Kansas City from 2012 to 2017; and the Oklahoma City Boathouse Foundation (US Olympic and Paralympic Training Site) (Chairman) from 2007 to 2018. He currently serves on the Board of Directors of Integris Health System since 2009; Appable (a technology start-up company) (Chairman) since 2016; and Cabot Oil and Gas since 2018.

Mr. Delaney’s qualifications to serve on the Board include his extensive management experience in the energy industry, extensive investment banking experience, financial expertise and his record of service on the board of directors of public and non-public companies. His management experience in the natural gas midstream sector provides him with a sound knowledge base and perspective on issues affecting the energy business.

Glen A. Brown, 64, has broad oil and gas experience both as a senior executive and as an independent explorationist. Mr. Brown served as the Senior Vice President of Exploration for Continental Resources from 2015 to 2017. He joined Continental in 2012 as Manager of New Ventures and in 2013 was named Vice President of Geology. During his career at Continental, he managed annual budgets of $2 to $4 billion with active leasing, drilling and completion programs. Prior to joining Continental, he was an independent owner of NE LLC from 2003 to 2012 who developed projects which resulted in over 200 wells to be drilled and completed with 12 different operators. From 1991 to 2003, he served as an Exploration Manager for EOG Resources Midcontinent Division and

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he was responsible for various drilling programs and numerous field discoveries. From 1985 to 1991, Mr. Brown held middle management positions for TXO Production Company in Oklahoma City and Midland Texas. From 1982 to 1985 he began his career as an Exploration Geologist with Marshall R. Young oil company in Oklahoma City. He holds a bachelor’s degree in Geology from State University of New York at Plattsburgh and a master’s degree in Geology from New Mexico State University in Las Cruces.

Mr. Browns’ qualifications to serve on the Board include his 39 years of oil and gas experience with identifying acquisition and divestiture targets, with assessing risk of projects, with knowledge of prospect economics, with extensive knowledge of horizontal drilling and completions in unconventional resource plays, and his 32 years in various management roles.

To elect each nominee for director, a majority of the votes entitled to be cast on Proposal No. 1 must vote “FOR” each nominee.

BOARD RECOMMENDATION

The Board of Directors Recommends Stockholders Vote “FOR” each of the director nominees named in this proxy statement.

Directors Continuing in Office

Below is information about our continuing directors whose terms of office do not expire at the 2021 Annual Meeting. These individuals are not standing for re-election at this time:

Directors Whose Terms End at the 2022 Annual Meeting

Christopher T. Fraser, 62, has broad experience in the chemical industry. Much of his experience, as noted below, has been with major, global participants in the industry. He was an Operating Partner of Advent International Corporation, a private equity firm (“Advent”), from 2011 to 2018 advising Advent on deals in the industrial sector, with a focus on chemicals and materials. Mr. Fraser served as Chairman of the Board of NYSE listed KMG Chemicals, Inc. from December 2012 to November 2018 and was a director from May 2008 to November 2018. He also served as Chief Executive Officer and President of KMG Chemicals, Inc. from September 2013 to November 2018. He served as the Chief Executive Officer and President of Chemical Lime Company from 2006 to 2009. Mr. Fraser served as the President and Chief Executive Officer of OCI Chemical Corporation from 1997 to 2006. Prior to joining OCI, he held various positions of responsibility in sales, marketing, business development, operations and general management.

Mr. Fraser currently serves on the Board of NYSE listed Element Solutions, Inc., Miami, FL, since July 2019, and serves as the Chairman of their Compensation Committee. He has also previously served as a director at OCI Company Ltd. from 2006 to 2008, ANSAC from 1994 to 2006 and Tangoe Inc. from 2002 to 2008. Mr. Fraser holds an MBA from Pepperdine University and Bachelor of Science degrees in Chemistry and Business Administration from the University of Connecticut.

Mr. Fraser’s qualifications to serve on the Board include his 18 plus years of experience serving as the chief executive officer of three different chemical companies, his service as board chairman or director of multiple publicly traded and privately-owned companies and his 40 years of experience utilizing his technical and business education. He is currently a senior operating director of SK Capital Partners advising on portfolio companies in the chemical industry.

John H. Pinkerton, 66, was appointed to the Board effective February 1, 2021 to fill the position vacated by Robert E. Robotti’s retirement. Mr. Pinkerton has had a long and distinguished career in the oil and gas industry, including serving Range Resources Corporation (NYSE: RRC), a petroleum and natural gas exploration and production company, as President in 1990 and as Chief Executive Officer from 1992 until 2012. During his 27-year tenure, Range Resources grew from its small cap origins to be a $13 billion enterprise with a preeminent position in the Marcellus Shale. As CEO of Range Resources, Mr. Pinkerton established the technical expertise to enable a drilling-led strategy complemented by bolt-on acquisitions where synergies would enhance growth. Prior to joining

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Range Resources, Mr. Pinkerton served in various capacities at Snyder Oil Corporation for 12 years, including the position of Senior Vice President.

Mr. Pinkerton was a director of Range Resources since 1988 and was chairman of its board of directors from 2008 until January 2015. Since 2017, Mr. Pinkerton has served as Executive Chairman and is Chairman of the Board of Directors of Encino Energy, LLC, a Houston based private oil and gas company. Mr. Pinkerton is also a director of EP Energy Corporation where he has served since October 2020. Mr. Pinkerton received his Bachelor of Arts degree in Business Administration from Texas Christian University, where he now serves on the board of trustees, and a Master’s degree from the University of Texas at Arlington. He has represented the industry in policy matters, serving on the executive committee of America’s Natural Gas Alliance.  Mr. Pinkerton’s qualifications to serve on the Board include his widespread skills in the management, acquisition and divestiture of oil and gas properties-including related corporate financing activities-hedging, risk analysis and the evaluation of drilling programs.

Directors Whose Terms End at the 2023 Annual Meeting

Mark T. Behrman, 58, has been with LSB Industries, Inc. (“LSB”), Oklahoma City, (a publicly traded manufacturer and marketer of chemical products for the agricultural, mining and industrial markets) since 2014. Mr. Behrman currently serves as LSB’s President and Chief Executive Officer, a position he has held since December 30, 2018. Mr. Behrman joined LSB as the Senior Vice President of Corporate Development and served in that capacity until June 2015 and served as the Company’s Executive Vice President – Chief Financial Officer from June 2015 through December 2018. Prior to LSB, Mr. Behrman was Managing Director, Head of Investment Banking and Head of the Industrial and Energy Practices of Sterne Agee, Inc., New York, NY, (a full-service investment bank) from 2007 to 2014. Mr. Behrman has over 25 years of investment banking experience specializing in corporate finance and in providing other advisory services to industrial companies. In addition to extensive capital markets experience, he provided advisory services including mergers and acquisitions advice. Mr. Behrman started his career at Paine Webber, Inc. and Drexel Burnham Lambert, Inc.

Mr. Behrman has served on the board of directors of the following publicly held companies: Noble International Ltd., Warren, MI, (a supplier to the automotive industry) from 1998 to 2007, where he also served as Audit Committee Chairman from 1998 to 2003; Oakmont Acquisition Corporation, Bloomfield Hills, MI, (a special purpose acquisition corporation) from 2005 to 2007; Robocom Systems International, Massapequa, NY, (a developer and marketer of advanced warehouse management software solutions) from 1998 to 2000; and LSB Industries, Inc., Oklahoma City, OK. Mr. Behrman holds an MBA in Finance degree from Hofstra University and a Bachelor of Science degree in Accounting, Minor in Finance from Binghamton University.

Mr. Behrman’s qualifications to serve on the Board include his executive management experience, his extensive investment banking experience, his experience in accounting and finance, including as Chief Financial Officer of LSB Industries, his co-founding and management of several diverse businesses and his previous experience as a director of several public companies.

Chad L. Stephens, 65, was appointed Chief Executive Officer of the Company on January 16, 2020. Prior to his appointment as Chief Executive Officer, Mr. Stephens served as the Interim Chief Executive Officer of the Company, a position he was appointed to in August 2019. Mr. Stephens previously served as Senior Vice President – Corporate Development of Range Resources Corporation (“Range”), a position he held from 2002 until his retirement effective December 31, 2018. Mr. Stephens joined Range in 1990 as Senior Vice President – Southwest. While at Range, he was responsible for the origination, valuation and acquisition or divestiture of over $6.0 billion of oil and gas producing properties. Mr. Stephens served on Range’s internal hedging committee and was responsible for the oversight of all gas, oil and NGL marketing and sales. Mr. Stephens holds a Bachelor of Arts degree in Finance and Land Management from the University of Texas. He was appointed to the Board in 2017 and previously served as its Lead Independent Director.

Mr. Stephens’ qualifications to serve on the Board include his 40 years of oil and gas experience, having served 28 years in various senior management roles with Range, including significant experience with mergers and acquisitions, land and risk management, midstream logistics and commodity sales.


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CORPORATE GOVERNANCE AND OUR BOARD

Our Board

Board Leadership Structure and Lead Independent Director

The Company established the position of Lead Independent Director effective November 1, 2008, and eliminated the position of Chairman of the Board. It is the policy of the Company that a Lead Independent Director shall be elected annually to preside over meetings of the Board and executive sessions of the Company’s independent directors, facilitate information flow and communication between the directors and the Chief Executive Officer and to perform such other duties specified by the Board and outlined in the Charter of the Lead Independent Director. The Lead Independent Director determines the agenda and presides at all Board meetings and all executive sessions of non-employee directors. The Lead Independent Director also performs other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities.

Effective August 26, 2019, Mark T. Behrman was named Lead Independent Director by the Board and was reaffirmed as the Lead Independent Director at the December 7, 2020 Governance and Nominating Committee meeting.

The Board adopted a “Charter of Lead Independent Director” which can be viewed at the Company’s website: www.phxmin.com under “Corporate Governance” set forth under the “Investors” tab.

Board Independence

Our Board annually determines the independence of each director and nominee for election as a director based on a review of the information provided by the directors and nominees. The Board makes these determinations under the independence standards set forth in the NYSE Listed Company Manual, applicable SEC rules and our Corporate Governance Guidelines. A copy of our Corporate Governance Guidelines can be viewed at the Company’s website: www.phxmin.com.

As a result of its annual evaluation, the Board affirmatively determined by resolution that each of the Company’s current non-employee directors is independent under the listing standards of the NYSE, the requirements of the SEC and our Corporate Governance Guidelines. The Board has determined that each of the following non-employee directors is independent and has no material relationship with the Company that could impair such director’s independence: Mark T. Behrman; Lee M. Canaan; Peter B. Delaney; Christopher T. Fraser; and John H. Pinkerton.

Chad L. Stephens is not independent based on his service as the Company’s Chief Executive Officer. Mr. Stephens is the only director who is an officer or employee of the Company, and he does not currently serve on any Board committee.

Meetings and Committees of the Board of Directors

During the fiscal year ended September 30, 2020 (“fiscal 2020”), the Board held ten meetings. At each meeting, a quorum of directors was present. The non-employee directors held executive sessions at each regularly scheduled Board meeting without management present.

Pursuant to the Corporate Governance Guidelines, the Company expects all of its directors to attend regularly scheduled Board and committee meetings and the annual meeting of stockholders. During fiscal 2020, each director attended at least 75% of the meetings of the Board and each of the Board committees on which he or she served. All of the then-current directors attended the Company’s 2020 annual meeting. 

Each year, the Board conducts a formal evaluation of its performance. Additionally, each Board committee conducts a formal evaluation of such committee’s performance. The Board and Board committee evaluations address, among other matters, the qualifications and performance of individual directors, overall Board or committee dynamics, the quality of information received from management, the appropriateness of matters reviewed and the quality of Board or committee deliberations. The results of these evaluations are discussed with the chairs of the relevant committees, the Lead Independent Director, or the full Board in executive session, as appropriate.

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Board Committees

The independent members of the Board are elected to serve on various Board committees. The Board presently has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Each committee operates under a charter that has been approved by the Board, and the chair of each committee reports to the Board on actions taken at each committee meeting.

Audit Committee

The Audit Committee is currently comprised of Mark T. Behrman (chair), Lee M. Canaan and Christopher T. Fraser. The Board has determined that each member of the Audit Committee during fiscal 2020 met all applicable independence requirements during such member’s service on the committee and the financial literacy requirements of the SEC and the NYSE. Mark T. Behrman, Lee M. Canaan and Christopher T. Fraser have been determined by the Board to meet the “audit committee financial expert” requirements of the SEC.

The purpose of the Audit Committee is to provide assistance to the Board in fulfilling its oversight responsibility to the Company’s stockholders, potential stockholders, the investment community and others, relating to: the integrity of the Company’s financial statements; the financial reporting process; the systems of internal accounting and financial controls; the performance of the Company’s internal audit function and independent auditors; the independent auditors’ qualifications and independence; and the Company’s compliance with ethics policies and legal and regulatory requirements. The primary responsibility of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board and report the results of the committee’s activities to the Board. While the Audit Committee has the responsibilities and powers set forth in the Audit Committee Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company’s financial statements and for reviewing the Company’s unaudited interim financial statements. For additional information regarding the functions performed by the Audit Committee, see “Report of the Audit Committee.”

The Audit Committee met six times during fiscal 2020. The Audit Committee Charter, as amended in December 2017, is available at the Company’s website: www.phxmin.com under the “Corporate Governance” section of the Investors tab. 

Compensation Committee

The Compensation Committee is currently comprised of Peter B. Delaney (chair) and Christopher T. Fraser. Robert E. Robotti served on the Compensation Committee until he resigned from the Board effective May 1, 2020. Messrs. Delaney and Fraser served on the Compensation Committee during the entire fiscal 2020. Mr. Pinkerton will be joining the Compensation Committee effective February 1, 2021. Each member of the Compensation Committee during fiscal 2020 met the applicable independence requirements during his service on the Compensation Committee, including the enhanced independence standards of the NYSE, and qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code and as a “Non-Employee Director” under SEC Rule 16b-3.

The purpose of the Compensation Committee is to discharge the Board’s responsibilities relating to compensation, employee benefits and incentive programs of the Company. The Compensation Committee has the overall responsibility of approving and evaluating executive officer compensation, retirement plans, policies and programs of the Company and the compensation of directors. The Compensation Committee’s function includes reviewing officer performance and recommending to the Board compensation amounts for executive officers and directors. The Compensation Committee also oversees the administration of the Company’s Employee Stock Ownership and 401(k) Plan and Trust Agreement (the “ESOP Plan”). For additional information regarding the Compensation Committee, please see the Compensation Committee Charter and the “Compensation Discussion and Analysis” section of this proxy statement.

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The Compensation Committee met five times during fiscal 2020. The Compensation Committee Charter, as amended in December 2016, is available at the Company’s website: www.phxmin.com under the “Corporate Governance” section of the Investors tab.

Governance and Nominating Committee

The Governance and Nominating Committee is currently comprised of Lee M. Canaan (chair), Mark T. Behrman and Peter B. Delaney. Robert E. Robotti served on the Governance and Nominating Committee until he resigned from the Board effective May 1, 2020. Ms. Canaan and Messrs. Behrman and Delaney served on the Governance and Nominating Committee during the entire fiscal 2020. Mr. Pinkerton will be joining the Governance and Nominating committee effective February 1, 2021. The Board determined that each member of the Corporate Governance and Nominating Committee during fiscal 2020 met the applicable independence requirements.

Role of Corporate Governance and Nominating Committee

The purpose of the Governance and Nominating Committee is to assist the Board with the management of its corporate governance and nominating duties and responsibilities. Functions of the Governance and Nominating Committee include: searching for, identifying and screening individuals qualified to become members of the Board; recommending to the Board when new members should be added to the Board; recommending to the Board individuals to fill vacant Board positions; recommending to the Board nominees for election as directors at the annual meeting; and recommending the committee structure of the Board and the directors who will serve as members and chairs of each committee. If a vacancy on the Board exists that will not be filled by an incumbent director, the Governance and Nominating Committee identifies prospective nominees from several sources, including through the Board’s and management’s business and industry contacts and through stockholder recommendations. Currently, the Company does not pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential nominees.

The Governance and Nominating Committee is also responsible for overseeing and evaluating compliance by the Board and management with the Company’s corporate governance principles and its Code of Business Ethics and Business Practices. The Governance and Nominating Committee reviews periodically the corporate governance policies and principles of the Company.

Diversity

Although the Governance and Nominating Committee does not have a formal policy with respect to diversity when considering potential nominees for Board membership, the Governance and Nominating Committee seeks individuals with backgrounds and qualities that, when combined with those of the Company’s existing directors, provide a blend of skills and experience that will further enhance the Board’s effectiveness at the time the consideration is made. When considering potential nominees for Board membership, the Governance and Nominating Committee considers, among other things, the candidate’s character, wisdom, judgment, acumen, diversity, skills, financial literacy, experience and understanding of and involvement in the oil and gas industry. The committee also considers a potential nominee’s availability to devote the time and effort necessary to fulfill his or her responsibilities in the context of the needs of the Company and the Board. Our Bylaws generally provide that a person may not stand for election or re-election as a director after attaining the age of 70.

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Stockholder Nominees

The Governance and Nominating Committee will consider nominees proposed by stockholders of the Company if the requirements set forth in the Company’s Bylaws are satisfied. Nominations from our stockholders must include sufficient biographical information for the Governance and Nominating Committee to appropriately assess the proposed nominee’s background and qualifications. To propose a prospective nominee for consideration by the Governance and Nominating Committee, stockholders must submit the proposal in writing to PHX Minerals Inc., Attention: Secretary, 1601 NW Expressway, Suite 1100, Oklahoma City, OK 73118. Any such submission must be accompanied by the proposed nominee’s written consent to being named as a nominee and to serve as a director, if elected. Whether recommended by a stockholder or through the activities of the Governance and Nominating Committee, the Governance and Nominating Committee seeks to select candidates who have distinguished records and who will make significant contributions to the Board and the Company. There are no differences in the manner in which the Governance and Nominating Committee evaluates nominees for director based on whether a nominee was recommended by the incumbent directors or by a stockholder. For additional information, please see our Bylaws and the “Stockholder Proposals” section of this proxy statement.

The Governance and Nominating Committee met five times during fiscal 2020. The Corporate Governance and Nominating Committee Charter, as amended in March 2018, and the Code of Ethics and Business Practices are available at the Company’s website: www.phxmin.com under the “Corporate Governance” section of the Investors tab.

Board Role in Risk Oversight

Management is responsible for day-to-day risk assessment and mitigation activities. The Board is responsible for risk oversight, focusing on the Company’s overall risk management strategy, its degree of tolerance for risk and oversight of the steps management is taking to manage the Company’s risk. This process is designed to provide to the Board timely visibility needed for the identification, assessment and management of critical risks. The Audit Committee assists the Board by annually reviewing and discussing with management this process and its functionality. The areas of critical risk for the Company include information technology, strategic, operational, compliance, environmental and financial risks. The Board, or the Audit Committee, receives information regarding areas of risk and potential risk exposure through updates from the appropriate members of management to enable the Board to understand and monitor the Company’s risk management process. Information brought to the attention of the Audit Committee is appropriately shared with the Board.

Compensation of Directors

The compensation of our non-employee directors is reviewed by the Compensation Committee and is approved by the Board. We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on our Board. We consider the responsibilities of our non-employee directors and the amount of time such directors spend fulfilling their responsibilities and duties as a director in determining their compensation.

The following summary includes information regarding the compensation earned by our non-employee directors during fiscal 2020 for service on our Board and Board committees.

Cash Annual Retainers

For fiscal 2020, each of our non-employee directors received an annual retainer of $43,125. Additionally, in the first quarter of fiscal 2020, non-employee directors received $1,500 for attending each Board meeting and $1,000 for attending each committee meeting. Any director who traveled over 50 miles to attend a Board or committee meeting received an additional $500 for each meeting. Any director who participates in a Board meeting or committee meeting by telephone conference or other communications equipment received one-half of the fee paid for attendance in person at these meetings. We also reimburse our non-employee directors for out-of-pocket travel expenses incurred in connection with attending Board and committee meetings. After the first quarter of fiscal 2020, the annual retainer was increased to $45,000, and non-employee directors no longer receive additional compensation for Board and committee meeting attendance and fees for traveling over 50 miles to attend Board and committee meetings.

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During fiscal 2020, the Lead Independent Director received an additional annual retainer of $15,000 and the chairs of the Audit Committee, Compensation Committee and Governance and Nominating Committee received additional annual retainers of $11,500, $8,500 and $8,500, respectively. The annual retainers were paid in equal installments on December 31, 2019, and March 31, June 30 and September 30, 2020. The first retainer installment for fiscal 2021 was paid on the same basis on December 31, 2020.

The Company’s retainer and fee structure for non-employee directors was guided by a study conducted by Longnecker & Associates, Houston, Texas (“Longnecker”), an independent compensation consultant previously retained by the Compensation Committee to review the Company’s Board and executive compensation levels.

Equity Incentive Plans for Non-Employee Directors

The Company’s Deferred Compensation Plan for Non-Employee Directors (the “Directors’ Deferred Compensation Plan”) and the Company’s Amended 2010 Restricted Stock Plan (the “Restricted Stock Plan”) serve as the equity incentive plans for the Company’s non-employee directors.

Deferred Compensation Plan for Non-Employee Directors

Annually, non-employee directors may elect to be included in the Directors’ Deferred Compensation Plan. The Directors’ Deferred Compensation Plan provides that each non-employee director may individually elect to be credited with future unissued shares of Common Stock rather than cash for all or a portion of the director’s annual retainers, and may elect to receive shares, if and when issued, over annual time periods up to ten years. These unissued shares of Common Stock are recorded to each director’s deferred compensation account at the closing market price of the shares (i) on the dates of the Board and committee meetings and (ii) on the payment dates of the annual retainers. Dividends are credited to each deferred account on the record date of each declared dividend. Upon a director’s retirement, resignation, termination, death or a change-in-control of the Company, the unissued shares of Common Stock recorded for such director under the Directors’ Deferred Compensation Plan will be issued to the director. In the case of a change-in-control of the Company, all shares in the deferred accounts will be issued in a single lump sum to the appropriate directors at the closing of the event triggering such change-in-control. The promise to issue such shares in the future is an unsecured obligation of the Company. The following directors participated in the Directors’ Deferred Compensation Plan in fiscal 2020: Mark T. Behrman, Peter B. Delaney, Christopher T. Fraser and Robert E. Robotti.

Restricted Stock Plan

The Company’s independent directors are eligible to participate in the Company’s Restricted Stock Plan. Based in part on a recommendation from Longnecker, the Board proposed, and the Company’s stockholders approved, an amendment to the Restricted Stock Plan at the 2014 annual meeting of stockholders to make all independent directors eligible to participate in the Restricted Stock Plan.

At the Compensation Committee meeting on October 23, 2019, the committee approved restricted stock awards with a grant date of December 31, 2019, to each director in the amount of $50,000 which will vest on the last day of calendar year 2020. For additional information regarding the grants of restricted stock to our non-employee directors, please see the “Non-Employee Directors Compensation” table below.

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Director Compensation for Fiscal 2020

The table below sets forth the total non-employee director compensation earned during fiscal 2020 for each person who served in such capacity at any time during fiscal 2020. The fiscal 2020 compensation of Chad L. Stephens, who served as a director and interim Chief Executive Officer effective August 26, 2019 and Chief Executive Officer effective January 16, 2020, is disclosed under the caption “Executive Compensation – Summary Compensation Table” of this proxy statement.

Non-Employee Directors Compensation for Fiscal 2020

 

Name

 

Fees Paid in Cash or Deferred(1)(2)

 

All Other Compensation(3)(4)

 

Total

Mark T. Behrman

 

$76,375

 

$51,197

 

$127,572

Lee M. Canaan

 

$60,875

 

$50,687

 

$111,562

Peter B. Delaney

 

$61,625

 

$50,867

 

$112,492

Christopher T. Fraser

 

$52,375

 

$50,472

 

$102,847

Robert E. Robotti (5)

 

$28,125

 

$21,356

 

$49,481

(1)

The following non-employee directors deferred 100% of their retainers and fees under the Directors’ Deferred Compensation Plan: Mark T. Behrman, Peter B. Delaney and Christopher T. Fraser. Robert E. Robotti elected to receive 50% of his retainers and fees under the Directors’ Deferred Compensation Plan and 50% in cash payments. Lee M. Canaan did not elect to participate in the Directors’ Deferred Compensation Plan and received cash payments for her retainers and fees in 2020.

(2)

At the end of fiscal 2020, the following future share amounts had been recorded to each non-employee director’s account under the Directors’ Deferred Compensation Plan: Behrman– 35,379 shares; Canaan– 6,963 shares; Delaney– 26,281 shares; Fraser – 19,393 shares; shares and Robotti– 35,375 shares.

(3)

Includes dividends accrued under the Directors’ Deferred Compensation Plan. Under the Director’s Deferred Compensation Plan, dividends paid on the Common Stock are recorded to each non-employee director’s account under the plan on the record date of the dividend in the form of unissued shares of Common Stock. The amount recorded is based on the number of future unissued shares in each non-employee director’s account and the closing market price of the Common Stock on each dividend record date. These future share amounts have no voting authority and the non-employee directors have no investment authority with respect thereto.

(4)

Includes $50,000 for each non-employee director as a result of restricted stock awards in December 2019. In accordance with applicable accounting standards, this amount represents the grant date fair value of the award on the award date.

(5)

Retired from the Board in May 2020 and his restricted stock award was prorated accordingly.

Share Ownership Guidelines for Directors

The Bylaws of the Company require non-employee directors to own shares of Common Stock in order to be a Board member. To align the interests of the directors with the Company’s stockholders, the Board has adopted a “Company Share Ownership” policy in the Corporate Governance Guidelines. The policy indicates that each director is expected to own that number of shares at the end of his or her fifth year of Board service equal to, on a cost basis, the aggregate amount of his or her first three years’ directors annual retainers and the meeting fees for the regularly scheduled Board meetings held each year, plus the number of shares of restricted stock granted to such director under the Restricted Stock Plan which are granted and vested during such three-year period. Future unissued shares that have been credited to the directors’ accounts under the Directors’ Deferred Compensation Plan may be used to satisfy this share ownership requirement. 

Related Person Transactions

We review all transactions and relationships in which the Company and any of our directors, nominees for director, executive officers or any of their immediate family members may be participants to determine whether any of these individuals have a direct or indirect material interest in any such transaction. We have developed and implemented processes and controls to obtain information from the directors and executive officers about related person transactions, and for determining, based on the facts and circumstances, whether a related person has a direct or indirect material interest in any such transaction. Transactions that are determined to be directly or indirectly material to a related person are disclosed in our proxy statement as required by SEC rules.

Pursuant to the Company’s processes, all directors and executive officers annually complete, sign and submit questionnaires that are designed to identify actual and potential conflicts of interest, related persons and any related person transactions. Additionally, we make appropriate inquiries as to the nature and extent of business that the Company may conduct with other companies for whom any of our directors or executive officers also serve as directors or executive officers. Under the Company’s Code of Ethics and Business Practices, if an actual or potential

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conflict of interest affects an executive officer or a director, he or she is required to immediately disclose all the relevant facts and circumstances to the Company’s President or the Governance and Nominating Committee, as appropriate. If the Governance and Nominating Committee determines that there is a conflict, it will refer the matter to the Board, which will review the matter to make a final determination as to whether a conflict exists, and, if so, how the conflict should be resolved. In addition, the Audit Committee reviews all reports and disclosures of actual and potential related person transactions.

None of the current non-employee directors have ever been an officer or employee of the Company. On August 26, 2019, Chad L. Stephens was named Interim Chief Executive Officer of the Company. At such time, the Board determined Mr. Stephens was no longer independent based on his service as our Interim Chief Executive Officer. Mr. Stephens serves as the Chief Executive Officer, effective January 16, 2020, of the Company and is the only director who is also an officer or employee of the Company. Mr. Stephens does not currently serve on any Board committee.

None of the organizations where the Company’s directors, nominees for election to the Board and officers hold positions are parents, subsidiaries or affiliates of the Company, or conduct business with the Company. As of September 30, 2020, we are not aware of any related party transactions that require disclosure herein.

Compensation Committee Interlocks and Insider Participation

The functions and members of the Compensation Committee are set forth under “Board Committees” above. All Compensation Committee members are independent under the enhanced independence standards of the NYSE for compensation committee members of NYSE listed companies.

None of the members of our Compensation Committee is or has been an officer or employee of the Company. In addition, during the last fiscal year, none of our executive officers served as a member of the board or the compensation committee (or other board committee performing similar functions or, in the absence of any such committee, the entire board) of any entity in which a member of the Company’s Board or Compensation Committee is an executive officer.

Codes of Ethics

The Board has adopted a Code of Ethics and Business Practices applicable to all directors, officers and employees of the Company. Each director, officer and employee annually submits a signed statement that he or she is in compliance with the Company’s Code of Ethics and Business Practices. In addition, the Board has adopted a Code of Ethics for Senior Financial Officers. The Company’s Chief Executive Officer and Chief Financial Officer are held to the standards outlined in the Code of Ethics for Senior Financial Officers and are required to annually acknowledge compliance with this code. Copies of both the Code of Ethics and Business Practices and Code of Ethics for Senior Financial Officers are available at the Company’s website: www.phxmin.com.

Communications with the Board of Directors

The Company provides a process for stockholders and other interested parties to send communications to its Board. Stockholders or other interested parties who wish to contact the Lead Independent Director, the non-employee directors as a group, or any of the Company’s individual Board members may do so by writing: Board of Directors, PHX Minerals Inc., Attention: Mark Behrman, 1601 NW Expressway, Suite 1100, Oklahoma City, OK 73118. Correspondence directed to any individual Board member is referred, unopened, to that member. Correspondence not directed to a particular Board member is referred, unopened, to the Lead Independent Director.


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Proposal No. 2

Advisory Vote on Executive Compensation

In accordance with Section 14A of the Securities Exchange Act of 1934, we are providing our stockholders with the opportunity to cast a non-binding advisory vote on the compensation of our named executive officers, which is described in the Executive Compensation and Compensation Discussion and Analysis (CD&A) sections of this proxy statement (commonly referred to as “Say-On-Pay” vote). Our executive compensation program is designed to reward the Company’s leadership team for operating and financial results for the year and for adding to and building per share value for our stockholders, measured on both annual and long-term horizons. For fiscal 2020, our executive compensation program was generally unchanged from fiscal 2019.

We encourage our stockholders to review the discussion on executive compensation contained in this proxy statement, including the CD&A and the Executive Compensation sections of this proxy statement. The Company’s executive compensation programs reflect the philosophy of the use of performance-based incentives to ensure executives focus on certain performance metrics that we believe align with stockholder value creation. We believe our compensation program strikes the appropriate balance between utilizing fair and responsible pay practices and effectively incentivizing our executive officers to dedicate themselves to value creation for our stockholders. 

The Board strongly endorses the Company’s executive compensation program and recommends that the Company’s stockholders vote to approve the following resolution:

RESOLVED, that the stockholders approve on an advisory basis the compensation of the Company’s named executive officers, as described in the Company’s proxy statement for the 2021 Annual Meeting of Stockholders under “Compensation Discussion and Analysis” and “Executive Compensation” and the other related tabular and narrative disclosures contained in this proxy statement.

Because the Say-On-Pay vote is advisory, it will not be binding upon the Board or the Compensation Committee, and neither the Board nor the Compensation Committee will be required to take any action as a result of the outcome of the vote on this Proposal.

To approve the foregoing proposal, a majority of shares of Common Stock represented by proxy or holders of Common Stock present at the Annual Meeting must vote “FOR” approval of Proposal No. 2.

BOARD RECOMMENDATION ON PROPOSAL

The Board of Directors Recommends a Vote “FOR” the Approval of the Compensation of the Company’s Named Executive Officers, as described in the CD&A and Executive Compensation sections of this proxy statement.


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Executive Officers

The current executive officers of the Company are listed below. All officers hold office at the discretion of the Board and may be removed from office, with or without cause, at any time by the Board. Except as noted below, each executive officer has been elected by the Board to serve until the next annual meeting of the Board or until their earlier resignation or removal.

 

 

 

 

Positions and Offices

 

Officer

Name

 

Age

 

Presently Held With the Company

 

Since

Chad L. Stephens (1)

 

65

 

Interim Chief Executive Officer, effective August 26, 2019, President and Chief Executive Officer effective January, 16, 2020

 

2019

Ralph D'Amico

 

45

 

Vice President - Business Development and Investor Relations, effective January 2, 2019, Chief Financial Officer and Corporate Secretary, effective March 9, 2020

 

2019

Freda R. Webb

 

64

 

Vice President, Mineral Operations, effective January 1, 2017

 

2017

(1)

Biographical information for Mr. Stephens is set forth above in “Proposal No. 1 – Election of Three Directors for Three-Year Terms Ending at the Annual Meeting in 2024.”

Ralph D’Amico serves as the Company’s Vice President, Business Development and Investor Relations, a position he has held since joining the Company on January 2, 2019, and Chief Financial Officer and Corporate Secretary since March 9, 2020. Mr. D’Amico previously served as Managing Director in the energy investment banking group at Seaport Global Securities. Prior to his employment with Seaport Global Securities, Mr. D’Amico held positions within the investment banking practices of Stifel Nicolaus, Jefferies, Friedman Billings Ramsey and Salomon Smith Barney. Mr. D’Amico holds a bachelor’s degree in finance from the University of Maryland and an MBA from The George Washington University.

Freda R. Webb serves as the Company’s Vice President, Mineral Operations, a position she has held since January 1, 2017. Prior to this time, Ms. Webb worked as a reservoir engineering consultant for the Company from 2011 to 2015 and, in 2015, she was appointed Reservoir Engineering Manager. Prior to her employment with the Company, Ms. Webb held various reservoir engineering, acquisition, corporate planning and management positions for Cities Services, Occidental Petroleum and Southwestern Energy. Ms. Webb has more than 40 years of oil and gas industry experience, and she is a graduate of the University of Oklahoma with a Bachelor of Science degree in Mechanical Engineering and the University of Southern California with a Master of Science degree in Petroleum Engineering. She is a licensed professional engineer in the State of Oklahoma.

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) describes the Company’s compensation objectives and philosophy, the material elements of its executive compensation program for its named executive officers, recent compensation decisions and the factors the Compensation Committee considered in making such decisions.

This CD&A focuses on compensation earned during fiscal 2020 by our Chief Executive Officer, Chief Financial Officer and the other executive officer listed as named executive officers (“NEOs”) in our Summary Compensation Table. The NEOs who served in fiscal 2020 were as follows:

 

NEO(2)

Position

Chad L. Stephens (1)

President and Chief Executive Officer

Ralph D'Amico

Vice President, Chief Financial Officer, and Corporate Secretary

Freda R. Webb

Vice President, Mineral Operations

(1)

Mr. Stephens was appointed Interim Chief Executive Officer in August 2019. On January 16, 2020, Mr. Stephens was appointed as our Chief Executive Officer.

(2)

Robb P. Winfield served as our Vice President, Chief Financial Officer, Controller and Corporate Secretary, until his resignation effective March 9, 2020. He received a severance payment of $25,000.

Executive Compensation Overview

Our executive compensation program includes a mix of compensation components in furtherance of our pay-for-performance philosophy, while also providing a competitive level of overall compensation to our executive officers. The program is designed to reward the Company’s leadership team for operating and financial results for the year and over the long term, building per share value for our stockholders.

For fiscal 2020, the Company’s executive compensation program’s objective performance metrics were modified to align with the transition to a business strategy of increasing operating cash flow from royalty production growth as opposed to production growth from well participation. Accordingly, the annual bonus metrics were changed to more heavily weight financial performance and royalty production growth. For fiscal 2021, the objective performance metrics were further modified to focus on financial performance utilizing operating cash flow and expense management as metrics due to the impact the pandemic has had on the industry and the Company. The Company’s compensation philosophy is (i) to be stockholder aligned by heavily weighting equity performance based compensation tied to goals that builds long term value for stockholders; (ii) to be competitive with the market allowing the Company to attract and retain talent; (iii) to motivate and reward for individual performance and (iv) to be transparent utilizing measurable metrics and clearly articulated objectives. Furthermore, the Company believes in policies that promote stock ownership among the Company’s executives and directors.

Summary of Current Compensation Program

The Company’s current executive compensation structure is comprised of a mix of compensation elements intended to support the Company’s operating, financial and strategic goals and objectives in both the short-term and long-term. Each component of our compensation program is summarized below:


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Component

Form of Payout

Objectives

How Values are Determined

Base Salary

Cash

Compensate our executive officers for their experience and expertise

Compete for talent with comparable companies in the oil and gas industry

Base salaries are evaluated and determined annually based on Company and individual results, overall responsibilities of each officer, expertise required in execution of the position and comparable peer company ranges.

Annual Bonuses

Cash

Motivate our executive officers to achieve the Company’s short-term business goals and objectives

Reward achievement of the Company’s operational performance metrics aligned with long-term business objectives

Reward our officers for individual performance the demonstrates the application of targeted competencies

Cash bonus payments are a variable component of the Company’s compensation that is at-risk. The performance metrics associated with cash bonus payments are aligned with the Company’s annual performance goals and objectives.

The Compensation Committee annually evaluates and determines the annual operational performance metrics that align with long-term value creation. Subjective job responsibility performance goals of each officer are reviewed to ensure achievement of targeted competencies are rewarded.

Overall bonus levels are based on a comparable peer group.

Long Term Incentive (LTI) Awards

Restricted Stock Awards

Motivate achievement of long-term goals of the Company

Retain and attract key officers who perform over the longer time period

Encourage our executive officers to create long-term value for the Company’s stockholders

Promote pay-for-performance by aligning our executive officers with stockholders through meaningful ownership interests in the Company

LTI restricted equity-based compensation includes performance shares based on the market price performance of the Company’s Common Stock and return on invested capital.

LTI performance metrics are evaluated annually to determine alignment with business strategy and stockholder value creation.

LTI ultimate realization is based on employment metrics (25%) and performance metrics (75%) over the vesting period of the restricted stock grants. CEO’s LTI is 100% performance based, other than a sign-on bonus that is based on employment metrics.

Targeted LTI awards are based on a comparable peer group.

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Compensation Philosophy and Objectives

The Compensation Committee strives to maintain a compensation program that will attract, retain and motivate key executive officers by providing incentives to reward them for performance efforts that support the Company’s short-term and long-term strategic objectives and is competitive with industry practice. The key objectives of the Company’s compensation program are to:

 

Align the interests of our executives with those of our stockholders – The Company uses restricted stock awards and contributions of Company stock to the ESOP Plan to align the financial interests of our executives with those of our stockholders and to provide a longer-term incentive form of compensation.

 

Attract, retain and incentivize key executives, who are necessary to continue execution of the Company’s business strategies principally involving growth in value by active management of our extensive mineral acreage position – Reward officers who contribute to the Company’s success and motivate the officers to develop and execute short,- medium- and long-term business strategies as well as meet annual goals approved by the Board.

 

Provide transparency regarding our compensation program for the benefit of executives and stockholders – Use measurable metrics such as the financial and operating performance of the Company and the market price performance of the Company’s Common Stock as key factors in determining compensation.

 

Motivate and reward individual performance that contributes meaningfully to Company performance – Evaluation of the individual performance of each executive officer affects most aspects of the executive’s compensation. Market data, individual performance and level of responsibility are considered in determining an executive’s annual salary and are important factors in deciding discretionary cash bonuses.

 

Build long-term share ownership – Align the structure of management compensation to Company performance and the enhancement of stockholder value by awarding equity in the Company, under the Restricted Stock Plan. The restricted stock awards made in December 2018, 2019 and 2020 contain various vesting provisions relating to continuous length of service to the Company, market price performance of the Company’s Common Stock and return on invested capital.

Role of Compensation Committee and Board

The Compensation Committee is responsible for establishing, implementing and monitoring all facets of the compensation of the Company’s executive officers. In particular, the Compensation Committee’s role is to recommend to the Board for final approval, the compensation, benefit plans and policies, and, in addition, to review, approve and recommend to the Board annually all compensation decisions relating to the Chief Executive Officer and the other executive officers of the Company. The Compensation Committee reviews the executive compensation program and recommends compensation levels, performance metrics, executive bonus distributions and restricted stock awards.

For fiscal 2020, the Compensation Committee and the Board, with advice from its compensation consultant, Longnecker & Associates, made all compensation decisions for the executive officers. The Compensation Committee and the Board reviewed the performance of Mr. Stephens, who was serving as our Chief Executive Officer and set his compensation. Mr. Stephens was not present during these discussions. Mr. Stephens made compensation recommendations to the Compensation Committee with respect to Mr. D’Amico and Ms. Webb. Such other NEOs were not present during these discussions. The Board made the final decisions and approved the compensation of the Company’s executive officers.

Role of the Compensation Consultant

In an effort to align our executives’ compensation competitively with the market, the Compensation Committee engaged an outside, independent compensation consultant, Longnecker & Associates, Houston, Texas

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(“Longnecker”), to review levels and incentive components of the NEO’s compensation for fiscal 2020. The primary role of Longnecker is to help identify the Company’s peer companies and to provide the Compensation Committee with market data, information and guidance regarding compensation trends in the industry, base salaries, the design of the Company’s incentive programs and executive and director compensation levels. The Compensation Committee retained Longnecker on a more limited scope of services for purposes of determining executive compensation in 2021 than in previous years. The Compensation Committee expects its compensation consultant will provide a broader scope of services as discussed above every other year.

The Compensation Committee, with the assistance of Longnecker, selected the following group of “peer companies” for comparison purposes in determining compensation for fiscal 2020.

 

Abraxas Petroleum Corporation

Kimbell Royalty Partners, LP

Approach Resources, Inc.

Lilis Energy, Inc.

Contango Oil & Gas Company

Lonestar Resources US Inc.

Dorchester Minerals, L.P.

PrimeEnergy Corporation

Earthstone Energy, Inc.

Ring Energy, Inc.

Evolution Petroleum Corporation

Rosehill Resources Inc.

The Compensation Committee has sole authority to retain and terminate independent compensation consultants and to determine the terms of their retention. Longnecker takes direction from the Compensation Committee, as appropriate, reports directly to the Compensation Committee and does not provide any other services to the Company. Management does not direct or oversee the retention or activities of Longnecker with respect to the Company’s executive compensation program.

Role of Stockholder Say-On-Pay Vote

The Company has historically received very strong support for its executive compensation practices. In 2020, 90% of the shares cast were voted in support of the program. In consideration of these results, the Compensation Committee has acknowledged the support received from our stockholders and views these results as an affirmation of our existing executive compensation policies and continued efforts to enhance our pay-for-performance practices. The Say-On-Pay vote serves as an additional tool to guide the Board and the Compensation Committee in ensuring alignment of our executive compensation program with the interests of our stockholders. The Compensation Committee will carefully consider the outcome of the Say-On-Pay vote when considering future executive compensation arrangements. We currently intend to hold this vote annually.

2020 Executive Summary – Business Overview

During fiscal 2020, the Company made the decision to focus on perpetual oil and natural gas mineral ownership and growth through mineral acquisitions and the development of its significant mineral acreage inventory in its core areas of focus. In accordance with this strategy, the Company ceased taking any working interest positions on its mineral and leasehold acreage. The Company believes that its strategy to focus on mineral ownership is the best path forward to giving our stockholders the greatest risk-weighted returns on their investments.

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The financial and operating results outlined below provide additional perspective on the Company’s fiscal 2020 performance as it relates to the Company’s short term bonus awards. The 2020 financial and operating results were significantly impacted by the pandemic:

 

Production volumes for fiscal 2020 were 8,593 Mmcfe, down from 10,359 Mmcfe in fiscal 2019;

 

Recorded a net loss in fiscal 2020 of $24.0 million or $1.41 per share, as compared to net loss of $40.7 million or $2.43 per share in fiscal 2019. Net loss in both years was primarily due to non-cash impairments. Adjusted pre-tax net income in fiscal 2020 was $0.9 million or $0.05 per share, as compared to $16.7 million or $1.00 per share in fiscal 2019;

 

Adjusted EBITDA for fiscal 2020 was $13.5 million, down from $36.9 million in fiscal 2019. This includes gain on sale of assets in 2020 and 2019 of $4.0 million and $19.0 million, respectively.;

 

Decreased debt 19% from $35.4 million as of September 30, 2019, to $28.8 million as of September 30, 2020;

Elements of 2020 Compensation Program

The principal elements of the executive compensation program are (i) an annual base salary, (ii) an annual cash bonus, (iii) restricted stock awards and (iv) contributions to the ESOP Plan. Awards of restricted stock pursuant to the Restricted Stock Plan are an integral part of the Company’s compensation program as a retention and long-term incentive form of compensation.

Base Salaries

The base salaries of our executive officers are reviewed annually by the Compensation Committee and future salary adjustments, if any, are recommended to the Board for final approval. The Compensation Committee and the Board consider various factors, including:

 

overall responsibilities of the executive officers;

 

scope, level of experience and expertise required to successfully execute the executive officer’s position with the Company;

 

demonstrated individual performance of the executive officer; and

 

recommendation of the Chief Executive Officer with respect to other executive officers.

Additionally, base salaries for executive officers are reviewed and periodically compared to similar positions in the Company’s industry.

Generally, in the first fiscal quarter of the following year, base salaries of the Company’s executive officers are set for the next calendar year. Base salaries are based on the individual’s responsibilities and experience, taking into account, among other factors, the individual’s initiative, contribution to the Company’s overall performance, handling of special projects or events during the year and yearly financial and operating results of the Company.

Salaries for the named executive officers in fiscal 2020 are set forth in the “Executive Compensation - Summary Compensation Table” below and were reviewed by the Compensation Committee and approved by the Board based on the considerations described above. Based on the above factors and considerations, the Board kept base salaries unchanged in calendar 2021 for the executive officers as: Chad L. Stephens - $345,000; Ralph D’Amico - $250,000; and Freda R. Webb - $225,000.

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Annual Cash Bonuses

Annual cash bonuses are largely determined by the preceding fiscal year’s (year-end September 30) operational and financial performance. Annual cash bonuses for executive officers are based on the individual’s responsibilities and experience, taking into account, among other factors, the individual’s initiative including the handling of special projects, contribution to the Company’s overall performance and the Company’s annual financial and operating results.

Annual cash bonuses are determined by the weighting of objective performance metrics and subjective performance goals applicable to each executive officer. During the annual goal-setting process, the Compensation Committee and the Board approve Company objective performance metrics and subjective performance goals that focus on the manner in which the Company’s business is managed. 

Objective Performance Metrics

For fiscal year 2020, the Compensation Committee and the Board approved the use of the following categories of objective performance metrics in determining annual cash bonus amounts:

 

Debt adjusted earnings per share;

 

Operating cash flow per debt adjusted share;

 

Increase in relative value of royalty production growth per debt adjusted share

For fiscal year 2020, the Compensation Committee approved threshold (minimum), target and maximum levels for the performance metrics (as set forth in the tables below):

 

 

 

Fiscal 2020

Metric Category

 

Threshold(1)

 

Target(1)

 

Maximum(1)

 

Weighting

Debt adjusted earnings per share (2)

 

$0.01

 

$0.08

 

$0.18

 

20%

Operating cash flow per debt adjusted share (3)

 

$0.50

 

$0.70

 

$0.85

 

20%

Increase in relative value production growth per debt adj share (4)

 

6%

 

10%

 

17%

 

25%

Discretionary

 

n/a

 

n/a

 

n/a

 

35%

 

 

 

 

 

 

 

 

 

(1)

In any metric category, if the Threshold is achieved, 25% of weighting is earned. If the Target is achieved, 100% of weighting is earned. If the Maximum is achieved, 150% of weighting is earned. Achievement between Threshold and Target results in earning between 25% and 100% of weighing. Achievement between Target and Maximum results in earning between 100% and 150% of weighing. If the Minimum is not achieved in a metric category, no credit is earned. Debt adjusted shares equals fully diluted shares of the prior year plus the result of the average debt outstanding in the prior year divided by the average share price in the prior year.

(2)

Earnings per share is adjusted to eliminate the after-tax impact of unrealized derivative contracts and gain on sale of assets.

(3)

Operating cash flow is divided by debt adjusted fully diluted shares.

(4)

Prior year actual royalty production in converted to Mcfe using current year relative values. The resulting prior year royalty production is divided by debt adjusted fully diluted shares (“Debt Adjusted Shares”) to arrive at Mcfe production per Debt Adjusted Share. Current year actual royalty production is converted to Mcfe using current year relative value. The prior year royalty production per Debt Adjusted Share is subtracted from current year production per Debt Adjusted Share to arrive at an increase or decrease in royalty production per Debt Adjusted Share which is divided by prior year royalty production per Debt Adjusted Share to arrive at a percentage increase or decrease.

 

In setting the performance metrics for fiscal 2020, the Compensation Committee determined that combining the performance metric categories of increasing Mcfe production, operating cash flow and earnings per share are important measurements necessary for increasing stockholder value and growing our oil and gas business. The earnings per share and operating cash flow metrics have the effect of discouraging excessive risk taking and controlling general and administrative costs. The Compensation Committee does not believe that these performance metrics reward executives for taking risks beyond those risks inherent in the oil and gas business. 

The Compensation Committee has the discretion to modify the effect of any of the objective performance metrics if unforeseen or uncontrollable conditions result in any of these metrics not being relevant to the Company’s results for the year. No adjustments were made to the metrics for fiscal 2020.

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Subjective Performance Goals

The Compensation Committee and the Board approved subjective performance goals that focus heavily on the manner in which the Company’s business is managed. An evaluation of the Chief Executive Officer is performed annually by the Compensation Committee. The Chief Executive Officer performs the evaluation of each of the other executive officers. In these evaluations, performances are evaluated on each of the detailed areas of responsibility.

Determination of Annual Cash Bonus Awards

The Compensation Committee reviewed the performance of the Company’s named executive officers in meeting their objective performance metrics and subjective performance goals for fiscal 2020.

The Compensation Committee believes that the cash bonus element of compensation for Mr. Stephens, Chief Executive Officer and other NEOs, should principally reflect how well they achieved the above outlined objective and subjective performance metrics. His bonus was targeted at 100% of base salary and the calculation was based on a weighting of 65% for meeting his objective performance metrics and 35% for meeting his subjective performance goals. The other named executive officers’ annual target bonuses were between 60% and 75% of base salaries without payouts based 35% on meeting subjective performance goals and 65% on meeting Company objective performance metrics.

 

Title

% of Salary

Objective Performance Metrics

Subjective

Discretionary

Metrics

Chief Executive Officer

100%

65%

35%

Chief Financial Officer

75%

65%

35%

Vice President, Mineral Operations

60%

65%

35%

Cash bonuses are paid in the first fiscal quarter of the following fiscal year based on the preceding fiscal year’s metric results. Thus, bonuses awarded in fiscal 2020 were based on the following fiscal 2020 objective performance metric results.

 

Objective Metric Category Results

 

Actual Results

 

Target

Debt adjusted earnings per share

 

($1.25)

 

$0.08

Operating cash flow per debt adjusted share

 

$0.49

 

$0.70

Increase in relative value production growth per debt adj share

 

1%

 

10%

The maximum targeted annual cash bonus that could have been paid in November 2020 to Mr. Stephens, our Chief Executive Officer (based on fiscal 2020 results) was 100% of his $345,000 base salary, prorated by 75% for the time he was employed at the Company. For fiscal 2020 the threshold for the performance metrics were not met and no payout was awarded for performance metrics. After considering the five subjective metrics that govern the discretionary portion of the annual bonus, the Compensation Committee determined that they were met resulting in a 35% total bonus award. The five subjective metrics are strategy execution, operations expense management, performance of acquisitions, investor relations and valuation. See “Executive Compensation – Summary Compensation Table” for the dollar amount of cash bonuses for fiscal years 2020, 2019 and 2018.

Cash bonus payments for fiscal 2020 were made to all named executive officers during the first fiscal quarter of 2021. The cash bonus payments made to our named executive officers are set forth below in the “Summary Compensation Table” under “Executive Compensation.”

Long-Term Equity-Based Restricted Stock Compensation

Our named executive officers are eligible to receive stock-based awards under the Restricted Stock Plan. The objectives of the Restricted Stock Plan are to attract and retain key employees, align their interests with those of the Company’s stockholders, motivate them to achieve long-term goals and reward individual performance. Because executives’ compensation from stock-based awards is heavily weighted to our stock price performance, the

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Compensation Committee believes stock-based awards create a strong incentive to improve long-term financial performance and increase stockholder value.

The Compensation Committee and the Board considered the five-year total stockholder return on our Common Stock. The graph below matches PHX Minerals Inc.’s cumulative Five-Year total stockholder return on Common Stock with the cumulative total returns of the S&P Small cap 600 index and the S&P Oil & Gas Exploration & Production index. The graph tracks the performance of a $100 investment in our Common Stock and in each index (with the reinvestment of all dividends) from September 30, 2015, to September 30, 2020.

 

 

 

9/15

 

9/16

 

9/17

 

9/18

 

9/19

 

9/20

 

 

 

 

 

 

 

 

 

 

 

 

 

PHX Minerals Inc.

 

100.00

 

109.52

 

149.85

 

117.11

 

89.77

 

9.33

S&P Smallcap 600

 

100.00

 

118.12

 

142.98

 

170.26

 

154.35

 

141.56

S&P Oil & Gas Exploration & Production

 

100.00

 

119.06

 

106.94

 

134.47

 

92.42

 

51.04

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

The Company enters into stock restriction agreements with its officers and directors when restricted stock awards are granted. These agreements include terms of the restricted stock awards. Vesting provisions contained in the stock restriction agreements are used by the Compensation Committee as a method to tie executive compensation both to continuing service by the executive to the Company and to growth in stockholder value, as

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measured by the market price of the Company’s shares. Under various circumstances, the restricted stock awards may vest totally, partially or not at all.

A portion (usually 25%) of these restricted stock awards vest if the executive officers remain employees of the Company for the vesting period (known as “non-performance shares”). These time-vested stock awards are forfeited if the officer does not remain continuously employed for the vesting period (typically three years). The other portion (usually 75%) of these restricted stock awards vest based on the market price performance of the Common Stock and performance criteria linked to return on capital employed at the completion of three years of service (known as “performance shares”). The Compensation Committee believes a three-year vesting schedule for restricted stock awards enhances the retention value of these awards and positions the Company competitively from a market perspective.

In 2019, Longnecker reviewed the total direct compensation packages of our executives, including our stock-based award program and recommended that the Compensation Committee continue the use of restricted stock awards as the equity component of the compensation of our NEOs. The Compensation Committee relied upon the market data, Company performance and individual performance in the determination of stock-based awards for our executive officers. After considering all of these factors, in fiscal 2020, the Compensation Committee approved the grant of the following restricted stock awards: Ralph D’Amico, 3,392 non-performance shares and 10,177 performance shares; and Freda R. Webb 3,469 non-performance shares and 10,408 performance shares. These restricted stock awards were granted to our NEOs on December 11, 2019, and vest over a 3-year period beginning on the grant date. When Chad Stephens was named Chief Executive Officer on January 16, 2020, he was granted 53,476 non-performance shares and 43,976 performance shares that vest over a 3-year period beginning January 16, 2020 and December 11, 2019, respectively. When Ralph D’Amico was named Chief Financial Officer on March 9, 2020, he was granted 16,340 non-performance shares and 5,068 performance shares that vest over a 3-year period beginning on December 11, 2019. For additional information regarding the stock-based awards granted to our executive officers under the Restricted Stock Plan, see the table entitled “Outstanding Restricted Stock Awards.”

Vesting of the performance shares of restricted stock awards granted as part of 2020 executive compensation is 50% based on the market price performance of the Common Stock (TSR) and 50% based on performance criteria linked to return on capital employed (ROCE) at the completion of the time vesting period. For performance shares to partially vest, the Common Stock must appreciate and the Company’s return on capital must be at prescribed minimum rates as set forth in each stock restriction agreement. If not, no performance shares vest. To fully vest, the Common Stock must appreciate and the Company’s return on capital must be at a prescribed rate set forth in each stock restriction agreement. If the stock appreciation and return on capital rate is between the prescribed minimum and maximum, the restricted stock will partially vest on a pro rata basis. Furthermore, vesting of performance shares of restricted stock awards based on relative stock price performance granted in 2020 is capped at 75% of target value if over the performance period the Company’s share price decreased more than 5%. For fiscal 2021, 100% of performance shares of restricted award grants will be based on market price performance.

Vesting of Performance Based Awards Based on TSR

 

Stock Performance as % of Index

Percentage of Shares Vesting

Level 1 – Min

85%

10%

Level 2

90%

20%

Level 3

100%

75%

Level 4

115%

98%

Level 5

125%

112.50%

Level 6 – Max

150%

150%

Vesting of Performance Based Awards Based on ROCE

 

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ROCE Goal

Percentage of Shares Vesting

Minimum

10%

50%

Target

15%

100%

Maximum

20%

150%

Vesting of the time-vested restricted stock awards occurs only if the officer remains continuously employed by the Company for the required vesting period. If an officer does not remain continuously employed with the Company for such period, all such awards are forfeited, unless age and years of employment with the Company criteria are met.

On December 9, 2019, 1,306 of restricted stock granted to Ms. Webb on December 9, 2016 vested. Since only a portion of the restricted shares vested that were granted on December 9, 2016, 3,919 unvested shares were repurchased by the Company on December 9, 2019. Additional stock vesting information is set forth below in the Stock Vested in 2020 section. Upon Mr. Winfield’s resignation on March 9, 2020, 27,819 performance and non-performance shares were forfeited and repurchased by the Company.

Clawback Policy

The Company has adopted an incentive compensation clawback policy to ensure that incentive compensation is paid based on accurate financial and operating data and the correct calculation of the Company’s performance against incentive targets as well as to mitigate the impact on the Company from the malfeasance of officers. If there is a restatement of the financial and/or operating results of the Company (other than a restatement caused by a change in applicable accounting rules or interpretations) and such restatement resulted in or contributed to any incentive compensation being granted, earned or vested to or by an officer that the officer would not otherwise have been granted, earned or vested if the correct financial and/or operating data had been used, the Company shall seek to recover such amount, and if at a determination by the Board, in its sole discretion exercised in good faith, that an officer of the Company engaged in fraud or misconduct or violated Company policies or engaged in conduct materially detrimental to the Company’s reputation, the officer shall repay or forgo all or any portion of incentive compensation as determined by the Board to be in the best interests of the Company. Incentive compensation shall mean any performance bonus or incentive award (including, without limitation, annual incentive bonuses (in cash or otherwise) and stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares or other security-based or equity-based awards) that are granted, earned or vested under any Company plan, arrangement or agreement based wholly or in part upon the attainment of a financial reporting measure. If the Company is required to restate its previously-issued financial statements to correct a material error, the Committee shall seek the recovery of an overpayment that an officer received during the three completed fiscal years of the Company immediately preceding the date that the Company is required to make such restatement.

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Other Compensation and Benefits

Qualified Defined Contribution Plan

The Company does not have a defined benefit pension plan that provides NEOs a fixed monthly retirement payment. Instead, all salaried employees, including NEOs, are eligible to participate in the Company’s ESOP Plan. The ESOP Plan is a tax-qualified, defined contribution plan and serves as the Company’s only retirement plan for its employees. Contributions are made at the discretion of the Board and, to date, all contributions have been made in shares of Common Stock. Contributions are allocated to all participants in proportion to their compensation for the plan year and 100% vesting occurs after three years of service. Separation prior to three years of service results in forfeiture of all contributions received. An amendment was made to the ESOP Plan, effective October 1, 2020, making all participants immediately vested in the plan in order to terminate the ESOP Plan in fiscal 2021. All employees, including executive officers, may participate in the 401(k) portion of the ESOP Plan on a voluntary basis. Under the terms of the 401(k) portion of the ESOP Plan, eligible employees may elect to defer a portion of their earnings up to the maximum allowed by regulations of the Internal Revenue Service. The Company makes no matching contributions to the 401(k) portion of the ESOP Plan. In the first quarter of fiscal 2021, the Company replaced its ESOP Plan with a 401(k) Plan only that allows for a company match. The Company match will begin in calendar year 2021.

Participation in Employee Benefit Plans

We offer health and welfare benefits to all eligible employees. Our executive officers and management are eligible to participate on the same basis as other employees in all such benefit plans, which include medical, dental, vision, group life, long-term disability and accidental death and dismemberment insurance.

Perquisites

The Company provides no other perquisites or personal benefits to its executive officers.

Risk Considerations Relating to Compensation

Our compensation program is designed to focus on meeting the Company’s objectives and goals while discouraging management from undue risk-taking. When establishing and reviewing our executive compensation program, the Compensation Committee has considered whether the program encourages unnecessary or excessive risk taking and has concluded that it does not. While behavior that may result in inappropriate risk taking cannot necessarily be prevented by the structure of compensation practices, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

Our compensation program is comprised of both fixed and variable and incentive-based elements. The fixed component of our compensation program is base salary. A fixed base salary provides reliable, foreseeable income that mitigates the focus of our employees on our immediate financial performance or our stock price, encouraging employees to make decisions in the Company’s best long-term interests. The variable incentive components are designed to be sensitive to our goals and objectives, performance and stock price. In combination, we believe that our compensation structure does not encourage our officers and employees to take unnecessary or excessive risks in performing their duties.

Moreover, with limited exceptions, our Compensation Committee retains discretion to impose additional conditions and adjust compensation pursuant to our clawback policy as well as for quality of performance and adherence to the Company’s values. The restricted stock that the Company has granted to its executive officers generally has a three-year vesting period beginning on the grant date, which further mitigates risk in the event any executive officer departs or is terminated and his restricted stock has not vested.

We believe that our compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.

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Change in Control Executive Severance Agreements

Each of our NEOs is a party to a Change-in-Control Executive Severance Agreement (“Change in Control Agreements”). The Board believes that, in the event of a change-in-control of the Company, the executives’ performance may become hampered by distraction, uncertainty or other activities, which might adversely affect stockholder value. To reduce these potential adverse effects and to encourage fair treatment of its executive officers in connection with any change-in-control event, the Company enters into Change-In-Control Agreements with its executive officers to provide for change-in-control protection. For additional information, please see the “Potential Payments Upon Termination or Change in Control” section below.

Other than the Change in Control Agreements, the Company maintains no employment agreements with its executive officers.

Indemnification Agreements

The Company has entered into an indemnification agreement with each of its directors and executive officers. These agreements provide that the Company will 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 persons under any directors’ and officers’ liability insurance policy the Company chooses, in its discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under Oklahoma law and are in addition to any other rights the indemnitee may have under the Company’s Certificate of Incorporation, Bylaws and applicable law. We believe these indemnification agreements enhance the Company’s ability to attract and retain knowledgeable and experienced officers and directors.

Other Compensation Matters

In December 2019, the Compensation Committee adopted stock ownership requirements for management, and the Company has implemented such requirements. The Company’s Code of Ethics and Business Practices indicates that directors, officers and employees should not engage in speculative transactions involving the Company’s securities, such as exchange-traded options, short-sales or derivative instruments.

Section 162(m) of the Internal Revenue Code generally limits the deductibility of compensation in excess of $1,000,000 annually paid to any of our executive officers. In previous years, Section 162(m) provided that compensation which qualified as “performance-based” was excluded from the $1 million per covered employee limit if, among other requirements, the compensation was payable only upon attainment of pre-established, objective performance goals under a plan approved by our stockholders. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, made significant revisions to Section 162(m). Effective for taxable years beginning on or after January 1, 2018, it repealed the performance-based exception, revised the definition of covered employees to include any individual who served as the chief executive officer or chief financial officer at any time during the taxable year, and provides that once an individual is considered a covered employee for any taxable year beginning after December 31, 2016, he or she will be considered a covered employee for all future years, including following any termination of employment. As a result, compensation paid to covered employees in excess of $1 million generally will be nondeductible, regardless of whether it is performance-based. The Tax Cuts and Jobs Act includes a transition rule according to which the deduction limitation as described above, will not apply to compensation arrangements in place pursuant to a written binding contract that was in effect on November 2, 2017, if it is not materially modified after that date.

Our compensation levels for fiscal 2020 were below the Section 162(m) level.

Report of the Compensation Committee

The Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis for the year ended September 30, 2020. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement for the 2021 Annual Meeting of Stockholders.

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Respectfully submitted,

Compensation Committee

Peter B. Delaney – Chair

Christopher T. Fraser

Executive Compensation

The table below sets forth information for the three most recently completed fiscal years concerning compensation paid to our named executive officers in those fiscal years for services in all capacities.

Summary Compensation Table

 

Name and Principal

Position

 

Fiscal

Year

 

Base

Salary (1)

 

Cash

Bonus (1)

 

Stock

Awards (2)

 

All Other

Compensation (3)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Ralph D'Amico, Vice

 

2020

 

$231,240

 

$66,864 (11)

 

$177,815

 

$16,648 (4)

 

$492,567

President, Chief Financial Officer,

 

2019

 

$149,359

 

$72,000

 

$96,454

 

$1,145

 

$318,958

and Corporate Secretary (9)

 

2018

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad L. Stephens, President

 

2020

 

$419,375 (10)

 

$102,782 (12)

 

$679,334

 

$7,412 (13)

 

$1,208,903

and Chief Executive Officer (10)

 

2019

 

$58,065 (5)(10)

 

-

 

-

 

$105,007 (6)

 

$163,072

 

 

2018

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Freda R. Webb, Vice

 

2020

 

$223,250

 

$48,336 (7)

 

$97,617

 

$18,820 (8)

 

$388,023

President, Operations

 

2019

 

$216,500

 

$86,655 (7)

 

$105,131

 

$45,738 (8)

 

$454,024

 

 

2018

 

$210,750

 

$118,393 (7)

 

$104,153

 

$43,433 (8)

 

$476,729

(1)

Base salaries are set on a calendar year basis and are reported on a fiscal year basis ending on September 30 of each year. This means that the salary shown above for each fiscal year reported represents three months’ salary of the previous calendar year and the first nine months of the current calendar year through September 30 fiscal year-end. Cash bonuses are paid in the first quarter of the following fiscal year based on the preceding fiscal year’s performance. Bonuses shown for fiscal 2020 were paid in November 2020 and were based on fiscal 2020 financial and operating performance. The same timing of payments and Company performance holds true for fiscal 2019 and fiscal 2018.

(2)

In accordance with applicable accounting standards, these amounts represent the aggregate grant date fair value of the awards on the award date. The ultimate value realized by the executive officers on vesting of the awards may or may not equal the fair market value at award date based on failure to achieve the specified vesting requirements. Under certain circumstances, the awards may wholly, partially or never vest. See footnotes to table entitled “Outstanding Restricted Stock Awards.”

(3)

Includes immaterial amounts for group life insurance premiums for fiscal years 2020, 2019 and 2018.

(4)

Represents the value of 9,791 shares for fiscal 2020 of Company stock contributed to the ESOP Plan on Mr. D’Amico’s behalf based on the closing market price of the shares on the day transferred and dividends received from restricted stock awards of $2,197 for fiscal year 2020.

(5)

Represents compensation paid to Mr. Stephens as Interim Chief Executive Officer for fiscal year 2019.

(6)

Represents compensation paid to Mr. Stephens as a non-employee director for fiscal year 2019, prior to being named Interim Chief Executive Officer.

(7)

Included in Ms. Webb’s cash bonuses are performance bonuses (based on each fiscal year’s financial and operating performance and subjective performance goals) and supplemental payments for the portion of her earned ESOP Plan contribution, which could not be made due to the deferral maximum regulations of the Internal Revenue Service. The performance bonuses paid in fiscal years 2020, 2019 and 2018 were $47,250, $78,480 and $113,000, respectively. The supplemental payments in fiscal years 2020, 2019 and 2018 were $1,086, $8,175 and $5,393, respectively.

(8)

Represents the value of 9,791 shares for fiscal 2020, 2,951 shares for fiscal 2019 and 2,195 shares for fiscal 2018, of Company stock contributed to the ESOP Plan on Ms. Webb’s behalf based on the closing market price of the shares on the last day of each fiscal year and dividends received from restricted stock awards of $2,839, $3,295 and $1,745 for fiscal years 2020, 2019 and 2018, respectively.

(9)

Mr. D’Amico was named an executive officer effective January 2, 2019 and Chief Financial Officer effective March 9, 2020.

(10)

Chad L. Stephens had a consulting arrangement with the Company to serve as the Interim Chief Executive Officer. The Compensation Committee designated his compensation as $50,000 per month, which is included in his base salary, for his service as Interim Chief Executive Officer effective August 26, 2019. Mr. Stephens was appointed Chief Executive Officer of the Company effective January 16, 2020.

(11)  Included in Mr. D’Amico’s cash bonuses are performance bonuses (based on each fiscal year’s financial and operating performance and subjective performance goals) and supplemental payments for the portion of his earned ESOP Plan contribution, which could not be made due to the deferral maximum regulations of the Internal Revenue Service. The performance bonus paid in fiscal year 2020 was $65,625. The supplemental payment in fiscal year 2020 was $1,239.

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(12) Included in MrStephen’s cash bonuses are performance bonuses (based on each fiscal year’s financial and operating performance and subjective performance goals) and supplemental payments for the portion of his earned ESOP Plan contribution, had he been eligible for the plan. The performance bonus paid in fiscal year 2020 was $90,563. The supplemental payment in fiscal year 2020 was $12,219.

(13)  Includes dividends received from restricted stock awards of $5,847 for fiscal year 2020.

 

Grants of Plan-Based Awards Table

The table below shows the plan-based awards granted by the Compensation Committee to the Company’s named executive officers in fiscal 2020:

 

 

 

 

 

 

Equity Incentive Plan Awards

 

 

 

 

Name

 

Grant Date

 

Board Approval Date

 

Threshold

 

Target

 

Maximum

 

All other stock awards: Number of shares of stock or units

 

Grant Date Fair Value of Stock Awards

Ralph D'Amico

 

12/11/2019

 

12/11/2019

 

1,018

 

10,177

 

15,266

 

3,392

 

$95,451

Ralph D'Amico

 

3/9/2020

 

12/11/2019

 

507

 

5,068

 

7,602

 

16,340(1)

 

$82,364

Chad L. Stephens

 

1/16/2020

 

12/11/2019

 

4,398

 

43,976

 

65,964

 

53,476(2)

 

$679,334

Freda R. Webb

 

12/11/2019

 

12/11/2019

 

1,041

 

10,408

 

15,612

 

3,469

 

$97,617

 

(1)

Consists of restricted stock awards approved by the Board on March 9, 2020, 100% of which vest on December 11, 2022 subject to time vesting criteria.

(2)

Consists of restricted stock awards approved by the Board on January 16, 2020, 100% of which vest on January 16, 2023 subject to time vesting critera.

Outstanding Equity Awards

The following table provides information on the holdings of restricted stock by the Company’s named executive officers at September 30, 2020:

OUTSTANDING RESTRICTED STOCK AWARDS

 

Name

 

Award Date

 

Approval Date

 

Number of Shares of

Restricted Stock That

Have Not Vested

 

Market Value of

Shares of

Restricted Stock That

Have Not Vested

Ralph D'Amico (7)

 

January 2, 2019

 

December 11, 2018

 

9,542(1)(8)

 

$150,000(5)

 

 

December 11, 2019

 

December 11, 2019

 

13,569(3)(4)

 

$164,999(6)

 

 

March 9, 2020

 

December 11, 2019

 

5,068(14)(15)

 

$61,627(6)

 

 

March 9, 2020

 

March 9, 2020

 

16,340(17)(18)

 

$72,500(16)

 

 

 

 

 

 

 

 

 

Chad L. Stephens (9)

 

January 16, 2020

 

December 11, 2019

 

43,976(3)(10)

 

$534,750(6)

 

 

January 16, 2020

 

January 16, 2020

 

53,476(11)(12)

 

$500,000(13)

 

 

 

 

 

 

 

 

 

Freda R. Webb

 

December 11, 2018

 

December 11, 2018

 

10,401(1)(2)

 

$145,406(5)

 

 

December 11, 2019

 

December 11, 2019

 

13,877(3)(4)

 

$168,744(6)

 

(1)

Mr. D’Amico and Ms. Webb paid $159.03 and $173.34, respectively, to purchase their restricted stock.

(2)

Consists of the restricted stock awards granted on December 11, 2018, 25% of which vest on the completion of three years of service and 75% of which vest based on the market price performance of the Company’s Common Stock at the completion of three years of service.

(3)

Messrs. D’Amico and Stephens and Ms. Webb paid $226.06, $732.64 and $231.19, respectively, to purchase their restricted stock.

(4)

Consists of the restricted stock awards granted on December 11, 2019, 25% of which vest on the completion of three years of service and 75% of which vest based on the market price of the Company’s Common Stock and Company performance at the completion of three years of service.

(5)

Based on the closing market price of the Company’s Common Stock of $13.98 on September 30, 2019.

(6)

Based on the closing market price of the Company’s Common Stock of $12.16 on December 11, 2019.

(7)

Mr. D’Amico was elected as Chief Financial Officer effective March 9, 2020 and as Vice President – Business Development and Investor Relations effective January 2, 2019. He was not an employee of the Company prior to that time.

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(8)

Consists of the restricted stock awards approved on December 11, 2018, and granted on January 2, 2019, 25% of which vest on December 11, 2021, and 75% of which vest based on the market price performance of the Company’s Common Stock on December 11, 2021.

(9)

Mr. Stephens was appointed as Chief Executive Officer effective January 16, 2020. He was not an employee of the Company prior to that time.

(10)

Consists of the restricted stock awards approved on December 11, 2019, and granted on January 16, 2020, 100% of which vest based on the market price of the Company’s Common Stock and Company performance at the completion of three years of service.

(11)

Mr. Stephens paid $890.91 to purchase his restricted stock.

(12)

Consists of the restricted stock awards granted on January 16, 2020, 100% of which vest on the completion of three years of service.

(13)

Based on the closing market price of the Company’s Common Stock of $9.35 on January 16, 2020.

(14)

Mr. D’Amico paid $84.43 to purchase his restricted stock.

(15)

Consists of the restricted stock awards approved on December 11, 2019, and granted on March 9, 2020, 100% of which vest based on the market price of the Company’s Common Stock and Company performance at the completion of three years of service.

(16)

Based on the closing market price of the Company’s Common Stock of $4.44 on March 9, 2020.

(17)

Mr. D’Amico paid $272.22 to purchase his restricted stock.

(18)

Consists of the restricted stock awards approved on March 9, 2020, and granted on March 9, 2020, 100% of which vest on the completion of three years of service beginning December 11, 2019.

 

Stock Vested in 2020

The following table summarizes, for the named executive officers, the restricted stock awards that vested during fiscal 2020. Ms.Webb was the only current named executive officer whose restricted stock award vested in fiscal 2020.

 

 

Stock Awards

Name

 

Number of shares acquired on vesting

 

Value realized on vesting

Freda R. Webb

 

1,306

 

$15,776

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information concerning the securities authorized for issuance under the Restricted Stock Plan as of December 31, 2020:

 

Plan Category

Number of securities remaining available for future issuance under equity compensation plans

Equity Compensation Plans Approved by security holders

309,306

Equity compensation plans not approved by security holders

0

Total

309,306

Potential Payments Upon Termination or Change in Control

The following table and narratives disclose certain information with respect to compensation that would be payable to the Company’s NEOs upon termination or change in control as of September 30, 2020.

In fiscal 2020, each of our NEOs was a party to a Change in Control Agreement. Under such Change in Control Agreements, if, within two years following a change-in-control event, the Company terminates the employment of any of its executives without cause or any executive resigns for good reason as defined in the Change in Control Agreements, that executive would be entitled to a severance payment, payable in a lump sum, in cash, following his or her termination, in an amount equal to two times the average of the compensation paid to the executive during the two calendar years preceding the change-in-control event (or the annual average of any shorter period). Compensation for this purpose includes the sum of the executive’s base salary, cash bonuses and ESOP Plan contribution (restricted stock awards are excluded). The bonus amount used in determining the executive’s compensation will not be less than two times his or her targeted bonus for the calendar year in which the change-in-control event occurs (or if not yet determined for that year, two times the executive’s targeted bonus for the preceding calendar year). Further, if the executive qualifies, and the Company is required to provide coverage under COBRA, the Company shall reimburse the executive the costs of purchasing continuing coverage under COBRA for the executive and his or her dependents as long as he or she qualifies for COBRA coverage. In fiscal 2021, the

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Change of Control Agreements were amended to reduce the Company’s reimbursement of COBRA coverage costs to a maximum of twelve months. The Company became subject to COBRA on January 1, 2014.

A change-in-control event generally means: (i) the acquisition of beneficial ownership of 50% or more of the Company’s Common Stock; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director, whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; (iii) approval by the Company’s stockholders of a merger or consolidation which results in the ownership of 20% or more of the Company’s Common Stock by persons or entities that were not previously stockholders; or (iv) involuntary dissolution of the Company.

There may arise situations where the potential to merge with or be acquired by another company may be in the best interest of our stockholders. Based on this potential, the Company believes that the “double trigger” requiring both (i) a change-in-control event and (ii) the termination of an executive’s employment without cause or his or her resignation for good reason after the event is appropriate to provide fair treatment of the executive officers, while allowing them to continue to concentrate on enhancing stockholder value during a change-in-control event, as they may take actions which ultimately may lead to termination of their employment after the change-in-control event.

Pursuant to the Change in Control Agreements, assuming that a change-in-control event took place on the last business day of fiscal 2020, and an executive’s employment was terminated without cause, or the executive terminated his or her employment for good reason, within two years following this assumed change-in-control event, the executives named below would receive the following severance payments:

 

Name

 

Salary(1)

 

Bonus(2)

 

Total(3)

Ralph D'Amico

 

$457,751

 

$375,000

 

$832,751

Chad L. Stephens (4)

 

$690,000

 

$690,000

 

$1,380,000

Freda R. Webb

 

$498,256

 

$270,000

 

$768,256

 

(1)

Calculated based on (i) two times the average of the executive officer’s base salary during calendar years 2019 and 2020 plus (ii) two times the average amount contributed to the ESOP on behalf of each executive during calendar years 2019 and 2020.

(2)

Calculated based on two times the maximum targeted bonus for each executive for calendar year 2020.

(3)

In addition, if the Company is required to provide continuing coverage to its employees under COBRA (as defined in Section 4980B of the Internal Revenue Code of 1986) at the time of a change-in-control, the Company will reimburse each executive for all costs incurred by them in purchasing such continuing coverage for themselves and their dependents as long as they qualify for COBRA coverage.

(4)

Chad L. Stephens became an employee and executive on January 16, 2020; thus 2020 salary information is used in his calculation.

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Chief Executive Officer Actual Realized Compensation

The supplemental table below reflects actual realized compensation for Chad L. Stephens, our Chief Executive Officer for 2020 and Paul F. Blanchard, Jr., our former President and Chief Executive Officer for calendar 2018 through 2019. This table reflects the Chief Executive Officer’s IRS Form W-2 income and is not a substitute for the Summary Compensation Table. “Total Actual Realized Compensation” differs substantially from “Total Compensation” as shown in the Summary Compensation Table. The principal differences between these totals are: (i) the table below reports the actual value realized on restricted stock compensation during each year (as vesting occurs), whereas the Summary Compensation Table reports the grant date fair market value in the year each award is granted irrespective of vesting; (ii) the table below does not include the value of the ESOP Plan contribution portion of “All Other Compensation” reported in the Summary Compensation Table because it is not taxable income; and (iii) the table below reflects calendar year compensation amounts, whereas compensation amounts shown in the Summary Compensation Table are based on the Company’s fiscal year.

Paul F. Blanchard, Jr., the Company’s former President and Chief Executive Officer, resigned from the Company on August 26, 2019. Upon his resignation from the Company on August 26, 2019, Mr. Blanchard received a severance payment of $668,883 (included in “Other” compensation in the table below). Per the terms of the Company’s Transition Agreement with Mr. Blanchard, this payment consisted of a lump sum payment of (i) one year of his annualized salary in the amount of $326,500; (ii) an annual bonus payment in the amount of $326,500 and (iii) an amount equal the cost of extending medical coverage for a period of 12 months.

Additionally, upon his resignation, 3,951 non-performance shares awarded to Mr. Blanchard under the Restricted Stock Plan vested. The value of these shares at vesting was $55,235. In accordance with IRS rules, this value was reported as income to Mr. Blanchard in calendar 2019 and is reflected in the schedule below.

 

Name

 

Calendar

Year

 

Salary

 

Cash

Bonuses

 

Dividends from

Restricted Stock

 

Value of

Vested Restricted

Stock Awards

 

Other

 

Total Actual

Realized

Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad L. Stephens

 

2020

 

$330,625

 

$102,782

 

$6,822

 

$-

 

$2,118

 

$442,347

Paul F. Blanchard

 

2019

 

$261,828

 

$248,112

 

$7,820

 

$55,235

 

$669,528

 

$1,242,523

Paul F. Blanchard

 

2018

 

$317,000

 

$332,190

 

$9,064

 

$78,273

 

$774

 

$737,301

Pay Ratio Disclosure

The Pay Ratio Disclosure Rule, codified in Item 402(u) of Regulation S-K and adopted pursuant to Section 953(b) of the Dodd-Frank Act, requires the Company to calculate and disclose the ratio of the annual total compensation of Chad L. Stephens, the Chief Executive Officer, to the median of the annual total compensation of the Company’s employees (other than the Chief Executive Officer).

We determined that, for the year ended September 30, 2020, (i) the annual total compensation granted to our CEO was $1,208,903, as reported in our Summary Compensation Table; (ii) the annual total compensation of our “median employee” was $113,379; and (iii) the ratio of these amounts was 11-to-1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on the Company’s payroll records and the methodology described below.

To identify the median of the annual compensation of all our employees, as well as to determine the annual total compensation for our median employee and our Chief Executive Officer, we took the following steps:

 

We determined that, as of September 30, 2020, our employee population consisted of 17 individuals, all of whom were located in the United States. This population consisted of only full-time employees, as we do not have part-time, temporary or seasonal workers. We selected the last day of our fiscal year September 30, 2020, as our identification date for determining our median employee because it enables us to make such identification in a reasonably efficient and economic manner.

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We used a consistently applied compensation measure to identify our median employee by comparing the amount of the salary or wages, bonuses and restricted stock awards that vested in 2020 as reflected in our payroll records.

 

We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis. Since all of our employees, including our Chief Executive Officer, are located in the United States, we did not make any cost of living adjustments in identifying the median employee.

 

After we identified our median employee, we combined all of the elements of such employee’s compensation for fiscal 2020, resulting in annual total compensation of $113,379.

 

With respect to the annual total compensation of our Chief Executive Officer, we used salary, bonus, restricted stock awards granted and all other compensation for fiscal 2020, resulting in annual granted total compensation of $1,208,903.

Because the SEC rules for identifying the median employee allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in their pay ratio calculations.


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Proposal No. 3

Approval and Ratification of Selection of

Independent Registered Public Accounting Firm

The Audit Committee has appointed and engaged Ernst & Young LLP (“Ernst & Young”) to serve as the independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending September 30, 2021, and to perform other appropriate audit-related services. Ernst & Young has been serving as the independent registered public accounting firm of the Company since 1989. The Company’s stockholders are hereby asked to ratify the Audit Committee’s appointment of Ernst & Young as the independent registered public accounting firm of the Company for the fiscal year ending September 30, 2021.

The Audit Committee is responsible for selecting the independent auditors of the Company. The Audit Committee has directed the Company to submit the selection of Ernst & Young as the Company’s independent registered public accounting firm for fiscal 2021 for ratification by the stockholders at the Annual Meeting. Although stockholder ratification of Ernst & Young is not required by the Company’s governing documents or law, the Board has determined that it is desirable to submit the selection of Ernst & Young to the stockholders for ratification as a matter of good corporate practice in view of the critical role played by the independent registered public accounting firm in maintaining the integrity of financial controls and reporting. If the stockholders do not vote to approve the ratification of the selection, the Audit Committee will consider whether to engage another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee may, at its discretion, direct the appointment of a different independent registered public accounting firm at any time during fiscal 2021 if it determines that such a change would be in the best interests of the Company and its stockholders.

A representative of Ernst & Young is expected to attend the Annual Meeting, will have the opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions from stockholders.

Report of the Audit Committee

The Audit Committee is comprised of three independent, non-employee directors, Mark T. Behrman (chair), Lee M. Canaan and Christopher T. Fraser. The Board has determined that all committee members are independent and financially literate as defined by NYSE listing standards and SEC regulations and that Mr. Behrman, Ms. Canaan and Mr. Fraser are each an “audit committee financial expert” as defined by applicable SEC regulations. For purposes of complying with NYSE rules, the Board has determined that none of the Committee members currently serve on the audit committees of more than three public companies.

The Audit Committee’s responsibilities are set forth in the Audit Committee Charter, as may be amended from time to time by the Board. The Audit Committee’s primary responsibility is to oversee the Company’s financial reporting process on behalf of the Board and report the results of its activities to the Board. Management has the primary responsibility for the financial statements and the reporting process, including internal control over financial reporting.

Management is responsible for the preparation, presentation and integrity of our financial statements in accordance with generally accepted accounting principles, the establishment and maintenance of our disclosure controls and procedures, and the establishment, maintenance and evaluation of the effectiveness of our internal controls over financial reporting. The Company’s independent registered public accounting firm is responsible for performing an independent audit of our financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB) and issuing reports thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes.

Discussions with Management. In fulfilling its responsibilities, the Audit Committee has reviewed and discussed with management the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for fiscal 2020, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

Discussions with Independent Accountants. The Audit Committee reviewed and discussed the Company’s audited financial statements with Ernst & Young (“independent accountants”), which is the independent registered

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public accounting firm responsible for expressing an opinion on the conformity of those financial statements with the standards of the PCAOB and its judgment as to the quality, not just the acceptability, of the Company’s accounting principles. The Audit Committee discussed with the independent accountants such matters required under the standards of the PCAOB and the SEC. In addition, the Audit Committee discussed with the independent accountants its independence from management and the Company, including matters in the written disclosures and letter received from the independent accountants as required by PCAOB Rule 3526 (Communications with Audit Committee Concerning Independence).

The Audit Committee met with the independent accountants, with and without management present, to discuss the overall scope and plans for their audit, the results of their examinations, their evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting. The Audit Committee also met with the independent accountants and management after the end of each of the first three 2020 fiscal quarters. At these meetings, the independent accountants’ review of quarterly results was presented, and discussions were also held with management concerning these results.

Recommendations that Financial Statements be Included in the Annual Report. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board approved) that the audited financial statements be included in our Annual Report on Form 10-K for fiscal 2020 for filing with the SEC (which was filed on December 10, 2020).

Audit Committee

Mark T. Behrman – Chair

Lee M. Canaan

Christopher T. Fraser

Independent Accountants’ Fees and Services

The following sets forth fees billed for audit and other services provided by Ernst & Young for the fiscal years ended September 30, 2020, and September 30, 2019:

 

Fee Category

 

Fiscal 2020 Fees

 

Fiscal 2019 Fees

 

Audit Fees (1)

 

$538,500

 

$367,500

 

Tax Fees

 

$-

 

$-

 

All Other Fees

 

$-

 

$-

 

(1)

Includes fees for audit of financial statements, review of the related quarterly financial statements for those fiscal years, and services related to other SEC filings.

All services rendered by Ernst & Young were permissible under applicable laws and regulations and were pre-approved by the Audit Committee. The Audit Committee’s pre-approval policy is set forth in the Audit Committee Charter which is available at the Company’s website: www.phxmin.com.

To ratify the selection of Ernst & Young LLP, a majority of shares of Common Stock represented in person or by proxy at the Annual meeting must vote “FOR” Proposal No. 3.

BOARD RECOMMENDATION ON PROPOSAL

The Board of Directors Recommends Stockholders Vote “FOR” Ratification of Selection of Independent Registered Public Accounting Firm.


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Proposal No. 4

Approval of Amendment and Restatement of

Certificate of Incorporation

General

At our Annual Meeting, we are asking the holders of our Common Stock to approve an amendment to our Certificate of Incorporation to increase the total number of shares of capital stock which the Company has the authority to issue from 24,000,500 shares to 36,000,500 shares (the “Amendment”). The Amendment will be incorporated into our Certificate of Incorporation through the adoption of an amended and restated certificate of incorporation that incorporates this Amendment and previously approved amendments, as well as certain administrative changes described below (the “Amended and Restated Certificate”).

On December 8, 2020, the Board adopted resolutions approving the Amended and Restated Certificate and directed that the Amendment be submitted to a vote of the stockholders at the Annual Meeting. If the stockholders approve the proposal, subject to the discretion of the Board, the Company will file (or cause to be filed) the Amended and Restated Certificate, in the form of Appendix A hereto, with the Office of the Secretary of State of the State of Oklahoma as soon as practicable.

The Board believes that the availability of additional authorized shares of capital stock will provide the Company with additional flexibility to issue stock for various general corporate purposes as the Board may determine desirable, including, without limitation, for raising capital for the acquisition of minerals and royalties and other investment opportunities in furtherance of the “minerals only strategy” developed and implemented by the Board and management.

Description of the Amendment

The Company’s current Certificate of Incorporation authorizes the issuance of up to 24,000,500 shares of stock, all of which are designated as Class A Common Stock. As of January 4, 2021, there are 22,389,194 shares of Class A Common Stock outstanding.

The Amended and Restated Certificate would authorize the Board to increase the total number of shares of capital stock which the Company has the authority to issue from 24,000,500 shares to 36,000,500 shares.

The entirety of the proposed Amended and Restated Certificate is attached hereto as Appendix A and should be read in conjunction with this proposal.

Purpose

The Board believes that the availability of additional authorized shares of capital stock will provide the Company with additional flexibility to issue stock for various general corporate purposes as the Board may determine desirable, including, without limitation, for raising capital for the acquisition of minerals and royalties and other investment opportunities in furtherance of the “minerals only strategy” developed and implemented by the Board and management.

As of January 4, 2021, 22,389,194 shares of Class A Common Stock were issued and outstanding and 282,552 shares were reserved for issuance under our various employee and director benefit plans less treasury shares, leaving 1,328,754 shares of Class A Common Stock unissued and unreserved. The Board believes it is important to authorize additional shares of capital stock to ensure that enough shares will be available in the event our Board determines that it is necessary or appropriate to (i) raise additional capital through the sale of equity securities, (ii) acquire another company or its assets, (iii) allow for grants and awards pursuant to our equity compensation plans and agreements, (iv) permit future stock splits in the form of stock dividends or (v) satisfy other corporate purposes. The availability of additional shares of capital stock is particularly important in the event that our Board needs to undertake any of the foregoing actions on an expedited basis and does not have the time to seek stockholder approval in connection with the contemplated issuance of capital stock.

 

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If the proposed increase in authorized shares of capital stock is approved, no further action by the stockholders would be necessary prior to the issuance of additional shares of stock unless required by law or the rules of the stock exchange on which the stock is then listed or quoted. If approved, the additional authorized shares of Class A Common Stock will have the same rights as the Class A Common Stock already authorized.

Potential Anti-Takeover Effects of the Amended and Restated Certificate

The proposed increase in the number of authorized shares of capital stock will not change the number of shares of Common Stock outstanding, nor will it have any immediate dilutive effect or change the rights of current holders of the Company’s Common Stock. However, future issuances of Common Stock could have a dilutive effect on our earnings per share, book value per share and the voting power and interest of current stockholders. In addition, the availability of additional shares of Common Stock for issuance could, under certain circumstances, discourage or make more difficult any efforts to obtain control of the Company.

The Board is not aware of any attempt, or contemplated attempt, to acquire control of the Company, nor is this proposal being presented with the intent that it is used to prevent or discourage any acquisition attempt. The Amended and Restated Certificate has been prompted by business and financial considerations and is not being proposed in response to any effort to obtain control of the Company or as an anti-takeover measure.

Additional Amendments Not Requiring Stockholder Approval

The proposed Amended and Restated Certificate, if approved, will incorporate previously approved and adopted amendments to our Certificate of Incorporation.

No Appraisal Rights

Our stockholders are not entitled to appraisal rights with respect to the Amended and Restated Certificate, and we will not independently provide stockholders with any such right.

Vote Required and Board of Directors’ Recommendation

To approve the foregoing proposal, a majority of shares of Common Stock outstanding as of the Record Date must vote “FOR” approval of Proposal No. 4.

BOARD RECOMMENDATION ON PROPOSAL

The Board of Directors Recommends a Vote “FOR” the Approval of the Amendment and Restatement of the Company’s Certificate of Incorporation.


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Proposal No. 5

Approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan

On January 5, 2021, the Board unanimously approved the PHX Minerals Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), subject to stockholder approval. The 2021 Plan will become effective, if approved by stockholders, upon certification of the voting results after the Annual Meeting (the “Effective Date”). The 2021 Plan will apply only to awards granted on or after the Effective Date. The terms and conditions of awards granted under the Company’s Restricted Stock Plan prior to the Effective Date will not be affected by the adoption or approval of the 2021 Plan. If the 2021 Plan is not approved by our stockholders at the Annual Meeting, then the Restricted Stock Plan will remain in effect on the terms in force prior to the Annual Meeting with the 2021 Plan not taking effect. If the 2021 Plan is approved by our stockholders at the Annual Meeting, it will replace the Restricted Stock Plan.

Best Practices

The 2021 Plan incorporates several features designed to protect stockholder interests and promote current best practices, including:

 

Minimum Vesting Requirements: Awards under the 2021 Plan will be subject to a minimum vesting schedule of at least 12 months following the date of grant of the award; provided, however, that up to 5% of the shares underlying awards granted after the Effective Date may be subject to vesting schedules of less than 12 months. For purposes of this minimum vesting requirement, awards granted to non-employee directors in respect of regular annual fees will be deemed to satisfy the requirement, even if the regular annual stockholder meeting at which the award would vest is less than 12 months following the grant date of the award.

 

No Dividend Payments on Unvested Awards: The 2021 Plan expressly prohibits the payment of dividends or dividend equivalents on any award before the date on which the award vests. The 2021 Plan also provides that in no event will dividends or dividend equivalents be paid with respect to Options or Stock Appreciation Rights (each as defined below) awarded under the 2021 Plan.

 

Clawback: Awards under the 2021 Plan will be subject to any clawback or recapture policy that the Company may adopt from time to time or any clawback or recapture provisions set forth in an award agreement.

 

No Evergreen: The 2021 Plan does not contain any “evergreen” provisions.

 

No Discount or Repriced Options: The 2021 Plan prohibits, without stockholder approval, the discounting or repricing of Options to reduce, directly or indirectly, the exercise price of such Options. It also prohibits any other action with respect to an Option or Stock Appreciation Right that would be treated as a repricing under the rules and regulations of the principal U.S. national securities exchange on which the shares are then listed.

Burn Rate and Overhang Disclosure

The Company’s historical share usage under its equity compensation plans (sometimes referred to as “burn rate”) and the potential dilution of the Company’s stockholders that could occur with respect to the Company’s equity plans (sometimes referred to as “overhang”) are summarized below.

Fiscal Year

 

Restricted Stock Grants

 

Weighted Average Shares Outstanding

 

Burn Rate

2020

 

181,312

 

16,856,792

 

1.1%

2019

 

71,265

 

16,575,160

 

0.4%

2018

 

49,019

 

16,746,928

 

0.3%

 

 

 

 

Three-year average:

 

0.6%

 

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As of September 30, 2020, the total overhang with respect to the Company’s equity plans and outstanding awards, expressed as a percentage of Common Stock outstanding, is reflected in the table below.

 

New shares available under the 2021 Plan

 

2,024,445

Shares remaining available under the Restricted Stock Plan

 

309,306

Total shares available for issuance

 

2,333,751

Equity awards outstanding

 

166,249

Common shares outstanding

 

22,389,194

Overhang

 

11.2%

 

The Company believes that granting equity awards, which generally vest over several years, is an effective method for aligning the interests of the Company’s employees and directors with those of stockholders, encouraging ownership in the Company and providing the Company an opportunity to attract and retain the best available personnel for positions of substantial responsibility. The closing price of a share of the Company’s Common Stock as of September 30, 2020 was $1.43.

Summary of the 2021 Plan

Below is a summary of the material terms of the 2021 Plan. The full text of the 2021 Plan is attached as Appendix B to this proxy statement. The statements made in this proxy statement with respect to the 2021 Plan should be read in conjunction with, and are qualified in their entirety by reference to, the full text of the 2021 Plan attached as Appendix B to this proxy statement.

Purpose of the 2021 Plan

The 2021 Plan is designed to promote the interests of the Company and our stockholders by offering selected employees, consultants and non-employee directors of the Company or its affiliates an opportunity to participate in the growth and financial success of the Company, and by providing to such persons performance-related incentives. The 2021 Plan permits discretionary grants of the following award types:

 

Incentive stock options (“Incentive Stock Options”) as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”);

 

Stock options that do not constitute Incentive Stock Options (“Non-Qualified Stock Options” and, together with Incentive Stock Options, “Options”);

 

Shares of Common Stock for a purchase price, if any, determined by the Committee (as defined below) that are not subject to forfeiture (“Bonus Stock Awards”);

 

The right to receive shares of Common Stock or cash payments with a value equal to the amount by which the fair market value of a share of Common Stock on exercise exceeds the fair market value on the grant date (“Stock Appreciation Rights”);

 

The right to receive a specified number of shares of Common Stock or cash equal to the fair market value of a specified number of shares of Common Stock (“Phantom Stock Awards” or “Restricted Stock Units”);

 

Shares of Common Stock that are subject to restrictions on disposition and forfeiture to the Company under certain circumstances (“Restricted Stock Awards”);

 

Cash and/or stock payments that may be earned based on the satisfaction of various performance measures (“Performance Awards”); and

 

Other stock or performance-based awards (“Other Stock or Performance-Based Awards”).

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Shares Subject to the 2021 Plan

Subject to adjustment as described under “Adjustments upon Changes in Capitalization and Corporate Events” below, the aggregate number of shares of Common Stock that may be issued with respect to awards granted under the 2021 Plan may not exceed 2,500,000, including such aggregate number of shares that have been reserved for issuance and are subject to unvested Awards under the Restricted Stock Plan (the “Share Pool Limit”).

Except for shares of Common Stock issued with respect to awards that are assumed or substituted as a result of the Company’s acquisition of another company (including by way of merger, combination or similar transaction), the number of shares reserved for issuance under the 2021 Plan will be reduced by the number of shares of Common Stock issued in connection with the exercise or settlement of an award or used to determine the amount of cash paid in connection with the exercise of Stock Appreciation Rights and the settlement of Phantom Stock Awards. Any shares of Common Stock covered by an award that is forfeited or canceled or that expires, or that are withheld in respect of taxes (except as provided below), will be deemed not to have been issued for purposes of determining the maximum aggregate number of shares of Common Stock which may be issued under the 2021 Plan; provided that the following will count against the Share Pool Limit: (i) shares tendered or withheld to pay the exercise price of, or tax withholding obligations related to, awards, (ii) shares repurchased by the Company from a participant with the proceeds from the exercise of Options and (iii) shares reserved for issuance under a Stock Appreciation Right that exceed the number of shares actually issued upon exercise.

The shares to be delivered under the 2021 Plan will be made available from (a) authorized but unissued shares, (b) shares held in the treasury of the Company or (c) previously issued shares reacquired by the Company, including shares purchased on the open market, in each case as the Committee may determine from time to time in its sole discretion. Subject to adjustment in accordance with the 2021 Plan, no more than 1,750,000 shares of Common Stock may be issued in the aggregate pursuant to the exercise of Incentive Stock Options.

Administration

The 2021 Plan, if approved, will be administered by the Compensation Committee or, if there is no Compensation Committee at any relevant time, by the Board (the “Committee”). Additionally, the Board or Committee may delegate any of its powers under the 2021 Plan to a subcommittee of the Committee or one of their respective members, or to one or more officers of the Company, subject to applicable laws and exchange requirements.

The Committee has full authority, subject to the terms of the 2021 Plan, to establish rules that it deems relevant for the proper administration of the 2021 Plan and to set the type and size of awards that are made and the other terms of the awards. Furthermore, the Committee has full authority, subject to the terms of the 2021 Plan, to select the employees, consultants and non-employee directors to whom awards are granted. When granting awards, the Committee may consider any factors that it deems relevant.

The 2021 Plan authorizes the Committee to grant equity-based awards, including Restricted Stock Awards, Restricted Stock Units and Options, to eligible employees and consultants (other than executive officers of the Company or its affiliates and non-employee directors). The Board may determine, or cause the Committee to determine, (i) the maximum aggregate number of shares of Common Stock subject to Options granted by the Committee in any one calendar year; (ii) the maximum aggregate number of shares of Common Stock covered by Restricted Stock Awards and Restricted Stock Unit Awards in the aggregate granted by the Committee in any one calendar year; (iii) the aggregate number of shares of Common Stock that may be awarded to any individual under Options granted by the Committee; and/or (iv) the aggregate number of shares of Common Stock that may be awarded to any individual under Restricted Stock Awards and Restricted Stock Unit Awards in the aggregate granted by the Committee.

Eligibility

All employees, consultants and non-employee directors of the Company and our affiliates are eligible to participate in the 2021 Plan. The selection of employees, consultants and non-employee directors, from among those eligible, who will receive Incentive Stock Options, Non-Qualified Stock Options, Bonus Stock Awards, Stock Appreciation Rights, Phantom Stock Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Awards, Other Stock or Performance-Based Awards or any combination thereof, is within the discretion of the Committee.

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However, Incentive Stock Options may be granted only to employees of the Company or its affiliates. As of the Record Date, there were approximately 20 employees, one consultant and four non-employee directors eligible to participate in the 2021 Plan.

Term of 2021 Plan

The 2021 Plan will become effective, if approved by stockholders, upon certification of the voting results after the Annual Meeting. If not sooner terminated, the 2021 Plan will terminate on the earlier of the tenth anniversary of the Effective Date or the date on which no shares of Common Stock subject to the 2021 Plan remain available to be granted as awards under the 2021 Plan, and no further awards may be granted thereafter. The Board, in its discretion, may terminate the 2021 Plan at any time with respect to any shares of Common Stock for which awards have not theretofore been granted.

Term of Awards

The term of any Incentive Stock Option, Non-Qualified Stock Option, Stock Appreciation Right or Other Stock or Performance-Based Award may not exceed a period of 10 years.

Stock Options

Term of Option; Exercise Price. The term of each Option is as specified by the Committee at the date of grant but cannot exceed 10 years. The exercise price is determined by the Committee and can be no less than the fair market value of the shares of Common Stock covered by the Option on the date the Option is granted (other than options assumed, or issued in substitution for option awards, in connection with the acquisition of another entity).

Special Rules for Certain Stockholders. If an Incentive Stock Option is granted to an employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its affiliates, the term of the Option cannot exceed five years, and the exercise price must be at least 110% of the fair market value of the shares of Common Stock on the date that the Option is granted.

Status of Stock Options. The status of each Option granted to an employee as either an Incentive Stock Option or a Non-Qualified Stock Option is designated by the Committee at the time of grant. If, however, the aggregate fair market value (determined as of the date of grant) of shares with respect to which Incentive Stock Options become exercisable for the first time by an employee exceeds $100,000 in any calendar year, the Options with respect to the excess shares are Non-Qualified Stock Options. All Options granted to consultants and non-employee directors are Non-qualified Stock Options.

Transferability. An Incentive Stock Option is not transferable other than by will or the laws of descent and distribution, and may be exercised during the employee’s lifetime only by the employee or his or her guardian or legal representative. A Non-Qualified Stock Option is not transferable other than by will or the laws of descent and distribution, or with the consent of the Committee, to one or more immediate family members or related family trusts or partnerships or similar entities, subject to securities registration requirements.

Limitations on Exercise. No Incentive Stock Option may be exercised more than: (i) three months after the participant ceases to perform continuous service for the Company for any reason other than death or Disability (as defined in the 2021 Plan) or (ii) one year after the participant ceases to perform continuous service for the Company due to death or disability. No Non-Qualified Stock Option may be exercised more than: (i) six months after the participant ceases to perform continuous service for the Company for any reason other than death or disability or (ii) one year after the participant ceases to perform continuous service for the Company due to death or disability. If a participant’s continuous service with the Company is terminated for cause (as defined in the 2021 Plan), the Option will immediately terminate.

Bonus Stock Awards

The Committee may grant shares of our Common Stock to employees, consultants and non-employee directors on terms and conditions and for such payment, if any, as established by the Committee on the date of grant, which grant will constitute a transfer of unrestricted shares of Common Stock to the recipient.

(47)


Stock Appreciation Rights

Stock Appreciation Rights may be granted in connection with, or independent of, an Option. A Stock Appreciation Right granted in connection with an Option entitles the participant to surrender all or part of the Option for a cash payment at such time and to the extent such Option is exercisable. Any such Stock Appreciation Right is transferable only to the extent the related Option is transferable. A Stock Appreciation Right granted independently of an Option is exercisable at such time and in such manner as determined by the Committee and set forth in the applicable award agreement.

The exercise price of a Stock Appreciation Right is determined by the Committee and can be no less than the fair market value of the shares of Common Stock subject to the Stock Appreciation Right on the date the Stock Appreciation Right is granted.

Phantom Stock Awards

Phantom Stock Awards under the 2021 Plan are subject to such restrictions (which may include a risk of forfeiture) as the Committee may determine. A Phantom Stock Award may be paid at the end of the restricted period or the last day of a deferral period in the form of shares of the Company’s Common Stock or in cash.

Restricted Stock Awards

Restricted Stock Awards are subject to certain restrictions on disposition and certain obligations to forfeit and surrender the shares to the Company as may be determined in the discretion of the Committee. Upon the issuance of shares of Common Stock pursuant to a Restricted Stock Award, except for the foregoing restrictions and unless otherwise provided, the recipient of the award will have all of the rights of a stockholder of the Company with respect to the shares, including the right to vote the shares, but prior to the lapse of such restrictions, the participant will not be entitled to delivery of the shares and the participant may not sell, transfer, assign or otherwise dispose of such shares. During the period of restriction, all dividends (whether ordinary or extraordinary and whether paid in cash, additional shares or other property) or other distributions paid upon any Restricted Stock Award will be retained by the Company for the account of the participant. Such dividends or other distributions will revert back to the Company if, for any reason, the Restricted Stock Award reverts back to the Company. Upon the expiration of the applicable forfeiture restrictions, all dividends or other distributions made on the Restricted Stock Award and retained by the Company will be paid, without interest, to the participant.

Restricted Stock Unit Awards

The Committee may, from time to time and subject to the terms of the 2021 Plan, grant Restricted Stock Unit Awards to employees, consultants and non-employee directors. A Restricted Stock Unit Award is the right to receive Common Stock or cash equal to the fair market value of a specified number of shares of Common Stock in the future, provided that applicable vesting and/or performance requirements have been met. Vesting requirements and performance goals shall be established by the Committee. Prior to vesting and settlement of Restricted Stock Unit Awards, participants will have no rights as a stockholder of the Company with respect to the shares.

Performance Awards

The Committee may grant cash awards that are rights to receive a cash payment upon the achievement of a single or multiple performance goals over a specified performance period established by the Committee. The Committee also may designate any form of award under the 2021 Plan as a Performance Award that will be subject to the achievement of performance goals.

The Committee may grant Performance Awards under the 2021 Plan that may be paid in Common Stock, cash or a combination thereof as determined by the Committee. The Committee uses one or more criteria in establishing performance goals for Performance Awards, which may include: earnings per share; revenue (including increased revenues); profit measures (including gross profit, operating profit, economic profit, net profit before taxes and adjusted pre-tax profit); cash flow measures (including cash flow return on capital, cash flow return on tangible capital, net cash flow, distributable cash flow, distributable cash flow per share and net cash flow before financing activities); return measures (including return on equity, return on assets, return on capital, risk-adjusted return on capital, return on investors’ capital and return on average equity); economic value added; gross margin; net income

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measures (including income after capital costs and income before or after taxes); earnings; pretax earnings; earnings before interest, taxes, depreciation and amortization (“EBITDA”) or adjusted EBITDA; earnings before taxes and depreciation (“EBTD”); earnings before interest and taxes (“EBIT”); pretax operating earnings after interest expense and before incentives, service fees and extraordinary or special items; operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes, production volumes and production efficiency); stock price measures (including growth measures and total stockholder return); debt reduction; price per share of Common Stock; market share; earnings per share or adjusted earnings per share (actual or growth in); economic value added (or an equivalent metric); market value added; debt to equity ratio; expense measures (including overhead cost and general and administrative expense); changes in working capital; margins; stockholder value; proceeds from dispositions; total market value; customer satisfaction or growth; and implementation, completion or attainment of measurable objectives with respect to the acquisition, development and/or productivity of assets. Any of the above business criteria may be determined on an absolute or relative basis or as compared to the performance of a published or special index. The Committee may determine that certain items, events or occurrences, including unusual or nonrecurring items, changes in accounting standards or tax laws, or other adjustments, will be added to or excluded from the calculation of any criteria.

Other Stock or Performance-Based Awards

The Committee may grant Other Stock or Performance-Based Awards which consist of a right denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock or cash. The Committee may establish such terms and conditions for Other Stock or Performance-Based Awards under the 2021 Plan as it determines appropriate.

Adjustments upon Changes in Capitalization and Corporate Events

The number of shares of Common Stock (i) covered by each outstanding award granted under the 2021 Plan, the exercise or purchase price of such outstanding award and any other terms of the award that the Committee determines requires adjustment and (ii) available for issuance under the 2021 Plan, will be proportionately adjusted or an equitable substitution will be made to reflect, as determined by the Committee, any increase or decrease in the number of shares of Common Stock resulting from a stock dividend, stock split, reverse stock split, extraordinary cash dividend resulting from a nonrecurring event that is not a payment of normal corporate earnings, combination, reclassification or similar change in the capital structure of the Company without receipt of consideration, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws or other applicable laws. Except as the Committee determines, no issuance by the Company of shares of capital stock of any class, or securities convertible into shares of capital stock of any class, will affect the number or price of shares of Common Stock subject to an award.

Unless specifically provided otherwise with respect to Change in Control (as defined in the 2021 Plan) events in an individual Award or written employment agreement, if, during the effectiveness of the 2021 Plan, a Change in Control occurs, each Option and Stock Appreciation Right which is at the time outstanding under the 2021 Plan will (i) automatically become fully vested and exercisable, immediately prior to the specified effective date of such Change in Control, for all of the shares of Common Stock at the time represented by such Option or Stock Appreciation Right and (ii) expire 20 days after the Committee gives written notice to the participant specifying the terms and conditions of the acceleration of the Option or Stock Appreciation Right, or if earlier, the date by which the Option or Stock Appreciation Right otherwise would expire. To the extent that a participant exercises an Option before or on the effective date of the Change in Control, the Company will issue all Common Stock purchased by exercise of that Option, and those shares of Common Stock shall be treated as issued and outstanding for purposes of the Change in Control. If a participant does not exercise an Option within the 20-day period described above, or if earlier, the date by which the Option or Stock Appreciation Right otherwise would expire, the Option or Stock Appreciation Right will immediately be forfeited and the participant will have no further rights to exercise the Option or Stock Appreciation Right. Notwithstanding the foregoing, in the event of any Change in Control, all of the Company’s obligations regarding Options and Stock Appreciation Rights that were granted under the Plan and that are vested on the date of such event (taking into consideration any acceleration of vesting) may, on such terms as approved by the Committee, be (i) assumed by the surviving or continuing corporation (or substituted options of equal value may be issued by such corporation) or (ii) canceled in exchange for cash, securities of the acquiror or other property in an amount equal to the amount that would have been payable to a participant pursuant to the Change in Control event if the participant’s vested Options and Stock Appreciation Rights had been fully exercised

(49)


immediately prior to the Change in Control event; provided, however, that if the amount that would have been payable to a participant pursuant to such transaction if such participant’s vested Options and Stock Appreciation Rights had been fully exercised immediately prior thereto would be equal to or less than the aggregate exercise price that would have been payable therefor, the Committee may, in its discretion, cancel any or all such Options for no consideration or payment of any kind.

Unless specifically provided otherwise with respect to Change in Control events in an individual Award or written employment agreement, if, during the effectiveness of the 2021 Plan, a Change in Control occurs, the vesting period applicable to outstanding Restricted Stock Awards, Restricted Stock Unit Awards and all other outstanding Awards subject to forfeiture provisions (other than Options or Stock Appreciation Rights) will lapse and the Awards will become fully vested and settled.

Unless specifically provided otherwise with respect to Change in Control events in an individual award or in a then-effective written employment agreement between the participant and the Company, with respect to Performance Awards, all incomplete performance periods in respect of any such award in effect on the date the termination occurs shall end on the date of such termination and the Committee shall (i) determine the extent to which the performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable participant partial or full awards with respect to the performance goals for each such performance period based upon the Committee’s determination of the degree of attainment of the performance goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Committee.

General Provisions Applicable to All Awards

Minimum Vesting. Awards under the 2021 Plan will be subject to a minimum vesting schedule of at least 12 months following the date of grant of the award, provided that up to 5% of the shares underlying awards granted after the Effective Date may be subject to vesting schedules of less than 12 months. For purposes of this minimum vesting requirement, awards granted to non-employee directors in respect of regular annual fees will be deemed to satisfy the requirement, even if the regular annual stockholder meeting at which the award would vest is not at least 12 months following the grant date of the award.

No Payment of Dividends on Unvested Awards. No award may provide for the payment of dividends or dividend equivalents before the date on which the award vests. With respect to any award that provides an entitlement to dividends or dividend equivalents, the dividends or dividend equivalents will be retained by the Company for the account of the participant during the vesting period and will revert back to the Company if the award is forfeited prior to vesting. Upon vesting, all dividends or dividend equivalents retained by the Company in respect of the award will be paid, without interest, to the participant. In no event shall dividends or dividend equivalents be paid with respect to Options or Stock Appreciation Rights.

Clawback. Awards under the 2021 Plan will be subject to any clawback or recapture policy, if any, that the Company may adopt from time to time or any clawback or recapture provisions set forth in an award agreement, plan or program to the extent provided in such policy, plan, program or agreement.

Termination of Service. If a participant’s service is terminated for Cause (as defined in the 2021 Plan), all outstanding awards that have not been settled (whether vested or unvested) will be forfeited. Except as otherwise provided in an award or other agreement or plan or otherwise determined by the Committee, if a participant’s service is terminated due to death or Disability, then outstanding awards will vest, with performance conditions deemed earned at the target level.

Except as otherwise provided in an individual award or an employment agreement or other agreement or plan, if a participant’s service is terminated without Cause and subject to the participant’s execution of a release of claims:

 

Any unvested awards that are only subject to time-vesting conditions and not subject to performance-vesting conditions and that were granted prior to the date of termination shall vest immediately in full on the date of such participant’s termination; and

(50)


 

Any unvested awards with performance-vesting conditions that were granted prior to the date of termination shall be retained by the participant, even after such participant’s service has been terminated, and shall continue to be subject to any performance-vesting conditions.

Except as otherwise provided in an individual award or other agreement or plan, or otherwise determined by the Committee, any unvested award will be forfeited in the event of a termination for any reason not discussed above.

Amendment; Termination

The Board may amend or terminate the 2021 Plan; provided that the Company will obtain stockholder approval of any 2021 Plan amendment to the extent necessary to comply with the Code, applicable laws and the applicable requirements of any stock exchange or national market system. Any amendment or termination of the 2021 Plan will not affect awards previously granted except as mutually agreed between the Company and the participant.

Federal Income Tax Aspects of the 2021 Plan

The following is a brief summary of certain of the U.S. federal income tax consequences of certain transactions under the 2021 Plan as normally operated and is not intended to provide or supplement tax advice to eligible employees, consultants or directors. The summary contains general statements based on current U.S. federal income tax statutes, regulations and currently available interpretations thereof. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences or the effect, if any, of gift, estate and inheritance taxes.

Incentive Stock Options. No federal income tax is imposed on the optionee upon the grant of an Incentive Stock Option. The optionee would recognize no ordinary taxable income upon exercise of an Incentive Stock Option or later disposition of shares acquired pursuant to his or her exercise of an Incentive Stock Option if the optionee: (a) does not dispose of the shares acquired pursuant to the exercise within the two-year period beginning on the date that the stock option was granted or within the one-year period beginning on the date that the stock option was exercised (collectively, the “holding period”); and (b) is an employee of the Company or any of our subsidiaries at all times beginning on the date of grant and ending on the date three months before the date of exercise. With respect to an Incentive Stock Option, the difference between the fair market value of the stock on the date of exercise and the exercise price must generally be included in the optionee’s alternative minimum taxable income for the year in which such exercise occurs. Special rules may be applicable with regard to alternative minimum taxable income calculation purposes if an optionee exercises an Incentive Stock Option and disposes of the shares received in the same taxable year.

Upon disposition of the shares received upon exercise of an Incentive Stock Option after the holding period, any appreciation of the shares above the exercise price should constitute capital gain. In such event, the Company would not be entitled to any deduction for federal income tax purposes in connection with the grant or exercise of the Incentive Stock Option or the disposition of the shares so acquired. If an optionee disposes of shares acquired pursuant to his or her exercise of an Incentive Stock Option prior to the end of the holding period, the optionee will be treated as having received, at the time of disposition, compensation taxable as ordinary income. In such event, the Company may claim a deduction for compensation paid at the same time and in the same amount as compensation is treated as received by the optionee. The amount treated as ordinary income is the excess of the fair market value of the shares at the time of exercise (or in the case of a sale in which a loss would be recognized, the amount realized on the sale if less) over the exercise price; any amount realized in excess of the fair market value of the shares at the time of exercise would be treated as short-term or long-term capital gain, depending on the holding period of the shares.

Non-Qualified Stock Options and Stock Appreciation Rights. As a general rule, no federal income tax is imposed on the optionee upon the grant of a Non-Qualified Stock Option such as those under the 2021 Plan (whether or not including a Stock Appreciation Right), and the Company is not entitled to a tax deduction by reason of such grant. Generally, upon the exercise of a Non-Qualified Stock Option, the optionee will be treated as receiving compensation taxable as ordinary income in the year of exercise in an amount equal to the excess of the fair market value of the shares of stock at the time of exercise over the option price paid for such shares. In the case of the exercise of a Stock Appreciation Right, the optionee will be treated as receiving compensation taxable as ordinary income in the year of exercise in an amount equal to the cash received and/or the fair market value of the shares

(51)


distributed to the optionee, determined based on the excess of the fair market value of the shares of Common Stock covered by the portion of the Stock Appreciation Rights being exercised over the exercise price for such shares. Upon the exercise of a Non-Qualified Stock Option or a Stock Appreciation Right, and subject to the application of Section 162(m) of the Code as discussed below, the Company may claim a deduction for compensation paid at the same time and in the same amount as compensation income is recognized by the optionee assuming any federal income tax reporting requirements are satisfied.

Upon a subsequent disposition of the shares received upon exercise of a Non-Qualified Stock Option or a Stock Appreciation Right, any difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition would be treated as capital gain or loss.

Restricted Stock Awards. Subject to the special rules discussed below relating to elections made under Section 83(b) of the Code, the recipient of a Restricted Stock Award will not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time, assuming that the restrictions applicable to the award constitute a substantial risk of forfeiture for federal income tax purposes. When the risk of forfeiture with respect to the stock subject to the award lapses and the individual vests in the underlying shares, the holder will realize ordinary income in an amount equal to the fair market value of the shares of Common Stock at such time, and, subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction. All dividends and distributions (or the cash equivalent thereof) with respect to a Restricted Stock Award paid to the holder before the risk of forfeiture lapses will also be compensation income to the holder when paid and, subject to Section 162(m) of the Code, deductible as such by the Company.

Upon a subsequent disposition of the shares received pursuant to a Restricted Stock Award, other than a share for which the Section 83(b) election is made as discussed below, the difference between the amount realized on the disposition of the shares and the fair market value of the shares on the date the substantial risk of forfeiture lapsed would be treated as a capital gain or loss.

Notwithstanding the foregoing, the holder of a Restricted Stock Award may elect under Section 83(b) of the Code to be taxed at the time of grant of the Restricted Stock Award (rather than the date on which the substantial risk of forfeiture lapses) based on the fair market value of the shares of Common Stock on the date of the award, in which case (a) subject to Section 162(m) of the Code, the Company will be entitled to a deduction at the same time and in the same amount, (b) dividends paid to the recipient during the period the forfeiture restrictions apply will be taxable as dividends and will not be deductible by the Company and (c) there will be no further federal income tax consequences when the risk of forfeiture lapses. Such election must be made not later than 30 days after the grant of the Restricted Stock Award and is irrevocable.

Upon a subsequent disposition of Restricted Stock Award shares for which the Section 83(b) election is made, the difference between the fair market value of the shares on the disposition date and the fair market value of the shares on the date of grant would be treated as a capital gain or loss.

Restricted Stock Unit Awards. An individual who has been granted a Restricted Stock Unit Award generally will not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. With regard to a Restricted Stock Unit Award which is settled in shares of Common Stock, the individual will have taxable compensation and, subject to the application of Section 162(m) of the Code as discussed below, the Company will have a corresponding deduction. The measure of such income and deduction will be the fair market the shares of Common Stock delivered in satisfaction the Restricted Stock Unit Award, less the amount paid (if any) for such shares. Any dividend equivalents paid with respect to a Restricted Stock Unit Award will be compensation income to the individual at the time of payment and, subject to the application of Section 162(m) of the Code as discussed below, deductible as such by the Company. A Section 83(b) election may not be made with regard to a Restricted Stock Unit Award.

With regard to shares received upon to the settlement of a Restricted Stock Unit Award, upon disposition of those shares, the difference between the amount realized on the disposition of the shares and the fair market value of the shares on the date of their issuance would be treated as a capital gain or loss.

Performance Awards, Phantom Stock Awards and Other Stock or Performance-Based Awards. An individual who has been granted a Performance Award, Phantom Stock Award or Other Stock or Performance-Based Award

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generally will not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. Whether a Performance Award, Phantom Stock Award or Other Stock or Performance-Based Award is paid in cash or shares of Common Stock, the individual will have taxable compensation and, subject to the application of Section 162(m) of the Code as discussed below, the Company will have a corresponding deduction. The measure of such income and deduction will be the amount of any cash paid and the fair market value of any shares of Common Stock either at the time the Performance Award, Phantom Stock Award or Other Stock or Performance-Based Award is paid or at the time any restrictions on the shares (including restrictions under Section 16(b) of the Exchange Act) subsequently lapse, depending on the nature, if any, of the restrictions imposed and whether the individual elects to be taxed without regard to any such restrictions. Any dividend equivalents paid with respect to a Performance Award, Phantom Stock Award, or Other Stock or Performance-Based Award prior to the actual issuance of shares under the award will be compensation income to the individual and, subject to the application of Section 162(m) of the Code as discussed below, deductible as such by the Company.

Upon a subsequent disposition of the shares received pursuant to a Performance Award, Phantom Stock Award or Other Stock or Performance-Based Award, the difference between the amount realized on the disposition of the shares and the fair market value of the shares on the date of their issuance would be treated as a capital gain or loss.

Bonus Stock Awards. In general, a participant who receives a Bonus Stock Award will be taxed on the fair market value of the shares of Common Stock on the date the shares are issued to the individual, less any amount paid by the participant for the shares of stock. Subject to the application of Section 162(m) of the Code as discussed below, the Company will be entitled to a deduction for a corresponding amount. Upon a subsequent disposition of the shares received pursuant to a Bonus Stock Award, the difference between the amount realized on the disposition of the shares and the fair market value of the shares on the award date would be treated as a capital gain or loss.

Section 162(m) of the Code. Section 162(m) of the Code generally precludes a public corporation from taking a deduction for annual compensation in excess of $1,000,000 paid to certain executive officers.

Tax-Qualified Status of the 2021 Plan

The 2021 Plan is not qualified under Section 401(a) of the Code.

Section 409A of the Internal Revenue Code

Some awards issued under the 2021 Plan may be considered non-qualified deferred compensation that is subject to special rules under Section 409A of the Code. In such event, the Committee intends to generally design and administer such award and the 2021 Plan to comply with the rules of Section 409A of the Code; however, there is no commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person who participates in the 2021 Plan.

Inapplicability of ERISA

Based upon current law and published interpretations, the Company does not believe that the 2021 Plan is subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended.

2021 Plan Benefits

A new plan benefits table for the 2021 Plan and the benefits or amounts that would have been received by or allocated to participants for the last completed fiscal year under the 2021 Plan if the 2021 Plan was then in effect, as described in the SEC proxy rules, are not provided because all awards made under the 2021 Plan will be made at the Committee’s discretion, subject to the terms and conditions of the 2021 Plan. Therefore, the benefits and amounts that will be received or allocated under the 2021 Plan are not determinable at this time.

BOARD RECOMMENDATION ON PROPOSAL

The Board of Directors Recommends Stockholders Vote “FOR” the Approval of the PHX Minerals Inc. 2021 Long-Term Incentive Plan, as described in this proxy statement.

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OTHER MATTERS

Stock Ownership of Management and Certain Beneficial Owners

The information provided below summarizes the beneficial ownership of each named executive officer (NEO), each of our directors, all of our directors and executive officers as a group, and owners of more than five percent of our outstanding common stock. Generally, “beneficial ownership” includes those shares of common stock held by someone who has investment and/or voting authority of such shares or has the right to acquire such common stock within 60 days. The ownership includes Common Stock that is held directly and also Common Stock held indirectly through a relationship, a position as a trustee, or under a contract or understanding.

Stock Ownership of Directors, Nominees and Executive Officers

The following table sets forth information with respect to the outstanding shares of Common Stock owned beneficially as of December 31, 2020, by each current director and named executive officer, individually and all directors and executive officers as a group. Unless otherwise indicated, the address of the persons below is 1601 NW Expressway, Suite 1100, Oklahoma City, Oklahoma, 73118. None of the Common Stock beneficially owned as set forth below is pledged as security.

 

 

 

Amount of Shares

 

Percent of

Name of Beneficial Owner

 

Beneficially Owned(3)(4)

 

Common Stock

 

 

 

 

 

Mark T. Behrman (1)(5)(7)

 

41,407

 

*

Lee M. Canaan (1)(5)(8)

 

15,256

 

*

Peter B. Delaney (1)(5)(7)

 

10,921

 

*

Ralph D'Amico (2)(6)(7)

 

133,710

 

*

Christopher T. Fraser (1)(5)(7)

 

130,718

 

*

Chad L. Stephens (1)(2)(6)(7)

 

184,578

 

*

Freda R. Webb (2)(6)(9)

 

67,762

 

*

 

 

 

 

 

All directors and executive officers

   as a group (7 persons)

 

584,352

 

2.6%

*

Less than 1% owned

(1)

Director

(2)

Executive Officer

(3)

The number of shares shown includes shares that are individually or jointly owned, as well as shares over which the individual has either sole or shared investment or voting authority.

(4)

The number of shares shown does not include future share amounts recorded to each non-employee director’s account under the Directors’ Deferred Compensation Plan. These future share amounts represent shares to be issued in the future and have no investment or voting authority. See “Compensation of Directors” – footnote (2) of table entitled “Non-Employee Directors Compensation For Fiscal 2020.”

(5)

The number of shares includes vested and unvested shares of restricted stock granted to non-employee directors under the Company’s Amended 2010 Restricted Stock Plan.

(6)

The number of shares shown for Messrs. D’Amico and Stephens and Ms. Webb include unvested shares of restricted stock awarded under the Company’s Amended 2010 Restricted Stock Plan and their shares in the Company’s ESOP Plan, in each case over which they exercise voting authority.

(7)

Owner has sole voting and investment power over all shares.

(8)

Comprised of 14,179 held directly by Ms. Canaan and 1,077 shares held by the Canaan Family Trust. Ms. Canaan has sole voting and investment power over 14,179 shares and shared voting and investment power over the 1,077 shares held by the Canaan Family Trust.

(9)

Ms. Webb has sole voting and investment power over 65,502 shares and shared voting and investment power over 2,260 shares with her spouse in a joint account.

The Company knows of no arrangements which would result in a change in control of the Company at any future date.

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Stock Ownership of Certain Beneficial Owners

Based on filings with the SEC and information supplied by the stockholders, we believe the following stockholders are beneficial owners of more than 5% of our outstanding shares of Common Stock as of December 31, 2020, listed in alphabetical order:

 

Name and Address

 

Amount of Shares

 

Percent of

of Beneficial Owner

 

Beneficially Owned

 

Common Stock

 

 

 

 

 

Edenbrook Capital, LLC (1)

 

2,610,602

 

11.8%

116 Radio Circle, Suite 202

 

 

 

 

Mount Kisco, NY 10549

 

 

 

 

 

 

 

 

 

Robert A. Hefner III (2)

 

3,677,795

 

16.6%

2250 Buck Mountain Road

 

 

 

 

Free Union, VA 22940

 

 

 

 

 

 

 

 

 

Trigran Investments, Inc. (3)

 

2,395,028

 

10.7%

630 Dundee Road, Suite 230

 

 

 

 

Northbrook, IL 60062

 

 

 

 

(1)

Based on a Schedule 13G/A filed with the SEC in September 2020, with respect to Company securities held at August 27, 2020, Edenbrook Capital, LLC has shared voting power as to 2,610,602 shares and shared dispositive power as to 2,610,602 shares.

(2)

Based on a Schedule 13G filed with the SEC in September 2020, with respect to Company securities held at September 1, 2020, Robert A. Hefner III has sole voting power as to 3,677,795 shares and sole dispositive power as to 3,677,795 shares. 3,500,000 of the shares are held through GHK Royalty LLC, 6305 Waterford Boulevard, Suite 470, Oklahoma City, OK 73118.

(3)

Based on a Schedule 13G/A filed with the SEC in February 2020, with respect to Company securities held at February 5, 2020, Trigran Investments, Inc. has shared voting power as to 2,395,028 shares and shared dispositive power as to 2,395,028 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of the Company’s Common Stock to file with the SEC initial reports of ownership and reports of changes in ownership of the Common Stock, and to furnish the Company with copies of such reports. Based on a review of the filings with the SEC and representations that no other reports were filed, the Company believes that during fiscal 2020 all directors and executive officers complied with the reporting requirements of Section 16(a).

Stockholder Proposals

Proposals of stockholders intended to be presented by stockholders at the next annual meeting to be held in March 2022, and to be included in the proxy statement and form of proxy card pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, must be received by the Company by September 25, 2021. Any such proposals should be in writing and sent by certified mail, return receipt requested, to the Company’s office at 1601 NW Expressway, Suite 1100, Oklahoma City, OK, 73118, Attention: Secretary. On receipt of any such proposal, the Company will determine whether to include such proposal in the proxy statement and any proxy card in accordance with SEC regulations governing the solicitation of proxies.

Under the Company’s Bylaws, for a stockholder to nominate a candidate for director, or propose other business to be considered by stockholders, timely notice of the nomination or the other business proposed must be received by the Company in advance of the annual meeting. Ordinarily, such notice must be received not less than 90 nor more than 120 days prior to the first anniversary of the mailing of notice for the preceding year’s annual meeting. The stockholder filing the notice of nomination must describe various matters regarding the nominee, including, but not limited to, such information as name, address, occupation, business background and shares held, and the nominee must deliver a written questionnaire and agreement to the Company covering certain matters as specified in the Bylaws. For a stockholder to bring other business before a stockholders’ meeting, timely notice must be received by the Company within the time limits described above in this paragraph for notice of nomination of a candidate for director. Such notice must include a description of the proposed business, the reasons therefore, and

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other specified matters. These requirements are separate from the requirements a stockholder must meet to have a proposal included in the Company’s proxy statement under Rule 14a-8 of the Securities and Exchange Act of 1934.

In each case, the notice must be given to the Secretary of the Company at 1601 NW Expressway, Suite 1100, Oklahoma City, OK, 73118. Any stockholder desiring a copy of the Company’s Bylaws will be furnished one without charge on written request to the Secretary. A copy of the Bylaws is available on the Company’s website at www.phxmin.com.

The Company’s Bylaws were amended in December 2013 to provide access to the Company’s proxy statement and proxy card for director elections to eligible stockholders who wish to nominate a person for election to the Company’s Board of Directors. To be eligible to access the Company’s proxy statement and proxy card for this purpose, a stockholder, together with its affiliates, must have held beneficial ownership of 5% of the Common Stock for at least one year prior to providing notice to the Company seeking access to its proxy statement. Notice from a stockholder seeking such access must be received by the Company in the same time period required for stockholders seeking to nominate directors to the Company’s Board of Directors. Only one seat on the Board may be held by a person elected as a director resulting from a stockholder’s use of these proxy access Bylaw provisions. A stockholder seeking access to the Company’s proxy statement shall provide all information required from a stockholder seeking to nominate a director as well as undertakings signed by the stockholder and the proposed nominee. The Bylaw provision is the exclusive means for stockholders to include nominees for a director in the Company proxy statement and proxy card.

Annual Report to Stockholders

A copy of the Company’s Annual Report on Form 10-K for fiscal 2020, filed with the SEC on December 10, 2020, is included in the Annual Report to Stockholders provided with this Proxy Statement. A separate Form 10-K and copies of the Company’s charters for the various committees of the Board, the Corporate Governance Guidelines and the Company’s codes of ethics are available, free of charge, on written or oral request made to the Company at the address or telephone number set forth below, or can be viewed at the Company’s website: www.phxmin.com.

 

 

Ralph D’Amico, Secretary

 

PHX Minerals Inc.

 

1601 NW Expressway, Suite 1100

 

Oklahoma City, OK 73118

 

405.948.1560

 

 

By Order of the Board of Directors

 

 

January 21, 2021

Ralph D’Amico, Secretary

 

Please vote your shares promptly.

 

 

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APPENDIX A

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PHX MINERALS INC.

 

This Amended and Restated Certificate of Incorporation of PHX Minerals Inc., an Oklahoma corporation (the “Corporation”), which has been duly adopted in accordance with the provisions of Sections 1077 and 1080 of the Oklahoma General Corporation Act, amends and restates the Certificate of Incorporation of Panhandle Oil and Gas Inc. (originally incorporated under the name “Panhandle Royalty Company”) filed with the Secretary of State of Oklahoma on December 11, 1978. Such previous Certificate of Incorporation, as previously amended and restated, is hereby amended and restated to read, in its entirety, as follows:

ARTICLE One

The name of the Corporation is PHX Minerals Inc.

ARTICLE Two

The principal office or place of business of the Corporation in the State of Oklahoma is to be located at 1601 NW Expressway, Suite 1100, Oklahoma City, OK 73118. The name of its resident agent is The Corporation Company and the address of said resident agent is 1833 South Morgan Road, Oklahoma City, Oklahoma 73128.

ARTICLE Three

The duration of this Corporation is perpetual.

ARTICLE Four

The purpose for which this Corporation is formed is to acquire, manage, explore, and produce by whatever means prudent and necessary, mineral rights of whatsoever kind and nature, including oil and gas and its kindred substances and derivatives; also including other minerals of every nature, whether liquid, gaseous or solid, which may be obtained by mining, drilling, or otherwise, wherever found; to construct buildings, storage facilities, pipe lines or processing equipment considered necessary to explore, develop, process and market same to the best advantage of the company.

ARTICLE FIVE

Section 5.01

 

a.

Capital Stock. The total number of shares of capital stock which the Corporation shall have authority to issue is thirty-six million five hundred (36,000,500) sharesdivided initially into thirty-six million five hundred (36,000,500) shares of Class A Common Stock, par value $0.01666 per share. The Board of Directors may classify any unissued shares of stock and reclassify any previously classified but unissued shares of stock of any class or series from time to time, in one or more classes or series of stock, including Preferred Stock (“Preferred Stock”). If shares of one class of stock are classified or reclassified into shares of another class or series of stock pursuant to this Article Five, the number of authorized shares of the former class or series shall be automatically decreased and the number of shares of the latter class or series shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes and series that the Corporation has authority to issue shall not be more than the total number of shares of stock set forth in the first sentence of this paragraph.

A-1


 

Section 5.02Preferred Stock.

 

a.