UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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COMSTOCK RESOURCES, 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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COMSTOCK RESOURCES, INC.
Notice of Special2017 Annual Meeting of Stockholders
and Proxy Statement
Please Complete, Sign, Date And Return Your Proxy Promptly
|
Tuesday, November 8, 2016
10:00 A.M.
Comstock Resources, Inc.
Corporate Headquarters
5300 Town and Country Blvd.
Suite 500
Frisco, Texas 75034
Tuesday, May 16, 2017 10:00 A.M. Comstock Resources, Inc. Corporate Headquarters 5300 Town and Country Blvd. Suite 300 Frisco, Texas 75034 |
To the Stockholders of Comstock Resources, Inc.:
On September 6, 2016 we successfully completed an exchange offer with holdersWe are pleased to invite you to attend the Annual Meeting of approximately 98% of aggregate principal amount of our senior notes who exchanged their senior notes for new first and second lien senior secured notes with equity conversion and pay-in-kind interest features. This transaction provided us enhanced liquidity which will allow us to continue and to accelerate our successful Haynesville shale drilling program. The second lien notes issued in the exchange are convertible into shares of our common stock. We have called this special meeting of the stockholders in order to obtain stockholder approval for the potential issuance of shares of common stock upon the conversion of the second lien notes in accordance with the rules of the New York Stock Exchange.
As a stockholderStockholders of Comstock Resources, Inc. you are invited to attend the Special Meeting of Stockholders. The meeting will be held at 10:00 a.m., local time, on Tuesday, November 8, 2016,May 16, 2017, at the Company’s headquarters at 5300 Town and Country Blvd., Suite 500,3rd Floor, in Frisco, Texas. Our Board of Directors and management look forward to greeting those of you who are able to attend in person.
At this Specialyear’s Annual Meeting, you will be asked to vote on threea number of items more fully addressed in our Notice of SpecialAnnual Meeting of Stockholders, including:
To authorizeincluding the issuances of up to a maximum of 46,444,212 shareselection of our common stock indirectors, ratifying the event of conversionappointment of our second lien convertible notes;
Toindependent public accountants, an advisory vote to approve our executive compensation and an amendment and restatementadvisory vote regarding the frequency of future stockholder advisory votes on executive compensation.
We know that most of our 2009 Long-term Incentive Plan; and
To approve an amendment tostockholders will not be attending the Annual Meeting in person. As a result, our Restated Articles of Incorporation, to increase the number of authorized shares of our common stock.
Our Board of Directors is soliciting proxies so that each stockholder has an opportunity to have their shares represented at the SpecialAnnual Meeting. If you do not plan to attend, please vote your shares by Internet,internet, by telephone, or, if you received our proxy materials by mail, by returning the accompanying proxy card, as soon as possible so that your shares will be voted at the meeting. Instructions on how to vote can be found in our Proxy Statement.
On behalf of the Board of Directors and management, thank you for your cooperation and continued support.
Sincerely,
Sincerely, |
M. Jay Allison |
Chairman of the Board and |
Chief Executive Officer |
COMSTOCK RESOURCES, INC.
Notice of Special Meeting
Notice of Annual Meeting of Stockholders |
May 16, 2017
November 8, 2016
10:00 a.m. Central Time
Location: | Company Headquarters 5300 Town and Country Blvd., 3rd Floor
Frisco, Texas 75034 | |
ITEMS OF BUSINESS
1. | To |
2. | To |
3. | To approve, on an |
4. | To approve, on an advisory basis, the |
5. | To transact any other business as may properly come before the meeting or any adjournment thereof. |
RECORD DATE
September 16,March 22, 2017
ANNUAL REPORT
Our Annual Report to Stockholders for the year ended December 31, 2016,
AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 8, 2016
This Notice which is not a part of Special Meeting of Stockholders and the Proxy Statement are first being mailed to stockholders on or about September 29, 2016. This Notice of Special Meeting of Stockholders and the Proxy Statement are alsoproxy solicitation materials, is available on our website at www.comstockresources.com. If you received a printed copy of the proxy materials, a printed Annual Report was enclosed.
PROXY VOTING
Stockholders of record may vote in person at the meeting, but may also appoint proxies to vote their shares in one of three ways, by:
• Telephone | • Internet |
If your shares are held by a bank, broker or other holder of record, you may appoint proxies to vote your shares on your behalf as instructed by that bank, broker or other holder of record. If your shares are held by any such person or entity, you may obtain a proxy from that entity and bring it with you to hand in with your ballot in order to be able to vote your shares at the meeting.
Any proxy may be revoked at any time before it is exercised at the meeting.
By Order of the Board of Directors,
By Order of the Board of Directors, | ||
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Roland O. Burns | ||
Secretary |
This summary is included to provide an introduction and overview of the information contained in the Proxy Statement. This is a summary only and does not contain all of the information we have included in the Proxy Statement. You should refer to the entire Proxy Statement that follows for more information about usComstock Resources, Inc. (“Comstock” or the “Company”) and the proposals you are being asked to consider.
Background ForBusiness Highlights
2016 was a difficult year for us where low oil and gas prices continued to drain our liquidity. We took steps to protect our liquidity by limiting our spending and requiring our employees to forego bonuses that were earned in 2015. Despite the limited capital spending, our Haynesville shale results continued to improve. The Proposals to be Voted Upon
Oilstrong performance of our Haynesville shale wells drove the 47% growth we had in proved oil and natural gas prices have declined substantially since mid 2014 and continued to decline intoreserves in 2016. As a result, our operating cash flow has not been sufficient to cover our fixedThe successful debt service costs andexchange we have experienced reductionscompleted in our overall liquidity. During 2015 and the first six months ofSeptember 2016 we took steps to mitigate the effects of these lower prices including: (1) significantly reducing our drilling activity for 2016; (2) reducing our outstanding debt through open market purchases of our senior notes and completing debt for equity swaps; and (3) reducing our operating and personnel costs. In order to improve our liquidity to allowallowed us to continuerestart our successful drilling program in the fourth quarter of 2016, which we expect will generate growth in 2017, resulting in continued improvement in our financial position. Because of the actions we undertook throughout 2016 to protect and enhance our liquidity, we are back in a position to invest in our high return Haynesville shale,program.
In 2015 and 2016, we retired $237 million of our debt. Most importantly, we completed an exchange offer with the holders of our senior notes on September 6, 2016. The new notes allowbonds which resulted in a reduction in our annual cash interest burden and allows us to elect to pay additional interestin-kind under certain circumstances, which will free up our operating cash flow to fund our drilling operations.
Specifically, we exchanged $697.2 million in the future. The holders of 98% of our 10% Senior Secured Notes due 2020bonds participated in the par for $697.2 millionpar exchanges. In the subsequently called special meeting of our 10% Senior Secured Toggle Notes due 2020 and warrants exercisable for 1,917,342 shares of our common stock, $270.6 million of our 7 3⁄4% Senior Notes due 2019 for $270.6 million of 7 3⁄4% Convertible Second Lien PIK Notes due 2019 and $169.7 million of our 9 1⁄2% Senior Notes due 2020 for $169.7 million of 9 1⁄2% Convertible Second Lien PIK Notes due 2020 (collectively, the “Exchange Offer”).
The 7 3⁄4% Convertible Second Lien PIK Notes due 2019 and the 9 1⁄2% Convertible Second Lien PIK Notes due 2020 (together, the “Convertible Notes”) are convertible into 81.2 shares of our common stock for each $1,000 of principal amount of notes. The conversion is subject to our obtaining stockholder approval for the issuancestockholders, 98% of the shares. An aggregate principal amount of $440.3 million ofstockholders also approved the Convertible Notes could convert into 35,752,685 shares of common stock. As interest on the Convertible Notes is only paid by thefuture issuance of additional notes, up to an additional $131.7 million in principal could be outstanding by maturity, which could convert into an additional 10,691,527 shares of common stock. Accordingly, we are requesting that the stockholders authorize the issuance of up to 46,444,212 shares of common stock for the convertible notes issued in the debt exchange and the path forward we chose for the Company. The future conversion of these notes willde-lever the balance sheet and set us up to refinance our remaining debt at lower interest costs in the future.
We are optimistic about 2017 after the difficulties of the last two years. We have a high degree of confidence that our Haynesville shale assets will provide us the means to achieve strong growth in 2017. Our enhanced completion design has transformed the Haynesville shale into one of North America’s highest return natural gas basins and our acreage position gives us over 700 operated locations. We also entered into a new Haynesville drilling joint venture with a large utility in January 2017, which we can use to acquire additional acreage and grow our inventory of drilling locations. Our natural gas focused Haynesville shale drilling program is expected to provide substantial growth to our production, revenue and cash flow in 2017. Our low cost structure is expected to further improve with new low cost Haynesville shale production.
Executive Compensation Highlights
We believe our executive compensation program aligns our executives’ pay with Company performance, stockholder expectations and prevailing market practices. 100% of our executives’ annual bonuses are based on achievement ofpre-established performance goals, which are aligned with our business plan for the applicable year, and up to 50% of our executives’ long-term incentive awards are based on achievement of total shareholder return by use of performance-based restricted stock units.
Our board took appropriate actions in 2015 and 2016 to protect our liquidity and the interests of all of our stakeholders. In 2015 and 2016 we froze salaries and staff levels. Under our 2015 Annual Incentive Plan, our executives earned a 124% payout of target awards based on achievements of our successful Haynesville shale drilling program. Our board decided that no bonuses should be paid for 2015, so these awards were forfeited. Our board also limited the awards of long-term equity awards made in 2016 to our executive officers and independent directors in order to preserve shares available under our long-term incentive plan. As the Company is again ramping up its drilling activity in 2017, the compensation committee is returning to our established pay for performance compensation plans in order to insure employee retention as activity is increasing in the energy sector.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 1 |
PROXY SUMMARY
90% of the shares voted at last year’s annual meeting approved our 2015 executive compensation by supporting our “Say on Pay” proposal.
Corporate Governance Highlights
Our corporate governance includes a number of policies, procedures and structures that are “best practices” in corporate governance, including:
Directors are elected for a one year term;
Majority voting in connection with the potential conversionelection of directors;
An independent lead director presides over executive sessions of the Convertible Notes.
Holdersboard of the Convertible Notes can convert at any time after approval of the issuance of sharesdirectors with only independent directors present;
An independent executive compensation consultant hired by the stockholders. In addition, subject to stockholder approval, the Convertible Notes will be mandatorily converted following a 15 consecutive trading day period during which the daily volume weighted average price is equal to or greater than $12.32 per share.
The above summary of the Exchange Offer is provided as background informationand reporting to the stockholders in connection with the proposals contained in this Proxy Statement. The full termscompensation committee;
Robust stock ownership guidelines applicable to directors and conditions of the Exchange Offerexecutive officers;
Policy prohibiting hedging transactions involving Company stock by executive officers and the transactions consummated in connection therewith were discloseddirectors; and
No excise or other taxgross-ups in our publicly-filed documents with the Securities and Exchange Commission (“SEC”), which are not a part of the proxy solicitation materials.compensation plans.
If stockholder approval is not obtained by December 31, 2016 and such failure to obtain stockholder approval continues for a period of 90 days thereafter, the Convertible Notes will not be convertible into
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common stock and such failure to obtain stockholder approval will result in a default under such notes. Such default may in turn result in a default under our debt agreements. Such defaults would likely require us to file for bankruptcy protection.
The following table depicts the pro forma impact of the Exchange Offer on the ownership of our common stock (in thousands) as of September 16, 2016:
Pro Forma for the Conversion of the Notes and Warrants | ||||||||||||||||
No. of Shares | Percentage of Common | No. of Shares | Percentage of Common | |||||||||||||
Existing Common Stockholders(1) | 11,521,162 | 87.6 | % | 11,521,162 | 22.9 | % | ||||||||||
Holders of the Convertible Notes | — | — | 35,836,353 | (2) | 71.3 | % | ||||||||||
Warrants issued to 10% Senior Secured | 641,924 | (3) | 4.9 | % | 1,917,342 | 3.8 | % | |||||||||
Officers and Directors of the Company | 984,828 | 7.5 | % | 984,828 | 2.0 | % | ||||||||||
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Total | 13,147,914 | 100.0 | % | 50,259,685 | 100.0 | % | ||||||||||
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Purpose of the Special Meeting
Pursuant to New York Stock Exchange (the “NYSE”) rules, we may not issue shares of our common stock representing in excess of 19.9% of our outstanding shares without the approval of our stockholders. Accordingly, we are calling a special meeting of stockholders pursuant to this Proxy Statement to consider (i) the authorization of the issuance of shares upon conversion of the Convertible Notes, (ii) an amendment and restatement of our 2009 Long-term Incentive Plan to make additional shares available for awards under this plan, and (iii) an amendment to our Restated Articles of Incorporation to increase the authorized shares of common stock to provide enough shares to be issued upon conversion of the Convertible Notes, for awards under our 2009 Long-term Incentive Plan, and for general corporate purposes.
If stockholder approval of the issuance of shares upon conversion of the Convertible Notes and the amendment to our Restated Articles of Incorporation is not obtained by December 31, 2016 and such failure to obtain stockholder approval continues for a period of 90 days thereafter, the Convertible Notes will not be convertible into common stock and such failure to obtain stockholder approval will result in a default under such notes. Such default may in turn result in a default under our other debt agreements, which defaults would likely force us to file for bankruptcy protection.
Proposals for Stockholder Action
Below is a summary of the proposals on which you are being asked to vote. Please review the complete information regarding these proposals included in the Proxy Statement.
To authorize certain future issuancesElection of our common stock upon conversion of the Convertible NotesDirectors (Proposal 1 – Page 9)
We are recommending that, as required byYou will find important information about the rulesqualifications and experience of each of the NYSE, our stockholders approve the issuance of upnine director nominees that you are being asked to maximum of 46,444,212 shares of our common stock upon the conversionelect beginning on page 11 of the Convertible Notes.
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To approve an Amendment and RestatementAppointment of our 2009 Long-term Incentive PlanIndependent Registered Public Accountants (Proposal 2 – Page 10)20)
WeErnst & Young LLP has served as the Company’s independent registered public accountants since 2004. You are recommending that our stockholders approve an amendment and restatementbeing asked to ratify the appointment by the audit committee of our 2009 Long-term Incentive PlanErnst & Young as the Company’s independent registered public accountants for 2017.
Advisory Vote to authorize an additional 2,500,000 shares for future equity-based incentive awards and to expand the performance measures upon which the payment or vesting of an award occurs.
To approve an Amendment to our Restated Articles of Incorporation to increase our authorized capital stockApprove Executive Compensation (Proposal 3 – Page 18)23)
We are recommending thatproviding our stockholders the opportunity to cast anon-binding advisory vote to approve our executive compensation. We recommend that you review our Compensation Discussion and Analysis beginning on page 24, which explains the actions and decisions of the compensation committee regarding our compensation programs.
Advisory Vote regarding the Frequency of Stockholder Votes on Executive Compensation (Proposal 4 – Page 37)
Every six years we are required to provide the stockholders an amendmentopportunity to cast an advisory vote on the frequency of future stockholder advisory votes approving the compensation of our Restated Articlesnamed executive officers. We are seeking your input with regard to the frequency of Incorporation to increasefuture stockholder advisory votes on our executive compensation programs. In particular, we are asking whether the number of authorized shares of common stock, par value $0.50 per share, to 75 million shares.advisory vote should occur every three years, every two years or every year.
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PROXY SUMMARY
Recommendations of the Board of Directors Regarding the Proposals
Our board of directors unanimously recommends that you vote:
1. | FOR |
2. | FOR |
3. | FOR |
4. | FOR EVERY THREE YEARS for the frequency of future stockholder votes on executive compensation. |
Communicating with the Board of Directors
Any interested party can communicate with our board of directors, any individual director or groups of directors by sending a letter addressed to the board of directors as a whole, to the individual director or to a group of directors, c/o Corporate Secretary, 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034.
Governance documents, such as the Corporate Governance Guidelines, the board committee charters, the Code of Ethics for Senior Financial Officers, and the Code of Business Conduct and Ethics, can be found in the “Corporate Governance” section of our website: www.comstockresources.com. Please note that documents and information on our website are not incorporated herein by reference. These documents may also be obtained in print at no cost by writing to the Corporate Secretary, 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034.
Information about the Electronic Availability of Proxy Materials
ThisOur 2017 Proxy Statement the accompanying Notice of Special Meeting of Stockholders and the proxy card2016 Annual Report are available free of charge on our website at:www.comstockresources.com.
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COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 3 |
COMSTOCK RESOURCES, INC.
Proxy Statement for the SpecialAnnual Meeting of Stockholders
to be Held November 8, 2016May 16, 2017
This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for use at our 2017 Annual Meeting.
In accordance with the rules of the SEC,Securities and Exchange Commission (the “SEC”), we are furnishing our proxy materials (proxy statement for this Specialthe 2017 Annual Meeting, the proxy card and the proxy card)2016 Annual Report to Stockholders) by providing access to these materials on the Internet, instead of mailing a printed copy of our proxy materials to each stockholder of record or beneficial owner.
A Notice of Meeting and Internet Availability of Proxy Materials will be mailed to stockholders on or about September 29, 2016.April 3, 2017. We are providing this notice in lieu of mailing the printed proxy materials to instruct stockholders as to how they may: (1) access and review the proxy materials on the Internet; (2) submit their proxy; and (3) receive printed proxy materials.
Stockholders may request to receive printed proxy materials by mail or electronically bye-mail on an ongoing basis at no charge by following the instructions in the notice. A request to receive proxy materials in printed form by mail or bye-mail will remain in effect until such time as the submitting stockholder elects to terminate it.
Questions and Answers about the SpecialAnnual Meeting and Voting
Why am I receiving these materials?
A Notice of SpecialAnnual Meeting of Stockholders or Notice Regarding the Availability of Proxy Materials has been provided to you because you are a Comstock stockholder and because the Board is soliciting your proxy to vote your shares at the SpecialAnnual Meeting.
What is the purpose of the SpecialAnnual Meeting?
At the SpecialAnnual Meeting, our stockholders will act upon the matters outlined in the Notice of SpecialAnnual Meeting of Stockholders on the cover page of this Proxy Statement. We will also transact any other business as may properly come before the SpecialAnnual Meeting or any adjournment thereof.
Where can I find more information about proxy voting?
The SEC has created an educational website where you can learn more about proxy voting:www.sec.gov/spotlight/proxymatters.shtml.
Who is entitled to vote at the SpecialAnnual Meeting?
Owners of shares of common stock of the Company at the close of business on September 16, 2016March 22, 2017 (the “Record Date”) are entitled to vote at and participate in the SpecialAnnual Meeting.
What are the voting rights of holders of common stock?
Each outstanding share of common stock will be entitled to one vote on each matter to come before the SpecialAnnual Meeting.
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
What happens if additional matters are presented at the SpecialAnnual Meeting?
If another proposal is properly presented for consideration at the SpecialAnnual Meeting, the persons named in the Proxy Card will vote as recommended by the Board or, if no recommendation is given, these persons will exercise their discretion in voting on the proposal.
How can shares be voted?
Shares of common stock can be voted in person at the SpecialAnnual Meeting or they can be voted by proxy or voting instructions can be given, in one of three ways, by:
• Telephone | • Internet |
The instructions for each are on the Proxy Card, in the Notice Regarding the Availability of Proxy Materials, or on the voting form enclosed with the proxy from the bank, broker or other holder of record. If your shares are held by any such person or entity, you may obtain a proxy from that entity and bring it with you to hand in with your ballot in order to be able to vote your shares at the SpecialAnnual Meeting.
What vote is required for approval?
With regard to Proposal 1 (election of directors), the affirmative vote of the majority of the votes cast at the Annual Meeting is required by our bylaws for the election of a director.
The affirmative vote of the holders of at least a majority of the outstanding shares of common stock of the Company represented at the SpecialAnnual Meeting and entitled to vote is required for approval of Proposals 1 and 2.
With regard toProposal 2 (ratification of the Company’s independent registered public accountants), Proposal 3 (amending our Restated Articles of Incorporation), the affirmative vote of the holders of at least a majority of the outstanding shares of common stock and entitled to(advisory vote on this proposal is required for approval.the Company’s 2016 compensation of its named executive officers), and Proposal 4 (advisory vote on the frequency of future stockholder advisory votes on executive compensation). The votes on Proposals 3 and 4, however, are advisory in nature and will not be binding on the Company, the Board or the compensation committee.
How will votes be counted?
For shares held in your own name, votes will be counted as directed, except when no choice for any particular matter is made. In that case, and only for the matter for which no choice is indicated, the shares will be voted as recommended by the Board.
For shares held indirectly through a bank, broker or other holder of record (i.e., in “street name”), unless you give your broker, bank or other holder of record specific instructions, your shares will onlynot be voted on any of the proposals other than Proposal 3.2. Under the NYSENew York Stock Exchange (“NYSE”) rules that govern voting by brokers of shares held in street name, brokers have the discretion to vote these shares only on routine matters, but not onnon-routine matters, as defined by those rules. The only matter that will be voted on that is considered routine under these rules is Proposal 2 (the ratification of the appointment of Ernst & Young LLP to serve as our independent registered public accountants for fiscal year 2017).
What is a brokernon-vote and what is the effect of a brokernon-vote?
A “brokernon-vote” occurs when a stockholder who holds shares indirectly does not give instructions to the holder of record on how the stockholder wants his or her shares voted, but the holder of record exercises its discretionary authority under the rules of the NYSE to vote on one or more, but not all, of the proposals. In such a case, a “brokernon-vote” occurs with respect to the proposals not voted on. Shares represented by “brokernon-votes” will, however, be counted in determining whether a quorum is present.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 5 |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
In the absence of instructions from the stockholder, the holder of record hasmay only exercise its discretionary authority and vote the shares it holds as a holder of record on Proposal 2 (ratification of the appointment of the Company’s independent registered public accountants), and does not have the discretionary authority to vote them on any of the shares held by it only on Proposal 3. Accordingly,other Proposals.
Therefore, if you holdare a “street-name” holder, your shares in “street name”,will not be voted on any Proposal for which you must instructdo not give your broker, bank or other holder of record instructions on how to vote for each of Proposals 1 and 2 in order for your shares to be voted on such proposals atany Proposal other than Proposal 2.
Brokernon-votes will not affect the Special Meeting.voting.
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What is an abstention and what is the effect of an abstention?
If you do not desire to vote on any proposal or have your shares voted as provided for in the preceding answer, you may abstain from voting by marking the appropriate space on the Proxy Card or by following the telephone or Internet instructions. Shares voted as abstaining will be counted as present for the purpose of establishing a quorum and for the purpose of determining the number of votes needed for approval of the Proposals before the SpecialAnnual Meeting.
Abstentions will have the effect of a negative vote for Proposals 1, 2, 3, and 3.4.
What constitutes a quorum?
The presence at the SpecialAnnual Meeting of the holders of a majority of the shares of the common stock outstanding on the Record Date, in person or by proxy, will constitute a quorum, permitting business to be conducted at the SpecialAnnual Meeting. As of the Record Date, 13,147,91415,283,541 shares of common stock were outstanding. Therefore, the presence of the holders of common stock representing at least 6,573,9587,641,773 votes will be required to establish a quorum.
What shares will be considered “present” at the SpecialAnnual Meeting?
The shares voted at the SpecialAnnual Meeting, shares properly voted by Internet or telephone, and shares for which properly signed Proxy Cards have been returned will be counted as “present” for purposes of establishing a quorum. Proxies containing instructions to abstain on one or more matters, those voted on one or more matters and those containing brokernon-votes will be included in the calculation of the number of votes considered to be present at the SpecialAnnual Meeting.
How can a proxy be revoked?
You can revoke a proxy at any time prior to a vote at the SpecialAnnual Meeting by:
notifying the Corporate Secretary of the Company in writing;
delivering a subsequent proxy; or
subsequent vote by Internet or telephone.
Shares held indirectly in the name of a bank, broker or other holder of record may be revoked pursuant to the instructions provided by such person or entity.
Who will count the votes?
We have
The Company has hired a third party to determine whether or not a quorum is present at the SpecialAnnual Meeting and to tabulate votes cast.
Where can I find the results of the voting?
The voting results will be announced at the SpecialAnnual Meeting and filed on a Form8-K with the SEC within four business days of the SpecialAnnual Meeting.
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Voting Securities and Principal Holders
Security Ownership of Certain Beneficial Owners
Ownership of our common stock is shown in terms of “beneficial ownership.” Generally, a person “beneficially owns” shares if he or she has either the right to vote those shares or dispose of them. More than one person may be considered to beneficially own the same shares. The percentages shown in this Proxy Statement comparereflect the stockholder’s beneficially owned shares withas a percentage of the total number of shares of our common stock outstanding on September 16, 2016 (13,147,914March 22, 2017 (15,283,541 shares) plus the number of unissued shares as to whichthat such owner has the right to acquire voting or dispositive power of on or before November 15, 2016.May 21, 2017. Except as otherwise indicated, we believe each beneficial owner named below has sole voting and sole dispositive power with respect to all shares beneficially owned. The outstanding shares of common stock exclude 34,773,981 shares issuable upon conversion of the principal amount of our 7 3⁄4% Convertible Secured PIK Notes and 9 1⁄2% Convertible Secured PIK Notes (collectively the “Convertible Notes”). Until converted, the Convertible Notes have no voting rights. The following table lists the stockholders known to have been the beneficial owners of more than 5% of theour common stock outstanding as of September 16, 2016:March 22, 2017:
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percent | ||||||
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Hodges Capital Holdings, Inc. 2905 Maple Avenue, Dallas, Texas 75201 | (1) | 8.5 | % | |||||
MacKay Shields LLC 1345 Avenue of the Americas, New York, New York 10105 | 6,165,782 | (2) | %(3) | |||||
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PointState Capital LP 40 West 57th Street, 25th Floor, New York, New York 10019 | 1,493,401 | (5) | 8.9 | % | ||||
Symphony Asset Management, LLC 555 California Street, Suite 3100, San Francisco, California 94104 | 801,850 | (6) | 5.3 | % | ||||
T. Rowe Price & Associates, Inc. 100 E. Pratt Street, Baltimore, Maryland 21202 | 1,604,995 | (7) | 10.5 | % | ||||
Carl H. Westcott 100 Crescent Court, Suite 1620, Dallas, Texas 75201 | % | |||||||
Whitebox Advisors LLC 3033 Excelsior Boulevard, Suite 300, Minneapolis, Minnesota 55416 | 985,930 | (9) | 6.1 | % |
(1) | Represents shares held on December 31, |
(2) | Represents shares issuable upon conversion, within 60 days of March 22, 2017, of our Convertible Notes which were held on January 31, 2017, based on filing on Schedule 13G/A dated |
(3) |
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(4) | Represents shares issuable upon conversion, within 60 days of March 22, 2017, of our Convertible Notes which were held on January 26, 2017, based on filing on Schedule 13G dated February 6, 2017. |
(5) | Represents shares issuable upon conversion, within 60 days of March 22, 2017, of our Convertible Notes which were held on November 8, 2016, based on filing on Schedule 13G dated November 18, 2017 pursuant to which the investor reported that it has shared voting and dispositive power. |
(6) | Represents shares held on December 31, |
Represents shares held on |
(8) | Represents shares held on March 14, 2017, based on filing on Schedule 13D/A dated March 16, 2017 pursuant to which the investor reported that he has sole voting and dispositive power over 724,201 shares, shared voting power over 384,093 shares and shared dispositive power over 411,401 shares. |
(9) | Represents shares issuable upon conversion, within 60 days of March 22, 2017, of our Convertible Notes which were held on January 27, 2017, based on filing on Schedule 13G dated |
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COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 7 |
VOTING SECURITIES AND PRINCIPAL HOLDERS
Security Ownership of Management
The following table sets forth information as of September 16, 2016March 22, 2017 concerning beneficial ownership information for our directors, nominees for director and executive officers:
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner(1) | Number | Percent | ||||||
M. Jay Allison Chairman of the Board of Directors and Chief Executive Officer | 401,919 | (2) | 3.1 | % | ||||
Roland O. Burns Director Nominee, President, Chief Financial Officer and Secretary | 218,828 | (2) | 1.7 | % | ||||
Elizabeth B. Davis Director | 12,188 | * | ||||||
D. Dale Gillette Vice President of Legal and General Counsel | 29,431 | * | ||||||
Mack D. Good Chief Operating Officer | 78,181 | * | ||||||
David K. Lockett Director Nominee | 23,851 | * | ||||||
Cecil E. Martin Director | 31,024 | * | ||||||
Michael D. McBurney Vice President of Marketing | 14,377 | * | ||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | 29,844 | * | ||||||
Russell W. Romoser Vice President of Reservoir Engineering | 14,796 | * | ||||||
LaRae L. Sanders Vice President of Land | 16,988 | (3) | * | |||||
Frederic D. Sewell Director | 17,244 | * | ||||||
Richard D. Singer Vice President of Financial Reporting | 16,949 | * | ||||||
David W. Sledge Director | 31,074 | * | ||||||
Blaine M. Stribling Vice President of Corporate Development | 18,674 | * | ||||||
Jim L. Turner Director | 31,460 | * | ||||||
All Executive Officers and Directors as a Group (16 Persons) | 986,828 | 7.5 | % |
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner(1) | Number | Percent | ||||||
M. Jay Allison Chairman of the Board of Directors and Chief Executive Officer | 974,450 | (2)(3) | 6.2 | % | ||||
Roland O. Burns Director, President, Chief Financial Officer and Secretary | 388,835 | (2)(3) | 2.5 | % | ||||
Elizabeth B. Davis, PhD Director | 12,188 | * | ||||||
D. Dale Gillette Vice President of Legal and General Counsel | 45,137 | * | ||||||
Mack D. Good Chief Operating Officer | 109,448 | * | ||||||
David K. Lockett Director | 23,851 | * | ||||||
Cecil E. Martin Director | 36,524 | * | ||||||
Michael D. McBurney Vice President of Marketing | 25,509 | * | ||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | 41,058 | * | ||||||
Russell W. Romoser Vice President of Reservoir Engineering | 25,928 | * | ||||||
LaRae L. Sanders Vice President of Land | 28,008 | * | ||||||
Frederic D. Sewell Director | 17,244 | * | ||||||
Richard D. Singer Vice President of Financial Reporting | 23,988 | * | ||||||
David W. Sledge Director | 31,074 | * | ||||||
Blaine M. Stribling Vice President of Corporate Development | 31,220 | * | ||||||
Jim L. Turner Director | 31,460 | * | ||||||
All Executive Officers and Directors as a Group (16 Persons) | 1,845,922 | 11.6 | % | |||||
Morris E. Foster Director Nominee | 16,790 | * |
* | Indicates less than one percent |
(1) | The address of each beneficial owner is c/o Comstock Resources, Inc., 5300 Town and Country Blvd, Suite 500, Frisco, Texas 75034. |
(2) |
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(3) | 302,611 shares owned by Mr. Allison and |
8 |
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8
Prior
PROPOSAL 1 ELECTION OF DIRECTORS
On the agenda for the Annual Meeting will be the election of nine directors, each to September 6, 2016, we retired $236.9 millionserve a term of our outstanding 7 3⁄4% Senior Notes due 2019one year beginning at the Annual Meeting and 9 1⁄2% Senior Notes due 2020 in open market purchasesuntil their successors are duly elected and through exchangesqualified. If you do not vote for a particular nominee on your Proxy Card, your vote will not count either “for” or “against” the nominee.
In contested elections where the number of our common stock with holdersnominees exceeds the number of such notes. After these transactions, we had outstandingdirectors to be elected, the vote standard is a totalplurality vote. In an uncontested election, any nominee for director who has a majority of $1.2 billion of long-term debt. In ordervotes cast “withheld” from his or her election will be required to further restructure our outstanding debt,promptly tender his or her resignation to the Board. The corporate governance/nominating committee will consider the tendered resignation and recommend to the Board whether to accept or reject the resignation. The Board will act on September 6, 2016, we completed an exchange with the holders of approximately 98% aggregate principal amount of our senior notes, which may require the future issuance of shares of our common stock in connection with the Convertible Notes issuedcommittee’s recommendation and publicly disclose its decision. Any director who tenders his or her resignation will not participate in the Exchange Offer.committee’s recommendation or the board action regarding whether to accept or reject the tendered resignation.
Any vacancies on the Board may be filled by a majority of the directors then in office. Each director elected in this manner will hold office until his or her successor is elected and duly qualified.
Our common stock is listed on the NYSE,Board presently consists of eight members, all of whom are elected to serve one year terms. The Board has nominated M. Jay Allison, Roland O. Burns, Elizabeth B. Davis, David K. Lockett, Cecil E. Martin, Frederic D. Sewell, David W. Sledge and we are subject to rules and regulations set forth in the NYSE Listed Company Manual. Section 312.03(c) of the NYSE Listed Company Manual requires stockholder approval priorJim L. Turner forre-election to the issuanceBoard of common stock (or securities convertible into or exercisableDirectors, each to serve for common stock) equal to 20% or morea term of our outstanding common stock or 20% or more of the voting power outstanding before the issuance of such securities. At the Special Meeting, we are seeking approval from our stockholdersone year. The Board has additionally nominated Morris E. Foster for the issuance of upelection to a maximum of 46,444,212 shares of common stock which would be issued upon conversion of the Convertible Notes. The issuance of such shares will result in us issuing shares ofcurrently vacant seat on our common stock that exceed, in the aggregate, the 20% threshold specified in Section 312.03(c) of the NYSE Listed Company Manual.
If stockholder approval is not obtained by December 31, 2016 and such failureBoard to obtain stockholder approval continuesserve for a periodterm of 90 days thereafter, the Convertible Notes will not be convertible into common stock and such failure to obtain stockholder approval will result in a default under such notes. Such default may in turn result in a default under our debt agreements. Such defaults would likely require us to file for bankruptcy protection.one year.
We intend to file with the NYSE one or more supplemental listing applications to list the shares of common stock issued in connection with the potential conversion of the Convertible Notes. Holders of common stock are not entitled to preemptive rights in future offerings of our common stock. Under Nevada law, stockholders are not entitled to appraisal rights in connection with this proposal.
The Board recommends that youstockholders vote “FOR” the proposal to approve future issuanceselection of up to a maximum of 46,444,212 shares of common stock upon the conversioneach of the Convertible Notes.director nominees.
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COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 9 |
Selection Criteria and Qualifications of Director Candidates
The nominating functions of the Board are handled by the corporate governance/nominating committee pursuant to its charter. In order to continue to provide long-term incentive opportunities underevaluating nominees for membership on the Comstock Resources, Inc. 2009 Long-term Incentive Plan (the “2009 Plan”),Board, the corporate governance/nominating committee applies the board qualification standards set forth in our corporate governance guidelines. Under these qualification standards, the corporate governance/nominating committee will take into account many factors, including education, business, governmental and civic experience, broad and diverse backgrounds, communication, interpersonal and other required skills, independence, wisdom, integrity, an understanding and general acceptance of directors has approved amendingour current corporate philosophy, strong business or professional knowledge and restatingexperience that can bear on our problems and deliberations, an inquiring mind, the 2009 Planwillingness to make an additional 2.5 million sharesspeak one’s mind and ability to challenge and stimulate management, future orientation and the willingness to commit the required time and energy.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the corporate governance/nominating committee may consider such other factors as it may deem are in the best interests of common stock available for awards underus and our stockholders. The corporate governance/nominating committee evaluates each individual in the 2009 Plan.
The 2009 Plan was designed and is currently administered to support the achievementcontext of the compensation program objectives, policies and plans, which cover our executive officers. In particular, awards granted underBoard as a whole, with the 2009 Plan:
Are administered by our compensation committee, which is made up entirelyobjective of independent directors;
Allow us to maintain a competitive compensation program to attract and retain executives and other key employee talent;
Provide performance-based incentive compensation that alignsrecommending nominees who can best perpetuate the interests of our executives and other key employees with that of our stockholders; and
Facilitate the ownership of our common stock by our executives and other key employees.
Over the past several years, we have modified our long-term incentive equity compensation program in order to strengthen the alignment of pay and performance and conform with prevailing market practices and stockholders’ expectations around corporate governance.
Since 2013, we made the following changes related to equity compensation practices:
Adopted a pay philosophy that targets the median of our peer group, and adjusted our peer group to better reflect our size and industry
Added performance share unit (“PSU”) awards, representing a significant portionsuccess of the total equity award value for our executive officers
Required that our total shareholder returnbusiness, be positivean effective director in order to earn any above-target payouts from PSUs
Reducedconjunction with the Chief Executive Officer’s maximum PSU award opportunity from 300% to 200% of target
Eliminated the Chief Executive Officer’s fixed Long-term Incentive (“LTI”) award guideline of 5x salary so that LTI awards can be made to reflect peer group market levels, as well as corporatefull Board, and individual performance and other relevant factors
Added service-vesting requirements for PSUs that have one- and two-year performance periods so that all earned awards vest after 3 years
Certain other compensation governance actions taken include:
Changed annual bonus award to be based on a formulaic structure
Eliminated excise tax gross-up provisions from employment agreements
10
Enhanced our anti-hedging policy
Enhanced proxy disclosures of our compensation program to provide more information about the program, the Compensation Committee process and key decisions
Conducted discussions about our compensation program with stockholders representing a significant portion of our outstanding shares
Since these actions related to equity compensation were taken, along with other adjustments to our executive compensation program described in our proxy statements filed in 2014, 2015 and 2016,represent stockholder support for our say on pay proposals has increased from 33% in 2013 to 93% in 2014, 96% in 2015 and 90% in 2016.
As required under Section 422 of the Internal Revenue Code of 1986, as amended, and related regulations, our stockholders are being asked to approve an amendment and restatemant of the 2009 Plan so that future awards of incentive stock options (if any) made by our compensation committee to employees and officers can qualify as incentive stock options.
Purpose of the 2009 Plan
The purpose of the 2009 Plan is to attract, retain and motivate key participating employees and to attract and retain well-qualified members to the Boardinterests through the useexercise of incentives based uponsound judgment using their diversity of experience in these various areas.
Our corporate governance/nominating committee regularly assesses the value of common stock. Awards under the 2009 Plan are determined by the compensation committeeappropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the corporate governance/nominating committee will consider various potential candidates who may be madecome to our key executives, managerial employees and non-employee directors.
As of September 16, 2016, approximately ten executive officers, twenty-eight managerial employees and six non-employee directors are eligible to participate in the 2009 Plan.
Summaryattention of the 2009 Plan, as Amended and Restated
Administration of Plan
The 2009 Plan is administered by the compensation committee each member of which must be a non-employee director, as defined by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. Subjectthrough current board members, professional search firms, stockholders or other persons. Each candidate brought to the provisionsattention of the 2009 Plan,corporate governance/nominating committee, regardless of who recommended such candidate, is considered on the compensation committee has authority to select employees and non-employee directors to receive awards, to determine the time or times of receipt, to determine the types of awards and the number of shares covered by the awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such awards, to determine the number and value of performance units awarded and earned and to cancel or suspend awards. The compensation committee is authorized to interpret the 2009 Plan, to establish, amend and rescind any rules and regulations relating to the 2009 Plan, to determine the terms and provisions of any agreements made pursuant to the 2009 Plan and to make all other determinations that may be necessary or advisable for the administrationbasis of the 2009 Plan.criteria set forth in our corporate governance guidelines.
The compensation committee may not amend a stock option or stock appreciation right to reduce the exercise or base price of the award. The compensation committee is prohibited from accelerating the vesting of any award, except in the event of death, disability, or a change in control.
10 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
Eligibility Under the 2009 Plan
Key employees and non-employee members of the Board selected by the compensation committee are eligible for awards.SELECTION CRITERIA AND QUALIFICATIONS OF DIRECTOR CANDIDATES
11
Duration of Plan
Assuming the amendment and restatement of the 2009 Plan is approved by the stockholders at the special meeting, the 2009 Plan will expire on May 7, 2025. Following that date, no further awards may be made under the 2009 Plan.
Types of Awards
Awards under the 2009 Plan may be in the form of stock options (including incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units and performance units.
Authorized Shares Available for Awards Under the 2009 PlanDirector Nominees
The 2009 Plan currently authorizes awards to key employeescorporate governance/nominating committee has recommended, and non-employee directors of up to 1,010,000 shares of common stock. In addition, the shares of common stock that become available upon the lapse or expiration of prior grants under the 2009 Plan will be authorized for future grant under the 2009 Plan. As of September 16, 2016 only 5,256 shares are presently available for future awards. Assuming the amendment and restatement of the 2009 Plan is approved by the stockholders at the Special Meeting, the number of shares authorized for awards will be increased by 2,500,000 shares.
Annual Limits on Awards to Employees
No employee may be granted stock options or stock appreciation rights under the 2009 Plan in any single fiscal year, the total number of shares subject to which exceed 1,000,000 shares.
Performance Measures
The performance goals, upon which the payment or vesting of an award occurs are limited toBoard has nominated, the following performance measures:
Increases in,for election as directors. If any director nominee is unable or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest, taxes, depreciation, amortization, exploration and other non-cash expenses (“EBITDAX”); net income and/or earnings per share.
Return on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital).
Share price or stockholder return performance (including, but not limitedunwilling to growth measures and total stockholder return, which may be measured in absolute terms and/or in comparison toserve as a group of peer companies or an index).
Oil and gas reserve replacement, oil and gas reserve growth, additions to our oil and gas drilling prospect inventory and improvements to finding and development costs and/or operating costs.
Oil and/or gas production growth.
Cash flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or capital).
Improvements to our balance sheet including enhancing liquidity and maintaining or improving leverage as measured by the ratio of total debt divided by EBITDAX.
Such other appropriate performance measures, including, but not limited to, leadership development and execution of strategic initiatives, as established by the compensation committee for a performance period.
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Terms of Awards
The 2009 Plan requires that awards vest over a minimum period of continued service with us. Awards that vest based on the achievement of performance goals are subject to a minimum vesting period of one year after the date of grant. If vesting is not based on performance, the minimum vesting period is three years after the date of grant. Vesting over a three-year period includes periodic graded vesting. Awards may provide for accelerated vesting in the event of death, disability, or a change in control. Notwithstanding these requirements, up to 5% of the shares available for awards under the 2009 Plan may be granted as non-performance-based awards with a vesting term of less than three years.
Stock Options
Stock options may be awarded under the 2009 Plan with an exercise price of not less than one hundred percent of the market value of the common stock on the date of the award or, if greater, the par value of the common stock. The 2009 Plan authorizes the award of both non-qualified stock options and incentive stock options. Only our employees are eligible to receive awards of incentive stock options. The aggregate value (determinednominee at the time of the award)Annual Meeting, the persons named as proxies may vote either (1) for a substitute nominee designated by the present Board to fill the vacancy, or (2) for the balance of the common stock with respect to which incentive stock options are exercisable fornominees, leaving a vacancy. Alternatively, the first time by any employee during any calendar yearBoard may not exceed $100,000. The term of stock options cannot exceed ten years.
In addition to allowing an optionee to pay cash to exercise options, or deliver stock certificates for previously-owned shares of common stock,reduce the 2009 Plan will permit an optionee to use cashless exercise procedures. These include broker-assisted cashless exercises (selling a portionsize of the option sharesBoard. The Board has no reason to paybelieve that any of the exercise pricenominees will be unwilling or unable to serve if elected as a director.
Biographical information concerning the current directors standing forre-election appears below.
M. Jay Allison Director, Chairman of the Board of Directors and Chief Executive Officer | ||
Mr. Allison, age 61, has been our Chief Executive Officer since 1988. Mr. Allison was elected Chairman of the Board in 1997 and has been a director since 1987. From 1988 to 2013, Mr. Allison served as our President. From 1981 to 1987, he was a practicing oil and gas attorney with the firm of Lynch, Chappell & Alsup in Midland, Texas. Mr. Allison was Chairman of the board of directors of Bois d’Arc Energy, Inc. from the time of its formation in 2004 until its merger with Stone Energy Corporation in 2008. Mr. Allison also currently serves as a Director of Tidewater, Inc. and is on the Board of Regents for Baylor University. Mr. Allison has 29 years of executive leadership experience in the oil and gas industry. Mr. Allison combines his educational background in business and in commercial law, along with his entrepreneurial spirit, his driven work ethic and extensive knowledge of the oil and gas industry, to pursue disciplined investments intended to enhance stockholder value. Mr. Allison’s service on the board of directors and audit committee of Tidewater, Inc. also provides him with knowledge, experience and insight from a global perspective. |
Roland O. Burns Director, President, Chief Financial Officer and Secretary | ||
Mr. Burns, age 57, has been our President since 2013, Chief Financial Officer since 1990, Secretary since 1991 and a director since 1999. Mr. Burns served as our Senior Vice President from 1994 to 2013 and Treasurer from 1990 to 2013. From 1982 to 1990, Mr. Burns was employed by the public accounting firm, Arthur Andersen. During his tenure with Arthur Andersen, Mr. Burns worked primarily in the firm’s oil and gas audit practice. Mr. Burns was a director, Senior Vice President and the Chief Financial Officer of Bois d’Arc Energy, Inc. from the time of its formation in 2004 until its merger with Stone Energy Corporation in 2008. Mr. Burns currently serves on the Board of Directors of the Cotton Bowl Athletic Association and the University of Mississippi Foundation. Mr. Burns is an experienced financial executive with extensive knowledge and experience in financial reporting, internal controls in the oil and gas industry, treasury and risk management, mergers and acquisitions, and regulatory compliance. Mr. Burns works with Mr. Allison to evaluate and consider business development opportunities and financing proposals. Mr. Burns, who is our principal contact with investors and investment bankers, updates the Board on trends in the capital markets, including the availability of debt and equity financing and transactional activity in the oil and gas industry. |
Elizabeth B. Davis, PhD Director | ||
Dr. Davis, age 54, has served as a director since 2014. Dr. Davis is currently the President of Furman University. Dr. Davis was the Executive Vice President and Provost for Baylor University until 2014, and served as Interim Provost from 2008 to 2010. Prior to her appointment as Provost, she was a professor of accounting in the Hankamer School of Business at Baylor University where she also served as associate dean for undergraduate programs and as acting chair for the Department of Accounting and Business Law. Prior to joining Baylor University, she worked for the public accounting firm Arthur Andersen from 1984 to 1987. Dr. Davis brings to the Board executive experience from her leadership roles in higher education as well as expertise in finance and accounting from her teaching and research experiences. |
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 11 |
SELECTION CRITERIA AND QUALIFICATIONS OF DIRECTOR CANDIDATES
Morris E. Foster Director Nominee |
Morris E. Foster, age 74, retired in 2008 as Vice President of ExxonMobil Corporation and President of ExxonMobil Production Company following more than 40 years of service with the ExxonMobil group. Mr. Foster served in a number of production engineering and management roles domestically as well as in the United Kingdom and Malaysia prior to his appointment in 1995 as a Senior Vice President in charge of the upstream business of Exxon Company, USA. In 1998, Mr. Foster was appointed President of Exxon Upstream Development Company, and following the merger of Exxon and Mobil in 1999, he was named to the position of President of ExxonMobil Development Company. In 2004, Mr. Foster was named President of Exxon Mobil Production Company, the division responsible for ExxonMobil’s upstream oil and gas exploration and production business, and a Vice President of ExxonMobil Corporation. Mr. Foster currently serves as Chairman of Stagecoach Properties Inc., a real estate holding corporation with properties in Salado, Houston and College Station, Texas and Carmel, California and as a member of the Board of Regents of Texas A&M University. In addition, Mr. Foster currently serves on the board of directors of Tidewater, Inc., Scott & White Medical Institute and First State Bank of Temple, Texas. Mr. Foster would bring to the Board extensive executive management experience in the oil and gas industry. He additionally would bring his substantial experience in international operations and mergers and acquisitions gained from his career at one of the world’s largest companies. |
David K. Lockett Director |
Mr. Lockett, age 62, has served as a director since 2001. Mr. Lockett was a Vice President with Dell Inc. and held executive management positions in several divisions within Dell from 1991 until his retirement from Dell in 2012. Since 2014, Mr. Lockett has served as President of Austex Fence & Deck in Austin, Texas. Between 2012 and 2014, Mr. Lockett, who has over 35 years of experience in the technology industry, provided consulting services to small andmid-size companies. Mr. Lockett was a director of Bois d’Arc Energy, Inc. from 2005 until its merger with Stone Energy Corporation in 2008. Mr. Lockett joined Dell during itsstart-up years and worked in executive level positions at Dell throughout his tenure there. He is an experienced manager, having supervised large organizations through a series of business cycles in the highly competitive personal computer/peripheral business. Mr. Lockett shares the good business judgment and insight gained from these experiences with the Board and also provides guidance from the perspective gained from a long career in a global market-focused company. |
Cecil E. Martin Director |
Mr. Martin, age 75, has served as a director since 1989 and is currently the chairman of our audit committee and our Lead Director. Mr. Martin is an independent commercial real estate investor who has primarily been managing his personal real estate investments since 1991. From 1973 to 1991, he also served as chairman of a public accounting firm in Richmond, Virginia. Mr. Martin was a director and chairman of the audit committee of Bois d’Arc Energy, Inc. from 2005 until its merger with Stone Energy Corporation in 2008. Mr. Martin also served on the board of directors of Crosstex Energy, Inc. and Crosstex Energy, L.P. until their merger with EnLink Midstream and EnLink Midstream Partners LP, respectively, in March 2014. Mr. Martin currently serves on the board of directors of Garrison Capital, Inc. He served as chairman of the compensation committee at Crosstex Energy L.P. and currently serves as chairman of the Audit Committee at Garrison Capital, Inc. Mr. Martin is a Certified Public Accountant. Mr. Martin brings to our Board a combination of financial literacy and business management experience as well as an excellent understanding of the capital markets. Mr. Martin has a strong background in internal controls, financial reporting and financial analysis. He works closely with our Chief Financial Officer, independent public accountants and internal auditors on a wide range of issues. His service on the compensation and audit committees of other publicly traded companies allows him to bring a wide range of experience and insights as part of his service on our Board. |
12 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
SELECTION CRITERIA AND QUALIFICATIONS OF DIRECTOR CANDIDATES
Frederic D. Sewell Director Nominee |
Mr. Sewell, age 82, has served as a director since 2012. Mr. Sewell has extensive experience in the oil and gas industry, where he has had a distinguished career as an executive leader and a petroleum engineer. Mr. Sewell was theco-founder of Netherland, Sewell & Associates, Inc. (“NSAI”), a worldwide oil and gas consulting firm, where he served as the Chairman and Chief Executive Officer until his retirement in 2008. Mr. Sewell is presently the President and Chief Executive Officer of Sovereign Resources LLC, an exploration and production company that he founded. Mr. Sewell has over 50 years of experience as a petroleum engineer. During his career with NSAI, Mr. Sewell established relationships with many of the leading energy firms in the United States and gained extensive knowledge of domestic and international oil and gas operations. Mr. Sewell managed the growth of NSAI, which heco-founded in 1969, into one of the most respected worldwide upstream petroleum consulting organizations in the world. Mr. Sewell brings expertise and extensive knowledge of petroleum engineering, the geology of North American oil and gas basins and the estimation of oil and gas reserves to our Board. |
David W. Sledge Director |
Mr. Sledge, age 60, has served as a director since 1996. Mr. Sledge has been the Chief Operating Officer of ProPetro Services, Inc. since 2012. Mr. Sledge was President and Chief Operating Officer of Sledge Drilling Company until it was acquired by Basic Energy Services, Inc. in 2007 and served as a Vice President of Basic Energy Services, Inc. from 2007 to 2009. He served as an area operations manager forPatterson-UTI Energy, Inc. from 2004 until 2006. From 2009 through 2011, and from 1996 until 2004, Mr. Sledge managed his personal investments in oil and gas exploration activities. Mr. Sledge was a director of Bois d’Arc Energy, Inc. from 2005 until its merger with Stone Energy Corporation in 2008. Mr. Sledge is a past director of the International Association of Drilling Contractors and is a past chairman of the Permian Basin chapter of this association. Mr. Sledge is an experienced oil field executive who has managed and started drilling and oil field service companies during a career that spans more than 30 years. Mr. Sledge’s experience ranges from founding and directing the operations of a drilling rig business to serving as an executive manager for one of the largest drilling companies in the United States. Mr. Sledge has extensive contacts in the oil and gas industry, which, coupled with his oil field experience, makes him a valuable resource in understanding industry trends, operating practices and business prospects. |
Jim L. Turner Director Nominee |
Mr. Turner, age 71, has served as a director since 2014. Mr. Turner currently serves as principal of JLT Beverages, L.P., a position he has held since 1996. Mr. Turner is also Chief Executive Officer of JLT Automotive, Inc. Mr. Turner served as President and Chief Executive Officer of Dr. Pepper/Seven Up Bottling Group, Inc., from its formation in 1999 through 2005, when he sold his interest in that company. Prior to that, Mr. Turner served as Owner/Chairman of the Board and Chief Executive Officer of the Turner Beverage Group, the largest privately owned independent bottler in the United States. Mr. Turner currently serves as anon-executive chairman of the board of directors for Dean Foods Company and as chairman of the board of trustees of Baylor Scott and White Health, the largestnot-for-profit healthcare system in the state of Texas. He is also a director of Crown Holdings, Inc. and INSURICA. Mr. Turner brings his extensive business experience as chairman and chief executive officer of a large corporation to the Board. Mr. Turner has valuable experience in business development, finance and mergers and acquisitions. Mr. Turner’s service as a director of two NYSE-listed companies, including his service as the chairman of the board and chairman of the compensation committee, provides substantial experience and insight to our Board. |
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 13 |
Corporate Governance Guidelines and withholding taxes)Code of Business Conduct and Ethics
The Board has adopted a set of corporate governance guidelines, a code of business conduct and ethics and a policy regarding the approval of related party transactions. These materials are available on our website atwww.comstockresources.com, and are available upon written request to our Corporate Secretary.
Determinations of Director Independence
Under rules adopted by the NYSE, we must have a majority of independent directors on our Board. No Board member qualifies as independent unless the Board affirmatively determines that the director has no material relationship with us (either directly, or as a partner, stockholder or officer of an attestation procedure inorganization that has a stock-for-stock cashless exercise, avoidingrelationship with us). In evaluating each director’s independence, the delays in requiring physical delivery of stock certificates.
The 2009 Plan permits recipients of non-qualified stock options (including non-employee directors) to transfer their vested options by gift toBoard considers all relevant facts and circumstances, relationships and transactions between each director, his or her family members (or trusts or partnershipsany business, charity or other entity in which the director has an interest, on the one hand, and us, our affiliates, or our executives, on the other. As a result of family members). After transferthis review, the Board affirmatively determined that among the director nominees, Dr. Davis and Messrs. Foster, Lockett, Martin, Sewell, Sledge and Turner are independent from us and our management according to the NYSE’s rules. The Board evaluates independence on anon-going basis.
Board of an option,Director Meetings and Committees
Our Board held five meetings during 2016. We have four standing committees: the optionee remains subject to tax upon the exercise of the option, and we retain the right to claim a deduction for compensation upon the exercise of the option.
Stock Appreciation Rights
The 2009 Plan authorizesaudit committee, the compensation committee, to award stock appreciation rights (“SARs”) payable in cash or shares of stock. An SAR is an award that entitles the holder to receive an amount equal tocorporate governance/nominating committee and the difference between (1)executive committee. During 2016, the fair market value of the shares of stock at the time of exercise of the SAR and (2) the fair market value of the shares of stock on the date that the SAR was granted. Under the 2009 Plan, this amount is paid to the holder upon the exercise of a SAR in the form of shares of stock (valued at their fair market value at the time of exercise) or in cash, as specified in the award agreement. The maximum term of SARs is ten years.
When an award of SARs is made, the total number of SARs covered by the award (and not the “net” number of shares that would be issued in the future upon exercise of the SAR) is charged against the pool of shares authorized under the 2009 Plan.
Restricted Stock
The 2009 Plan authorizesaudit committee held six meetings, the compensation committee held three meetings, the corporate governance/nominating committee held one meeting and the executive committee held one meeting. None of our directors attended fewer than 75% of the Board and their respective committee meetings during 2016. All of our directors other than Director Lockett attended our 2016 annual meeting of stockholders and all are encouraged to grantattend the 2017 Annual Meeting.
The position of board chairman is filled by our Chief Executive Officer (the “CEO”). We believe this combined leadership structure is appropriate for us because our Chairman and CEO (i) conveys a singular, cohesive message to keyour stockholders, employees, industry partners and non-employeethe investment community, (ii) eliminates any ambiguity as to who is accountable for our performance and (iii) is able to draw on his knowledge of our operations to provide the Board with leadership and properly focus discussions on the issues of greatest importance to the Company and our stockholders. Our directors sharesand management team engage frequently and directly in the flow of restricted stock.information and ideas and we believe our combined leadership structure facilitates the quality, quantity and timeliness of the information flow and communication.
Since our board chairman is also a member of management, our Board has designated Mr. Cecil Martin, anon-management director, as “Lead Director.” The holder will become vested in sharesresponsibilities of restricted stock freethe Lead Director include:
Coordinating the scheduling of board meetings and preparation of agenda material for board meetings and executive sessions;
Defining the scope, quality, quantity and timeliness of the flow of information between management and the Board;
Chairing all restrictions if he or she completes a required periodmeetings of employment or service followingnon-management directors and of the awardexecutive committee;
Overseeing the process of hiring, firing, evaluating and satisfies any other conditions; otherwise,compensating the shares will be forfeited. The restricted period may be no more than ten years, and must be at least one year. The holder will haveCEO;
Approving the rightretention of consultants who report directly to vote the sharesBoard;
14 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
CORPORATE GOVERNANCE
13Facilitating communication between the directors and the CEO, and communicating the directors’ perspectives and consensus view to the CEO;
Assisting the Board and officers in assuring compliance with and implementation of our governance principles;
Leading the annual evaluation of the chairman;
Serving as an independent point of contact for stockholders wishing to communicate with the Board;
Acting as principal liaison between the independent directors and the CEO on sensitive issues; and
Leading the Board in anticipating and responding to crises.
One of restricted stockthe responsibilities of the Board, as a whole and unlessthrough its committees, is to review and evaluate the compensationprocesses in place to assess the major risks facing our Company and periodically review management’s assessment of the major risks as well as options for their mitigation. Our Board leadership structure and our practice of a high degree of interaction between our directors and members of senior management facilitates this oversight function. The information flow and communication throughout the year between our Board and senior management regarding long-term strategic planning and short-term operational reporting includes matters of material risk inherent in our business of exploring for and producing oil and natural gas. Also, our audit committee, determines otherwise,among other duties, is charged with overseeing significant financial risk exposures and the rightsteps management has taken to receive dividends on the shares. The holder may not sell or otherwise disposemonitor, control and report such exposures and has compliance oversight responsibilities.
Adoption of restricted stock until the conditions imposed by the compensation committee have been satisfied.
Restricted Stock Units and Performance UnitsWritten Charters
The 2009 Plan authorizes the compensation committee to award restricted stock units and performance units payableBoard has in cash or shares of stock. A restricted stock unit is the grant of a right to receive shares of stock in the future, upon vestingplace charters for each of the award. Under the 2009 Plan, a number of performance units is initially assigned byaudit committee, the compensation committee and the number of units actually earned will be contingent on future performancecorporate governance/nominating committee. A copy of the holder and/or us over the performance period in relation to the established performance measures. Although the performance measures and performance period will be determined by the compensationcharter for each committee is available on our website at the time of the award of performance units, they may be subject to such later revision as the compensation committee deems appropriate to reflect significant events or changes.www.comstockresources.com. The maximum term of restricted stock units and performance units is ten years.
Change in Control Events
In the event we have a change in control, as defined in the 2009 Plan, all outstanding stock options, stock appreciation rights and restricted stock will automatically become fully exercisable and/or vested, and the compensation committee may, in its sole discretion and immediately prior to a change in control, take such action as necessary to modify the terms of or accelerate the vesting of any outstanding performance units upon consummation of such change in control.
New Plan Benefits
Awards to be received by individual participants are not determinable because the compensation committee determines the amount and nature of any award under the 2009 Plan in its sole discretion at the time of grant. As a result, the benefits that might be received by participants receiving discretionary grants under the 2009 Plan are not determinable.
Federal Income Tax Consequences
The discussion below summarizes the expected federal income tax treatment of awards under the 2009 Plan, under currently applicable laws and regulations. It is only a summary of the effect of U.S. federal income taxation upon recipients of awards and us with respect to the grant and exercise of awards under the 2009 Plan. It does not purport to be complete and does not discuss the tax consequences arising in the context of a recipient’s death or the income tax laws of any municipality, state or foreign country in which the recipient’s income or gain may be taxable.
Non-Qualified Stock Options
The grant of a non-qualified stock option does not result in taxable income to the holder of such an option or in a deduction by us. The tax consequences are determined generally at the time the optionee exercises the non-qualified stock option. Upon the exercise of a non-qualified stock option, the optionee generally recognizes ordinary income in an amount equal to the difference between the fair market value of the common stock on the date of exercise and the exercise price of the option. We are entitled to a deduction for the year in which the optionee’s tax year ends in an amount equal to the amount that was includable in the optionee’s gross income. Upon exercise of options, shares can be withheld (or delivered to us, in the case of previously-owned shares) to satisfy tax withholding obligations.
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If an optionee surrenders or delivers shares of common stock in whole or partial payment of the exercise price, the optionee will not recognize taxable income when the non-qualified stock option is exercised to the extent that the number of shares so surrendered or delivered equals the number of shares received upon the exercise of the option. The optionee will, however, recognize ordinary income with respect to the shares received in excess of the number of shares so surrendered or delivered, in an amount equal to the excess of the fair market value of such excess shares on the date the non-qualified stock option is exercised over the amount of any cash paid.
An optionee’s tax basis in the stock acquired pursuant to the exercise of a non-qualified stock option for which the option price is paid solely in cash will be equal to the amount of cash paid plus the amount of ordinary income that the optionee recognizes upon exercise of the option. As to the stock acquired pursuant to exercise of a non-qualified stock option for which an optionee surrenders stock in payment of all or part of the aggregate option price, the optionee’s tax basis in the number of shares acquired in the exchange which is equal to the number of surrendered shares shall be the same as that of the surrendered shares. The holding periodcharters of these acquired shares shall be the same as that of the surrendered shares. The optionee’s tax basis in any excess shares acquired in the exchange shall be zero, increased by the amount of cash, if any, paid upon the exercise of the non-qualified stock option and the amount of ordinary income that the optionee recognizes upon exercise of the option. The holding period of these acquired shares shall begin as of the date such stock is transferred to the optionee.
Incentive Stock Options
Under current law, the holder of an option will not recognize taxable income on the grant or exercise of an incentive stock option. However, the amount by which the fair market value of common stock on the date the incentive stock option is exercised exceeds the exercise price of such option will be treated as income for purposes of computing the optionee’s alternative minimum taxable income in the year the incentive stock option is exercised.
If the shares of common stock acquired through the exercise of an incentive stock optioncommittees are held by an optionee through the later of (1) two years from the date of the grant of the option or (2) one year after the transfer of such shares to the optionee pursuant to the exercise, the amount received by the optionee upon the sale or other disposition of such shares in excess of the optionee’s tax basis in such shares will be taxable to such optionee as a long-term capital gain in the year of such sale or disposition. An optionee’s tax basis in the shares of common stock acquired pursuant to the exercise of an incentive stock option will be equal to the exercise price of such options.
If the shares of common stock acquired through the exercise of an incentive stock option are disposed of prior to the expiration of the two-year or one-year holding periods, an amount equal to the difference between (1) the lesser of (a) the amount realized on the sale or exchange, and (b) the fair market value of the shares on the date the option was exercised, and (2) the exercise price of the option relating to the shares sold or exchanged will be taxable to the optionee as ordinary income in the year of such disposition. In addition, if the amount realized from the sale or exchange is greater than the fair market value of the shares on the date the incentive stock option was exercised, the optionee will also recognize gain in an amount equal to such difference. This gain will be characterized as long-term or short-term capital gain, depending upon the holding period of such shares. If common stock is disposed of by gift prior to the expiration of the two-year or one-year holding periods, an amount equal to the fair market value of the shares on the date of exercise less the exercise price of the option relating to the shares disposed of will be taxable to the optionee as ordinary income in the year of such disposition.
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The grant or exercise of an incentive stock option will not result in any federal income tax consequences to us. However, if common stock acquired through the exercise of an incentive stock option is disposed of by the optionee prior to the expiration of the two-year or one-year holding periods described above, we will be allowed a deduction equal to the amount of income includable in the optionee’s gross income as a result of the disposition.
Stock Appreciation Rights
Under current federal tax law, upon the grant of an SAR, no taxable income will be realized by the holder and we will not be entitled to any tax deduction. Upon exercise of an SAR, the holder will realize ordinary taxable income on the date of exercise. Such taxable income will equal the difference between the fair market value of the common stock on the date of grant of the SAR and the cash received upon exercise, or, as applicable, the fair market value of the common stock received upon exercise on the date of exercise. We will be entitled to a corresponding tax deduction.
Restricted Shares
A participant normally will not realize taxable income and we will not be entitled to a deduction upon the grant of restricted shares. When the shares are no longer subject to a substantial risk of forfeiture, the participant will realize taxable ordinary income in an amount equal to the fair market value of such shares at such time, and we will be entitled to a deduction in the same amount. A participant may make a special tax election which affects the timing and measurement of income recognized in connection with the grant of restricted shares, and our deduction.
Dividends received by a participant on restricted shares during the restricted period are generally taxable to the participant as ordinary income and will be deductible by us.
Restricted Stock Units and Performance Units
A participant receiving an award of a restricted stock unit or a performance unit will not realize taxable income until the restricted stock unit or performance unit is paid, in an amount equal to the fair market value of shares received in payment or the amount of cash received, as applicable, and we will be entitled to a corresponding deduction at such time.
Withholding
We will retain the right to deduct or withhold, or require an employee to remit to us, an amount sufficient to satisfy federal, state and local taxes required by law or regulation to be withheld with respect to any taxable event as a result of awards under the 2009 Plan.
Change in Control and Excess Parachute Payments
The accelerated vesting of awards upon a change in control could result in a participant being considered to receive “excess parachute payments” (as defined in Section 280G of the Code), which payments are subject to a 20% excise tax imposed on the participant. If so, we would not be able to deduct the excess parachute payments.
Section 162(m) Limitations
Section 162(m) of the Code generally places a $1 million annual limit on a company’s tax deduction for compensation paid to a “covered employee.” A “covered employee” is an employee who is, on the last day of the company’s taxable year in which the deduction would otherwise be claimed, the
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company’s chief executive officer or one of the other four highest paid officers named in its proxy statement except the chief financial officer. This limit does not apply to compensation that satisfies the applicable requirements for performance-based compensation, one of which is that stockholders approve the material terms of the compensation.
The 2009 Plan incorporates the requirements for the performance-based compensation exception applicable to options, SARs, and performance units so that all such awards should qualify for the exception. In addition, the compensation committee may grant other awards designed to qualify for this exception. However, the compensation committee reserves the right to grant awards that do not qualify for this exception, and in some cases, including a change in control, the exception may cease to be available for some or all awards (including options, SARs, and performance units) that otherwise so qualify. Thus, it is possible that Section 162(m) may disallow compensation deductions that would otherwise be available to us.
This summary is qualified in its entirety by reference to the complete text of the amendment and restatement of the 2009 Plan, which has been filed with the SEC and which will be provided, at no charge, to any stockholder upon written request to our principal executive offices at 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034, Attention: Corporate Secretary.
A majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal is required for approval of the amendment and restatement of the 2009 Plan. Brokers do not have discretion to vote on this proposal without instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal. Abstentions will have the same effect as votes against the proposal, but broker non-votes will not affect the outcome of the voting on the proposal.
The Board recommends that you vote “FOR” the proposal to approve the amendment and restatement of our 2009 Long-term Incentive Plan.
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The Board has determined that it is necessary to propose an amendment to our Restated Articles of Incorporation to increase the number of authorized shares of common stock from 50 million to 75 million.
Under our Restated Articles of Incorporation, as amended, the total number of shares of capital stock that we have the authority to issue is 55 million shares, of which 50 million are common stock and 5 million are preferred stock. As of September 16, 2016, the number of shares of common stock outstanding was 13,147,914, 11,730 shares of common stock were reserved for issuance upon exercise of outstanding stock options and 1,275,418 shares of common stock were reserved for issuance upon exercise of outstanding warrants. We also have outstanding performance share unit awards equivalent to 269,253 shares that would be issuable upon achievement of the maximum awards under the terms of the performance share unit awards. As a result, as of September 16, 2016, we have a total of 35,295,685 shares of common stock available for future issuance. No shares of preferred stock are outstanding, and the proposed amendment would not increase the authorized number of shares of preferred stock.
The Board has determinedin place a written policy regarding the approval of related party transactions. At regularly scheduled audit committee meetings, management will recommend any related party transactions that are contemplated, and such transactions will require the audit committee’s approval. Generally, a “related party” is each of our executive officers, directors, nominees for director, any stockholder owning greater than five percent of our outstanding shares, including any immediate family member of each of the foregoing, and any entity owned or controlled by any of the foregoing. Transactions that are available to all of our employees generally or totaling less than $5,000 when aggregated with all similar transactions are excluded from the policy.
With respect to the standards applied by the audit committee when deciding whether to approve a related party transaction, the audit committee shall approve or ratify the transaction if it is necessaryon terms believed to increase the number of authorized shares of common stockbe comparable to allow for the conversion of the Convertible Notes, to make available additional shares of common stock for issuance under the 2009 Plan and to provide a sufficient reserve of shares for our future business and financial needs. If stockholder approval for the amendment to increase the authorized shares is notthose that could be obtained by December 31, 2016 and such failure to obtain stockholder approval continues for a period of 90 days thereafter, the Convertible Notes will not be convertible into common stock and such failure to obtain stockholder approval will result in a default under such notes. Such default may in turn result in a default under our other debt agreements. Such defaults would likely require us to file for bankruptcy protection.
Existing holders of shares of common stock would have no preemptive rights under our Restated Articles of Incorporation to purchase any additional shares of common stock we may issue. Under Nevada law, stockholders are not entitled to appraisal rightsarm’s length dealings with respect to this proposal.
The issuance of shares of common stock in connection with the conversion of the Convertible Notes will substantially dilute the voting power of existing stockholders, decrease earnings per share and decrease the book value and market value per share of shares presently held. In addition, although the purpose of the proposed amendment is not as an anti-takeover measure, the increase in the authorized number of shares of common stock and the subsequent issuance of a large number of those shares could have the effect of delaying or preventing a change of control without further action by our stockholders, and thus make it more difficult to remove and replace our management. Shares of authorized and unissued common stock could (within the limits imposed by applicable law) be issued in one or more transactions that would make a change of control more difficult, and therefore less likely. Although these potential anti-takeover effects are inherent in the proposed amendment, our
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Board does not view the increase in the number of authorized shares of common stock as ananti-takeover measure, and the amendment is not being made in response to any specific proposed or contemplated change-of-control transaction or effort by anyunrelated third party.
The Board has unanimously adopted a resolution approving, subject to stockholder approval, and declaring the advisability of an amendment to Article Fourth of our Restated Articles of Incorporation to increase the number of authorized shares of common stock from 50 million to 75 million. The first paragraph of Article Fourth is proposed to be deletedThere were no related party transactions in its entirety. This paragraph currently provides that:2016.
Fourth: That the amount of the total of the authorized capital stock of the corporation is Fifty-Five Million (55,000,000) shares of which Fifty Million (50,000,000) shares are Common Stock, Fifty Cents ($0.50) par value per share, and Five Million (5,000,000) shares are Preferred Stock, Ten Dollars ($10.00) par value per share. The shares of Common Stock shall be identical in all respects and shall have one vote per share on all matters on which stockholders are entitled to vote. The Preferred Stock may be issued in one or more series; shares of each series shall be identical in all respects and shall have such voting, dividend, conversion and other rights, and such preferences and privileges as may be determined by resolution of the Board of Directors of the corporation.
The following paragraph is proposed to be the new first paragraph of Article Fourth:
Fourth: That the amount of the total of the authorized capital stock of the corporation is Eighty Million (80,000,000) shares of which Seventy-Five Million (75,000,000) shares are Common Stock, Fifty Cents ($0.50) par value per share, and Five Million (5,000,000) shares are Preferred Stock, Ten Dollars ($10.00) par value per share. The shares of Common Stock shall be identical in all respects and shall have one vote per share on all matters on which stockholders are entitled to vote. The Preferred Stock may be issued in one or more series; shares of each series shall be identical in all respects and shall have such voting, dividend, conversion and other rights, and such preferences and privileges as may be determined by resolution of the Board of Directors of the corporation.
If approved, this amendment will become effective upon the filing of a certificate of amendment to our Restated Articles of Incorporation with the Secretary of State of the State of Nevada, which we would complete promptly after the Special Meeting. The full text of the proposed Certificate of Amendment to the Restated Articles of Incorporation is attached to this Proxy Statement as Appendix A.
The Board recommends that you vote “FOR” the proposal to amend the Restated Articles of Incorporation to increase the authorized shares of common stock.
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The compensation program for our non-employee directors has been developed by the compensation committee after consideration of the recommendations and competitive market data provided by its independent compensation consultant. In setting non-employee director compensation, the compensation committee considers the significant amount of time that our directors spend satisfying their duties to the Company and our stockholders, as well as the skill level required by our directors. The program has been approved by the Board. The following sets out the components of the compensation program for our non-employee directors beginning in May 2016. Employee directors receive no additional compensation for serving on our Board:
Annual Board Retainer | $ | 83,000 | ||
Annual Equity Grant Value | $ | 125,000 | ||
Lead Director Retainer | $ | 37,000 | ||
Annual Committee Chair Retainer: | ||||
Audit Committee | $ | 31,500 | ||
Compensation Committee | $ | 20,750 | ||
Corporate Governance/Nominating Committee | $ | 12,500 |
The following table sets forth the compensation of our non-employee directors for services during 2015:
Fees Earned or Paid in Cash | Equity Awards | Total | ||||||||||||||||||
Name of Director | Grant Date | Number of Restricted Shares (#)(1) | Grant Date Fair Value(1) | |||||||||||||||||
Elizabeth B. Davis | $ | 83,000 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 208,000 | ||||||||||||
David K. Lockett | $ | 103,750 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 228,750 | ||||||||||||
Cecil E. Martin | $ | 151,500 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 276,500 | ||||||||||||
Frederic D. Sewell | $ | 95,500 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 220,500 | ||||||||||||
David W. Sledge | $ | 83,000 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 208,000 | ||||||||||||
Jim L. Turner | $ | 83,000 | May 7, 2015 | 5,483 | $ | 125,000 | $ | 208,000 |
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The compensation committee may award stock options, restricted stock, stock appreciation rights, restricted stock units or performance units to non-employee directors at its discretion under our 2009 Long-term Incentive Plan.
In June, 2016 the directors received 5,000 restricted shares each which vest in June, 2017. The value of the grants made to the directors in 2016 was 80% lower than the value of grants received in 2015.
Compensation Committee Interlocks and Insider Participation
Our compensation committee is comprised entirely of independent directors. None of the members of the committee during 20152016 or throughas of the date of this Proxy Statement is or has been an officer or employee of the Company and no executive officer of the Company has served on the compensation committee or board of directors of any company that employed any member of the Company’s compensation committee or Board.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 15 |
CORPORATE GOVERNANCE
The Company has stock ownership requirements for its directors and executive officers. The purpose of the ownership requirements is to further our goal of increasing stockholder value and to further align the interests of our directors and key executives with the interests of our stockholders. Satisfaction of the policy requires that individuals attain and retain holdings of our common stock with a cost basis equal to the following multiple of the individual’s compensation, defined as either a director’s cash retainer fee or an officer’s base salary:
5x for the CEO and President;
5x fornon-employee directors; and
3x for all other executive officers.
An individual’s cost basis is equal to (1) his or her actual cost, in the case of purchases in the open market, (2) the fair market value of the shares at the date of exercise of stock options or stock appreciation rights, or (3) the fair market value of the shares at the date of vesting of restricted stock, restricted stock units or performance units. Each person’s stock ownership requirement will be adjusted annually each January 1 to reflect any changes in his or her retainer or base salary. For the purpose of counting the shares owned, only vested share equivalents under Company-sponsored plans will count as shares owned. Share equivalents will not include any amounts attributable to outstanding unexercised stock options or unvested equity awards.
Generally, individuals have a five-year period to attain their stock ownership requirements. At any time at which the individual’s stock ownership requirement has not been met, including during the initial five-year period to attain compliance, the individual will be required to retain at least 50% of “Net Shares” received upon vesting of restricted stock, restricted stock units and performance units. “Net Shares” are defined to include shares of common stock that are owned by the individual after shares are sold, swapped or traded to pay applicable withholding taxes. Subsequent to achieving the initial stock ownership requirement, all directors and executives are required to continuously maintain stock ownership at their specified levels.
If an individual does not meet the applicable ownership requirements, then he or she is subject to certain restrictions upon the vesting of equity awards, and may only dispose of shares for particular reasons set forth in the policy and upon receipt of permission for the transfer by the Corporate Secretary.
The policy provides a hardship exemption, for which an individual must submit a request to the Corporate Secretary, who will review the request with the CEO or the chairman of the corporate governance/nominating committee.
Upon our request, and at least annually, individuals subject to the ownership requirements are required to provide a schedule disclosing the number and cost basis of shares owned. The ownership requirements are administered by the Corporate Secretary. The Board may amend the ownership requirements in its sole discretion. Presently all of our directors and our executive officers have attained or exceeded their ownership requirements or are in their initial five-year period under this policy.
Our directors and executive officers are prohibited from entering into transactions in puts, calls and other derivative securities with respect to our securities on an exchange or in any other organized market as well as short sales of our securities. These types of transactions can hedge against decreases in our stock price and encourage risky behavior. We believe these activities are often perceived as involving insider trading and may focus the holder’s attention on our short-term performance rather than our long-term objectives.
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The Board of Directors and its Committees
The primary responsibility of the Board is to exercise governance over the affairs of the Company and to establish delegations of authority to the Company’s management. It is also the Board’s responsibility, as a whole and through its committees, to provide oversight, counseling and direction to the Company’s management from the perspective of the long-term interests of the Company and its stockholders. The Board’s and its committees’ responsibilities include: (a) reviewing and approving the Company’s major financial objectives and strategic and operating plans and actions; (b) overseeing the conduct of the Company’s business to evaluate whether it is being properly managed; (c) regularly evaluating the performance of the CEO; (d) planning for succession with respect to the position of CEO and monitoring management’s succession planning for other senior executives; (e) setting the compensation of the Company’s executive officers; (f) overseeing the processes for maintaining the Company’s integrity with regard to its financial statements and other public disclosures; and (g) overseeing the Company’s compliance with laws and ethics as well as the Company’s compliance programs and policies.
The Board has instructed the CEO, working with the Company’s other executive officers, to manage the Company’s business in a manner consistent with all applicable laws and regulations, the Company’s standards and practices, and in accordance with any specific plans, instructions or directions of the Board. The CEO and management are responsible for seeking the advice and, in appropriate situations, the approval of the Board with respect to extraordinary actions to be undertaken by the Company.
Our directors monitor the Company’s business and affairs through Board and board committee meetings, background and informational materials, presentations provided to them on a regular basis, and meetings with officers and employees of the Company.
In addition to the executive committee, the Board has three committees which are composed entirely of independent directors. Membership of these committees is as follows:
Audit | Compensation | Corporate Governance/Nominating | ||
Cecil E. Martin, Chair | David K. Lockett, Chair | David W. Sledge, Chair | ||
Elizabeth B. Davis | Cecil E. Martin | David K. Lockett | ||
Frederic D. Sewell | Jim L. Turner | Frederic D. Sewell |
Each of these committees operates pursuant to a written charter which can be found in the “Corporate Governance” section of our website at www.comstockresources.com. As stated earlier, documents and information on our website are not incorporated herein by reference. These documents are also available in print from the Corporate Secretary, 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034.
The audit committee reviews and approves the Company’s financial statements and earnings releases, oversees the internal audit function and reviews the Company’s internal accounting controls. The audit committee oversees the implementation of the Company’s compliance policies and programs relating to the Company’s financial statements and monitors ongoing compliance matters and concerns. The audit committee also reviews related party transactions. The audit committee has the sole authority to appoint, review and discharge our independent registered public accountants. The Report of the Audit Committee begins on page 21 of this Proxy Statement.
The compensation committee is responsible for overseeing and approving the Company’s compensation programs including ournon-employee director compensation program. It is also responsible for reviewing and approving the compensation plans and decisions for all executive officers. It also oversees and regularly reviews the compensation
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 17 |
THE BOARD OF DIRECTORS AND ITS COMMITTEES
program for all our employees and supervises the compensation and benefits policies and plans of the Company. The compensation committee frequently meets in executive sessions to discuss and approve compensation plans and decisions. The compensation committee is assisted in these matters by an independent compensation consultant, hired by and serving at the pleasure of the committee. A description of the committee’s role in determining executive compensation, including the CEO’s compensation, and its use of an independent compensation consultant, is contained in “Executive Compensation—Compensation Discussion and Analysis,” which appears on pages 24 – 36 of this Proxy Statement. A description of the committee’s role in determiningnon-employee director compensation is contained in “Director Compensation,” which appears on page 19 of this Proxy Statement.
The corporate governance/nominating committee is responsible for developing, overseeing, reviewing and monitoring compliance with the Company’s policies, programs and practices relating to corporate governance, including the Company’s corporate governance guidelines, and for evaluating and monitoring compliance with the Company’s policies, and making recommendations to the Board on various governance issues. The committee is also responsible for reviewing and recommending to the Board director nominees, recommending committee assignments and conducting an annual review of Board and committee effectiveness. The process for evaluating and nominating director nominees is described in “Director Selection Process” on page 10 of this Proxy Statement.
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The compensation program for ournon-employee directors has been developed by the compensation committee after consideration of the recommendations and competitive market data provided by its independent compensation consultant. In settingnon-employee director compensation, the compensation committee considers the significant amount of time that our directors spend satisfying their duties to the Company and our stockholders, as well as the skill level required by our directors. The program has been approved by the Board. Employee directors receive no additional compensation for serving on our Board. The following sets out the components of the compensation program for ournon-employee directors beginning in May 2016:
Annual Board Retainer | $ | 83,000 | ||
Annual Equity Grant Value | $ | 125,000 | ||
Lead Director Retainer | $ | 37,000 | ||
Annual Committee Chair Retainer: | ||||
Audit Committee | $ | 31,500 | ||
Compensation Committee | $ | 20,750 | ||
Corporate Governance/Nominating Committee | $ | 12,500 |
The following table sets forth the compensation of ournon-employee directors for services during 2016:
Name of Director | Fees Earned or Paid in Cash | Equity Awards | Total | |||||||||||||||
Grant Date | Number of Restricted Shares (#)(1) | Grant Date Fair Value(1) | ||||||||||||||||
Elizabeth B. Davis | $ 83,000 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 107,500 | |||||||||||
David K. Lockett | $103,750 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 128,250 | |||||||||||
Cecil E. Martin | $151,500 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 176,000 | |||||||||||
Frederic D. Sewell | $ 95,500 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 120,000 | |||||||||||
David W. Sledge | $ 83,000 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 107,500 | |||||||||||
Jim L. Turner | $ 83,000 | June 7, 2016 | 5,000 | $ | 24,500 | $ | 107,500 |
(1) | Shares vest one year from grant date of June 7, 2016 and had a grant date value of $4.90 per share. |
The compensation committee reduced the value of the annual equity grant for independent directors in 2016 from $125,000 to $24,500 given the Company’s low share price in order to conserve shares available to award under the 2009 Long-term Incentive Plan.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 19 |
PROPOSAL 2 | RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2017 |
Ernst & Young LLP (“EY”) has served as the Company’s independent registered public accountants since 2004. The audit committee has appointed EY as independent registered public accountants for the Company for 2017, subject to the ratification of such appointment by the stockholders. A vote will be held on a proposal to ratify this appointment at the Annual Meeting. While there is no legal requirement that this proposal be submitted to stockholders, the Board believes that the selection of independent registered public accountants to audit the financial statements of the Company is of sufficient importance to seek stockholder ratification. In the event a majority of the votes cast is not voted in favor of the ratification of the appointment of EY, the audit committee will reconsider the appointment. Even if the selection is ratified, the audit committee, in its discretion, may elect a different independent registered public accounting firm at any time if the audit committee determines that such a change would be in the best interests of our Company and stockholders.
It is expected that representatives of EY will be present at the Annual Meeting and will be available to answer appropriate questions and discuss appropriate matters pertaining to the Report of Independent Registered Public Accounting Firm contained in the financial statements included in the Company’s Annual Report on Form10-K for the year ended December 31, 2016. These representatives will have the opportunity to make a statement if they desire.
The fees billed by EY for services rendered for 2015 and 2016 are set out on page 22 of this Proxy Statement.
The Board recommends that stockholders vote “FOR” the ratification of this appointment.
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The audit committee assists the Board in overseeing: (1) the integrity of Comstock’s financial statements; (2) Comstock’s compliance with legal and regulatory requirements; (3) the independence, qualifications and performance of Comstock’s independent registered public accounting firm; (4) Comstock’s performance of its internal audit function; (5) Comstock’s derivatives and hedging program; and (6) Comstock’s oil and natural gas reserves estimation process. The Board has made a determination that the members of the audit committee satisfy the requirements of the NYSE listing standards as to independence, financial literacy and experience. The Board also determined that Mr. Martin and Dr. Davis are “audit committee financial experts,” as defined by the rules of the SEC. The audit committee has in place a procedure for receiving and addressing anonymous complaints regarding financial or accounting irregularities. The audit committee has set up a toll free ethics and compliance hotline managed by an independent third party. This hotline is available 24 hours a day, seven days a week, to enable employees to communicate concerns to management without fear of retaliation.
Management is responsible for the preparation, presentation and integrity of Comstock’s financial statements, accounting and financial reporting principles, and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards. Consistent with its oversight role, the audit committee met with EY with and without management present to discuss the results of their examinations, their evaluations of Comstock’s internal controls and the overall quality of the Company’s financial reporting.
In performing its oversight role, the audit committee has reviewed and discussed the audited financial statements with management and with EY. The audit committee recognizes the importance of maintaining the independence of Comstock’s independent registered public accounting firm. The audit committee discussed with EY the matters required to be discussed by Auditing Standard No. 1301,Communications with Audit Committees, and received from EY the written disclosures and the letter concerning the independent registered public accounting firm’s independence required by PCAOB Rule 3526 and the federal securities laws administered by the SEC.
Based on the review and discussions referred to above, the audit committee recommended to the Board that the audited financial statements for the fiscal year ended December 31, 2016 be included in the Annual Report on Form10-K for the same fiscal year, for filing with the SEC.
The members of the audit committee are not professionally engaged in the practice of auditing or accounting for Comstock and are not experts on auditor independence standards. Members of the audit committee rely without independent verification on the information provided to them and on the representations made by management and Comstock’s registered public accounting firm. Accordingly, the audit committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the audit committee’s considerations and discussions referred to above do not assure that the audit of Comstock’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles, or that EY is in fact independent. The independent registered public accounting firm is responsible for performing an audit of the financial statements and of management’s assessment of the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Accounting Oversight Board.
Submitted by the audit committee of the Board.
Cecil E. Martin, Chairman
Elizabeth B. Davis
Frederic D. Sewell
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AUDIT-RELATED MATTERS
Audit Committee Financial Experts
Our Board has determined that the chairman of our audit committee, Mr. Martin, and Dr. Davis both meet the qualifications of an “audit committee financial expert” as that term is used in SEC regulations.
Principal Accounting Firm Fees
The following table sets forth the fees billed or to be billed by EY, for services rendered for the years ended December 31, 2015 and 2016:
2015 | 2016 | |||||||
Audit fees | $ | 1,337,000 | $ | 1,455,000 |
No audit-related fees or fees related to tax services were billed by EY in 2015 or 2016. The audit committee performs an annual review and approves the scope of services and proposed fees of the Company’s principal accounting firm. Any projects not specifically included in this approval will be reviewed and approved in advance by the chairman of the audit committee and will be reviewed by the full audit committee at the next regularly scheduled meeting. The audit committee also considered whether the provision of services, other than audit services, is compatible with maintaining the accounting firm’s independence.
Pre-approval Policies and Procedures
The audit committee’s policy is topre-approve all audit and permissiblenon-audit services provided by the independent registered public accounting firm. These services may include audit services, audit related services, tax services and other services.Pre-approval is detailed as to the particular service or category of service and is subject to a specific engagement authorization. The audit committee requires the independent registered public accounting firm and management to report on the actual fees charged for each category of service at audit committee meetings throughout the year.
During the year, circumstances may arise when it becomes necessary to engage the independent registered public accounting firm for additional services not contemplated in the originalpre-approval. In those instances, the audit committee requires specificpre-approval authority from the chairman of the audit committee, who must report on such approvals at the next scheduled audit committee meeting. All 2016 audit andnon-audit services provided by the independent registered public accounting firm werepre-approved by the audit committee.
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PROPOSAL 3 | PROPOSAL TO APPROVE, ON AN ADVISORY BASIS, THE COMPANY’S COMPENSATION OF ITS NAMED EXECUTIVE OFFICERS |
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables stockholders, on an advisory basis, to vote on whether they approve the compensation of our named executive officers (“NEOs”) as described in this Proxy Statement. This vote is commonly referred to as a “Say on Pay” vote. The Dodd-Frank Act requires an advisory vote to be conducted at least every three years. Our stockholders expressed a preference for an annual advisory vote at our annual meeting in 2011. In accordance with this preference, we are providing our stockholders the opportunity to cast an advisory vote to approve the compensation of our NEOs as described in this Proxy Statement.
As described in detail under the heading “Executive Compensation—Compensation Discussion and Analysis” (the “CD&A”) below, our executive compensation programs are designed to align the interests of our executive officers with the interests of our stockholders. Under these programs, our executive officers are rewarded for the achievement of specific annual, long-term corporate and strategic goals and the increase in stockholder value. Please read the CD&A beginning on page 24 for additional details about our executive compensation programs and the specific compensation of our NEOs.
The compensation committee continually reviews the compensation programs for the executive officers to ensure they achieve the desired goals of aligning the Company’s executive compensation structure with stockholders’ interests and current market practices. A significant part of our executive compensation is performance-based, linking pay to the Company’s operating results. Performance-based compensation made up a substantial portion of our CEO’s total compensation. The Company provides a significant part of executive compensation in long-term incentives (“LTI”) in the form of performance-based restricted stock units (“PSUs”), which are not earned unless performance targets are met or exceeded. We have used total shareholder return or “TSR” as the performance measure for PSUs awarded to date.
We are requesting your approval of the executive compensation for the NEOs as described in this Proxy Statement, including the CD&A and the compensation tables and the related disclosures. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the NEOs.
This Say on Pay vote is advisory, and therefore is not binding on the Company, the Board or the compensation committee. The final decision on the compensation and benefits of our executive officers remains with the Board and the compensation committee. However, the Board and the compensation committee value your opinion as a stockholder, and, to the extent there is any significant vote against the compensation of our NEOs, the Board and the committee will consider the stockholders’ concerns, and the committee will evaluate whether any actions are necessary to address those concerns.
The Board recommends a vote “FOR” the approval of the compensation of our NEOs as described in this Proxy Statement.
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The compensation committee determines the objectives for Comstock’s executive compensation and benefit programs and discharges the responsibilities relating to the compensation of Comstock’s executive officers. The specific duties of the compensation committee are set forth in its charter, which was adopted by the Board. The compensation committee has reviewed and discussed with management the CD&A contained on pages 24 through 36 of this Proxy Statement and, based upon this review and discussion, the committee recommended to the Board, and the Board approved, that the CD&A be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2016.
Submitted by the compensation committee of the Board.
David K. Lockett, Chairman
Cecil E. Martin
Jim L. Turner
Compensation Discussion and Analysis
Comstock’s executive compensation programs are intended to align pay outcomes with performance achievements, grow stockholder value, attract and retain executive talent and support the Company’s business strategy. We believe that our executive compensation programs as currently designed align executiveour executives’ pay with Company performance, stockholder expectations and prevailing market practices.
2015 was a very challenging year for the Company as oil and natural gas prices fell by 49% and 45%, respectively. Given the difficult industry conditions, the compensation committee determined that no employee bonuses would be paid, including awards earned by our executive officers under the Annual Incentive Plan.
90% of the shares voted at the 2016last year’s annual meeting approved our 2015 executive compensation by supporting our “Say on Pay” proposal.
Key Compensation Program Features
Aligns pay and performance, using an annual incentive bonus plan that is based entirely on achieving financial performance goals and by providing 50%a portion of our LTI equity awards in PSUs based on relative TSR versus our peer group
Market competitive, by benchmarking compensation against a revised peer group of appropriately sized oil and gas exploration and production companies and by implementingusing similar pay changespractices that directly reflect the practices of this peer group
Incorporates stockholder interests, by aligning pay with stockholder value creation, holding discussions with large stockholders to obtain their feedback on our compensation programs and implementing many of their suggestions
Employs best practices in corporate governance, including adopting stock ownership guidelines, clawback and anti-hedging policies and eliminating excise and other tax gross ups in our compensation plans
Governed by independent directorsthat are advised by independent consultants
2015 Company Performance
2015
2016 was a challengingdifficult year for us where low oil and forgas prices continued to drain our liquidity. We took steps to protect our liquidity by limiting our spending and requiring our employees to forego bonuses that were earned in 2015. Despite the industry generally. Ourlimited capital spending, our Haynesville shale results continued to improve. The strong performance of our Haynesville shale wells drove the 47% growth we had in proved oil and natural gas prices fell by 49%reserves in 2016. The successful debt exchange we completed in September 2016 allowed us to restart our drilling program in the fourth quarter of 2016, which we expect
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EXECUTIVE COMPENSATION
will generate growth in 2017, resulting in continued improvement in our financial position. Because of the actions we undertook throughout 2016 to protect and 45%, respectively.enhance our liquidity, we are back in a position to invest in our high return Haynesville program.
In 2015 and 2016, we retired $237 million of our debt. Most importantly, we completed an exchange with the holders of our bonds which resulted in a reduction in our annual cash interest burden and allows us to elect to pay additional interestin-kind in the future. The low prices significantly reducedholders of 98% of our revenuesbonds participated in the par for par exchanges. In the subsequently called special meeting of our stockholders, 98% of the stockholders also approved the future issuance of shares of common stock for the convertible notes issued in the exchange transaction and the path forward we chose for the Company. The future conversion of these notes willde-lever the balance sheet and set us up to refinance our remaining debt at lower interest costs in the future.
We are optimistic about 2017 after the difficulties of the last two years. We have a high degree of confidence that our Haynesville shale assets will provide us the means to achieve strong growth in 2017. Our enhanced completion design has transformed the Haynesville shale into one of North America’s highest return natural gas basins and our acreage position gives us over 700 operated locations. We also entered into a new Haynesville drilling joint venture with a large utility in January 2017, which we can use to acquire additional acreage and grow our inventory of drilling locations. Our natural gas focused Haynesville shale drilling program is expected to provide substantial growth to our production, revenue and cash flow. The successful results fromflow in 2017. Our low cost structure is expected to further improve with new low cost Haynesville shale production.
Our board took appropriate actions in 2015 and 2016 to protect our return to developmentliquidity and the interests of all of our Haynesville/Bossierstakeholders. In 2015 and 2016 we froze salaries and staff levels. Under our 2015 Annual Incentive Plan, our executives earned a 124% payout of target awards based on achievements of our successful Haynesville shale assetsdrilling program. Our board decided that no bonuses should be paid for 2015, so these awards were forfeited. Our board also limited the awards of long-term equity awards made in North Louisiana was the highlight of 2015. We drilled ten enhanced completion horizontal natural gas wells which all had the highest initial production rates of any wells drilled in the Company’s history. The successful drilling program added 161 billion cubic feet2016 to our proved reserves base which offset much of the effect of low oilexecutive officers and gas prices. We were also able to grow our natural gas production by 20% with a limited capital expenditure budget.
2016 Compensation Actions
Given the difficult industry conditions in 2015,independent directors in order to preserve our liquidity the Compensation Committee determined that no employee bonuses would be paid, including awards earned by our
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executive officersshares available under the Annual Incentive Plan. In addition, the value ofour long-term incentive awards madeplan. As the Company is again ramping up its drilling activity in February 2016 was reduced by approximately 70% from LTI grants made in 2015. The2017, the compensation committee choseis returning to reduce the target LTI award valuesour established pay for the following reasons:
Recognition that stockholders experienced significant erosionperformance compensation plans in order to insure employee retention as activity is increasing in the value of their investment in Comstock over the past two years;energy sector.
To preserve the shares remaining in the 2009 Plan and reduce the Company’s equity run rate; and
To mitigate the potential for windfall realized value should the industry and stock price experience a recovery.
Compensation Program Objectives
Our compensation committee has responsibility for establishing and administering the compensation objectives, policies and plans for our executive officers. The compensation program and the executive officers’ compensation are determined by the compensation committee. The committee bases its decisions concerning specific compensation elements and total compensation paid or awarded to our executive officers on several different objectives, which include:
Providing compensation that is competitive with the compensation of companies that have operations similar to us and are in similar markets for executive talent;
Encouraging focus on both short-term and long-term performance, promoting stockholder value through strategic business decisions and the achievement of performance objectives;
Providing performance-based incentive compensation intended to vary with company and individual performance, while appropriately moderating the impact of the cyclical nature of our business; and
Facilitating ownership of our common stock by our executive officers through equity-based incentives so that management’s interests are closely aligned with those of stockholders in terms of both risk and reward.
Our executive team, led by M. Jay Allison, our CEO, and Roland O. Burns, our President and Chief Financial Officer, is highly regarded in the industry. The long tenure of Messrs. Allison and Burns leading our company is a key factor in driving stockholder value. The committee believes it is critical to continually invest in retaining this leadership team, and reward them for performance. Their experience is particularly critical at this time as we continue to strategically position the Company to be more balanced betweenworking through a period of low oil and natural gas production and reserves.prices. The executive team’s compensation will reflect our performance when measured against these objectives.
Our compensation committee held fivethree meetings during 20152016 and it has met three times so far during 2016. In December 2015, the committee approved base salaries for 2016.first quarter of 2017. In February 2016,2017, the achievement of performance-based annual incentives for 20152016 was reviewed and approved and the 2017 LTI awards were approved. In March 2017, the compensation committee report and the CD&A were approved as well as the performance goals for the 2017 Annual Incentive Plan.
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EXECUTIVE COMPENSATION
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Compensation Components
The purpose and key features of each component of our executive compensation program are summarized below:
Component | Objective | Key Features | ||
Base salary | Reflects each executive’s level of responsibility, leadership, tenure, and contribution to the achievement of the Company’s business objectives and is designed to be competitive with our peer group | Fixed compensation that is reviewed annually and adjusted as appropriate. | ||
Annual incentive award | Measures and rewards achievement of short-term performance goals that apply to the annual business plan | Performance-based cash incentives made up 100% of our | ||
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Performance-based restricted stock unit awards (PSUs) | Aligns the long-term interests of our executive officers with our stockholders by determining the number of shares earned for each performance period by our TSR in comparison to the peer group | Performance-based LTI awards represent 25% to 50% of our | ||
Restricted stock awards | Motivates our executive officers to achieve our business objectives by tying incentives to the performance of our common stock over the long term; motivates our executive officers to remain with the Company by mitigating swings in incentive values during periods of high commodity price volatility | Restricted stock awards which vest over three years under which the ultimate value realized varies with our common stock price. Restricted stock awards represent 50% to 75% of our | ||
Executive Life Insurance Program | Provides life insurance protection and retirement savings for our executive officers | The Company’s contributions each year equal 5% of each executive’s salary and prior year’s bonus, used to purchase life insurance coverage. | ||
Employment Agreements | Provide industry appropriate post-termination compensation in certain circumstances to our CEO, President and Chief Operating Officer | Employment agreements |
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Other Benefits | 401(k) Plan participation and employee welfare plan programs designed to be competitive in recruiting and retaining employees | Our executive officers participate in the retirement and welfare plan programs on the same terms as all other employees. |
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EXECUTIVE COMPENSATION
The compensation committee has not established formal policies or guidelines with respect to the mix of base salary, annual cash bonus and stock-based awards to be paid or awarded to the executive officers. In general, the compensation committee believes that a greater percentage of the compensation for our executives should be stock-based awards and should be based on individual and overall corporate performance to align the interests of our executives with our stockholders.
Roles and Responsibilities
In 2015,2016, the compensation committee and the Board made all compensation decisions for the Company’s executive officers including the CEO. The committee retained Meridian Compensation Partners, LLC (“Meridian”) to review our compensation program including peer benchmarking analysis to assess the competitiveness of our compensation levels, design, practices and processes. Meridian is an independent compensation consulting firm and does not provide any other services outside of matters pertaining to executive and director compensation and related corporate governance matters. Meridian reports directly to the compensation committee, which is the sole party responsible for determining the scope of services performed, the directions given regarding the performance of those services, and the approval of the payment of invoices for those services.
The compensation committee has the sole authority to retain or terminate its compensation consultant. The compensation consultant’s role with the Company is limited to executive compensation matters and no such services are performed unless at the direction of and with the approval of the committee. In connection with its engagement of Meridian, the committee considered various factors bearing on their independence, including the amount of fees paid by the Company in 20152016 and the percentage of total revenues they represented; their policies and procedures for preventing conflicts of interest and compliance therewith; any personal and business relationship of any of their personnel with any of our compensation committee members or executive officers; and their policies prohibiting stock ownership by their personnel engaged in any Company matter and the compliance therewith. After reviewing these factors, the compensation committee determined that Meridian is independent and that their engagement did not present any conflict of interest.
Determining Market Compensation
Peer Group
Meridian assisted our compensation committee by making recommendations regarding market compensation. This included recommending an appropriate peer group against which to benchmark our executives’ compensation. Selection of the companies within the peer group was based not only upon the total revenue and market capitalization of companies within the exploration and production industry, but also the core areas in which the companies compete and the complexity of their operations.
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For 2015, the peer group companies utilized by the compensation committee were:
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*Removed from Peer Group for 2015.
During 2015, the stock of Rosetta Resources, Inc. ceased trading on public markets, and accordingly, this company was removed from our peer group for 2015.
For 2016, the compensation committee adopted a new peer group comprised of fifteen companies that have median revenues of approximately $293 million, median assets of $1.4 billion, median market capitalization of $405 million and median enterprise value of $1.2 billion. For 2016, the peer group companies are:were:
Approach Resources Inc. | Eclipse Resources Corporation |
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Bill Barrett Corporation | Jones Energy, Inc. |
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Bonanza Creek Energy, Inc. | Laredo Petroleum, Inc. | Rex Energy Corporation | ||
Callon Petroleum Holdings, Inc. | Matador Resources, Inc. | Stone Energy Corporation | ||
Carrizo Oil & Gas, Inc. | Oasis Petroleum, Inc. | Ultra Petroleum Corp. |
The composition of our peer group is reviewed each year and may change based on business combinations, asset acquisitions and/or sales, and other types of transactions that cause peer companies to no longer exist or no longer be comparable.
Benchmarking Compensation
On an annual basis, the compensation of our executives and all our employees are benchmarked against our peer group and reviewed for market competitiveness. Meridian compiled compensation data for the peer group from a variety of sources, including proxy statements and other publicly filed documents. Peer benchmarking is only one of many
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EXECUTIVE COMPENSATION
considerations used to determine market compensation. Meridian also provided the compensation committee with compensation data from the 20152016 North America Oil and Gas Exploration & Production Compensation Survey, administered by Meridian (data effective as of June 1, 2015)2016).
Determination of Base Salaries
Base salaries for executive officers are based on each individual’s responsibilities, experience and performance, taking into account among other things, the individual’s initiative, contributions to our overall performance, managerial ability and handling of special projects. These same factors are applied to establish base salaries for other key management employees. Base salaries for executive officers generally are reviewed annually for possible adjustment. The compensation committee determines the base salary of our executive officers including the CEO.
In December 2015, our compensation committee reviewed base salaries for all NEOs No salary adjustments were made for 2016 and determined that it would hold their base salaries flat in 2016 based on benchmarking data and currentdue to the industry conditions.
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Determination of Annual Incentives
Annual cash bonuses are provided to promote achievement of our business objectives of increasing stockholder value by growing production and reserves on a profitable basis. All of our full-time employees participate in an annual bonus plan. In 2012, the compensation committee adopted the performance bonus plan, the 2012 Incentive Compensation Plan (the “Annual Incentive Plan”), for the CEO and President. Beginning in 2014, all of our executive officers arewere included in the Annual Incentive Plan. Annual bonus awards are paid from a performance-based bonus pool that will allow for full tax deductibility of the bonuses paid under Section 162(m) of the Internal Revenue Code.
The compensation committee set the funding for the 20152016 performance-based bonus pool at 5%10% of the Company’s EBITDAX (earnings before interest, tax, depreciation, amortization and exploration expense), a measure of profitability that is commonly used within the oil and gas exploration and production industry. Individual bonus awards were determined through the Annual Incentive Plan based on the achievement of financial, strategic and operational objectives. In March 2015,2016, the compensation committee approved target bonus opportunities for the executive officers, expressed as a percentage of their annual base salary. The bonus targets were determined based on the results of Meridian’s competitive benchmarking analysis, and are reviewed annually.
The 20152016 threshold, target, and maximum bonus opportunities for our NEOs that were established by the compensation committee were as follows:
Position | Threshold | Target | Maximum | Threshold | Target | Maximum | ||||||||||||
(Percentage of Annual Base Salary) | (Percentage of Annual Base Salary) | |||||||||||||||||
CEO | 50% | 100% | 200% | 50% | 100% | 200% | ||||||||||||
President | 45% | 90% | 180% | 45% | 90% | 180% | ||||||||||||
Chief Operating Officer | 40% | 80% | 160% | 40% | 80% | 160% | ||||||||||||
General Counsel | 30% | 60% | 120% | 30% | 60% | 120% | ||||||||||||
Vice President of Accounting | 30% | 60% | 120% | |||||||||||||||
Vice President of Corporate Development | 30% | 60% | 120% |
The executives had the opportunity to earn bonus awards within a range of 0% to a maximum of 200% of their target bonus opportunity, based on the Company’s performance relative topre-determined bonus components and goal levels.
For 2015,2016, the bonus components and goal levels were as follows:
Weighting | Threshold | Target | Maximum | |||||||||||||
Production Growth | 20% | 5% over 2014 | 10% over 2014 | 15% over 2014 | ||||||||||||
Capital Efficiency % (Improvement in Finding Costs) | 20% | 15% over 2014 | 20% over 2014 | 30% over 2014 | ||||||||||||
Reserve Replacement % | 20% | 75% | 100% | 125% | ||||||||||||
Other Key Objectives | 40% | |||||||||||||||
* Total Shareholder Return (TSR) | ||||||||||||||||
* Enhancing Liquidity | ||||||||||||||||
* Total Producing costs per Mcfe | ||||||||||||||||
* Leadership Development | ||||||||||||||||
* Execution of Strategic Plan |
Weighting | Threshold | Target | Maximum | |||||
Improvement to Operating Efficiency | 20% | 10% | 20% | 30% | ||||
Improvement to Capital Efficiency | 20% | 10% | 20% | 30% | ||||
Reserve Replacement | 20% | 75% | 100% | 125% | ||||
Other Key Objectives | 40% | |||||||
* Total Shareholder Return (TSR) Relative TSR to Peer Group | ||||||||
* Enhancing Liquidity | ||||||||
* Leadership Development | ||||||||
* Execution of Strategic Plan |
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EXECUTIVE COMPENSATION
Each bonus component was weighted and up to 50% of the weighted portion of target bonus could have been earned for achievement of the threshold goal level; up to 100% could have been earned for achievement of the target goal level; and up to 200% could have been earned for achievement of the maximum goal level. For performance between the threshold, target and maximum goal levels, weighted bonus contributions were determined using straight-line interpolation. If performance for a bonus component was below the threshold goal level, no bonus was earned for that bonus component.
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The Company’s achievement of the defined performance goals in 20152016 was as follows:
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Achievement | % of Target | |||
Improvement to Operating Efficiency | 11% | 60% | ||
Improvement to Capital Efficiency | 90% | 200% | ||
Reserve Replacement | 692% | 200% | ||
Other Key Objectives | Exceeded Target | 150% |
Based on the achievement of goals in 2015,2016, our NEOs would haveexecutives earned payouts of 124%142% of their target awards. Given the difficult industry conditions, the compensation committee decided not to pay employee bonuses for 2015 in order to preserve our liquidity and accordingly no awards were made under the Annual Incentive Plan.
Long-term Incentive Awards
Our executives are eligible to receive long-term incentive awards under our stockholder approved 2009 Plan, which allows the compensation committee to select from among a variety of award vehicles to make individual awards. The committee believes long-term incentive awards align the interests of the executives with the interests of our stockholders, provide competitive total compensation opportunities and support the attraction and retention of key talent.
Restricted stock awards typically vest over three years.One-third of the PSUs granted could be earned based on the Company’s TSR performance relative to a peer group in each ofone-,two- and three-year performance periods. The use of three performance periods allows us to properly manage the shares available for such awards under the 2009 Plan.
During February 2015,2016, the compensation committee approved LTI awards to the executives which consisted of an equal mix ofincluding PSUs and restricted stock. In connection with his return to the Company, the compensation committee awarded 250,000 shares of restricted stock to Mr. Good, our Chief Operating Officer, which vest one third in each of the three subsequent years. In making decisions concerning these awards, the committee considered competitive benchmarking data, the performance of the Company, individual performance, and other factors the committee deemed relevant. The following table reflects the LTI awards made in February 20152016 to our NEOs:
PSU Awards | Restricted Stock Awards | Restricted Stock Awards | PSU Awards | |||||
(Units) | (Shares) | (Shares) | (Units) | |||||
CEO | 44,600 | 44,600 | 74,845 | 24,949 | ||||
President | 26,000 | 26,000 | 43,632 | 14,544 | ||||
Chief Operating Officer | — | 50,000 | 21,875 | 7,292 | ||||
General Counsel | 4,097 | 4,097 | 6,875 | 2,292 | ||||
Vice President of Accounting | 4,097 | 4,097 | ||||||
Vice President of Corporate Development | 5,469 | 1,823 |
To determine the PSUs earned, the committee certifies our TSR relative percentile. The number of shares that may be earned ranges from 0% to 200% of the target PSUs granted. If our relative TSR performance is less than the 20th20th percentile, none of the PSUs are earned. If our relative TSR performance is the 50th50th percentile, 100% of the target PSUs are earned. If our relative TSR performance is at least the 90th90th percentile, 200% of the target PSUs are earned. Earned PSUs are interpolated between threshold, target and maximum performance. The executive’s earned PSUs, as certified annually, are delivered to him in the form of shares of restricted stock, which vest only if the executive remains employed following the end of the three-year performance period. The restricted stock vests over three years,one-third per year from the date of grant.
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The Company’s TSR performance in 20152016 resulted inone-third of the PSU grants awarded in 20122014, 2015 and 20142016 being forfeited by the Company’s executive officers. The remaining 20142015 PSUs could be earned based on the Company’s relative TSR performance against its 2014 peer group for the remaining performance periodsperiod of January 1, 20142015 through
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EXECUTIVE COMPENSATION
December 31, 2016. The Company’s executive officers earned 24% of one-third of the PSU grants awarded in 2015 based on the one year TSR performance at the 27th percentile for the period January 1, 2015 through December 31, 2015.2017. The remaining 20152016 PSUs could be earned based on the Company’s relative TSR performance for the remaining performance periods of January 1, 20152016 through December 31, 20162017 and January 1, 20152016 through December 31, 2017.2018.
Executive Life Insurance Plan
We have an executive life insurance plan for our executive officers. The purpose of this plan is to provide additional life insurance protection to our executive officers and savings for their retirement. Under this plan, we contribute five percent of each participant’s annual cash compensation to purchase a variable universal life insurance policy. Each participant directs the investment of the policy’s cash values among a selection of mutual funds offered by the carrier. During employment, the participants may designate a beneficiary to receive payment of the death benefit (reduced by the amount of the premiums paid by us, which are repaid to us), but have no other rights of ownership in the policy. Upon a participant’s termination of employment, the policy will be transferred to the participant. Contributions to this plan totaled $218,500$166,825 in 2015.2016.
Other Benefits
Our executive officers receive medical, group life insurance and other benefits including matching contributions under our 401(k) plan that are available generally to all of our salaried employees over 21 years of age. We have no defined benefit retirement plans for any of our employees.
Other Matters Affecting Our Executive Compensation
Limitation on Income Tax Deduction for Executive Compensation
Section 162(m) of the Internal Revenue Code generally limits the corporate income tax deduction for compensation paid to each executive officer, other than the Chief Financial Officer, shown in the summary compensation table to $1 million, unless the compensation is “performance-based compensation” and qualifies under certain other exceptions. Our policy is primarily to design and administer compensation plans which support the achievement of long-term strategic objectives and enhance stockholder value. The committee also attempts to structure compensation programs that aretax-advantageous to us to the extent the programs are consistent with our compensation philosophy. Awards of time-vested restricted stock and certain forms of cash compensation do not qualify under Section 162(m). Awards under our Annual Incentive Plan and awards of PSUs are intended to qualify as “performance-based compensation.”
Risk and Our Employee Compensation Program
The compensation committee reviewed the possible relationship between risk and our incentive compensation program for all employees. The compensation committee believes that there are no compensation incentives which encourage excessive risk and are reasonably likely to have a material adverse effect on the Company. The design of our incentive compensation program, which seeks to eliminate any excessive risks, includes (1) basing cash bonuses on the achievement of our business
28
objectives of increasing stockholder value by growing production and reserves on a profitable basis, (2) the vesting of restricted stock awards annually over three years, (3) the use of equity as a significant portion of incentive compensation, and (4) stock ownership and retention requirements for our officers.
Clawback Provisions
Our CEO and President and Chief Financial Officer are currently subject to the forfeiture of bonuses and profits stipulated by Section 304 of the Sarbanes Oxley Act of 2002. In addition, the compensation committee adopted a recoupment policy during 2012 which would allow us to recoup excess incentive compensation from current or former executives at the vice president level or above who received incentive-based compensation during the three year period preceding the date on which we are required to prepare a financial restatement. This policy applies to incentive compensation granted on or after December 1, 2012. Our compensation committee will adopt provisions consistent with the requirements of the Dodd-Frank Act when final regulatory guidance is issued by the SEC.
30 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
EXECUTIVE COMPENSATION
The following table reflects the elements of compensation earned by our named executive officers under our executive compensation programs.
Salary:Values shown represent the base salary earnings of the named executive officers.
Bonus: Values reflect the discretionary cash bonus earned by the named executive officers.
Grant Date Fair Value of Stock Awards: This column represents the grant date fair value of grants of restricted stock and PSUs.
Non-Equity Incentive Plan Compensation: This column represents the cash bonus earned under the Company’s Annual Incentive Plan.
Non-Qualified Deferred Compensation Earnings: This column reflects “above market” earnings onnon-qualified deferred compensation plans. This is the difference between (i) actual earnings on the cash surrender values of universal life insurance policies owned by us insuring each executive under our Executive Life Insurance Plan, and (ii) market interest rates, as determined pursuant to the SEC’s rules.
All Other Compensation: This column represents the value of the additional benefits provided by us that include the employer match under our 401(k) plan, life insurance premiums paid by us for the benefit of certain executive officers and incremental costs incurred for personal use of our corporate aircraft, and the value of insurance provided by the Company.
29
Name and Principal Position | Year | Salary | Grant Date Fair Value of Stock Awards(1) | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation (2) | Total | |||||||||||||||||||||||||||||||||
M. Jay Allison Chief Executive Officer | |
|
| $ $ $ | 802,000 802,000 802,000 |
|
|
|
|
|
|
|
| $ $ $ |
| $ $ | 1,139,081 — 505,260 | $ $ | 115,162 — 78,490 |
| $ $ $ |
|
| |||||||||||||||||
$ $ $ | 2,847,771 3,138,686 3,968,968 | |||||||||||||||||||||||||||||||||||||||
Roland O. Burns President and Chief Financial Officer | |
|
| $ $ $ | 543,500 543,500 543,500 |
| $ $ $ | 343,966 1,267,934 1,425,908 |
| $ $ | 694,740 — 308,165 | $ $ | 57,345 — 19,571 | $ $ $ | 141,362 105,097 49,193 | $ $ $ | 1,780,913 1,916,531 2,346,337 | |||||||||||||||||||||||
Mack D. Good Chief Operating Officer(3) | 2016 2015 2014 | $ $ | 375,000 281,250 — | $ $ | 172,450 1,445,000 — | $ | 426,090 — — | — — — |
| $ $
|
— |
|
|
|
|
| $ $
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
| 1,742,150
— |
| |||||||||||||||||||||||||||||||
D. Dale Gillette Vice President of Legal and General Counsel | |
|
| $ $ $ | 346,000 346,000
|
|
|
|
|
|
|
|
|
| $ $ $ |
| $ $ | 294,854 — 130,788 | $ $ | 4,457 — 9,644 |
| $ $ $ |
| |||||||||||||||||
|
|
| $ $ $ |
|
| |||||||||||||||||||||||||||||||||||
Blaine M. Stribling
|
|
|
| Vice President of Corporate Development |
|
|
| $ $ $ |
|
| $ $ $ |
| $ $ | 221,567 — 98,280 | $ $ | 5,273 — 1,192 |
| $ $ $ |
| $ $ $ | 545,854 434,821 537,059 |
|
(1) | The amounts in this column represent the aggregate grant date fair value of restricted stock grants and grants of PSUs. |
(2) |
|
(3) |
|
|
31 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
EXECUTIVE COMPENSATION
Option Exercises and Stock Vested
There were no stock options exercised during 2016. The following table sets forth certain information with respect to the value of restricted stock and performance share units which vested during the year ended December 31, 2016.
Restricted Stock | Performance Share Units | |||||||||||||||
Name and Principal Position | Number of Shares Acquired on Vesting(#) | Value on Vesting | Number of Shares Acquired on Vesting(#) | Value Realized on Vesting | ||||||||||||
M. Jay Allison Chief Executive Officer | 63,739 | $ | 525,675 | — | — | |||||||||||
Roland O. Burns President and Chief Financial Officer | 29,162 | $ | 231,687 | — | — | |||||||||||
Mack D. Good Chief Operating Officer | 16,667 | $ | 65,001 | — | — | |||||||||||
D. Dale Gillette Vice President of Legal and General Counsel | 4,443 | $ | 34,300 | — | — | |||||||||||
Blaine M. Stribling Vice President of Corporate Development | 3,357 | $ | 25,735 | — | — |
Grants of Plan-Based Awards in Fiscal Year 20152016
In February 2015,March 2016, the compensation committee made the following awards under the Annual Incentive Plan to the NEOs:
Name and Principal Position | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | |||||||||||
Threshold | Target | Maximum | ||||||||||
M. Jay Allison Chief Executive Officer | $ | 401,000 | $ | 802,000 | $ | 1,604,000 | ||||||
Roland O. Burns President and Chief Financial Officer | $ | 244,575 | $ | 489,150 | $ | 978,300 | ||||||
Mack D. Good Chief Operating Officer(1) | $ | 150,000 | $ | 300,000 | $ | 600,000 | ||||||
D. Dale Gillette Vice President of Legal and General Counsel | $ | 103,800 | $ | 207,600 | $ | 415,200 | ||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | $ | 75,000 | $ | 150,000 | $ | 300,000 |
Name and Principal Position | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | |||||||||||
Threshold | Target | Maximum | ||||||||||
M. Jay Allison Chief Executive Officer | $ | 401,000 | $ | 802,000 | $ | 1,604,000 | ||||||
Roland O. Burns President and Chief Financial Officer | $ | 244,575 | $ | 489,150 | $ | 978,300 | ||||||
Mack D. Good Chief Operating Officer(1) | $ | 150,000 | $ | 300,000 | $ | 600,000 | ||||||
D. Dale Gillette Vice President of Legal and General Counsel | $ | 103,800 | $ | 207,600 | $ | 415,200 | ||||||
Blaine M. Stribling Vice President of Corporate Development | $ | 78,000 | $ | 156,000 | $ | 312,000 |
(1) | Mr.Good rejoined the Company in March 2015 following a brief retirement. |
The threshold, target and maximum amounts represent the potential amount payable under the Annual Incentive Plan based upon achievement of the performance goals established for 2015. The compensation committee elected not to pay out any awards from the Annual Incentive Plan for 2015.2016.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 32 |
EXECUTIVE COMPENSATION
30
In February 2015,2016, the compensation committee also made the following equity-based awards under the 2009 Plan to the NEOs:
Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Equity Incentive Plan Awards (Units) | Restricted Stock (Shares) | Restricted Stock (Shares) | Estimated Future Payouts Under Equity Incentive Plan Awards (Units)(2) | Grant Date Fair Value of | ||||||||||||||||||||||||||||||||||||||||||
Name and Principal Position | Grant Date | Threshold(1) | Target(1) | Maximum(1) | Number of shares of Stock(2) | Grant Date Fair Value of Stock Awards(3) | Grant Date | Number of shares of Stock(1) | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||
M. Jay Allison Chief Executive Officer | February 11, 2015 | 22,300 | 44,600 | 89,200 | 44,600 | $ | 2,174,994 | February 9, 2016 | 74,845 | 12,475 | 24,949 | 49,898 | $ | 590,033 | ||||||||||||||||||||||||||||||||
Roland O. Burns President and Chief Financial Officer | February 11, 2015 | 13,000 | 26,000 | 52,000 | 26,000 | $ | 1,267,934 | February 9, 2016 | 43,632 | 7,272 | 14,544 | 29,088 | $ | 343,966 | ||||||||||||||||||||||||||||||||
Mack D. Good Chief Operating Officer(4) | February 23, 2015 | — | — | — | 50,000 | $ | 1,445,000 | |||||||||||||||||||||||||||||||||||||||
Mack D. Good Chief Operating Officer | February 9, 2016 | 21,875 | 3,646 | 7,292 | 14,584 | $ | 172,450 | |||||||||||||||||||||||||||||||||||||||
D. Dale Gillette Vice President of Legal and General Counsel | February 11, 2015 | 2,049 | 4,097 | 8,194 | 4,097 | $ | 199,786 | February 9, 2016 | 6,875 | 1,146 | 2,292 | 4,584 | $ | 54,200 | ||||||||||||||||||||||||||||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | February 11, 2015 | 2,049 | 4,097 | 8,194 | 4,097 | $ | 199,786 | |||||||||||||||||||||||||||||||||||||||
Blaine M. Stribling Vice President of Corporate Development | February 9, 2016 | 5,469 | 912 | 1,823 | 3,646 | $ | 43,114 |
(1) | The restricted stock grants vest one third on each of February 9, 2017, 2018 and 2019. |
This amount represents PSUs granted under our 2009 Plan. PSUs represent the right to receive, upon settlement of the PSUs after the completion of a vesting period, a number of shares of our common stock that may be from zero to two times the number of PSUs granted on the award date, depending on the extent to which our performance criteria have been |
2018. The |
(3) | The grant date fair value of restricted stock awards was based upon the closing price for the |
| ||||
33 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
In February 2016, the compensation committee awarded LTI awards to our named executive officers which included 154,102 restricted share awards that vest one third per year in each of February 2017, 2018 and 2019, and 51,369 performance share unit awards that can be earned one third per year in each of February 2017, 2018 and 2019. The actual number of shares to be earned pursuant to the performance share unit grants ranges from zero to 200% of the awards based on our future TSR performance.
EXECUTIVE COMPENSATION
31
Outstanding Equity Awards at FiscalYear-End
The following table sets forth certain information with respect to the value of outstanding equity awards held by our named executives at December 31, 2015.2016. There were no stock option awards outstanding.
Stock Awards | ||||||||||||||||||||||||
Name and Principal Position | Year of Vesting | Number of Shares of Stock That Have Not Vested(#) | Market Value of Shares of Stock That Have Not Vested(1) | Number of Equity Incentive Awards That Have Not Vested(#)(2) | Market Value of Equity Incentive Awards That Have Not Vested(3) | |||||||||||||||||||
M. Jay Allison Chief Executive Officer | | 2017 2018 2019 |
|
| 41,884 39,816 24,949 |
| $ $ $ |
|
| | 33,302 24,949 |
|
| $ $ |
|
| ||||||||
Roland O. Burns President and Chief Financial Officer | |
|
| 24,418 23,211 14,544 |
| $ $ $ |
|
| |
|
| $ $ |
|
| ||||||||||
Mack D. Good Chief Operating Officer | |
|
|
|
|
| | 23,957 23,960 7,292 |
| $
| 235,976 236,006 71,826 |
| | — — 7,292 | $ | — — 71,826 |
| |||||||
D. Dale Gillette Vice President of | |
|
| 4,037 3,658 2,292 |
| $ $ $ |
|
| |
|
| $ $ | — 30,141 22,575 | |||||||||||
Blaine M. Stribling Vice President of Corporate Development | 2017 2018 2019 | 3,185 2,910 1,823 |
| $ $ $ |
| |||||||||||||||||||
|
|
|
|
|
| |
|
| $ $ |
|
|
(1) | Market value was based on the closing price for our common stock on the last trading day of |
(2) | This column represents the number of outstanding |
(3) | This column represents the payout value for the PSUs which were earned |
|
|
|
|
32
Option Exercises and Stock Vested
There were no stock options exercised during 2015. The following table sets forth certain information with respect to the value of restricted stock and performance share units which vested during the year ended December 31, 2015.
Restricted Stock | Performance Share Units | |||||||||||||||
Name and Principal Position | Number of Shares Acquired on Vesting(#) | Value Realized on Vesting | Number of Shares Acquired on Vesting(#) | Value Realized on Vesting | ||||||||||||
M. Jay Allison Chief Executive Officer | 43,472 | $ | 1,473,393 | — | — | |||||||||||
Roland O. Burns President and Chief Financial Officer | 18,296 | $ | 618,968 | — | — | |||||||||||
Mack D. Good Chief Operating Officer | — | — | — | — | ||||||||||||
D. Dale Gillette Vice President of Land and General Counsel | 2,718 | $ | 91,276 | — | — | |||||||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | 2,477 | $ | 83,155 | — | — |
Nonqualified Deferred Compensation
The following table sets forth certain information with respect to the non-qualified deferred compensation of the named executives in 2015. Under our Executive Life Insurance Plan, we contribute annually five percent of each executive’s annual cash compensation to purchase a variable universal life insurance policy on his life. During employment, he may designate a beneficiary to receive payment of the death benefit (reduced by the amount of the premiums paid by us, which are repaid to us), but has no other rights of ownership in the policy. Upon his having attained four years of service and electing retirement, or upon a change in control, the policy is transferred to him. No withdrawals or distributions were made during 2015.2016.
The following table sets forth certain information with respect to thenon-qualified deferred compensation of the named executives in 2016:
Name and Principal Position | Company Contributions(1) | Aggregate Earnings (Losses)(2) | Aggregate Balance at End of Year | |||||||||
M. Jay Allison Chief Executive Officer | $ | 65,363 | ($ | 2,250) | $ | 2,443,803 | ||||||
Roland O. Burns President and Chief Financial Officer | $ | 42,583 | ($ | 2,626) | $ | 1,214,423 | ||||||
Mack D. Good Chief Operating Officer | — | — | — | |||||||||
D. Dale Gillette Vice President of Land and General Counsel | $ | 23,839 | ($ | 3,010) | $ | 241,402 | ||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | $ | 17,225 | $1,628 | $ | 337,443 |
Name and Principal Position | Company Contributions(1) | Aggregate Earnings (Losses)(2) | Aggregate Balance at | |||||||||
M. Jay Allison Chief Executive Officer | $ | 40,100 | $ | 186,367 | $ | 2,637,228 | ||||||
Roland O. Burns President and Chief Financial Officer | $ | 27,175 | $ | 93,134 | $ | 1,325,516 | ||||||
D. Dale Gillette Vice President of Legal and General Counsel | $ | 17,300 | $ | 11,466 | $ | 259,616 | ||||||
Blaine M. Stribling Vice President of Corporate Development | $ | 13,000 | $ | 6,886 | $ | 59,745 |
(1) | Company contributions have not been included in the Summary Compensation Table for this or any prior years. |
(2) | Above market portion of the aggregate earnings has been included in the Summary Compensation Table in each year. |
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 34 |
EXECUTIVE COMPENSATION
33
Potential Payments upon Termination or Change in Control
Employment Agreements
We have employment agreements with our CEO, President and Chief Operating Officer. The employment agreements provide that our CEO, President and Chief Operating Officer will maintain the confidentiality of our confidential and proprietary information for as long as the information is not publicly disclosed. These agreements include separate provisions wherein our CEO, President and Chief Operating Officer will receive certain prescribed benefits based upon changes in their employment status or in the event of a change in control. The compensation committee believes that it is in our best interests as well as the best interests of our stockholders to offer such benefits to these executive officers. We compete for executive talent in a highly competitive market in which companies routinely offer similar benefits to senior executives. The compensation committee believes that providing change in control benefits to senior executives allows them to evaluate objectively whether a potential change in control transaction is in the best interest of our stockholders, without having to be concerned regarding their future employment. It allows them to focus on the negotiations during such a transaction when we would require thoughtful leadership to ensure a successful outcome.
A “change in control” is defined to include a variety of events, including significant changes in stock ownership, changes in our Board, certain mergers and consolidations, and the sale or disposition of all or substantially all of our consolidated assets.
Potential Payments Upon Termination
Under the employment agreements, we are required to provide compensation to these officers in the event we terminate the executive’s employment without cause or the executive terminates his employment with good reason, including assignment of duties inconsistent with his position or requiring him to be based at another location. If the executive dies, the agreements provide for payment of six months of annualized total compensation (current base salary and target bonus) to the executive’s estate. The agreements provide for the payment of severance benefits if the executive’s employment is terminated by us without cause or by the executive for good reason (other than within twelve months following a change in control) in an amount equal to 150% of the sum of his then current salary and most recent bonus, plus a payment equal to the cost of continued medical benefits for eighteen months. If there is a change in control and, within twelve months thereafter, the executive terminates his employment for good reason or if the executive’s employment is terminated by us without cause, the severance benefit payable to the executive is 299% of the sum of his base salary and highest annual bonus plus a payment equal to the cost of continued medical benefits for eighteen months.
The following tables quantify compensation that would become payable under the employment agreements and other arrangements if the NEO’s employment had terminated on December 31, 2015,2016, based on, where applicable, our closing stock price on that date. Due to the number of factors that affect the amount of any benefits provided upon the events discussed below, actual amounts paid or distributed may be different. Under the 2009 Plan, unvested equity awards will vest for all employees in the event of a change in control or in the event of death or disability. This is reflected in the table “Termination Following a Change in Control” in the “Value of Unvested Stock Awards.” Under our Executive Life Insurance Plan, the NEOs are entitled to receive a distribution of the life insurance policies insuring their lives in the event of termination of employment. This is reflected in the table below in the “Present Value of Deferred Compensation Benefits.”
35 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
EXECUTIVE COMPENSATION
34Involuntary Termination Without Cause or Termination With Good Reason
Name and Principal Position | Salary(1) | Bonus(2) | Present Value of Deferred Compensation Benefits | Continuation of Health Benefits(3) | ||||||||||||
M. Jay Allison Chief Executive Officer | $ | 1,203,000 | — | $ | 2,637,228 | $ | 66,285 | |||||||||
Roland O. Burns President and Chief Financial Officer | $ | 815,250 | — | $ | 1,325,516 | $ | 66,285 | |||||||||
Mack D. Good Chief Operating Officer | $ | 562,500 | — | — | $ | 66,285 | ||||||||||
D. Dale Gillette Vice President of Legal and General Counsel | — | — | $ | 259,616 | — | |||||||||||
Blaine M. Stribling Vice President of Corporate Development | — | — | $ | 59,745 | — |
(1) | Amount equal to 150% of annual base salary. |
(2) | Amount equal to 150% of annual bonus. |
(3) | Amount equal to the cost of continued medical and dental coverage for 18 months. |
Termination Following a Change in Control
Name and Principal Position | Salary(1) | Bonus(2) | Present Value of Deferred Compensation Benefits | Continuation of Health Benefits(3) | Value of Unvested Stock Awards(4) | |||||||||||||||
M. Jay Allison Chief Executive Officer | $ | 2,397,980 | $ | 11,960,000 | $ | 2,443,803 | $ | 59,745 | $ | 1,636,952 | ||||||||||
Roland O. Burns President and Chief Financial Officer | $ | 1,625,065 | $ | 3,976,700 | $ | 1,214,423 | $ | 59,745 | $ | 879,574 | ||||||||||
Mack D. Good Chief Operating Officer | $ | 1,121,250 | $ | 2,137,850 | — | $ | 59,745 | $ | 467,501 | |||||||||||
D. Dale Gillette Vice President of Land and General Counsel | — | — | $ | 241,402 | — | $ | 135,210 | |||||||||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | — | — | $ | 337,443 | — | $ | 131,871 |
Name and Principal Position | Salary(1) | Bonus(2) | Present Value of Deferred | Continuation of Health Benefits(3) | Value of Unvested Stock Awards(4) | |||||||||||||||
M. Jay Allison Chief Executive Officer | $ | 2,397,980 | $ | 11,960,000 | $ | 2,637,228 | $ | 66,285 | $ | 1,624,267 | ||||||||||
Roland O. Burns President and Chief Financial Officer | $ | 1,625,065 | $ | 3,976,700 | $ | 1,325,516 | $ | 66,285 | $ | 946,890 | ||||||||||
Mack D. Good Chief Operating Officer | $ | 1,121,250 | $ | 2,137,850 | — | $ | 66,285 | $ | 615,634 | |||||||||||
D. Dale Gillette Vice President of Legal and General Counsel | — | — | $ | 259,616 | — | $ | 151,087 | |||||||||||||
Blaine M. Stribling Vice President of Corporate Development | — | — | $ | 59,745 | — | $ | 119,926 |
(1) | Amount equal to 299% of annual base salary. |
(2) | Amount equal to 299% of highest bonus paid during the employee’s tenure with the Company. |
(3) | Amount equal to the cost of continued medical and dental coverage for 18 months. |
(4) | The value of the stock awards is based on our December31, |
Involuntary Termination Without Cause
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 36 |
PROPOSAL 4 | ADVISORY VOTE REGARDING THE FREQUENCY OF STOCKHOLDER VOTES ON EXECUTIVE COMPENSATION |
As a result of the Dodd-Frank Act, we are required to provide a separate stockholder advisory vote on the frequency of future stockholder advisory votes approving the compensation of our named executive officers. We are also seeking your input with regard to the frequency of future stockholder advisory votes on our executive compensation programs. In particular, we are asking whether the advisory vote should occur every three years, every two years or Termination With Good Reasonevery year. We ask that you support a frequency period of every three years for futurenon-binding stockholder votes on compensation of our named executive officers. An advisory vote every three years will be the most effective timeframe for us to respond to stockholders’ feedback and provide us with sufficient time to engage with stockholders to understand and respond to the vote results. We also believe a vote every three years would more closely align with the multi-year performance measurement cycle we use to reward long-term performance. Our executive compensation programs are based on our long-term business strategy, which is more appropriately reflected within a three year timeframe.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting.
Name and Principal Position | Salary(1) | Bonus(2) | Present Value of Deferred Compensation Benefits | Continuation of Health Benefits(3) | ||||||||||||
M. Jay Allison Chief Executive Officer | $ | 1,203,000 | — | $ | 2,443,803 | $ | 59,745 | |||||||||
Roland O. Burns President and Chief Financial Officer | $ | 815,250 | — | $ | 1,214,423 | $ | 59,745 | |||||||||
Mack D. Good Chief Operating Officer | $ | 562,500 | — | — | $ | 59,745 | ||||||||||
D. Dale Gillette Vice President of Land and General Counsel | — | — | $241,402 | — | ||||||||||||
Daniel K. Presley Vice President of Accounting, Controller and Treasurer | — | — | $337,443 | — |
Because this vote is advisory and not binding on the Board of Directors, the Board may decide that it is in the best interests of our stockholders and the company to hold an advisory vote on executive compensation more or less frequently than the option selected by our stockholders in the advisory vote.
The Board of Directors unanimously recommends a vote for EVERY THREE YEARS as the frequency with which stockholders are provided an advisory vote on executive compensation, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission.
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37 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
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35
The Board does not know of any business that will properly come before the SpecialAnnual Meeting other than that described above. If any other business should properly come before the SpecialAnnual Meeting, it is intended that the shares represented by proxies will be voted in accordance with the judgment of the persons named in the proxies.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our executive officers, directors and persons who own more than 10% of our common stock to file with the SEC and the NYSE initial reports of ownership of our common stock and other equity securities, and reports of certain transactions in our securities. Such persons are required by the SEC regulations to furnish us with copies of all Section 16(a) forms they file. The SEC regulations require us to identify anyone who filed a required report late during the most recent fiscal year. Based solely on our review of the reports and any written representations we received that no other reports were required, we believe that, during the year ended December 31, 2016, all of our officers, directors and stockholders with ownership of 10% or greater complied with all Section 16(a) filing requirements applicable to them, except Carl H. Westcott, a 10% beneficial owner, filed a Form 4 on May 20, 2016 reporting a transaction that occurred on May 16, 2016.
Stockholder Proposals and Nominations for the 20172018 Annual Meeting
Any stockholder who desires to submit a proposal or director nominee for consideration at our annual meeting of stockholders in 20172018 and wishes to have such proposal or nominee included in our proxy materials must submit the proposal or nominee to us at our principal executive offices no later than December 4, 20162017 unless we notify the stockholder otherwise. Only those proposals or nominations that are timely received by our Corporate Secretary and proper for stockholder action (and otherwise in accordance with Rule14a-8 of the Exchange Act) will be included in our proxy materials. Such written notice must set forth (i) the name and address of the stockholder who intends to bring business before the meeting; (ii) the specific nature of the business he or she seeks to bring before the meeting; and (iii) a representation that the stockholder is a holder of record of our shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to bring the business specified in the notice before the meeting.
Written request for inclusion of any stockholder proposal or director nomination should be addressed to: Roland O. Burns, Corporate Secretary, Comstock Resources, Inc., 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034. We recommend that such proposal be sent by certified mail, return receipt requested. Any stockholder who intends to bring business to the annual meeting of stockholders in 20172018 (including any director nominations), but not include the business in our proxy statement, must give written notice to our Corporate Secretary at the address set forth above by not earlier than January 26, 201716, 2018 and not later than February 25, 2017.15, 2018. Such notice must comply in all respects with the requirements set forth in our bylaws.
There were no stockholder proposals submitted for the 2017 Annual Meeting.
We haveThe Company has provided proxy materials to banks, brokers, and other financial fiduciaries and requested that such materials be promptly forwarded to the beneficial owners of common stock. The Company has engaged Advantage Proxy to assist with the solicitation of proxies for a fee of approximately $7,500 plus reimbursement forout-of-pocket expenses. In addition, solicitation of proxies may be made by directors, officers or employees of the Company for no additional compensation. The cost of soliciting proxies and related services will be borne by us.the Company.
COMSTOCK RESOURCES, INC. - 2017 Proxy Statement | 38 |
ADDITIONAL INFORMATION
Electronic Delivery of Proxy Statement and Annual Report
Stockholders who received printed copies of the proxy materials can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail. You can choose this option and save Comstock the cost of producing and mailing these documents, reduce the amount of mail you receive and help preserve environmental resources.
You may sign up for this option by:
following the instructions provided on your proxy card; or
following the instructions provided when you vote over the Internet.
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If you choose to view future proxy statements and annual reports over the Internet and you are a street-name stockholder as of the applicable record date, you will receive ane-mail message next year containing the Internet address to use to access Comstock’s proxy statement and annual report. Thee-mail also will include instructions for voting over the Internet. You will have the opportunity to opt out at any time by following the instructions on www.proxyvoting.com. You do not have tore-elect Internet access each year.
Householding of SpecialAnnual Meeting Materials
Unless we have received contrary instructions, we may send a single copy of this Proxy Statementproxy statement and Noticenotice of Special Meetingannual meeting to any household at which two or more stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at any one household and helps to reduce our expenses. However, if stockholders prefer to receive multiple sets of our disclosure documents at the same address this year or in future years, the stockholders should follow the instructions described below, and we will send a separate copy to each stockholder.
If the shares are registered in the name of the stockholder, the stockholder should contact us at 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034, Attn: Investor Relations, telephone number(800) 877-1322 to inform us of their request. If a bank, broker or other nominee holds the shares, the stockholder should contact the bank, broker or other nominee directly.
A list of stockholders of record will be available for examination at ourthe Company’s corporate headquarters during normal business hours for a period of ten days prior to the SpecialAnnual Meeting.
ANNUAL REPORT ON FORM10-K
We are mailing our 2016 Annual Report on Form10-K to stockholders who elected to receive a printed copy of this Proxy Statement. Additional copies of our Annual Report on Form10-K for the year ended December 31, 2016 are available without charge from our Investor Relations Department.
Our SEC filings, including our 2016 Annual Report on Form10-K, are available online, at no charge, atwww.comstockresources.com, Investors, SEC Filings, or through the Securities and Exchange Commission’s website atwww.sec.gov.
Roland O. Burns
Secretary
Frisco, Texas
September 29, 2016
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39 | COMSTOCK RESOURCES, INC. - 2017 Proxy Statement |
COMSTOCK RESOURCES, INC.
SPECIALANNUAL MEETING OF STOCKHOLDERS
November 8, 2016May 16, 2017
10:00 a.m.
at the Company Headquarters
Directions to
Comstock Resources, Inc.
5300 Town and Country Blvd., Suite 500300
Frisco, Texas 75034
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Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
1. Name of corporation:
COMSTOCK RESOURCES, INC.
2. The articles have been amended as follows:(provide article numbers, if available)
BE IT RESOLVED, that Article Fourth of the Restated Articles of Incorporation of the Corporation be amended to read in its entirety as follows:
“FOURTH: That the amount of the total of the authorized capital stock of the corporation is Eighty Million (80,000,000) shares of which Seventy-Five Million (75,000,000) shares are Common Stock, Fifty Cents ($.50) par value per share, and Five Million (5,000,000) shares are Preferred Stock, Ten Dollars ($10.00) par value per share. The shares of Common Stock shall be identical in all respects and shall have one vote per share on all matters on which stockholders are entitled to vote. The Preferred Stock may be issued in one or more series; shares of each series shall be identical in all respects and shall have such voting, dividend, conversion and other rights, and such preferences and privileges as may be determined by resolution of the Board of Directors of the corporation.”
3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is: [ ] for, [ ] against
4. Effective date and time of filing: (optional) Date: Time:
(must not be later than 90 days after the certificate is filed)
5. Signature: (required)
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*If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof.
IMPORTANT:Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
This form must be accompanied by appropriate fees.
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COMSTOCK RESOURCES, INC.
2009 Long-term Incentive Plan
Amended and Restated Effective as of November 8, 2016
I. GENERAL
1.Purpose. The COMSTOCK RESOURCES, INC. 2009 Long-term Incentive Plan (the “Plan”) has been established by COMSTOCK RESOURCES, INC. (the “Company”) to:
(a) attract and retain key executive and managerial employees;
(b) motivate participating employees, by means of appropriate incentive, to achieve long-range goals;
(c) attract and retain well-qualified individuals to serve as members of the Company’s Board of Directors;
(d) provide incentive compensation opportunities which are competitive with those of other public corporations; and
(e) further align Participants’ interests with those of the Company’s other stockholders through compensation alternatives based on the Company’s common stock;
and thereby promote the long-term financial interest of the Company and its Subsidiaries, including the growth in value of the Company’s equity and enhancement of long-term shareholder return.
2.Effective Date. The Plan was originally effective May 19, 2009, upon approval by the stockholders at the Company’s 2009 annual meeting and was mostly recently amended and restated effective May 7, 2015, upon approval by the stockholders at the Company’s 2015 annual meeting. The Plan, as further amended and restated, is effective November 8, 2016, upon approval by the stockholders at a special meeting of stockholders on November 8, 2016.
3.Definitions. The following definitions are applicable to the Plan.
“Award” means the grant of any Stock Option, share of Restricted Stock, Restricted Stock Unit, Performance Unit or Stock Appreciation Right under the Plan pursuant to the terms, conditions, and limitations that the Committee may establish in order to fulfill the objectives of the Plan.
“Board” means the Board of Directors of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Board.
“Disability” means the inability of a Participant, by reason of a physical or mental impairment, to engage in any substantial gainful activity, of which the Committee shall be the sole judge.
“Effective Date” means November 8, 2016, with respect to this Amendment and Restatement. The original “Effective Date” was May 19, 2009.
“Fair Market Value” of any Stock means, as of any date, the last sale price for such Stock as reported by the New York Stock Exchange on the date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded.
“Non-employee Director” means each member of the Board who is not an employee of the Company.
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“Option Date” means, with respect to any Stock Option, the date on which the Stock Option is awarded under the Plan.
“Participant” means any employee or Non-employee Director of the Company or any Subsidiary who is selected by the Committee to participate in the Plan.
“Performance Unit” shall have the meaning ascribed to it in Part V.
“Permitted Transferees” means members of the immediate family of the Participant, trusts for the benefit of such immediate family members, and partnerships in which substantially all of the interests are held by the Participant and members of his or her immediate family. An immediate family member shall mean any descendant (children, grandchildren and more remote descendants), including step-children and relationships arising from legal adoption, and any spouse of a Participant or a Participant’s descendant.
“Related Company” means any corporation during any period in which it is a Subsidiary, or during any period in which it directly or indirectly owns 50% or more of the total combined voting power of all classes of stock of the Company that are entitled to vote.
“Restricted Period” has the meaning ascribed to it in Part IV.
“Restricted Stock” has the meaning ascribed to it in Part IV.
“Retirement” means (i) Termination of Service in accordance with the retirement procedures set by the Company from time to time; or (ii) a Termination of Service voluntarily with the consent of the Company (of which the Committee shall be the sole judge).
“Stock” means the Company’s common stock, $.50 par value per share.
“Stock Appreciation Right” has the meaning ascribed to it in Part VI.
“Stock Option” means the right of a Participant to purchase Stock pursuant to an Incentive Stock Option or Non-Qualified Option awarded pursuant to the provisions of the Plan.
“Subsidiary” means any corporation during any period of which 50% or more of the total combined voting power of all classes of stock entitled to vote is owned, directly or indirectly, by the Company.
“Termination of Service” means the termination of employment of an employee by the Company and all Subsidiaries or the termination of service by a Non-employee Director as a member of the board of directors of the Company and all Subsidiaries. A Participant’s service shall not be deemed to have terminated because of a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service. Furthermore, a Participant’s service with the Company shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company or a Subsidiary; provided, however, that if any such leave exceeds 90 days, on the 91st day of such leave the Participant’s service shall be deemed to have terminated unless the Participant’s leave of absence is approved by the Committee. The Participant’s service shall be deemed to have terminated upon the entity for which the Participant performs service ceasing to be a Subsidiary (or any successor). Subject to the foregoing, the Company, in its discretion, shall determine whether a Participant’s service has terminated and the effective date of such termination.
4.Administration. The authority to manage and control the operation and administration of the Plan shall be vested in the Committee. Subject to the provisions of the Plan, the Committee will have authority to select Participants to receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms,
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conditions, performance criteria, restrictions, and other provisions of such Awards, to determine the number and value of Performance Units awarded and earned, and to cancel or suspend Awards. In making such determinations, the Committee may take into account the nature of services rendered by the Participant, his or her present and potential contribution to the Company’s success and such other factors as the Committee deems relevant. The Committee is authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Committee, shall be the acts of the Committee, unless provisions to the contrary are embodied in the Company’s Bylaws or resolutions duly adopted by the Committee. All actions taken and decisions and determinations made by the Committee pursuant to the Plan shall be binding and conclusive on all persons interested in the Plan. No member of the Board or the Committee shall be liable for any action or determination taken or made in good faith with respect to the Plan.
5.Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, the key executives, managerial employees, and Non-employee Directors of the Company and/or its Subsidiaries who will participate in the Plan. In the discretion of the Committee, a Participant may be awarded Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Performance Units or any combination thereof, and more than one Award may be granted to a Participant. Except as otherwise agreed to by the Company and the Participant, any Award under the Plan shall not affect any previous Award to the Participant under the Plan or any other plan maintained by the Company or its Subsidiaries.
6.Shares Subject to the Plan. The shares of Stock with respect to which Awards may be made under the Plan shall be either authorized and unissued shares or authorized and issued shares held in the treasury by the Company (including, in the discretion of the Committee, shares purchased in the market).
(a)Shares Reserved for Awards. Effective as of November 8, 2016, and subject to equitable adjustment under the provisions of paragraph I.11, the number of shares of Stock available under the Plan for the grant of Awards shall not exceed 3,510,000 shares in the aggregate. If, for any reason, any Award under the Plan otherwise distributable in shares of Stock, or any portion of the Award, shall expire, terminate or be forfeited or canceled, or be settled in cash pursuant to the terms of the Plan and, therefore, any such shares are no longer distributable under the Award, such shares of Stock shall again be available for award under the Plan.
(b)Annual Limit on Grants to Employees. Subject to the provisions of paragraph I.11, the number of shares of Stock with respect to which Stock Options or Stock Appreciation Rights under the Plan may be granted in any calendar year to any employee shall not exceed 1,000,000 shares.
7.Terms of Awards. Awards may be granted generally on the terms and conditions set forth in Parts II through VI. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine and specify in the Award Agreement.
(a)Minimum Vesting Requirements. Awards granted under the Plan shall be subject to the following minimum vesting requirements. If the vesting of an Award is not based on the achievement of one or more performance conditions, such Award will vest over a minimum period of three years after the date of grant. If the vesting of an Award is based on the achievement of one or more performance
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conditions, such Award will vest over a minimum period of one year after the date of grant. For purposes of this paragraph I.7(a), (i) vesting over a three-year period will include periodic graded vesting over such period; and (ii) notwithstanding those requirements, up to five percent (5%) of the shares reserved for Awards under the Plan, or 175,500 shares, subject to the provisions of paragraph I.11, may be granted as non-performance-based Awards with vesting terms not conforming to the three-year minimum vesting requirement. Notwithstanding the foregoing, these minimum vesting requirements may be accelerated or waived in the event of a Participant’s death or Disability, or in the event of a Change in Control of the Company.
(b)Maximum Term of Awards. The terms of each Award shall be for such period as may be determined by the Committee, except that the term of any Stock Option or Stock Appreciation Right shall not exceed ten years from the date of grant of the Award.
8.Compliance With Applicable Laws and Withholding of Taxes. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares of Stock under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar authority. Prior to the issuance of any shares of Stock under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing as amended, the shares. In the case of a Participant who is subject to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, the Committee may, at any time, add such conditions and limitations to any election to satisfy tax withholding obligations through the withholding or surrender of shares of Stock as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom. All Awards and payments under the Plan to employees are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Committee, through the surrender of shares of Stock which the Participant already owns, or to which a Participant is otherwise entitled under the Plan.
9.Transferability. Incentive Stock Options, Performance Units, and, during the period of restriction, Restricted Stock awarded under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution. Incentive Stock Options may be exercised during the lifetime of the Participant only by the Participant or his guardian or legal representative. If expressly permitted by the terms of the Award Agreement, Non-Qualified Stock Options may be transferred by a Participant to Permitted Transferees, provided that there is not any consideration for the transfer.
10.Employment and Stockholder Status. The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary. The Plan does not constitute or serve as evidence of an agreement or understanding, express or implied, that the Company will retain a director for any period of time. Subject to the provisions of paragraph IV.3(a), no award under the Plan shall confer upon the holder thereof any right as a stockholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of shares of Stock. If the redistribution of shares is restricted pursuant to paragraph I.8, certificates representing such shares may bear a legend referring to such restrictions.
11.Adjustments to Number of Shares Subject to the Plan. In the event of any change in the outstanding shares of Stock of the Company by reason of any Stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, exchange of shares or other similar change, the aggregate number of shares of Stock with respect to which Awards may be made under the Plan, the terms and the number of shares of any outstanding Stock Options, Stock Appreciation Rights, Restricted Stock,
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Restricted Stock Units and Performance Units, and the purchase price or base price of a Stock Option or Stock Appreciation Right, shall be equitably adjusted by the Committee in its sole discretion.
12.Change in Control. Notwithstanding any other provision of the Plan, in the event of a “Change in Control”, all outstanding Stock Options, Stock Appreciation Rights and Restricted Stock will automatically become fully exercisable and/or vested and Performance Units may be paid out in such manner and amounts as determined by the Committee. A “Change in Control” of the Company shall be deemed to have taken place if:
(a) a third person shall cause or bring about (through solicitation of proxies or otherwise) the removal or resignation of a majority of the then existing members of the Board or if a third person causes or brings about (through solicitation of proxies or otherwise) an increase in the size of the Board such that the then existing members of the Board thereafter represent a minority of the total number of persons comprising the entire Board;
(b) a third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the beneficial owner of shares of any class of the Company’s stock having 20% or more of the total number of votes that may be cast for the election of directors of the Company; or
(c) the Company shall merge with or consolidate into any other corporation, pursuant to which the Company does not survive or survives only as a subsidiary of another corporation, or the Company disposes of all or substantially all of the assets of the Company, or any combination of the foregoing.
For purposes hereof, a person will be deemed to be the beneficial owner of any voting securities of the Company which it would be considered to beneficially own under Securities and Exchange Commission Rule 13d-3 (or any similar or superseding statute or rule from time to time in effect).
13.Agreement With Company. At the time of any Awards under the Plan, the Committee will require a Participant to enter into an agreement (the “Award Agreement”) with the Company in a form specified by the Committee, agreeing to the terms and conditions of the Plan and to such additional terms and conditions, not inconsistent with the Plan, as the Committee may, in its sole discretion, prescribe.
14.Amendment and Termination of Plan.
(a) Subject to the following provisions of this paragraph 14, the Board may at any time and in any way amend, suspend or terminate the Plan. No amendment of the Plan and, except as provided in paragraph I.11, no action by the Board shall, without further approval of the stockholders of the Company, materially increase the total number of shares of Stock with respect to which Awards may be made under the Plan, materially increase the benefits accruing to Participants under the Plan or materially modify the requirements as to eligibility for participation in the Plan, if stockholder approval of such amendment is a condition to the availability of the exemption provided by Securities and Exchange Commission Rule 16b-3 or of the Code at the time such amendment is adopted. No amendment, suspension or termination of the Plan shall alter or impair any Award previously made under the Plan without the consent of the holder thereof.
(b) No Awards may be granted hereunder after the date that is ten (10) years from the earlier of (a) the Effective Date and (b) the date the Plan is approved by the stockholders of the Company.
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(c) Neither the Board nor the Committee may, without further approval of the stockholders of the Company, reduce the exercise price of a Stock Option or the grant value of a Stock Appreciation Right, except in accordance with the adjustments pursuant to paragraph I.11. Neither the Board nor the Committee may accelerate the vesting of an Award, except in the event of a Participant’s death or Disability. Neither the Board nor the Committee shall offer a cash buy-out of “underwater” Stock Options, and such buyouts of “underwater” Stock Options and shall be prohibited.
15.Prohibition on Deferred Compensation. It is the intention of the Company that no Award shall be “deferred compensation” subject to Code Section 409A unless and to the extent that the Committee specifically determines otherwise, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly. The terms and conditions governing any Awards that the Committee determines will be subject to Code Section 409A, including any rules for elective or mandatory deferral of the delivery of cash or Shares pursuant thereto, shall be set forth in the applicable Award Agreement, and shall comply in all respects with Code Section 409A. Notwithstanding any provision herein to the contrary, any Award issued under the Plan that constitutes a deferral of compensation under a “nonqualified deferred compensation plan” as defined under Code Section 409A(d)(1) and is not specifically designated as such by the Committee shall be modified or cancelled to comply with the requirements of Code Section 409A, including any rules for elective or mandatory deferral of the delivery of cash or Shares pursuant thereto.
II. INCENTIVE STOCK OPTIONS
1.Definition. The Award of an Incentive Stock Option under the Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Part II.
2.Eligibility. The Committee shall designate the Participants to whom Incentive Stock Options, as described in Code Section 422(b) or any successor section thereto, are to be awarded under the Plan and shall determine the number of option shares to be offered to each of them. Incentive Stock Options shall be awarded only to key employees of the Company, and no Non-employee Director shall be eligible to receive an Award of an Incentive Stock Option. In no event shall the aggregate Fair Market Value (determined at the time the option is awarded) of Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year (under all plans of the Company and all Related Companies) exceed $100,000.
3.Price. The purchase price of a share of Stock under each Incentive Stock Option shall be determined by the Committee, provided, however, that in no event shall such price be less than the greater of (a) 100% of the Fair Market Value of a share of Stock as of the Option Date (or 110% of such Fair Market Value if the holder of the Incentive Stock Option owns stock possessing more than 10% of the combined voting power of all classes of stock of the Company or any Related Company) or (b) the par value of a share of Stock on such date. To the extent provided by the Committee, the full purchase price of each share of Stock purchased upon the exercise of any Incentive Stock Option shall be paid in cash or in shares of Stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be delivered to the person entitled thereto.
4.Exercise. No Incentive Stock Option may be exercised by a Participant after the Expiration Date (as defined in paragraph II.5 below) applicable to that option. Each Stock Option shall become and be exercisable at such time or times and during such period or periods, in full or in such installments as may be determined by the Committee at the Option Date.
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5.Option Expiration Date. The “Expiration Date” with respect to an Incentive Stock Option or any portion thereof awarded to a Participant under the Plan means the earliest of:
(a) the date that is 10 years after the date on which the Incentive Stock Option is awarded;
(b) the date established by the Committee at the time of the Award;
(c) the date that is one year after the Participant’s employment with the Company and all Related Companies is terminated because of death or permanent and total disability; as defined in Code Section 22(e)(3); or
(d) the date that is three months after the date the Participant’s employment with the Company and all Related Companies is terminated for reasons other than death or permanent and total disability.
III. NON-QUALIFIED STOCK OPTIONS
1.Definition. The Award of a Non-Qualified Stock Option under the Plan entitles the Participant to purchase shares of Stock at a price fixed at the time the option is awarded, subject to the following terms of this Part III.
2.Eligibility. The Committee shall designate the Participants to whom Non-Qualified Stock Options are to be awarded under the Plan and shall determine the number of option shares to be offered to each of them.
3.Price. The purchase price of a share of Stock under each Non-Qualified Stock Option shall be determined by the Committee; provided, however, that in no event shall such price be less than the greater of (a) 100% of the Fair Market Value of a share of Stock as of the Option Date or (b) the par value of a share of such Stock on such date. To the extent provided by the Committee, the full purchase price of each share of Stock purchased upon the exercise of any Non-Qualified Stock Option shall be paid in cash or by tendering, by either actual delivery of shares or by attestation, shares of Stock (valued at Fair Market Value as of the day of exercise), or in any combination thereof, at the time of such exercise. Shares of Stock acquired pursuant to the exercise of a Non-Qualified Stock Option shall be subject to such conditions, restrictions and contingencies as the Committee may establish in the Award Agreement. If the Company shall have a class of its Stock registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, an option holder may also make payment at the time of exercise of a Non-Qualified Stock Option by delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker approved by the Company, that upon such broker’s sale of shares of Stock with respect to which such option is exercised, it is to deliver promptly to the Company the amount of sale proceeds necessary to satisfy the option exercise price and any required withholding taxes.
4.Exercise. No Non-Qualified Stock Option may be exercised by a Participant after the Expiration Date applicable to that option. Unless otherwise specified herein, each Stock Option shall become and be exercisable at such time or times and during such period or periods, in full or in such installments as may be determined by the Committee at the Option Date.
5.Stock Option Expiration Date. The “Expiration Date” with respect to a Non-Qualified Stock Option or any portion thereof awarded to a Participant under the Plan means the earliest of:
(a) the date that is 10 years after the date on which the Non-Qualified Stock Option is awarded;
(b) the date established by the Committee at the time of the Award;
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(c) the date that is three months after the employee Participant’s employment with the Company and all Subsidiaries or the Non-employee Director Participant’s service as a member of the Board is terminated for reasons other than Retirement, Disability or death; or
(d) the date that is three years after the date the employee Participant’s employment with the Company and all Subsidiaries or the Non-employee Director Participant’s service as a member of the Board is terminated by reason of Retirement, Disability or death.
IV. RESTRICTED STOCK
1.Definition. Restricted Stock Awards are grants of Stock to Participants, the vesting of which is subject to a required period of employment and any other conditions established by the Committee or by the terms of this Plan.
2.Eligibility. The Committee shall designate the Participants to whom Restricted Stock is to be awarded and the number of shares of Stock that are subject to the Award.
3.Terms and Conditions of Awards. All shares of Restricted Stock awarded to Participants under the Plan shall be subject to the following terms and conditions and to such other terms and conditions, not inconsistent with the Plan, as shall be prescribed by the Committee in its sole discretion and as shall be contained in the Award Agreement.
(a) Restricted Stock awarded to Participants may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, for a period of ten years or such shorter period as the Committee may determine, but no less than one year, after the time of the award of such Stock (the “Restricted Period”). Such restrictions shall lapse as to the Restricted Stock in accordance with the time(s) and number(s) of shares as to which the Restricted Period expires, as set forth in the Award Agreement with the Participant. Except for such restrictions, the Participant as owner of such shares shall have all the rights of a stockholder, including but not limited to the right to vote such shares and, except as otherwise provided by the Committee, the right to receive all dividends paid on such shares.
(b) An employee Participant whose employment with the Company and all Subsidiaries terminates prior to the end of the Restricted Period other than by reason of death or Disability shall forfeit all shares of Restricted Stock remaining subject to any outstanding Restricted Stock Award which have not then vested in accordance with the Award Agreement. Notwithstanding the foregoing and the provisions of paragraph I.7(a) hereof, the Committee may in its discretion accelerate the vesting of shares of Restricted Stock in the event of a Participant’s death or Disability.
(c) Each certificate issued in respect of shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and, at the discretion of the Committee, each such certificate may be deposited in a bank designated by the Committee. Each such certificate shall bear the following (or a similar) legend:
“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the COMSTOCK RESOURCES, INC. 2009 Long-term Incentive Plan and an agreement entered into between the registered owner and COMSTOCK RESOURCES, INC. A copy of such plan and agreement is on file in the office of the Secretary of COMSTOCK RESOURCES, INC., 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034 or, if the Company changes its principal office, at the address of such new principal office.”
(d) As the Restricted Period for Restricted Stock expires and such restrictions lapse, such Restricted Stock shall be held by a Participant (or his or her legal representative, beneficiary or heir) free of all
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restrictions imposed by the Plan and the Award Agreement. Such shares shall nevertheless continue to be subject to any restriction imposed under applicable securities laws.
V. RESTRICTED STOCK UNITS AND PERFORMANCE UNITS
1.Definition. A “Restricted Stock Unit” Award is the grant of a right to receive shares of Stock in the future. Performance Units are Awards to Participants who may receive value for the units at the end of a Performance Period. The number of units earned, and value received for them, will be contingent on the degree to which the performance measures established at the time of the initial Award are met. The term “Performance Units” as used in Parts I through IV and Part VII of the Plan shall be deemed to include both Restricted Stock Units and Performance Units.
2.Eligibility. The Committee shall designate the Participants to whom Restricted Stock Units or Performance Units are to be awarded, and the number of units to be the subject of such Awards.
3.Terms and Conditions of Awards. For each Participant, the Committee will determine the timing of Awards; the number of Restricted Stock Units or Performance Units awarded; the value of Performance Units, which may be stated either in cash or in shares of Stock; the performance measures used for determining whether the Performance Units are earned; the performance period during which the performance measures will apply; the relationship between the level of achievement of the performance measures and the degree to which Performance Units are earned; whether, during or after the performance period, any revision to the performance measures or performance period should be made to reflect significant events or changes that occur during the performance period; the number of earned Performance Units that will be paid in cash and/or shares of Stock; and whether dividend equivalents will be paid on Restricted Stock Units, either currently or on a deferred basis.
4.Payment. The Committee will compare the actual performance to the performance measures established for the performance period and determine the number of Performance Units to be paid and their value. Payment for Performance Units earned shall be wholly in cash, wholly in Stock or in a combination of the two, in a lump sum or installments, and subject to vesting requirements and such other conditions as the Committee shall determine. The Committee will determine the number of earned units to be paid in cash and the number to be paid in Stock. For Performance Units awarded in shares of Stock, one share of Stock will be paid for each unit earned. For Performance Units awarded in cash, cash will be paid for each unit earned equal to (a) its initial cash value, (b) the Fair Market Value of a share of Stock at the end of the performance period or (c) the Fair Market Value of a share of Stock averaged for a number of days determined by the Committee.
(a)Death or Disability. Notwithstanding the provisions of paragraph I.7(a) hereof, the Committee may in its discretion accelerate the vesting of Restricted Stock Units in the event of a Participant’s death or Disability. A Participant whose employment with the Company and all Subsidiaries, or service as a member of the Board, terminates during a performance period because of Disability or death shall be entitled to the prorated value of earned Performance Units issued with respect to that performance period, at the conclusion of the performance period based on the ratio of the months of service during the period to the total months of the performance period. If an employee Participant’s employment with the Company and all Subsidiaries terminates, or if a Non-employee Director Participant’s service terminates, during a performance period for any reason other than Disability or death, the Performance Units issued with respect to that performance period will be forfeited on the date such Participant’s employment or service terminates.
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VI. STOCK APPRECIATION RIGHTS
1.Definition. A Stock Appreciation Right is an Award that entitles the Participant to receive an amount equal to the difference between the Fair Market Value of the shares of Stock at the time of exercise of the Stock Appreciation Right and the Fair Market Value of the shares of Stock on the date of grant of the Stock Appreciation Right, subject to the following provisions of this Part VI. Upon the grant of Stock Appreciation Rights that are to be settled in shares of Stock, the number of Stock Appreciation Rights awarded (and not the “net” number of shares of Stock issued upon exercise of the Stock Appreciation Rights) shall be considered awarded from the pool of authorized shares of Stock available under the Plan.
2.Exercise. A Stock Appreciation Right may be exercised under the applicable terms and conditions of the Award Agreement. A Stock Appreciation Right shall entitle the Participant to receive, upon the exercise of the Stock Appreciation Right, either cash or shares of Stock (valued at their Fair Market Value at the time of exercise), as specified in the Award Agreement, in an amount equal in value to the excess of the Fair Market Value of the shares of Stock subject to the Stock Appreciation Right as of the date of such exercise over the Fair Market Value of the shares of Stock as of the date of grant of the Stock Appreciation Right.
3.Expiration Date. The “Expiration Date” with respect to a Stock Appreciation Right shall be determined by the Committee, but shall not be more than 10 years after the date on which the Stock Appreciation Right is awarded. If the Stock Appreciation Right is not exercised before the end of the day on which the Stock Appreciation Right ceases to be exercisable, such Stock Appreciation Right shall be deemed exercised as of such date and payment shall be made to the holder in cash or shares of Stock (valued at their Fair Market Value at the time of exercise), as specified in the Award Agreement.
VII. SECTION 162(m) PERFORMANCE AWARDS
1.Maximum Award. The maximum aggregate Award of Performance Units that a Participant may receive in any one Fiscal Year shall be 750,000 Shares, if stated in shares of Stock, or $10,000,000, if stated in cash, determined as of the date of the Award.
2.Code Section162(m) Compliance. Notwithstanding any other terms of this Plan, the vesting, payout or value (as determined by the Committee) of each Award other than a Stock Option or Stock Appreciation Right that, at the time of grant, the Committee intends to be “performance-based compensation” to a “covered employee,” as such terms are defined in Code Section 162(m), shall be determined by the attainment of one or more performance goals as determined by the Committee in conformity with Code Section 162(m). The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to receive such an Award (which may be expressed in terms of a class of individuals) and the performance goal(s) applicable to such Awards within 90 days after the commencement of the period to which the performance goal(s) relate(s), or such earlier time as required to comply with Code Section 162(m). No such Award shall be payable unless the Committee certifies in writing, by resolution or otherwise, that the performance goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value of an Award of performance-based compensation above the maximum value determined under the performance formula by the attainment of the applicable performance goal(s), but the Committee retains the discretion to reduce the value below such maximum.
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3.Performance Measures. The performance goals, upon which the payment or vesting of an Award occurs that is intended to qualify as performance-based compensation, shall be limited to the following performance measures:
(a) Increases in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest, taxes, depreciation, amortization, exploration and other non-cash expenses (“EBITDAX”); net income and/or earnings per share;
(b) Return on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital);
(c) Share price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms and/or in comparison to a group of peer companies or an index);
(d) Oil and gas reserve replacement, oil and gas reserve growth, additions to the Company’s oil and gas drilling prospect inventory and improvement to finding and development costs and/or operating costs;
(e) Oil and/or gas production growth;
(f) Cash flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or capital);
(g) Improvements to the Company’s balance sheet including enhanced liquidity and maintaining or improving leverage as measured by the ratio of total debt divided by EBITDAX; and
(h) Such other appropriate performance measures, including but not limited to, leadership development and execution of strategic initiatives, as established by the Committee for a Performance Period.
Any performance measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of performance goal(s), a Participant’s death or Disability, or a Change in Control.
4.Evaluation of Performance. The Committee may provide in any Award Agreement that any evaluation of attainment of a performance goal may include or exclude any of the following events that occurs during the relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report on Form 10-K for the applicable year; and (f) significant acquisitions or divestitures. To the extent such inclusions or exclusions affect Awards to covered employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
5.Discretion. In the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards to covered employees that shall not qualify as performance-based compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m).
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COMSTOCK RESOURCES, INC. 5300 TOWN AND COUNTRY BLVD. SUITE 500 FRISCO, TX 75034 | VOTE BY INTERNET -www.proxyvote.com | |
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For All Withhold All For All Except To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 1. ELECTION OF DIRECTORS Nominees: (Terms expire in 2018) 2. Proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accountants for 2017. 3. Proposal to approve, on an advisory basis, the Company’s compensation of its named executive officers. 4. Proposal to recommend, bynon-binding vote, the frequency of stockholder votes on executive compensation. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” ALL OF THE NOMINEES LISTED IN PROPOSAL 1, “FOR” PROPOSALS 2 AND 3 AND “3 YEARS” ON PROPOSAL 4. Please indicate if you would like to be contacted regarding consolidating your Registered and brokerage accounts. NOTE:Please sign exactly as your name(s) appear(s) on this Proxy. This section must be completed for your vote to count if you are voting by mail. When signing as attorney, executor, administrator, trustee, guardian, or other fiduciary, please give full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. V.1.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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SPECIALANNUAL MEETING OF STOCKHOLDERS OF
COMSTOCK RESOURCES, INC.
November 8, 2016May 16, 2017
Your vote is important.
Thank you for voting.
(Complete and mail the Proxy Card only if you do not vote by phone or Internet.)
Proxy Card must be signed and dated on the reverse side.
Important Notice Regarding the Availability of Proxy Materials for the SpecialAnnual Meeting:
The Notice and Proxy Statement isand Annual Report are available at
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E22897-P91272-Z69785
PROXY
COMSTOCK RESOURCES, INC. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
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The undersigned hereby appoints M. Jay Allison and Roland O. Burns, and each of them with full power of substitution, as proxies of the undersigned to act and to vote as directed on the reverse side the shares of stock which the undersigned would be entitled to vote, if personally present, at the
The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such shares of stock and hereby ratifies and confirms all that said attorneys, their substitutes, or any of them, may lawfully do by virtue hereof.
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Continued and to be marked, signed and dated on reverse side
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V.1.1