not be unreasonably withheld) of the NEOs’ total compensation were attributable to all other compensation during the fiscal year 2022. For further discussionholders of record of the NEOs’ all other compensation see the Summary Compensation Table.
(2)The amounts used in these calculations were the actual amounts earned in 2022.
(3)The equity-based award amounts used in these calculations were the sumPreferred Stock (the “Holders”) of at least a majority of the grant-date fair valueoutstanding shares of Preferred Stock voting or consenting, as the case may be, separately as one class, (A) create, authorize or issue any class or series of Parity Stock or Senior Stock (each as defined in the Certificate of Designations) (or any security convertible into Parity Stock or Senior Stock) or (B) amend the Company’s constituent documents by merger or otherwise so as to affect adversely the rights, preferences, privileges or voting rights of Holders, including, without limitation, provisions relating to dividends, conversion rights and ranking. The Preferred Stock otherwise has no voting rights except as otherwise required by the General Corporation Law of the restricted stock awards and performance unit awards. Please referState of Delaware.
Dividends
Holders are entitled to Note 9 to our audited consolidated financial statements in our 2022 Annual Report for disclosures regarding fair value estimatesreceive cumulative cash dividends at a rate per annum of these awards.
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Executive Compensation Matters | 49 |
The below tables shows the specific performance metrics in 2022 for the STIP and LTIP and demonstrates how those performance metrics align with our corporate strategy on both a short-term and long-term basis. For more details regarding the 2022 executive compensation and performance metric results, see page 53.
| | | | | | | | | | | | | | | | | |
| Compensation | | Key Performance Metrics | Company Strategy |
| | | | | |
| Short-Term Incentive Program | | Environmental
•Spill Severity Rate (5%)
•Air Stewardship (5%)
| Managing Risks |
| | |
| | Contractor Plus Employee TRIR (5%)
| Safety |
| | Employee DART(5%)
| Safety |
| | Operated Base Performance, BOPD (10%)
| Asset Optimization |
| | Operated Wedge Performance, CUM Type Curve BOPD (10%)
| Growth in Production |
| | Cash Cost per BOE, excl. LTIP(15%)
| Fiscal Responsibility |
| | Free Cash Flow Excluding Acquisitions ($MM) (20%)
| Optimizing Assets |
| | Gross Inventory Added with Minimum 25% Drilling ROR (Well Count) (25%)
| Seeking High-Margin Inventory |
| | | | |
Long-Term Incentive Program | Restricted2.0% per share of Preferred Stock Awards (50%) | | Stock Price | Increasing Stockholder Value |
| | | | |
| Performance Share Units (50%) | | Relative Three-Year Total Shareholder Return compared to peer group and Absolute Three-Year Total Shareholder Return (50%)
| Increasing Stockholder Value |
| | Three-Year Net Debt/Consolidated EBITDAX (20%)
| Risk Management |
| | | |
| | Three-Year Growth in Inventory (15%)
| High Margin
Growth
|
| | ESG (15%)
| Community Stewardship and Safety |
Compensation Philosophy & Process for Determining Executive Compensation
We design our executive compensation program to attract, retain and motivate highly-qualified and committed personnel who will successfully execute our strategy and create stockholder value.
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50 | Vital Energy, Inc. 2023 Proxy Statement |
Compensation Committee’s Role in Our Compensation Program
The Board has delegated to the Compensation Committee the responsibility of establishing the general compensation philosophies and objectives of the Company. Specifically, the Compensation Committee evaluates and recommends for ultimate approval by the Board compensation related decisions for the Company as follows:
| | |
|
•Review and approve the Company’s goals and objectives relevant to the compensation of the Chief Executive Officer, annually evaluate the Chief Executive Officer’s performance in light of those goals and objectives, and, based on this evaluation, recommend to the Board the CEO’S compensation level, including salary, bonus, incentive and equity compensation. In determining the long-term incentive component of the CEO’s compensation, the Compensation Committee considers, among other factors, the Company’s performance and relative shareholder return, the value of similar incentive awards to CEOs at comparable companies and the award given to the Company’s CEO in past years.
•Consider the non-binding vote of stockholders to approve executive compensation each year at the annual meeting, feedback received from stockholders as part of the Company’s stockholder engagement program, recommendations from the CEO and input from the Company’s independent compensation consultant
•Make recommendations to the Board with respect to all compensation for executive officers.
•Make recommendation to the Board with respect to all employment agreements, severance arrangements, change in control provisions and agreements and any special supplemental benefits applicable to the Company’s executive officers.
•Review and make recommendations to the Board of Directors with respect to incentive compensation and equity-based plans.
•Administer the Company’s equity-based compensation plans, including the grant of performance unit awards and other equity awards under such plans.
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For more information regarding the results of the stockholder vote to approve executive compensation from the 2022 annual meeting and the Compensation Committee’s 2022 stockholder outreach related to our compensation program, please see the Say-on-Pay Results and Management Responsiveness section.
CEO’s Role in Our Compensation Program
With the approval of the Compensation Committee, the CEO obtains and reviews external market information (including that received from the Compensation Committee’s independent compensation consultant, as more fully described below) to determine if the Company is offering competitive compensation packages to our NEOs and to recommend any adjustment to the compensation levels when necessary. The CEO also considers both the Company’s and the officer’s performances during the year, including whether the officer served in an expanded role at the Company. The CEO provides recommendations to the Compensation Committee regarding the compensation levels for our existing officers and our compensation program as a whole (except regarding his own compensation).
While the Compensation Committee gives considerable weight to the CEO’s input on compensation matter, it applies its own analysis and judgment before making a recommendation to the Board of Directors. The Board of Directors considers the recommendations of the Compensation Committee but has the final decision-making authority on all executive compensation matters.
Independent Compensation Consultant Role in Our Compensation Program and Conflicts of Interest Analysis
The Compensation Committee Charter grants the Compensation Committee the authority, to the extent it deems appropriate, to retain one or more compensation consultants to assist in the evaluation of director and executive compensation. The Compensation Committee’s objective when engaging an independent consultant is to assess our level of competitiveness for executive-level talent and provide recommendations for attracting, motivating and retaining key employees, including identifying industry-best practices. The Compensation Committee has the sole authority to retain
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Executive Compensation Matters | 51 |
and terminate any such consulting firm and to approve the firm’s fees and other retention terms. The Company provides appropriate funding as determined by the Compensation Committee, for payment of compensation to any consulting firm or other advisers employed by the Compensation Committee.
The Compensation Committee elected to engage Willis Towers Watson (“WTW”) to serve as its independent compensation adviser beginning August 14, 2019. WTW assists the Compensation Committee in reviewing our executive compensation program and providing comparative market data and trends on compensation practices and programs based on an analysis of our peer companies.
WTW provides a very small amount of nonexecutive compensation consulting services. The Compensation Committee considered the relationships that WTW had with the Company, the members of the Compensation Committee and our executive officers, as well as the polices that WTW has in place to maintain their independence and objectivity, and determined that no conflicts of interest arose from the work performed by WTW.
Peers and Benchmarking
The Compensation Committee engages with the independent compensation consultant to develop the competitive assessment of NEO compensation on an annual basis, which includes benchmarking our NEO compensation against a compensation peer group as well as relevant industry specific compensation surveys. The peer group is developed using a combination of objective and subjective criteria, including size, similarity of business, geographical proximity of operations, production focus, performance and competition for talent. While the Compensation Committee believes that it may be difficult to select an appropriate size peer group due to the competitive environment and unique services provided by the Company, the Compensation Committee believes the companies identified below were the most appropriate companies for benchmarking compensation for the 2022 compensation program. The Compensation Committee aims for Vital’s revenue to be within the 40th to 60th percentiles of the peer group, recognizing that this may not be possible in every year. Based on this review, the Committee approved the following peer group for 2022:
2022 Compensation Peer Group*
| | | | | | | | |
| | |
Bonanza Creek Energy, Inc.
Callon Petroleum Company
Centennial Resource Development, Inc.
Cimarex Energy, Inc.
Comstock Resources, Inc.
| Contango Oil & Gas Company
Magnolia Oil & Gas Corporation
Matador Resources Company
Murphy Oil Corporation
Northern Oil and Gas, Inc.
| PDC Energy, Inc.
Penn Virginia Corporation
SM Energy Company
Southwestern Energy Company
Talos Energy, Inc.
|
| | |
* This peer group was used to develop competitive market data in November 2021 to inform the 2022 executive compensation decisions. The Compensation Committee adjusts the compensation peer group on an annual basis to add or remove companies due to size, revenue, geographic basin, bankruptcies and mergers.
As part of our compensation philosophy and design, we seek to make the total target NEO compensation near the median of our compensation peer group with the understanding that there may be individual variation.
We utilize a separate peer group for the performance metrics in our performance unit awards. The Compensation Committee believes this is beneficial as the performance unit award peer group represents a much larger market-based investment group while the compensation peer group represents the most analogous companies competing for talented employees. To see the performance unit award peer group for the 2020, 2021 and 2022 performance unit awards, see page 70 following our Outstanding Equity Awards at 2022 Fiscal Year-End Table.
For 2022, the Compensation Committee approved the independent compensation consultant’s use of the following data as part of its annual efforts to develop a competitive assessment of NEO pay: (i) WTW’s 2022 Southwest Energy Survey Group; (ii) WTW’s 2022 Oil and Gas compensation survey; (iii) WTW’s 2022 General Industry compensation survey; and (vi) Proxy data of public companies in our peer group.
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52 | Vital Energy, Inc. 2023 Proxy Statement |
Developing Performance Metrics
Additionally, the Compensation Committee and the Board, with the assistance of the independent compensation consultant, determine the performance metrics we use in our compensation program for both short-term and long-term incentive awards. The Compensation Committee reviews all performance metrics annually to make sure they appropriately incentivize our NEOs and employees to execute the short-term goals and long-term strategies important to the Company’s success and the creation of value for its stockholders. In setting the performance metrics, the Compensation Committee also takes into account prior performance on similar metrics and establishes future goals based; in part, on prior performance. For more information on the establishment“Liquidation Preference” (which is, with respect to each share of the 2022 performance metrics, see the 2022 Executive Compensation Program.
Risk Assessment
The Compensation Committee and management have reviewed our compensation policies as generally applicablePreferred Stock, $54.96); provided that such rate shall automatically increase to our employees and believe that our policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect(i) 5.0% on us.
Our compensation philosophy and culture support the use of salary, short-term incentive cash awards and long-term incentive equity and cash compensation throughout our organization and with all levels of employees. In addition, the following specific factors, in particular, reduce the likelihood of excessive risk-taking:
•Our overall compensation levels are competitive with the market; and
•Our compensation mix is balanced among (i) fixed components such as salary and benefits, (ii) short-term incentive cash awards and (iii) long-term incentive equity and cash awards that reward our employees based on long-term overall financial performance and operational measures.
We believe our historical compensation programs did not, and our current compensations programs do not, encourage excessive and unnecessary risk taking by NEOs (or other employees) because of its focus on the Company’s performance with only some consideration given to individual performance. The Compensation Committee will continue to monitor the compensation program to discourage excessive and unnecessary risk-taking.
Additionally, the Compensation Committee manages risk by establishing equity ownership guidelines and prohibiting hedging our stock or using it as collateral for any purpose.
Equity Ownership Guidelines
The Compensation Committee recommended, and the Board approved, stock ownership guidelines for the current NEOs to further align the interest of our NEOs with those of our stockholders. Individuals have five years from their hire, promotion or appointment date to reach the following stock ownership guidelines (as a multiple of salary rate):
| | | | | |
Stock Ownership Requirements | Multiple of Base Salary |
CEO | 5x |
Senior Vice Presidents | 2x |
Stock actually owned and stock awarded under restricted stock awards are included for purposes of satisfying these guidelines. No stock potentially exercisable under stock option awards is included. The value of the stock used for calculation of compliance with these requirements shall be the higher of (i) value at the date of grantSeptember 15, 2024, and (ii) market value. In 2022, all of our NEOs satisfied the stock ownership guidelines.
| | | | | | | | |
Name | Multiple of Base Salary Required | Compliance Status |
Jason Pigott | 5x | In compliance |
Bryan Lemmerman | 2x | In compliance |
Mark Denny | 2x | In compliance |
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Executive Compensation Matters | 53 |
Policies Against Hedging8.0% on September 15, 2025, when, as and Pledging Stock
Our Insider Trading Policy prohibits our directors, NEOs and employees from engaging in hedging transactions designed to hedge or offset a decrease in market value of such person’s common stock in the Company. We prohibit such conduct to ensure our directors and officers have the same objectives as the Company’s other stockholdersif declared by remaining exposed to the full risks of ownership of Company stock.
In addition, our directors and NEOs may not hold their Company securities in a margin account and may not, without prior approval and in very limited circumstances, pledge Company securities as collateral for any other loan. The only exception to the prohibition on pledging securities may exist in the case of a non-margin loan where the director or officer was clearly able to demonstrate the financial ability to repay the loan without resort to the pledged securities, and only if such pledge was pre-approved by our General Counsel. No shares owned by our directors or NEOs are currently pledged.
Tax and Accounting Implications
The Compensation Committee considers the tax and accounting implications in determining the elements of the Company’s compensation program. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally limits the deductibility of annual compensation paid to a “covered employee” to $1 million. As of January 1, 2018, the definition of “covered employee” includes the named executive officers and certain former named executive officers of a Company. Despite this limit, the Compensation Committee may determine that it is in the Company’s best interests to provide for compensation that is not deductible.
2022 Executive Compensation Program
Base Salary
Salary rates are structured to reflect each of our named executive officers’ skills, responsibilities, experience, tenure and contributions to the Company. Salary rates are typically reviewed annually and adjusted, if warranted, in the first quarter of each year. Annual salary adjustments are based on a subjective analysis of several individual factors, including:
•the strategic impact of the officer’s position;
•the potential future contribution of the officer; and
•the actual performance of the officer during the previous year.
In addition to the individual factors listed above, we also take into consideration our overall business performance and implementation of Company objectives. As with the other components of our compensation program, we review industry trends and the salary rates of our peers as well. While these factors generally provide context for making salary decisions, salary rate decisions do not depend directly on attainment of specific goals or performance levels and no specific weighting is given to one factor over another.
The following table presents the salary rates for our NEOs in 2021 and 2022.
| | | | | | | | | | | |
Name | 2021 salary rate(1) ($) | 2022 salary rate(1) ($) | Percent change |
Jason Pigott | 720,000 | 775,000 | 7.6% |
Bryan Lemmerman | 440,000 | 475,000 | 8.0% |
Karen Chandler | 470,000 | 485,000 | 3.2% |
Mark Denny | 350,000 | 375,000 | 7.1% |
(1)See the Summary Compensation Table on page 64 for amounts earned.
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54 | Vital Energy, Inc. 2023 Proxy Statement |
Annual Incentive
To incentivize and recognize achievements throughout the year, each NEO and Company employee is given a STIP target percentage, which is a percentage of his or her salary. If the Company meets certain performance metrics throughout the year, the Company will pay STIP awards. STIP target percentages vary by NEO based on differing job classifications and responsibilities, and the Compensation Committee compares each percentage to similar positions in the market and our peer companies.
The following table presents the STIP target percentages for our NEOs in 2021 and 2022.
| | | | | | | | |
Name | 2021 STIP target percentage(1) | 2022 STIP target percentage(1) |
Jason Pigott | 110% | 125% |
Bryan Lemmerman | 90% | 90% |
Karen Chandler | 90% | 90% |
Mark Denny | 85% | 85% |
(1)See the Summary Compensation Table on page 64 for amounts earned.
The Compensation Committee sets the objective performance metrics that the Company must meet to receive an STIP award. Each metric is evaluated independently with threshold, target and maximum goals established for each. No payout is earned for a metric that fails to meet a minimum performance threshold. A 50% payout is earned for a metric that meets the minimum threshold, a 100% payout is earned for a metric that meets target and a maximum of 200% payout is earned for a metric that meets or exceeds the maximum goal (with payout linearly interpolated for performance that falls between the goals). The Compensation Committee recommends and the Board approves any STIP award amount based on performance metrics (weighted 70%) as well as the Compensation Committee’s subjective assessment of the Company’s overall strategic performance in other areas (weighted 30%). Historically, the Compensation Committee has rarely increased the STIP payout percentage based on its subjective assessment of the Company’s overall strategic performance above the objective criteria level.
The Company determines an individual award by taking the salary earned during the performance year multiplied by the individual STIP target percentage, the result of which is then multiplied by the Company STIP payout percentage, the result of which may then be adjusted for individual performance. The Compensation Committee considers individual adjustments for our named executive officers after receiving input provided by the CEO regarding both Company performance in other areas, as well as individual performance factors such as leadership, commitment, motivational effect, level of responsibility and overall contribution to Vital’s success (provided that the Compensation Committee solely determined the CEO’s STIP award).
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Eligible Earnings | x | Individual STIP Target
Percentage of Earnings
| x | Company STIP
Payout Percentage
Approved by Board
| ± | Any Individual
Performance
Adjustment
|
| | | | | | |
Although our STIP award includes objective performance metrics, our Compensation Committee has the ultimate discretion to recommend to the Board of Directors whether to award any,out of assets legally available for the payment of such dividends. Dividends are payable on January 1, April 1, July 1 and the amountOctober 1 of STIP awards.each year, commencing on October 1, 2023.
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Executive Compensation Matters | 55 |
Mandatory ConversionThe Compensation Committee, in conjunction with our independent compensation consultant, recommended, and the Board approved, the following performance metrics for the 2022 STIP. The Compensation Committee believes these performance measures reflect environmental, safety, operational and financial prioritiesconversion of the business. The performance metrics forshares of Preferred Stock into shares of Common Stock is conditioned on, and will occur following, the 2022 STIP are as follows:
| | | | | | | | | | | | | | | | | |
Metric | Area of Focus | Weighting | 2022 Target Performance | 2022 Actual Performance | Metric Payout |
| | | | | |
Spill Intensity(1) | Environmental | 5.0% | 0.03 | 0.021 | 160% |
Air Stewardship(2) | Environmental | 5.0% | 5,900 | 4,219 | 200% |
Contractor Plus Employee TRIR(3) | Safety | 5.0% | 0.44 | 0.61 | 60% |
Employee DART(4) | Safety | 5.0% | 0.20 | 0.00 | 200% |
Operated Base Performance, BOPD(5) | Operational and Financial | 10% | 0.0% | -3.3% | 0% |
Operated Wedge Performance, CUM Type Curve BOPD(6) | Operational and Financial | 10% | 0.0% | 0.0% | 100% |
Cash Cost per BOE(7) | Operational and Financial | 15% | $7.70 | $9.38 | 0% |
Free Cash Flow ($MM)(8) | Operational and Financial | 20% | $300 | $220 | 60% |
Gross Inventory Added with a Minimum 25% Drilling ROR (Well Count)(9) | Operational and Financial | 25% | 90 | 97 | 108% |
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(1)Spill Intensity: Gross operated barrels of produced liquids (both crude and produced water) released per thousand barrels of gross operated combined liquid production outside of all secondary containment
(2)Air Stewardship: Mcf flared or vented per bcf produced from operated properties ownedapproval by Vital as of 12/31/2022.
(3)Contractor Plus Employee TRIR: Total number of employee and contractor recordable injuries x 200,000 over the total number of hours worked by employees and contractors.
(4)Employee DART: Total number of recordable injuries and illnesses that caused a worker to be away, restricted, or transferred x 200,000 over the total number of hours worked by all employees.
(5)Operated Base Performance: Actual 2022 net operated oil production from base producing wells measured as the average percentage over / under the forecast supporting the Board of Directors approved 2022 Budget. Base producing well set is defined as any well having first oil production prior to 11/1/2021.
(6)Operated Wedge Performance: The average gross cumulative oil productionCompany’s stockholders of the 2022 development program measured asConversion Proposal and notice of the average percentage over / underconversion by the forecast supporting the Board of Directors approved 2022 Budget. Wedge producing well set is defined as any well having first oil production between 11/1/2021 and 10/31/2022.
(7)Cash Cost per BOE: Lease operating expense, general and administrative expense excluding LTIP (long-term incentive plan), transportation expense, minimum volume payments (MVC), 3rd party purchased oil (gain) loss and midstream (gain) loss per barrel of oil equivalent. Lease operating expense is inclusive of workovers, G&A allocations, and excludes non-cash items.
(8)Free Cash Flow: Consolidated EBITDAX less interest expense and incurred capital expenditures, excluding acquisitions, changes in working capital and non-cash charges. The calculation of Free Cash Flow for the 2022 STIP performance metric differs from the non-GAAP financial measure of Free Cash Flow as disclosed in the 2022 Annual Report.
(9)Gross Inventory Added: Gross inventory added via acquisitions or improved economics on existing acreage that meets or exceed the minimum drilling rate of return of Gross inventory added via acquisitions or improved economics on existing acreage that meets or exceeds an IRR of 25%.
In addition, the Compensation Committee may make individual adjustments after considering (i) Company performance in other areas as well as individual performance factors such as leadership, commitment, motivational effect, level of responsibility and overall contribution to the Company’s success,Holders. The initial conversion rate is one share of Common Stock for one share of Preferred Stock, subject to adjustment for stock splits, stock dividends, distributions and combinations.
Company Redemption
The Company may, at any time and from time to time, elect to redeem all outstanding shares of Preferred Stock, or any portion thereof, in cash at a redemption price per share of Preferred Stock equal to an amount per share of Preferred Stock equal to the greater of (i) the Liquidation Preference plus accumulated dividends, and (ii) the
recommendationAverage VWAP (as defined in the Certificate of
the CEO, other than for himself. After such review and discussion the Compensation Committee did not exercise discretion to change the STIP payoutDesignations) for the
CEO or any of our NEOs. Additionally, the Compensation Committee did not exercise any positive discretion for the 30% subjective portion of the performance goals and approved a payout consistent with the achievement of the objective criteria. | | | | | | | | | | | | | | | | | |
Name | 2022 STIP salary ($) | 2022 STIP target percentage | 2022 STIP target value ($) | Award payout ($) | Approved percent payout to target |
Jason Pigott | 764,423 | 125% | 955,529 | 764,423 | 80% |
Bryan Lemmerman | 468,269 | 90% | 421,442 | 337,154 | 80% |
Mark Denny | 370,192 | 85% | 314,663 | 251,731 | 80% |
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56 | Vital Energy, Inc. 2023 Proxy Statement |
Long-Term Incentive
To prioritize retention and long term goals of the Company, each NEO and employee is given an LTIP target percentage, which is a percentage of his or her salary, and a grant of Company long-term awards in accordance with that percentage. For our NEOs, the Company’s LTIP grant consists of 50% restricted stock and 50% performance unit awards. The applicable vesting periods and restrictions for the restricted stock and applicable performance20 consecutive trading day period and performance metrics for the performance share units are set forth below. By tying a significant portion of our compensation directly to the performance of our common stock, we align the interests of our NEOs with those of our stockholders. LTIP grants are generally awarded in the first quarter following our Board meeting and the filing of our Annual Report on Form 10-K.
Following consultation with WTW, our Compensation Committee decided to change the individual LTIP target percentages for our NEOs for the 2022 calendar year performance as indicated in the below table to better align their LTIP targets to approximately the 50th percentile of our 2022 compensation peer group. In addition, the Compensation Committee considered additional factors in making their determination including past performance, criticality to the business and potential future individual growth.
The following table presents the LTIP target percentages of salary for our NEOs in 2021 and 2022.
| | | | | | | | |
Name | 2021 long-term incentive target percentage(1) | 2022 long-term incentive target percentage(1) |
Jason Pigott | 485% | 516% |
Bryan Lemmerman | 350% | 375% |
Karen Chandler | 415% | 402% |
Mark Denny | 231% | 250% |
(1)The LTIP target percentage is a percentage of salary rate. See the Summary Compensation Table on page 64 for amounts earned.
The value of the long-term incentive awards to be granted was determined by taking the LTIP target percentage multiplied by the most recent salary rate prior to the grant date (“Grant Value”). The total number of both the shares of stock and performance units granted were calculated by dividing the Grant Value by the average closing price of our stock for the 10 trading days ended February 16, 2022 for an average closing stock price of $69.42. The grant date, number of shares of restricted stock, number of performance units and grant-date fair values are presented in the following table.
The grant-date fair values were computed in accordance with FASB ASC Topic 718 as described in Note 9 to our audited consolidated financial statements in our 2022 Annual Report, and not the Grant Value.
| | | | | | | | | | | | | | | | | | | | |
| | Restricted stock(1) | | Performance units(2) |
Name | Grant date | Shares of stock (#) | Grant-date fair value ($) | | Units (#) | Grant-date fair value ($) |
Jason Pigott | 2/22/2022 | 28,810 | 1,930,846 | | 28,810 | 2,585,986 |
Bryan Lemmerman | 2/22/2022 | 27,235 | 1,825,290 | | 12,830 | 1,151,621 |
Karen Chandler(3) | 2/22/2022 | 14,045 | 941,296 | | 14,045 | 1,260,679 |
Mark Denny | 2/22/2022 | 6,763 | 453,256 | | 6,763 | 607,047 |
(1)The restricted stocks’ grant-date fair value is computed in accordance with FASB ASC Topic 718 and is determined based on the closing price of our common stock on the NYSE on February 22, 2022, which was $67.02 per share. These shares vest 33%, 33% and 34% on a time basis per year beginning on the first anniversary date of the grant, except for a one-time retention grant of 14,405 shares included in Mr. Lemmerman’s 2022 restricted stock awards which will cliff-vest at the end of the third anniversary of the grant date.
(2)The combined $89.76 per unit grant-date fair value was computed in accordance with FASB ASC Topic 718 and consists of (i) $112.49 per unit grant-date fair value, determined utilizing a Monte Carlo simulation, for the 50% PSU Matrix Component and (ii) $67.02 per unit grant-date fair value, for the 20% Net Debt/Consolidated EBITDAX Component, the 15% Inventory Growth Component and the 15% ESG Component determined based on the closing price of our common stock on the NYSE on February 22, 2022. These performance units will be settled in stock, have a three-year cliff vest and a performance period of January 1, 2022 to December 31, 2024. See page 66 for additional information on these performance units.
(3)Effective August 24, 2022, Dr. Chandler, the Company's former Senior Vice President and Chief Operating Officer, was terminated and, as a result, Dr. Chandler's unvested awards were forfeited.
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Executive Compensation Matters | 57 |
Restricted shares will vest and the transfer restrictions thereon will lapse ratably, over three years. The restricted shares of our common stock are subject to forfeiture until vested. Each recipient will forfeit his or her unvested shares if the recipient’s employment is terminated by us for any reason or if the recipient resigns (in either case, other than for death or disability). This vesting schedule is comparable to those utilized by the peer group and will assist us in attracting new talent and retaining existing personnel.
Performance unit awards granted in 2022 will vest in the first quarter of 2025 following a three-year performance period from 2022 to 2024 if the Company meets the performance thresholds established by the Compensation Committee. Each recipient will forfeit his or her performance unit awards if the recipient’s employment with us is terminated by the Company for any reason or if the recipient resigns (in either case, other than for death or disability). If the employment is terminated due to death or disability, the recipient is entitled to receive a prorated performance unit grant. Generally, grants of performance unit awards will be made in the first quarter of each year, when our results of operations for the previous year have generally been determined and when our Compensation Committee is normally meeting to discuss short-term incentive payouts based on the prior year results.
2020 to 2022 Performance Unit Award Payout Results
The performance unit awards granted on March 5, 2020 had a performance period of January 1, 2020 to December 31, 2022 and vested in the first quarter of 2023. We determined the payout to be 151% based on three performance metrics:
1.1/3rd weighting on relative three year total shareholder return comparing the Company’s shareholder return to the shareholder return of the selected peer group (“RTSR Performance”),
2.1/3rd weighting on absolute three-year total shareholder return (“ATSR Appreciation”) and
3.1/3rd weighting on three-year return on average capital employed (“ROACE”).
Below are tables that summarize the thresholds for each performance metric. All points between the respective levels will be interpolated and the RTSR Factor, ATSR Factor and ROACE Factor will be adjusted accordingly.
| | | | | |
RTSR Performance Percentage Thresholds | RTSR Factor |
Below 30th Percentile | 0% |
30th Percentile | 50% |
60th Percentile | 100% |
90th Percentile | 200% |
|
ATSR Appreciation Thresholds | ATSR Factor |
Below 10% | 0% |
10% | 25% |
35% | 100% |
60% and above | 200% |
|
ROACE Percentage Thresholds | ROACE Factor |
10% and below | 0% |
25% | 100% |
35% and above | 200% |
The 2020 performance unit awards resulted in an RTSR Performance of 59th percentile compared to the peer group, an ATSR Appreciation of 82% and an ROACE of 30%, which translates into an RTSR Factor, ATSR Factor and ROACE Factor of 99%, 200% and 155%, respectively, and together, a Performance Multiple of 151%.
See page 70 for the performance unit award peer group used for the 2020 Performance Unit Awards.
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58 | Vital Energy, Inc. 2023 Proxy Statement |
Other Benefits
Each NEO is also eligible for the below listed benefits from the Company.
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| | | | |
| | | | |
| Health and Welfare Benefits
Our NEOs are eligible to participate in all of our employee health and welfare benefit plans on the same basis as other employees (subject to applicable law). These plans include life, medical, vision and dental insurance, dependent care flexible spending account, medical flexible spending account or health savings account, as well as short and long-term disability benefits. These benefits ensure that we are able to competitively attract and retain officers and other employees. This is a fixed component of compensation, and these benefits are provided on a non-discriminatory basis to all employees.
| | Retirement Benefits
Our NEOs also participate in our defined contribution plan under Code Section 401(k), on the same basis as our other employees. The plan allows eligible employees to make contributions up to 100% of their annual compensation, not to exceed annual limits established by the federal government. We make matching contributions in cash of up to 6% of an employee’s eligible compensation and may make additional discretionary contributions in the form of cash. For our NEOs, we do not have a deferred benefit pension plan or non-qualified deferred compensation.
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| Perquisites
We believe that the total mix of compensation and benefits provided to our executive officers is currently competitive and, therefore, perquisites do not play a significant role in our executive officers’ total compensation. Nevertheless, Vital provides limited perquisites and benefits to its officers, including an annual physical and monthly dues at a downtown lunch/dinner club.
A Charitable Matching Gift Program is offered to all Vital employees and members of our Board of Directors. This program is a way the Company can support employees and board members in their efforts to give back to the communities in which they work and live. The Company will match dollar-for-dollar contributions made by employees or members of our Board of Directors, up to $1,000 per calendar year. Gifts will only be matched if they are requested for organizations eligible under Section 501(c)(3) of the Code. The minimum contribution that will be matched is $100 per calendar year. In order for the Company to provide the matching gift, there can be no direct benefit, reward or consideration to the employee or board member when making the donation.
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Executive Compensation Matters | 59 |
Material Changes for 2023 Executive Compensation
As part of its annual compensation review, the Compensation Committee, with the assistance of WTW, reviewed the peer group used to benchmark our compensation structure. The Compensation Committee adjusts the compensation peer group on an annual basis to add or remove companies due to size, revenue, geographic basin, bankruptcies and mergers. Our Compensation Committee and Board reviewed and discussed these recommendations and ultimately adopted the below peer group used to benchmark our 2023 compensation structure.
2023 Compensation Peer Group*
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| | |
Callon Petroleum Company
Centennial Resource Development, Inc.
Civitas Resources, Inc.
Comstock Resources, Inc.
Coterra Energy, Inc.
Earthstone Energy, Inc.
| Magnolia Oil & Gas Corporation
Matador Resources Company
Murphy Oil Corporation
Northern Oil and Gas, Inc.
PDC Energy, Inc.
Ranger Oil Corporation
| SM Energy Company
Talos Energy, Inc.
|
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* This peer group was used to develop competitive market data in the fall of 2022 to inform the 2023 executive compensation decisions.
Base Salary
Following an extended review of data provided by WTW with respect to target pay elements of our peer group, our Compensation Committee and our Board elected to increase the salary rates for 2023 for NEOs as indicated in the below table. The increases in the salaries for the NEOs are to better align their salary rates to our 2023 compensation peer group and reflect the overall macro-economic effects of wage inflation. Following these changes each of our NEOs remain within 7% of the 50th percentile for their respective positions for our 2023 compensation peer group.
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Name | 2022 salary rate ($) | 2023 salary rate ($) | Salary rate percentage change |
Jason Pigott | 775,000 | 800,000 | 3.2% |
Bryan Lemmerman | 475,000 | 500,000 | 5.3% |
Mark Denny | 375,000 | 400,000 | 6.7% |
2023 STIP Target Percentages
Following consultation with WTW, our Compensation Committee determined not to change the individual STIP target percentages for our NEOs for the 2023 calendar year performance.
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Name | 2022 STIP target percentage(1) | 2023 STIP target percentage(1) | STIP target percentage charge |
Jason Pigott | 125% | 125% | —% |
Bryan Lemmerman | 90% | 90% | —% |
Mark Denny | 85% | 85% | —% |
(1)The STIP target percentage is a percentage of salary rate.
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60 | Vital Energy, Inc. 2023 Proxy Statement |
2023 STIP Performance Metrics
For 2023, following review by our independent compensation consultant, our Compensation Committee recommended and the Board approved the objective STIP performance metrics and relative weightings reflected in the table below. Of the nine performance metrics used in 2022, three will be used again in 2023 (Spill Intensity, Operated Base performance, BOPD and Operated Wedge performance, CUM Type Curve BOPD), and one is used again with slight modification (Gross Inventory Added with a minimum 20% Drilling ROR (Well Count)). Under the Environmental metric, the 2022 metric of Contractor plus Employee TRIR was broken into two metrics (Contractor TRIR and Employee TRIR) and the Air Stewardship metric was replaced with Flaring Intensity to better reflect operational control. Finally, a new metric (Free Cash Flow, Excluding Acquisitions) was selected to align with the Company’s focus on reducing debt.
The objective 2023 STIP performance metric results continue to establish 70% of the total STIP payout percentage, while the remaining 30% is subjectively determined by the Compensation Committee considering the Company’s overall strategic performance in other areas. In making its annual determination regarding the subjective performance portion, the Compensation Committee consults with WTW to gain an independent perspective and considers factors including company performance, market conditions and significant achievements during the prior year.
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2023 STIP performance metric | 2022 Results | Minimum Threshold | Target | Stretch Target | Relative weighting |
Environmental and Safety | | | | | | | | | |
Spill Intensity(1) | | 0.021 | | | 0.030 | | | 0.020 | | | 0.010 | | 5.0 | % |
Flaring Intensity(2) | | 1.160 | | 2.500 | | 1.100 | | | 0.350 | | 5.0 | % |
Contractor TRIR(3) | | 0.780 | | | 0.797 | | | 0.619 | | | 0.405 | | 5.0 | % |
Employee TRIR(4) | | 0.000 | | | 0.700 | | | 0.350 | | | 0.000 | | 5.0 | % |
Operated Base Performance, BOPD(5) | | -3.3% | | -2.5% | | 0.0% | | 3.0% | 20.0 | % |
Operated Wedge Performance, CUM Type Curve BOPD(6) | | 0.0% | | -6.5% | | 0.0% | | 8.0% | 20.0 | % |
Free Cash Flow, Excluding Acquisitions ($MM)(7) | | $ | 220 | | | $ | (78) | | | $ | 64 | | | $ | 203 | | 20.0 | % |
Gross Inventory Added with a minimum 20% Drilling ROR (Well Count)(8) | | 97 | | | 60 | | | 90 | | | 180 | | 20.0 | % |
(1)Spill Intensity: Produced fluid (both crude oil and produced water) greater than or equal to 1 BBL released per thousand barrels of gross operated combined liquid production outside of lined secondary containment.
(2)Flaring Intensity: Ratio of total gross operated gas flared per total gross operated gas produced as of 12/31/2023.
(3)Contractor TRIR: Total number of contractor recordable injuries x 200,000 over the total number of hours worked by contractors.
(4)Employee TRIR: Total number of employee recordable injuries x 200,000 over the total number of hours worked by employees.
(5)Operated Base Performance: Actual 2023 gross operated oil production volume from base producing wells measured as the percentage over / under the forecast supporting the Board of Directors approved 2023 Budget. Base producing well set is defined as any well having sustained oil production greater than 200 BOPD prior to 11/1/2022.
(6)Operated Wedge Performance: The average gross cumulative oil production of the 2023 development program measured as the average percentage over / under the forecast supporting the Board of Directors approved 2023 Budget. Wedge producing well set is defined as any well having sustained oil production greater than 200 BOPD between 11/1/2022 and 10/31/2023.
(7)Free Cash Flow: Consolidated EBITDAX less interest expense and incurred capital expenditures, excluding acquisitions, changes in working capital and non-cash charges. The calculation of Free Cash Flow for the 2023 STIP performance metric differs from the non-GAAP financial measure of Free Cash Flow as disclosed in the 2022 Annual Report.
(8)Gross Inventory Added: Gross inventory added via acquisitions or improved economics on existing acreage that meets or exceeds an IRR of 20%.
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Executive Compensation Matters | 61 |
2023 LTIP Target Percentage
Following consultation with WTW, our Compensation Committee decided to change the individual LTIP target percentages for our NEOs for the 2023 calendar year performance as indicated in the below table to better align their LTIP targets to approximately the 50th percentile of our 2022 compensation peer group. In addition, the Compensation Committee considered additional factors in making their determination including past performance, criticality to the business and potential future individual growth.
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Name | 2022 long-term incentive target percentage(1) | 2023 long-term incentive target percentage(1) | LTIP target percentage change |
Jason Pigott | 516% | 625% | 21% |
Bryan Lemmerman | 375% | 420% | 12% |
Mark Denny | 250% | 275% | 10% |
(1)The LTIP target percentage is a percentage of salary rate.
2023 LTIP Awards
The number of shares of restricted stock and performance units granted on February 15, 2023 to our NEOs are presented below. These grants were calculated based on the average closing price of our common stock for the 10 trading days ending on the day beforedate immediately preceding the Board meeting heldelected redemption date.
Exchange Listing
The shares of Preferred Stock are not listed on February 9, 2023. This 10-day average closing price was $54.57.any securities exchange or other trading system.
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| | | Restricted stock(1) | | Performance units(2) |
Name | Grant date | | Shares of stock (#) | | Grant-date fair value ($) | | Units (#) | | Grant-date fair value ($) |
Jason Pigott | 2/15/2023 | | 45,813 | | | $ | 2,533,001 | | | 45,812 | | | $ | 3,235,702 | |
Bryan Lemmerman | 2/15/2023 | | 19,241 | | | $ | 1,063,835 | | | 19,241 | | | $ | 1,358,992 | |
Mark Denny | 2/15/2023 | | 10,079 | | | $ | 557,268 | | | 10,078 | | | $ | 711,809 | |
(1)The restricted stocks’ grant-date fair value is computed in accordance with FASB ASC Topic 718foregoing summary of the Preferred Stock does not purport to be complete and is determined basedsubject to, and qualified in its entirety by, the full text of the Certificate of Designations, a copy of which is attached hereto as Annex A.
Vote Required
Approval of the issuance of the Conversion Shares requires the affirmative vote of the holders of a majority of the votes cast in person or by proxy at the Special Meeting. Abstentions and broker non-votes, if any, are not counted as votes cast and will have no effect on the closing priceoutcome of our common stock on the NYSE on February 15, 2023, which was $55.29 per share. These shares vest 33%, 33% and 34% on a time basis per year beginning on the first anniversary date of the grant.this proposal.
(2)The combined $70.63 per unit grant-date fair value was computed in accordance with FASB ASC Topic 718 and consists of (i) $85.97 per unit grant-date fair value, determined utilizing a Monte Carlo simulation, for the (50%) PSU Matrix Component and (ii) $55.29 per unit grant-date fair value, determined based on the closing price of our common stock on the NYSE on February 15, 2023, for the (20%) Net Debt/Consolidated EBITDAX Component, (15%) Inventory Growth Component and (15%) ESG Component. These performance units will be settled in common shares, cash or a combination of common stock and cash, have a three-year cliff vest and a performance period of January 1, 2023 to December 31, 2025. See page 62 for additional information on these performance units.
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62 | Vital Energy, Inc. 2023 Proxy Statement |
2023 Performance Unit Award Performance Metrics and Peer Group
The performance unit awards granted in 2023 have a performance period of January 1, 2023 through December 31, 2025. The Compensation Committee and the Board approved the performance unit award performance criteria as follows:
1.50% weighting on a PSU Matrix, which has two components:
a.Annual relative total shareholder return comparing the Company’s shareholder return to the shareholder return of the E&P companies listed in the Russell 2000 index listed in the below peer group table (“Relative TSR”).
b.Annual absolute total shareholder return (“Absolute Return”).
(collectively the “PSU Matrix Component”). The PSU Matrix Component is calculated on the basis of the following matrix:
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| Relative TSR (quartile) |
| | 1st | 2nd | 3rd | 4th |
1-Year Absolute Return | <8% | 75% | 50% | 25% | 0% |
≥ 8% and <14% | 100% | 75% | 50% | 25% |
≥ 14% and <20% | 200% | 100% | 75% | 50% |
≥20% | 250% | 200% | 100% | 75% |
2.20% weighting on three-year Net Debt to Consolidated EBITDAX (“Net Debt/Consolidated EBITDAX Component”).
3.15% weighting on growth in inventory (“Inventory Growth Component”).
4.15% weighting on emissions reduction targets related to progress toward our 2025 emissions reductions targets, as described on page 11 (“ESG Component”).
The Compensation Committee and Board believe the revised PSU performance metrics align with the Company’s strategy of minimizing risk by lowering debt and seeking high margin inventory to grow the Company all while operating our assets in an environmentally friendly manner. While understanding the need to reduce the emissions profile of our assets.
The below table shows the peer group used to measure the PSU Matrix Component for the 2023 performance unit awards.
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| Matador Resources
Murphy Oil Corp.
Chord Energy Corp.
Civitas Resources Inc.
Denbury Inc.
Magnolia Oil Gas Corp.
SM Energy
Kosmos Energy LTD
California Resources Corp.
CNX Resources Corp.
Northern Oil and Gas Inc.
| Permian Resources Corp.
Callon Petroleum
Sitio Royalties Corp.
Talos Energy Inc.
Comstock Resources Inc.
Tellurian Inc
Ranger Oil Corp.
Gulfport Energy Corp
Berry
Earthstone Energy Inc.
W and T Offshore Inc.
| Vaalco Energy Inc.
Crescent Energy
Riley Exploration Permian Inc.
Sandridge Energy Inc.
Amplify Energy Corp.
Silverbow Resources Inc.
Ring Energy Inc.
Highpeak Energy Inc.
Empire Petroleum Corp.
Battalion Oil Corp.
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Executive Compensation Matters | 63 |
Employment, Severance or Change in Control Agreements
We do not currently maintain any long-term employment agreements. The Vital Energy, Inc. Change in Control Executive Severance Plan (as amended, the “Change in Control Plan”), provides severance payments and benefits to our named executive officers and eligible persons with the title of vice president and above, as determined by our Compensation Committee. The policy provides an eligible participant with a lump-sum cash severance payment and continued health benefits in the event that the participant experiences a qualifying termination event within the 18-month period following the occurrence of a qualifying change in control event (“double trigger”). In the event that an eligible executive’s employment is terminated without cause by the employer or for good reason by the executive within the 18-month period following the occurrence of a change in control, the executive would become entitled to receive 100% (in the case of our Chief Executive Officer, 300%, and in the case of our other named executive officers, 200%) of the executive’s salary rate and 200% (in the case of our Chief Executive Officer, 300%, and in the case of our other named executive officers, 200%) of the executive’s target STIP cash bonus and prorated amount of such target STIP cash bonus for the fiscal year in which the change in control payment is triggered. In addition, the executive would receive Company-paid COBRA continuation coverage for up to 18 months following the date of termination. The policy contains a modified cutback provision whereby payments payable to an executive may be reduced if doing so would put the executive in a more advantageous after-tax provision than if payments were not reduced and the executive became subject to excise taxes under Section 4999 of the Code and loss of deduction under Section 280G of the Code. We believe these severance levels are comparable to those utilized by our peer group.
We believe that our Change in Control Plan, including its requirement of a “double trigger,” provides suitable incentive for our officers to remain with the Company in the event of a potential change in control through the consummation of any such transaction. We further believe such an incentive is to the benefit of our stockholders as well as any potential purchaser in connection with a change in control transaction, as it helps to ensure the continued operation and seamless transition of the Company prior to and through the conclusion of any such transaction. The compensation “multipliers” among the different categories of our officers were established based upon information provided by an independent compensation consultant regarding both our peer group and the industry in general.
Executive Severance Plan
In addition to the Change in Control Plan, the Company has the Vital Energy, Inc. Executive Severance Plan (as amended, the “Severance Plan”), which provides severance payments and benefits to our named executive officers and eligible persons with the title of vice president and above, as determined by our Compensation Committee. The Severance Plan provides an eligible participant with a lump-sum cash severance payment and continued health benefits in the event of involuntary termination without cause or other termination due to a good reason. In the event of a qualifying termination under the Severance Plan, the participant would become entitled to receive 100% (in the case of our Chief Executive Officer, 200%, and in the case of our other named executive officers, 150%) of the participant’s salary rate and 100% (in the case of our Chief Executive Officer, 200%) of the participant’s target STIP cash bonus and prorated amount of such target STIP cash bonus for the fiscal year in which the change in control payment is triggered. The Severance Plan also provides for an amount in cash equal to the value of (i) the number of unvested restricted stock awards held by the participant multiplied by the closing stock price on the last trading day before the participant’s termination; plus (ii) the number of all other long-term compensation and equity awards not covered in (i) prorated based on the date of termination, multiplied by a current value of each such award. In addition, the participant would receive Company-paid COBRA continuation coverage for up to 18 months following the date of termination. We believe these severance levels are comparable to those utilized by our peer group. The compensation “multipliers” among the different categories of our officers were established based upon information provided by WTW regarding both our peer group and the industry in general.
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64 | Vital Energy, Inc. 2023 Proxy Statement |
Compensation Committee Report
Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation CommitteeRecommendation of the Board of Directors
Dr. Craig M. Jarchow, ChairTHE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ISSUANCE OF THE CONVERSION SHARES FOR PURPOSES OF NYSE RULE 312.03.
William E. Albrecht
Lisa Lambert
Dr. Shihab Kuran
The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in such filing.
Summary Compensation
The following table summarizes, with respect to our NEOs, information relating to the compensation (as defined by the SEC) for services rendered in all capacities during the fiscal years ended December 31, 2022, 2021 and 2020.
Summary Compensation Table
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Name and principal position | Year | Salary ($)(1) | Restricted stock awards ($)(2) | Performance unit awards ($)(2) | Stock awards total ($) | Non-equity Incentive Plan Compensation ($)(1)(3) | All other compensation ($)(4) | Total ($) |
Jason Pigott President and Chief Executive Officer | 2022 | 764,423 | | 1,930,846 | | 2,585,986 | | 4,516,832 | | 764,423 | | 36,190 | | 6,081,868 | |
2021 | 720,000 | | 1,709,501 | | 2,298,898 | | 4,008,399 | | 1,172,160 | | 33,290 | | 5,933,849 | |
2020 | 720,000 | | 906,152 | | 850,899 | | 1,757,051 | | 792,000 | | 27,535 | | 3,296,586 | |
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Bryan Lemmerman Senior Vice President and Chief Financial Officer | 2022 | 468,269 | | 1,825,290 | | 1,151,621 | | 2,976,911 | | 337,154 | | 77,736 | | 3,860,070 | |
2021 | 440,000 | | 753,890 | | 1,013,814 | | 1,767,704 | | 586,080 | | 72,286 | | 2,866,070 | |
2020 | 209,846 | | 771,559 | | N/A | 771,559 | | 996,000 | | 17,816 | | 1,995,221 | |
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Karen Chandler Senior Vice President and Chief Operating Officer | 2022 | 329,154 | | 941,296 | | 1,260,679 | | 2,201,975 | | — | | 10,476,287 | | 13,007,416 | |
2021 | 466,154 | | 954,848 | | 1,284,059 | | 2,238,907 | | 620,917 | | 29,042 | | 3,355,020 | |
2020 | 450,000 | | 525,475 | | 493,434 | | 1,018,909 | | 382,500 | | 23,342 | | 1,874,751 | |
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Mark Denny Senior Vice President– General Counsel & Secretary | 2022 | 370,192 | | 453,256 | | 607,047 | | 1,060,303 | | 251,731 | | 22,325 | | 1,704,551 | |
2021 | 345,192 | | 395,783 | | 532,240 | | 928,023 | | 434,252 | | 22,490 | | 1,729,957 | |
2020 | 325,000 | | 194,815 | | 182,936 | | 377,751 | | 276,250 | | 19,590 | | 998,591 | |
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(1)The amounts presented in these columns reflect the actual amounts earned in 2022, 2021 and 2020, even if paid in another year.
(2)For the 2022, 2021 and 2020 equity-based awards, the amounts presented in these columns reflect the grant-date fair value. The restricted stock award amount for Mr. Lemmerman in 2020 is for a one-time new hire award granted on July 1, 2020.
(3)The amounts presented in this column includes the STIP award payout, if applicable, and a one-time cash signing award to Mr. Lemmerman in 2020 of $600,000.
(4)The amounts presented in this column include the aggregate value of matching contributions to our 401(k) plan, the dollar values of life insurance coverage, charitable gifts made on behalf of the NEOs pursuant to our charitable gift matching program, Severance, Unused Vacation, wellness reimbursements and health savings contributions, among other items. For all other compensation details related to 2022, please see the below “All Other Compensation” table.
14
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Executive Compensation Matters | 65 |
All Other Compensation TableProposal Three—The Adjournment Proposal
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| 401(k) match ($) | Health savings match ($) | Life insurance coverage ($) | Charitable gifts match ($) | Temporary housing arrangement ($) | Severance ($) | Unused vacation ($) | Continued medical ($) | Total all other compensation ($) |
Jason Pigott | 18,300 | | N/A | 810 | | 17,080 | | N/A | N/A | N/A | N/A | 36,190 | |
Bryan Lemmerman | 18,300 | | 1,500 | | 810 | | 14,000 | | 43,126 | | N/A | N/A | N/A | 77,736 | |
Karen Chandler(1) | 18,300 | | N/A | 860 | | 15,800 | | N/A | 10,420,145 | | 7,263 | | 13,919 | | 10,476,287 | |
Mark Denny | 18,300 | | N/A | 540 | | 3,485 | | N/A | N/A | N/A | N/A | 22,335 | |
Overview(1)Dr. Chandler received certain payments and benefits in connection with her involuntary departure on August 24, 2022, pursuantWe are asking you to approve a proposal to adjourn the Company’s Executive Severance Plan.
Realized Compensation
The calculation of total compensation,Special Meeting from time to time, if necessary or appropriate as showndetermined in the Summary Compensation Table, includes items driven by accounting assumptions as defined by the SEC. As a result, total compensation as defined by the SEC differs substantially from the compensation actually realized by our NEOs in a particular year. To supplement the SEC-required disclosure, the table below shows compensation actually realized by the NEOs. These amounts are not a substitute for the amounts reported as total compensation as defined by the SEC. Realized compensation includes each NEOs’ earned salary, earned cash awards, value realized on vesting of stock awards, value realized on exercise of stock options, value realized on vesting of performance unit awards and all other compensation, which includes matching contributions to our 401(k) plan, the dollar values of life insurance coverage, charitable gifts made on behalf of NEOs pursuant to our charitable gift matching program, wellness reimbursements and health savings contributions, among other items.
The following table summarizes, with respect to our NEOs, information relating to the realized compensation earned for services rendered in all capacities during the fiscal years ended December 31, 2022, 2021 and 2020.
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| Realized compensation |
Name | 2022 | | 2021 | | 2020 |
Jason Pigott | $ | 8,396,829 | | | $ | 3,552,764 | | | $ | 1,807,413 | |
Bryan Lemmerman | $ | 2,715,390 | | | $ | 2,891,680 | | | $ | 1,223,662 | |
Karen Chandler | $ | 13,865,985 | | | $ | 1,682,864 | | | $ | 978,892 | |
Mark Denny | $ | 1,660,475 | | | $ | 1,011,029 | | | $ | 662,752 | |
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66 | Vital Energy, Inc. 2023 Proxy Statement |
Grants of Plan-Based Awards for the Year Ended December 31, 2022
The following table provides information concerning each award granted to our NEOs under any plan during the year ended December 31, 2022. The grant-date fair values presented in the following table were computed in accordance with FASB ASC Topic 718 as described in Note 9 to our audited consolidated financial statements in our 2022 Annual Report, and not the Grant Value.
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| | Estimated future payouts under non-equity incentive plan awards(1) | | All other stock awards: Number of shares of stock(2) (#) | | Estimated future payout under equity incentive plan awards (Performance units)(3) | | Grant-date fair value of stock awards ($) |
Name | Grant date | Threshold ($) | Target ($) | Maximum ($) | | | Threshold (#)(4) | Target (#)(5) | Maximum (#)(6) | |
Jason Pigott | 2/22/2022 | 477,765 | | 955,529 | | 1,911,058 | | | 28,810 | | | 10,804 | | 28,810 | | 64,823 | | | 4,516,832 | |
Bryan Lemmerman | 2/22/2022 | 210,721 | | 421,442 | | 842,884 | | | 27,235 | | | 4,811 | 12,830 | | 28,868 | | | 2,976,911 | |
Karen Chandler(7) | 2/22/2022 | N/A | N/A | N/A | | 14,045 | | | N/A | N/A | N/A | | 2,201,975 | |
Mark Denny | 2/22/2022 | 157,332 | | 314,663 | | 629,326 | | | 6,763 | | | 2,536 | 6,763 | | 15,217 | | | 1,060,303 | |
(1)Estimated future payout is based on the Company’s achievement over a one-year period of the 2022 STIP metrics, along with each individual’s 2022 STIP target percentage. See page 55 for the 2022 STIP metrics and 2022 individual STIP targets. In order to determine the value of “Threshold”, “Target” and “Maximum” payout, achievements over a one-year period of 50%, 100% and 200% of the 2022 STIP target percentage were utilized, respectively.
(2)The restricted stock’s grant-date fair value was based on the closing price of our common stock on the NYSE on February 22, 2022, which was $67.02 per share. These shares vest 33%, 33% and 34% on a time basis per year beginning on the first anniversary date of the grant, except for a one-time retention grant of 14,405 shares included in Mr. Lemmerman’s 2022 restricted stock awards which will cliff-vest at the end of the third anniversary of the grant date.
(3)The combined grant-date fair value per performance unit is $89.76. See the table below for additional information. These performance units are payable in stock upon a three-year cliff vest based on achievement of specific levels for each of the PSU Matrix Component, Net Debt/Consolidated EBITDAX Component, Inventory Growth Component and ESG Component, with achieved points between levels to be interpolated, for the performance period of January 1, 2022 to December 31, 2024.
(4)In order to determine the “Threshold” number of units, an achievement over a three-year period of 50% PSU Matrix performance equaling 25% (12.5% of total performance units payable in stock), 20% Net Debt/Consolidated EBITDAX equaling 1.75 (10% of total performance units payable in stock), 15% Inventory Growth equaling 165 wells added (7.5% of total performance units payable in stock), 15% ESG emissions reduction equaling 8% (7.5% of total performance units payable in stock) were utilized, resulting in an aggregate of 37.5% of total performance units payable in stock.
(5)In order to determine the “Target” number of units, an achievement over a three-year period of 50% PSU Matrix performance equaling 100% (50% of total performance units payable in stock), 20% Net Debt/Consolidated EBITDAX equaling 1.5 (20.0% of total performance units payable in stock), 15% Inventory Growth equaling 275 wells added (15% of total performance units payable in stock), 15% ESG emissions reduction equaling 16% (15% of total performance units payable in stock) were utilized were utilized, resulting in an aggregate of 100% of total performance units payable in stock.
(6)In order to determine the “Maximum” number of units, an achievement over a three-year period of 50% PSU Matrix performance equaling 250% (125.0% of total performance units payable in stock), 20% Net Debt/Consolidated EBITDAX equaling 1.0 (40% of total performance units payable in stock), 15% Inventory Growth equaling 385 wells added (30% of total performance units payable in stock), 15% ESG emissions reduction equaling 22% (30% of total performance units payable in stock) were utilized were utilized, resulting in an aggregate of 225% of total performance units payable in stock.
(7)Effective August 24, 2022, upon her involuntary departure from the Company, Dr. Chandler's unvested awards were forfeited.
The following table presents the grant-date fair values per performance unit computed in accordance with FASB ASC Topic 718:
| | | | | |
| February 22, 2022 |
Market criteria: | 50% PSU Matrix Component |
Grant-date fair value per performance unit(1)
| $112.49 |
Performance criteria: | 20% Net Debt/Consolidated EBITDAX Component
+ 15% Inventory Growth Component
+ 15% ESG Component
|
Grant-date fair value per performance unit(2)
| $67.02 |
Combined grant-date fair value per performance unit | $89.76 |
(1)The grant-date fair value per performance unit for the 50% PSU Matrix Component was determined utilizing a Monte Carlo simulation.
(2)The grant-date fair value per performance unit for the 20% Net Debt/Consolidated EBITDAX Component, 15% Inventory Growth Component and 15% ESG Component was determined based on the closing price of our common stock on the NYSE on the grant date.
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Executive Compensation Matters | 67 |
Vital Energy, Inc. Omnibus Equity Incentive Plan
Under the Equity Incentive Plan, awards of stock options, including both incentive stock options and nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units, stock bonus awards, performance unit awards and performance compensation awards (payable in cash or otherwise) may be granted. Subject to adjustment for certain corporate events, 2,432,500 shares is currently the maximum number of shares of our common stock authorized and reserved for issuance under the Equity Incentive Plan.
Eligibility
Our employees, consultants and directors and those of our affiliated companies, as well as those whom we reasonably expect to become our employees, consultants and directors or those of our affiliated companies are eligible for awards, provided that incentive stock options may be granted only to employees. A written agreement between us and each participant will evidence the terms of each award granted under the Equity Incentive Plan.
Shares Subject to the Equity Incentive Plan
The shares that may be issued pursuant to awards will be our common stock, $0.01 par value per share, and currently the maximum aggregate amount of common stock which may be issued upon exercise of all awards under the Equity Incentive Plan, including incentive stock options, may not exceed 2,432,500 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure. In addition, the maximum number of shares with respect to which options and/or stock appreciation rights may be granted to any participant in any one year period is limited to 717,500 shares, the maximum number of shares with respect to which incentive stock options may be granted to any participant in any one year period under the Equity Incentive Plan may not exceed 717,500 shares, no more than 717,500 shares may be earned in respect of performance compensation awards denominated in shares granted to any single participant for a single calendar year during a performance period, or in the event that the performance compensation award is paid in cash, other securities, other awards or other property, no more than the fair market value of 717,500 shares of common stock on the last day of the performance period to which the award related, and the maximum amount that can be paid to any single participant in one calendar year pursuant to a cash bonus award is $5 million, in each case, subject to adjustment for certain corporate events. In addition, no more than 71,750 shares of common stock may be issued in respect of awards granted to any single participant who is a non-employee director for a single calendar year.
If any award under the Equity Incentive Plan expires or otherwise terminates, in whole or in part, without having been exercised in full, the common stock withheld from issuance under that award will become available for future issuance under the Equity Incentive Plan. If shares issued under the Equity Incentive Plan are reacquired by us pursuant to the terms of any forfeiture provision, those shares will become available for future awards under the Equity Incentive Plan. Awards that can only be settled in cash will not be treated as shares of common stock granted for purposes of the Equity Incentive Plan.
Administration
Our Board of Directors, or a committee of members of our Board of Directors appointed by our Board of Directors, may administer the Equity Incentive Plan, and that administrator is referred to in this summary as the “administrator.” Among other responsibilities, the administrator selects participants from among the eligible individuals, determines the number of shares of common stock that will be subject to each award and determines the terms and conditions of each award, including exercise price, methods of payment and vesting schedules. Our Board of Directors may amend or terminate the Equity Incentive Plan at any time. Amendments will not be effective without stockholder approval if stockholder approval is required by applicable law or stock exchange requirements.
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68 | Vital Energy, Inc. 2023 Proxy Statement |
Adjustments in Capitalization
Subject to the terms of an award agreement, if there is a specified type of change in our common stock, such as dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization, appropriate equitable adjustments will be made to the various limits under, and the share terms of, the Equity Incentive Plan and the awards granted thereunder, including the maximum number of shares reserved under the Equity Incentive Plan, the maximum number of shares with respect to which any participant may be granted awards and the number, price or kind of shares of common stock or other consideration subject to awards to the extent necessary to preserve the economic intent of the award. In addition, subject to the terms of an award agreement, in the event of certain mergers, the sale of all or substantially all of our assets, our reorganization or liquidation, or our agreement to enter into any such transaction, the administrator may cancel outstanding awards and cause participants to receive, in cash, stock or a combination thereof, the value of the awards or provide for a substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on or termination of, awards, or providing for a period of time for exercise prior to the occurrence of such event.
Change in Control
In general, in the event of a change in control and the termination of the participant’s employment without cause or for good reason during the 18-month period immediately following a change in control, or if the successor to the Company does not assume or substitute awards under the Equity Incentive Plan, all options and stock appreciation rights subject to an award held by that participant will become fully vested and immediately exercisable and any restricted period imposed upon restricted awards of the participant will expire immediately (including a waiver of applicable performance goals). In addition, all incomplete performance periods will end, and any performance awards of the participant will be paid based upon assuming that the applicable target levels of performance have been attained. For the avoidance of doubt, equity awards that were outstanding as of May 20, 2021, and that are currently still outstanding, will continue to be subject to “single trigger” vesting.
Clawback Policy
Awards made to officers of the Company under the Equity Incentive Plan on or after December 31, 2021 are subject to the Company’s executive compensation clawback policy adopted November 2021 and described herein.
Nontransferability
In general, each award granted under the Equity Incentive Plan may be exercisable only by a participant during the participant’s lifetime or, if permissible under applicable law, by the participant’s legal guardian or representative. Except in very limited circumstances, no award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against us. However, the designation of a beneficiary will not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
Section 409A
The provisions of the Equity Incentive Plan and the awards granted under the Equity Incentive Plan are intended to comply with or be exempt from the provisions of Section 409A of the Code and the regulations thereunder.
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Executive Compensation Matters | 69 |
Outstanding Equity Awards at 2022 Fiscal Year-End
The following table provides information concerning restricted stock awards and performance unit awards that are not vested and stock option awards that are vested and exercisable for our NEOs as of December 31, 2022.
Outstanding Equity-Based Awards Table as of December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted stock awards | | Performance unit awards | | Stock option awards |
Name | Grant date | Number of shares not vested (#)(1) | Market value of shares not vested ($)(2) | | Number of unearned units not vested (#)(3) | Market value of units not vested ($)(2) | | Number of securities underlying unexercised options exercisable (#) | Exercise price ($) | Expiration date |
Jason Pigott | 2/22/2022 | 28,810 | | | $ | 1,481,410 | | | 21,608 | | | $ | 1,111,083 | | | — | | | $ | — | | — |
3/9/2021 | 33,046 | | | $ | 1,699,225 | | | 83,354 | | | $ | 4,286,063 | | | — | | | $ | — | | — |
3/5/2020 | 18,787 | | | $ | 966,028 | | | 83,432 | | | $ | 4,290,073 | | | — | | | $ | — | | — |
Bryan Lemmerman | 2/22/2022 | 27,235 | | | $ | 1,400,424 | | | 9,623 | | | $ | 494,815 | | | — | | | $ | — | | — |
3/9/2021 | 14,574 | | | $ | 749,395 | | | 36,759 | | | $ | 1,890,148 | | | — | | | $ | — | | — |
7/1/2020 | 19,304 | | | $ | 992,612 | | | — | | | $ | — | | | — | | | $ | — | | — |
Mark Denny | 2/22/2022 | 6,763 | | | $ | 347,753 | | | 5,072 | | | $ | 260,802 | | | — | | | $ | — | | — |
3/9/2021 | 7,651 | | | $ | 393,414 | | | 19,298 | | | $ | 992,303 | | | — | | | $ | — | | — |
3/5/2020 | 4,038 | | | $ | 207,634 | | | 17,936 | | | $ | 922,269 | | | — | | | $ | — | | — |
2/17/2017 | — | | | $ | — | | | — | | | $ | — | | | 504 | | | $ | 282.40 | | 2/17/2027 |
2/19/2016 | — | | | $ | — | | | — | | | $ | — | | | 1,338 | | | $ | 82.00 | | 2/19/2026 |
(1)Restricted shares granted in 2022, 2021 and 2020 vest 33%, 33% and 34% on a time basis per year beginning on the first anniversary date of the grant, except for a one-time retention grant of 14,405 shares included in Mr. Lemmerman’s 2022 restricted stock awards which will cliff-vest at the end of the third anniversary of the grant date.
(2)Market value is based on the $51.42 per share closing price of our common stock on the NYSE on December 30, 2022, the last trading day of the year.
(3)The performance share unit awards granted on March 5, 2020 had a performance period of January 1, 2020 to December 31, 2022, and resulted in a RTSR performance of 59th percentile compared to peer group, an ATSR Appreciation of 82% and an ROACE of 30%, which translates into an RTSR Factor, ATSR Factor and ROACE Factor of 99%, 200% and 155%, respectively, and together, is the Performance Multiple of 151%. As such, the granted units vested and were converted into cash during the first quarter of 2023 based on this Performance Multiple. For the March 9, 2021 performance unit awards, the potential payout percentages for the PSU Matrix Component, Net Debt/Consolidated EBITDAX Component and Inventory Growth Component pursuant to the next highest performance level of 138%, 200% and 200%, respectively, results in a potential Performance Multiple of 169% based on their actual performance through December 31, 2022 attaining 0% for the PSU Matrix Component, 0.8 for the Net Debt/Consolidated EBITDAX Component and 386 wells for the Inventory Growth Component. The performance unit awards granted March 9, 2021 have a performance period of January 1, 2021 to December 31, 2023, and any units earned under such awards are expected to be settled in cash in the first quarter of 2024 if the market and/or performance and vesting criteria are met. For the February 22, 2022 performance unit awards, the potential payout percentages for the PSU Matrix Component, Net Debt/Consolidated EBITDAX Component, Inventory Growth Component and ESG Component pursuant to the next highest performance level of 25%, 200%, 50% and 100%, respectively, results in a potential Performance Multiple of 75% based on their actual performance through December 31, 2022 attaining 0% for the PSU Matrix Component, 1.22 for the Net Debt/Consolidated EBITDAX Component, 114 wells for the Inventory Growth Component and 16.1 for the ESG Component. The performance unit awards granted February 22, 2022 have a performance period of January 1, 2022 to December 31, 2024, and any units earned under such awards are expected to be settled in shares of the Company’s common stock in the first quarter of 2025 if the market and/or performance and vesting criteria are met.
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70 | Vital Energy, Inc. 2023 Proxy Statement |
Performance Unit Award Peer Groups*
| | | | | | | | | | | |
Company | 2020 | 2021 | 2022 |
Amplify Energy Corp. | | | |
Antero Resources Corporation | | | |
Berry Corporation | | | |
Bonanza Creek, Energy Inc. | | | |
Brigham Minerals, Inc. | | | |
California Resources Corporation | | | |
Callon Petroleum Company | | | |
Chesapeake Energy Corporation | | | |
Civitas Resources, Inc. | | | |
CNX Resources Corporation | | | |
Comstock Resources, Inc. | | | |
Crescent Energy Company | | | |
Denbury Inc. | | | |
Earthstone Energy, Inc. | | | |
Evolution Petroleum Corporation | | | |
Extraction Oil & Gas, Inc. | | | |
Falcon Minerals | | | |
Gulfport Energy Corporation | | | |
HighPeak Energy, Inc. | | | |
HighPoint Resources Corporation | | | |
Kosmos Energy Ltd. | | | |
Magnolia Oil & Gas Corporation | | | |
Matador Resources Company | | | |
Montage Resources Corporation | | | |
Murphy Oil Corporation | | | |
Northern Oil & Gas, Inc. | | | |
Oasis Petroleum, Inc. | | | |
Ovintiv Inc. | | | |
PDC Energy, Inc. | | | |
PHX Minerals Inc. | | | |
PrimeEnergy Resources Corporation | | | |
QEP Resources, Inc. | | | |
Range Resources Corporation | | | |
Ranger Oil Corporation | | | |
Riley Exploration Permian, Inc. | | | |
Ring Energy, Inc. | | | |
SM Energy Company | | | |
Southwestern Energy Company | | | |
Talos Energy Inc. | | | |
Tellurian Inc. | | | |
W&T Offshore, Inc. | | | |
Whiting Petroleum Corp. | | | |
* Due to mergers and acquisitions, the Board approved removing Bonanza Creek Energy, Inc., Contango Oil & Gas Company, Goodrich Petroleum Corporation and Whiting Petroleum Corp. from the 2021 performance award peer group and removing Centennial Resource Development Inc, Falcon Minerals, Oasis Petroleum Inc. and Whiting Petroleum Corp. from the 2022 performance peer group.
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Executive Compensation Matters | 71 |
Stock Award Vestings, Stock Option Exercises and Performance Unit Vestings in Fiscal Year 2022
The following table provides information concerning the vesting of stock awards, the exercise of stock options and the vesting of performance units during fiscal year 2022 on an aggregated basis with respect to each of our NEOs.
Stock Award Vestings, Stock Option Exercises and Performance Unit Vestings for the Year Ended December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock awards | | Stock options | | Performance units |
Name | Shares acquired on vesting | Value realized on vesting(1) | | Shares acquired on exercise | | Value realized on exercise | | Shares acquired on vesting | Value realized on vesting(1) |
Jason Pigott | 50,227 | | | $ | 4,423,981 | | | — | | | $ | — | | | 31,450 | | | $ | 2,407,812 | |
Bryan Lemmerman | 25,912 | | | $ | 1,832,231 | | | — | | | $ | — | | | — | | | $ | — | |
Karen Chandler | 24,379 | | | $ | 1,924,546 | | | — | | | $ | — | | | 14,838 | | | $ | 1,135,997 | |
Mark Denny | 8,969 | | | $ | 707,767 | | | — | | | $ | — | | | 4,029 | | | $ | 308,460 | |
(1)The value realized upon vesting was calculated utilizing the closing stock price on the vesting date.
See page 57 for details regarding the 2020 performance unit awards that vested during the first quarter of 2023.
Pension Benefits
We maintain a 401(k) Plan for our employees, including our NEOs, but at this time we do not sponsor or maintain a pension plan for any of our employees.
Nonqualified Deferred Compensation
We do not provide a nonqualified deferred compensation plan for our employees at this time.
Potential Payments Upon Termination or Change in Control
Severance
As described above, we do not maintain individual employment agreements. The Company has adopted the Change in Control Plan and the Severance Plan, which provide severance payments and benefits to our NEOs and eligible persons with the title of vice president and above, as determined by our Compensation Committee. See Employment, Severance or Change in Control Agreements for additional information. In order to be eligible for severance benefits under the policies, our NEOs have executed a confidentiality, non-disparagement and non-solicitation agreement.
Restricted Stock
The restricted stock may be affected by a NEO’s termination of employment or the occurrence of certain corporate events. In the event of the termination of a NEO’s employment by the Company, with or without cause, or the NEO’s resignation for any reason, the NEO will generally forfeit all restricted stock to us.
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72 | Vital Energy, Inc. 2023 Proxy Statement |
If the NEO’s employment with the Company is terminated upon the death of the NEO or because the NEO is determined to be disabled by the Board of Directors, then all of his or her restricted stock will automatically vest. A NEO will be considered to have incurred a “disability” in the event of the officer’s inability to perform, even with reasonable accommodation, on a full-time basis the employment duties and responsibilities due to accident, physical or mental illness, or other circumstance; provided, however, that such inability continues for a period exceeding 180 days during any 12-month period.
In the event of a change in control, all restricted stock awards will become fully vested as of the date of the change in control, provided that the NEO remains employed by the Company through the date of such change in control. For purposes of these restricted stock awards, a “change in control” generally means:
(i)any person acquires beneficial ownership of our securities representing 40% or more of the combined voting power of our outstanding securities (provided, however, that if the surviving entity becomes a subsidiary of another entity, then the outstanding securities shall be deemed to refer to the outstanding securities of the parent entity);
(ii)a majority of the membersdiscretion of the Board of Directors, who were directors asto solicit additional proxies if there are insufficient votes to adopt the Charter Amendment Proposal or the Conversion Proposal at the time of the dateSpecial Meeting. If stockholders approve the Adjournment Proposal, we could adjourn the Special Meeting and any adjourned session of the corporate reorganization no longer serve as directors;Special Meeting and use the additional time to solicit additional proxies, including soliciting proxies from stockholders that have previously returned properly executed proxies voting against the Charter Amendment Proposal or
(iii)the consummation of a merger or consolidation of our Company with anyConversion Proposal. Among other entity, other than a merger or consolidation which would result in our voting securities outstanding immediately prior thereto continuing to represent more than 40%things, approval of the combined voting powerAdjournment Proposal could mean that, even if we had received proxies representing a sufficient number of our voting securities outstanding immediately aftervotes against the Charter Amendment Proposal or Conversion Proposal such mergerthat the Charter Amendment Proposal or consolidation.
Stock Options
Stock option awards mayConversion Proposal, as applicable, would be affected bydefeated, we could adjourn the Special Meeting without a NEO’s terminationvote on the Charter Amendment Proposal or Conversion Proposal and seek to convince the holders of employment or the occurrence of certain corporate events. The unvested portion of a stock option award shall expire upon termination of employment, and the vested portion of a stock option award shall remain exercisable for (i) one year following termination of employment by reasonthose shares to change their votes to votes in favor of the holder’s deathCharter Amendment Proposal and Conversion Proposal. Additionally, we may seek to adjourn the Special Meeting if a quorum is not present or disability, but not later thanotherwise at the expirationdiscretion of the option period, or (ii) 90 days following termination of employment for any reason other than the holder’s death or disability, and other than the holder’s termination of employment for cause. Both the unvested and the vested but unexercised portion of a stock option award shall expire upon the terminationchairman of the option holder’s employment or service by the CompanySpecial Meeting.
Vote Required for cause.Approval
In the event of a change in control (which for these purposes is the same as described for restricted stock above), provided that the NEO remains employed by the Company through the date of such change of in control, all stock option awards will become fully vested and exercisable with respect to all shares of common stock covered thereby asApproval of the dateAdjournment Proposal whether or not a quorum is present, requires the affirmative vote of the change in control.votes cast at the Special Meeting. Abstentions, if any, are not treated as votes cast, and therefore will have no effect on this proposal. As this proposal is considered routine under NYSE rules, there will be no broker non-votes on this proposal.
Performance Unit Awards
Performance unit awards may be affected by a NEO’s terminationRecommendation of employment or the occurrence of certain corporate events. If the executive’s employment with the Company is terminated by the Company for any reason, with or without cause, or the executive resigns (in either case, other than by reason of death or disability) prior to the maturity date of the performance unit award, then no amount shall generally be issued or paid in respect of the award. If, prior to the maturity date, the executive’s employment with the Company terminates either by reason of death or because the executive is determined by the Board of Directors or the Compensation Committee to be subject to a disability, then the executive shall be eligible to receive a prorated performance unit award, taking into account the time that the executive was employed during the performance period prior to the date of such termination. The performance units granted to each recipient in
2020 are payable in cash in the first quarter of 2023 based on the Performance Multiple of 151%. The performance units granted to each recipient in 2021 and 2023 are payable in cash. The performance units granted to each recipient in 2022 are payable in cash, common stock of the Company or a combination of cash and common stock, with the current election being common stock.THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADJOURNMENT PROPOSAL.
15
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Executive Compensation Matters | 73 |
In the event of a change in control (which for these purposes is the same as described for restricted stock above), provided that the NEO remains employed by the Company through the date of such change in control, the “performance periods” in effect on the date the change in control occurs shall end on such date, and either the Board of Directors or the Compensation Committee shall determine the extent to which the performance goals with respect to each such performance period have been met, based upon such audited or unaudited financial information or other information then available as it deems relevant. The Board of Directors or Compensation Committee shall then cause each holder of performance unit awards to receive partial, full or no issuance of such awards for each performance period (including a potential range from 0% to 225%), based on the Board of Directors’ or Compensation Committee’s determination of the degree of attainment of the performance goals or that the applicable “target” levels of performance have been attained or on such other basis determined by the Board of Directors or Compensation Committee.
Potential Payments upon Termination or Change in Control Table for Fiscal Year 2022
The information set forth in the table below for Mr. Pigott, Mr. Lemmerman and Mr. Denny is based on the assumption that the applicable triggering event under the Change in Control Plan or the applicable restricted stock award, stock option award or performance unit award agreement to which each NEO was a party occurred on December 31, 2022, the last business day of fiscal year 2022. Accordingly, for these NEOs the information reported in the table indicates the amount of cash severance and benefits that would be payable, and the value of restricted stock awards, stock option awards and performance unit awards that would vest or become exercisable, by reason of a termination under the circumstances described above, or upon a change in control, and is our best estimation of our obligations to each NEO and will only be determinable with any certainty upon the occurrence of the applicable event. For Dr. Chandler, the information set forth in the table below reflects the actual amount received in connection with her involuntary departure.
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74 | Vital Energy, Inc. 2023 Proxy Statement |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Termination without cause/for good reason outside of a change in control | Change in control (must be coupled with Termination without cause/for good reason)(1) | Change in control only | Termination for cause | Termination due to death or disability |
Jason Pigott | | | | | | | | | | |
Salary | | $ | — | | | $ | 2,325,000 | | | $ | — | | | $ | — | | | $ | — | |
Bonus | | — | | | 2,906,250 | | | — | | | — | | | — | |
Accelerated Equity RS(2) | | — | | | 4,146,663 | | | 4,146,663 | | | — | | | 4,146,663 | |
Accelerated Equity PS(2)(3) | | — | | | 8,972,122 | | | 8,972,122 | | | — | | | 8,972,122 | |
Continued Medical | | — | | | 39,818 | | | — | | | — | | | — | |
Total | | $ | — | | | $ | 18,389,853 | | | $ | 13,118,785 | | | $ | — | | | $ | 13,118,785 | |
Bryan Lemmerman | | | | | | | | | | |
Salary | | $ | — | | | $ | 950,000 | | | $ | — | | | $ | — | | | $ | — | |
Bonus | | — | | | 855,000 | | | — | | | — | | | — | |
Accelerated Equity RS(2) | | — | | | 3,142,431 | | | 3,142,431 | | | — | | | 3,142,431 | |
Accelerated Equity PS(2)(3) | | — | | | 2,067,135 | | | 2,067,135 | | | — | | | 2,067,135 | |
Continued Medical | | — | | | 26,781 | | | — | | | — | | | — | |
Total | | $ | — | | | $ | 7,041,347 | | | $ | 5,209,566 | | | $ | — | | | $ | 5,209,566 | |
Mark Denny | | | | | | | | | | |
Salary | | $ | — | | | $ | 750,000 | | | $ | — | | | $ | — | | | $ | — | |
Bonus | | — | | | 637,500 | | | — | | | — | | | — | |
Accelerated Equity RS(2) | | — | | | 948,801 | | | 948,801 | | | — | | | 948,801 | |
Accelerated Equity PS(2)(3) | | — | | | 2,008,002 | | | 2,008,002 | | | — | | | 2,008,002 | |
Accelerated Equity Options(2) | | — | | | — | | | — | | | — | | | — | |
Continued Medical | | — | | | 39,818 | | | — | | | — | | | — | |
Total | | $ | — | | | $ | 4,384,121 | | | $ | 2,956,803 | | | $ | — | | | $ | 2,956,803 | |
Karen Chandler(4) | | | | | | | | | | |
Total Severance | | $ | 10,420,145 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Continued Medical | | 13,919 | | | — | | | — | | | — | | | — | |
Total | | $ | 10,434,064 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
(1)Our Change in Control Plan, which was applicable to each of the NEOs effective December 31, 2022, provides that in the event that during the 18-month period following a change in control the employment of a NEO is terminated by the employer without cause or by the NEO for good reason, then the NEO is entitled to 200% (300% in the case of Mr. Pigott) of such NEO’s salary rate and 200% (300% in the case of Mr. Pigott) of such NEO’s STIP target cash award, plus a prorated STIP cash award in the year of termination, plus company paid COBRA continuation coverage for up to 18 months. In addition, the Equity Incentive Plan provides that in the event of a change in control, (i) with respect to restricted stock awards, the restricted period shall expire and restrictions applicable to outstanding restricted stock awards shall lapse and such awards shall become fully vested; (ii) with respect to stock option awards, all options will become fully vested and exercisable with respect to all shares of common stock covered thereby as of the date of the change in control; and (iii) with respect to performance unit awards, the “performance periods” in effect on the date the change in control occurs shall end on such date, and either the Board of Directors or the Compensation Committee shall determine the extent to which the performance goals with respect to each such performance period have been met and shall then cause each holder of performance unit awards to receive partial, full or no issuance or cash payment, as applicable, of such awards for each performance period. The STIP cash bonus amounts for each NEO do not include STIP cash award earned and paid in 2022. For purposes of determining the value of the restricted stock awards and performance unit awards, the fair market value per share of our common stock was $51.42 on December 31, 2022.
(2)At December 31, 2022, the only forms of equity-based awards held by the NEOs consisted of restricted stock awards, stock option awards and performance unit awards. Each such award may be impacted by the termination of the holder’s employment by the Company, depending on the reason for such termination, as follows: (i) the NEOs’ restricted stock awards provide that if the NEO’s employment is terminated for any reason other than death or a determination of disability, but not later than the expiration of the option period, then the NEO forfeits his or her unvested shares; in the event of termination by death or disability, all unvested shares automatically vest; (ii) the stock option awards provide that the unvested portion of a stock option award shall expire upon termination of employment, and the vested portion of a stock option award shall remain exercisable for (a) one year following termination of employment by reason of the holder’s death or disability, but not later than the expiration of the option period, or (b) 90 days following termination of employment for any reason other than the holder’s death or disability, and other than the holder’s termination of employment for cause; provided both the unvested and the vested but unexercised portion of a stock option award shall expire upon the termination of the option holder’s employment or service by the Company for cause; and (iii) the performance unit awards provide that if the executive’s employment with the Company is terminated by the Company for any reason, with or without cause, or the executive resigns (in either case, other than by reason of death or disability) prior to the maturity date of the performance unit award, then no amount shall be paid in respect of the award. If, prior to the maturity date the executive’s employment is terminated with the Company either by reason of death or because the executive is determined by the Board of Directors or the Compensation Committee to be subject to a disability, then the executive shall be eligible to receive a pro-rated performance unit award, taking into account the time that the executive was employed during the performance period prior to the date of such termination.
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Executive Compensation Matters | 75 |
(3)For the purposes of this table, the performance period was assumed to have ended on December 31, 2022 for the February 22, 2022 and March 9, 2021 performance unit awards and actually did end on December 31, 2022 for the March 5, 2020 performance unit awards. At December 31, 2022 (without consideration of any potential impact such change in control event may have), (i) the February 22, 2022 performance unit awards had payout percentages of 0% for the PSU Matrix Component, 148% for the Net Debt/Consolidated EBITDAX Component, 0% for the Inventory Growth Component and 50% for the ESG Component, resulting in a Performance Multiple of 37%, (ii) the March 9, 2021 cash-settled performance unit awards had payout percentages of 125% for the PSU Matrix Component, 200% for the Net Debt/Consolidated EBITDAX Component and 200% for the Inventory Growth Component, resulting in a Performance Multiple of 163%, and (iii) the March 5, 2020 cash-settled performance unit awards had an RTSR Factor of 99%, an ATSR Factor of 200% and an ROACE Factor of 155%, resulting in a Performance Multiple of 151%.
(4)Of the total amount paid to Dr. Chandler, 86% was due to payment for previously granted restricted stock and performance units that were cancelled. The cancelled awards were valued at $76.85 per share, the Company’s price on August 23, 2022. Approximately 14% of the total payment to Dr. Chandler was the cash severance payment amount prescribed under the Executive Severance Plan.
For information on our Change in Control Plan adopted in 2011, and our Severance Plan adopted in 2020, please see the Employee, Severance or Change In Control Agreements section.
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76 | Vital Energy, Inc. 2023 Proxy Statement |
Securities Authorized for Issuance Under the Equity Incentive Plan
At December 31, 2022, a total of 2,432,500 shares of common stock were authorized for issuance under the Equity Incentive Plan. In the table below, we describe certain information about these shares and the Equity Incentive Plan that provides for their authorization and issuance. You can find a description of the Equity Incentive Plan under "—Vital Energy, Inc. Omnibus Equity Incentive Plan."
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Plan category | Number of securities to be issued upon exercise of outstanding options or performance units(1)(2) | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding outstanding options and performance units)(1)(3) |
Equity compensation plan approved by security holders(3) | 51,865 | | | | $ | 235.08 | | | 979,910 | | |
Equity compensation plan not approved by security holders | — | | | | $ | — | | | — | | |
Total | 51,865 | | | | | | 979,910 | | |
(1)The formula for calculating the number of securities remaining available for future issuance includes the February 22, 2022 performance units at target level.
(2)This column includes 3,462 in outstanding options and 48,403 in outstanding performance units.
(3)See Vital Energy, Inc. Omnibus Equity Incentive Plan in our Compensation Tables for more information.
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our CEO. We are utilizing a new median employee after utilizing the same median employee in the 2019, 2020 and 2021 Proxy Statements. We identified this new median employee using our employee population as of December 31, 2022. For 2022, our last completed fiscal year:
•The median employee’s total annual compensation for 2022, in accordance with the requirements of the Summary Compensation Table, was $145,245; and
•The annual total compensation of our CEO, as reported in the Summary Compensation Table, was $6,081,868.
Based on this information the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees in 2022 was calculated to be 42 to 1.
Methodology and Assumptions
Total compensation amounts are required to be calculated using the SEC's compensation disclosure rules applicable to reporting compensation in the summary compensation table of the proxy statement. Median employee compensation used to calculate the pay ratio is required to be the total compensation paid to an actual employee of the company. We identified a new median employee in 2022 using our total employee population, excluding our Chief Executive Officer, as of December 31, 2022 by applying a consistently applied compensation measure across our employee population (all of whom are located in the United States), using the following factors:
•Salary rate and wages paid during 2022
•Overtime paid during 2022;
•STIP paid for 2022 performance; and
•Grant-date fair value of all restricted stock awards and share-settled performance unit awards made during 2022.
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Executive Compensation Matters | 77 |
We believe our consistently applied compensation measure represents the primary compensation components paid to all of our employees and therefore provides an accurate depiction of total earnings for the purpose of identifying our median employee. We then calculated the median employee's total annual compensation in accordance with the requirements of the summary compensation table. We did not use any material estimates, assumptions, adjustments or statistical sampling to determine the median employee.
Pay Versus Performance
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information about the relationship of executive “compensation actually paid”, or “CAP”, and certain financial performance of the Company. The following table shows, for the past three fiscal years, total compensation as reported in the Summary Compensation Table for our CEO and the average for our other NEOs, as compared to CAP and the Company’s financial performance. To determine CAP, we are required to make various adjustments to amounts that have been reported in the Summary Compensation Table, as the SEC’s rules for calculating CAP emphasize the changes in fair value of equity awards under applicable financial accounting standards (as further detailed in footnotes below).
Pay Versus Performance Table
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| | | | | Value of initial fixed $100 investment based on: | | |
Year | Summary Compensation Table Total for CEO($)(1) | Compensation Actually Paid to CEO($)(1)(3) | Average Summary Compensation Table Total for other NEOs($)(2) | Average Compensation Actually Paid to other NEOs($)(2)(3) | Total Shareholder Return($) | Peer Group Total Shareholder Return($)(4) | Net Income ($ in ‘000s) | Free Cash Flow ($ in ‘000s)(5) |
2022 | 6,081,868 | | 4,599,210 | | 6,190,682 | | 2,704,360 | | 89.58 | | 154.88 | | 613,512 | | 219,941 | |
2021 | 5,933,849 | | 17,125,786 | | 2,650,349 | | 6,798,965 | | 104.76 | | 106.29 | | 145,008 | | (2,829) | |
2020 | 3,296,586 | | 472,906 | | 1,903,765 | | 1,314,941 | | 34.32 | | 63.42 | | (874,173) | | 12,056 | |
(1)Mr. Pigott was our CEO for each of 2022, 2021, and 2020.
(2)For 2022 and 2021, the other NEOs were Dr. Chandler and Messrs. Lemmerman and Denny. For 2020, the other NEOs were Dr. Chandler, Messrs. Lemmerman and Denny and Michael Beyer.
(3)The dollar amounts reported represent the amount of CAP to the applicable NEO, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid during the applicable year. The following adjustments were made to reconcile the Summary Compensation Table total each year to CAP:
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78 | Vital Energy, Inc. 2023 Proxy Statement |
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Year | Executive(s) | Summary Compensation Table Total($) | Subtract Fair Value of Equity Awards Granted in the Year($) | Add Year-End Fair Value of Outstanding and Unvested Equity Awards Granted in the Year($) | Add Year-over-Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years($) | | Add Change in Fair Value from Prior Year-End to Vesting Date for Equity Awards Granted in Prior Years that Vested in the Year($) | Subtract Fair Value as of Prior Year-End for Equity Awards Granted in Prior Years that Failed to Meet Vesting Conditions in the Year($) | | Total Equity Award Adjustments($) | Compensation Actually Paid($) |
2022 | CEO | 6,081,868 | | (4,516,832) | | 2,935,451 | | (1,818,367) | | | 1,917,090 | | — | | | 3,034,174 | | 4,599,210 | |
| Other NEOs | 6,190,682 | | (2,079,730) | | 912,345 | | (323,521) | | | 403,056 | | (2,398,472) | | | (1,406,592) | | 2,704,360 | |
2021 | CEO | 5,933,849 | | (4,008,399) | | 7,450,088 | | 6,782,647 | | | 967,601 | | — | | | 15,200,336 | | 17,125,786 | |
| Other NEOs | 2,650,349 | | (1,644,878) | | 3,057,202 | | 2,153,301 | | | 582,991 | | — | | | 5,793,494 | | 6,798,965 | |
2020 | CEO | 3,296,586 | | (1,757,051) | | 2,543,296 | | (3,002,166) | | | (607,759) | | — | | | (1,066,629) | | 472,906 | |
| Other NEOs | 1,903,765 | | (730,742) | | 785,010 | | (409,762) | | | (82,650) | | (150,680) | | | 141,918 | | 1,314,941 | |
(4)Peer Group Total Shareholder Return represents the total shareholder return of the S&P Oil & Gas Exploration & Production Select Industry Index.
(5)Free Cash Flow is a non-GAAP measure; please see Annex A for descriptions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP measures.
The fair value of equity awards includes (i) restricted stock awards, (ii) performance unit awards and (iii) de minimis amounts for stock option awards. The measurement-date fair value of restricted stock awards was determined based on the market price of the Company's common stock on the applicable measurement date (i.e., the vesting date or the last day of the applicable fiscal year, as required by SEC rules). The performance unit awards include both a market-based component and a performance-based component. The measurement-date fair value of the market-based component was determined using a Monte Carlo fair value simulation model incorporating the assumptions below. The measurement-date fair value of the performance-based criteria was determined based upon the measurement-date stock price.
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Grant Year | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
Measurement Date | | 12/31/2019 | | 12/31/2019 | 12/31/2020 | | 12/31/2020 | 12/31/2021 | | 12/31/2021 | 12/31/2022 | | 12/31/2022 |
Remaining Performance Period | | 1.00 years | | 2.00 years | 1.00 years | | 2.00 years | 1.00 years | | 2.00 years | 1.00 years | | 2.00 years |
Risk-free interest rate | | 1.58 | % | | 1.57 | % | 0.10 | % | | 0.13 | % | 0.39 | % | | 0.73 | % | 4.62 | % | | 4.31 | % |
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Expected volatility | | 63.11 | % | | 62.79 | % | 170.98 | % | | 127.77 | % | 86.17 | % | | 135.42 | % | 79.77 | % | | 83.06 | % |
The measurement-date fair value assumptions outlined above are different from the assumptions utilized in determining the grant-date fair value. The assumptions utilized in estimating the grant-date fair value of the market-based component of the performance unit awards are outlined below.
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Grant Date | | 2/16/2018 | | 2/28/2019 | 6/3/2019 | | 3/5/2020 | | 3/15/2021 | | 2/22/2022 |
Remaining performance period on grant date | | 2.87 years | | 2.63 years | 2.58 years | | 2.82 years | | 2.81 years | | 2.86 years |
Risk-free interest rate | | 2.34 | % | | 2.14 | % | 1.27 | % | | 0.60 | % | | 0.32 | % | | 1.71 | % |
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Expected volatility | | 65.49 | % | | 55.01 | % | 55.45 | % | | 60.41 | % | | 114.60 | % | | 119.25 | % |
Narrative to Pay Versus Performance Table
This section should be read in conjunction with the CD&A on page 43, which includes additional discussion of our objectives of executive compensation and benefits program and how they are aligned with the company’s financial and operational performance. The Compensation Committee does not use CAP as a basis for making compensation decisions, nor do we use the performance measure of Net Income, as defined by the SEC for purposes of the Pay Versus Performance Table above, to measure performance for compensation.
The charts below show, for the past three years, the relationship of Total Shareholder Return relative to our Peer Group Total Shareholder Return as well as the relationships between CEO and Average Other NEO CAP and (i) Total Shareholder Return; (ii) Net Income; and (iii) Free Cash Flow.
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Executive Compensation Matters | 79 |
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80 | Vital Energy, Inc. 2023 Proxy Statement |
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2022 Performance Measures | | Most Important Performance Measures |
We consider the performance measures listed in the table to the right as the most important performance measures used by us to link NEO compensation for 2022 to Company performance. Each of these measures is described in more detail in the CD&A under the section “2022 Compensation Alignment & Pay for Performance.” | | Free Cash Flow |
| Absolute Total Shareholder Return |
| Net Debt/Consolidated EBITDAX |
| Inventory Growth |
| Environmental/Safety |
Stock Ownership Information
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of outstanding common stock by
(i)
beneficial owners of more than five percent of the Company’s outstanding common stock as of March 28,October 19, 2023, of which is determined using the aggregate amount beneficially owned by each reporting person reported in a Schedule 13D or Schedule 13G filing with the SEC as of the date of event which requires filing of such statement,
(ii)
each director of the Company as of March 28,October 19, 2023,
(iii)
each NEO of the Company, as of March 28, 2023 and
(iv)
all of the Company’s directors and executive officers as a group as of March 28,October 19, 2023.
Unless otherwise noted, the mailing address of each person or entity named below is:
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c/o Vital Energy, Inc. Santa Fe Plaza 521 E. 2nd Street Suite 1000
Tulsa, Oklahoma 74120
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82 | Vital Energy, Inc. 2023 Proxy Statement |
is c/o Vital Energy, Inc., Santa Fe Plaza, 521 E. 2nd Street, Suite 1000, Tulsa, Oklahoma 74120.Beneficial ownership is determined in accordance with SEC rules. Shares not outstanding but deemed beneficially owned by virtue of the right of a person to acquire shares within 60 days of March 28,October 19, 2023, are included as outstanding and beneficially owned for that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as noted in the footnotes below, the holders have sole voting and dispositive powers over the shares.
Name of person or identity of group | | | Number of shares | | | Percentage of class(1) | |
BlackRock, Inc.(2) | | | | | 2,677,720 | | | | | | % | | |
State Street Corporation(3) | | | | | 2,443,942 | | | | | | % | | |
The Vanguard Group(4) | | | | | 1,152,140 | | | | | | % | | |
William E. Albrecht(5) | | | | | 17,276 | | | | | | * | | |
Karen Chandler | | | | | — | | | | | | — | | |
Mark Denny(6) | | | | | 20,336 | | | | | | * | | |
John Driver(5) | | | | | 2,889 | | | | | | * | | |
Frances Powell Hawes(5) | | | | | 17,967 | | | | | | * | | |
Jarvis V. Hollingsworth(5) | | | | | 6,582 | | | | | | * | | |
Dr. Craig M. Jarchow(5) | | | | | 12,794 | | | | | | * | | |
Dr. Shihab A. Kuran(5) | | | | | 2,889 | | | | | | * | | |
Lisa M. Lambert | | | | | 8,270 | | | | | | * | | |
Lori A. Lancaster(5) | | | | | 6,079 | | | | | | * | | |
Bryan Lemmerman | | | | | 66,718 | | | | | | * | | |
Jason Pigott | | | | | 121,775 | | | | | | * | | |
Edmund P. Segner, III(5) | | | | | 19,660 | | | | | | * | | |
Directors and executive officers as a group (13 persons) | | | | | 303,235 | | | | | | % | | |
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Name of person or identity of group | Number of shares | Percentage of class(1) |
BlackRock, Inc.(2) | 2,677,720 | | 15.7 | % |
State Street Corporation(3) | 2,443,942 | | 14.4 | % |
The Vanguard Group(4) | 1,152,140 | | 6.8 | % |
William E. Albrecht(5) | 15,593 | | * |
John Driver(5) | 1,521 | | * |
Mark Denny(6) | 25,832 | | * |
Frances Powell Hawes(5) | 16,599 | | * |
Jarvis V. Hollingsworth(5) | 5,214 | | * |
Dr. Craig M. Jarchow(5) | 11,426 | | * |
Dr. Shihab A. Kuran(5) | 1,521 | | * |
Lisa M. Lambert | 6,902 | | * |
Lori A. Lancaster(5) | 4,711 | | * |
Bryan Lemmerman | 75,232 | | * |
Jason Pigott | 121,775 | | * |
Edmund P. Segner, III(5) | 19,447 | | * |
Directors and executive officers as a group (12 persons) | 305,773 | | 1.8 | % |
*
Denotes less than 1% beneficially owned.
(1)
Based upon an aggregate of 17,025,123 shares of common stock outstanding as of March 28,October 19, 2023.
(2)
This share ownership information was provided in a Schedule 13G/A filed on January 26, 2023 by BlackRock, Inc., which disclosed that of the reported shares, such entity possesses sole voting and dispositive power of 2,660,413 shares and 2,677,720 shares, respectively. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
(3)
This share ownership information was provided in a Schedule 13G/A filed on February 13, 2023 by State Street Corporation, which disclosed that of the reported shares, such entity possesses shared voting and dispositive power of 2,434,022 shares and 2,443,942 shares, respectively. The address of State Street Corporation is 1 Lincoln Street, Boston, Massachusetts 02111.
(4)
This share ownership information was provided in a Schedule 13G/A filed on February 9, 2023 by The Vanguard Group, which disclosed that of the reported shares, such entity possesses shared voting and dispositive power of 39,411 shares and 52,170 shares, respectively, and sole dispositive power of 1,099,970 shares. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
(5)
Includes deferred stock compensation received pursuant to the Director Deferred Compensation Plan.
(6)
Includes aggregated vested and exercisable stock options of 1,842 for Mr. Denny within 60 days of March 28,October 19, 2023.
SCAN TOVIEW MATERIALS & VOTE VITAL ENERGY, INC.521 E. 2ND STREET, SUITE 1000TULSA, OK 74120 VOTE BY INTERNET - www.proxyvote.com or scan the upper right-hand portion of your proxy material. Use any touch-tone telephoneQR Barcode aboveUse the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M.p.m. Eastern Daylight Time on May 24,November 20, 2023.
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Mark, sign and date Have your proxy card in hand when you access the web site and return it infollow the postage-paid envelope we have provided.
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Ifinstructions to obtain your records and to create an electronic voting instruction form.ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALSIf you would like to reduce the costs incurred by usour company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.years.VOTE BY PHONE - 1-800-690-6903Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on November 20, 2023. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: V24842-S75355 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
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It is important that proxies be returned promptly. Whether or not you expect to attend the meeting in person, you are urged to vote by Internet, by phone or, if you have received paper copies of the proxy material, by completing, signing and returning the proxy in the enclosed postage-paid, addressed envelope.
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By Order of the Board of Directors, |
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Mark D. Denny
Senior Vice President, Secretary and General Counsel
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Tulsa, Oklahoma
April 6, 2023
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94 | Vital Energy, Inc. 2023 Proxy Statement |
Annex A
Annex A—Non-GAAP Financial Measures
The non-GAAP financial measuresImportant Notice Regarding the Availability of Free Cash Flow, Consolidated EBITDAX and Net Debt, as defined by us, may not be comparable to similarly titled measures used by other companies. Therefore, these non-GAAP financial measures should be considered in conjunction with net income or loss and other financial measures prepared in accordance with GAAP. Free Cash Flow, Consolidated EBITDAX and Net Debt should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of leverage or financial performance.
Free Cash Flow (Unaudited)
Free Cash Flow is a non-GAAP financial measure that we define as net cash provided by operating activities (GAAP) before changes in operating assets and liabilities, net, less incurred capital expenditures, excluding non-budgeted acquisition costs. Management believes Free Cash Flow is useful to management and investors in evaluating operating trends in our business that are affected by production, commodity prices, operating costs and other related factors. There are significant limitations to the use of Free Cash Flow as a measure of performance, including the lack of comparability due to the different methods of calculating Free Cash Flow reported by different companies.
For a reconciliation of Free Cash Flow (i)Proxy Materials for the fiscal years ended December 31, 2022Special Meeting:The Notice and 2021, please see page 57Proxy Statement is available at www.proxyvote.com.V24843-S75355VITAL ENERGY, INC.Special Meeting of our Annual Report on Form 10-K for the year ended December 31, 2022, and (ii) for the year ended December 31, 2020, please see pages 64 and 65 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Consolidated EBITDAX (Unaudited)
Consolidated EBITDAXStockholders November 21, 2023 9:00 AM CDTThis proxy is a non-GAAP financial measure defined in the Company's Senior Secured Credit Facility as net income or loss (GAAP) plus adjustments for share-settled equity-based compensation; depletion, depreciation and amortization; impairment expense; gains or losses on disposal of assets; mark-to-market on derivatives; accretion expense; interest expense; income taxes and other non-recurring income and expenses. Consolidated EBITDAX is usedsolicited by the Company’s management for various purposes, includingBoard of DirectorsThe undersigned hereby appoints Mark Denny and Bryan Lemmerman as a measureproxies, each with full power of operating performancesubstitution, to represent and compliance under the Company's Senior Secured Credit Facility. Additional informationvote, as designated on the calculation of Consolidated EBITDAX can be found in the Company's Tenth Amendment to the Senior Secured Credit Facility as filed with the SEC on November 3, 2022.
There are significant limitations to the use of Consolidated EBITDAX as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss and the lack of comparability of results of operations to different companies due to the different methods of calculating Consolidated EBITDAX reported by different companies.
The following table presents a reconciliation of net income (GAAP) to Consolidated EBITDAX (non-GAAP) for the periods presented:
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(in thousands) | Six months ended December 31, 2021 | (Annualized) Six months ended December 31, 2021(1) | Year ended December 31, 2022 |
Net income | | $ | 353,108 | | | $ | 706,216 | | | $ | 631,512 | |
Plus: | | | | | | |
Share-settled equity-based compensation, net | | 3,877 | | | 7,754 | | | 8,403 | |
Depletion, depreciation and amortization | | 137,270 | | | 274,540 | | | 311,640 | |
Impairment expense | | — | | | — | | | 40 | |
Organizational restructuring expenses | | — | | | — | | | 10,420 | |
(Gain) loss on disposal of assets, net | | (86,298) | | | (172,596) | | | 1,079 | |
Mark-to-market on derivatives: | | | | | | |
Loss on derivatives, net | | 80,868 | | | 161,736 | | | 298,723 | |
Settlements paid for matured derivatives, net | | (222,087) | | | (444,174) | | | (486,753) | |
Settlements received for contingent consideration | | — | | | — | | | 2,457 | |
Accretion expense | | 1,932 | | | 3,864 | | | 3,879 | |
Interest expense | | 61,569 | | | 123,138 | | | 125,121 | |
Loss extinguishment of debt, net | | — | | | — | | | 1,459 | |
Income tax expense | | 5,729 | | | 11,458 | | | 5,502 | |
Consolidated EBITDAX (non-GAAP) | | $ | 335,968 | | | $ | 671,936 | | | $ | 913,482 | |
(1)Represents the second half of 2021 annualized due to significant acquisitions in 2021.
Net Debt (Unaudited)
Net Debt, a non-GAAP financial measure, is calculated as the face value of long-term debt plus any outstanding letters of credit, less cash and cash equivalents, where cash and cash equivalents are capped at $50 million when there are borrowings on the Senior Secured Credit Facility. Management believes Net Debt is useful to management and investors in determining the Company’s leverage position since the Company has the ability, and may decide, to use a portion of its cash and cash equivalents to reduce debt. Net Debt as of December 31, 2022 and December 31, 2021 was $1.080 billion and $1.438 billion, respectively.
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Annex B
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LAREDO PETROLEUM HOLDINGS, INC.
VITAL ENERGY, INC.
(Originally incorporated on August 12, 2011)
FIRST: The name of the corporation is Laredo Petroleum HoldingsVital Energy, Inc. (hereinafter referred to as the “Corporation”).
SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware, 19801. The name of the registered agent of the Corporation at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law.
FOURTH: A. The total number of shares ofreverse side, all classes of stock which the Corporation shall have authority to issue is five hundred million (500,000,000)90,000,000, consisting of four hundred and fifty million (450,000,000)40,000,000 shares of Common Stockcommon stock, par value one cent ($.010.01) per share (the “Common Stock”), and fifty million (50,000,000) shares of Preferred Stockpreferred stock, par value one cent ($.010.01) per share (the “Preferred Stock”).
B. The board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a “Preferred Stock Designation”), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The numberCommon Stock of authorized sharesVital Energy, Inc. held of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding)record by the affirmative voteundersigned on October 19, 2023 at the Special Meeting of the holders of a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitledStockholders to vote thereon, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation.
C. Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Preferred Stock Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Preferred Stock Designation relating to any series of Preferred Stock).
FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under the direction of the board of directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot unless the bylaws so provide.
C. Special meetings of stockholders of the Corporation may be called only by the board of directors acting pursuant to a resolution adopted by a majority of the Whole Board. For purposes of this Certificate of Incorporation, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.
D. An annual meeting of stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place,the Santa Fe Plaza Building, 521 E. 2nd Street South, Tulsa, Oklahoma 74120 on such date, and at such time asNovember 21, 2023 or any adjournment or postponement thereof.IF YOU SPECIFY A VOTE ON A PROPOSAL, YOUR PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR PROPOSALS 1, 2 AND 3. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN THE DISCRETION OF THE PROXIES.The undersigned acknowledges receipt from the boardCompany before the execution of directors shall fix.
SIXTH: A. The number of directors shall be fixed from time to time exclusively by the board of directors pursuant to a resolution adopted by a majoritythis proxy of the Whole Board.
B. Until the Triggering Event (as defined below),Notice of Special Meeting of Stockholders and subjectSubject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, at each annual meeting of stockholders, directors shall be elected for a term of one year ending on the date of the office to expire at the third succeeding annual meeting of stockholders following the annual meeting at which the director was elected, with each director to hold office until his or her successor shall have been duly elected and qualified.
Upon the tenth business day after the earlier of (i) the public announcement, after the consummation of the initial public offering of the Common Stock (the “IPO”), by the Corporation or affiliates of Warburg Pincus LLC that, or (ii) the public disclosure, after the IPO, of facts by the Corporation or affiliates of Warburg Pincus LLC indicating that, affiliates of Warburg Pincus LLC no longer beneficially own more than fifty percent (50%) of the outstanding Common Stock (the “Triggering Event”) and subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the board of directors, other than those directors who may be elected by the holders of any series of preferred stock under specified circumstances, shall be divided into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders following the Triggering Event, the term of office of the second class to expire at the second annual meeting of stockholders following the Triggering Event and the term of office of the third class to expire at the third annual meeting of stockholders following the Triggering Event, with each director to hold office until his or her successor shall have been duly elected and qualified, and the board of directors shall be authorized to assign members of the board of directors already in office, other than those directors who may be elected by the holders of any series of Preferred Stock under specified circumstances, to such classes at the time such classification becomes effective. At each annual meeting of stockholders following the Triggering Event, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified.
C. If authorized by a resolution of the board of directors, directors may be elected by the stockholders to fill any vacancy on the board of directors, regardless of how such vacancy shall have been created.
D. A majority of the Whole Board shall constitute a quorum for all purposes at any meeting of the board of directors, and, except as otherwise expressly required by law or by this Certificate of Incorporation, all matters shall be determined by the affirmative vote of a majority of the directors present at any meeting at which a quorum is present.
E. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, disqualification, removal from office or other cause shall, unless otherwise required by law or by resolution of the board of directors, be filled only by a majority vote of the directors then in office, though less than a quorum (and not by stockholders), and directors so chosen shall serve for a term expiring (i) if the Triggering Event has not occurred, at the succeeding annual meeting of stockholders and (ii) if the Triggering Event has occurred, at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires, in either case with each director to hold office until his or her successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
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F. Advance notice of stockholder nominations for the electionSpecial Meeting of directorsStockholders.Continued and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the bylaws of the Corporation.
G. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire board of directors, may be removed from office at any time, with or without cause if the Triggering Event has not occurred, and only for cause if the Triggering Event has occurred, but in either caseand only by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation then entitled to vote at an election of directors, voting together as a single class.
SEVENTH: The board of directors is expressly empowered to adopt, amend or repeal bylaws of the Corporation. Any adoption, amendment or repeal of the bylaws of the Corporation by the board of directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required to adopt, amend or repeal any provision of the bylaws of the Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. All references in this Article EIGHTH to a director shall also be deemed to refer to any such director acting in his or her capacity as a Continuing Director (as defined below).
NINTH: Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of the capital stock of the Corporation entitled to vote thereon were present and voted; provided, however, that, following the IPO, on and after the date on which affiliates of Warburg Pincus LLC cease to beneficially own more than fifty percent (50%) of the outstanding Common Stock, any action required or permitted to be taken by stockholders may be effected only at a duly called annual or special meeting of stockholders and may not be effected by a written consent or consents by stockholders in lieu of such a meeting.
TENTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this corporation required by law or by this Certificate of Incorporation, and the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required to amend or repeal this Article TENTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,or Article EIGHTH or Article ELEVENTH.
ELEVENTH:[RESERVED]
ELEVENTH:To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in any business opportunity, transaction or other matter in which Warburg Pincus LLC or any private fund that it manages or advises, any of their officers, directors, partners, employees, and any portfolio company in which such entities or persons have an equity interest (other than the Corporation and its subsidiaries) (each, a “Specified Party”) participates or desires or seeks to participate in and that involves any aspect of the energy business or industry, even if the opportunity is one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so and each such Specified Party shall have no duty to communicate or offer such business opportunity to the Corporation and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or any of its subsidiaries or any stockholder for breach of any fiduciary or other duty, as a director or officer or controlling stockholder or otherwise, by reason of the fact that such Specified Party pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries. Notwithstanding the foregoing, the Corporation, on behalf of itself and its subsidiaries, does not hereby renounce any interest or expectancy it or its subsidiaries may have in any business opportunity, transaction or other matter that is offered in writing solely to (1) a director or officer of the Corporation or its subsidiaries who is not also a Specified Party, or (2) a Specified Party who is a director, officer or employee of the Corporation and who is offered such opportunity solely in his or her capacity as a director, officer or employee of the Corporation.
Neither the amendment nor repeal of this Article ELEVENTH, nor the adoption of any provision of this Certificate of Incorporation or the bylaws of the Corporation, nor, to the fullest extent permitted by Delaware law, any modification of law, shall adversely affect any right or protection of any person granted pursuant hereto existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, adoption or modification.
If any provision or provisions of this Article ELEVENTH shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (a) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article ELEVENTH (including, without limitation, each portion of any paragraph of this Article ELEVENTH containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article ELEVENTH (including, without limitation, each such portion of any paragraph of this Article ELEVENTH containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
This Article ELEVENTH shall not limit any protections or defenses available to, or indemnification rights of, any director or officer of the Corporation under this Certificate of Incorporation or applicable law. Any person or entity purchasing or otherwise acquiring any interest in any securities of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article ELEVENTH.
TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim arising pursuant to, or a claim with respect to the interpretation or application of, any provision of the Delaware General Corporation Law, this Certificate of Incorporation or the bylaws of the Corporation or (d) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article TWELFTH.
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THIRTEENTH: The board of directors is expressly authorized to cause the Corporation to issue rights pursuant to Section 157 of the Delaware General Corporation Law and, in connection therewith, to enter into any agreements necessary or convenient for such issuance, and to enter into other agreements necessary and convenient to the conduct of the business of the Corporation. Any such agreement may include provisions limiting, in certain circumstances, the ability of the board of directors of the Corporation to redeem the securities issued pursuant thereto or to take other action thereunder or in connection therewith unless there is a specified number or percentage of Continuing Directors then in office. Pursuant to Section 141(a) of the Delaware General Corporation Law, the Continuing Directors shall have the power and authority to make all decisions and determinations, and exercise or perform such other acts, that any such agreement provides that such Continuing Directors shall make, exercise or perform. For purposes of this Certificate of Incorporation and any such agreement, the term “Continuing Directors” shall mean (1) those directors who were members of the board of directors of the Corporation at the time the Corporation entered into such agreement and any director who subsequently becomes a member of the board of directors, if such director’s nomination for election to the board of directors is recommended or approved by the majority vote of the Continuing Directors then in office and (2) such other members of the board of directors, if any, designated in, or in the manner provided in, such agreement as Continuing Directors.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation, and which has been duly adopted in accordance with Sections 228, 242 and 245 of the Delaware General Corporation Law, has been executed by its duly authorized officer this 19th day of December, 20112023.
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LAREDO PETROLEUM HOLDINGSVITAL ENERGY, INC.
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By: | |
| Randy A. FoutchJason Pigott
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| ChairmanPresident and Chief Executive Officer
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