Certain Relationships and Related
Party Transactions
Our Audit Committee Charter provides the Audit Committee shall review all related party transactions (as defined
below) and recommend approval or disapproval to the Board of any such transaction.
The Charter defines a related party transaction as a
transaction, proposed transaction, or series of similar transactions, in which (a) we are a participant, (b) the amount involved exceeds $120,000 annually and (c) a related person (as defined below) has or will have a direct or
indirect material interest. A related person is (a) any person who is, or at any time since the beginning of our last fiscal year was, a director, executive officer, or nominee to become a director, (b) a person known to
beneficially own 5% or more of any class of our voting securities, (c) an immediate family member of any of the foregoing persons (which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law), and (d) any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee for director or greater than 5% beneficial owner. The Audit
Committee considers the adequacy of disclosure and fairness to us of the matters considered.
The Audit Committee has adopted a written policy which includes
factors for committee members to consider in exercising their business judgment including (a) terms of the transaction with the related party, (b) availability of comparable products or services from unrelated third parties, (c) terms
available from unrelated third parties and (d) the benefits to us. The Audit Committee recommends for approval only those related party transactions that are, in its business judgment, in our best interests and on terms no less favorable to us
than we could have achieved with an unaffiliated party.
In 2019, we participated in the related party transactions described below, except for certain compensation related
matters for Ms. Lambertz and Justin Rangel, which occurred in 2020. Based upon the review and recommendations of our Audit Committee, or of our Board, or other committee thereof in the case of the transactions described in the following
sentence, we believe the transactions described below are in our best interests and are on terms no less favorable to us than we could have achieved with an unaffiliated party. Our Audit Committee reviewed and recommended each of the transactions
described below except that a Special Committee of the Board reviewed and recommended the registration rights agreement described below under Registration Rights AgreementsWheatland Transaction Registration Rights Agreement; and
the full Board reviewed and recommended the registration rights agreement described below under Registration Rights AgreementsInitial Public Offering Registration Rights Agreement.
Royalty and Common Ownership
In
2019, we received approximately $300,000 from the Harold G. Hamm Trust (the Hamm Revocable Trust), a trust of which Harold G. Hamm, our Executive Chairman, is the trustee and sole beneficiary, for billings on interests
owned in various oil and gas wells which we operate. We also disbursed to the Hamm Revocable Trust approximately $400,000 in 2019 for the Hamm Revocable Trusts share of oil and gas sales attributed to these interests which were received from
the purchasers of production. At December 31, 2019, approximately $123,000 was due from the Hamm Revocable Trust and approximately $32,000 was due to the Hamm Revocable Trust.
Aircraft Related Matters
From
time to time, we have used the aircraft of Transwestern Transports, LLC (Transwestern), an entity owned by Mr. Hamm, to facilitate efficient transportation of personnel. In 2019, we paid Transwestern approximately $426,000
for use of its aircraft and reimbursement of expenses and owed approximately $38,000 to Transwestern at December 31, 2019.
17
Registration Rights Agreements
Initial Public Offering Registration Rights Agreement. In connection with the closing of our initial public offering in May 2007, we entered into a
registration rights agreement with the Hamm Revocable Trust and the two irrevocable trusts established for the benefit of Mr. Hamms children pursuant to which we granted to the trusts certain demand and piggyback registration
rights. The Hamm Revocable Trust and the two irrevocable trusts identified above transferred the securities subject to this registration rights agreement to the Family LLC in September 2015 (the September Transfer). As a result, the
rights of the Hamm Revocable Trust and the two irrevocable trusts under this registration rights agreement may be assigned to the Family LLC at the direction of these entities. Under the registration rights agreement, each holder of securities
covered by the registration rights agreement has the one time right to require us to file a registration statement for the public sale of all or part of the shares of Common Stock owned by it at any time if at least six months have passed since the
last demand registration statement. In connection with a demand by any such holder, the non-demanding parties have the right to participate in such registration process. However, in the event securities are to
be sold in an underwritten offering pursuant to such demand registration statement and the managing underwriter thereof advises the participants the amount of securities to be offered thereby should be limited, such limitation shall be satisfied
first from the securities allocated to participants other than the demanding party.
If we sell any shares of our Common Stock in a registered underwritten
offering, each holder of securities covered by the registration rights agreement has the right to include its shares in that offering. The underwriters of any such offering have the right to limit the number of shares to be included in such sale. We
will pay all expenses relating to any demand or piggyback registration, except for underwriters or brokers commissions or discounts. The securities covered by the registration rights agreement will no longer be registrable under the
registration rights agreement if they have been sold to the public either pursuant to a registration statement or under Rule 144 promulgated under the Securities Act of 1933, as amended.
Wheatland Transaction Registration Rights Agreement. In March 2012, the Company entered into a Reorganization and Purchase and Sale Agreement (the
Purchase and Sale Agreement) with Wheatland Oil Inc. (Wheatland) and the shareholders of Wheatland. Wheatland was owned 75% by the Hamm Revocable Trust and 25% by Jeffrey B. Hume, the Companys Vice Chairman of Strategic
Growth Initiatives.
Pursuant to the Purchase and Sale Agreement, we entered into a registration rights agreement granting the Hamm Revocable Trust and
Mr. Hume registration rights for the shares of Common Stock they received, at the direction of Wheatland, upon the closing of the acquisition (the Registrable Securities). The Hamm Revocable Trust transferred the Registrable
Securities held by it to the Family LLC as part of the September Transfer. As a result, the rights of the Hamm Revocable Trust under this registration rights agreement may be assigned to the Family LLC at the direction of the Hamm Revocable Trust
and Family LLC. Under the registration rights agreement, each holder of Registrable Securities has demand and piggyback registration rights. The demand rights enable each of the holders of Registrable Securities to require us to register
their respective shares of Registrable Securities with the SEC at any time, subject to certain limited exceptions, including the requirement that the aggregate proceeds from the demand registration exceed $40 million (net of underwriting
discounts and commissions) and the Company is not required to effect more than four demand registrations in any three-year period. The piggyback rights allow each of the holders of Registrable Securities to register their Registrable Securities
along with any shares we register with the SEC. These registration rights are subject to customary conditions and limitations, including the right of the underwriters of an offering to limit the number of shares.
Shelly Lambertz Compensation
During 2019, in connection with her service as the Companys Vice President, Human Resources, Ms. Lambertz received the following compensation:
(i) annual base pay of approximately $267,000, with an annual cash incentive bonus target of 40% of her annual base pay; (ii) a target annual stock grant value of $300,000; and (iii) participation in the Companys benefits
programs on terms consistent with the Companys standard practices for employees hired at Ms. Lambertzs level. When employees are hired they typically receive a stock grant equivalent to three years of their annual target value,
vesting ratably over a three-year period. The value of the stock awarded to Ms. Lambertz in connection with her employment, in 2018, was consistent with the Companys typical practice. In February of 2019, Ms. Lambertz received
an award of 2,193 shares of restricted Common Stock, vesting February 2022. The total number of shares of restricted Common Stock held by Ms. Lambertz at December 31, 2019 was 12,439 shares. Ms. Lambertz is the daughter of
Mr. Hamm.
18
In February, 2020, Ms. Lambertz was promoted to Chief Culture Officer and Senior Vice President, Human
Resources. In connection with her promotion, Ms. Lambertz received the following compensation: (i) annual base pay of $308,000, with an annual cash incentive bonus target of 50% of her annual base pay; (ii) a target annual stock grant
value of $550,000; and (iii) participation in the Companys benefits programs on terms consistent with the Companys standard practices for employees hired at Ms. Lambertzs level. Ms. Lambertz also received an
additional aggregate amount of $180,375 added to existing restricted stock awards vesting from 2020 to 2022, with $18,000, $13,500, $90,000, $31,500 and $27,375 in value being added to the shares vesting in each of May 2020, November 2020, May 2021,
November 2021, and February 2022, respectively. The grant related to the additional amount described above was made in February 2020. Due to the current economic environment, Ms. Lambertz has elected to forego any increase in her base salary
resulting from her promotion effective March 8, 2020, for an indefinite period.
Justin Rangel Compensation
In January 2020, Justin Rangel, the son of Ramiro Rangel, one of our executive officers, joined the Company as a crude oil scheduler. The compensation package
awarded to Mr. Rangel in connection with his employment is as follows: (i) annual base pay of $84,500, with an annual cash incentive bonus target of 15% of his annual base pay; (ii) a target annual stock grant value of $14,000; and
(iii) participation in the Companys benefits programs on terms consistent with the Companys standard practices for employees hired at Mr. Rangels level. When employees are hired they typically receive a stock grant
equivalent to three years of their annual target value, vesting ratably over a three-year period. Mr. Rangel has received such a grant. The value of the stock awarded to Mr. Rangel in connection with his employment was consistent with
the Companys typical practice.
19
Director Compensation
The Compensation Committee reviews annually the total compensation paid to our
non-employee directors. The purpose of the review is to ensure the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform
our Boards duties, and to fairly compensate our directors for their service. This review includes consideration of qualitative and quantitative factors. To ensure directors are compensated relative to the scope of their responsibilities, the
Compensation Committee considers: (a) the time and effort involved in preparing for Board, committee and management meetings and the additional duties assumed by committee chairs; (b) the risks associated with serving on the Board; and
(c) the compensation paid to directors at a peer group of companies as reported by the Compensation Committees compensation consultant.
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2019 Director Compensation Table
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The following table summarizes the compensation of non-employee directors for the year
ended December 31, 2019:
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Name(1)
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Fees Earned or
Paid in Cash
($)
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Stock Awards
($) (2)(3)
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Total
($)
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|
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William B.
Berry
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$
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100,188
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$
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100,188
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Lon
McCain
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97,306
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|
|
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97,306
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John T.
McNabb, II
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94,598
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|
|
|
|
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94,598
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Mark E.
Monroe
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99,975
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99,975
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Timothy G.
Taylor(4)
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10,744
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$
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120,186
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130,930
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(1)
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This table lists the individuals who served as non-employee directors
during 2019. Mr. Berry served as a non-employee director through December 31, 2019. On January 1, 2020, Mr. Berry commenced service as the Companys Chief Executive Officer and his
status as a non-employee director terminated and he continues to serve as an employee director. Directors who are also full-time employees receive no compensation for serving as directors. As a result, the
compensation information for Mr. Hamm and Ms. Lambertz is not reported in the table above. Mr. Hamms compensation for his service as an employee during 2019 is fully reported within the Summary Compensation Table at page 36. A
summary of Ms. Lambertzs compensation as our Vice President, Human Resources during 2019 and the compensation package associated with her promotion to Chief Culture Officer and Senior Vice President, Human Resources in February 2020
appears in Certain Relationships and Related Party TransactionsShelly Lambertz Compensation at page 18.
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(2)
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The amounts in this column represent the aggregate grant date fair value for grants in fiscal year 2019 computed
in accordance with the Financial Accounting Standards Boards Accounting Standards Codification Topic 718 (ASC Topic 718), disregarding the estimate of potential forfeitures. See Equity-Based Compensation below. A
discussion of the grant date fair value calculation can be found in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed
with the SEC. Mr. Taylor received a stock award of 3,887 restricted shares of Common Stock in connection with his appointment to the Board in November 2019, which vests May 15, 2020. Other than Mr. Taylor, none of the directors listed
in the table above received a stock award in 2019. This was due to a decision by the Board to transition stock awards to non-employee directors away from stock awards which vest three years from the grant date
to awards which vest one year from the grant date. As a result, it is anticipated that other than Mr. Taylor, each of the directors listed above will receive their next stock award in May 2021, assuming continued service on the Board. The Board
made the decision to transition away from stock awards with three year vesting, in order to align director compensation with year-long terms, and in anticipation of shareholder approval of the Declassification Proposal.
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(3)
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The following restricted stock awards were outstanding as of December 31, 2019: Mr. McCain, 9,586
shares; Mr. McNabb, 9,586 shares; Mr. Monroe, 9,586 shares; and Mr. Taylor, 3,887 shares. In connection with Mr. Berrys transition to serving as our Chief Executive Officer, the
non-vested shares awarded to Mr. Berry in relation to his service as a non-employee director were vested pro-rata to reflect
such service through December 31, 2019, with any shares not vested being forfeited. As a result, Mr. Berry did not have any outstanding restricted stock awards on December 31, 2019. Unvested shares receive cash dividends at the same
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20
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rate as other shareholders and all non-employee directors receive payment in connection with accrued dividend payments at the time the shares related to
any accrued dividends vest.
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(4)
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Mr. Taylor was appointed to the Board in November 2019 and the fees and stock awards reported in the table
above reflect his appointment at such time.
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We reimburse all directors for reasonable out-of-pocket expenses incurred in connection with their services as directors in accordance with our general expense reimbursement policies. Non-employee directors may
participate in our medical and dental benefit programs, which are available to all full-time employees, as well as the Companys non-qualified deferred compensation program (DCP). No non-employee director participated in the DCP during 2019. Information regarding Mr. Hamms participation in the DCP can be found in the 2019 Nonqualified Deferred Compensation Table on page 38.
During 2019, the amount of the base annual retainer was $60,500. The amount of the annual retainer paid to the chair of the Audit
Committee was $25,000; the amount of the annual retainer paid to the chair of the Compensation Committee was $15,000; and the amount of the annual retainer paid to the chair of the Nominating/Corporate Governance Committee was $16,000. During 2019,
the annual retainer for Audit Committee members was $21,875; the annual retainer for Compensation Committee members was $11,765; and the annual retainer for Nominating/Corporate Governance Committee members (except for Mr. Hamm and
Ms. Lambertz) was $10,765. The retainer structure described in this paragraph remains in effect as of April 2, 2020.
Any applicable annual
retainer was paid quarterly on a pro-rata basis and the amounts appearing in the table above reflect the retainer rate applicable to the quarter in which it was paid.
During 2019, the amount of the annual retainer for the position of Lead Director was $12,000 and this rate remains in effect as of April 2, 2020.
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Equity-Based Compensation
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In addition to cash compensation, we have awarded and intend to continue to award restricted Common Stock to each of our non-employee directors, as described in Footnote 2 to the 2019 Director Compensation Table on page 20. On November 20, 2019, Mr. Taylor received a grant of 3,887 shares; which vests on May 15, 2020;
in connection with his appointment to the Board as a non-employee director. Historically, we have granted each non-employee director shares of restricted stock annually,
with such shares vesting three years after the date of grant. The Board is transitioning stock awards to non-employee directors away from shares which vest three years from the grant date to shares which vest
one year from the grant date. The Board made the decision to transition away from stock awards with three year vesting, in order to align director compensation with year-long terms, in anticipation of shareholder approval of the Declassification
Proposal. The number of shares of any future award will be impacted by the value of our stock at the time of the award and other relevant factors. Through the grant of equity-based compensation, we are able to align a portion of our non-employee directors compensation with the performance of our Common Stock.
We have adopted a Common Stock
ownership requirement for non-employee directors. Each non-employee director is required to own shares of our Common Stock with a market value equal to at least five
times the base annual retainer. In addition, we have a policy which prohibits certain employees and directors from holding our securities in a margin account or pledging our securities as collateral, unless permission is received from our General
Counsel in writing. We also have a policy that prohibits non-employee directors from engaging in transactions which may hedge the value of our securities held by them. For a more detailed discussion of the
policy described in the prior sentence, see Hedging Policy on page 35 below.
Until the stock ownership guideline is achieved, each non-employee director is required to retain 100% of the shares received as a result of restricted shares granted under our 2005 Long-Term Incentive Plan (the 2005 Plan) and/or 2013 Long-Term Incentive
Plan (the 2013 Plan). The stock ownership calculation is determined as of December 31 each year based upon the average closing price of the Common Stock for the year compared to the
non-employee directors base annual retainer as of such date. Shares owned directly by, or held in trust for, the non-employee director or his or her immediate
family members residing in the same household and unvested restricted shares are included in the calculation. The Compensation Committee reviewed the non-employee directors stock ownership and determined
as of December 31, 2019, each non-employee director was in compliance with the stock ownership guidelines. The Compensation Committee also determined as of December 31, 2019, Mr. Berry
held sufficient shares to satisfy the ownership requirement applicable to non-employee directors.
21
Executive Compensation and Other
Information
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Information About Our Executive Officers
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Our current executive officers are named below:
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Name
|
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Age
|
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Position
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Harold G.
Hamm
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74
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Executive Chairman
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William B.
Berry
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67
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Chief Executive Officer
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Jack H.
Stark
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65
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President and Chief Operating Officer
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Jeffrey B.
Hume
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68
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Vice-Chairman, Strategic Growth Initiatives
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John D.
Hart
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52
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Senior Vice President, Chief Financial Officer and
Treasurer
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Steven K.
Owen
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64
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Senior Vice President, Land
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Eric S.
Eissenstat
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62
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Senior Vice President, General Counsel, Chief Risk
Officer and Secretary
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Patrick W.
Bent
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64
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Senior Vice President, Operations
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Ramiro F.
Rangel
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63
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Senior Vice President, Marketing
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The information appearing in the table above is as of April 2, 2020.
For a description of the business background and other information concerning Messrs. Hamm and Berry see Proposal 1: Election of
DirectorsGeneral above.
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Jack H. Stark
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has served as our President and Chief Operating Officer since January 2020. Prior to his appointment as
President
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and Chief Operating Officer, he served as our President from September 2014 to December 2019. He also served
as the Companys Chief Operating Officer from September 2014 to May 2017. Prior to his appointment as President and Chief Operating Officer, Mr. Stark served as our Senior Vice President of Exploration from May 1998 to September 2014. He
joined the Company in June 1992 as Vice President of Exploration and served on the Board from May 1998 until his term expired in May 2008. Prior to joining us, Mr. Stark was Exploration Manager for the Western
Mid-Continent Region for Pacific Enterprises from 1988 to 1992 and held various staff and middle management positions with Cities Service Company, Texas Oil and Gas and Western Nuclear from 1978 to 1988.
Mr. Stark holds a Master of Science in Geology from Colorado State University and is a member of the American Association of Petroleum Geologists, The Petroleum Alliance of Oklahoma, Rocky Mountain Association of Geologists, Houston Geological
Society and the Oklahoma City Geological Society.
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Jeffrey B. Hume
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became our Vice Chairman of Strategic Growth Initiatives in June 2012. He previously served as our President
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from November 3, 2009 until June 2012. From November 2008 to June 2012, Mr. Hume also served as our
Chief Operating Officer after serving as our Senior Vice President of Operations since November 2006. He was previously appointed as Senior Vice President of Resource and Business Development in October 2005, Senior Vice President of Resource
Development in July 2002, and served as Vice President of Drilling Operations from 1996 to 2002. Prior to joining us in May 1983 as Vice President of Engineering and Operations, Mr. Hume held various engineering positions with Sun Oil Company,
Monsanto Company, and FCD Oil Corporation. Mr. Hume is a Registered Professional Engineer and member of the Society of Petroleum Engineers, The Petroleum Alliance of Oklahoma, and the Oklahoma and National Professional Engineering Societies.
Mr. Hume graduated from Oklahoma State University with a Bachelor of Science in Petroleum Engineering Technology.
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22
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John D. Hart
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joined us as Vice President, Chief Financial Officer and Treasurer in November 2005. He was promoted to Senior
Vice
|
President in May 2009. Prior to joining us, he was a Senior Audit Manager with Ernst & Young LLP.
Mr. Hart was employed by Ernst & Young LLP from April 1998 to November 2005 and by Arthur Andersen LLP from December 1991 to April 1998, working with numerous public companies in a wide variety of securities and exchange matters and
capital markets activities. He is a member of the American Institute of Certified Public Accountants and The Petroleum Alliance of Oklahoma. Mr. Hart serves on the executive board of the Greater Oklahoma City Chamber of Commerce, and the boards
of directors of the Petroleum Club of Oklahoma City and the Myriad Gardens Foundation. Additionally, he serves on the Casady School Board of Trustees and the Oklahoma State University Foundation Board of Governors. Mr. Hart is a Certified
Public Accountant and received a Bachelor of Science in Accounting and Finance and a Masters of Science in Accounting from Oklahoma State University.
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Steven K. Owen
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joined us as Senior Vice President, Land in September 2010. He came with three decades of experience in land
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management, including exploration, exploitation, acquisition and maintenance of oil and gas assets. He has
worked extensively in many oil and gas plays across the United States. Prior to joining the Company, Mr. Owen served as Land Manager for Pioneer Natural Resources USA, Inc. from 1987 to 2010 where he managed the Permian Basin and Mid-Continent Divisions. He is a member of the American Association of Petroleum Landmen. Mr. Owen earned his Bachelor of Arts from Emporia State University in Kansas with concentrations in Business Law, Oil
and Gas Law and Biology.
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Eric S. Eissenstat
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joined us as Senior Vice President and Chief Legal Officer in December 2010. In August 2011, his title was
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changed to Senior Vice President, General Counsel and Secretary and in May 2014 his role was expanded to
include the position of Chief Risk Officer. He joined the Company with 27 years of experience in complex business and commercial matters, oil and gas, and litigation. Prior to joining the Company, he served as director with Fellers, Snider,
Blankenship, Bailey & Tippens, P.C. in Oklahoma City from 1983 to 2010. Mr. Eissenstat is a Fellow of the Litigation Counsel of America, has received numerous awards and honors for his work in the legal profession, has held leadership
positions in the Oklahoma Bar Association and Oklahoma County Bar Association, and is a member of The Petroleum Alliance of Oklahoma. Mr. Eissenstat serves on the board of directors of Leadership Oklahoma City, YMCA of Greater Oklahoma City,
Downtown Oklahoma City, and Skyline Urban Ministry. He also serves as a Trustee for United Way of Central Oklahoma. Mr. Eissenstat earned his Bachelor of Science with honors in Political Science from Oklahoma State University, where he was
selected as a 2016 Distinguished Alumni, and his Juris Doctor with honors from the University of Oklahoma where he was awarded Order of the Coif.
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Patrick W. Bent
|
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is Senior Vice President, Operations, a position he has held since June 2019. Prior to this, Mr. Bent
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served as Senior Vice President, Drilling, from November 2015 to June 2019 and as Vice President, Northern
Region Drilling and Completions from March 2014 to November 2015. Mr. Bent joined Continental as Vice President, Drilling and served in this capacity from August 2012 to March 2014. From 2006 until he joined Continental in August 2012,
Mr. Bent served as the General Manager of Implementation for Burlington Resources and subsequently as Manager of Implementation for ConocoPhillips San Juan Basin Unit in New Mexico, one of ConocoPhillips largest business units.
Mr. Bent has more than 37 years of industry experience in petroleum engineering and operations. Mr. Bent earned his B.S. degree in Petroleum Engineering from the University of Wyoming in 1980.
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Ramiro F. Rangel
|
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is Senior Vice President, Marketing, a position he has held since February 2020. Prior to this, he served as
our
|
Senior Vice President, Marketing and Human Resources, from August 2018 to February 2020 and as Senior Vice
President, Marketing from March 2016 to August 2018. Before his promotion to Senior Vice President, he served as Vice President, Gas Marketing from August 2015 to March 2016. Prior to joining the Company, Mr. Rangel was Senior Vice President,
Gathering & Processing from April 2014 until May 2015 with Enable Midstream Partners, LP (Enable) and was Vice President of Commercial Operations from October 2007 to April 2014 with Enogex LLC, Enables predecessor
company. Mr. Rangel has more than 35 years of experience with operations, finance, strategy and other areas in the energy industry. Mr. Rangel holds a BBA in Finance, with Honors, from The University of Texas at Austin, and an MBA, with
Honors, from The University of Tulsa. Mr. Rangel is on the Board of Oklahoma Energy Explorers and a member of Oklahoma Independent Producers Association.
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23
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Compensation
Discussion and Analysis
|
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The purpose of this Compensation Discussion and Analysis is to explain the Companys and Compensation Committees
approach to determining the compensation program for the Companys Chief Executive Officer, Chief Financial Officer and the other named executive officers appearing in the tables following this discussion (NEOs) and to discuss how
the 2019 compensation package for these executives was determined. Following this discussion are tables that include compensation information for the NEOs. The NEOs for 2019 are as follows:
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Harold G. Hamm, Executive Chairman (During 2019 Mr. Hamm was Chairman of the Board and Chief Executive
Officer);
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Jack H. Stark, President and Chief Operating Officer (During 2019 Mr. Stark was President);
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John D. Hart, Senior Vice President, Chief Financial Officer and Treasurer;
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Eric S. Eissenstat, Senior Vice President, General Counsel, Chief Risk Officer and Secretary; and
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Patrick W. Bent, Senior Vice President, Operations
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Although Mr. Berry is currently serving as our Chief Executive Officer, he did not assume that role until the 2020 year, therefore he not deemed to be a
named executive officer pursuant to SEC rules for the 2019 year.
Executive Summary
|
|
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Company Compensation Philosophy and Components
|
|
Because we operate in a highly competitive environment, we have designed
|
our executive compensation program to attract, retain and motivate experienced, talented individuals. We also
designed our executive compensation program to reward our executives for achieving the strategic and business objectives determined to be important to help the Company create and maintain advantage in a competitive environment.
|
In determining individual compensation, we consider the performance of the Company against specific operational and financial
factors determined to be relevant for the period in question. We consider competitive market compensation paid by other companies comparable to us in size, geographic location and operations. We maintain and incorporate flexibility into our
compensation programs and in the assessment process, which we believe is particularly important in the current commodity price environment, which remains volatile. As such, we do not apply rigid formulas in determining the amount and mix of
compensation elements.
In 2019, the Compensation Committee evaluated how the following elements (collectively, the Primary Compensation
Elements) of our compensation program compare to similar compensation awarded by the then current compensation survey group, with the Compensation Committee considering how the elements of our compensation compare to the target percentiles
indicated below. The 2019 target levels were designed to emphasize compensation elements whose value depends on Company performance, with the opportunity for compensation between the 50th and 75th percentiles, while aligning the fixed compensation element, base salary, with the 50th percentile.
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Base salary fixed cash component generally set at the 50th percentile;
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Cash bonus short-term, variable cash component based on Company and individual performanceindividual
targets generally set between the 50th and 75th percentile; and
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Long-term incentive equity awards equity component with vesting periods designed to align the interests of
executive and shareholders generally set between the 50th and 75th percentile.
|
Based on the strength of 2018s accomplishments, the need to ensure the Companys compensation remains competitive with its industry peers and a review
of the information customarily provided in connection with the compensation process, the Compensation Committee determined it was appropriate to adjust salaries in 2019. Bonus payments were also made with respect to 2019 based on the Companys
strong financial and operational performance. In determining the final Company performance factors to be used in the bonus calculation, the Compensation Committee considered the Companys performance with respect to the seven bonus pool metrics
and the additional factors described below in the discussion of the 2019 bonus. After considering these items, the Compensation Committee determined a Company performance factor of 123% appropriately reflected a balance of (x) the strong
results achieved in connection with five of the seven bonus pool metrics and (y) the Committees assessment of the Companys performance with respect to the additional factors described below.
24
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|
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Company Performance
|
|
Highlights of the Companys 2019 performance include:
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|
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Initiated cash dividend to shareholders.
|
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Initiated a share repurchase program and repurchased approximately $190.2 million of Common Stock in 2019.
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Achieved full-year 2019 production growth of 14% compared to 2018.
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Net cash provided by operating activities for 2019 totaled $3.1 billion.
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In 2019, reduced total debt by $442 million.
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Year-end 2019 proved reserves increased 6% (adjusted for 2019
divestitures) compared to year-end 2018.
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Continued to exercise capital discipline, reducing non-acquisition capital
expenditures by 6% in 2019 compared to 2018.
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Maintained low-cost operations with production expenses of $3.58 per Boe
and G&A expenses of $1.57 per Boe for 2019.
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A discussion of the Companys performance with respect to the metrics used for the
Companys 2019 annual cash bonus plan appears under the heading, Annual Cash Bonus below.
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Compensation Actions
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The following is a summary of the material compensation decisions made by the Compensation Committee
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for 2019:
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Base Salary The base salaries of our NEOs were adjusted, in conjunction with our standard annual cycle, on
average, 4.08% during 2019, based on the Companys strong 2018 performance (salary adjustments occurred in February 2019).
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Cash Bonus For 2019, the individual bonus target levels for Mr. Hamm, Mr. Stark, Mr. Hart,
and Mr. Eissenstat remained as set in 2018. The Compensation Committee did not adjust the bonus target levels for these individuals as their existing targets were both competitive by comparison to the defined survey group as well as internally
equitable. Mr. Bents bonus target level was adjusted in June 2019 in connection with the change in his title from Senior Vice President, Drilling to Senior Vice President, Operations, as a result of the increase in the extent of his
responsibilities for production related matters associated with the change in title. The targets for 2019 are set forth in the table below.
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Name
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|
2019 Bonus Target
|
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Harold G.
Hamm
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150%
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Jack H.
Stark
|
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100%
|
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John D.
Hart
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100%
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Eric S.
Eissenstat
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80%
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Patrick W.
Bent
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80%
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Long-term incentive equity awards In February 2019, long-term incentive equity awards of restricted stock
were made to each of our NEOs, with three-year cliff vesting at a level generally consistent with the targeted percentiles described above. Mr. Bent also received an award of restricted stock in August 2019 in connection with the change in his
title and in consideration of his increased responsibilities for oversight of production related matters.
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In addition, awards made to each
of the NEOs also reflected the Compensation Committees evaluation of the performance of each of the NEOs with respect to the 2019 Performance Factors (as defined below) and other factors described below in connection with the discussion of
each of the Primary Compensation Elements.
25
The following charts illustrate the various components of total annual compensation for our Chief Executive
Officer and the other NEOs as a group, and reflect the following: (i) annual base salary paid for 2019; (ii) the cash bonus for 2019 paid in February 2020; (iii) the grant date fair value of the long-term equity incentive awards
granted in 2019 (which is the value of the awards based on accounting principles on the date of grant, and not necessarily reflective of the amounts the NEOs may receive at the time of settlement); and (iv) the other compensation for each NEO
included in the Summary Compensation Table below.
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Key Executive Compensation Policies and Practices
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Key executive compensation policies and practices include:
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Independent compensation consultants engaged by the Compensation Committee;
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No individual employment agreements;
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Majority of compensation is restricted stock awards with vesting periods designed to align interests of executives
and shareholders;
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Clawback policy applies to all executive officers;
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Robust stock ownership requirements 5x of base salary for the Executive Chairman, Chief Executive Officer
and President and 3x of base salary for the other executive officers;
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Industry-related peer compensation data considered in establishing compensation;
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Minimal perquisites; and
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Hedging of Company securities by executive officers is not allowed.
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Executive Compensation Philosophy
We operate in a highly competitive environment for securing trained and qualified personnel. We believe the loss of the services of members of our senior
management could impact on our operations. Accordingly, we have designed our executive compensation program to attract, retain and motivate experienced, talented individuals to achieve our primary business goals, using the business strategies
discussed in greater detail in our Annual Report on Form 10-K. We have also designed our executive compensation program to reward our executives for achieving the strategic and business objectives determined
to be important to help the Company create and maintain an advantage in a competitive environment. Specifically, the Primary Compensation Elements of our executive compensation program are designed to reward the achievement of these objectives by:
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providing objective-driven compensation opportunities that incentivize executives to achieve superior results for
the Company and its shareholders;
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|
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aligning compensation with the Companys short- and long-term business objectives; and
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emphasizing the use of equity-based compensation to motivate the long-term retention of executives and align their
interests with those of shareholders.
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We do not apply rigid formulas in determining the amount and mix of compensation elements. For 2019
cash bonuses paid in February 2020, we considered the achievement of financial and operational goals only as part of establishing the aggregate bonus pool from which bonuses were paid to the NEOs and in connection with the determination of the
Company multiplier described below in the
26
discussion of the annual cash bonus. In connection with establishing the size of the aggregate bonus pool and determining the final Company multiplier, the Compensation Committee considered the
Companys performance with respect to the seven bonus pool metrics and the additional factors described below in the discussion of the 2019 bonus. After considering these items, the Compensation Committee determined a Company performance
factor of 123% appropriately reflected a balance of (x) the strong results achieved in connection with five of the seven bonus pool metrics and (y) the Committees assessment of the Companys performance with respect to the
additional factors. During 2019, in determining individual compensation, we considered the performance of the Company against the following specific financial and operational factors: net cash provided by operating activities, return on capital
employed, production growth, relative total shareholder return, reserve growth, health, safety and environmental performance, and proved developed finding and development cost per barrel of oil equivalent, as well as the Companys performance
against the key strategic and other initiatives described below in the discussion of the annual cash bonus, which were determined to be consistent with the Committees expectations (the 2019 Performance Factors). We consider
competitive market compensation paid by other companies comparable to us in size, geographic location and operations, but do not exclusively rely on such data to determine compensation for the NEOs. We maintain flexibility with respect to our
compensation programs and the assessment process. This approach allows us to adjust to an evolving business environment and account for individual performance, which we believe is particularly important in the current dynamic commodity price
environment. The total compensation of the Chief Executive Officer, which is significantly higher than our other NEOs, is commensurate with his role in the founding and development of the Company as well as leading the future success of the Company.
Compensation Setting Process
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Role of Compensation Committee
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The Compensation Committee is responsible for overseeing and administering all aspects of our
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benefit and compensation plans, and programs for our executive officers. The Compensation Committee annually
reviews and determines the individual elements of total compensation of the NEOs who appear in the compensation tables of this Proxy Statement as well as our other executive officers. Because our compensation programs are relatively simple, and we
do not have complex equity plans or significant change in control or severance obligations, the Compensation Committee does not use tally sheets in analyzing the compensation of our NEOs, but does review each element of compensation as described in
this Proxy Statement in evaluating and approving the total compensation of each of our NEOs. When making awards with respect to each element of our compensation program, the Compensation Committee considers how the award of that particular element
will impact the overall compensation package awarded to each NEO. As a result, the award made with respect to each element of our compensation program may be impacted by the awards made with respect to the other elements of our compensation
program.
|
In general, the Compensation Committee evaluates how the Primary Compensation Elements of our compensation program compare to
similar compensation awarded by the then current compensation survey group. Although the Compensation Committees general approach is to award each element of compensation to align as closely as possible to the percentiles indicated above, the
Compensation Committee considers an individual executive officers performance and the external business environment, and any final compensation reflects the Compensation Committees discretion. The Compensation Committee believes
targeting base salary at the 50th percentile and cash bonus between the 50th and 75th
percentile results in competitive cash compensation while preserving considerable upside potential in connection with cash bonus awards should Company and individual executive performance merit a higher bonus. The Committee believes targeting
long-term incentive equity awards between the 50th and 75th percentile helps align overall pay with shareholder interests, by putting greater
weight on an element of compensation which directly reflects the performance of the Company. Additional detail regarding the actions of the Compensation Committee with respect to each of the Primary Compensation Elements appears in the discussion of
Elements of Compensation below.
At the 2019 Annual Meeting, shareholders approved through a non-binding
advisory vote, the compensation of our named executive officers. Following the 2017 Annual Meeting, the Board determined to hold an advisory shareholder vote on the compensation of the Companys named executive officers annually. This pattern
will continue until the next required advisory vote on the frequency of shareholder votes on the compensation of executives, which will occur no later than our Annual Meeting of Shareholders in 2023. The Compensation Committee views the 98% vote in
favor of approving the compensation of the Companys named executive officers received in 2019 as a validation of the Companys approach to executive compensation and determined, subject to the modifications discussed below, it was
appropriate to continue structuring the compensation of the Companys NEOs consistent with its compensation philosophy. A non-binding advisory vote will be conducted again in connection with the Annual
Meeting.
During 2019, the Compensation Committee primarily considered the individual performance of our NEOs with regard to 2019 Performance Factors in the
determination of each officers compensation. Variations in individual awards made to each of the NEOs are
27
impacted by the Compensation Committees evaluation of a given NEOs performance with respect to such factors. In addition, in 2019, with respect to all elements of compensation other
than the bonus for 2019 paid in February 2020, the Compensation Committee considered input provided by our Chief Executive Officer and President as described under Role of Management below and this process also drives variation in
individual awards made to each of the NEOs, with respect to such compensation. Starting January 1, 2020, Mr. Hamm assumed the role of Executive Chairman. As a result, the Committee considered input provided by the Executive Chairman, in
addition to the input provided by our Chief Executive Officer and President and Chief Operating Officer with respect to the bonus for 2019 paid in February 2020. It is expected that in 2020, the Executive Chairman will provide input regarding the
compensation to be paid to our executive officers by reviewing the recommendations made by our Chief Executive Officer and President and providing feedback with respect to such recommendations.
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Role of Management
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Since the Family LLC which is managed by Mr. Hamm, and in which he has a substantial interest,
beneficially
|
owns a substantial majority of our outstanding shares of Common Stock and since Mr. Hamm was our Chief
Executive Officer during 2019, he provided the Compensation Committee a significant amount of input regarding the compensation of our executive officers (other than himself). Mr. Hamm assumed the role of Executive Chairman January 1, 2020,
and provided input in that capacity with respect to the bonus for 2019 paid in February 2020, as described above under Role of Compensation Committee. Mr. Hamms expected role in connection with the executive officer
compensation process for 2020 is also described above under Role of Compensation Committee.
For 2019 related compensation, the Compensation Committee, as well as our Chief Executive Officer and our President, reviewed the Longnecker
report described below regarding the analysis of market compensation. Our Chief Executive Officer and our President were then responsible for making recommendations of compensation for individual executive officers of the Company, other than
themselves. During 2019, with respect to each of our Chief Executive Officer and our President, our President and our Chief Executive Officer, respectively and individually, made recommendations for the other executive officers compensation
amounts, with the exception of the 2019 bonus paid in February 2020. With respect to the 2019 bonus, our Executive Chairman, Chief Executive Officer and President made recommendations for the other executive officers bonus amounts. The
Executive Chairman, since he served as Chief Executive Officer during 2019, and Mr. Berry, our current Chief Executive Officer made a joint recommendation with respect to our President and Chief Operating Officers 2019 bonus. Our current
Chief Executive Officer and our President and Chief Operating Officer made a joint recommendation with respect to our Executive Chairmans 2019 bonus, which reflects our Executive Chairmans service as our Chief Executive Officer during
2019. In making recommendations for executive officer compensation, our Executive Chairman, Chief Executive Officer and our President and Chief Operating Officer primarily relied on the Longnecker report, but also take into account other factors
including, but not limited to, the following:
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the overall performance of the Company;
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the executives contribution to the overall performance of the Company;
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the executives business responsibilities;
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the executives compensation relative to other executives;
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the executives current compensation arrangements; and
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the executives contribution to enhancing the ability of the Company to generate long-term shareholder value.
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During 2019, once our Executive Chairman, Chief Executive Officer and President made their compensation recommendations as described
above, the Compensation Committee reviewed their recommendations and decided whether to make any changes in order to adequately meet our compensation objectives and approach on an individual basis. No adjustments were made to our Executive
Chairmans compensation (for service as our Chief Executive Officer during 2019) by the Board after his compensation was set by the members of the Compensation Committee. The independent members of our Board unanimously affirmed the cash bonus
award and other compensation set by the Compensation Committee for our Executive Chairman, in respect of his service as our Chief Executive Officer during 2019.
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Role of the Compensation Consultants
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Through September 2019, the Compensation Committee retained the services of an
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independent compensation consulting firm, Longnecker. Longnecker reported directly to the Compensation
Committee. During 2019, Longnecker provided an analysis of market compensation for directors and executive officers based upon its review of compensation paid by exploration and production companies comparable to us in terms of revenues, total
assets, geographic location and market capitalization. This analysis was contained in the report referred to above in the discussion appearing under the heading Role of
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28
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Management and was used by the Compensation Committee, our then Chief Executive Officer and President as described in that discussion. During 2019, Longnecker provided no
services other than the director and executive officer compensation studies requested by the Compensation Committee, except for analysis of market compensation with respect to a limited number of positions on an ad hoc basis, resulting in total fees
of less than $120,000.
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Starting October 2019, the Compensation Committee also retained the services of an independent compensation consulting firm,
Meridian. Meridian reports directly to the Compensation Committee. During 2019, Meridian provided analysis regarding executive officer compensation. The results of the analysis were summarized for the Compensation Committee in order to provide a year-end market assessment. Since the purpose of Meridians engagement was to provide compensation recommendations for 2020 and beyond, none of the information communicated to the Compensation Committee
impacted the bonus program or any individual awards relevant to 2019 executive officer compensation. During 2019, Meridian provided no services other than the executive officer compensation studies requested by the Compensation Committee, resulting
in total fees of less than $120,000.
The Compensation Committee has assessed the independence of Longnecker in accordance with standards set forth
in rules established by the NYSE and promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) and concluded no conflict of interest exists that prevented Longnecker from independently representing the
Compensation Committee. The Compensation Committee also assessed the independence of Meridian based on the same standards and concluded there was no conflict of interest that prevented Meridian from independently representing the Compensation
Committee in connection with work it performed during 2019.
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Compensation Survey Group
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The following table lists the companies included in the peer group used by the Compensation
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Committee for evaluating the 2019 compensation of the NEOs (the 2019 Survey Group):
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Original 2019 Survey Group Companies
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Anadarko Petroleum Corporation
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Merit Energy Co.
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Cabot Oil & Gas Corporation
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Newfield Exploration Co.
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Chesapeake Energy Corporation
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Noble Energy, Inc.
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Cimarex Energy Co
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Pioneer Natural Resources Company
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Concho Resources, Inc.
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QEP Resources, Inc.
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Continental Resources, Inc.
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Range Resources Corporation
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Devon Energy Corporation
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SandRidge Energy, Inc.
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|
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EOG Resources, Inc.
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SM Energy Company
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EP Energy Corporation
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Southwestern Energy Company
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Hess Corporation
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|
WPX Energy, Inc.
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Hunt Oil Company
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In selecting the 2019 Survey Group, the Compensation Committee considered the location of operations, market capitalization,
revenue, assets, net income, production profile of oil versus gas, as well as other factors to determine the most relevant subset of the E27 Survey Group member companies for comparison purposes. The E27 Survey Group is a group of energy companies
assembled for the purpose of providing industry participants survey information to be used in making compensation decisions. In February 2019, the time when the majority of each NEOs compensation for 2019 was determined, the 2019 Survey Group
consisted of 20 independent, publicly traded and privately held exploration and production companies, other than the Company, with a median revenue of approximately $4.1 billion as of year-end 2018, which
is comparable to the Companys revenue of approximately $4.7 billion for 2018. In May 2019, the following companies were removed from the 2019 Survey Group: Anadarko Petroleum Corporation, EP Energy Corporation, Hunt Oil Company, Newfield
Exploration Co. (due to acquisition), Merit Energy Co., QEP Resources, Inc., Range Resources Corporation, SandRidge Energy, Inc., SM Energy Company, and Southwestern Energy Company. The following companies were added in May 2019: Apache Corporation,
Marathon Oil Company, and Oasis Petroleum Inc. The changes occurring in May resulted from the Compensation Committees determination the changes were needed to eliminate companies whose scale of operations were no longer comparable to those of
the Company and to add companies whose operations are similar in scope. Due to the timing of these changes, they had minimal impact on 2019 compensation.
29
Elements of Compensation
The table below describes each of our Primary Compensation Elements, the purpose of each element, and how each element fits within the Companys compensation
philosophy and objectives.
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Compensation Element
|
|
Description
|
|
Purpose and Philosophy
|
Base
Salary
|
|
Fixed cash compensation
|
|
Provides a stable, fixed element of cash
compensation.
Attract and retain executive officers by paying a wage commensurate with
such officers experience, skills and responsibilities. It also recognizes and considers the internal value of the position within the Company, the officers leadership potential and demonstrated performance.
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Annual Cash Bonus
|
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Annual cash bonus related to individual contribution toward
achievement of annual financial and operating results
|
|
Rewards executives for the achievement of specific
annual financial, operating and strategic goals and individual performance.
Allows the
Compensation Committee to evaluate both objective and subjective considerations when exercising discretion to determine final payout amounts.
Important to the Companys ability to attract, motivate and retain the Companys executive officers.
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Long-term Incentive
Equity Awards
|
|
Restricted Stock
|
|
Aligns the executives long-term interests with
those of shareholders.
Important to the Companys ability to attract, motivate and
retain the Companys executive officers.
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|
|
|
Role of Discretion in Determining Primary Compensation Elements
|
|
All base salary adjustments and long-term incentive awards
|
for NEOs have been determined on a discretionary basis and while not linked to specific corporate goals or
objectives, the overall performance of the Company as well as individual performance was considered in determining pay. The Compensation Committee retains discretion over all aspects of the CLR Bonus Plan (defined below) and awards made thereunder.
For 2019, the Target Pool Size, Final Pool Size and Company multiplier (each term as described below) were initially determined by the Companys performance in the areas of net cash provided by operating activities, return on capital employed,
production growth, relative total shareholder return, reserve growth, health, safety and environmental performance, and proved developed finding and development cost per barrel of oil equivalent, as well as consideration of the additional factors
described below in the discussion of the 2019 bonus. See Annual Cash Bonus below for a more detailed discussion of the Compensation Committees decision not to adjust the Company performance factor. The individual multiplier
used in the CLR Bonus Plan is based on a subjective evaluation of an individuals performance.
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|
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Base Salary
|
|
Base salary is intended to provide each NEO a regular source of income and compensate him for performing the
|
responsibilities associated with his position. It also serves the purposes listed in the table above. Base
salary also impacts annual cash bonus awards in that the target size of these awards is expressed as a percentage of base earnings, which is primarily comprised of salary. The table below shows the salary set by the Compensation Committee applicable
to each of the NEOs during 2019.
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NEO
|
|
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Salary During 2019
|
|
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Harold G.
Hamm
|
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$1,320,113
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Jack H.
Stark
|
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730,952
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John D.
Hart
|
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600,000
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|
Eric S.
Eissenstat
|
|
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490,196
|
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Patrick W.
Bent
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530,000
|
With the exception of Mr. Bent, the salaries listed above went into effect in February 2019, and remained in effect for the
remainder of the year. In the future, we expect the base salaries of the NEOs will be reviewed on an annual basis and adjusted as necessary to remain competitive. Mr. Bents salary was set at $490,196 in February 2019, but was adjusted to
the amount shown in the table in June 2019, in connection with the change in his title and responsibilities discussed above.
30
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|
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Annual Cash Bonus
|
|
Our NEOs may earn annual cash bonuses as a reward for their individual contribution to the achievement of
|
annual financial and operating results as determined by the Compensation Committee. On February 22, 2013,
the Compensation Committee approved a cash bonus plan that applies to certain employees of the Company, including the Companys executive officers (the CLR Bonus Plan). The CLR Bonus Plan is designed to reward the Companys
employees and executive officers for achieving annual performance and strategic goals. The CLR Bonus Plan provides for the annual payment of cash bonuses, subject to the discretion of the Compensation Committee. The individual cash bonuses paid to
NEOs for 2019 were paid pursuant to the CLR Bonus Plan. The Compensation Committee exercises complete discretion in administering the CLR Bonus Plan, and the individual awards to our NEOs for 2019 were determined following the process described
below.
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Under the CLR Bonus Plan, the bonus pool is initially set based on the aggregate target bonus amount of all employees
participating in the CLR Bonus Plan (referred to herein as the Target Pool Size). For 2019, the size of the bonus pool was initially set within a range based on the following factors: net cash provided by operating activities (25%);
return on capital employed (25%); production growth (15%); relative total shareholder return (10%); reserve growth (10%); health, safety and environmental performance (10%); and proved developed finding and development cost per barrel of oil
equivalent (5%). With respect to the bonuses paid for 2019, the Compensation Committee evaluated the factors of the CLR Bonus Plan described above as presented by management and determined the factors and their respective weightings to be
appropriate.
The Compensation Committee has complete discretion to increase, decrease or leave the size of the pool unchanged. In making the determination
whether to adjust the size of the pool, the Compensation Committee considered such matters as it deemed relevant, including the Companys performance against key strategic and other initiatives identified by the Compensation Committee in areas
such as production costs and cycle times, maintenance of financial and other ratios, budget compliance and business process improvements. The size of the bonus pool as determined by the Compensation Committee is referred to herein as the Final
Pool Size. The ratio of the Final Pool Size to the Target Pool Size is used to determine the Company multiplier in the calculation of an individuals bonus amount under the CLR Bonus Plan.
For 2019, the Compensation Committee set the Company performance factor based on the following estimates provided to the Committee in connection with the seven
metrics: net cash provided by operating activities$3.116 billion; return on capital employed11.1%; production growth14.2%; relative total shareholder return
25th percentile relative to the peer group listed below; reserve growth6.4%; health, safety and environmental performance of 137% of target; and proved developed finding and
development cost per barrel of oil equivalent$11.46. Except for the fourth and seventh metrics described above, the Companys performance in these areas was above internal expectations and resulted in an initial performance factor of
123% for the Company multiplier portion of the CLR Bonus Plan. The Compensation Committee also reviewed Company performance against the key strategic and other initiatives described in the paragraph above. After consideration, the Committee
determined a final Company performance factor of 123% appropriately reflected Company performance for 2019, and struck the appropriate balance between (x) the strong results achieved in connection with five of the seven bonus pool metrics
described above, and (y) the Committees assessment of the Companys performance with respect to the additional matters described above. The Compensation Committee determined the Companys performance with respect to the key
strategic and other initiatives was consistent with its expectations for 2019, and determined it was not necessary to adjust the initial performance factor of 123%. Proved developed finding and development cost per barrel of oil equivalent
represents the Companys net exploration and development costs incurred for operated wells having first production in 2019 divided by the net estimated recoverable reserves for those wells expressed in barrels of oil equivalent. Return on
capital employed represents net income attributable to the Company before non-cash gains and losses on derivatives, income taxes, non-cash equity compensation expense,
interest expense, and losses on extinguishment of debt, the result of which is divided by average capital employed for the year, with capital employed representing the sum of total debt and total shareholders equity attributable to the
Company. Relative total shareholder return represents the percentage change in the Companys stock price as compared to the companies listed in the table below. For 2019, we compared the 60 day moving average price at 2019 year-end to the 60 day moving average price at 2018 year-end. The table below lists the companies other than the Company used to determine relative total shareholder return
for the bonus for 2019 paid in February 2020:
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|
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2019 Relative Total Shareholder Return Companies
|
|
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Cimarex Energy
Co.
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Hess Corporation
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Concho Resources,
Inc.
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Marathon Oil Corporation
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ConocoPhillips
|
|
Noble Energy, Inc.
|
|
|
Devon Energy
Corporation
|
|
Pioneer Natural Resources Company
|
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EOG Resources,
Inc.
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31
Individual awards for participants in the CLR Bonus Plan in connection with the bonuses for 2019 which were
paid in February 2020, were calculated utilizing the following formula:
Base Earnings x Target Bonus x Company Multiplier x Individual
Multiplier = Initial Bonus Amount
For purposes of this formula, base earnings refers to the actual amount paid in respect of salary during 2019.
Except for Mr. Hamm, the individual multiplier for the 2019 bonuses was based on the Compensation Committees review of the 2019 Survey Group and the subjective evaluation of each of the NEOs supervisor or supervisors.
Mr. Hamms individual multiplier was determined based on the subjective evaluation of the Compensation Committee. The subjective evaluation of each NEO was primarily based on an evaluation of each NEOs contributions to the
Companys performance with respect to the 2019 Performance Factors relevant to that NEO. For 2019, after calculating the Company multiplier based on the measures and methodology described above, individual differences resulted from the
subjective evaluation of performance that determined each NEOs individual multiplier. In making its evaluation, where applicable, the Compensation Committee places significant weight on input provided by our Executive Chairman, Chief Executive
Officer and our President, as described above.
Once the NEOs Initial Bonus Amounts were calculated, they were presented by Messrs. Hamm, Berry
and Stark to the Compensation Committee for review, and in the case of Mr. Hamm also presented to the Board, both of which had the discretion to increase or decrease individual Initial Bonus Amounts and determine final awards. Using the
factors described previously, the Compensation Committee determined the final awards were appropriate and approved the bonuses for 2019 as presented by management.
The following table shows target annual cash bonus amounts as a percentage of base earnings for each of the NEOs in connection with the bonuses for 2019 which
were paid in February 2020 under the CLR Bonus Plan:
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NEO
|
|
2019 Target
Bonus %
|
|
|
Harold G.
Hamm
|
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150
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Jack H.
Stark
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100
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John D.
Hart
|
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100
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Eric S.
Eissenstat
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80
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|
Patrick W.
Bent
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80
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Annual cash bonuses for the NEOs are determined concurrently with the year-end audited
financial statements and reserve report. We have adopted a clawback policy that is applicable to the bonus for 2019 paid in February 2020 and to future awards under the CLR Cash Bonus Plan. For more information regarding the clawback policy, please
see CLR Clawback Policy on page 34 below.
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Long-Term Incentive Awards
|
|
The objective of our long-term incentive awards is to retain and motivate our executives over the long-
|
term and to align their interests with those of our shareholders. In February 2019, the NEOs, other than
Mr. Bent, received the long-term incentive awards of restricted Common Stock, indicated in the table below, which vest on February 15, 2022. The information for Mr. Bent reflects an award of 32,888 shares of restricted Common Stock in
February 2019 which vests on February 15, 2022 and a supplemental award of 14,023 shares in August 2019. Mr. Bents supplemental award vests as follows: 3,049, 4,268 and 6,706 shares on February 15, 2020, 2021 and 2022,
respectively. The table below presents the total number of shares of restricted Common Stock awarded to each NEO during 2019.
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NEO
|
|
2019 Restricted Stock Award (shares)
|
|
|
Harold G.
Hamm
|
|
186,363
|
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Jack H.
Stark
|
|
87,701
|
|
|
John D.
Hart
|
|
63,583
|
|
|
Eric S.
Eissenstat
|
|
32,888
|
|
|
Patrick W.
Bent
|
|
46,911
|
32
The awards for each of the NEOs other than Mr. Hamm were approved by the Compensation Committee.
Mr. Hamms award was approved by the Compensation Committee and by the full Board based on the recommendation of the Compensation Committee, with Mr. Hamm abstaining.
The long-term incentive award for each NEO is determined at the discretion of the Compensation Committee using the approach described above under Executive
SummaryCompensation Philosophy and Components. Differences in long-term incentive awards are based on the Compensation Committees subjective evaluation of the expected relative individual contribution to the achievement of our
long-term financial and operating results. The value of unvested equity awards held by an individual is expected to be a factor considered in future awards.
The vesting provisions of the awards encourage our officers to remain in our employ in order to realize these forms of compensation. Our current equity programs
consist of restricted stock awards, which we believe are stronger motivational tools for employees when compared to alternatives such as stock options. Restricted shares provide some value to an employee during periods of stock market volatility,
while stock options may have limited perceived value and may do little to retain and motivate employees when the current value of our stock is less than the option price. Although our 2013 Plan allows for various equity instruments, we intend to
make future grants primarily in the form of restricted stock.
The restricted stock awards provide for immediate vesting upon a change in control, as defined
by the 2013 Plan. We would likely need the assistance of several key employees to successfully conclude a transaction resulting in a change in control. We believe immediately vesting the awards may serve to reduce concerns, other than continued
employment, such employees may have with respect to any potential change in control transaction and may motivate them to complete the transaction.
We have a
policy which prohibits our directors and certain employees, including our executive officers, from holding our securities in a margin account or pledging our securities as collateral, unless permission is received from our General Counsel in
writing. We also have a policy that prohibits the same group from hedging any Company securities held by them. For a discussion of our hedging policy, see Hedging Policy on page 35 below.
The Company has a Common Stock ownership requirement for our executive officers. Each such officer is required to own shares of our Common Stock at least equal
to a specified multiple of such officers base salary. The table below lists base salary multiples applicable to the different positions within this group:
|
|
|
|
|
Officer
|
|
Required Stock Ownership
Multiple of Annual Base Salary
|
Executive
Chairman
|
|
5x
|
Chief
Executive Officer
|
|
5x
|
President
|
|
5x
|
Other
Executive Officers
|
|
3x
|
Until the stock ownership guideline is achieved, each such officer is required to retain 100% of the net shares
received as a result of restricted shares granted under our 2013 Plan. Net shares are the number of shares that remain after shares are sold or withheld to pay withholding taxes. The calculation is determined as of December 31 each
year based upon the average closing price of the Common Stock for the year compared to the officers base salary as of such date. Shares owned directly by, or held in trust for, the officer or his or her immediate family members residing in the
same household and unvested restricted shares are included in the calculation.
The Compensation Committee reviews the compliance of each executive officer
with the stock ownership guidelines each year and reduces or eliminates future restricted stock grants under the 2013 Plan for any executive officer not in compliance with the stock ownership guidelines. The Compensation Committee reviewed the
NEOs and other applicable officers stock ownership as of December 31, 2019 and determined each NEO and other applicable officers were in compliance with the guidelines.
|
|
|
Deferred Compensation Plan
|
|
On September 20, 2013, the Board, based upon the recommendation of the Compensation Committee,
|
established the DCP. The Board appointed the Compensation Committee to act as Plan Administrator of the DCP
(the DCP Administrator).
|
33
The purpose of the DCP is to (i) give DCP participants, including the NEOs, an additional tool to use in
planning their savings and for retirement; and (ii) provide a vehicle to allow employee DCP participants, all of whom are limited in their participation in the Companys 401(k) (as defined below) due to limits imposed under federal tax
rules (Limits), to receive similar benefits in connection with Company matching contributions as employees whose ability to receive Company matching contributions is not impacted by the Limits. The DCP permits the Company to make
discretionary matching and other contributions to a participants account, although the Company did not make any such contributions to the NEOs accounts during the 2019 year. For a description of the material features of the DCP see the
narrative Description of Deferred Compensation Plan on pages 39 and 40 below.
|
|
|
Other
|
|
Compensation and benefits that are outside of our three main compensation elements are designed to attract and
retain
|
employees by enhancing our overall compensation package. During 2019, we provided automobiles to certain NEOs
and certain other employees for business and personal use. The personal use is valued according to IRS guidelines and reported as taxable income to the individuals. We value vehicle usage for disclosure in our proxy statement based upon the
aggregate incremental cost to us adjusted to reflect each individuals personal use of the vehicle.
|
In 2019, we allowed Mr. Hamm and Mr. Stark to use the corporate aircraft for personal trips. The value of such trips is
calculated according to IRS guidelines and reported as taxable income to him. On occasion the spouses and guests of NEOs may accompany them on business-related trips. Aircraft usage and travel by spouses and guests are valued for disclosure in our
proxy statement based on the aggregate incremental cost to us.
We have a defined contribution retirement plan (401(k)) covering all full-time
employees. Our contributions to the plan are discretionary and based on a percentage of eligible compensation. The 401(k) provides for Company dollar for dollar matching of up to a maximum of 10% of a covered employees eligible compensation,
depending on the employees level of contribution into the employees account and subject to IRS limits.
All full-time employees may
participate in our health and welfare benefit programs, including medical, dental, vision care, life insurance and disability insurance. We provide all full-time employees with life insurance coverage of the lesser of two times base salary or
$1,000,000 and allow them to purchase supplemental coverage. We do not sponsor any qualified or non-qualified defined benefit plans.
|
|
|
CLR Clawback Policy
|
|
On August 3, 2018 the Board approved a clawback policy pursuant to which cash and equity-based
incentive
|
compensation awards to executive officers granted after August 3, 2018 may be recovered if the
Company is required to restate all or a portion of its publicly reported financial statements and it is determined such restatement was proximately caused by the fraud, gross negligence, intentional misconduct, embezzlement, theft or breach of
fiduciary duty committed by or attributable to any current or former executive officer of the Company (such conduct is referred to herein as wrongful conduct). The policy also applies if an executive has knowledge of wrongful
conduct and fails to take reasonable steps to prevent it.
|
In order to be subject to recovery, an award must have been based in whole or in part on measures impacted by the
restatement. The amount to be recovered is any excess value received by the executive officer as a result of the measures impacted by the restatement. Any matching award under the Companys DCP impacted by the measures subject to
restatement is also subject to recovery. The Compensation Committee has discretion to determine how recovery is to be achieved, which may include, among other things, seeking reimbursement, cancelling other outstanding equity awards or reducing
future compensation. Simple interest will be applied to any recovery amount.
Since all current outstanding equity awards are restricted stock awards
subject to time-based vesting, and we have not made matching awards under the DCP since 2015, the only compensation that may be subject to the policy as of the date of this proxy statement are awards made under the CLR Bonus Plan. In order to
receive a CLR Bonus Plan award, each executive officer must execute an agreement agreeing to abide by the terms of the clawback policy. Each executive officer executed such an agreement in connection with the bonus for 2019, paid in February 2020.
The clawback policy is administered by the Compensation Committee. The Compensation Committee has discretion to waive or limit the amount to be
recovered under the clawback policy if it determines such action is justified in its business judgment. Among others, circumstances that may be considered by the Compensation Committee in exercising discretion to waive or limit recovery are the
passage of time, whether the cost of recovery outweighs the benefit to the Company, and whether the recovery will remedy the wrongful conduct or aid in preventing its recurrence.
34
Impact of Accounting and Tax Treatment
We believe it is important to have flexibility in designing the compensation program in a manner to achieve the objectives described above under
Compensation Objectives. Therefore, while we consider the accounting and tax treatment of certain forms of compensation in the design of our compensation program, the accounting and tax treatment is not a determinative factor.
Prior to 2018, under Section 162(m) of the Internal Revenue Code, a publicly-held company could deduct for federal tax purposes no more than $1,000,000 of
annual compensation paid to its principal executive officer and each of its three other most highly-paid officers other than the principal financial officer, unless the compensation was performance-based compensation. Beginning with
2018, Section 162(m) of the Code generally does not contain an exception for performance-based compensation. Therefore, we do not expect the restrictions of Section 162(m) of the Code to play any role in our compensation
decisions going forward.
Our insider trading policy provides that certain employees and all directors may not purchase or sell puts or calls to sell or buy
our securities or engage in short sales with respect to our securities. Certain employees and all directors are also prohibited from holding our securities in a margin account or pledging our securities as collateral for a loan, unless
permission is received from our General Counsel in writing. The purchase or sale of stock by our officers, directors and certain employees may only be made during a window of time described in our policy and after approval by our General Counsel.
We have a policy that prohibits our directors and certain employees, including our executive officers, from engaging in
transactions which may hedge the value of our securities, including, without limitation, buying or selling puts and calls for, or engaging in short sales of, our securities. While the policy does not specifically address prepaid variable forward
contracts, equity swaps, collars and exchange funds, in applying the policy, the Company would consider these transactions to be hedging transactions. This policy applies to all types of awards under our 2013 Plan, including awards of restricted
Common Stock, which are the only types of awards currently outstanding under our 2013 Plan and also applies to Company securities otherwise acquired by our directors, executive officers and certain other employees. Employees, including our executive
officers, are selected to be subject to this policy based on their access to material information about our Company, as part of their day-to-day responsibilities.
Directors are also included in this policy based on their access to material information about the Company. The purpose of the prohibition against hedging is to align the interests of our directors and the employees described above with the
performance and prospects of the Company.
|
|
|
Compensation Committee Report
|
|
|
In accordance with its written charter adopted by the Board, the Compensation Committee of the Board is responsible for
overseeing awards to employees of stock or other equity compensation and determining and approving the individual elements of the total compensation of the Chief Executive Officer, the other NEOs and other senior executive officers and recommending
the compensation of the Chief Executive Officer for approval by the Board. The Compensation Committee is also obligated to communicate to shareholders information regarding the factors and criteria on which the Chief Executive Officers
compensation was based, including the relationship of the Companys performance to the Chief Executive Officers compensation, and the specific relationship of corporate performance to executive compensation overall.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) above with management. Based on this review
and discussion, the Compensation Committee recommended to the Board that this CD&A be included in this Proxy Statement.
|
|
|
|
|
|
|
/s/ John T. McNabb, II
|
|
/s/ Lon McCain
|
|
/s/ Mark E. Monroe
|
|
/s/ Timothy G. Taylor
|
John T. McNabb, II
Committee Chairman
|
|
Lon McCain
Committee Member
|
|
Mark E. Monroe
Committee Member
|
|
Timothy G. Taylor
Committee Member
|
35
|
|
|
Summary Compensation Table
|
|
|
The following table sets forth the compensation of our Principal Executive Officer, Principal Financial Officer, and the three
other most highly compensated executive officers during 2019. We refer to these five individuals collectively as the NEOs for 2019. Mr. Hamm served as our Chief Executive Officer during 2019, and assumed his current role as our
Executive Chairman on January 1, 2020. As result, Mr. Hamm appears in the table below as our Principal Executive Officer. The title appearing in the table below, and the tables that follow, is his current title. Compensation is shown for
years 2017, 2018 and 2019, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
($) (1)
|
|
|
Bonus
($) (1)
|
|
|
Stock
Awards
($) (2)
|
|
|
All Other
Compensation
($) (3)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
Harold G. Hamm
|
|
|
2019
|
|
|
$
|
1,309,472
|
|
|
$
|
3,019,970
|
|
|
$
|
8,349,062
|
|
|
$
|
67,584
|
|
|
$
|
12,746,088
|
|
Executive Chairman
|
|
|
2018
|
|
|
|
1,255,987
|
|
|
|
3,442,974
|
|
|
|
8,556,833
|
|
|
|
76,618
|
|
|
|
13,332,412
|
|
|
|
|
2017
|
|
|
|
1,210,589
|
|
|
|
3,404,829
|
|
|
|
7,593,904
|
|
|
|
60,077
|
|
|
|
12,269,399
|
|
|
|
|
|
|
|
|
Jack H. Stark
|
|
|
2019
|
|
|
|
725,060
|
|
|
|
1,114,780
|
|
|
|
3,879,015
|
|
|
|
38,237
|
|
|
|
5,757,092
|
|
President and Chief Operating Officer
|
|
|
2018
|
|
|
|
695,445
|
|
|
|
1,270,927
|
|
|
|
4,040,112
|
|
|
|
33,819
|
|
|
|
6,040,303
|
|
|
|
2017
|
|
|
|
668,269
|
|
|
|
1,253,022
|
|
|
|
3,597,674
|
|
|
|
37,213
|
|
|
|
5,556,178
|
|
|
|
|
|
|
|
|
John D. Hart
|
|
|
2019
|
|
|
|
595,673
|
|
|
|
915,848
|
|
|
|
2,812,276
|
|
|
|
25,489
|
|
|
|
4,349,286
|
|
Senior Vice President, Chief
|
|
|
2018
|
|
|
|
573,462
|
|
|
|
1,040,000
|
|
|
|
2,929,122
|
|
|
|
29,233
|
|
|
|
4,571,817
|
|
Financial Officer and Treasurer
|
|
|
2017
|
|
|
|
551,404
|
|
|
|
1,030,000
|
|
|
|
2,518,372
|
|
|
|
29,156
|
|
|
|
4,128,932
|
|
|
|
|
|
|
|
|
Eric S. Eissenstat
|
|
|
2019
|
|
|
|
487,008
|
|
|
|
551,099
|
|
|
|
1,454,636
|
|
|
|
25,489
|
|
|
|
2,518,232
|
|
Senior Vice President, General Counsel, Chief Risk
Officer and Secretary
|
|
|
2018
2017
|
|
|
|
470,327
453,327
|
|
|
|
550,095
680,000
|
|
|
|
1,515,042
1,349,163
|
|
|
|
24,989
24,434
|
|
|
|
2,560,453
2,506,924
|
|
|
|
|
|
|
|
|
Patrick W. Bent
|
|
|
2019
|
|
|
|
509,825
|
|
|
|
610,000
|
|
|
|
1,935,204
|
|
|
|
25,489
|
|
|
|
3,080,518
|
|
Senior Vice President, Operations(4)
|
|
|
2018
|
|
|
|
471,482
|
|
|
|
650,000
|
|
|
|
1,515,042
|
|
|
|
24,989
|
|
|
|
2,661,513
|
|
(1)
|
None of the NEOs elected to participate in the Companys DCP with respect to 2019 compensation and amounts
reported in the table above do not include any amounts deferred pursuant to the Companys DCP. All bonuses were paid pursuant to the CLR Bonus Plan in February 2020 for 2019.
|
(2)
|
The amounts under Stock Awards reflect the aggregate grant date fair value computed in accordance with
ASC Topic 718, disregarding any estimate for forfeitures, for awards granted during the indicated year. A discussion of the grant date fair value calculation can be found in Note 13 to our consolidated financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2019, filed with the SEC.
|
(3)
|
All Other Compensation for 2019 includes the following elements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Year
|
|
|
Personal Use of
Company Aircraft
($) (a)
|
|
|
Personal Use of
Company Vehicle
($) (b)
|
|
|
Contributions
to 401(k) Plan
($)
|
|
|
Total
($) (c)
|
|
Harold G.
Hamm
|
|
|
2019
|
|
|
$
|
34,941
|
|
|
$
|
7,154
|
|
|
$
|
25,000
|
|
|
$
|
67,584
|
|
Jack H.
Stark
|
|
|
2019
|
|
|
|
7,397
|
|
|
|
5,351
|
|
|
|
25,000
|
|
|
|
38,237
|
|
John D.
Hart
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,489
|
|
Eric S.
Eissenstat
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,489
|
|
Patrick W.
Bent
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,489
|
|
(a)
|
We calculate the incremental cost to the Company of any personal use of corporate aircraft based on the cost of
fuel, trip-related maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar and parking costs, and other variable costs. Occasionally, spouses and guests of NEOs ride along when
an aircraft is already going to a destination for a business purpose. This use has minimal costs to the Company and, where applicable, only the direct variable costs associated with the
|
36
|
additional passenger (for example fuel and catering) are included in determining the aggregate incremental cost to the Company. Since Company-owned aircraft are used primarily for business
travel, we do not include the fixed costs that do not change based on usage, such as pilots salaries and the purchase costs of Company-owned aircraft.
|
(b)
|
We calculate the incremental cost to the Company of any personal use of Company vehicles, including fuel,
maintenance, insurance, lease payments and depreciation.
|
(c)
|
Total amount includes nominal cost of industry club membership.
|
(4)
|
Mr. Bents title was changed from Senior Vice President, Drilling to the title indicated in the table,
effective June 4, 2019. Mr. Bents compensation reported in the table above and the tables appearing below reflects the amounts paid to Mr. Bent in 2019 with respect to both roles.
|
|
|
|
2019 Grants of Plan Based Awards
|
|
|
The following table reflects information concerning awards of restricted stock granted to our NEOs during the fiscal year ending
December 31, 2019 under the Companys 2013 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
|
Stock
Awards:
Number of Shares (1)
|
|
|
Grant Date Fair Value
of Stock
Awards
($) (2)
|
|
Harold G.
Hamm
|
|
|
2/12/2019
|
|
|
|
186,363
|
(3)
|
|
$
|
8,349,062
|
|
Jack H.
Stark
|
|
|
2/11/2019
|
|
|
|
87,701
|
(3)
|
|
|
3,879,015
|
|
John D.
Hart
|
|
|
2/11/2019
|
|
|
|
63,583
|
(3)
|
|
|
2,812,276
|
|
Eric S.
Eissenstat
|
|
|
2/11/2019
|
|
|
|
32,888
|
(3)
|
|
|
1,454,636
|
|
Patrick W. Bent
|
|
|
2/11/2019
|
|
|
|
32,888
|
(3)
|
|
|
1,454,636
|
|
|
|
|
8/01/2019
|
|
|
|
14,023
|
(4)
|
|
|
480,568
|
|
(1)
|
All awards will vest on an accelerated basis in the event of a change in control. Unvested shares receive cash
dividends at the same rate as other shareholders and all Company employees receive payment in connection with accrued dividend payments at the time the shares related to any accrued dividends vest.
|
(2)
|
The aggregate grant date fair value of each equity award is computed in accordance with ASC Topic 718,
disregarding any estimate for forfeitures.
|
(3)
|
The shares underlying this award vest on February 15, 2022, subject to the NEOs continued service.
|
(4)
|
Represents a supplemental award of 14,023 shares in connection with the change in Mr. Bents title and
responsibilites. Mr. Bents supplemental award vests as follows: 3,049, 4,268 and 6,706 shares on February 15, 2020, 2021 and 2022, respectively.
|
|
2019 Narrative Disclosure
to the Summary Compensation Table and Grants of Plan Based Awards
|
The following table shows the percentage of base salary and bonus that each NEO received or earned with respect to 2019 as
compared to that NEOs total compensation for 2019:
|
|
|
|
|
Name
|
|
Percentage of Salary and
Bonus to Total
Compensation
|
Harold G.
Hamm
|
|
34%
|
Jack H.
Stark
|
|
32%
|
John D.
Hart
|
|
35%
|
Eric S.
Eissenstat
|
|
41%
|
Patrick W.
Bent
|
|
36%
|
37
|
|
|
Outstanding Equity Awards
as of December 31, 2019
|
|
|
The following table reflects unvested restricted stock held by our NEOs as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
Number of Shares of Stock that
Have Not Vested (1)
|
|
|
Market Value of Shares of
Stock that Have Not Vested ($) (2)
|
|
Harold G.
Hamm
|
|
|
518,505
|
|
|
$
|
17,784,722
|
|
Jack H.
Stark
|
|
|
244,003
|
|
|
|
8,369,303
|
|
John D.
Hart
|
|
|
174,961
|
|
|
|
6,001,162
|
|
Eric S.
Eissenstat
|
|
|
91,502
|
|
|
|
3,138,519
|
|
Patrick W.
Bent
|
|
|
101,641
|
|
|
|
3,486,286
|
|
(1)
|
These shares represent restricted stock awards. Unvested shares will vest as follows: (i) 165,049 shares on
February 15, 2020, 167,093 shares on February 15, 2021 and 186,363 shares on February 15, 2022, for Mr. Hamm; (ii) 77,670 shares on February 15, 2020, 78,632 shares on February 15, 2021 and 87,701 shares on February 15,
2022, for Mr. Stark; (iii) 54,369 shares on February 15, 2020, 57,009 shares on February 15, 2021 and 63,583 shares on February 15, 2022, for Mr. Hart; (iv) 29,127 shares on February 15, 2020, 29,487 shares on February 15,
2021, and 32,888 shares on February 15, 2022 for Mr. Eissenstat; and (v) 28,292 shares on February 15, 2020, 33,755 shares on February 15, 2021 and 39,594 shares on February 15, 2022, for Mr. Bent.
|
(2)
|
Market value is based on the closing price of $34.30 of our Common Stock as of December 31, 2019.
|
|
|
|
Options Exercised and
Restricted Stock Vested During 2019
|
|
|
The following table reflects information concerning shares of restricted stock held by NEOs that vested during 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
Number of
Shares Acquired
on Vesting
|
|
|
Value Realized
on Vesting
($)
(1)
|
|
Harold G.
Hamm
|
|
|
301,526
|
|
|
$
|
14,150,615
|
|
Jack H.
Stark
|
|
|
127,705
|
|
|
|
5,993,196
|
|
John D.
Hart
|
|
|
92,232
|
|
|
|
4,328,448
|
|
Eric S.
Eissenstat
|
|
|
53,211
|
|
|
|
2,497,192
|
|
Patrick W.
Bent
|
|
|
39,021
|
|
|
|
1,831,256
|
|
(1)
|
Value realized on vesting is calculated by multiplying the number of shares by the closing price upon day of
vesting.
|
|
|
|
2019 Nonqualified Deferred
Compensation
|
|
|
The following table sets forth our NEOs information regarding the DCP, including, with respect to each officer: (i) the
aggregate contributions made by the officer; (ii) the employer contribution; (iii) the aggregate interest or other earnings accrued; (iv) aggregate withdrawals and distributions; and (v) the total balance of the officers
account.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in 2019 ($) (1)
|
|
|
Registrant
Contributions
in 2019 ($) (2)
|
|
|
Aggregate
Earnings
in 2019 ($)
|
|
|
Aggregate
Withdrawals/
Distributions
in 2019
($)
|
|
|
Aggregate
Balance at End
of 2019
($) (3)
|
|
Harold G.
Hamm
|
|
|
|
|
|
|
|
|
|
$
|
104,562
|
|
|
|
|
|
|
$
|
536,925
|
|
Jack H.
Stark
|
|
|
|
|
|
|
|
|
|
|
72,161
|
|
|
|
|
|
|
|
325,714
|
|
John D.
Hart
|
|
|
|
|
|
|
|
|
|
|
63,610
|
|
|
|
|
|
|
|
343,810
|
|
Eric S.
Eissenstat
|
|
|
|
|
|
|
|
|
|
|
49,273
|
|
|
|
|
|
|
|
237,843
|
|
Patrick W.
Bent
|
|
|
|
|
|
|
|
|
|
|
41,885
|
|
|
|
|
|
|
|
187,310
|
|
38
(1)
|
None of the NEOs listed above elected to participate in the DCP with respect to 2019 compensation.
|
(2)
|
The Company suspended all matching under the DCP for 2019 for the reasons described below in the fifth paragraph
under Description of Deferred Compensation Plan. The matching suspension also applied to the bonus paid in February 2020 for 2019 under CLRs Cash Bonus Plan.
|
(3)
|
Includes the following aggregate amounts previously reported, as applicable, as compensation for 2014, 2015, 2016,
2017 and 2018 in the Summary Compensation table for each of the NEOs: $314,639 for Mr. Hamm; $199,920 for Mr. Stark; $214,130 for Mr. Hart; $0 for Mr. Eissenstat; and $0 for Mr. Bent. Mr. Bents and
Mr. Eissenstats amounts are zero since neither Mr. Bent nor Mr. Eissenstat has had deferred compensation previously reported in the Summary Compensation table.
|
|
|
|
Description of Deferred Compensation
Plan
|
|
|
On September 20, 2013, the Board, based upon the recommendation of the Compensation Committee, established the DCP.
The purpose of the DCP is to (i) give DCP participants and non-employee directors an additional tool to use in their
personal financial planning; and (ii) provide a vehicle to allow employee DCP participants, all of whom are limited in their participation in the Companys 401(k) plan due to the Limits, to receive similar benefits in connection with
Company matching contributions as employees whose ability to receive Company matching contributions is not impacted by the Limits. The DCP permits the Company to make discretionary matching and other contributions to a participants account and
the matching and discretionary contributions approved in connection with the DCP are intended to facilitate the purpose described in (ii) above.
The
DCP is not intended to constitute a qualified plan subject to the limitations of Section 401(a) of the Internal Revenue Code of 1986, as amended (the Code), nor is it a funded plan for purposes of the Code.
Benefits under the DCP constitute an unfunded general obligation of the Company. The DCP is designed to provide directors and select management or highly compensated employees of the Company the opportunity to defer the payment of all or a portion
of their base pay and cash incentive awards (to the extent a participant is eligible to receive such awards).
Each year the DCP permits participants to
elect to defer: (i) up to 100% of base pay (cash fees in the case of directors) for a calendar year and (ii) up to 100% of any cash incentive award received by the employee participant for a performance year. DCP participants are 100%
vested in any amounts they deferred pursuant to the alternatives described in the prior sentence. The DCP permits discretionary contributions by the Company, which are subject to a vesting schedule, as described below, at the discretion of the DCP
Administrator.
As permitted by the DCP, matching contributions have been approved enabling employee participants to receive matching under the DCP for up to
10% of their total cash compensation, including salary and bonus deferrals. The approved match was intended to align with the amount employee participants would have received under the 401(k) plan, but for the Limits and is given subject to terms
and conditions applicable to matching contributions under the 401(k) plan. As a result of the continued volatile commodity price environment, the Company suspended the match described above for 2019, and the suspension was applicable to any bonus
paid in February 2020 for 2019 under CLRs Cash Bonus Plan. All matching has been suspended since 2016.
Distribution of DCP amounts deferred in
connection with 2014 will occur upon a participants separation from service with the Company. The Company requires a six month delay in the payment of DCP benefits if the participant is a specified employee pursuant to
Section 409A of the Code at the time of his or her separation from service with the Company, and an earlier payment would result in the imposition of an excise tax on the participant if the amounts were received at the time of his or her
separation (the Specified Employee Delay). In addition, in connection with amounts deferred in respect of 2014, distribution of DCP accounts and vesting of any Company contributions will result from any of the following events:
(i) Change of Control (as defined in the DCP); (ii) a participants death or Disability (as defined in the DCP); (iii) a participants Normal Retirement (as defined in the DCP); and (iv) a participants Involuntary
Termination (as defined in the DCP).
Distribution of DCP amounts deferred after 2014 will occur, subject to limited exceptions, based on the election of the
participant to receive a distribution upon a fixed date chosen by the DCP participant, the participants Termination of Employment (as defined in the DCP), or a Change of Control. In addition, distribution of DCP amounts deferred after 2014
will occur in the event of the participants death or Disability. In connection with these distribution events, participants can choose, except in the case of death or Disability, to receive distributions in a lump sum or installments. In the
case of death or Disability, the distribution will be made in a lump sum. Participants also have the ability to elect a lump sum distribution if a Change of Control or Involuntary Termination occurs after a participant has started to receive
distributions after a fixed date. Distributions described above are also subject to the Specified
39
Employee Delay. Finally, vesting restrictions on any amounts deferred after 2014 will lapse in connection with any of the following events: (i) Change of Control;
(ii) participants death or Disability; and (iii)
a participants achievement of Normal Retirement Age (as defined in the DCP).
Earnings reflect the returns produced by the
investments selected by the applicable named executive officer. The investment options available to the NEOs are a sub-set of the investment options available under the Companys 401K Plan. As of
December 31, 2019, investment options consisted of the following (returns for 2019 noted in parentheses): Fidelity® High Income (14.25%), Oakmark Equity & Income I (19.31%), TRP
Retirement 2005 (15.17%), TRP Retirement 2010 (16.22%), TRP Retirement 2015 (17.53%), TRP Retirement 2020 (19.47%), TRP Retirement 2025 (21.2%), TRP Retirement 2030 (22.7%), TRP Retirement 2035 (23.99%), TRP Retirement 2040 (24.95%), TRP Retirement
2045 (25.59%), TRP Retirement 2050 (25.67%), TRP Retirement 2055 (25.65%), TRP Retirement 2060 (25.7%), Fidelity® Contrafund® K
(30.17%), Fidelity Spartan® 500 Index Advtg® (31.47%), Fidelity® Low-Priced Stock (25.81%), MFS Mid-Cap Value Equity I (31.08%), Fidelity Spartan® Extnd Mkt Idx Advtg (28.0%),
Driehaus Emrg Mkts (25.34%), Eagle Mid CP Grth R6 (35.02%), Metwest Total Return Bond (9.23%), Fidelity Spartan® Intl Idx Advtg (22.0%), American Beacon Small Cp Val Inst (23.51%), American
Funds EuroPacific Growth Fund (27.4%), JH Disciplined Value Fund R6 (22.79%), and Wells Fargo SM Co Growth IS (26.46%). The Company does not guarantee a level of investment return.
|
|
|
Potential Payments Upon Termination or
Change in Control
|
|
|
We do not maintain employment, severance or change in control agreements with our NEOs outside of the potential acceleration
provisions described below with respect to our equity awards. We discussed our rationale for providing change in control equity vesting above under Compensation Discussion and Analysis.
Vesting of Restricted Stock on Change in Control. All of our employees and directors unvested shares of restricted stock will vest if a
change in control occurs as defined in their respective stock award agreements. These agreements are subject to the provisions of the 2013 Plan. The 2013 Plan contains customary change in control provisions.
Listed in the following table is the value of unvested shares of restricted stock held by our NEOs as of December 31, 2019, which would fully vest and be
immediately available in the event of a change in control under the 2013 Plan. The table assumes a change in control occurred on December 31, 2019 and the per-share value is $34.30, the closing price of
our Common Stock as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Change in
Control Vesting of
Restricted Stock
($)
|
|
|
Termination
Payment
($)
|
|
|
Total
($)
|
|
Harold G.
Hamm
|
|
|
$17,784,722
|
|
|
|
|
|
|
|
$ 17,784,722
|
|
Jack H.
Stark
|
|
|
8,369,303
|
|
|
|
|
|
|
|
8,369,303
|
|
John D.
Hart
|
|
|
6,001,162
|
|
|
|
|
|
|
|
6,001,162
|
|
Eric S.
Eissenstat
|
|
|
3,138,519
|
|
|
|
|
|
|
|
3,138,519
|
|
Patrick W.
Bent
|
|
|
3,486,286
|
|
|
|
|
|
|
|
3,486,286
|
|
Distributions in Connection with DCP. Under the terms of our DCP, distributions of deferred compensation and
accelerated vesting of Company contributions may occur in connection with change of control or a participants termination. A description of such distributions and accelerated vesting, as well as the circumstances triggering these events with
respect to Messrs. Hamm, Stark, Hart, Eissenstat and Bent appear above on page 39 in the description of our DCP appearing under the heading Description of Deferred Compensation Plan.
|
|
|
Indemnification Agreements
|
|
|
Our officers, directors, and certain other employees have entered into customary indemnification agreements with us, pursuant to
which we have agreed to indemnify our officers and directors to the fullest extent permitted by law.
40
|
|
|
Risk Assessment Related to
our Compensation Structure
|
|
|
We believe our executive compensation program is appropriately structured and not reasonably likely to result in risks that could
have a material adverse effect on us. We believe our approach of subjectively evaluating performance results of each executive assists in mitigating excessive risk-taking that could harm our value or reward poor judgment by our executives. Several
features of our programs reflect sound risk management practices. We believe we have allocated our compensation among base salary and short and long-term compensation opportunities in such a way as to discourage excessive risk-taking. Further, one
of the primary factors we take into consideration in setting compensation is the performance of the Company as a whole. This is based on our belief that applying Company-wide metrics encourages decision-making that is in the best long-term interests
of the Company and our shareholders as a whole. Finally, the time-based vesting over a multi-year period for our long-term incentive awards ensures our employees interests align with those of our shareholders for the long-term performance of
our Company.
The 2019 compensation disclosure ratio of the median total compensation of all Company employees to the annual total compensation
of Mr. Hamm, our then Chief Executive Officer, who was our principal executive officer at December 31, 2019, is as follows:
|
|
2019 median employee total annual compensation: $127,231
|
|
|
2019 Chief Executive Officer total annual compensation: $12,746,088
|
|
|
2019 ratio of total annual compensation of Chief Executive Officer to median employee: 100:1
|
With respect to the ratio calculation, we identified the median employee by examining the 2019 compensation reported on Form W-2 for all individuals, excluding our Chief Executive Officer, who were employed by us (whether on a full-time, part time, seasonal or temporary basis) on December 31, 2019, the last day of our previous fiscal
year. For such employees we did not make any annualizations, assumptions, adjustments (including cost-of-living adjustments) or estimates with respect to the
compensation reflected on the Form W-2s.
After identifying the median employee, we calculated the total annual
compensation for such employee using the same methodology we use for our named executive officers as set forth in the Summary Compensation Table appearing on page 36 of this proxy statement.
Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the ratio reported above should not be used
as a basis for comparison between companies.
41
Security Ownership of Certain
Beneficial Owners and Management
|
|
|
Security Ownership of Certain Beneficial
Owners
|
|
|
The following table sets forth certain information concerning the beneficial ownership of our shares of Common Stock, as of
March 18, 2020, by each person (other than our directors and executive officers) known by us to be the beneficial owner of more than 5% of the issued and outstanding Common Stock.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
Name and Address of Beneficial Owner
|
|
Number of Shares
|
|
|
Percent of Class (1)
|
Harold Hamm
Family LLC (2)
|
|
|
283,116,538
|
|
|
77.54%
|
(1)
|
Based on total shares outstanding of 365,110,896 on March 18, 2020.
|
(2)
|
The Family LLC acting through its manager, Mr. Hamm, our Executive Chairman, has sole voting and dispositive
power over the indicated shares. The shares held by the Family LLC are included in the shares reported as owned by Mr. Hamm in the table below. The business address of the Family LLC is Harold Hamm Family LLC, c/o Hartzog Conger Cason, 201
Robert S. Kerr Avenue, Suite 1600, Oklahoma City, Oklahoma 73102.
|
|
|
|
Security Ownership of
Directors and Executive Officers
|
|
|
The following table sets forth certain information concerning the beneficial ownership of our shares of Common Stock as of
March 18, 2020 by (a) each of our directors and director nominees, (b) each of the executive officers, and (c) all of our directors, director nominees and executive officers as a group. Each of the aforementioned persons has sole
voting and dispositive power with respect to the shares listed in the table, except as otherwise indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
|
Name of Director or Executive Officer
|
|
Number of Shares (1)
|
|
|
Percent of Class (2)
|
|
Patrick W.
Bent
|
|
|
235,530
|
|
|
|
*
|
|
William B.
Berry
|
|
|
1,041,301
|
|
|
|
*
|
|
Eric S.
Eissenstat
|
|
|
197,465
|
|
|
|
*
|
|
Harold G.
Hamm (3)
|
|
|
284,923,121
|
|
|
|
78.04
|
%
|
John D.
Hart
|
|
|
416,541
|
|
|
|
*
|
|
Jeffrey B.
Hume (4)
|
|
|
2,233,139
|
|
|
|
*
|
|
Shelly
Lambertz (5)
|
|
|
118,412
|
|
|
|
*
|
|
Lon
McCain
|
|
|
58,912
|
|
|
|
*
|
|
John T.
McNabb, II (6)
|
|
|
44,800
|
|
|
|
*
|
|
Mark E.
Monroe
|
|
|
252,746
|
|
|
|
*
|
|
Steven K.
Owen (7)
|
|
|
157,560
|
|
|
|
*
|
|
Ramiro F.
Rangel (8)
|
|
|
90,705
|
|
|
|
*
|
|
Jack H.
Stark (9)
|
|
|
824,687
|
|
|
|
*
|
|
Timothy G.
Taylor
|
|
|
17,273
|
|
|
|
*
|
|
All
Directors, executive officers and NEOs as a group (14 persons)
|
|
|
290,612,192
|
|
|
|
79.60
|
%
|
42
(1)
|
Beneficial ownership is determined in accordance with the SECs rules and regulations and generally includes
voting or dispositive power with respect to securities. The following persons have sole voting and dispositive power with respect to the restricted stock included in the number of shares listed opposite each persons name in the table above,
subject to the terms of the documents relevant to each restricted stock award: Mr. Bent 131,973 shares; Mr. Berry 785,084 shares; Mr. Eissenstat 108,658 shares; Mr. Hamm 353,456 shares; Mr. Hart
203,900 shares; Mr. Hume 54,330 shares; Ms. Lambertz 34,977 shares; Mr. McCain 9,586 shares; Mr. McNabb 9,586 shares; Mr. Monroe 9,586 shares; Mr. Owen 83,842 shares;
Mr. Rangel 49,165 shares; Mr. Stark 289,752 shares; Mr. Taylor 3,887 shares; and all directors, executive officers and NEOs as a group 2,127,782 shares.
|
(2)
|
Based on total shares outstanding of 365,110,896 on March 18, 2020.
|
(3)
|
Includes 283,116,538 shares held by the Family LLC for which Mr. Hamm is the sole manager and as such has
sole voting and dispositive power over the shares held by the Family LLC. The shares held by the Family LLC and included in Mr. Hamms total are also reported as owned by the Family LLC in the table above. Also includes 64,452 shares held
by Transwestern Transports LLC (Transwestern), an entity of which the Hamm Revocable Trust is the sole member. Mr. Hamm has sole voting and dispositive power over the shares held by Transwestern.
|
(4)
|
Includes 2,021,839 shares held by a limited liability company owned by Mr. Hume and his wife.
|
(5)
|
Includes 70,012 shares held through a trust and 2,300 shares held by Ms. Lambertzs spouse.
|
(6)
|
Includes 2,000 shares held by a charitable foundation qualified under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, of which Mr. McNabb and his wife are officers and with respect to which Mr. McNabb and his wife share voting and dispositive power. Mr. McNabb and his wife have no pecuniary interest in the shares
held by the charitable foundation.
|
(7)
|
Includes 14,000 shares held jointly by Mr. Owen and his wife.
|
(8)
|
Includes 32,065 shares held through a trust.
|
(9)
|
Includes 486,003 shares held by a limited liability company owned by Mr. Stark and his wife.
|
Proposal 2:
Approve an Amendment to Our Third
Amended and Restated Certificate
of Incorporation that Declassifies
Our Board of Directors
We are asking shareholders to approve an amendment to our Third Amended and Restated Certificate of Incorporation, as amended (the
Certificate), to effect the declassification of our Board of Directors. If approved at the Annual Meeting, the declassification of our Board will give shareholders the ability to elect the entire Board on an annual basis starting with
the 2021 Annual Meeting of Shareholders. The Board believes the Declassification Proposal is in the best interest of shareholders since it brings the Companys corporate governance into greater alignment with best governance practices, by
enhancing the accountability of the Board to shareholders.
|
Proposed Amendment to Third Amended and Restated Certification of
Incorporation, As Amended
|
Currently, our Certificate provides our Board is divided into three classes, with members of each class holding office for
staggered three-year terms. One class of directors, representing approximately one-third of our directors, stands for election at each annual meeting of shareholders. We are asking
shareholders to approve an amendment to our Certificate to eliminate the three-year classified terms of our directors and provide instead for the annual election of all directors elected at our 2021 Annual Meeting of Shareholders, for one-year terms expiring at the next succeeding annual meeting, subject to a directors earlier death, resignation, retirement, disqualification or removal from office. Further, in connection with the proposed
declassification of the Board, we are also proposing to amend our Certificate so that a director elected or appointed by the Board to fill any vacancy on our Board will hold office for a term expiring at the annual meeting of shareholders
following such appointment. If the Declassification Proposal is approved, the Class II directors elected at the Annual Meeting will be elected to serve until the 2021 Annual Meeting of Shareholders, and all directors
43
will be up for re-election by shareholders at the 2021 Annual Meeting of Shareholders and will be elected for
one-year terms to expire at the annual shareholders meeting in 2022. The proposed amendment will thus have the effect of shortening the existing terms of certain directors whose terms
currently extend beyond the 2021 Annual Meeting of Shareholders. See Proposal 1: Election of Directors for a description of the terms of each class of our directors. If the Declassification Proposal is not approved at
the Annual Meeting, then the classified Board structure described in the first two sentences of this paragraph will continue beyond the Annual Meeting and the Class II directors elected at the Annual Meeting will have terms that will continue
until the 2023 Annual Meeting of Shareholders.
The description of the proposed amendment to the Certificate is qualified in its entirety by reference to the
text of the proposed amendment, which is attached as Annex B to this proxy statement.
The Board recommends the shareholders vote for the
Declassification Proposal.
Proposal 3:
Ratification of Selection of
Independent Registered Public
Accounting Firm
The Audit Committee has directed us to submit the selection of our independent registered public accounting firm for ratification
by the shareholders at the Annual Meeting. The Audit Committee evaluates the selection of our independent registered public accounting firm each year, and has reappointed Grant Thornton as the Companys independent registered public accounting
firm to audit the consolidated financial statements of the Company for the year ended December 31, 2020. In determining to reappoint Grant Thornton as the Companys independent auditor, the Audit Committee took into consideration a number
of factors, including, but not limited to: Grant Thorntons performance on prior Company audits; the quality and timeliness of the services and informative communications provided by Grant Thornton; the results of regulatory inspections
performed on Grant Thornton audits; an assessment of Grant Thorntons resources and expertise; Grant Thorntons knowledge of the Companys business and industry; Grant Thorntons independence, objectivity and adherence to
professional and ethical standards; the appropriateness of Grant Thorntons fees relative to the services provided; and the frequency and quality of Grant Thorntons interactions with the Audit Committee and the Companys management.
Grant Thornton has served as our independent registered public accounting firm since 2004.
Our Bylaws and other governing documents or law do not require
shareholder ratification of the selection of Grant Thornton as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of Grant Thornton to the shareholders for ratification as a matter of good
corporate practice. If the shareholders fail to ratify the selection, the Audit Committee will reconsider whether to retain Grant Thornton. Even if the selection is ratified, the Audit Committee may in its discretion direct the appointment of a
different independent registered public accounting firm at any time during the year if it determines such a change would be in our and our shareholders best interest.
The Board recommends the shareholders vote for the ratification of the selection of Grant Thornton as our independent registered public accounting
firm for the year ending December 31, 2020.
In accordance with its written charter adopted by the Board, the Audit Committee of the Board assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of our accounting, auditing, and financial reporting practices. In addition to overseeing the audit of our financials by our independent registered public accounting firm, the Audit Committee
reviews our unaudited quarterly financials with management. The Audit Committee is also responsible for oversight of the Companys internal audit function
44
and the Audit Committee meets periodically with the Companys Director of Internal Audit to review the effectiveness of the internal audit function, internal audit plan and related internal
audit activities. Lastly, the Audit Committee is tasked with overseeing the Companys major financial risk exposures.
The Audit Committee is composed
entirely of independent directors. Messrs. McCain and McNabb have been determined by the Board to be financial experts. The Audit Committees charter can be found in the Corporate Governance section of our website at www.CLR.com. A printed copy
of the charter will be made available to any shareholder who requests it from our Secretary.
The Audit Committee reviewed and discussed our audited
financial statements as of and for the fiscal year ended December 31, 2019, with Grant Thornton, our independent auditor, with and without management present. Management has the primary responsibility for our financial statements and the
overall reporting process, including assuring we develop and maintain adequate financial controls and procedures for monitoring and assessing compliance with those controls and procedures, including internal control over financial reporting. Our
independent auditor is responsible for auditing the annual financial statements prepared by management, expressing an opinion as to whether those financial statements fairly present our financial position, results of operations and cash flows in
conformity with generally accepted accounting principles, and discussing with the Audit Committee any issues it believes should be raised. Grant Thornton also audited our internal control over financial reporting as of December 31, 2019 and
issued a separate report thereon.
The Audit Committee is responsible for the appointment, compensation and oversight of our independent auditor. In
discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent auditor a formal written statement describing all relationships between the auditor and us that might bear on the auditors
independence consistent with applicable requirements of the Public Company Accounting Oversight Board (PCAOB) regarding the independent auditors communications with the Audit Committee concerning independence. The Audit Committee
also discussed with the auditor any relationships that may impact its objectivity and independence, and satisfied itself as to the auditors independence. The independent auditor reviewed its audit plans, audit scope, and identification of
audit risks with the Audit Committee. The Audit Committee also discussed with management and the independent auditor the quality and adequacy of our internal controls. Further, the Audit Committee discussed and reviewed with the independent auditor
all applicable communications required by the PCAOB and the SEC.
Based on the above-mentioned review and discussions with management and the independent
auditor, the Audit Committee recommended to the Board and the Board approved the Audit Committees recommendation that the audited financial statements of the Company be included in its Annual Report on Form
10-K for the fiscal year ended December 31, 2019, for filing with the SEC. The Audit Committee also approved and recommended to the Board, and the Board ratified the reappointment of the independent
auditor for 2020.
The preceding report is presented by the members of the Audit Committee.
|
|
|
|
|
/s/ Lon McCain
|
|
/s/ John T. McNabb, II
|
|
/s/ Timothy G. Taylor
|
Lon McCain
Committee Chairman
|
|
John T. McNabb
Committee Member
|
|
Timothy G. Taylor
Committee Member
|
Grant Thornton served as our independent registered public accounting firm during 2019 and 2018. The aggregate fees for various
services performed by Grant Thornton for the years ended December 31, 2019 and 2018 are set forth below:
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|
|
|
|
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2019
|
|
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2018
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Audit
Fees
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|
$
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1,290,756
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|
|
$
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991,088
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Audit-Related Fees
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|
|
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Tax
Fees
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|
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|
|
|
|
|
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All Other
Fees
|
|
|
|
|
|
|
31,500
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Total
Fees
|
|
$
|
1,290,756
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|
|
$
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1,022,588
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45
Fees for audit services include fees associated with our annual consolidated and subsidiary audits, the review
of our quarterly reports on Form 10-Q, Sarbanes Oxley Act compliance review, accounting consultations and services normally provided by the accounting firm in connection with statutory or regulatory filings.
All Other Fees for 2018 represent fees paid to Grant Thornton for comparative analysis of the Companys bonus pool metrics relative to comparable peer companies.
As necessary, the Audit Committee considers whether the provision of non-audit services by Grant Thornton is compatible
with maintaining auditor independence and has adopted a policy that requires pre-approval of all audit and non-audit services. Such policy requires the Audit Committee
to approve services and fees in advance and requires documentation regarding the specific services to be performed. All 2019 audit fees were approved in advance in accordance with the Audit Committees policies.
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Attendance at Annual
Meeting
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Representatives of Grant Thornton are expected to be present at the Annual Meeting, with the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
Proposal 4:
Approve, by a Non-Binding Vote,
The Compensation of the
Named Executive Officers
The Company is providing shareholders an advisory vote
on the compensation of our named executive officers as required by Section 14A(a)(1) of the Exchange Act. Section 14A(a)(1) was added to the Exchange Act by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act). In January 2011, the SEC issued final rules to implement the requirements of Exchange Act Section 14A(a)(1).
The
Companys last advisory vote was held at the 2019 Annual Meeting of Shareholders. Following the 2017 Annual Meeting of Shareholders, our Board determined to hold an advisory vote on the compensation of our named executive officers on an annual
basis. This pattern will continue until the next required advisory vote on the frequency of shareholder votes on the compensation of executives, which will occur no later than our Annual Meeting of Shareholders in 2023. As a result, this proposal is
being submitted for a non-binding vote at the Annual Meeting.
The advisory vote on compensation of our named
executive officers is a non-binding vote on the compensation of the Companys NEOs, as described in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation,
and the accompanying narrative disclosure set forth in this Proxy Statement. The advisory vote on executive compensation is not a vote on the Companys general compensation policies, compensation of the Companys Board, or the
Companys compensation policies as they relate to risk management, as described under Risk Assessment Related to our Compensation Structure on page 41. The Dodd-Frank Act and related SEC regulations and guidance require the
Company to hold the advisory vote on compensation of our NEOs at least once every three years.
The Companys executive compensation programs are
designed to attract, retain, and motivate experienced, talented individuals to increase shareholder value by finding and developing crude oil and natural gas reserves at costs that provide an attractive rate of return on our investment. During 2019,
the Company: (i) initiated cash dividend to shareholders; (ii) initiated a share repurchase program and repurchased approximately $190.2 million of Common Stock in 2019; (iii) achieved full-year 2019 production growth of 14%
compared to 2018; (iv) generated net cash provided by operating activities for 2019 of $3.1 billion; (v) reduced total debt by $442 million; (vi) increased year-end 2019 proved
reserves by 6% (adjusted for 2019 divestitures) compared to year-end 2018; (vii) continued to exercise capital discipline and reduced non-acquisition capital
expenditures by 6% in 2019 compared to 2018; and (viii) maintained low-cost operations with production expenses of $3.58 per Boe and G&A expenses of $1.57 per Boe. The Compensation Committee believes
the Companys executive compensation programs reflect a strong pay-for-performance philosophy and are well aligned with the shareholders long-term interests.
The Compensation Discussion and Analysis section starting on page 24 provides a more detailed discussion of our executive compensation program.
46
This advisory vote on executive compensation is not binding on the Companys Board. However, the Board
will take into account the result of the vote when determining future executive compensation arrangements.
Accordingly, the Board recommends the
shareholders approve the compensation of our named executive officers by voting for the following advisory resolution:
RESOLVED, that the shareholders of Continental Resources, Inc. approve, on an advisory basis, the compensation of the individuals identified
in the Summary Compensation Table, as disclosed in the Continental Resources, Inc. proxy statement for the 2020 annual meeting of shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, which disclosure
includes the Compensation Discussion and Analysis section, the compensation tables and the accompanying footnotes and narrative within the Executive Compensation and Other Information section of such proxy statement.
47
Annual Report to Shareholders
Our Annual Report to Shareholders for the year ended December 31, 2019, including audited financial statements, accompanies this Proxy Statement. The Annual
Report is not incorporated by reference into this Proxy Statement or deemed to be a part of the materials for the solicitation of proxies.
Copies of the
exhibits omitted from the Annual Report on Form 10-K accompanying this Proxy Statement are available to shareholders without charge upon written request to our Secretary at 20 N. Broadway, Oklahoma City,
Oklahoma 73102.
Shareholders Sharing
the Same Address
Some banks, brokers and other nominee record holders may
be participating in the practice of householding proxy statements and annual reports. This means that only one copy of our Notice and Proxy Statement, Annual Report or Notice of Internet Availability may have been sent to multiple
shareholders in your household. We will promptly deliver a separate copy of our Annual Report, Notice and Proxy Statement and/or Notice of Internet Availability to you if you call or write us at the following address or phone number: Continental
Resources, Inc., 20 N. Broadway, Oklahoma City, Oklahoma 73102, Attn: Secretary, (405) 234-9000. If you would like to receive separate copies of the Annual Report and Notice and Proxy Statement in the
future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address and phone number.
Proposals of Shareholders
The Board will consider properly presented proposals of shareholders intended to be presented for action at the Annual Meeting. Such proposals must comply with
the applicable requirements of the SEC and our Bylaws. Under our Bylaws a matter can properly be brought before an annual meeting by a shareholder of the Company who is a shareholder of record at the time notice of the proposal is given and who is
entitled to vote at such annual meeting. The proposing shareholder must give timely notice of his or her proposal in writing to the Secretary of the Company and satisfy the other requirements set forth in the Bylaws. To be timely, a
shareholders notice shall be delivered to or mailed and received at the principal executive offices of the Company at 20 N. Broadway, Oklahoma City, Oklahoma 73102 not later than ninety (90) days or more than one hundred twenty
(120) days prior to the one year anniversary date of the preceding years annual meeting of shareholders of the Company (which for our 2021 Annual Meeting will be February 13, 2021, and January 14, 2021, respectively); provided,
however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, to be timely, a shareholders
notice must be so delivered not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which public announcement of the date of such meeting is first made. A shareholders notice to the Secretary must comply with all applicable requirements set
forth in our Bylaws, and shall set forth as to each matter: (a) a brief description of the business desired to be brought before the annual meeting (which, if the proposal is for any alteration, amendment, rescission or repeal of the
Companys Certificate of Incorporation or Bylaws, shall include the text of the resolution which will be proposed to implement the same); (b) the reasons for conducting such business at the annual meeting; (c) the identity of any
beneficial owner or owners on whose behalf the proposal is being made; (d) the name and address, as they appear on the Companys books, of the shareholder proposing such business and the name and address of any beneficial owner on whose
behalf he or she may by acting; (e) the acquisition date, the class and the number of shares of voting stock of the Company which are owned beneficially by the shareholder and by any beneficial owner on whose behalf he or she may be acting;
(f) any material interest of the shareholder in such business; (g) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such shareholder or any beneficial owner
on whose behalf he or she may be acting, or any other agreement, arrangement or
48
understanding (including any derivative or short positions, profit interests, options or borrowed or loaned shares) has been made, the effect or intent of which is to manage the risk or benefit
of share price changes in the stock price of the Company for such shareholder or beneficial owner, to mitigate loss with respect to any share of stock of the Company, or to increase or decrease the voting power of such shareholder or beneficial
owner with respect to any share of the stock of the Company; (h) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such
business by such shareholder; (i) a representation such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting; and (j) an undertaking by the shareholder giving the notice to
update the information required pursuant to this paragraph as of the record date for the meeting promptly following the later of the record date for the meeting or the date notice of the record date is first publicly disclosed.
A shareholder proposal submitted pursuant to Rule 14a-8 under the Exchange Act and intended to be included in our proxy
statement relating to the 2021 Annual Meeting must be received no later than December 3, 2020. For a proposal to be considered for presentation at the 2021 Annual Meeting, although not included in the proxy statement for such meeting, it must
be received within the time period set forth in our Bylaws as described above. In addition, the proxy solicited by the Board for the 2021 Annual Meeting will confer discretionary authority to vote on any such shareholder proposal presented at the
2021 Annual Meeting unless we are provided with notice of such proposal no later than ninety days prior to the date of the 2021 Annual Meeting.
Questions and Answers About This
Proxy Material and Voting
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Why am I receiving these
materials?
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This Proxy Statement, the accompanying Notice of Annual Meeting and proxy card and our Annual Report are provided to you because
our Board is soliciting your proxy to vote at the Annual Meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this Proxy Statement. However, you do not need to attend the Annual Meeting to vote your shares.
Under rules adopted by the SEC, we are furnishing proxy materials to our shareholders primarily via the internet. On or about April 2, 2020, we plan to mail to beneficial owners of shares registered in the name of a Broker (who constitute the
majority of our shareholders), a Notice of Internet Availability containing instructions on how to access our proxy materials and to shareholders of record, printed copies of our proxy materials. The Notice of Internet Availability also instructs
shareholders on how to vote online. This process is designed to expedite shareholders receipt of proxy materials, help conserve natural resources and lower the cost of the Annual Meeting. However, if you prefer to receive printed proxy
materials, please follow the instructions included in the Notice of Internet Availability.
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Who can vote at the Annual
Meeting?
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Shareholders on March 18, 2020 (the record date for the Annual Meeting) are eligible to vote their shares at the Annual
Meeting. On that date, we had 365,110,896 shares of our Common Stock outstanding and eligible to vote.
There are four proposals scheduled for a vote:
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Election of three Class II directors to our Board of Directors to serve until the Annual Meeting of
Shareholders in 2023, or if the proposal contained in Item 2 below is approved, until the Annual Meeting of Shareholders in 2021, and either case, until their respective successors are duly elected and qualified or until their earlier resignation or
removal (Item 1 on the proxy card);
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To approve an amendment to our Third Amended and Restated Certificate of Incorporation, as amended, to declassify
our Board of Directors so that all directors will be elected on an annual basis beginning with the Annual Meeting of Shareholders in 2021 (Item 2 on the proxy card)
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49
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Ratification of selection of Grant Thornton as our independent registered public accounting firm (Item 3 on the
proxy card); and
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To approve, by a non-binding vote, the compensation of our named executive
officers (Item 4 on the proxy card).
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For Proposal 1, you may either vote for a nominee to the Board or you may withhold authority regarding
your vote for any nominee you specify. For Proposals 2, 3, and 4 you may vote for or against or abstain from voting. The procedures for voting are as follows:
Shareholder of Record: Shares Registered in Your Name
If on March 18, 2020 your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, or if you
hold shares of our Common Stock that have not vested pursuant to a restricted stock grant, then you are a shareholder of record. If you are a shareholder of record and you have not elected to receive notice of how to access proxy materials over the
internet, you may vote in person at the Annual Meeting, by proxy using the proxy card or over the internet. If you have elected to receive notice of how to access proxy materials over the internet, you may vote in person at the Annual Meeting or
over the internet. Whether you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted.
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To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.
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To vote using the proxy card, complete, sign, and date the proxy card and return it promptly in the envelope
provided. If you return your signed proxy card before the Annual Meeting, we will vote your shares as you direct.
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To vote online, please follow the instructions included on your proxy card or in any notice regarding how to
access proxy materials over the internet. If you vote online, you do not need to complete and mail a proxy card.
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Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Nominee Record Holder
If you are a beneficial owner of shares registered in the name of your Broker, you should have received either a Notice of Internet Availability containing
instructions on how to access our proxy materials and vote online or a voter information form and voting instructions with these proxy materials from that organization rather than from us. Simply follow the instructions to vote online (or by
telephone if you received a voter information form), or complete and return the voter information form in accordance with the instructions provided to ensure your vote is counted. If you received a Notice of Internet Availability, you can elect to
request to receive a paper copy of proxy materials which will include a voter information form. To vote in person at the Annual Meeting, you must obtain a valid proxy from your Broker. Follow the instructions from your Broker included with these
proxy materials, or contact your Broker for a proxy form.
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How many votes do I
have?
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On each proposal, you have one vote for each share of Common Stock you own as of March 18, 2020.
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Who is paying for this proxy
solicitation?
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We are paying for the entire cost of soliciting proxies. In addition to these proxy materials, our directors, employees, and
agents may also solicit proxies in person or by other means of communication. Directors and employees will not be paid any special compensation for soliciting proxies. We may reimburse brokerage firms, banks, dealers and other agents for the cost of
forwarding proxy materials to beneficial owners.
50
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What does it mean if I
receive more than one Notice of Internet
Availability, proxy card or voter information form?
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If you receive more than one Notice of Internet Availability, proxy card or voter information form, your shares are registered in
more than one name or are registered in different accounts. Please respond to each Notice of Internet Availability or please complete, sign, and return each proxy card or voter information form to ensure all of your shares are voted.
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Can I change my vote after
submitting my proxy?
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Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are the record holder of your
shares, you may revoke your proxy in any one of three ways:
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You may enter a new vote over the internet or by submitting another properly completed proxy card with a later
date. To request a new proxy card, you should call our transfer agent, American Stock Transfer & Trust Company, LLC at (800) 937-5449 or mail a request to our transfer agent at 6201
15th Avenue, Brooklyn, NY 11219, Attn: Shareholder Services Dept.
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You may send a written notice revoking your proxy to Continental Resources, Inc., 20 N. Broadway, Oklahoma City,
Oklahoma 73102, Attn: Eric S. Eissenstat, Secretary.
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You may attend the Annual Meeting and vote in person. Simply attending the meeting will not, by itself, revoke
your proxy.
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If your shares are held by your Broker, you should follow the instructions provided by your Broker to revoke your proxy.
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What is the quorum
requirement?
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A quorum of shareholders is necessary to hold a valid meeting. A quorum is present if at least a majority of the issued and
outstanding shares entitled to vote are represented by shareholders present at the Annual Meeting or by proxy. On the record date, there were 365,110,896 shares issued and outstanding and entitled to vote. Therefore, 182,555,449 shares must
be represented by shareholders present at the Annual Meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit
a valid proxy (or one is submitted on your behalf by your Broker), or if you vote in person at the Annual Meeting. Abstentions and withhold authority votes will be counted towards the quorum requirement and broker
non-votes (discussed immediately below) will be counted toward the quorum requirement assuming the Broker is entitled to vote the applicable shares on at least one discretionary proposal. If there is no
quorum, the Chairman of the Annual Meeting may adjourn the Annual Meeting to another date.
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What are
broker non-votes?
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A broker non-vote occurs when the Broker is unable to vote the shares it holds on behalf
of a beneficial owner (such shares are said to be held in street name) because a proposal is not routine and the beneficial owner has not provided any voting instructions on that matter. NYSE rules determine whether proposals are
routine. If a proposal is routine, a Broker holding shares in street name may vote on the proposal without voting instructions. If a proposal is not routine, the Broker may vote on the proposal only if the beneficial owner has provided voting
instructions. If a Broker does not receive instructions for a non-routine proposal, the Broker will return a proxy card without a vote on that proposal, which is commonly referred to as a broker non-vote. The ratification of Grant Thorntons appointment is a routine proposal, but the election of directors, the Declassification Proposal, and say on pay proposal are not routine proposals under
applicable NYSE rules.
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What vote is required to
approve the election of directors
(Item 1 on the proxy
card)?
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Directors are elected by a plurality of the votes cast at the Annual Meeting (that is the three director nominees receiving the
greatest number of votes cast will be elected). While votes withheld will not have an effect on the outcome of the elections, our Bylaws provide that, if a nominee for director receives a greater number of votes withheld from
his or her election than votes for such election, he or she must submit his or her offer of resignation for consideration by the Nominating/Corporate Governance Committee. Broker non-votes will not
have an effect on the outcome since they do not count as a vote in favor of a nominee under the plurality standard.
51
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What vote is required to
approve the amendment to our Third
Amended and Restated Certificate of
Incorporation,
as amended, declassifying our Board of Directors (Item 2 on
the proxy card)?
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Oklahoma state law requires the Declassification Proposal be approved by a majority of the outstanding shares entitled to vote. If
you abstain from voting, it will have the same effect as an against vote on the Declassification Proposal, since approval requires a majority of the outstanding shares entitled to vote. Broker
non-votes will also have the same effect as an against vote on the Declassification Proposal, for the reason described in the preceding sentence.
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What vote is required to
approve the ratification of the selection
of Grant
Thornton LLP as our independent registered public
accounting firm (Item 3 on the proxy
card)?
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Under Oklahoma state law the ratification of the selection of Grant Thornton as our independent registered public accounting firm
requires a majority of the shares present in person or represented by proxy and entitled to vote on the matter vote for the proposal. If you abstain from voting, it will have the same effect as an against vote
because abstentions are treated as entitled to vote under Oklahoma state law.
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What vote is required to
approve the compensation of the
named executive
officers (Item 4 on the proxy card)?
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Oklahoma state law requires the proposal to approve the compensation of the named executive officers be approved by a majority of
the shares present in person or represented by proxy and entitled to vote on the matter. If you abstain from voting, it will have the same effect as an against vote on the proposal to approve, by a non-binding vote, the compensation of the Companys named executive officers, because abstentions are treated as entitled to vote under state law. Since this proposal is not a routine proposal, broker non-votes will not be treated as entitled to vote on the matter and accordingly will have no impact on the outcome of this vote.
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What if I do not mark a
voting choice for some of the matters
listed
on my proxy card?
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If you return a signed proxy card without indicating your vote, your shares will be voted in accordance with the Boards
recommendation for each proposal with respect to which a voting choice is not indicated.
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Could other matters be decided
at the Annual Meeting?
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We do not know of any other matters that will be considered at the Annual Meeting. If any other matters arise at the meeting,
proxies will be voted at the discretion of the proxy holders.
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What happens if the Annual
Meeting is postponed,
relocated or adjourned?
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It may be necessary or advisable to change the location (including to a virtual location) or time of the Annual Meeting due to the
impact of any local or national health related emergency measures associated with the COVID-19 (novel Coronavirus), or for another reason. Should this occur, notice of the changed time and/or location will be
given by press release, which will specify the new time and/or location of the Annual Meeting. In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly
as practicable, which may include holding the meeting virtually, i.e. solely by means of Internet enabled remote communication. Please monitor our annual meeting website at www.CLR.com for updated information. If you are planning to
attend our meeting, please check the website ten days prior to the meeting date
If the Annual Meeting is postponed or adjourned, your proxy will still be
valid and may be voted at the rescheduled meeting. You may change or revoke your proxy until it is voted. As always, we encourage you to vote your shares prior to the Annual Meeting.
52
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How does the Board recommend
I vote on the proposals?
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The Board recommends you vote:
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FOR the three Class II nominees for director (Item 1 on the proxy card);
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FOR the Declassification Proposal (Item 2 on the proxy card);
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FOR the ratification of the selection of Grant Thornton as our independent registered public accounting
firm for the fiscal year ending December 31, 2020 (Item 3 on the proxy card); and
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FOR approval, by a non-binding vote, of the compensation of our
named executive officers (Item 4 on the proxy card).
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Who will serve as the
inspector of election at the Annual Meeting?
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We anticipate Eric S. Eissenstat, our Senior Vice President, General Counsel, Chief Risk Officer and Secretary, will serve as the
inspector of election and will tabulate the proxies and ballots at the Annual Meeting.
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How can I find out the
results of the voting at the Annual Meeting?
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Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a Form 8-K filed within four business days after the Annual Meeting.
Other Matters
Our Board does not know of any other matters to be presented for action at the Annual Meeting other than those listed in the Notice of Annual Meeting of
Shareholders and referred to herein. If any other matters properly come before the Annual Meeting or any adjournment thereof, it is intended the proxy solicited hereby be voted as to any such matter in accordance with the recommendations of our
Board.
53
ANNEX A
NYSE Independence Standards Generally Applicable to Directors
The Board of Directors uses the independence standards of the New York Stock Exchange (NYSE) generally applicable to directors to determine the
independence of its members. These are set forth below, omitting commentary and definitions. Defined terms are marked with asterisks and have the meanings set forth in Section 303A.02 of the NYSE Listed Company Manual.
No director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the
*listed company* (either directly or as a partner, shareholder or officer of an organization that has a relationship with the *company*).
In addition, in
affirmatively determining the independence of any director who will serve on the compensation committee of the listed companys board of directors, the board of directors must consider all factors specifically relevant to determining whether a
director has a relationship to the listed company which is material to that directors ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:
(A) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company to such
director; and
(B) whether such director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a
subsidiary of the listed company.
In addition, a director is not independent if:
(i) The director is, or has been within the last three years, an employee of the listed company, or an *immediate family member* is, or has been
within the last three years, an *executive officer*, of the listed company.
(ii) The director has received, or has an immediate family member
who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way on continued service).
(iii) (A) The director is a current partner or
employee of a firm that is the listed companys internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current
employee of such a firm and personally works on the listed companys audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the listed
companys audit within that time.
(iv) The director or an immediate family member is, or has been within the last three years, employed
as an executive officer of another company where any of the listed companys present executive officers at the same time serves or served on that companys compensation committee.
(v) The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or
received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other companys consolidated gross revenues.
A-1
ANNEX B
Text of Proposed Amendment to our Third Amended and Restated Certificate of Incorporation
Certificate of Amendment
to
the Third Amended and Restated
Certificate of Incorporation of
Continental Resources, Inc.
The undersigned
officers of Continental Resources, Inc., an Oklahoma corporation (the Corporation), hereby file this Certificate of Amendment to the Corporations Third Amended and Restated Certificate of Incorporation (the Certificate of
Incorporation), which is hereby amended as follows:
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1.
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The text of Article Five, Section 1 of the Certificate of Incorporation is hereby amended and restated in its
entirety, as follows:
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Section 1. Term of Office. All directors of the Corporation shall be elected
annually, in the manner described in Section 2 of this Article. Each director shall hold office for a term ending at the next succeeding annual meeting of shareholders, beginning with the annual meeting of shareholders held in 2021, and until
the election and qualification of his or her successor, subject, however, to such directors prior death, resignation, retirement, disqualification, or removal from office. The term of office of each directorship established pursuant to this
Section shall apply and control even in the case of a director who previously was elected or appointed for a term that extended beyond the 2021 annual meeting of shareholders at the time of such election or appointment.
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2.
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The text of Article Eight of the Certificate of Incorporation is hereby amended and restated in its entirety, as
follows:
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ARTICLE EIGHT: Vacancies. 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, retirement, disqualification, removal from office or other
cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled by the affirmative vote of a majority of the directors then in office, though less than a quorum (and not by shareholders), and directors so chosen
shall hold office for a term expiring at the next annual meeting of shareholders and until such directors successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any
incumbent director.
The foregoing amendments were duly adopted in accordance with the provisions set forth in Section 1077 of the Oklahoma General
Corporation Act.
IN WITNESS WHEREOF, the undersigned officers have executed this Certificate of Amendment to the Third Amended and Restated Certificate of
Incorporation this day of , 2020.
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CONTINENTAL RESOURCES, INC.
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By:
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William B. Berry, Chief Executive Officer
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ATTEST:
Eric S. Eissenstat, Secretary
B-1
ANNUAL MEETING OF SHAREHOLDERS OF
CONTINENTAL RESOURCES, INC.
May 14, 2020
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS:
The Notice of Meeting, Proxy Statement, Proxy Card and the Annual Report
are available at https://materials.proxyvote.com/212015
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
i
Please detach along perforated line and mail in the envelope provided.i
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∎
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20330303000000000000 7
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051420
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You may withhold the authority of the Proxies to vote for any nominee to be elected as
a director of the Company by marking the WITHHOLD AUTHORITY box set forth next to such nominees name.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ☒
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1. Election of
Directors:
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2.
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Approve an amendment to the
Companys Third Amended and Restated Certificate of Incorporation that declassifies the Companys Board of Directors.
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FOR
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AGAINST
☐
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ABSTAIN
☐
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☐
☐
☐
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FOR ALL NOMINEES
WITHHOLD AUTHORITY
FOR ALL NOMINEES
FOR ALL EXCEPT
(See instructions below)
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NOMINEES:
¡ William B. Berry
¡ Shelly Lambertz
¡ Timothy G. Taylor
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FOR
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AGAINST
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ABSTAIN
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3.
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Ratification of selection of Grant Thornton LLP as independent registered public accounting firm.
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☐
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☐
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☐
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FOR
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AGAINST
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ABSTAIN
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4.
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Approve, by a non-binding vote, the compensation of the named executive officers.
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☐
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INSTRUCTIONS: To withhold authority to vote for any individual nominee (s), mark FOR ALL EXCEPT and fill in the circle next to each nominee you wish to withhold, as shown here: 🌑
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In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. If any other business is presented at the Annual Meeting, this Proxy shall be voted in accordance with the recommendations of the Board.
The shares represented by this Proxy when properly executed will be voted in the manner directed herein by the undersigned Shareholder(s). If no direction is made, this Proxy will be voted FOR Proposals 1, 2, 3 and 4.
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To change the address on your account, please check the box at right and indicate
your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
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☐
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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∎
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Note:
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Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
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∎
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ANNUAL MEETING OF SHAREHOLDERS OF
CONTINENTAL RESOURCES, INC.
May 14, 2020
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PROXY VOTING INSTRUCTIONS
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INTERNET - Access www.voteproxy.com and follow the on-screen instructions or scan the
QR code with your smartphone. Have your proxy card available when you access the web page.
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Vote online until 11:59 PM EST the day before the meeting.
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MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
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IN PERSON - You may vote your shares in person by attending the Annual Meeting.
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GO GREEN - e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material,
statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access.
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COMPANY NUMBER
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ACCOUNT NUMBER
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NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS:
The Notice of Meeting, Proxy Statement, Proxy Card and the Annual Report
are available at https://materials.proxyvote.com/212015
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i Please detach along perforated line and mail in the envelope provided IF you are not voting
via the Internet. i
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∎
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20330303000000000000 7
|
|
|
|
|
|
051420
|
You may withhold the authority of the Proxies to vote for any nominee to be elected as
a director of the Company by marking the WITHHOLD AUTHORITY box set forth next to such nominees name.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ☒
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|
|
|
|
|
|
|
1. Election of
Directors:
|
|
|
|
2.
|
|
Approve an amendment to the
Companys Third Amended and Restated Certificate of Incorporation that declassifies the Companys Board of Directors.
|
|
FOR
☐
|
|
AGAINST
☐
|
|
ABSTAIN
☐
|
☐
☐
☐
|
|
FOR ALL NOMINEES
WITHHOLD AUTHORITY
FOR ALL NOMINEES
FOR ALL EXCEPT
(See instructions below)
|
|
NOMINEES:
¡ William B. Berry
¡ Shelly Lambertz
¡ Timothy G. Taylor
|
|
|
|
|
|
|
|
|
|
|
|
FOR
|
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AGAINST
|
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ABSTAIN
|
|
|
|
3.
|
|
Ratification of selection of Grant Thornton LLP as independent registered public accounting firm.
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
|
|
|
|
|
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
|
|
4.
|
|
Approve, by a non-binding vote, the compensation of the named executive officers.
|
|
|
|
☐
|
|
☐
|
|
☐
|
INSTRUCTIONS: To withhold authority to vote for any individual nominee (s), mark FOR ALL EXCEPT and fill in the circle next to each nominee you wish to withhold, as shown here: 🌑
|
|
|
|
In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. If any other business is presented at the Annual Meeting, this Proxy shall be voted in accordance with the recommendations of the Board.
The shares represented by this Proxy when properly executed will be voted in the manner directed herein by the undersigned Shareholder(s). If no direction is made, this Proxy will be voted FOR Proposals 1, 2, 3 and 4.
|
|
To change the address on your account, please check the box at right and indicate
your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
|
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|
|
☐
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
|
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|
|
|
|
|
|
|
∎
|
|
Note:
|
|
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
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∎
|
☐
∎
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONTINENTAL RESOURCES, INC.
20 N. Broadway
Oklahoma City, Oklahoma 73102
(405) 234-9000
The undersigned hereby appoints Eric Eissenstat and John Hart, and each of them, as proxies (the
Proxies), each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all of the shares of stock of Continental Resources, Inc. held of record by the undersigned on the record
date at the Annual Meeting of Shareholders to be held on May 14, 2020, or any postponement or adjournment thereof.
(Continued and to be signed on
the reverse side)
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