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Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2))
x
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material under 240.14a-12
Epsilon Energy Ltd.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s)Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check all the boxes that apply):
x
No fee required.
¨
Fee paid previously with preliminary materials.
¨
Fee computed on table in exhibit required by Item 25(b)per Exchange Act Rules14a-6(i)(1)and 0-11.
500 Dallas St., Suite1250
Houston, Texas 77002
April11, 2024
Dear Shareholder,
We cordially invite you to
attend the 2024 Annual General Meeting of Shareholders (the Meeting) of Epsilon Energy Ltd. (referred to herein as Epsilon
and the Corporation) to be held at Two Allen Center, 1200 Smith Street, 12th Floor-Senate Room, Houston, Texas 77002 on
Wednesday, May15, 2024, at 10:00a.m., Central Daylight Time.
The attached Notice of 2024
Annual General Meeting and proxy statement describe the business we will conduct at the Meeting and provide information about us that
you should consider when you vote your shares. As set forth in the attached proxy statement, the Meeting will be held to address the following:
1.
To receive and consider the audited financial statements of the Corporation for the year ended December31,
2023 and the report of the auditor thereon, copies of which are available at www.sec.gov (US) and www.sedarplus.ca (Canada).
2.
To fix the number of directors of the Corporation to be elected at the Meeting at six (6).
3.
To elect the directors of the Corporation, each of whom shall hold office to serve until the next annual
meeting in 2025 or until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, or removal.
4.
To re-appoint BDO USA, P.C. as the Corporations independent auditors for the ensuing year.
5.
To approve, through a non-binding advisory vote, the compensation paid to the Corporations named
executive officers for the year ended December31, 2023.
6.
To transact such other business as may properly come before the 2024 Annual General Meeting and any adjournments
thereof.
Please take the time to carefully
read each of the proposals in the accompanying Proxy Statement before you vote.
Your vote is extremely important
regardless of the number of shares you own.
In order to ensure that
your shares are represented at the 2024 Annual General Meeting, whether you plan to attend or not, please vote in accordance with the
enclosed instructions. You can vote your shares by telephone, electronically via the Internet or by completing and returning the enclosed
proxy card or vote instruction form. If you vote using the enclosed proxy card or vote instruction form, you must sign, date and mail
the proxy card or vote instruction form in the enclosed envelope. If you decide to attend the 2024 Annual General Meeting and wish to
modify your vote, you may revoke your proxy and vote in person at the 2024 Annual General Meeting.
Thank you for your continued interest
in Epsilon Energy Ltd.
Sincerely,
John Lovoi
Chairman of the Board of Directors
This proxy statement is dated
April11, 2024, and is first being made available to shareholders on or about April11, 2024.
NOTICE OF 2024 ANNUAL GENERAL MEETING
OF SHAREHOLDERS
The 2024 Annual General Meeting
of Shareholders of Epsilon Energy Ltd., a corporation incorporated pursuant to the Business Corporations Act (Alberta) (the ABCA),
will be held at Two Allen Center, 1200 Smith Street, 12th Floor-Senate Room, Houston, Texas 77002 on May15, 2024, at 10:00a.m
.
(Central
Daylight Time), for the following purposes:
1.
To receive and consider the audited financial statements of the Corporation for the year ended December31,
2023 and the report of the auditor thereon, copies of which are available at www.sec.gov (US) and www.sedarplus.ca (Canada).
2.
To fix the number of directors of the Corporation to be elected at the Meeting at six (6).
3.
To elect the directors of the Corporation, each of whom shall hold office to serve until the next annual
meeting in 2025 or until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, or removal.
4.
To re-appoint BDO USA, P.C. as the Corporations independent auditors for the ensuing year.
5.
To approve, through a non-binding vote, the compensation paid to the Corporations named executive
officers for the year ended December31, 2023.
6.
To transact such other business as may properly come before the 2024 Annual General Meeting and any adjournments
thereof.
The Proxy Statement accompanying
this Notice describes each of these items in detail. The Proxy Statement contains other important information that you should read and
consider before you vote.
The Board of Directors has
fixed the close of business on March28, 2024 as the record date for the 2024 Annual General Meeting. Only the holders of record
of our common shares as of the close of business on the record date are entitled to notice of, and to vote at, the 2024 Annual General
Meeting and any adjournment thereof. A list of the holders of record of our common shares will be available at the 2024 Annual General
Meeting and, during the 10days prior to the 2024 Annual General Meeting, at the offices of our corporate headquarters located at
500 Dallas St., Suite1250, Houston, Texas 77002.
Epsilon is furnishing proxy
materials to its shareholders through the full set delivery option as permitted under the rulesof the Securities and Exchange Commission.
We believe this process gives us the opportunity to serve you more effectively.
You can vote your common
shares by telephone or by completing and returning the enclosed proxy card or vote instruction form. If you vote using the enclosed proxy
card or vote instruction form, you must sign, date and mail the proxy card or vote instruction form in the enclosed envelope. If you decide
to attend the 2024 Annual General Meeting and wish to modify your vote, you may revoke your proxy and vote in person at the 2024 Annual
General Meeting. Late proxies may be accepted or rejected by the Chairman of the Meeting in his discretion, and the Chairman is under
no obligation to accept or reject any particular late proxy.
BY ORDER OF THE BOARD OF DIRECTORS:
Houston, Texas
J. Andrew Williamson
April11, 2024
Chief Financial Officer
PROXY STATEMENT SUMMARY
2024 ANNUAL GENERAL MEETING OF SHAREHOLDERS
Date and Time:
May15, 2024
10:00a.m., Central Daylight Time
Place:
Two Allen Center, 1200 Smith Street, 12th Floor-Senate Room, Houston, Texas 77002
Record Date:
March28, 2024
Voting Matters and Board Recommendation
Proposal Description
Board Vote
Recommendation
PageNumber
with More
Information
Proposal 1
Fix the number of Directors to be elected at the Meeting
FOR
4
Proposal 2
Election of those persons nominated as Directors
FOR all nominees
4
Proposal 3
Re-appoint BDO USA, P.C. as Epsilons independent auditors for the ensuing year
FOR
24
Proposal 4
Non-binding advisory vote on the compensation paid to the Corporations named executive officers for the year ended December31, 2023
FOR
26
This Proxy Statement Summary contains highlights
of certain information in this Proxy Statement. Because it is only a summary, it does not contain all the information that you should
consider before voting. Please review the complete Proxy Statement and Epsilons Annual Report on Form10-K for additional
information.
500 Dallas St., Suite1250
Houston, Texas 77002
PROXY STATEMENT FOR EPSILON ENERGY LTD.S
2024 ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY15, 2024
GENERAL INFORMATION
This Proxy Statement is being
furnished to the holders of the common shares of Epsilon Energy Ltd., an Alberta, Canada, corporation (referred to herein as Epsilon
and the Corporation), in connection with the solicitation by our Board of Directors of proxies to be voted at the 2024 Annual
General Meeting of Shareholders of Epsilon (the Annual General Meeting or the Meeting) to be held on
Wednesday,
May15, 2024
, at
10:00a.m., Central Daylight Time
, at Two Allen Center, 1200 Smith Street, 12th Floor-Senate Room,
Houston, Texas 77002, or at any adjournment of the 2024 Annual General Meeting, for the purposes set forth in this proxy statement concerning
the 2024 Annual General Meeting.
The principal executive offices
of Epsilon are located at 500 Dallas St., Suite1250, Houston, Texas 77002.
Although it is expected that
the solicitation of proxies will be primarily by mail, proxies may also be solicited personally or by telephone or other proxy solicitation
services. In accordance with Canadian National Instrument 54-101, arrangements have been made with brokerage houses and other intermediaries,
clearing agencies, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the common shares
held of record by such persons and the Corporation may reimburse such persons for reasonable fees and disbursements incurred by them in
doing so. The costs thereof will be borne by the Corporation.
VOTING INFORMATION
Record Date
This Proxy Statement and
the other proxy materials are first being mailed on or about April11, 2024 to all shareholders entitled to notice of and to vote
at the 2024 Annual General Meeting. Each shareholder as at March28,2024 (the Record Date) is entitled to one vote
for each common share of Epsilon held. Shareholders of record will be entitled to vote those shares included in the list of shareholders
entitled to vote at the Meeting prepared as at the Record Date, unless any such shareholders transfer their shares after the Record Date
and the transferee of those shares establishes that they own the shares and demands, not later than the close of business on the date
ten days before the Meeting, that the transferees name be included in the list of shareholders entitled to vote at the Meeting,
in which case such transferee shall be entitled to vote such shares at the Meeting.
Voting Shares and Principal Shareholders
At the close of business
on the Record Date, there were 21,921,840 common shares issued and outstanding. The outstanding common shares are fully paid and non-assessable,
with each share carrying the right to one vote. To carry on the business of the 2024 Annual General Meeting, holders of at least 33 1/3
% of the outstanding common shares issued and outstanding as of the Record Date must be present in person or represented by proxy, which
will constitute a quorum.
Solicitation of Proxies
The proxy solicitation is
made on behalf of the management of the Corporation. Proxies must be received by Computershare Trust Company of Canada, 100 University
Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1, not less than 48 hours (excluding Saturdays, Sundays, and holidays) before the Meeting or
any adjournment of the Meeting.
The instrument appointing
a proxy shall be in writing and shall be executed by the shareholder or the shareholders attorney authorized in writing or, if
the shareholder is a corporation, under its corporate seal or by an officer or attorney of such corporation duly authorized.
The persons named in the enclosed Proxy (the
Management Designees) are directors and/or officers of Epsilon. Each shareholder has the right to appoint a proxy holder
other than the persons designated in the proxy, who need not be a shareholder, to attend and to act for them and on their behalf at the
Meeting. To exercise such right, the names of the nominees of management of the Corporation should be crossed out and the name of the
shareholders appointee should be legibly printed in the blank space provided.
Revocation of Proxies
A shareholder who has submitted
a proxy may revoke it at any time up to and including the close of business on the last business day preceding the day of the Meeting,
or any adjournment of the Meeting, by signing a statement in writing (or having their attorney, as authorized in writing, sign a statement)
to this effect and delivering it to the registered office of the Corporation or to Computershare Trust Company of Canada, 100 University
Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1. If a person who has given a proxy personally attends the Meeting, such person may revoke
the proxy at the Meeting and vote in person. In addition to revocation in any other manner permitted by law, a proxy may also be revoked
by depositing such written statement with the Chairman of the Meeting on the day of the Meeting, or any adjournment of the Meeting.
Beneficial Holders of Common Shares
The
information set out in this section is of significant importance to many shareholders who do not hold their common shares in their own
name.
Only proxies deposited by shareholders whose names appear on the register of the Corporation as the registered holders
of common shares can be recognized and acted upon at the Meeting. If common shares are listed in your account statement provided by your
broker, then in almost all cases those common shares will not be registered in your name on the register of the Corporation. Such common
shares will likely be registered under the name of your broker or an agent of that broker.
Therefore, beneficial shareholders should ensure
that instructions respecting the voting of their common shares are communicated to the appropriate person or entity.
Applicable regulatory policy
requires your broker to seek voting instructions from you in advance of the Meeting. Every broker has its own mailing procedures and provides
its own return instructions, which you should carefully follow in order to ensure that your shares are voted at the Meeting. Often, the
form of proxy supplied by your broker is identical to the Proxy provided to registered shareholders. However, its purpose is limited to
instructing the registered shareholder how to vote on your behalf. The majority of brokers now delegate responsibility for obtaining instructions
from clients to Broadridge. Broadridge mails a scannable voting instruction form in lieu of the Proxy provided by Epsilon. You are asked
to complete and return the voting instruction form to them by mail. Alternately, you can call their toll-free telephone number, 1-888-237-1900,
or access Broadridges internet website at www.broadridge.com to vote your common shares. They then tabulate the results of all
instructions received and provide appropriate instructions respecting the voting of the common shares to be represented at the Meeting.
If you receive a voting instruction form from Broadridge it cannot be used as a proxy to vote shares directly at the Meeting as the
voting instruction form must be returned to Broadridge well in advance of the Meeting in order to have your common shares voted or to
appoint an alternative representative to attend the Meeting in person to vote such common shares.
If you are a beneficial shareholder and wish
to vote in person at the Meeting, you should insert your own name in the space provided on the voting instruction form provided to you
by your nominee and return the completed form to Broadridge.
Appointment of Proxy and Exercise of Discretion
by Proxy
If you give directions on
how to vote your common shares, your proxy holder must vote your shares according to your instructions. If your proxy holder does not
attend the Meeting and vote in person, your shares will not be voted.
If you have appointed a person designated by
Epsilon to act and vote on your behalf as provided in the enclosed Proxy and you do not provide any instructions concerning a matter identified
in the Notice, the common shares represented by such proxy will be voted as follows:
PROPOSAL
1
:
FOR
setting the number of directors to be elected at the Meeting at six (6).
PROPOSAL
2
:
FOR
the election of John Lovoi, Jason Stabell, Jason Stankowski, Tracy Stephens, David Winn
and Nicola Maddox, each of whom shall hold office for a term of one year, expiring at the annual meeting in 2025, or until his or her
successor is elected and qualified, or until his or her earlier death, resignation or removal.
PROPOSAL
3
:
FOR
the re-appointment of BDO USA, P.C. as Epsilons independent auditors for the ensuing
year.
PROPOSAL
4
:
FOR
the approval of the compensation paid to the Corporations named executive officers during 2023.
OUR BOARD OF DIRECTORS RECOMMENDS
THAT SHAREHOLDERS VOTE
FOR
SETTING THE NUMBER OF DIRECTORS TO BE ELECTED AT THE MEETING AT SIX UNDER PROPOSAL 1;
FOR
THE ELECTION OF EACH OF THE NOMINEES LISTED UNDER PROPOSAL 2,
FOR
THE RE-APPOINTMENT OF
THE AUDITORS UNDER PROPOSAL 3, AND
FOR
THE APPROVAL OF THE COMPENSATION PAID TO THE CORPORATIONS NAMED EXECUTIVE
OFFICERS DURING 2023 UNDER PROPOSAL 4. Your proxy holder also has discretionary authority for amendments that are made to matters identified
in the Notice or other matters that properly come before the Meeting. At the time of printing this Proxy Statement, management does not
know of any matter to come before the Meeting other than the matters referred to in the Notice.
Reporting Currency
All of the financial information
in this Proxy Statement has been presented, unless otherwise noted, in United States Dollars. The presentation currency for the December31,
2023 financial statements of the Corporation is the United States Dollars.
QUESTIONS AND ANSWERS ABOUT THE 2024 ANNUAL
GENERAL MEETING
Q:
Why did I receive these materials?
A:
We are making this Proxy Statement available to you on or around April11, 2024, because the Board
of Directors (the Board) is soliciting your proxy to vote at the 2024 Annual General Meeting to be held on
Wednesday,
May15, 2024
, at
10:00a.m., Central Daylight Time
, at
Two Allen Center, 1200 Smith Street, 12th Floor-Senate
Room, Houston, Texas 77002
, or at any adjournment thereof. The information provided in this Proxy Statement is for your use in deciding
how to vote on the proposals described below.
Q:
Who is entitled to attend and vote at the Annual General Meeting?
A:
You can attend and vote at the 2024 Annual General Meeting if, as of the close of business on March28,
2024 (the Record Date), the record date for the 2024 Annual General Meeting, you were a shareholder of record of Epsilons
common shares. As of the Record Date, there were 21,921,840 common shares issued and outstanding.
Q:
What are the voting rights of shareholders?
A:
For each proposal, shareholders are entitled to cast one vote for each common share held as of the record
date. There are no cumulative voting rights.
Q:
What is the difference between a registered shareholder and a shareholder who owns stock in street
name?
A:
If you hold Epsilon common shares directly in your name, you are a
registered shareholder
. If you
own Epsilon common shares indirectly through a bank, broker, or other nominee, those shares are held in
street name
.
Q:
Can I vote my shares before the Annual General Meeting?
A:
Yes. If you are a
registered shareholder
, you can vote your shares before the Annual General Meeting
by telephone, internet or mail, as set out in the accompanying instrument of proxy.
If your shares are held in
street
name
, your bank, broker or other nominee may provide you with a voting instruction form that provides instructions on how to access
our proxy materials and vote online or to request a paper or email copy of our proxy materials. If you received these materials in paper
form, the materials included a vote instruction form so you can instruct your bank, broker or other nominee how to vote your shares.
Please see the information your bank,
broker or other nominee provided you for more information on these voting options.
Q:
Can I vote in person at the 2024 Annual General Meeting instead of by proxy?
A:
If you are a
registered shareholder
, you can vote at the 2024 Annual General Meeting any shares
that were registered in your name as the shareholder of record as of the Record Date.
If your shares are held in
street
name
, you cannot vote those shares at the 2024 Annual General Meeting unless you have a legal proxy from your bank, broker or other
nominee. If you plan to attend and vote your street-name shares at the 2024 Annual General Meeting, you should request a legal proxy from
your broker, bank or other nominee and bring it with you to the 2024 Annual General Meeting.
1
Q:
What will happen if I submit my proxy but do not vote on a proposal?
A:
If you submit a valid proxy but fail to provide instructions on how you want your shares to be voted,
properly submitted proxies will be voted:
FOR
setting the number of directors to be elected at the Meeting at six.
FOR
the election of John Lovoi, Jason Stabell, Jason Stankowski, Tracy Stephens, David Winn and
Nicola Maddox, each of whom shall hold office for a term of one year, expiring at the annual meeting in 2025, or until his or her successor
is elected and qualified, or until his or her earlier death, resignation or removal.
FOR
the re-appointment of BDO USA, P.C. as Epsilons independent auditors for the ensuing
year.
FOR
the approval of the compensation paid to the Corporations named executive officers during
2023.
Q:
What will happen if I neither submit my proxy nor vote my shares in person at the 2024 Annual General
Meeting?
A:
If you are a
registered shareholder
, your shares will not be voted.
If, however, you are a
beneficial
shareholder
(i.e., your shares are held in
street name
), your bank, broker or other nominee may vote your shares on certain
matters, depending on whether your bank, broker or other nominee is located in the United States of America or in Canada.
Without specific instructions, Canadian
brokers and their agents or nominees are prohibited from voting common shares for the brokers client. Without specific instructions,
U.S. brokers and their agents or nominees are prohibited from voting common shares for the brokers client with respect to non-routine
matters, including the election of directors, but may vote such common shares with respect to routine matters, including
the appointment of an auditor. When a broker is unable to vote on a proposal because it is non-routine and the owner of the common shares
does not provide voting instructions, a broker non-vote occurs. If you are a beneficial owner, contact your broker or nominee
for any voting questions.
The appointment of independent auditors
is currently considered to be a routine matter. The other matters you are being asked to vote on are not routine and cannot be voted by
your bank, broker or other nominee without your instructions. Under the ABCA, a broker non-vote is not counted as a vote
for or against a proposal, and therefore has no impact on the outcome of the proposal. (However, as further explained below, if you
do
submit a properly executed proxy card but
do not
provide instructions regarding a particular proposal, your shares will be voted
according to the recommendation of our Board of Directors as to such proposal.)
Q:
What does it mean if I receive more than one set of materials?
A:
You probably have multiple accounts with us and/or banks, brokers or other nominees. You should vote all
of the shares represented by the proxy cards and/or voting instruction forms. Certain banks, brokers or other nominees have procedures
in place to discontinue duplicate mailings upon a shareholders request. You should contact your bank, broker or other nominee for
more information.
Q:
How many shares must be present to conduct business at the 2024 Annual General Meeting?
A:
To carry on the business of the 2024 Annual General Meeting, holders of at least 33 1/3 % of the outstanding
common shares issued and outstanding as of the Record Date must be present in person or represented by proxy, which will constitute a
quorum.
Q:
What vote is required to approve each proposal?
A:
All ordinary resolutions require, for the passing of the same, a simple majority of the votes cast at
the Meeting by the holders of common shares.
2
Q:
How are votes counted?
A:
For Proposal 1, to set the number of directors at six, you may vote FOR or AGAINST.
In the election of directors, Proposal
2, you may vote FOR all or some of the nominees or your vote may be WITHHOLD with respect to one or more of
the nominees.
For Proposal 3, you may vote FOR
the re-appointment of the independent auditor or you may WITHHOLD your vote.
For Proposal 4, you may vote FOR
the approval of the compensation paid to the Corporations named executive officers during 2023 or you may WITHHOLD
your vote.
If you provide specific instructions
with regard to certain items, your shares will be voted as you instruct on such items. As noted in the proxy, if no instructions are indicated
on a properly executed proxy card or over the telephone or Internet, the shares will be voted as recommended by our Board of Directors.
(See What will happen if I submit my proxy but do not vote on a proposal? above for additional information.)
Q:
Will any other business be transacted at the Meeting? If so, how will my proxy be voted?
A:
Management does not know of any business to be transacted at the 2024 Annual General Meeting other than
those matters described in this Proxy Statement. However, if any additional matters are presented at the Meeting, it is the intention
of the persons named in the accompanying proxy to vote in accordance with their judgment on those matters.
Q:
What will constitute a quorum?
A:
At least 33 1/3% of the outstanding common shares must be present in person or by proxy to constitute
a quorum for the Meeting.
Q:
Who will pay the cost of soliciting votes for the 2024 Annual General Meeting?
A:
Epsilon will bear the entire cost of solicitation of proxies, including the preparation, assembly, printing,
and mailing of this Proxy Statement and the accompanying materials. The largest expense in the proxy process is printing and mailing the
proxy materials. Proxies also may be solicited on behalf of Epsilon by directors, officers or employees of Epsilon in person or by mail
or telephone. No additional compensation will be paid to such directors, officers, or employees for soliciting proxies. We have engaged
Computershare Trust Company of Canada (Computershare) to assist us in the distribution of proxies. We will also reimburse
brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending our proxy materials to beneficial
owners of our common shares as of the Record Date. Under Canadian National Instrument 54-101, arrangements have been made with brokerage
houses and other intermediaries, clearing agencies, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial
owners of the common shares held of record by such persons and the Corporation may reimburse such persons for reasonable fees and disbursements
incurred by them in doing so. The costs thereof will be borne by the Corporation.
3
FINANCIAL STATEMENTS
The audited consolidated
financial statements of Epsilon for the year ended December31, 2023, and the report of the auditor thereon will be placed before
the Meeting. No vote by the shareholders with respect to the financial statements is required. The audited consolidated financial statements
were audited by BDO USA, P.C. of Houston, Texas and approved by the Audit Committee of the Board.
PROPOSAL 1: SETTING THE NUMBER OF DIRECTORS
Shareholders of the Corporation
will be asked to consider and, if thought appropriate, to approve and adopt an ordinary resolution fixing the number of directors to be
elected at the Meeting. In order to be effective, an ordinary resolution requires the approval of a majority of the votes cast by shareholders
who vote in respect of the resolution.
At the Meeting, it will be
proposed that six (6)directors be elected to hold office until the next annual general meeting or until their successors are elected
or appointed.
Unless otherwise directed, it is the intention of the Management Designees, if named as proxy, to vote in favor of the
ordinary resolution fixing the number of directors to be elected at the Meeting at six (6).
Our Board of Directors
recommends voting FOR the proposal to fix the number of directors to be elected at the meeting at six (6).
PROPOSAL 2: ELECTION OF DIRECTORS
At the 2024 Annual General
Meeting, our shareholders will be asked to elect six (6)directors for a one-year term expiring at the next annual meeting of shareholders.
Each director will hold office until his or her successor has been elected and qualified or until the directors earlier death,
resignation, or removal.
Recommendation of our Board of Directors
Our Board of Directors
recommends voting FOR the election of each of the Director nominees as directors, each of whom shall hold office for a term
of one year, expiring at the annual meeting in 2025, or until his or her successor is elected and qualified, or until his or her earlier
death, resignation, or removal.
Each proxy or vote instruction
form will be voted for the election of each of the Director nominees as directors unless the proxy contains contrary instructions. Common
shares represented by proxies received by the Board of Directors and not so marked as to withhold authority to vote for any individual
nominee or for all nominees will be voted (unless one or more nominees are unable to serve) for the election of the nominees named below.
The Board of Directors knows of no reason why any such nominee should be unable or unwilling to serve.
Majority Voting Policy
In March2016, the Board
adopted a policy to the effect that, in an uncontested election of directors, any nominee who receives a greater number of withheld
votes than for votes will be considered to have not received the support of the shareholders of the Corporation and will
be expected to immediately withdraw himself or herself from consideration and, if he or she is then currently a member of the Board, submit
his or her resignation to the Board. Upon receipt of such resignation, the Chairman of the Board will meet with the Compensation, Nominating
and Corporate Governance Committee, with a view to making a recommendation to the Board. The Board will make its decision within 90days
from the date of resignation. The Board shall accept the resignation unless it determines that exceptional circumstances would warrant
the applicable director continuing to serve on the Board. The resignation will be effective when accepted by the Board. A director who
submits his or her resignation pursuant to this policy will not participate in any deliberations of the Board or Compensation, Nominating
and Corporate Governance Committee with respect to the resignation. Following the Boards decision on the resignation, the Board
will promptly disclose, by way of a news release, its decision whether or not to accept the directors resignation and, if the Board
does not accept the resignation, the full reasons for rejecting the tendered resignation.
4
Executive Officers
The names of the executive
officers and certain information about such executive officers, including their ages, are set forth below. For information concerning
the number of common shares beneficially owned by each officer, see Security Ownership of Certain Beneficial Owners and Management.
Name
Age
Position
Jason Stabell
49
Chief Executive Officer, Director
Henry Clanton
61
Chief Operating Officer
J. Andrew Williamson
36
Chief Financial Officer
Name, Municipality
of Residence
Position and Term
Principal Occupation During
the Past Five Years
Number and Percentage of Common Shares
Jason Stabell
Houston, TX USA
Chief Executive Officer and Director
since July2022
Chief Executive Officer of Epsilon Energy Ltd. since July2022 and for 24years previously in various positions in the energy industry with a focus on upstream EP. Previously served as President and CEO of a privately held EP company with domestic and international assets.
439,883
(2.0%)
Henry Clanton
Houston, TX USA
Chief Operating Officer since January2017
Chief Operating Officer of Epsilon Energy Ltd. since January2017 and for over 30years previously in the upstream EP sector. Previously served as Managing Partner for a private EP start-up.
65,675
(1%)
J. Andrew Williamson
Houston, TX USA
Chief Financial Officer since July2022
Chief Financial Officer of Epsilon Energy Ltd. since July2022 and for 10years previously in various positions in the energy industry. Previously served as CFO of a privately held EP company with domestic and international assets.
17,784
(1%)
Jason
Stabell.
Mr.Stabell has worked in the energy industry since 1998 with a focus on upstream EP. Most
recently he served as President and CEO of Merlon International, LLC, a privately held company with assets in the Western Desert of Egypt
and US Gulf Coast which was sold in 2019 to a publicly listed UK company where he served as an advisor until 2021. Previously, he served
as CFO and ultimately President of privately held Merlon Petroleum Company, which had assets in the US Gulf Coast and Egypt and was sold
in 2006. He began his career at Salomon Smith Barney as an analyst in the Planning and Analysis Group. Mr.Stabell has also been
active as a private investor for the last several years. He has a BA in Economics from Williams College. He has served on numerous corporate
Boards including ESI Energy Services Inc. and Layline Petroleum, LLC.
Henry
N. Clanton.
Mr.Clanton joined the Corporation as its Chief Operating Officer in January2017. He has over 30 years
of experience in the upstream EP sector. His experience includes financial and technical management over all phases of drilling,
completions, production, and field operations. Before joining us, he spent 14 years with a private EP start-up, ARES Energy, Ltd,
which he co-founded and served as a Managing Partner. Previous to that time Mr.Clanton worked with Schlumberger, ARCO Permian, and
Coastal Management Company. He holds an MBA and a BS in Petroleum Engineering from Texas AM University.
J.
Andrew Williamson.
Mr.Williamson has spent his entire career in the energy business. From 2012 to early
2019, he served as Corporate Development Manager then Vice President Finance (CFO) of Merlon International, LLC. More recently, he served
as the Corporate Strategy Manager for Petrosantander Inc. Mr.Williamson started his career in management consulting, advising energy
clients on transaction due diligence, growth strategy, and cost reduction. He has a BBA in Finance and a BA in Political Science from
Southern Methodist University.
5
Nominees for Election to the Board
of Directors
The names of the nominees
for election to the Board of Directors and certain information about such nominees, including their ages, are set forth below. For information
concerning the number of shares of common stock beneficially owned by each nominee, see Security Ownership of Certain Beneficial
Owners and Management.
Name
Age
Position
John Lovoi
63
Director, Chairman of the Board
Jason Stabell
49
Director, Chief Executive Officer
Jason Stankowski
53
Director
Tracy Stephens
62
Director
David Winn
61
Director
Nicola Maddox
67
Director
Name, Municipality of Residence
Position and Term
Principal Occupation During the Past Five Years
Number and Percentage of Common Shares
John Lovoi
(1)(2)
Houston, TX, USA
Chairman of the Board since July2013
Managing partner of JVL Advisors, LLC, a private oil and gas investment advisor, manager of Lobo Baya, LLC, Director of Helix Energy Solutions Group, an operator of offshore oil and gas properties and production facilities and Chairman of Dril-Quip,Inc., a provider of subsea, surface and offshore rig equipment.
266,579 (1.2%)
Jason Stabell
Houston, TX, USA
Chief Executive Officer and Director since July2022
Chief Executive Officer of Epsilon Energy Ltd. since July2022 and for 24 years previously in various positions in the energy industry with a focus on upstream EP. Previously served as President and CEO of a privately held EP company with domestic and international assets.
439,883 (2.0%)
Tracy Stephens
(2)(3)
Houston, TX, USA
Director since May2017
Founder and Chief Executive Officer of Westminster Advisors, a CEO advisory services company, since January2017. Previously Chief Operating Officer of Resources Global Professionals, a large business consulting company.
49,401 (1%)
David Winn
(1)
Houston, TX, USA
Director since Jan.2021
Retired from a 36-year career in public accounting, most recently was an Audit Partner for Grant Thornton LLP, an independent audit, tax, and advisory firm. Previously a Director for PricewaterhouseCoopers LLP.
20,501 (1%)
Jason Stankowski
(1)(3)
Berkeley, CA, USA
Director since Jan.2021
Founder, partner and portfolio manager for Clayton Partners, LLC. Previously, in structured finance, in various roles with CMA Capital Management. He became designated as a Chartered Financial Analyst in 2003.
347,727 (1.6%)
Nicola Maddox
(2)(3)
Houston, TX, USA
Director since May2023
Self-employed energy advisor specializing in contract analysis, strategic planning, and negotiation. Previously she was a President at Merlon International, LLC.
4,045 (1%)
Notes:
(1)
Proposed member of the Audit Committee.
6
(2)
Proposed member of the Compensation, Nominating and Corporate Governance Committee.
(3)
Proposed member of the Conflicts Committee.
As of April11, 2024,
the directors and officers of the Corporation owned, directly or indirectly, or exercised control or direction over 1,211,594 common shares,
or 5.53% of the outstanding common shares.
John
Lovoi
. Mr.Lovoi has been chairman of our board of directors since July2013. Mr.Lovoi has been the managing
partner of JVL Advisors, LLC, a private natural gas and oil investment advisor (JVL), since November2002. He is a
Director of Helix Energy Solutions Group, an operator of offshore natural gas and oil properties and production facilities, the Chairman
of Dril-Quip,Inc., a provider of subsea, surface and offshore rig equipment. We believe that Mr.Lovoi is qualified to serve
as a member of our board of directors as a result of his background in investment banking, equity research, and asset management, with
an emphasis on the global natural gas and oil practice.
Jason
Stabell
.Mr.Stabell has served as chief executive officer and a director for Epsilon Energy Ltd. since July2022.
He has worked in the energy industry since 1998 with a focus on upstream EP. Most recently he served as President and CEO of Merlon
International, LLC, a privately held company with assets in the Western Desert of Egypt and US Gulf Coast which was sold in 2019 to a
publicly listed UK company where he served as an advisor until 2021. Previously, he served as CFO and ultimately President of privately
held Merlon Petroleum Company, which had assets in the US Gulf Coast and Egypt and was sold in 2006. He has a BA in Economics from Williams
College. We believe that Mr.Stabell is qualified to serve as a member of our board of directors as a result of his experience in
the natural gas and oil industry.
Tracy
Stephens
. Mr.Stephens has been a director since May2017. He has also been a member of our Compensation, Nominating
and Corporate Governance Committee, and Conflicts Committee since February2019. He is the founder of Westminster Advisors, a CEO
advisory services company, and served as its Chief Executive Officer from January2018. He was previously employed by Resources Global
Professionals, a large business consulting company, from July2001 to December2016, and was the Chief Operating Officer the
last three years. We believe that Mr.Stephens is qualified to serve as a member of our board of directors as a result of his extensive
experience with public companies.
David
Winn
. Mr.Winn has been a director and member of the Audit Committee since January2021. Mr.Winn recently retired
from a 36 year career in public accounting that involved extensive board interaction. From 2003 until July2020, Mr.Winn was
an Audit Partner for Grant Thornton LLP, which is an independent audit, tax, and advisory firm and the U.S. member firm of Grant Thornton
International Ltd. During his tenure, Mr.Winn served as audit department head, industry program leader, an engagement partner, quality
control reviewer, and was a relationship partner to large clients. Mr.Winn has extensive Securities and Exchange Commission (the
SEC) reporting experience with registration statements and annual and quarterly filings. Previously Mr.Winn served
as a Director for PricewaterhouseCoopers LLP and previously as a Partner with Arthur Andersen LLP. We believe that Mr.Winn is qualified
to serve as a member of our board of directors because of his experience in public accounting and public company reporting.
Jason
Stankowski
. Mr.Stankowski has been a director and member of the Audit Committee since January2021. Mr.Stankowski
is the founder and a partner and portfolio manager for Clayton Partners, LLC. He began his career at Prudential Securities in San Francisco
and spent eight years in structured finance at CMA Capital Management, where he acted in a number of roles, including specializing in
corporate retirement planning, structuring complex investment and financing structures for Fortune 1000 companies. He became designated
as a Chartered Financial Analyst in 2003. We believe that Mr.Stankowski is qualified to serve as a member of our board of directors
based on his corporate finance and experience in public equity markets.
Nicola
Maddox
. Ms.Maddox has been a director and member of the Compensation, Nominating and Corporate Governance Committee,
and Conflicts Committee since May2023. Ms.Maddox has over forty years experience in the oil and gas industry. After
receiving her BA in Communications, she was employed by Exxon Minerals starting as an Associate Landman eventually ending in Executive
Management positions starting in 1993. She was a co-founder of Centurion Exploration Company in 2004, initially serving as an EVP and
then becoming its President, CEO and Chairman of the Board from 2007 to 2009. At Merlon International, LLC, Ms.Maddox was SVP in
charge of its Texas subsidiary. She advanced to EVP and ultimately President after Merlon sold its Egyptian subsidiary in 2019. Since
2022, she has been a self-employed energy advisor specializing in contract analysis, strategic planning, and negotiation strategies. We
believe that Ms.Maddox is qualified to serve as a member of our board of directors because of her significant industry experience
in upstream oil and gas.
7
There is no family relationship,
as defined by Item401 of RegulationS-K (229.401), between any director, executive officer, or person nominated
or chosen by us to become a director or executive officer.
Criminal Proceedings
During the past tenyears,
none of Epsilons executive officers, current directors, or nominees have (i)been convicted in a criminal proceeding (excluding
traffic violations and similar misdemeanors) or (ii)been a party to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future
violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state
securities laws.
Bankruptcy
During the past tenyears
(i)no petition has been filed under federal bankruptcy laws or any state insolvency laws by or against any of our current directors
or executive officers, (ii)no receiver, fiscal agent or similar officer was appointed by a court for the business or property of
any of our current directors or executive officers and (iii)none of our current directors or executive officers were an executive
officer of any business entity or a general partner of any partnership at or within twoyears before the filing of a petition under
the federal bankruptcy laws or any state insolvency laws by or against such entity.
Cease Trade Orders
Other than as set forth herein,
no proposed director, within 10years before the date of this Proxy Statement, has been a director, chief executive officer or chief
financial officer of any company that:
(a)was
subject to: (i)a cease trade order; (ii)an order similar to a cease trade order; or (iii)an order that denied the relevant
company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (collectively,
an Order) that was issued while the proposed director was acting in the capacity as director, chief executive officer or
chief financial officer; or
(b)was
subject to an Order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer
and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief
financial officer.
Penalties or Sanctions
To the knowledge of the Corporation,
no director or executive officer of the Corporation, or a shareholder holding a sufficient number of securities of the Corporation to
materially affect control of the Corporation (or any personal holding corporation of such persons), has been subject to:
(i)
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities regulatory authority; or
(ii)
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered
important to a reasonable investor in making an investment decision.
Corporate Governance Policies and
Practices
Our corporate governance
practices and policies are administered by the board of directors and by committees of the board appointed to oversee specific aspects
of our management and operations, pursuant to written charters and policies adopted by the board and such committees.
The Board of Directors
The Board is committed to
a high standard of corporate governance practices. The Board believes that this commitment is not only in the best interests of the shareholders
but that it also promotes effective decision-making at the Board level. The Board is of the view that its approach to corporate governance
is appropriate and complies with the objectives and guidelines relating to corporate governance set out in National Instrument 58-201
adopted by the Canadian securities administrators, or NI 58-201, as well as the governance requirements of the Nasdaq Global Market. In
addition, the Board monitors and considers for implementation the corporate governance standards that are proposed by various Canadian
regulatory authorities or that are published by various non-regulatory organizations in Canada. The Board has also established a Compensation,
Nominating and Corporate Governance Committee and has adopted a Compensation, Nominating and Corporate Governance Charter to ensure the
objectives of NI 58-201 and the Nasdaq Global Market are met.
8
The Board is currently composed
of six directors who provide us with a wide diversity of business experience. Our Board has determined that John Lovoi, Tracy Stephens,
Jason Stankowski, David Winn, and Nicola Maddox are independent in accordance with the listing requirements of the Nasdaq Global Market,
representing over 50% of the Board. Each of the independent directors has no direct or indirect material relationship with us, including
any business or other relationship, that could reasonably be expected to interfere with the directors ability to act with a view
to our best interests or that could reasonably be expected to interfere with the exercise of the directors independent judgment.
Mr.Jason Stabell is
our Chief Executive Officer and therefore is not an independent director.
The
Board held 12 meetings during 2023, including 7 meetings of the full Board, 1 meeting of the Compensation, Nominating and Corporate Governance
Committee, and 4 meetings of the Audit Committee.
All Board meetings were conducted with open and candid discussions. As such,
directors did not hold any separate meetings, other than Audit and Compensation, Nominating and Corporate Governance Committee meetings.
The members of the Board have the ability to meet on their own and are authorized to retain independent financial, legal and other experts
as required whenever, in their opinion, matters come before the Board that require an independent analysis by the members of the Board.
The Board intends to hold at least four regular meetings each year, as well as additional meetings as required. The Board has not established
any required attendance levels for the Board and committee meetings. In setting the regular meeting schedule, care is taken to ensure
that meeting dates are set to accommodate directors schedules so as to encourage full attendance.
The table below provides
details regarding the attendance of our current directors during 2023:
Number of Total Board and
Committee Meetings
Director
Attended
John Lovoi
9/9
Jason Stabell
7/7
Tracy Stephens
8/8
David Winn
11/11
Jason Stankowski
11/11
Nicola Maddox
3/3
The Board has stewardship
responsibilities, including responsibilities with respect to oversight of our investments, management of the Board, monitoring of our
financial performance, financial reporting, financial risk management and oversight of policies and procedures, communications and reporting
and compliance. In carrying out its mandate, the Board meets regularly and a broad range of matters are discussed and reviewed for approval.
These matters include overall plans and strategies, budgets, internal controls and management information systems, risk management as
well as interim and annual financial and operating results. The Board is also responsible for the approval of all major transactions,
including property acquisitions, property divestitures, equity issuances and debt transactions, if any. The Board strives to ensure that
our corporate actions correspond closely with the objectives of its shareholders. The Board will meet at least once annually to review
in depth our strategic plan and review our available resources required to carry out our growth strategy and to achieve its objectives.
Mandate of the Board.
The Board does not have a
written mandate. The Board has stewardship responsibilities, including responsibilities with respect to oversight of the Corporations
investments, management of the Board, monitoring of the Corporations financial performance, financial reporting, financial risk
management and oversight of policies and procedures, communications and reporting and compliance. In carrying out its mandate, the Board
meets regularly and a broad range of matters are discussed and reviewed for approval. These matters include overall plans and strategies,
budgets, internal controls and management information systems, risk management as well as interim and annual financial and operating results.
The Board is also responsible for the approval of all major transactions, including property acquisitions, property divestitures, equity
issuances and debt transactions, if any. The Board strives to ensure that actions taken by the Corporation correspond closely with the
objectives of its shareholders. The Board will meet at least once annually to review in depth the Corporations strategic plan and
review the Corporations available resources required to carry out the Corporations growth strategy and to achieve its objectives.
9
Position Descriptions.
The Board has outlined the
responsibilities in respect to our Chief Executive Officer, or CEO. The Board and CEO do not have a written position description for the
CEO; however, the CEOs principal duties and responsibilities are planning our strategic direction, providing leadership, acting
as our spokesperson, reporting to shareholders, and overseeing our executive management with respect to operations and finance.
The charter for each of the
Board committees outlines the duties and responsibilities of the members of each of the committees, including the chair of such committees.
See Board Committees below.
Orientation and Continuing Education.
We have not adopted a formalized
process of orientation for new Board members. However, all directors have been provided with a base line of knowledge about us that serves
as a basis for informed decision making. This includes a combination of written material, in person meetings with our senior management,
site visits and other briefings and training, as appropriate.
Directors are kept informed
as to matters affecting, or that may affect, our operations through reports and presentations at the quarterly Board meetings. Special
presentations on specific business operations are also provided to the Board.
Code of Ethics and Whistleblower
Policy
Our Code of Ethics and Whistleblower
Policy are available on our website at http://www.epsilonenergyltd.com. Each director is expected to disclose all actual or potential
conflicts of interest and refrain from voting on matters in which such director has a conflict of interest. In addition, a director must
recuse himself from any discussion or decision on any matter of which the director is precluded from voting as a result of a conflict
of interest. The Board has reviewed and approved a disclosure and insider trading policy for us, in order to promote consistent disclosure
practices aimed at informative, timely and broadly disseminated disclosure of material information to the market in accordance with applicable
securities legislation. The disclosure policy promotes, among other things, the disclosure and reporting of any serious weaknesses which
may affect the financial stability and assets of us and our operating entities.
The listing standards of
the Nasdaq Global Market require the Audit Committee to establish formal procedures for (a)the receipt, retention, and treatment
of complaints received by us and our subsidiaries regarding accounting, internal accounting controls, or auditing matters and (b)the
confidential, anonymous submission by our consultants or employees of concerns regarding questionable accounting or auditing matters.
We are committed to achieving compliance with all applicable securities laws and regulations, accounting standards, accounting controls
and audit practices. In addition, we post on our website all disclosures that are required by law or the listing standards of the Nasdaq
Global Market concerning any amendments to, or waivers from, any provision of the code, and is updated as necessary.
Assessments
The Board does not conduct
regular assessments of the Board, its committees or individual directors, however, the Board does periodically review and satisfy itself
at meetings that the Board, its committees and its individual directors are performing effectively.
Nomination of Directors
The mandate of the Compensation,
Nominating and Corporate Governance Committee includes consideration of issues related to the selection, nomination, and education of
the directors. The Compensation, Nominating and Corporate Governance Committee is currently comprised of Tracy Stephens (chairman), John
Lovoi, and Nicola Maddox, all of whom are independent directors as defined in the listing standards of NASDAQ.
10
Director Term Limits
The Board has not adopted
term limits for directors because of the relatively small size of the Board. The Board is mindful of the ratio of the independent and
management Board members and this will be a factor in future Board appointments. The Board has been focused on working closely as a team
to develop the skills necessary for the business of the Corporation. The need for a retirement policy is not an immediate concern for
the Board. The full Board reviews the need for director term limits intermittently and will institute one should the need arise.
The Board is open to possible
new Board members who can add value to the Board, bring new or a greater depth of skill sets necessary to successfully oversee the business
of the Corporation and who can successfully operate within a team environment.
Policies Regarding the Representation
of Women on the Board
The Corporation does not
have a formal policy regarding identification and nomination of women to the Board. The Compensation, Nominating and Corporate Governance
Committee generally identifies, evaluates and recommends candidates for nomination as directors with the goal of creating a Board that,
as a whole, consists of individuals with various and relevant career experience, industry knowledge and experience, and financial and
other specialized expertise.
The Compensation, Nominating
and Corporate Governance Committee takes gender into consideration as part of its overall recruitment and selection process in respect
of potential candidates for the Board. Accordingly, when searching for new directors, the Compensation, Nominating and Corporate Governance
Committee considers the level of female representation on the Board. Where appropriate, we intend to continue to recruit qualified female
candidates as part of the Corporations overall recruitment and selection process to fill Board positions, as the need arises, through
vacancies, growth or otherwise.
The overall recruitment and
selection process to fill Board positions has resulted in increasing gender diversity on our Board with the addition of Ms.Nicola
Maddox in May2023. She brings distinguished and varied industry experience that is of great benefit to the Board and the Corporation.
Consideration of the Representation
of Women in Executive Officer Appointments
The Corporation is also sensitive
to the representation of women when considering executive officer appointments. As of the date of this Proxy Statement, there are no women
occupying executive officer positions with the Corporation. However, the Corporation is committed to ongoing review with respect to the
gender diversity of its executive officers.
Targets Regarding the Representation
of Women on the Board and in Executive Officer Positions
The Corporation has not adopted
a formal target regarding women in executive officer positions. However, as noted above, the Corporation is committed to promoting diversity
and will, in the future, continue to seek to identify talented women to fulfill Board and executive positions.
Board Committees
The Board has three committees.
The committees are the Audit Committee, the Compensation, Nominating and Corporate Governance Committee, and the Conflicts Committee.
Each committee has been constituted with independent directors.
Audit
Committee
.The Audit Committee is currently comprised of David Winn (Chairman), John Lovoi, and Jason
Stankowski. The Board has proposed that the membership on this committee continue. All members of the Audit Committee are independent
and financially literate under the applicable rulesand regulations of the SEC and the NASDAQ Global Market.
11
The Audit Committee met four
times during the fiscal year ended December31, 2023. The Audit Committee meets at least on a quarterly basis to review and approve
our consolidated financial statements before the financial statements are publicly filed.
The Audit Committee reviews
our interim unaudited condensed consolidated financial statements and annual audited consolidated financial statements and certain corporate
disclosure documents including the Annual Information Form, Managements Discussion and Analysis, and annual and interim earnings
press releases before they are approved by the Board. The Audit Committee reviews and makes a recommendation to the Board in respect of
the appointment and compensation of the external auditors and it monitors accounting, financial reporting, control and audit functions.
The Audit Committee meets to discuss and review the audit plans of external auditors and is directly responsible for overseeing the work
of the external auditors with respect to preparing or issuing the auditors report or the performance of other audit, review or
attest services, including the resolution of disagreements between management and the external auditors regarding financial reporting.
The Audit Committee questions the external auditors independently of management and reviews a written statement of its independence. The
Audit Committee must be satisfied that adequate procedures are in place for the review of our public disclosure of financial information
extracted or derived from its consolidated financial statements and it periodically assesses the adequacy of those procedures. The Audit
Committee must approve or pre-approve, as applicable, any non-audit services to be provided to us by the external auditors. In addition,
it reviews and reports to the Board on our risk management policies and procedures and reviews the internal control procedures to determine
their effectiveness and to ensure compliance with our policies and avoidance of conflicts of interest. The Audit Committee has established
procedures for dealing with complaints or confidential submissions which come to its attention with respect to accounting, internal accounting
controls or auditing matters. To date, neither the Board nor the Audit Committee has formally assessed any individual director with respect
to their effectiveness and contribution to us in their capacity as a director. Instead, members of the Board have relied on informal conversations
among themselves to adequately cover such matters. The Audit Committee is also the primary governing body that is tasked with the evaluation
and confirmation of the Corporations cybersecurity threat mitigation processes. More specifically, they review the Corporations
annual IT audits and discuss any potential threats in quarterly meetings.
The Audit Committee operates
under a written charter that satisfies the applicable standards of the SEC and The Nasdaq Global Market. Committee members are not employees
of the Corporation or accountants or auditors by profession. A copy of the Audit Committee Charter can be found on our website at www.epsilonenergyltd.com.
Compensation,
Nominating and Corporate Governance Committee
.The Compensation, Nominating and Corporate Governance Committee
is currently comprised of Tracy Stephens (chairman), John Lovoi, and Nicola Maddox. The Board has proposed that the membership on this
committee continue. All members of this committee are independent directors.
The Compensation, Nominating
and Corporate Governance Committee met one time during the fiscal year ended December31, 2023. The Compensation, Nominating and
Corporate Governance Committees mandate is to:
1.
Assist and advise the Board regarding its responsibility for oversight of our compensation policy; provided
that all determinations on officer compensation will be subject to review and approval by the Board;
2.
Study and evaluate appropriate compensation mechanisms and criteria;
3.
Develop and establish appropriate compensation policies and practices for the Board and our senior management,
including our security-based compensation arrangements;
4.
Evaluate senior management;
5.
Serve in an advisory capacity on organizational and personnel matters to the Board;
6.
Assist the Board by identifying individuals qualified to serve on the Board and its committees;
7.
Recommend to the Board the director nominees for the next annual meeting;
8.
Recommend to the Board members and chairpersons for each committee;
12
9.
Develop and recommend to the Board and review from time to time, a set of corporate governance principles
and monitor compliance with such principles; and
10.
Serve in an advisory capacity on matters of governance structure and the conduct of the Board.
These responsibilities include
reporting and making recommendations to the Board for their consideration and approval. The Compensation, Nominating and Corporate Governance
Committee does not have a policy regarding consideration of director candidates recommended by security holders. The Compensation, Nominating
and Corporate Governance Committee considers a wide range of factors, including those listed in the paragraph below, in its searches when
making nomination recommendations to the Board. Corporate governance also relates to the activities of the Board, the members of which
are elected by and are accountable to the shareholders and takes into account the role of the individual members of management who are
appointed by the Board and who are charged with the day-to-day management of the Corporation. The Board is committed to sound corporate
governance practices, which are both in the interest of its shareholders and contribute to effective and efficient decision making.
Our Compensation, Nominating
and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the appropriate characteristics, skills
and experience required for the Board as a whole and its individual members. In evaluating the suitability of individual candidates (both
new candidates and current members), the Compensation, Nominating and Corporate Governance Committee, in recommending candidates for election,
and the Board, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including the
following:
personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly held
company;
experience as a board member or executive officer of another publicly held company;
strong finance experience;
diversity of expertise and experience in substantive matters pertaining to our business relative to other
board members;
diversity of background and perspective, including, but not limited to, with respect to age, gender, race,
place of residence and specialized experience;
experience relevant to our business industry and with relevant social policy concerns; and
relevant academic expertise or other proficiency in an area of our business operations.
Currently, our Board evaluates
each individual in the context of the Board as a whole, with the objective of assembling a group that can best maximize the success of
the business and represent shareholder interests through the exercise of sound judgment using its diversity of experience in these various
areas.
The Compensation, Nominating
and Corporate Governance Committee operates under a written charter that satisfies the applicable standards of the SEC and The Nasdaq
Global Market. A copy of such charter can be found on our website at www.epsilonenergyltd.com. The Compensation, Nominating and Corporate
Governance Committee does not conduct separate meetings, but instead meets and confers in conjunction with other meetings of the Board.
Conflicts
Committee
.The Conflicts Committee is currently comprised of Tracy Stephens, Jason Stankowski and Nicola
Maddox. The Board has proposed that the membership on this committee continue. All members are independent directors under NASDAQ listing
rules.
The Conflicts Committee has
the power to advise the Board with respect to any matters or issues of concern to the Conflicts Committee in connection with any corporate
opportunity and the interests of a related or conflicted party that the Conflicts Committee considers necessary or advisable.
13
Incentive Awards
The Board adopted the 2020
Equity Incentive Plan (the 2020 Plan) on July22, 2020 subject to approval by Epsilons shareholders at Epsilons
2020 Annual General Meeting of shareholders, which approval occurred on September1, 2020 (the Meeting).
Prohibitions on Hedging,Insider
Trading and Pledging Corporation Securities
Our Insider Trading Policy
provides that our officers, directors, employees, and consultants who are aware of material nonpublic information may not, directly or
indirectly, buy or sell securities of the Corporation other than pursuant to a trading plan that complies with Rule10b5-1 promulgated
by the SEC. The Corporation has designated Andrew Williamson, its Chief Financial Officer, as its Insider Trading Compliance Officer (the
Compliance Officer), whose responsibilities include monitoring and enforcing this policy, along with designating and announcing
special trading blackout periods during which some or all Section16 Insiders and other employees are prohibited from
trading in the Corporations securities. Additionally, the officers, directors, employees and consultants subject to the Insider
Trading Policy may not, among other things, transact in puts, calls or other derivative securities involving the Corporations common
shares, on an exchange or in any other organized market, engage in hedging or monetization transactions, engage in short sales of the
Corporations securities, and directors, officers, and other employees are prohibited from holding the Corporations securities
in a margin account or pledging the Corporations securities as collateral for a loan.
Security Ownership of Certain Beneficial
Owners and Management
The table set forth below
is information with respect to beneficial ownership of common shares as of April11, 2024, by our named executive officers, by each
of our directors, by all our current executive officers and directors as a group, and by each person known to us who beneficially own
5% or more of the outstanding common shares. To our knowledge, unless otherwise indicated, each person named in the table has sole voting
and investment power with respect to the common shares identified as beneficially owned.
Unless otherwise indicated,
the address of each of the individuals named below is c/oEpsilon Energy Ltd., 500 Dallas St., Suite1250, Houston, Texas 77002.
Name of Beneficial Owner
Number of Shares of CommonStock
Percentage of Common
Shares Owned
5% Stockholders
Solas Capital Management LLC
(1)
3,768,467
17.19
%
Palo Duro Energy Fund, LP
(2)
1,461,558
6.67
%
Azvalor Asset Management
(3)
1,189,672
5.43
%
Named Executive Officers and Directors
Jason Stabell
(4)
439,883
2.01
%
Henry Clanton
(5)
65,674
*
Andrew Williamson
(6)
17,784
*
John Lovoi
(7)
266,579
1.22
%
Tracy Stephens
(8)
49,401
*
David Winn
(9)
20,501
*
Jason Stankowski
(10)
347,727
1.59
%
Nicola Maddox
(11)
4,045
*
All executive officers and directors as a group (8 persons)
1,211,594
5.53
%
*
Indicates beneficial ownership of less than 1% of outstanding shares.
(1)
Based solely on Schedule 13G, Amendment No.5, filed on February14, 2024 with the SEC. Solas
Capital Management, LLC (Solas) and Frederick Tucker Golden share voting and dispositive power with respect to these shares.
Solas Capital Management, LLC, serves as the investment manager to two private funds and as sub-adviser to another private fund, which
hold securities for the benefit of their investors, and Mr.Golden, as Portfolio Manager of Solas Capital Management, LLC, who has
the power to exercise investment and voting discretion, may be deemed to be the beneficial owner of all shares these funds. The address
of Solas Capital Management, LLC is 1063 Post Road, 2
nd
Floor, Darien, CT 06820.
14
(2)
Based solely on Schedule 13G, Amendment No.1, filed
on February14, 2024 with the SEC. The reported shares are held by Palo Duro Energy Fund, LP (1,070,913 shares), Palo Duro Investment
Partners, LP (292,995 shares) and Matthew Dougherty (97,650 shares).
Matthew Dougherty is the CEO of the general partner of Palo
Duro Energy Fund, LP and Palo Duro Investment Partners, LP. Each reporting person exercises sole voting and dispositive power with respect
to the shares held. The address of the reporting persons is 311 S. Wacker Drive, Suite2620, Chicago,Illinois 60606.
(3)
Based solely on Schedule 13G filed on August11, 2023 with the SEC. Alvaro Guzmn de Lzaro, Chief Investment Officer
at Azvalor, exercises the voting and dispositive power with respect to the common shares held by Azvalor. The address of Azvalor Asset
Management SGIIC SA, or Azvalor, is Paseo de la Castellana 110, 3rd,Madrid, 28046, Spain.
(4)
Includes 361,200 shares held by Sisu Investments, LLC, an entity of which Mr.Stabell is the managing member, and 36,000 shares
held by Mr.Stabell individually. Mr.Stabell is our Chief Executive Officer.
(5)
Mr.Clanton is our Chief Operating Officer.
(6)
Mr.Williamson is our Chief Financial Officer.
(7)
Includes 208,078 shares held by JVL. Mr.Lovoi is the managing partner of JVL and the chairman of
our Board.
(8)
Includes 4,400 shares held by Mr.Stephens individually. Mr.Stephens is a member of our Board.
(9)
Includes 7,500 shares held by Mr.Winn individually. Mr.Winn is a member of our Board.
(10)
Includes 334,726 shares held by Clayton Partners LLC. Mr.Stankowski is a member of our Board and
a partner and portfolio manager for Clayton Partners, LLC.
(11)
Includes 1,995 shares held by Ms.Maddox individually. Ms.Maddox is a member of our Board.
Changes in Control.
The Corporation does not
know of any arrangement, the operation of which may at a subsequent date result in a change of control of the Corporation.
15
PERFORMANCE GRAPH
The common shares are currently
trading on the Nasdaq Global Market and were voluntarily delisted from the Toronto Stock Exchange (TSX) on March15,
2019.
The following graph compares
cumulative shareholder return commencing on December31, 2018 and ending on December31, 2023 (assuming a $100 investment was
made on December31, 2018) with the cumulative total return of SP Small Cap 600 Energy Index.
16
EXECUTIVE COMPENSATION
The Compensation, Nominating
and Corporate Governance Committee considers compensation matters as and when required. The Compensation, Nominating and Corporate Governance
Committee reviews and submits recommendations to the Board with respect to the Corporations executive compensation policies and
the compensation paid to the Corporations executive officers. The Compensation, Nominating and Corporate Governance Committee also
reviews the design and competitiveness of the Corporations compensation and benefit programs generally and has the authority to
recommend to the Board for its approval amendments to, and grants pursuant to, such programs.
Compensation Philosophy
The Corporation offers market-based
pay for performance to ensure that the Corporation has the ability to attract and retain high quality personnel. Consistent with the emphasis
on attracting top quality personnel, the Corporation offers competitive salaries in order to attract the best employees available. The
Corporations executive compensation policy is designed to provide for the enhancement of shareholder value, the successful implementation
of the Corporations business plans and a link between executive compensation and the financial performance of the Corporation.
The objectives of the Corporations
executive compensation policy are to:
(a)
attract, retain and motivate executives critical to the success of the Corporation;
(b)
provide fair, competitive and cost-effective compensation programs to its executives;
(c)
link the interests of management with those of the Shareholders; and
(d)
provide rewards for outstanding corporate and individual performance.
The Compensation, Nominating
and Corporate Governance Committee will review on an annual basis the cash compensation, performance and overall compensation package
for each executive officer. It will then submit to the Board its recommendations with respect to the basic salary, bonus and participation
in long-term incentive plans for each executive officer.
Basic Salary
In determining the basic
salary of an executive officer, the Compensation, Nominating and Corporate Governance Committee places equal weight on the following factors:
(a)
the particular responsibilities related to the position;
(b)
salaries paid by comparable businesses;
(c)
the experience level of the executive officer; and
(d)
his or her overall performance.
Bonus Payments
Executive officers are eligible
for annual discretionary cash bonuses and performance stock unit awards. The criteria considered are the Corporations financial
performance (47% weighting), attainment of certain strategic objectives (33% weighting), and individual performance (20% weighting). A
target amount is set for each executive officer, and payouts range from 50-150% of target based on the performance criteria.
17
General
The Board is satisfied that
there were not any identified risks arising from the Corporations compensation plans or policies that would have had any negative
or material impact on the Corporation. The Corporation does not have any policy in place to permit an executive officer or director to
purchase financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, orunits
of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held,
directly or indirectly, by the executive officer or director.
Summary Compensation Table
The
following table sets out information concerning the compensation paid to each person serving, during 2023, as our chief executive officer,
chief financial officer, and our other most highly compensated executive officers for the three-years ended December31, 2023, 2022
and 2021.
Compensation amounts in the following table are in U.S. dollars.
Non-equityincentive
plancompensation
Share
Option
Annual
Long-term
Name and principal
based
based
Incentive
Incentive
Other
Total
position
Year
Salary
Bonuses
Awards
Awards
Plans
Plans
Compensation
(6)
Compensation
Jason
Stabell, CEO
(1)
2023
$
311,000
$
184,000
$
851,003
$
$
$
$
7,350
$
1,353,353
2022
$
150,000
$
100,000
$
600,000
$
$
$
$
4,346
$
854,346
Michael
Raleigh, CEO
(2)
2022
$
75,000
$
555,000
$
$
$
$
$
$
630,000
2021
$
150,000
$
$
105,003
$
$
$
$
$
255,003
Henry
N. Clanton, COO
(3)
2023
$
272,000
$
92,000
$
92,004
$
$
$
$
15,752
$
471,756
2022
$
262,500
$
117,000
$
173,187
$
$
$
$
15,250
$
567,937
2021
$
250,000
$
75,000
$
$
$
$
$
14,500
$
339,500
Andrew
Williamson, CFO
(4)
2023
$
239,000
$
138,000
$
355,006
$
$
$
$
12,448
$
744,454
2022
$
115,000
$
75,000
$
250,000
$
$
$
$
3,981
$
443,981
B.
Lane Bond, former CFO
(5)
2022
$
75,000
$
37,500
$
81,182
$
$
$
$
$
193,682
2021
$
200,000
$
45,000
$
$
$
$
$
$
245,000
(1)
Mr.Stabell was hired as our chief executive officer in July2022. His 2023 base salary was
$311,000.
2023Share award of 108,465 common
shares valued at $5.08 per share, market price on the grant date of December31, 2023, which vests evenly over a three year period.
Share award of 56,180 common shares valued at $5.34 per share, market price on the grant date of July1, 2023. This stub grant, although
awarded in 2023, was based on 2022 performance. The grant vests evenly over a three year period.
2022Share award of 97,560 common
shares valued at $6.15 per share, market price on the grant date, July1, 2022. This grant was awarded up-front on the employment
effective date as part of the employment agreement. The grant vests over a four-year period with 25% vesting on the first anniversary
and an additional 6.25% vesting on the first day of each subsequent quarter, with full vesting on July1, 2026.
(2)
Mr.Raleigh retired as chief executive officer in June2022. His 2021 base salary was $150,000.
For 2022, he earned $75,000 in base salary and $555,000 in cash severance. As stated in his retirement agreement, all unvested equity
awards accelerated and vested immediately upon Mr.Raleighs retirement.
2021PSU award of 20,834 common
shares under the 2020 Plan valued at $5.04 per share, market price on the grant date, August25, 2021, which vested immediately.
This award was based on the 2020 TSR Performance results meeting the 200% target award amount.
(3)
Mr.Henry Clanton was hired as our chief operating officer in January2018. His 2023 base salary
was $272,000.
2023Share award of 18,111 common
shares valued at $5.08 per share, market price on the grant date of December31, 2023, which vest evenly over a three year period.
2022 Share award of 12,825 common
shares valued at $6.33 per share, market price on the grant date, April6, 2022, and a share award of 13,877 common shares valued
at $6.63 per share, market price on the grant date, December31, 2022, both of which vest evenly over a three year period, so long
as Mr.Clanton is still employed.
18
(4)
Mr.Andrew Williamson was hired as our chief financial officer in July2022. His 2023 base salary
was $239,000.
2023Share award of 45,276 valued
at $5.08 per share, market price on the grant date of December31, 2023, which grants vest evenly over a three year period. Share
award of 23,409 common shares valued at $5.34 per share, market price on the grant date of July1, 2023. This stub grant, although
awarded in 2023, was based on 2022 performance. The grant vests evenly over a three year period.
2022 Share award of 40,650 common
shares valued at $6.15 per share, market price on the grant date, July1, 2022. This grant was awarded up-front on the employment
effective date as part of the employment agreement. The grant vests over a four-year period with 25% vesting on the first anniversary
and an additional 6.25% vesting on the first day of each subsequent quarter, with full vesting on July1, 2026.
(5)
Mr.B. Lane Bond retired as our chief financial officer in June2022. As stated in his retirement
agreement, all unvested equity awards accelerated and vested immediately upon Mr.Bonds retirement.
2022 Share award of 12,825 common
shares under the 2020 Plan valued at $6.33 per share, market price on the grant date, April6, 2022.
(6)
As a Company policy, Epsilon matches on 401K contributions up to 5%.
Effective on January15,
2024, the Board of Directors approved a 3.5% increase to the base salary of the Chief Executive Officer and Chief Operating Officer, and
a 10% increase to the base salary of the Chief Financial Officer.
Description of the 2020 Equity
Incentive Plan (the 2020 Plan).
The 2020 Plan was approved
by the Board on July22, 2020 and shareholders on September1, 2020 as a replacement of our Amended and Restated 2017 Stock
Option Plan and the Share Compensation Plan.
The
2020 Plan is administered by the Board, a committee of the Board or one or more officers delegated authority by the Board to administer
the 2020 Plan. The Board has the authority in its discretion to interpret the 2020 Plan. The Board determines to whom
stock options,
stock appreciation rights, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards
are granted, subject to options and all other terms and conditions of the awards.
The maximum number common
shares that may be issued under the 2020 Plan is 2,000,000. As of December31, 2023, 234,834 performance stock units (PSUs),
and 807,677 time-based restricted shares were outstanding, leaving 957,489 shares available to be granted under the 2020 Plan.
If the shares granted under
the 2020 Plan expire or terminate for any reason without having been issued, they again become available for grant under the 2020 Plan.
Shares granted under the 2020 Plan are not transferable or assignable other than by will or other testamentary instrument or the laws
of succession.
In the event we undergo a
change of control by a reorganization, acquisition, amalgamation or merger (or a plan or arrangement in connection with any of these)
with respect to which all or substantially all of the persons who were the beneficial owners of the common shares immediately prior to
such transaction do not, following such transaction, beneficially own, directly or indirectly more than 50% of the resulting voting power,
a sale of all, or substantially all, of the Corporations assets, or the liquidation, dissolution or winding-up of the Corporation,
outstanding awards shall be subject to the definitive agreement entered into by the Corporation in connection with the change of control.
If an award holder resigns
from the Corporation or is terminated by the Corporation (with or without cause), unvested shares will immediately be forfeited.
19
Incentive PlanAwardsfor
Named Executive Officers
Outstanding Share-Based Awards and Option-Based
Awards as of December31, 2023 are as follows:
Option-based Awards
Share-basedAwards
Marketor
Market or
Numberof
Numberof
PayoutValue
Payout Value of
Securities
Valueof
SharesorUnits
ofShare-Based
Vested Share-
Underlying
Option
Option
Unexercised
ofSharesthat
Awardsthat
Based awards
Unexercised
Exercise
Expiration
In-the-Money
HaveNot
HaveNot
not Paid Out or
Name
Options
Price
Date
Options
Vested
Vested
Distributed
Jason
Stabell
$
$
123,252
$
626,120
$
Henry N.
Clanton
30,000
$
5.03
01/30/24
$
1,500
13,526
$
68,712
$74,849
Andrew Williamson
$
$
51,356
$
260,888
$
Incentive PlanAwardsValue
Vested or Earned for Named Executive Officers
The values of incentive plan awards that were
vested or earned during the year ended December31, 2023 are as follows:
Option-BasedAwards
Share-basedawards
Non-EquityIncentivePlan
Value Vested
Value Vested
CompensationValueEarned
Name
DuringtheYear
DuringtheYear
DuringtheYear
Jason Stabell
$
$
162,806
$
N/A
Henry N. Clanton
$
$
80,985
$
N/A
Andrew Williamson
$
$
67,834
$
N/A
We have adopted the 2020
Plan as an incentive-based share award plan applicable to all named executive officers and employees.
Pension PlanBenefits
The Corporation does not
have in place any deferred compensation plan or pension plan that provides for payments or benefits at, following or in connection with
retirement.
Termination and Change
of Control Benefits
In accordance with the executed
employment agreements, the named executive officers, if terminated without cause by the Corporation or by good reason by the executive,
or in conjunction with a change of control of the Corporation, are entitled to a severance amount equal to twenty-four months of base
salary plus the executives target cash bonus amount (pro-rated for the number of complete or partial months of employment during
the then current year).
20
DIRECTOR COMPENSATION
The following table contains
compensation earned in the year ended December31, 2023 by persons that served as directors during the year:
Non-Equity
Share-Based
IncentivePlan
AllOther
Name
FeesEarned
Awards
Compensation
Compensation
Total
John Lovoi
$
95,000
$
65,000
$
$
$
160,000
Tracy Stephens
$
65,000
$
65,000
$
$
$
130,000
David Winn
$
70,000
$
65,000
$
$
$
135,000
Jason Stankowski
$
55,000
$
65,000
$
$
$
120,000
Nicola Maddox
$
34,507
$
40,781
$
$
$
75,288
Jacob Roorda
$
52,500
$
65,000
$
$
$
117,500
Stephen Finlayson
$
52,500
$
65,000
$
$
$
117,500
On a quarterly basis, we compensate
each director for services rendered (unless a director elects not to receive payment) and reimburse reasonable out-of-pocket travel expenses
when incurred.
As of January1, 2023,
board member compensation is fixed at an annual fee of $55,000 paid in cash quarterly and $65,000 as a share-based award valued at the
prior year-end share price (vesting evenly over a three year period). The chairman of the board receives an additional $40,000 annual
cash fee, the chairman of the audit committee receives an additional $15,000 annual cash fee, and the chairman of the compensation, nominating,
and corporate governance committee receives an additional $10,000 annual cash fee.
Incentive Plan Awards
for Directors (Other Than Named Executive Officers)
Outstanding Equity Awards as of December31,
2023 are as follows:
Option-based
Awards
Share-based
Awards
Marketor
Market or
Numberof
Numberof
PayoutValue
Payout Value
of
Securities
Valueof
SharesorUnits
ofShare-Based
Vested Share-
Underlying
Option
Option
Unexercised
ofSharesthat
Awardsthat
Based awards
Unexercised
Exercise
Expiration
In-the-Money
HaveNot
HaveNot
not Paid Out
or
Name
Options
Price
Date
Options
Vested
Vested
Distributed
John
Lovoi
$
$
23,403
$
118,887
$
46,401
Tracy Stephens
$
$
11,403
$
57,927
$
46,401
David Winn
$
$
11,403
$
57,927
$
27,777
Jason Stankowski
$
$
11,403
$
57,927
$
27,777
Nicola
Maddox
$
$
4,101
$
20,833
$
10,414
The values of incentive plan
awards that were vested or earned during the year ended December31, 2023 are as follows:
Non-EquityIncentivePlan
Option-BasedAwardsValue
Share-basedawardsValue
CompensationValueEarned
Name
VestedDuringtheYear
VestedDuringtheYear
DuringtheYear
John Lovoi
$
$
97,834
$
N/A
Tracy Stephens
$
$
60,509
$
N/A
David Winn
$
$
41,886
$
N/A
Jason Stankowski
$
$
41,886
$
N/A
Nicola Maddox
$
$
10,414
$
N/A
Jacob Roorda
$
$
128,318
$
N/A
Stephen Finlayson
$
$
128,318
$
N/A
21
Securities Authorized for Issuance
under Equity Incentive Plans.
At December31, 2023, we were authorized
to issue equity securities as follows:
Number of
Shares to be
Weighted Average
Number of
Shares
Issued Upon
Exercise or
Exercise or
Vesting Price
Remaining
Available for
Vesting of
Outstanding
of Outstanding
Options
Future Issuance
Under
Plan Category
Options
or Shares
or
Shares
Equity
Compensation Plans
Equity
share options under Amended and Restated 2017 Stock Option Plan
57,500
$
5.03
Common
shares under 2020 Equity Incentive Plan
491,536
$
5.59
957,489
Directors and Officers Liability
Insurance
We maintain directors
and officers liability insurance for the protection of our directors and officers against liability incurred by them in their capacities
as our directors and officers. The policy provides an aggregate limit of liability of $35,000,000 with a retention held by the Corporation
of $1,500,000. The current annual premium for the Directors and Officers liability insurance is approximately $375,000 and
is re-bid annually. The premium is not allocated between Directors and Officers as separate groups.
Indebtedness of Officers and
Directors
No director, employee or
officer, or former director, employee or officer, or any proposed nominee for election as a director of the Corporation, or any of their
respective associates or affiliates, is or has at any time since the commencement of the fiscal year ending December31, 2023, been
indebted to the Corporation or any subsidiary of the Corporation or to any other entity, or at any time since the beginning of the most
recently completed financial year is, or has been, the subject of a guarantee, support agreement, letter of credit or other similar arrangement
or understanding provided by the Corporation.
Management Contracts
During the most recently
completed financial year, no management functions of the Corporation were to any substantial degree performed by a person or company other
than the directors or executive officers (or private companies controlled by them, either directly or indirectly) of the Corporation.
Interest of Certain Persons in
Matters to be Acted Upon
None of the directors, officers
or nominees for election as a director of the Corporation, or any of their associates or affiliates, has or has had any substantial interest,
direct or indirect, in any matter to be acted upon at the Meeting other than as set out in this Proxy Statement which is not shared by
all our other shareholders.
Interest of Informed Persons
in Material Transactions
Other than as set forth herein,
or as previously disclosed, the Corporation is not aware of any material interests, direct or indirect, by way of beneficial ownership
of securities or otherwise, of any director or executive officer, proposed nominee for election as a director or any shareholder holding
more than 10% of the voting rights attached to the common shares or any associate or affiliate of any of the foregoing in any transaction
in the preceding financial year or any proposed or ongoing transaction of the Corporation which has or will materially affect the Corporation.
22
REPORT OF THE AUDIT COMMITTEE
The information contained
in this Audit Committee Report and references in this proxy statement to the independence of the Audit Committee members shall not be
deemed to be soliciting material or to be filed with the SEC, nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended (the Exchange
Act), except to the extent that the Corporation specifically incorporates such information by reference in such filing.
Epsilon has determined that
all members of the Audit Committee are independent and financially literate under the applicable rulesand regulations of the SEC
and the Nasdaq Global Market.
Under the guidance of a written
charter adopted by the Board of Directors, the purpose of the Audit Committee is to oversee the accounting and financial reporting processes
of Epsilon and audit of its financial statements. The responsibilities of the Audit Committee include appointing and providing for the
compensation of Epsilons independent registered public accounting firm and approving the audit and non-audit services to be provided
by the independent registered public accounting firm. Each of the members of the Audit Committee meets the independence requirements of
Nasdaq.
Management has primary responsibility
for the system of internal controls and the financial reporting process. BDO USA, P.C., Epsilons independent registered public
accounting firm, has the responsibility to express an opinion on the financial statements based on an audit conducted in accordance with
generally accepted auditing standards.
In this context and in connection
with the audited financial statements contained in Epsilons Annual Report on Form10-K, the Audit Committee has reviewed and
discussed the audited financial statements as of and for the fiscal year ended December31, 2023 with Epsilons management
and BDO USA, P.C. The Audit Committee has considered the adequacy of the Corporations internal controls and the quality of its
financial reporting, and discussed these matters with management and with BDO USA, P.C. The Audit Committee has also reviewed and discussed
with BDO USA, P.C. (1)its judgment as to the quality of the Epsilons accounting policies, (2)the written disclosures
and letter from the independent registered public accounting firm required by Public Company Accounting Oversight Board Independence Rules,
and the independent registered public accounting firms independence, and (3)the matters required to be discussed by Public
Company Accounting Oversight Boards (the PCAOB) Statement of Auditing Standards No.61,
Communication with
Audit Committees
, as amended and PCAOB Auding Standard No.90. The Audit Committee has also discussed with BDO USA, P.C. the
matters required to be discussed by Auditing Standard No.1301 adopted by the PCAOB regarding
Communication with Audit Committees
.
The Audit Committee has received and reviewed the written disclosures and the letter from BDO USA, P.C. required by the Independence Standards
Board Standard No.1,
Independence Discussions with Audit Committees
, discussed with the auditors their independence,
and concluded that the non-audit services performed by BDO USA, P.C. are compatible with maintaining their independence.
The Audit Committee has pre-approved
all auditing services and non-audit services to be performed for the Corporation by the independent registered public accounting firm
as required by the applicable rulespromulgated pursuant to the Exchange Act, considered whether the rendering of non-audit services
was compatible with maintaining BDO USA, P.C.s independence, and concluded that BDO USA P.C.s independence was not compromised
by the provision of such services (details regarding the fees paid to BDO USA, P.C. in 2023 for audit services, tax services and all other
services, are set forth at
Proposal3
Re-appointment of BDO USA, P.C. as the Corporations Independent Auditors, below).
Based on the foregoing reviews
and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Epsilons
Annual Report on Form10-K for the fiscal year ended December31, 2023 filed with the Securities and Exchange Commission and
instructed BDO USA, P.C. that the Audit Committee expects to be advised if there are any subjects that require special attention.
AUDIT COMMITTEE
David Winn
John Lovoi
Jason Stankowski
23
PROPOSAL 3: FOR RE-APPOINTMENT OF BDO USA,
P.C.
AS THE CORPORATIONS INDEPENDENT AUDITORS
Our Board of Directors, upon
the recommendation of the Audit Committee, has selected BDO USA, P.C. to serve as our independent auditors for the ensuing year. The shareholders
of the Corporation will be asked to vote for the re-appointment of BDO USA, P.C. as auditor of the Corporation.
Unless directed otherwise
by a proxy holder, or such authority is withheld, the Management Designees, if named as proxy, intend to vote the common shares represented
by any such proxy in favor of a resolution appointing BDO USA, P.C., as auditor of the Corporation
, to hold office until the close
of the next annual general meeting of shareholders or until BDO USA, P.C. is removed from office or resigns as provided by the Corporations
by-laws, and the Management Designees also intend to vote the common shares represented by any such proxy in favor of a resolution authorizing
the Board of Directors to fix the compensation of the auditor. BDO USA, P.C. has been the auditor of the Corporation since June2017.
Our Board of Directors
recommends voting FOR the resolution appointing BDO USA, P.C. as auditor of the Corporation.
We expect representatives
of BDO USA, P.C. will be present at the 2024 Annual General Meeting and available to answer shareholders questions. The BDO USA,
P.C. representatives will have the opportunity to make a statement if they desire to do so and to be available to respond to appropriate
questions.
Principal Accounting Fees and Services
The following table summarizes fees billed to
us for fiscal 2023 and for fiscal 2022 by our principal auditors, BDO USA, P.C.:
December31,
December31,
2023
2022
Audit Fees:
Audit of financial statements
$
395,759
$
376,598
Total Audit Fees
$
395,759
$
376,598
The fees shown in the table above are
the only fees that Epsilon paid to BDO USA, P.C. during the fiscalyears ended December31, 2023, and December31, 2022.
The Charter of the Audit Committee
requires that, among other things, the Audit Committee:
recommend to the Board the terms of engagement of the external auditor, including their compensation and
a confirmation that the external auditors shall report directly to the Committee;
on an annual basis, review and discuss with the auditors all significant relationships the auditors have
with the Corporation to determine the auditors independence;
review the performance of the external auditors and approve any proposed discharge of the external auditors
when circumstances warrant; and
pre-approve the completion of any non-audit services by the external auditors, determining which non-audit
services the external auditor is prohibited from providing.
The Committee may delegate
to one or more members of the Committee the authority to pre-approve non-audit services, provided that such member(s)reports to
the Committee at the next scheduled meeting such pre-approval and the member(s)complies with such other procedures as may be established
by the Committee from time to time. For the year ended December31, 2023, the Audit Committee pre-approved each of the services described
above.
24
Audit Committee Pre-approval of
Service of Independent Registered Public Accounting Firm
Our Audit Committee has established
a policy to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. These services
may include audit services, audit-related services, tax services, and other services. Under the policy, our Audit Committee annually reviews
and pre-approves services that may be provided by the independent registered public accounting firm (BDO USA, P.C.) for each audit year.
The pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. Once pre-approved,
the services and pre-approved amounts are monitored against actual charges incurred and modified if appropriate. The Chairperson of the
Committee has the authority to pre-approve such services between meetings of our Audit Committee and reports such pre-approvals to our
Audit Committee at the next regularly scheduled meeting.
During 2023, all audit services
provided by BDO USA, P.C. were pre-approved by our Audit Committee or, consistent with the pre-approval policy of our Audit Committee,
by the Chairperson of our Audit Committee for inter-meeting pre-approvals.
25
PROPOSAL 4: NON-BINDING ADVISORY VOTE
ON EXECUTIVE COMPENSATION
(SAY-ON-PAY)
Background
The Dodd-Frank Wall Street
Reform and Consumer Protection Act, or the Dodd-Frank Act, requires that our shareholders have the opportunity to cast an
advisory (non-binding) vote on executive compensation, commonly referred to as a Say-on-Pay vote.
The advisory vote on executive
compensation is a non-binding vote on the compensation of our named executive officers as described in the Summary Compensation Table
and the accompanying narrative disclosure, set forth in this Proxy Statement. The Summary Compensation Table is on page18 of this
Proxy Statement. Please read the Summary Compensation Table and the accompanying narrative discussion, which provides an overview of our
compensation for the named executive officers, including information about the 2023 and 2022 compensation of our named executive officers.
This advisory vote on executive compensation is not a vote on our general compensation policies, the compensation of our Board of Directors,
or our compensation policies as they relate to risk management.
The vote solicited by this
Proposal 4 is advisory and therefore is not binding on Epsilon, our Board of Directors or our Compensation, Nominating and Corporate Governance
Committee. The outcome of the vote will not require Epsilon, our Board of Directors or our Compensation, Nominating and Corporate Governance
Committee to take any action and will not be construed as overruling any decision by Epsilon, our Board of Directors or our Compensation,
Nominating and Corporate Governance Committee. Furthermore, because this non-binding, advisory resolution primarily relates to the compensation
of our named executive officers that has already been paid or contractually committed, there is generally no opportunity for us to revisit
these decisions. However, our Board of Directors, including our Compensation, Nominating and Corporate Governance Committee, values the
opinions of our shareholders and, to the extent there is any significant vote against the executive officer compensation as disclosed
in this Proxy Statement, we will consider our shareholders concerns and evaluate what actions, if any, may be appropriate to address
those concerns. Shareholders will be asked at the 2024 Annual General Meeting to approve the following resolution pursuant to this Proposal
4:
RESOLVED, that the compensation
paid to the named executive officers of Epsilon Energy Ltd., as disclosed pursuant to Item402 of RegulationS-K, including
the compensation tables and narrative discussion included in this proxy statement, is hereby APPROVED.
Assuming that a quorum is
present, the affirmative vote of the holders of a majority in voting power of the common shares that are present in person or by proxy
and entitled to vote on Proposal 4 will be necessary to approve the advisory vote on the executive compensation as disclosed in this Proxy
Statement.
Recommendation
Our Board of Directors
recommends that you vote FOR the approval of the executive compensation as disclosed in this Proxy Statement and as described
in this Proposal 4: Non-Binding Advisory Vote on Executive Compensation.
If no vote indication is made
on the accompanying proxy card or vote instruction form prior to the start of the 2024 Annual General Meeting, each such proxy will be
deemed to grant authority to vote FOR the approval of the executive compensation as disclosed in this Proxy Statement and
as described in this Proposal 4: Non-Binding Advisory Vote on Executive Compensation.
26
ANNUAL REPORT
Our
2023 Annual Report on Form10-K, which includes our consolidated financial statements for the year ended December31, 2023,
is available on our website at https://epsilonenergyltd.com/sec-filings/. Financial information relating to the Corporation is provided
in the Corporations audited consolidated financial statements and MDA as at and for the year ended December31, 2023.
Copies of this Proxy Statement, the Corporations Annual Report (on Form10-K) which contains the consolidated financial statements,
MDA and the Auditors Report thereon for the Corporations most recently completed financial year, any interim consolidated
financial statements of the Corporation subsequent to those statements contained in the Annual Report, as filed with the applicable Canadian
regulatory authorities, are available on SEDAR at www.sedarplus.ca, or as filed with the SEC, are available on EDGAR at www.sec.gov,
and may also be obtained without charge by writing to Epsilon Energy Ltd. Additional information relating to the Corporation may also
be found at www.sedarplus.ca and
www.sec.gov
, respectively.
Otherwise, please call (281)
670-0002 to request that a copy of our 2023 Annual Report on Form10-K be sent to you without charge. You may also request a free
copy of our Annual Report on Form10-K for the fiscal year ended December31, 2023 by writing to Epsilon Energy Ltd., c/oSecretary,
500 Dallas St., Suite1250, Houston, Texas 77002.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders may communicate
directly with our Board of Directors or any director by writing to the board or a director in care of the corporate secretary at Epsilon
Energy Ltd., 500 Dallas St., Suite1250, Houston, Texas 77002, or by faxing their written communication to AeRayna Flores at(281)
668-0985. Shareholders may also communicate to the Board of Directors or any director by calling Ms.Flores at (281) 670-0002. Ms.Flores
will review any communication before forwarding it to the Board or director, as the case may be.
27
DEADLINES FOR SUBMITTING SHAREHOLDER PROPOSALS
FOR THE 2025 ANNUAL MEETING
We provide shareholders with
the opportunity, under certain circumstances and consistent with SEC rules, to participate in the governance of Epsilon by submitting
proposals for consideration at our annual meetings of shareholders. Proposals from shareholders are given careful consideration by us
in accordance with Rule14a-8 promulgated under the Exchange Act. For a proposal to be included in our proxy statement and proxy
card for our 2025 Annual General Meeting of Shareholders, such proposal must comply with Rule14a-8 and must be received by us in
writing no later than 120 days preceding the one year anniversary of the date on which this proxy statement is released to the Corporations
stockholders, or by no later than December12, 2024. Shareholders may also use the procedures under the ABCA to submit a proposal.
Under the ABCA, in addition to other requirements, the deadline to submit a proposal that a shareholder wishes to include in the Corporations
proxy materials for our 2025 Annual General Meeting of Shareholders must be received by no later than 90 days before the anniversary date
of the 2024 Annual General Meeting of Shareholders, or by no later than February14, 2025.
Additionally, if our 2025
Annual General Meeting of Shareholders is held on May15, 2025, any shareholder proposal or director nomination for our 2025 Annual General
Meeting of Shareholders that is intended for inclusion in our proxy statement and proxy card in respect of such meeting will be considered
timely if it is received by us no less than 90 days nor more than 120 days prior to the day of the meeting, or between January15,
2025 and the close of business on February14, 2025. An untimely proposal may not be brought before or considered at our 2025 Annual
General Meeting of Shareholders. Any notice of director nomination submitted to us other than through proxy access must include the additional
information required by Rule14-8(b)under the Exchange Act.
All shareholder proposals
and director nominations must be addressed to the attention of our Secretary at 500 Dallas St., Suite1250, Houston, Texas 77002.
The chairman of our 2025 Annual Meeting may refuse to acknowledge the introduction of any shareholder proposal or director nomination
not made in compliance with the foregoing procedures.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rulesthat
permit companies and intermediaries (e.g., banks, brokers or other nominees) to satisfy the delivery requirements for proxy statements
and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed
to those shareholders. This process, which is commonly referred to as householding, potentially means extra convenience
for shareholders and cost savings for companies.
Shareholders that share the
same address may not receive separate copies of proxy materials, unless we have received contrary instructions from such shareholders.
If you are receiving multiple sets of our proxy materials and wish to receive only one set in the future, or if you are currently only
receiving one set of our proxy materials and wish to receive separate sets of proxy materials for you and the other shareholders sharing
your address, please notify us or your bank, broker or other nominee by indicating your preference on the enclosed proxy card or vote
instruction form. We will deliver an additional copy of our proxy materials to you, without charge, upon written request sent to Epsilon
Energy Ltd., Attention: Secretary, 500 Dallas St., Suite1250, Houston, Texas 77002, or upon oral request made by calling us at the
phone number (281) 670-0002. Our proxy materials are also available on the Investor Center section of our website at http://www.epsilonenergyltd.com/investor-center.
Furthermore, upon written or oral request by any person to whom a proxy statement is delivered, if a document is incorporated herein by
reference but not included in the proxy materials is so requested, we will undertake to provide the requested materials, without charge,
by first class mail or other equally prompt means, within one business day after receiving such request, excluding exhibits to the information
that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that the proxy
statement incorporates. Please address these requests to 500 Dallas St., Suite1250, Houston, Texas 77002, Attention: Secretary.
You may also call us with this request at the phone number (281) 670-0002.
28
OTHER MATTERS
As of April11, 2024,
our Board of Directors knows of no other business to be acted upon at the 2024 Annual General Meeting. However, if any additional matters
are presented at the meeting, it is the intention of the persons named in the accompanying proxy to vote in accordance with their judgment
on those matters.
BY ORDER OF THE BOARD OF DIRECTORS,
J. Andrew Williamson
Chief Financial Officer
29
Security Class
Holder Account Number
Form of Proxy - Annual General Meeting to be held on Wednesday, May 15, 2024
This Form of Proxy is solicited by and on behalf of Management.
Notes to proxy
1. Every holder has the right to appoint some other person or company of their choice, who need not be a holder, to attend and act on their behalf at the meeting or any
adjournment or postponement thereof. If you wish to appoint a person or company other than the Management Nominees whose names are printed herein, please insert the
name of your chosen proxyholder in the space provided (see reverse).
2. If the securities are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting
on behalf of a corporation or another individual you may be required to provide documentation evidencing your power to sign this proxy with signing capacity stated.
3. This proxy should be signed in the exact manner as the name(s) appear(s) on the proxy.
4. If a date is not inserted in the space provided on the reverse of this proxy, it will be deemed to bear the date on which it was mailed to the holder by Management.
5. The securities represented by this proxy will be voted as directed by the holder, however, if such a direction is not made in respect of any matter, and the proxy appoints the
Management Nominees listed on the reverse, this proxy will be voted as recommended by Management.
6. The securities represented by this proxy will be voted in favour, or withheld from voting, or voted against each of the matters described herein, as applicable, in accordance with the
instructions of the holder, on any ballot that may be called for. If you have specified a choice with respect to any matter to be acted on, the securities will be voted accordingly.
7. This proxy confers discretionary authority in respect of amendments or variations to matters identified in the Notice of Meeting and Management Information Circular or other matters that may
properly come before the meeting or any adjournment or postponement thereof, unless prohibited by law.
8. This proxy should be read in conjunction with the accompanying documentation provided by Management.
Proxies submitted must be received by 10:00 am, Central Time, on Monday, May 13, 2024.
VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS A WEEK!
To Vote Using the Telephone
• Call the number listed BELOW from a touch tone
telephone.
1-866-732-VOTE (8683) Toll Free
To Vote Using the Internet
• Go to the following web site:
www.investorvote.com
• Smartphone?
Scan the QR code to vote now.
If you vote by telephone or the Internet, DO NOT mail back this proxy.
Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual.
Voting by mail or by Internet are the only methods by which a holder may appoint a person as proxyholder other than the Management Nominees named on the reverse of this
proxy. Instead of mailing this proxy, you may choose one of the two voting methods outlined above to vote this proxy.
To vote by telephone or the Internet, you will need to provide your CONTROL NUMBER listed below.
CONTROL NUMBER
-------
Fold
-------
Fold
-------
Fold
-------
Fold
Appointment of Proxyholder
I/We being holder(s) of securities of Epsilon Energy Ltd.
(the “Corporation”) hereby appoint: Jason Stabell, Chief Executive Officer,
or failing this person, Andrew Williamson, Chief Financial Officer (the
"Management Nominees")
OR Print the name of the person you are
appointing if this person is someone
other than the Management
Nominees listed herein.
as my/our proxyholder with full power of substitution and to attend, act and to vote for and on behalf of the holder in accordance with the following direction (or if no directions have been
given, as the proxyholder sees fit) and on all other matters that may properly come before the Annual General Meeting of shareholders of the Corporation to be held at 1200 Smith Street,
12th Floor, Senate Conference Room, Houston, TX 77002 on Wednesday, May 15, 2024 at 10:00 am, Central Time and at any adjournment or postponement thereof.
VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT OVER THE BOXES.
1. Number of Directors
To fix the number of directors of the Corporation to be elected at the Meeting at six (6).
For Against
2. Election of Directors
01. John Lovoi
For Withhold
02. Jason Stankowski
For Withhold
03. David Winn
For Withhold
04. Tracy Stephens 05. Jason Stabell 06. Nicola Maddox
3. Appointment of Auditors
To appoint BDO USA, P.C. as auditors of the Corporation for the ensuing year.
For Withhold
4. Executive Compensation
To approve, through a non-binding advisory vote, the compensation paid to the Corporation’s named executive officers for the year ended
December 31, 2023.
For Against
Signature of Proxyholder
I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby
revoke any proxy previously given with respect to the Meeting. If no voting instructions are
indicated above, and the proxy appoints the Management Nominees, this Proxy will be
voted as recommended by Management.
Signature(s) Date
Interim Financial Statements - Mark this box if you would
like to receive Interim Financial Statements and
accompanying Management’s Discussion and Analysis by
mail.
Annual Financial Statements - Mark this box if you would
NOT like to receive the Annual Financial Statements and
accompanying Management’s Discussion and Analysis by
mail.
If you are not mailing back your proxy, you may register online to receive the above financial report(s) by mail at www.computershare.com/mailinglist.
E P S Q 3 6 2 6 0 4 A R 2
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* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR
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Directors of Epsilon Energy Ltd. - as per the
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