What changed in this filing

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Item 9A. Controls and Procedures

2021-03-25 compared with 2020-03-18 · 170 added, 150 removed, 395 unchanged (45% of the section changed)

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Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Epsilon as such term is defined in the Securities Exchange Act of 1934.

1 unchanged sentence

The internal control structure includes, among other things, established policies and procedures, the selection and training of qualified personnel as well as management oversight.

With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).

With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).

Based on our evaluation under the 2013 Framework, we have concluded that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Management's report was not subject to attestation by Epsilon’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit Epsilon to provide only management's report in this Annual Report.

We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control Over Financial Reporting

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Matt Dougherty

Director (resigned January 29, 2021)

Tracy Stephens

Stephen Finlayson

Jason Stankowski

Director (as of January 29, 2021)

Biographies of Corporate Directors and Executive Officers.

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He has also been managing investments with Domain Energy Advisors since January 2005.

Raleigh has been a member of the board of directors of Roan Resources, Inc., an Anadarko Basin-focused exploration and production company, since September 2019.

He has also been managing investments with Domain Energy Advisors since January 2005.

We believe that Mr.

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He has also been serving as the chief financial officer of Dewey Energy Holdings and Dewey Energy GP since March 2017.

Bond’s financial career spans over 30 years with extensive management and natural gas and oil experience domestically and internationally.

Bond holds a Master of Business Administration from the University of Tulsa and a Bachelor of Science in Accounting from the University of Arkansas.

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Lovoi has been the managing partner of JVL Advisors, LLC, a private natural gas and oil investment advisor, since November 2002.

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, and a Director of Roan Resources, Inc., an Anadarko Basin-focused exploration and production company.

We believe that Mr.

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Dougherty has been a director since July 2013 and serves as the chair of the Compensation, Nominating and Governing Committee.

He has been the Managing Director of Advisory Research, Inc., an investment management firm since June 2003, where he oversees the firm’s investments in oil and natural gas producers.

He has served as the Portfolio Manager of the Advisory Research Energy Fund, LP since 2005.

2 unchanged sentences

Ryan Roebuck .

Roebuck has been a director since July 2011.

He has also been serving as the chair of our Audit Committee, a member of our Compensation, Nominating and Governance Committee since July 2011, and a member of our Conflicts Committee since February 2018.Mr.

Roebuck is currently the Principal of RR ONE LTD.

an investment holding company located in Toronto, Canada.

Prior to this position, Mr.

Roebuck was an investment manager for a leading Canadian Venture Capital Firm where he was a founding investor and director of the Cronos Group.

Roebuck began his career as a top-rated equity research analyst focused on North American special situations.

We believe that Mr.

Roebuck is qualified to serve as a member of our board of directors as a result of his background in the investment banking industry and as an investment manager.

Roebuck resigned January 21, 2021.

Jacob Roorda .

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He has also been a member of our Audit Committee since March 2016, and the chair of our Conflicts Committee since February 2018.

Roorda is the managing director and chief executive officer of Windward Capital Limited, a private company, serving from October 2011 to January 2015, and again since July 2018.

Roorda is the President and CEO of PetroShale Inc., a Bakken focused oil and natural gas producer, and is the managing director and chief executive officer of Windward Capital Limited, a private company.

He was the Executive Vice President of Todd Energy International Ltd.

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Finlayson has been a director since May 2019.

He resigned from the audit committee and became a member of the Compensation, Nominating and Corporate Governance Committee in January 2021.

Finlayson is the founder and, since 2003, Executive Chairman of Applied Manufacturing Technologies, an independent international consulting and project services company supporting operating companies in the downstream refining and chemicals industries.

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Finlayson is qualified to serve as a member of our board of directors as a result of his extensive experience in the natural gas and oil industry, including advanced control solutions in natural gas and oil production.

Jason Stankowski .

Stankowski has been a director and member of the Audit Committee since January 2021.

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.

Winn has been a director and member of the Audit Committee since January 2021.

Winn recently retired from a 36 year career in public accounting that involved extensive board interaction.

From 2003 until July 2020, 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.

Winn has extensive Securities and Exchange Commission 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.

Corporate Governance Practices and Policies

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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.

Board has also established a Compensation Committee and Nominating and Corporate Governance Committee and has adopted a Compensation Committee Charter, and Nominating and Corporate Governance Charter to ensure the objectives of NI 58-201 and the NASDAQ Global Market are met.

The Board has also established a Compensation Committee and Nominating and Corporate Governance Committee and has adopted a Compensation Committee Charter, and Nominating and Corporate Governance Charter to ensure the objectives of NI 58-201 and the NASDAQ Global Market are met.

Lovoi is the Managing Partner of JVL Advisors, LLC, beneficial owner of 7.79% of our common shares and Chairman of the Board.

Raleigh is our Chief Executive Officer and a member of JVL Advisors, LLC.

The Board held six meetings during 2019 and seven meetings during 2018.

The Board held thirteen meetings during 2020 and six meetings during 2019.

All Board meetings were conducted with open and candid discussions.

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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.

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 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.

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The Board and CEO do not have a written position description for the CEO;

however, the CEO’s principal duties and responsibilities are planning our strategic direction, providing leadership, acting as our spokesperson, reporting to shareholders, and overseeing our executive management in particular 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’’

See ‘‘Board Committees’’ below.

Orientation and Continuing Education.

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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.

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.

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Audit Committee .

The Audit Committee consists of Ryan Roebuck (Chairman), Jacob Roorda, and Stephen Finlayson.

The Audit Committee currently consists of David Winn (Chairman), Jacob Roorda, and Jason Stankowski.

Ryan Roebuck and Stephen Finlayson resigned from this committee in January 2021.

All members of the Audit Committee are independent and financially literate under the applicable rules and regulations of the SEC and the NASDAQ Global Market.

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, Management’s 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 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.

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Compensation, Nominating and Corporate Governance Committee .

The Compensation, Nominating and Corporate Governance Committee comprises Matthew Dougherty (chairman), Tracy Stephens and Ryan Roebuck, all three members of this committee are independent directors.

The Compensation, Nominating and Corporate Governance Committee currently comprises Matthew Dougherty (chairman), Tracy Stephens and Stephen Finlayson.

Ryan Roebuck resigned from this committee in January 2021.

All three members of this committee are independent directors.

Before July 2013, we had separate compensation committee and nominating and corporate governance committee.

Both committees’

mandates were approved by the Board on December 10, 2009.

Both committees’ mandates were approved by the Board on December 10, 2009.

In July 2013, the Board consolidated the functions of the two committees for efficiency purposes.

The Compensation, Nominating and Corporate Governance Committee’s mandate is to:

Assist and advise the Board regarding its responsibility for oversight of our compensation policy;

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Conflicts Committee .

The Conflicts Committee comprises Jacob Roorda (Committee Chairman), Tracy Stephens and Ryan Roebuck, all of whom are independent directors.

The Conflicts Committee currently comprises Jacob Roorda (Committee Chairman), Tracy Stephens and Stephen Finlayson.

Ryan Roebuck resigned from this committee in January 2021.

All members are independent directors.

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.

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Employment Agreements

The named executive officers, excluding Michael Raleigh, have executed employment contracts with us.

Henry Clanton’s employment contract calls for a base pay of $250,000 per year.

Lane Bond’s employment contract calls for a base pay of $200,000 per year and contains provisions for severance payments equal to six months of current annual salary in the event that a change of control occurred.

Michael Raleigh does not take a salary for his efforts with us and does not have an employment contract.

All named executive officers have executed employment contracts with us.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to one time his base pay.

The contract also contains provisions for severance payments equal to twelve months of current annual salary in the event that a change of control occurred.

Henry Clanton’s employment contract calls for a base pay of $250,000 per year.

EXECUTIVE COMPENSATION.

Summary Compensation Table

In April 2017 the Board amended and restated the 2007 Plan, which is currently called the Amended and Restated 2017 Stock Option Plan (the ‘2017 Plan’).

In addition, in 2017, the Board adopted, and the Company’s shareholders approved, the Share Compensation Plan.

The following table sets out information concerning the compensation paid to our principal executive officer and our two most highly compensated executive officers other than our principal executive officer, or our named executive officers for the two years ended December 31, 2019 and 2018.

Epsilon’s board of directors (the “Board”) adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of shareholders, which occurred on September 1, 2020 (the “Meeting”).

Shareholders approved the 2020 Plan at the Meeting.

Following Epsilon’s listing on the NASDAQ Global Market, the Board determined that it is in the best interest of the shareholders to approve a new incentive plan that is compliant with U.S.

public company equity plan rules and practices that would replace Epsilon’s Amended and Restated 2017 Stock Option Plan (including its predecessors) and the Share Compensation Plan (collectively referred to as the “Predecessor Plans”).

No further awards will be granted under the Predecessor Plans.

officers for the two years ended December 31, 2020 and 2019.

Compensation amounts in the following table are in U.S.

dollars unless stated otherwise.

All share balances and income (loss) per share amounts are presented on a post-Consolidation basis (see note 16 to the consolidated financial statements)

Non-equity incentive

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Lane Bond, CFO (3)

Raleigh is currently working without a salary from us;

however, he was granted the following equity award in 2019 and 2018.

2019—Share award of 57,500 common shares under the Share Compensation Plan valued at $3.30 per share, market price on the grant date, December 31, 2019, which vest evenly over a three year period.

Raleigh worked through 2020 without a salary;

however, he was granted a bonus in 2020 and the following equity awards in 2020, 2019 and 2018.

Beginning in January 2021, Mr.

Raleigh’s base salary will be $150,000 along with an equity award in an amount having a value equal to one time his base pay.

2020—Restricted stock award of 46,500 common shares under the 2020 Plan valued at $3.71 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

Vested shares will be awarded on the anniversary date for each of the next three years, so long as Mr.

Raleigh is still employed.

PSU award with a target share count of 125,000 under the 2020 Plan valued at $3.22 per share, market price on the grant date, September 1, 2020.

Of these shares.

20,833 vested immediately, on September 1, 2020, 41,667 vest at December 31, 2020 and 2021, and the remaining 20,833 vest at December 31, 2022.

The vesting shares earned are based on certain terms, target formulas, and relative peer group performance, and Mr.

Raleigh’s continued employment.

The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts.

PSU award with target share count of 41,500 under the 2020 Plan valued at $3.71 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

The vesting shares earned are based on certain terms, target formulas, and relative peer group performance, and Mr.

Raleigh’s continued employment.

The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts.

2019—Share award of 57,500 common shares under the Share Compensation Plan valued at $3.30 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

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Raleigh is still employed.

2018— Share award of 62,500 common shares under the Share Compensation Plan valued at $4.49 per share, market price on the grant date, December 31, 2019, which vest evenly over a three year period.

Vested shares will be awarded on the anniversary date for each of the next three years, so long as Mr.

Raleigh is still employed.

Henry Clanton was hired as our chief operating officer in January 2018 with a base salary of US$250,000.

2020— PSU award with target share count of 17,500 under the 2020 Plan valued at $3.71 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

The vesting shares earned are based on certain terms, target formulas, and relative peer group performance, and Mr.

Clanton’s continued employment.

The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts.

2019— Share award of 17,500 common shares under the Share Compensation Plan valued at $3.30 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

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Clanton is still employed.

Bond’s current base salary is $200,000.

The dollar amounts in column (e) reflect values derived from using the Trinomial Hull White option pricing to value option-based awards.

6 unchanged sentences

Bond is still employed.

Description of the 2017 Plan and the Share Compensation Plan.

Amended and Restated 2017 Stock Option Plan

The 2017 Plan was approved by the Board and shareholders in April 2017 as a restatement of our Amended and Restated 2010 Stock Option Plan.

Description of the 2020 Equity Incentive Plan (the “2020 Plan”)

The 2020 Plan was approved by the Board on July 22, 2020 and shareholders on September 1, 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 options are granted, the numbers of shares subject to options and all other terms and conditions of the options.

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 December 31, 2019, options for 245,000 common shares were outstanding under the 2017 Plan.

If options granted under the Plan expire or terminate for any reason without having been exercised, the shares subject to such options are again available for grant under the 2017 Plan.

Options granted under the 2017 Plan are not transferable or assignable other than by will or other testamentary instrument or the laws of succession.

The exercise price of options granted under the 2017 Plan may not be less than the closing price of the common shares on the NASDAQ on the last trading day preceding the day on which the option is granted.

Each option granted under the 2017 Plan expires on the date specified by the applicable option agreement (not later than ten years following grant), subject to earlier termination as provided below.

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 Company’s assets, or the liquidation, dissolution or winding-up of the Company, the Board may determine that all unvested options will vest and be eligible for exercise within a period determined by the directors preceding the change of control.

Options not exercised within this period will terminate.

If an optionee resigns from the Company or is terminated by the Company (with or without cause), or a consultant optionee’s contract with the Company expires, such optionee’s unvested options will immediately terminate and, subject to the option expiry date, the optionee’s vested options may be exercised for a period of 30 days.

If an optionee becomes entitled to long-term disability payments pursuant to the Company’s disability insurance program (or if not a participant in such program, would have been entitled to such payments if the optionee had been a participant in such program), all of the unvested options held by the optionee will vest on the day immediately preceding the day on which the optionee becomes entitled to long-term disability payments and the optionee will have the right, for a period of 180 days thereafter, to exercise all of the options.

If an optionee retires pursuant to a retirement policy approved by the Board, all of the unvested options held by the optionee will vest on the day immediately preceding the date of such optionee’s retirement, and the optionee will have the right, for a period of 60 days thereafter, to exercise all of the options.

If an optionee dies, all of the unvested options held by the optionee will vest on the day immediately preceding the date of such optionee’s death, and the estate of the deceased optionee will have the right, for a period of 180 days thereafter to exercise the deceased optionee’s option.

Should the term of an option expire when the optionee cannot exercise the option pursuant to a Company insider trading policy in effect at that time (a ‘‘Blackout Period’’) or within nine business days following the expiration of a Blackout Period, option expiration date is automatically extended until the tenth business day after the end of the Blackout Period.

The ten-business-day period may not be extended by the Board.

Share Compensation Plan

The Share Compensation Plan was adopted by the Board on April 13, 2017 and approved by the shareholders on May 24, 2017.

The Share Compensation Plan provides that up to a total of 1,000,000 common shares are authorized for issuance.

As of December 31, 2019, a total of 346,499 common shares have been issued and are unvested under the Share Compensation Plan.

Under the Share Compensation Plan, the Board designates participants from among our directors, officers, key employees and consultants and, on the day or days of each fiscal year determined by the Board, awards to each participant common shares in an amount up to 100% of the participant’s compensation for service during the current year divided by the market price of the Common Shares on the NASDAQ at the date of issuance.

Upon any participant ceasing to be our director, officer, employee or consultant for any reason, such participant’s right to be issued common shares pursuant to the Share Compensation Plan terminates immediately.

The Board may, in its sole discretion, impose restrictions on any common shares issued pursuant to the Share Compensation Plan.

These restrictions may include, but are not limited to, vesting periods and trading restrictions for a period of time, as determined by the Board, from the date of issuance.

The Share Compensation Plan provides that the Board may make certain amendments to the Share Compensation Plan without the approval of our shareholders or any participant of the Share Compensation Plan in order to conform to applicable law or regulation or the requirements of the NASDAQ.

In addition, the Board may terminate the Share Compensation Plan at any time, subject to applicable law or regulations and the approval of any regulatory authority having jurisdiction, and the approval of our shareholders if required by such regulatory authority.

As of December 31, 2020, 214,000 performance stock units (“PSUs”), and 111,900 time-based restricted shares were outstanding, leaving 1,674,100 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 Company’s assets, or the liquidation, dissolution or winding-up of the Company, outstanding awards shall be subject to the definitive agreement entered into by the Company in connection with the change of control.

If an award holder resigns from the Company or is terminated by the Company (with or without cause), unvested shares will immediately be forfeited.

Incentive Plan Awards for Named Executive Officers

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Henry Clanton

Incentive Plan Awards—Value Vested or Earned for Named Executive Officers

The values of incentive plan awards that were vested or earned during the year ended December 31, 2020 are as follows:

Non-Equity Incentive Plan

Option-Based Awards—Value

Share-based awards—Value

Compensation—Value Earned

Option-Based Awards—Value

Share-based awards—Value

Compensation—Value Earned

Vested During the Year

3 unchanged sentences

Henry Clanton

We have adopted the 2017 Plan as an incentive‑based stock option award plan applicable to all named executive officers and employees.

We have adopted the 2020 Plan as an incentive-based share award plan applicable to all named executive officers and employees.

Termination and Change of Control Benefits

All of our named executive officers, except Mr.

Michael Raleigh, have entered into employment contracts with us.

Lane Bond’s employment contract calls for a base pay of US$200,000 per year and contains provisions for severance payments equal to six months of current annual salary amount in the event of a change of control.

Henry Clanton’s employment contract calls for a base pay of US$250,000 per year.

Change of control is defined as any event whereby any person acquires at least 50% of The Company’s stock or if a group of shareholders causes at least 50% of the board members to change.

All of our named executive officers have entered into employment contracts with us.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to one time his base pay.

The contract also contains provisions for severance payments equal to twelve months of current annual salary in the event that a change of control occurred

Henry Clanton’s employment contract calls for a base pay of US$250,000 per year.

Change of control is defined as any event whereby any person acquires at least 50% of The Company’s stock or if a group of shareholders causes at least 50% of the board members to change.

DIRECTOR COMPENSATION

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Incentive Plan

Option‑Based

Option ‑ Based

Michael Raleigh*

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Stephen Finlayson

Adrian Montgomery

* The two directors who are not independent, Messrs.

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As of May 1, 2017, independent board member compensation is fixed at an annual fee of Cdn$40,000, paid semi-annually in July and January.

Incentive Plan Awards—Value Vested or Earned During the Year for Directors (Other Than Named Executive Officers)

Outstanding Share-Based Awards and Option-Based Awards as of December 31, 2020 are as follows:

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Non-Equity Incentive Plan

Option-Based Awards—Value

Share-based awards—Value

Compensation—Value Earned

Option-Based Awards—Value

Share-based awards—Value

Compensation—Value Earned

Vested During the Year

2 unchanged sentences

Tracy Stephens

Stephen Finlayson

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 $30,000,000 with a deductible to us of $25,000 per loss.

The annual premium for the Directors’

and Officers’

liability insurance is about $300,000 and is renewed annually.

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 $30,000,000 with a deductible to us of $25,000 per loss.

The annual premium for the Directors’ and Officers’ liability insurance is about $350,000 and is renewed annually.

The premium is not allocated between Directors and Officers as separate groups.

8 unchanged sentences

JVL Advisors, LLC (2)

Oakview Capital Management, L.P.

azValor Asset Management SGIIC SA (3)

Paragon Associates (4)

Solas Capital Management LLC (5)

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Advisory Research, Inc.

(“ARI”) is the general partner of Advisory Research Energy Fund, L.P., the direct beneficial holder of the common shares, as reported on a Schedule 13G filed with the SEC on February 18, 2020.

(“ARI”) is the general partner of Advisory Research Energy Fund, L.P., the direct beneficial holder of the common shares, as reported on a Schedule 13G filed with the SEC on February 16, 2021.

(2) The address of JVL Advisors, LLC, or JVL, is 10000 Memorial Drive, Houston, Texas 77024.

John Lovoi, the chairman of our board of directors, and the managing partner of JVL, exercises the voting and dispositive power with respect to the common shares held by JVL.

The address of Oakview Capital Management, L.P.

is 3879 Maple Avenue, Suite 300, Dallas, Texas 75219.

Pursuant to a Schedule 13G filed on February 14, 2020 jointly by and on behalf of each of Oakview Capital Management, L.P.

(“Oakview Capital Management”), Oakview Value Fund, LP (“Oakview Value Fund”), Oakview Value Fund GP, LP (“Oakview GP”), Oakview Investments, LLC (“Oakview Investments”), Patrick Malone and Corey Henegar, Oakview Capital Management is the investment manager of, and may be deemed to indirectly beneficially own securities owned by Oakview Value Fund.

Oakview GP is the general partner of, and may be deemed to indirectly beneficially own securities owned by Oakview Value Fund.

Oakview Capital Management is the investment adviser to various separate managed accounts (collectively, the “Managed Accounts”) and may be deemed to indirectly beneficially own securities owned by the Managed Accounts.

Oakview Investments is the general partner of, and may be deemed to indirectly beneficially own, securities

owned by Oakview Capital Management.

Malone and Mr.

Henegar are the members of, and may be deemed to indirectly beneficially own securities owned by, Oakview Investments.

Oakview Value Fund and the Managed Accounts are the record and direct beneficial owner of these securities.

Oakview Value Fund and Oakview GP disclaim beneficial ownership of the securities held by the Managed Accounts.

(3) The address of azValor Asset Management SGIIC SA, or azValor, is Paseo de la Castellana 10, 3rd, Madrid, 28046, Spain.

Alvaro Guzmàn de Làzaro, Chief Investment Officer at azValor, exercises the voting and dispositive power with respect to the common shares held by azValor.

(4) The address of Paragon Associates and Paragon Associates II Joint Venture is 500 Crescent Court, Suite 260, Dallas, Texas 75201.

Bradbury Dyer III is the managing partner of Paragon Associates Joint Venture and exercises the voting and dispositive power with respect to the common shares held by Paragon Associates Joint Venture.

(5) The address of Solas Capital Management, LLC is 405 Park Avenue, New York, NY 10022.

Pursuant to a Schedule 13G filed with the SEC on February 14, 2020, Solas Capital Management, LLC (“Solas”) and Frederick Tucker Golden share voting and dispositive power with respect to these common shares.

All of the securities reported are owned by advisory clients of Solas, none of which is a beneficial owner of more than 5% as of February 14, 2020.

All of the securities reported are owned by advisory clients of Solas, none of which is a beneficial owner of more than 5% as of July 14, 2020.

(6) Includes 97,650 shares held by Mr.

3 unchanged sentences

Includes 25,000 shares held by Mr.

Roorda’s spouse, and 12.500 shares issuable upon the exercise (at exercise price of $5.02) of options exercisable within 60 days of March 18, 2020.

Roorda’s spouse, and 12.500 shares issuable upon the exercise (at exercise price of $5.02) of options exercisable within 60 days of March 25, 2021.

(8) Includes 50,000 shares issuable upon the exercise (at exercise price of $5.02-$5.50) of options exercisable within 60 days of March 25, 2021.

17 unchanged sentences

Certain Relationships and Related Transactions

Since the beginning of fiscal 2015, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest,

except for the compensation and other arrangements described in “Executive Compensation”

and “Director Compensation”

elsewhere in this document and the transactions described below.

Independence of the Board of Directors

The Board is currently composed of seven directors who provide us with a wide diversity of business experience.

The Board is currently composed of eight directors who provide us with a wide diversity of business experience.

Our Board has determined that Messrs.

Matthew Dougherty, Jacob Roorda, Tracy Stephens, Stephen Finlayson and Ryan Roebuck are independent in accordance with the listing requirements of the NASDAQ Global Market, representing over 50% of the Board.

Our Board conducted its independence analysis for each of its current members other than John Lovoi and Michael Raleigh, considering all relevant facts and circumstances, including the director’s other commercial, accounting, legal, banking, consulting, charitable and familial relationships.

Pursuant to its review, the Board determined that with respect to each of its current members other than John Lovoi and Michael Raleigh, there are no disqualifying factors with respect to director independence enumerated in the listing standards of NASDAQ or any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that each such member is an “independent director”

as defined in the listing standards of NASDAQ.

Matthew Dougherty, Jacob Roorda, Tracy Stephens, Stephen Finlayson, Jason Stankowski (as of January21, 2021) and David Winn (as of January 21, 2021) are independent in accordance with the listing requirements of the NASDAQ Global Market, representing over 50% of the Board.

Indemnification of Officers and Directors

Under Section 124 of the Business Corporations Act (Alberta) (the "ABCA"), except in respect of an action by or on behalf of us or body corporate to procure a judgment in our favor, we may indemnify a current or former director or officer or a person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor and the heirs and legal representatives of any such persons (collectively, "Indemnified Persons") against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by any such Indemnified Person in respect of any civil, criminal or administrative actions or proceedings to which the director or officer is made a party by reason of being or having been our director or officer, if (i) the director or officer acted honestly and in good faith with a view to our best interests, and (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the director or officer had reasonable grounds for believing that such director's or officer's conduct was lawful (collectively, the "Indemnification Conditions").

Notwithstanding the foregoing, the ABCA provides that an Indemnified Person is entitled to indemnity from us in respect of all costs, charges and expenses reasonably incurred by the person in connection with the defense of any civil, criminal or administrative action or proceeding to which the person is made a party by reason of being or having been our director or officer, if the person seeking indemnity (i) was substantially successful on the merits in the person's defense of the action or proceeding, (ii) fulfills the Indemnification Conditions, and (iii) is fairly and reasonably entitled to indemnity.

6 unchanged sentences

In addition, pursuant to our by-laws, we may indemnify such person in such other circumstances as the ABCA or law permits.

Our by-laws also provide that none of our directors or officers shall be liable for the acts, receipts, neglects or defaults of any other director, officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to us through the insufficiency or deficiency of title to any property acquired for or on behalf of us, or for the insufficiency or deficiency of any security in or upon which any of our moneys shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of our

moneys, securities or effects shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune which shall happen in the execution of the duties of his or her office or in relation thereto;

in relation thereto;

provided that nothing in our by-laws shall relieve any director or officer from the duty to act in accordance with the ABCA and the regulations thereunder.

14 unchanged sentences

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and December 31, 2019 .

Consolidated Statement of Changes in Shareholders’

Equity for the years ended December 31, 2019 and December 31, 2018.

Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020 and December 31, 2019.

Notes to Consolidated Financial Statements

2 unchanged sentences

Articles of Incorporation of Epsilon Energy Ltd.

(incorporated by reference to Exhibit 3.1 of Form 10, File No.

001-38770, filed on December 21, 2018)

Bylaws of Epsilon Energy Ltd.

Articles of Amendment dated December 19, 2018

Description of Registrant’s Securities Registered Under Section 12 of the Exchange Act.

Credit Agreement, dated as of July 29, 2013, by and among Epsilon Energy USA Inc., the lenders from time to time party thereto, Texas Capital Bank, National Association (“TCB”), as the administrative agent, swing line lender and letter of credit issuer, and TCB as the sole lead arranger and sole book runner

First Amendment to Credit Agreement, effective as of December 10, 2015

Second Amendment to Credit Agreement, effective as of October 11, 2016

Third Amendment to Credit Agreement, effective as of February 21, 2018

Fourth Amendment to Credit Agreement, effective as of August 4, 2018

Fifth Amendment to Credit Agreement, effective as of January 7, 2020

Lane Bond Offer Letter

Henry Clanton Offer Letter

(incorporated by reference to Exhibit 3.2 of Form 10, File No.

001-38770, filed on December 21, 2018)

Articles of Amendment dated December 19, 2019 (incorporated by reference to Exhibit 3.3 of Form 10, File No.

001-38770, filed on December 21, 2018)

Description of Registrant’s Securities Registered Under Section 12 of the Exchange Act.

(incorporated by reference to Exhibit 4.1 of Form 10-K, File No.

001-38770, filed on March 18, 2020)

001-38770, filed on December 21, 2018)

First Amendment to Credit Agreement, effective as of December 10, 2015 (incorporated by reference to Exhibit 10.2 of Form 10, File No.

001-38770, filed on December 21, 2018)

Second Amendment to Credit Agreement, effective as of October 11, 2016 (incorporated by reference to Exhibit 10.3 of Form 10, File No.

001-38770, filed on December 21, 2018)

Third Amendment to Credit Agreement, effective as of February 21, 2019 (incorporated by reference to Exhibit 10.4 of Form 10, File No.

001-38770, filed on December 21, 2018)

Fourth Amendment to Credit Agreement, effective as of August 4, 2019 (incorporated by reference to Exhibit 10.5 of Form 10, File No.

001-38770, filed on December 21, 2018)

Fifth Amendment to Credit Agreement, effective as of January 7, 2019 (incorporated by reference to Exhibit 10.6 of Form 10-K, File No.

001-38770, filed on March 29, 2019)

Lane Bond Offer Letter (incorporated by reference to Exhibit 10.6 of Form 10, File No.

001-38770, filed on December 21, 2018)

Henry Clanton Offer Letter (incorporated by reference to Exhibit 10.7 of Form 10, File No.

001-38770, filed on December 21, 2018)

Anchor Shipper Gas Gathering Agreement, effective January 1, 2012, by and between Appalachia Midstream Services, L.L.C.

and Epsilon Energy USA, Inc., as shipper and producer

Amended and Restated 2017 Stock Option Plan

Share Compensation Plan

Agreement for the Construction, Ownership, and Operation of Midstream Assets in AMI Area D of Northern Pennsylvania effective the 1st day of January, 2012, by and between Statoil Pipelines, LLC, a Delaware limited liability company formerly known as StatoilHydro Pipelines, LLC, Epsilon Midstream LLC, a Pennsylvania limited liability company, and Appalachia Midstream Services, L.L.C., an Oklahoma limited liability company

Subsidiaries of the Registrant

and Epsilon Energy USA, Inc., as shipper and producer (incorporated by reference to Exhibit 10.8 of Form 10, File No.

001-38770, filed on December 21, 2018)

Amended and Restated 2017 Stock Option Plan (incorporated by reference to Exhibit 10.9 of Form 10, File No.

001-38770, filed on December 21, 2018)

Share Compensation Plan (incorporated by reference to Exhibit 10.10 of Form 10, File No.

001-38770, filed on December 21, 2018)

M ichael Raleigh Executive Employment Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K, File No.

001-38770, filed on February 2, 2021)

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of Form 10, File No.

001-38770, filed on December 21, 2018)

Consent of DeGolyer and MacNaughton

36 unchanged sentences

Stephen Finlayson

/s/ Ryan Roebuck

March 18, 2020

/s/ Jacob Roorda

March 25, 2021

/s/ Jason Stankowski

March 25, 2021

Jason Stankowski

/s/ Tracy Stephens

1 unchanged sentence

Tracy Stephens

/s/ David Winn

March 25, 2021

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures