UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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| Preliminary Proxy Statement | ||
| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
ý | Definitive Proxy Statement | ||
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| Soliciting Material |
Evolution Petroleum Corporation | ||||
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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EVOLUTION PETROLEUM CORPORATION
2500 CityWest Boulevard, Suite 1300
Houston, Texas 77042
Dear Fellow Stockholders:
To the Stockholders of Evolution Petroleum Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of Evolution Petroleum Corporation. The meeting will be held at the Company’sCompany's offices at 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042, commencing at 10:00 a.m. Central Time, on Thursday, December 9, 2010.5, 2013. If you plan to attend, please notify our Corporate Secretary, Mr. David Joe, at (713) 935-0122.
The Notice of the Annual Meeting and the Proxy Statement on the following pages cover the formal business of the meeting, which includes twofour items to be voted on by our stockholders.Note that unlike in prior years, your broker is no longer ablenot permitted to vote on your behalf formatters considered "non-routine" such as the election of directors without specific voting instructions from you, as further explained in the Q & A&A section of the Proxy Statement under “How"How Can I Vote?”."
At the Meeting, I will also report on the Company’sCompany's current operations and will be available to respond to questions from stockholders. Recording devices will not be permitted in the meeting.
Whether or not you plan to attend the meeting, it is important that your shares be represented and voted at the meeting. You are urged, therefore, to complete, sign, date and return the enclosed proxy card (or use telephone or internet voting procedures, if offered by your broker)broker or bank as a nominee or agent), even if you plan to attend the meeting.
Thank you for your continued interest in Evolution Petroleum Corporation.
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Sincerely, | ||
/s/ ROBERT S. HERLIN Robert S. Herlin | ||
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Chairman of the Board, President and Chief Executive Officer | ||
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EVOLUTION PETROLEUM CORPORATION
2500 CityWest Boulevard, Suite 1300
Houston, Texas 77042
October 28, 2013
(713) 935-0122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 9, 20105, 2013
Dear Stockholders:
To the Stockholders of Evolution Petroleum Corporation:
NOTICE IS HEREBY GIVEN that the 20102013 Annual Meeting of Stockholders (the “Annual Meeting”"Annual Meeting") of Evolution Petroleum Corporation, a Nevada corporation (the “Company”"Company"), will be held on Thursday, December 9, 2010,5, 2013, commencing at 10:00 a.m. Central Time, at the Company’sCompany's principal executive offices at 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042. The Annual Meeting will be held for the following purposes:
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Only those stockholders of record at the close of business on October 22, 201018, 2013 are entitled to notice of, and to vote at the Annual Meeting or any postponement(s)postponement or adjournment(s)adjournment thereof, notwithstanding the transfer of any shares after such date. If you were a stockholder at the close of business on October 22, 2010,18, 2013, you are entitled to vote.
Whether or not you expect to attend the Annual Meeting, we ask that you sign and return the enclosed proxy as promptly as possible to ensure that your shares will be represented. A self-addressed envelope has been enclosed for your convenience. If you attend the meeting you may withdraw any previously given proxy and vote your shares in person.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 9, 20105, 2013
The attached proxy statement and proxy card, and our Annual Report on Form 10-K for the year ended June 30, 2010,2013, are also available on the Company’sCompany's website,www.evolutionpetroleum.com.From the homepage, you can link through the“"Investor Relations”Relations" page to the“"Proxy Materials” Materials"page. Directions to attend the Annual Meeting and vote in person are also available on our website. From the homepage, you can link to“Contact”"Contact" where you will find a link to a map to our Houston office.
By Order of the Board of Directors | ||
/s/ STERLING H. MCDONALD Sterling H. McDonald | ||
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Vice President, Chief Financial Officer | ||
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Houston, Texas
October 28, 2013
EVOLUTION PETROLEUM CORPORATION
2500 CityWest Boulevard, Suite 1300
Houston, Texas 77042
(713) 935-0122
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
December 9, 20105, 2013
This Proxy Statement accompanies the Notice (the “Notice”"Notice") of the Annual Meeting of Stockholders (the “Annual Meeting”"Annual Meeting") of Evolution Petroleum Corporation, a Nevada corporation (hereinafter, “us”"us", “we”"we", “our”"our" or the “Company”"Company"), in connection with the solicitation of proxies by and on behalf of our Board of Directors (the "Board") for use at our Annual Meeting to be held at 10 a.m., Central Time, at our Company’sCompany's principal executive offices at 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042, on December 9, 2010,5, 2013, and at any postponement(s)postponement or adjournment(s)adjournment thereof.
The Company’sCompany's Annual Report for the fiscal year ended June 30, 20102013 is being mailed to stockholders with the mailing of the Notice of Meeting and Proxy Statement. This Proxy Statement and the accompanying proxy card are first being sent to our stockholders on or about October 28, 2010.2013.
The solicitation of proxies by the Board of Directors will be conducted primarily by mail. Continental Stock Transfer & Trust Company (“CST”("CST"), as part of CST’sCST's services as the Company’sCompany's transfer agent, assists in the solicitation of proxies in connection with the Annual Meeting. In addition, officers, directors and employees of the Company may solicit proxies personally or by telephone, email, or facsimile communication. These officers, directors and employees will not receive any compensation for these services. The Company will reimburse brokers, custodians, nominees, and fiduciaries for reasonable expenses incurred by them in forwarding proxy material to beneficial owners of common stock of the Company. The costs of solicitation will be borne by the Company.
What is the purpose of the 20102013 Annual Meeting?
At the 2010 Annual Meeting, stockholders will act upon the matters outlined in the attached Notice of Meeting and described in detail in this Proxy Statement, which are:is to:
(1) Elect five directors, each to serve until the 2014 Annual Meeting of Stockholders or until their successors are elected and qualified;
(1) the election of six directors to the Board of Directors of the Company;
(2) the ratification ofRatify the appointment of Hein & Associates, LLP, an independent registered public accounting firm, as our independent auditorsregistered public accountants for the fiscal year ending June 30, 2011;2014;
(3) Approve, in a non-binding advisory vote, the compensation of our named executive officers;
(4) Determine, in a non-binding advisory vote, whether a stockholder vote to approve the compensation of our named executive officers should occur every one, two or three years; and
(3) to transact(5) Transact such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof.
In addition, Company management will report on our performance during the fiscal year ended June 30, 2010,2013, which we refer to as fiscal 2010,2013, and respond to questions from stockholders.
Although the Board does not anticipate that any other matters will come before the 2010 Annual Meeting, your executed proxy gives the official proxies the right to vote your shares at their discretion on any other matter properly brought before the Annual Meeting.
Who is entitled to vote at the 2010 Annual Meeting?
Only stockholders of record at the close of business on October 22, 201018, 2013 (the “Record Date”"Record Date") will be entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof.
How can I Vote?
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record (i.e., your shares are registered directly in your name, as opposed to being held in a stock brokerage account or by a bank or other nominee), you may vote in person at the Annual Meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your
vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy. To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive. To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. Properly executed proxies in the accompanying form, received in due time and not previously revoked, will be voted at the Annual Meeting or any adjournment thereof as specified therein by the person giving the proxy; however, if no specification is made the shares represented by proxy will be voted as recommended by our Board of Directors, to the extent permitted by law.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
Unlike in prior years,Due to regulatory changes, your broker is no longernot able to vote on your behalf for the election of directors without specific voting instructions from you.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner"beneficial owner" of shares held in the “street name”"street name" of the entity holding your shares.
As thea beneficial owner, you have the right to direct your broker or nominee how to vote and you are also invited to attend the 2010 Annual Meeting. However, since you are not the stockholder of record (record holder), you may not vote these shares in person at the 2010 Annual Meeting unless you obtained a signed proxy from the record holder giving you the right to vote thethese shares.
If you hold your shares in street name, you will receive instructions from your broker or other nominee describing how to vote your shares. If you do not instruct your broker or nominee how to vote your shares, they may vote your shares as they decide as to each matter for which they have discretionary authority.
There are also non-discretionary matters for which brokers and other nominees do not have discretionary authority to vote your shares unless they receive timely instructions from you. When a broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the broker or other nominee should vote your shares and the broker or other nominee indicates it does not have authority to vote such shares on its proxy, a “broker non-vote”"broker non-vote" results. Although any broker non-vote would be counted as present at the meeting for
purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters.
Recent changesChanges to regulatory rules eliminated broker discretionary voting with respect to the election of directors. This restriction also applies to all non-routine matter. Where a matter is not considered “routine,”"routine," such as Proposal No. 1 regarding the election of directors, Proposal 3 regarding say on pay and Proposal 4 regarding the frequency of the say on pay vote, the shares held by the broker will not be voted on that proposalthose proposals without specific instruction from the beneficial holder of the shares. Therefore, unlike in prior years, your broker is not able to vote on your behalf in any director election without specific voting instructions from you.
How Can I Revoke My Proxy or Change My Vote?
Even if you have given a proxy or given your broker, bank or other agent voting instructions, you have the power to revoke your proxy or change your voting instructions at any time before the Annual Meeting. Stockholders of record may revoke their proxy prior to its exercise by delivering written notice of revocation to our Corporate Secretary, at 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042, by executing a later-dated proxy, or by attending the Annual Meeting and voting in person. If your shares are held by your broker or bank as a nominee or agent (such as in your brokerage account), you may change your vote by following the instructions provided by your broker or bank. You may also change your vote by voting in person at the Annual Meeting if you have obtained a valid proxy from your broker, bank, or other agent to vote your shares at the Annual Meeting.
What are the voting rights of the holders of our common stock?
Holders of our common stock are entitled to one vote per share with respect to each of the matters to be presented at the Annual Meeting.
With regard to the election of directors, the sixCompany has adopted a majority voting policy wherein any of the five nominees receiving the greatest numbermajority of votes cast will be elected provided a quorum is present. Any nominee who does not receive at least a majority of the votes cast with respect to his election shall tender his resignation to the Board, whereupon, the Board in its sole discretion can accept such resignation within 60 days. If the Board does not accept such resignation, the director will continue to serve as a member of the Board of Directors.
On each other matter to be presented, the affirmative vote of a majority of the shares represented at the Annual Meeting and entitled to vote will be necessary to approve the matter.
Abstentions will be counted towards the tabulation of votes cast on matters properly presented to the stockholders (except the election of directors) and will have the same effect as negative votes. Broker non-votes will not be counted as votes cast, and therefore they will have no effect on the outcome of the matters presented at the Annual Meeting.
Under a new rule recently approved by the SEC, brokers no longer have discretionary voting power with respect to the election of directors. Because directors are elected by a plurality of the votes cast, abstentions and broker non-votes will
not be counted in determining which nominees received the largest number of votes cast.
What constitutes a quorum?
Our Bylaws provide that the presence, in person or by proxy, of the holders of a majority of outstanding shares of our common stock at our Annual Meeting shall constitute a quorum.
For the purpose of determining the presence of a quorum, proxies marked “withhold authority”"withhold authority" or “abstain”"abstain" will be counted as present. Shares represented by proxies that include broker non-votes will also be counted as shares present for purposes of establishing a quorum. On the Record Date there were 27,446,51928,599,669 shares of our common stock (including restricted shares) issued and outstanding and such shares are the only shares entitled to vote at the Annual Meeting.
What are the Board’sBoard's recommendations?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors. The Board’sBoard's recommendations are set forth together with the description of the Proposals in this Proxy Statement. In summary, the Board unanimously recommends a vote that you vote:
The proxy holders will vote in their discretion with respect to any other matter that may properly come before the Annual Meeting.
Proxies
If the enclosed proxy card is executed, returned in time and not revoked, the shares represented thereby will be voted at the Annual Meeting and at any postponement(s)postponement or adjournment(s)adjournment thereof in accordance with the instructions indicated on such proxy.IF NO INSTRUCTIONS ARE INDICATED ON THE PROXY CARD, THE OFFICIAL PROXIES WILL VOTEIf no instructions are indicated on the proxy card, the official proxies will vote (1) “FOR” THE PROPOSALS DESCRIBED IN THIS PROXY STATEMENT AND"for" the proposals described in this proxy statement and (2) AS TO ANY OTHER MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OR ANY POSTPONEMENT ORADJOURNMENT THEREOF, IN THE SOLE DISCRETION OF THE PROXY HOLDERS.as to any other matters properly brought before the annual meeting or any postponement or adjournment thereof, in the sole discretion of the proxy holders.
A stockholder who has returned a proxy card may revoke it at any time prior to its exercise at the Annual Meeting by (i) giving written notice of revocation to our Corporate Secretary, (ii) properly submitting to Evolution Petroleum Corporation a duly executed proxy bearing a later date, or (iii) appearing at the Annual Meeting and voting in person. All written notices of revocation of proxies should be addressed as follows: Evolution Petroleum Corporation, 2500 CityWest Boulevard, Suite 1300 Houston, Texas 77042, Attention: Corporate Secretary.
What are the Company’sCompany's Governance Practices and Policies?
See the detailed discussion under “Corporate Governance”"Corporate Governance", beginning on page 15.
9.
PROPOSAL I
1
ELECTION OF DIRECTORS
The Board of Directors
Our directors are elected annually by the stockholders to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. The minimum number of directors is established by our Bylaws, and may be increased by the majority vote of the Board of Directors.Board. The current authorized number of directors is six.six; however that number will be reduced to five upon the retirement of Mr. Laird Cagan from the Board at the Annual Meeting. Assuming the presence of a quorum, a pluralitymajority of the votes cast in person or by proxy at the Annual Meeting is required for the election of each director.
Director Nominees
All sixfive nominees are currently serving as directors of the Company. ThereWe have determined there are five “independent”four "independent" directors serving on our Board as defined in the listing standards of the NYSE Amex. All sixMKT. Five of our incumbent directors are standing for re-election. Mr. Laird Cagan, a current member of the Board, whose term expires on December 5, 2013, is retiring from the Board and will not seek re-election.
As discussed in more detail under the heading “Nominating"Nominating and Corporate Governance Committee”Committee" in this proxy statement, the Board considers qualifications and other factors when evaluating individual directors, as well as the composition of the Board as a whole. As part of this process, the Board and its Nominating and Corporate Governance Committee review the particular experiences, qualifications, attributes or skills of each of the nominees. The biographies of each of the nominees below contain information regarding the person’sperson's service as a director, business experience, director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, if applicable. They also highlight the particular experiences, qualifications, attributes or skills that have caused the Nominating and Corporate Governance Committee and the Board to conclude that such persons should serve as a director of the Company. In particular, each nominee brings extensive and specific expertise in key functional and industry areas in which we, as a company, are active.
Name | Age | Principal Occupation and Directorships | |||||||
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Robert S. Herlin |
| 58 | Mr. Herlin, a co-founder of our Company, has been President, Chief Executive Officer and a Director since May 2004. Mr. Herlin was elected Chairman of the Board of Directors in January 2009. Prior to the merger of Natural Gas Systems, Inc. ( |
Name | Age | Principal Occupation and Directorships | |||
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Edward J. DiPaolo | 60 |
| Mr. DiPaolo has served as a director of our company since |
Name | Age | Principal Occupation and Directorships | |||||
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William E. Dozier | 61 |
| Mr. Dozier has over 38 years of oil & gas industry experience and has served as a director of our company since December | ||||
Kelly W. Loyd | 39 |
| Mr. Loyd has served as a director of our company since December 2008. He currently serves as a member of the Compensation Committee and as a member of the Nominating and Corporate Governance Committee. Since 2004, Mr. Loyd has been employed by JVL Advisors, LLC, a private energy investment company that is a major stockholder of our company. From 2001 to 2004, Mr. Loyd was an associate in the energy corporate finance investment banking group at RBC Capital Markets and Howard Frazier Barker Elliot. Previously, Mr. Loyd served as a founder and controller of L.A.B. Sports and Entertainment, a sports/entertainment promotion and production company, a Managing Partner of Tigre Leasing, L.L.P, a commercial real estate company focused on the purchase/sale of resort properties, and as an analyst in Jefferies and Company, Inc. |
Name | Age | Principal Occupation and Directorships | |||||
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Gene G. Stoever | 75 |
| Mr. Stoever has |
We believe that the nominees will be available and able to serve as directors. In the event that a nominee is unable to serve, the proxy holders will vote the proxies for such other nominee as they may determine.
THE BOARD OF DIRECTORS UNAMIOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES LISTED ABOVE.The Board of Directors unanimously recommends that the stockholders vote "FOR" the election of each of the director nominees listed above.
PROPOSAL II
PROPOSAL TO RATIFY THE APPOINTMENT OF
HEIN & ASSOCIATES LLP, AN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, AS OUR COMPANYINDEPENDENT REGISTERED PUBLIC ACCOUNTANT FOR FISCAL YEAR 2014’S AUDITORS
The Audit Committee of our Board of Directors has appointed the firm of Hein & Associates LLP, an independent registered public accounting firm, as our independent auditorsregistered public accountant to audit our consolidated financial statements for the fiscal year ending June 30, 2011.2014. From June 30, 2004 through June 30, 2010,2013, Hein & Associates LLP served as our independent auditors.registered public accountant.
We are not required to seek stockholder approval for the appointment of our independent auditors;registered public accountant; however, the Audit Committee and the full Board of Directors believe it to be sound corporate practice to seek such approval. If the appointment is not ratified, the Audit Committee will investigate the reasons for stockholder rejection and will re-consider the appointment. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditorsregistered public accountant at any time during the year if it determines that such a change would be in the best interests of our company and our stockholders.
Audit Fees
Independent Public Auditors
AggregateThe aggregate fees billed to us for professional services by our independent registered public accountant, Hein & Associates LLP, duringfor professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-K for fiscal years endedending June 30, 20102013 and 20092012 were as follows:
| 2013 | 2012 | |||||
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Audit Fees | $ | 122,575 | $ | 128,862 | |||
Audit-Related Fees | — | — | |||||
Tax Fees | — | — | |||||
All Other Fees | — | — |
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Audit Fees |
| $ | 91,650 |
| $ | 86,355 |
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Audit-Related Fees |
| $ | 2,200 |
| $ | 2,500 |
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Tax Fees |
| $ | — |
| $ | 5,882 |
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In the above table, in accordance with the SEC’sSEC's definitions and rules, “audit fees”"audit fees" are fees we paid Hein & Associates LLP for professional services for the audit of our consolidated financial statements included in our Form 10-K, including professional services rendered in connection with the audit of internal controls over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002, the review of financial statements included in our Form 10-Q’s10-Q's and for services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements. “Audit-related fees”"Audit-related fees" are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax fees” are fees primarily for assistance with an IRS field audit and subsequent revised tax filings associated with prior year tax returns prepared by Hein before fiscal 2008. With this exception, Hein has not provided us with tax compliance, tax advice or tax planning services since fiscal year 2007.
All audit related services and tax fees were pre-approved by our Audit Committee Chairman.
The Audit Committee has considered the compatibility of the non-audit services provided by Hein & Associates LLP, to Hein & Associates’Associates' continued independence and has concluded that its independence is not compromised. In order to reduce non-audit services performed by our independent registered public accounting firm, we have retained Grant Thornton LLP to replace Hein & Associate’sAssociate's tax compliance, tax advice and tax planning services starting in fiscal 2008.
Pre-Approval of Services by External Auditor
The Audit Committee has adopted policies and procedures for the pre-approval of the audit and non-audita Pre-Approval Policy with respect to services which may be performed by the independent auditorsauditor. This policy lists specific audit, audit-related, and tax services as well as any other services that the independent auditor is authorized to perform and sets out specific dollar limits for each specific service, which may not be exceeded without additional Audit Committee authorization. The Audit Committee receives quarterly reports on the status of expenditures pursuant to that Pre-Approval Policy. The Audit Committee reviews the policy at least annually in order to ensureapprove services and limits for the current year. Any service that is not clearly enumerated in the provision of such services does not impair the auditors’ independence. The Audit Committee approves all audit fees and terms for all services provided by the independent auditors and consider whether these services are compatible with the auditors’ independence. The Chairman of the Audit Committee may approve additional proposed services that arise between Committee meetings provided that the decision to approve the service is presented at the next scheduled Committee meeting. All non-audit services provided by the independent auditorspolicy must be pre-approvedreceive specific pre-approval by the Audit Committee or by its Chairman, to whom such authority has been conditionally delegated, prior to engagement. During fiscal year 2012, no fees for services outside the engagement. Thescope of audit, review, or attestation that exceed the waiver provisions of 17 CFR 210.2-01(c)(7)(i)(C) were requested of or approved by the Audit Committee pre-approved all audit and permitted non-audit services by Hein & Associates LLP in fiscal 2010.Committee.
THE BOARD OF DIRECTORS UNAMINOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF HEIN & ASSOCIATES LLP AS OUR INDEPENDENT AUDITORS FOR FISCAL YEAR 2011.
RepresentativesThe Board of Directors unanimously recommends a vote "FOR" the ratification of the appointment of Hein & Associates LLP, willan independent registered public accounting firm, as our independent registered public accountant for fiscal year 2014.
The Company does not anticipate a representative from Hein & Associates LLP to be present at the Annual Meeting. In the event that a representative of Hein and Associates LLP is present at the Annual Meeting, andthey will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Based solely upon information made available to us,In accordance with the following table sets forth information with respect to the beneficial ownershiprequirements of our common stock as of October 1, 2010 (except as otherwise indicated) by (1) each person who is known by us to beneficially own more than five percent of our common stock (based solely on our review of SEC filings); (2) each of our directors; (3) each of the named executive officers listed in the Summary Compensation Table below under the caption “Executive Compensation”; and (4) all executive officers and directors as a group. Shares of common stock that are subject to outstanding options and warrants that are presently exercisable or exercisable within 60 days are deemed to be outstanding for purposes of computing the percentage ownership of the holder of the options and warrants, but not for any other. The number of shares beneficially owned by a person also includes restricted shares held by such person. Except as otherwise indicated in the footnotes, the owners listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, subject to community property laws where applicable, and the address of each beneficial owner listed on the table is c/o Evolution Petroleum Corporation, 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042.
Name and Address of Beneficial Owner |
| Amount |
| Percent of class |
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Robert S. Herlin (2) |
| 2,952,293 |
| 10.1 | % |
Sterling H. McDonald (3) |
| 1,180,739 |
| 4.1 | % |
Daryl V. Mazzanti (4) |
| 1,045,520 |
| 3.7 | % |
Laird Q. Cagan (5) |
| 288,431 |
| 1.0 | % |
Edward J. DiPaolo (6) |
| 238,115 |
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| * |
William E. Dozier (7) |
| 185,115 |
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| * |
Gene G. Stoever (8) |
| 238,115 |
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| * |
Kelly W. Loyd (9) |
| — |
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| * |
All executive officers and Directors as a group (eight persons) (2)(3)(4)(5)(6)(7)(8)(9) |
| 6,128,328 |
| 19.3 | % |
Eric A. McAfee, P2 Capital, LLC and McAfee Capital, LLC (10) |
| 2,953,000 |
| 10.8 | % |
Peninsula Capital Management, L.P. (11) |
| 2,056,296 |
| 7.5 | % |
John Lovoi (12) |
| 4,337,510 |
| 15.8 | % |
River Road Asset Management, LLC (13) |
| 2,541,113 |
| 9.3 | % |
Advisory Research Energy Fund, L.P. (14) |
| 1,397,994 |
| 5.1 | % |
* Indicates less than 1% of the outstanding Common Stock.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)14A of the Securities Exchange Act of 1934 requiresand the related rules of the Securities and Exchange Commission, the company is providing stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation programs of our directors andnamed executive officers (sometimes referred to as "say on pay"). Accordingly, you may vote on the following resolution at the meeting:
"Resolved, that the compensation paid to the company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and persons who own beneficially more than ten percent (10%)Analysis, compensation tables and narrative discussion in the proxy statement relating to the company's 2013 annual meeting, is hereby approved."
This vote is non-binding. The Board of Directors and the Compensation Committee, which is comprised of independent directors, expect to take into account the outcome of the shares of our common stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, except as noted below, based solely on our review of the copies of such reports received orwritten representations from the Reporting Persons, we believe that, with respectvote when considering future executive compensation decisions to the fiscal year ended June 30, 2010 allextent they can determine the Reporting Persons complied with all applicable Section 16 filing requirements.cause or causes of any significant negative voting results.
·A late Form 4 report was filed for McAfee Capital, LLC on October 19, 2010 to report sales of an aggregate of 617,000 shares of Common Stock, effective various dates between August 6, 2010As described in detail under "Compensation Discussion and September 1, 2010.
·A late Form 4 report was filed for P2 Capital, LLC on October 19, 2010 to report sales of an aggregate of 200,400 shares of Common Stock, effective various dates between April 30, 2010 and September 8, 2010.
·A late Form 4 report was filed for McAfee Capital, LLC on October 7, 2010 to report sales of an aggregate of 70,000 shares of Common Stock, effective various dates between May 5, 2010 and May 12, 2010.
·A late Form 4 report was filed for Peninsula Capital Management, LP on April 21, 2010 to report the sales of 47,169 shares of Common Stock, effective various dates between April 13, 2010 through April 15, 2010.
·A late Form 4 report was filed for McAfee Capital, LLC on April 15, 2010 to report the sale of 39,898 shares of Common Stock, effective March 26, 2010.
·A late Form 4 report was filed for Peninsula Capital Management, LP on April 13, 2010 to report the sales of 124,441shares of Common Stock, effective various dates between April 5, 2010 through April 7, 2010.
·A late Form 4 report was filed for Peninsula Capital Management, LP on March 31, 2010 to report the sales of 14,090 shares of Common Stock, effective various dates between March 8, 2010 through March 26, 2010.
·A late Form 4 report was filed for McAfee Capital, LLC on March 12, 2010 to report the sales of 68,4662 shares of Common Stock, effective various dates between March 2, 2010 through March 9, 2010.
·A late Form 4 report was filed for Peninsula Capital Management, LP on March 2, 2010 to report the sales of 14,100 shares of Common Stock, effective various dates between February 25, 2010 through February 26, 2010.
·A late Form 4 report was filed for Berg McAfee, LLC on March 1, 2010 to report the sales of 125,00 shares of Common Stock, effective December 14, 2009 and January 19, 2010.
·A late Form 4 report was filed for McAfee Capital, LLC on March 1, 2010 to report the sale of 75,000 shares of Common Stock, effective January 16, 2010.
·A late Form 4 report was filed for P2 Capital, LLC on March 1, 2010 to report the sale of 30,000 shares of Common Stock, effective January 26, 2010.
·A late Form 4 report was filed for McAfee Capital, LLC on December 23, 2009 to report the sale of 75,000 shares of Common Stock, effective November 13, 2009.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary Compensation Table
In accordance with SEC rules for smaller reporting companies, the following table sets forth the compensation expense we recorded for services in all capacities to our company for our fiscal year ended June 30, 2010 and 2009 for Robert S. Herlin (Chairman of the Board, President and Chief Executive Officer), Sterling H. McDonald (Vice President, Chief Financial Officer and Treasurer) and Daryl V. Mazzanti (Vice President of Operations) (collectively, the “Named Executives”). We had no other executive officers during these periods.
Name and Principal Position |
| Fiscal |
| Salary |
| Bonus(1) |
| Stock |
| All Other |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Robert S. Herlin |
| 2010 |
| $ | 275,000 |
| $ | 185,625 |
| $ | 412,500 |
| $ | 18,500 |
| $ | 891,625 |
|
Chairman, President and CEO |
| 2009 |
| $ | 269,167 |
| $ | 103,125 |
| $ | 247,500 |
| $ | 18,605 |
| $ | 638,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sterling H. McDonald |
| 2010 |
| $ | 203,300 |
| $ | 102,921 |
| $ | 203,300 |
| $ | 23,334 |
| $ | 532,855 |
|
Vice President, CFO and Treasurer |
| 2009 |
| $ | 201,083 |
| $ | 64,802 |
| $ | 121,980 |
| $ | 22,829 |
| $ | 410,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Daryl V. Mazzanti |
| 2010 |
| $ | 203,300 |
| $ | 97,203 |
| $ | 203,300 |
| $ | 24,850 |
| $ | 528,653 |
|
Vice President Operations |
| 2009 |
| $ | 201,083 |
| $ | 60,990 |
| $ | 121,980 |
| $ | 24,532 |
| $ | 408,585 |
|
(1)For fiscal years 2009 and 2010, all executive officers were awarded unrestricted stock bonuses from the Stock Plan, in lieu of cash bonuses at the election of the Company, for all of their short-term incentive plan compensation.
(2)As recently prescribed by the SEC in December 2009, amounts presented for awards of stock-based compensation include the entire lump sum grant date fair value of the total award, even though the awards vest ratably over a four year period in the future. For stock awards, the lump sum grant date fair value equals the product of the shares awarded times the award’s prior day closing market price, in accordance with ASC Topic 718. Since the named executive’s actual income is realized as the stock awards vest over the four year vesting period, the realization of such income may vary significantly from the amounts presented in the table, depending on the share price of the award on the vesting date. Furthermore, unvested stock awards may be forfeited by the named executive in the event of termination of service.
(3)Includes healthcare subsidy; life, accidental death, dismemberment and long-term disability insurance; and 401(k) matching contributions by the Company, all on terms offered to all employees.
Stock Awards
We believe our success depends on attracting and retaining industry experienced personnel that are aligned with our shareholders’ interests. In doing so,Analysis" our compensation policesprograms are designed to place a significant emphasis on long-term-incentives in the form of restricted stock awards to all of our employees. Generally, we implement this policy by making a larger onetime award upon commencement of employment with us, with additional smaller awards made on an annual basis. All awards are currently made from the Company’s 2004 Stock Plan (“the Stock Plan”), typically with four year pro-rata vesting schedules.
The Summary Compensation Table above describes the long-term stock incentive awards granted to the Named Executive’s in fiscal year 2010, vesting 1/16th per quarter from the date of grant.
Bonuses
As another dimension of our compensation policy, we award annual short-term performance bonuses to all of our employees. For our Named Executives, annual bonuses are discretionarily awarded in accordance with the Named Executive’s employment agreement.
Mr. Herlin received a bonus for fiscal year 2010 of $185,625 pursuant to his Employment Agreement dated April 4, 2005 with the Company. The bonus was paid in unrestricted stock from the Stock Plan in lieu of cash, at the election of the Company.
Mr. McDonald received a bonus for fiscal year 2010 of $102,921 pursuant his Employment Agreement dated April 4, 2005 with the Company. The bonus was paid in unrestricted stock from the Stock Plan in lieu of cash, at the election of the Company.
Mr. Mazzanti received a bonus for fiscal year 2010 of $97,203 pursuant his Employment Agreement dated June 23, 2005 with the Company. The bonus was paid in unrestricted stock from the Stock Plan in lieu of cash, at the election of the Company.
Executive Officers of the Company
Set forth below is information regarding our executive officers including their ages, positions with our companyattract, retain, motivate and principal occupationsreward highly qualified and employers for at least the last five years. For information concerning executive officers’ ownership of our common stock, see the table and related information provided under the caption “Security Ownership of Certain Beneficial Owners and Management.”
For information regarding Robert S. Herlin, our Chairman of the Board, President and Chief Executive Officer, see “Proposal I - Election of Directors.”
Sterling H. McDonald (61). Mr. McDonald joined us as our Chief Financial Officer in November 2003 and has also been responsible for our administrative functions. From 1999 to 2003, Mr. McDonald was as an independent consultant and interim Chief Financial Officer to various companies. From 1997 to 1999, he served as Chief Financial Officer for PetroAmerican Services, a subsidiary of an integrated NYSE-tradedcompetent executives who have extensive oil and gas company. Previously, he served as Chief Financial Officerindustry experience. To do this we offer a compensation package that recognizes individual and company performance. Elements of PetroStar Energy, an explorationthis compensation package include base salary, annual cash incentives and production company,long-term equity incentives. Our compensation package is meant to provide incentives and Treasurermaximize stockholder value by (i) emphasizing equity-based compensation to more closely align the interests of Readingexecutives with those of our stockholders, (ii) structuring annual incentive compensation to be contingent upon the achievement of performance measures, and Bates Corporation, a NYSE-traded international offshore drilling services, exploration and production company. Mr. McDonald holds a B.S. in Finance, and an MBA(iii) designing each component of executive compensation to be competitive with highest academic achievement, from the University of Tulsa.
Daryl V. Mazzanti (48). Mr. Mazzanti joined our company as our Vice President of Operations in July 2005, to lead allcompensation practices of our oil and gas operations. From 1985industry peer companies. The structure of our executive compensation is the same structure as provided to 2005, Mr. Mazzanti was employedall employees. We have adopted this compensation philosophy because we believe that it is critical for our continued success, the achievement of our short-term and long-term goals and because we believe it helps our executives maximize stockholder value. Stockholders are encouraged to read the section of this proxy statement titled "Compensation Discussion and Analysis," the accompanying compensation tables, and the related narrative disclosure.
Vote Required
The approval of the advisory vote on the compensation of our named executive officers requires the affirmative vote of the holders of a majority of the shares represented at the meeting, in person or by Union Pacific Resources (UPR)proxy, and Anadarko Petroleum (the successorentitled to UPR), where he managed operational, engineering and geotechnical teams responsible for oil and gas fields in Texas, Oklahoma, Louisiana,vote. As a result, abstentions will have the Rockies and offshore Gulf of Mexico. His duties included overseeing up to 1,200 horizontal wells, optimizing artificial lift methods for a 750 well program and supervising multi-rig drilling and service programs. Mr. Mazzanti began his career in 1985same practical effect as a Development Engineer with Champlin Oil (the predecessor to UPR), where he was responsible for drilling, completion, workover, recompletion, reservoir analysis and surface facility optimization across Texas and offshore Gulfvote against this proposal. Broker non-votes will have no effect on the outcome of Mexico Mr. Mazzanti holds a Bachelorthe proposal. For the approval of Science in Petroleum Engineering, with distinction, from the Universityadvisory vote on the compensation of Oklahoma at Norman.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding awarded securities for eachour named executive officer outstanding as of June 30, 2010.officers, you may vote "FOR" or "AGAINST" or abstain from voting.
|
| Option awards (1) |
| Stock awards |
| ||||||||||||||||
Name |
| Number of |
| Number of |
| Equity |
| Option |
| Option |
| Number of |
| Market |
| Equity |
| Equity |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Robert S. Herlin |
| 250,000 |
| — |
|
|
| $ | 0.001 |
| 09/23/2013 |
|
|
|
|
|
|
|
|
| |
|
| 787,500 |
| — |
|
|
| $ | 1.80 |
| 04/04/2015 |
|
|
|
|
|
|
|
|
| |
|
| 400,000 |
| — |
|
|
| $ | 1.41 |
| 02/15/2016 |
|
|
|
|
|
|
|
|
| |
|
| 171,875 |
| 78,125 |
|
|
| $ | 2.19 |
| 09/07/2017 |
|
|
|
|
|
|
|
|
| |
|
| 55,654 |
| 71,556 |
|
|
| $ | 4.02 |
| 08/19/2015 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 75,035 |
| $ | 423,948 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Sterling H. McDonald |
| 250,000 |
| — |
|
|
| $ | 0.25 |
| 11/11/2013 |
|
|
|
|
|
|
|
|
| |
|
| 350,000 |
| — |
|
|
| $ | 1.80 |
| 04/04/2015 |
|
|
|
|
|
|
|
|
| |
|
| 300,000 |
| — |
|
|
| $ | 1.41 |
| 02/15/2016 |
|
|
|
|
|
|
|
|
| |
|
| 103,125 |
| 46,875 |
|
|
| $ | 2.19 |
| 09/07/2017 |
|
|
|
|
|
|
|
|
| |
|
| 29,374 |
| 37,766 |
|
|
| $ | 4.02 |
| 08/19/2015 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 36,981 |
| $ | 208,943 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Daryl V. Mazzanti |
| 550,000 |
| — |
|
|
| $ | 1.61 |
| 06/23/2015 |
|
|
|
|
|
|
|
|
| |
|
| 150,000 |
| — |
|
|
| $ | 2.55 |
| 05/05/2016 |
|
|
|
|
|
|
|
|
| |
|
| 137,500 |
| 62,500 |
|
|
| $ | 2.19 |
| 09/07/2017 |
|
|
|
|
|
|
|
|
| |
|
| 29,374 |
| 37,766 |
|
|
| $ | 4.02 |
| 08/19/2015 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 36,981 |
| $ | 208,943 |
|
|
|
|
|
(1)The unvested stock options of Mr. Herlin, Mr. McDonald, and Mr. Mazzanti generally vest 1/16th per quarter from the date of grant, with the last option vesting in August 2012.
(2)The values were calculated based upon the closing price of our common stock on June 30, 2010, which was $5.65 per share. Unvested restricted stock generally vests 1/16th per quarter from date of grant, with the last restricted share vesting in September 2013.
Employment Contracts, Termination of Employment and Change in Control Arrangements
Executive Employment Agreement: Robert S. Herlin
On April 4, 2005, we entered into an Executive Employment Contract (the “New Herlin Employment Contract”) with Mr. Herlin. The New Herlin Employment Contract supersedes the Original Herlin Employment Contract. Pursuant to the New Herlin Employment Contract, Mr. Herlin continues to serve as our Chairman of the Board, President and Chief Executive Officer. The New Herlin Employment Contract provided an initial annual salary of $180,000 and, pursuant to a provision that provides for possible additional annual increases at the discretion of the Board of Directors Mr. Herlin’s current base salaryrecommends that you vote "FOR" the approval, on an advisory basis, of the compensation of our named executive officers as disclosed in the section of this proxy statement titled "Compensation Discussion and Analysis," the accompanying compensation tables and the related narrative disclosure contained in this proxy statement.
ADVISORY VOTE ON THE FREQUENCY OF HOLDING FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934 and the related rules of the Securities and Exchange Commission, the company is $288,750.providing stockholders with the opportunity to cast an advisory vote on whether future advisory votes on executive compensation should be held every one, two or three years.
The agreement provides Mr. HerlinBoard of Directors believes that a frequency of every "3 years" for future advisory votes on executive compensation is entitledthe optimal interval for conducting and responding to a bonus of up to 100% of his base salary payable in cash or securities. Mr. Herlin is also entitled to a continuation of his base salary, medical and long-term disability benefits for one year following termination by the Company if other than for Cause (defined as (i) a material breach by the"say on pay" vote. Stockholders who have concerns about executive of any agreement with the Company; (ii) conviction of a felony; (iii) material failure of executive to comply with Company policies; (iv) fraud, gross negligence or willful misconduct; and (v) continued failure by executive to perform assigned duties), or Permanent Disability (defined as the inability to perform essential functions of the position for at least 90 consecutive days because of a physical or mental impairment), or if Mr. Herlin is subject to Constructive Termination (defined as (i) any material breach of the Agreement by the Company, including assigning duties inconsistent with the executive’s position not cured within 60 days; (ii) relocation of executive’s offices in excess of 20 miles; and (iii) substantial reduction of responsibilities, authority or scope of work of executive). In addition, the New Herlin Employment Contract includes a covenant not to compete for one (1) year following termination of the Contract.
For information on Mr. Herlin’s compensation during fiscal year 2010, please see “Executive Compensation and Related Information.”
Executive Employment Agreement: Sterling H. McDonald
On April 4, 2005, we entered into an Executive Employment Contract (the “New McDonald Employment Contract”) with Mr. McDonald. The New McDonald Employment Contract supersedes the Original McDonald Employment Contract with the exception that Mr. McDonald retained the stock options under the terms previously granted. Pursuantinterval between "say on pay" votes are welcome to bring their specific concerns to the New McDonald Employment Contract, Mr. McDonald continues to serve as our Chief Financial Officer. The agreement provides for an initial annual salary of $150,000, and, subject to a provision that allows annual increases at the discretionattention of the Board of Directors. Mr. McDonald’s current base salary is $213,465. Mr. McDonald is also eligiblePlease refer to receive an annual discretionary bonus equal to 75% of his annual salary. In addition Mr. McDonald is entitled to a continuation of his base salary, medical and long-term disability benefits for six months following termination by the Company if other than for Cause (defined as (i) unauthorized disclosure by executive of confidential information; (ii) a material breach by the executive of any agreementsection titled "Communicating with the Company; (ii) conviction of a felony; (iii) material failure of executive to comply with Company policies; (iv) fraud, gross negligence or willful misconduct; and (v) continued failure by executive to perform assigned duties) or Permanent Disability (defined as the inability to perform essential functions of the position for at least 90 consecutive days because of a physical or mental impairment), or if Mr. McDonald is subject to Constructive Termination
(defined as (i) any material breach of the Agreement by the Company, including assigning duties inconsistent with the executive’s position not cured within 45 days; (ii) relocation of executive’s offices in excess of 20 miles; and (iii) substantial reduction of responsibilities, authority or scope of work of executive), which may be increased to one year under conditions related to a Change of Control (defined as (i) a merger or consolidation if persons who were not controlling stockholders own 50% or more of the voting power immediately after the merger or consolidation of each (a) the surviving entity and (b) any direct or indirect parent of the surviving entity; or (ii) the sale, transfer or disposition of all of the Company’s assets).
For information on Mr. McDonald’s compensation in fiscal year 2010, see “Executive Compensation and Related Information.”
Executive Employment Agreement: Daryl V. Mazzanti
On June 23, 2005, we entered into an Executive Employment Contract with Mr. Daryl V. Mazzanti for Mr. Mazzanti to serve as Vice President of Operations of our company (the “Employment Contract”). Under the Employment Contract, Mr. Mazzanti received an initial annual salary of $155,000, and, pursuant to a provision that allows annual increases at the discretion of the Board of Directors. Mr. Mazzanti’s current base salary is $213,465. The agreement also providesDirectors" in this proxy statement for a discretionary bonus of up to 75% of his annual salary and a six month severance package. If the Company terminates Mr. Mazzanti for any reason other than for Cause (defined in the same manner as in Mr. McDonald’s Employment Contract) or Permanent Disability (defined in the same manner as in Mr. McDonald’s Employment Contract), or Mr. Mazzanti is subject to a Constructive Termination (defined in the same manner as in Mr. McDonald’s Employment Contract), then the Company agrees to continue Mr. Mazzanti’s salary and benefit coverage for six months following his termination. In addition, Mr. Mazzanti will receive six months severance if, for a period of one year following a Change of Control (defined in the same manner as in Mr. McDonald’s Employment Contract), Mr. Mazzanti is terminated or is subjected to a Constructive Termination.
For information on Mr. Mazzanti’s compensation in fiscal year 2010, see “Executive Compensation and Related Information.”
Change in Control Policy
In August 2010, the Board of Directors approved an employee severance policy for a change in control event. A “change in control” event is generally defined to include a tender offer, takeover bid, exchange offer or acquisition for forty percent (40%) or more of the Company’s outstanding common stock. The new policy applies to all employees including Messrs. Herlin, McDonald and Mazzanti and provides that in the event of a change in control, employees terminated within one year of the event shall receive severance pay in the amount of one year of base pay and targeted annual discretionary bonus, plus one year continuation of the company’s subsidy of health, disability and life insurance benefits. Pursuant to the Company’s Amended and Restated 2004 Stock Plan, the Administrator under the Plan has provided that in the event of a “change in control,” half of all unvested options and stock awards would vest on the date of such “change in control” and the remainder of unvested options and stock awards would vest upon the employee’s termination within a year of the “change in control.”
Compensation of Directors
Except as noted, our directors receive compensation for serving on the board and for serving as committee members. Robert S. Herlin, who serves as the Chairman of the Board, President and Chief Executive Officer, and Kelly W. Loyd, an affiliate of a major stockholder, receive no additional compensation for serving as a director or committee member.
The compensation plan for our outside directors (other than for Mr. Loyd) constitutes a cash retainer of $24,000 per year, or the equivalent cash value issued in common stock at the election of each director, plus meeting fees of $1,000 per day for board and committee meetings attended in person and $500 per day for those meetings attended telephonically,about communicating with a maximum of one fee paid per day in total. The Chair of the Audit Committee is paid an additional retainer of $12,000 per annum, the Chair of the Compensation Committee is paid an additional retainer of $7,500 per annum, and the Chair of the Nominating Committee is paid an additional $3,750 per annum. In addition to the cash retainers and fees, the outside directors (excluding Mr. Loyd) receive a payment of restricted stock with a fair market value of $36,000 per annum awarded as of the date of each annual stockholders meeting. These shares of restricted stock vest over one year from the date of grant. We also reimburse our non-employee directors for any direct expenses they incur in their capacity as directors, generally limited to travel costs related to board or committee meetings.
Mr. Cagan may earn compensation from our company through his relationship with our financial advisor, CMCP and placement agent (Colorado Financial Services, Inc.). Mr. Cagan, as a registered representative of Colorado Financial Services and as a partner of CMCP, could serve as our placement agent in private equity financings, whereby CMCP could earn (i) cash fees equal to 8% of gross equity proceeds, declining to 4%, subject to the amount of equity raised through
CMCP, plus (ii) a fixed fee equal to 4% of shares offered, payable in warrants. Neither Mr. Cagan nor CMCP have received any compensation pursuant to this arrangement over the past two fiscal years. In addition, in the past we have reimbursed CMCP for the costs of legal services performed by staff members of CMCP under the direction of our previous general counsel. We ceased obtaining such legal services from CMCP at the end of calendar year 2006. We also reimburse Mr. Cagan for documented travel expenses he incurs from time to time directly on our behalf.
The following table sets forth a summary of the compensation the Company paid to its directors in fiscal 2010:
Name |
| Fees earned |
| Stock |
| Option |
| Non-equity |
| Changes in |
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
William E. Dozier (2) |
| $ | 39,500 |
| $ | 36,000 |
| — |
| — |
| — |
| $ | 75,500 |
|
Gene G. Stoever (2) |
| $ | 43,500 |
| $ | 36,000 |
| — |
| — |
| — |
| $ | 79,500 |
|
Edward J. DiPaolo (2) |
| $ | 36,750 |
| $ | 36,000 |
| — |
| — |
| — |
| $ | 72,750 |
|
Laird Q. Cagan |
| $ | 4,500 |
| $ | 60,000 |
| — |
| — |
| — |
| $ | 64,500 |
|
Robert S. Herlin (3) |
| — |
| — |
| — |
| — |
| — |
| — |
| |||
Kelly W. Loyd (4) |
| — |
| — |
| — |
| — |
| — |
| — |
|
(1) Equivalent to 9,068 shares of restricted common stock based on the closing stock price on the issuance date, subject to cliff vesting over one year. These shares remain unvested until December 2010. In addition, Mr. Cagan received an additional 6,045 shares of restricted stock in lieu of cash paid for the annual retainer fees for board compensation.
(2) Includes annual retainer fees and meeting fees earned for the following, respectively: four meetings of the Board of Directors, four meetings of the audit committee and four meetings of the compensation committee, but limited to one meeting fee per calendar day.
(3) Please see table for Officers’ compensation for Mr. Herlin, who does not receive any additional compensation for his services as Chairman of the Board of Directors.
The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years or abstaining) and, therefore, stockholders will not be voting to approve or disapprove the Board's recommendation.
(4) Mr. Loyd does not receive any compensation for his services as a member Although this advisory vote on the frequency of the "say on pay" vote is non-binding, the Board of Directors.Directors and the Compensation Committee will take into account the outcome of the vote when considering the frequency of future advisory votes on executive compensation.
Vote Required
The alternative "1 Year," "2 Years," or "3 Years" receiving the greatest number of votes cast by the stockholders, a plurality, will be the stockholders' non-binding choice as to the frequency of the occurrence of future advisory votes on executive compensation. As a result, broker non-votes and abstentions will not be counted in determining which alternative received the largest number of votes cast. For the advisory vote on the frequency of the "say on pay" vote, you may choose between "1 Year," "2 Years," or "3 Years" or abstain from voting.
The Board of Directors unanimously recommends that you vote "FOR" the option every "3 Years" for future advisory votes on executive compensation.
CORPORATE GOVERNANCE
Meetings of the Board of Directors and Committees
Board of Directors
The property, affairs and business of our company are under the general management of our Board of Directors as provided by the laws of the State of Nevada and our Bylaws. We have separately designated standing Audit, Compensation and Nominating and Corporate Governance Committees of the Board of Directors. The Audit Committee was established in accordance with section 3(a)(58)(A) of The Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"). The Board of Directors held fourthree meetings during fiscal 2010.2013. Each director attended at least 75% of the aggregate of the total meetings of the Board and the total number of meetings held by all committees of the Board on which such director served during fiscal 2010.2013. The Company currently has no formal policy with respect to the attendance of members of the Board of Directors at annual meetings. ThreeFour Directors, Mr.Messrs. Robert Herlin, Mr.Gene Stoever, Edward DiPaolo and Mr.William Dozier attended our 20092012 Annual Meeting.Meeting of Stockholders.
Director Independence
The Board of Directors affirmatively determines the independence of each director in accordance with the NYSE AmexMKT rules and listing standards. The Board has determined that Messrs. Laird Q. Cagan, William E. Dozier, Edward J. DiPaolo, Gene G. Stoever and Kelly W. Loyd each qualify as independent non-employee directors with no relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Mr. Robert S. Herlin is not independent.independent since he is a Named Executive Officer of the Company.
Audit Committee
The Board of Directors has instructed the Audit Committee to meet periodically with our management and independent auditors to, among other things, review the results of the annual audit and quarterly reviews and discuss our financial statements, recommend to our board the independent auditors to be retained, and receive and consider the auditors’auditors' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The Audit Committee is also authorized to review related party transactions for potential conflicts of interest. The Audit Committee’sCommittee's functions are further described under the heading “Audit"Audit Committee Report”Report". A copy of the written charter adopted by the Board of Directors for the Audit Committee and as currently in effect is included on our website, http://www.evolutionpetroleum.com/company_governance.html.
The Audit Committee is currently composed of Mr. Gene G. Stoever, Chairman, and Messrs. Edward J. DiPaolo and William E. Dozier. Each member of the Audit Committee is “independent,”"independent," as such term is defined in the listing standards for companies listed on the NYSE Amex.MKT. Each member of the Audit Committee also satisfies the Securities and Exchange Commission’sCommission's additional independence requirements for members of audit committees. The Board has determined that Mr. Stoever qualifies as a “financial expert”"financial expert" as defined under Item 401(e)(2) of Regulation S-K of the Securities Act of 1933. The Audit Committee met four times during fiscal year 2010.2013.
The management of Evolution Petroleum Corporation is responsiblehas the primary responsibility for the Company’sfinancial statements and the reporting process, including the systems of internal controls and the financial reporting process.disclosure controls and procedures. The Company’sCompany's independent registered public accounting firm (herein, our “independent auditor”"independent auditor") is responsible for performing an independent audit of the Company’sCompany's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America. The independent auditor is also responsible for performing independent audits of the Company's internal controls over financial reporting. The Audit Committee monitors and oversees these processes and reports to our Board of Directors with respect to its findings.
In order to fulfill its monitoring and oversight duties, the Audit Committee has reviewed and discussed the audited financial statements contained in the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended June 30, 20102013 with both management and the independent registered public accounting firm, Hein & Associates LLP, matters related to Section 404 of the Sarbanes-Oxley Act of 2002, and the matters required to be discussed by the statement on Auditing Standards No. 61, as amended and adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with the independent auditor the independent auditor’sauditor's independence.
During fiscal 2010, management assessed the effectiveness of the Company’s system of internal control over financial reporting in connection with the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which theThe Audit Committee reviewed and discussed with our independent auditors, the overall scope and plans for the audit. We met with our independent auditors, with and without management, to discuss the results of their examination, their evaluation of our internal controls, and the Company’s independent auditing firm asoverall quality of June 30, 2010. In accordance with SEC rules for “smaller reporting companies”, the independent auditors were not asked to render an opinion as to the effectiveness of internal controls overour financial reporting.
Based on the forgoing reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements for the year ended June 30, 20102013 be included in the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended June 30, 20102013 for filing with the Securities and Exchange Commission. The Board of Directors approved such inclusion.
Respectfully submitted by the Audit Committee,
Mr. Gene G. Stoever, Chairman
Mr. Edward J. DiPaolo
Mr. William E. Dozier
Compensation Committee
The Compensation Committee is authorized to review and recommend annual salaries and short-term incentive bonuses of our executive officers and has the authority to determinerecommend to the Board of Directors the recipients of options and stock awards, the time or times at which options and stock awards shall be granted, the exercise price of each option, and the number of shares to be issuable upon the exercise of each option under our stock plan. In addition,particular, the Compensation Committee recommends to the full Board the compensation of our Chief Executive Officer. In fulfilling its responsibilities, the Compensation Committee has the authority to engage independent compensation consultants or legal advisers when determined by the Committee to be necessary or appropriate. The members of the Compensation Committee currently consist of Mr. Dozier, Chairman, and MessrsMr. DiPaolo and Cagan.Mr. Loyd. A copy of the written charter adopted by the Board of Directors for the Compensation Committee and as currently in effect is included on our website, http://www.evolutionpetroleum.com/company_governance.html.company_governance.html. All of the three members of the Compensation Committee are “independent,”"independent," as such term is defined in the listing standards for companies listed on the NYSE Amex.MKT. The Compensation Committee met fournine times during fiscal year 2010.2013.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, the current members of which are Mr. DiPaolo, who serves as Chairman, and Messrs. Stoever, Cagan and Loyd, is responsible for identifying, screening, and recommending qualified candidates to serve on our Board of Directors and providing guidance and policy on corporate governance. As previously disclosed, Mr. Cagan's term on the Committee ends upon his retirement from the Board of Directors effective at the Annual Meeting. Upon Mr. Cagan's retirement, assuming their respective election at the Annual Meeting, the three remaining members of the Committee will be Messrs. DiPaolo, Stoever and Loyd. A copy of the written charter adopted by the Board of Directors for the Committee and as currently in effect is included on our website, http://www.evolutionpetroleum.com/company_governance.html. Pursuant to its charter, the Committee is directed, among other things, to: develop and recommend to the Board specific guidelines and criteria for selecting nominees to the Board; formulate a process to identify and evaluate candidates to be recommended; review periodically compensation programs for non-employee directors and make recommendations for changes when appropriate; and evaluate the performance of incumbent members of the Board to determine whether to recommend such persons for re-election. All three membersEach of the nominating committee are “independent”Mr. DiPaolo, Stoever and Loyd is "independent" as defined in the listing standards for companies listed on the NYSE Amex.MKT.
It is our policy that the Committee consider recommendations for the nomination of directors submitted by our shareholders.stockholders. All such stockholder nominating recommendations must be in writing,
addressed to the Nominating and Corporate Governance Committee, care of the Corporate Secretary at Evolution Petroleum Corporation, 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042. Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be considered. Stockholders wishing to recommend nominees for election as directors at an annual meeting should submit such recommendation, together with any relevant information that they wish the Nominating Committee to consider, to the Corporate Secretary no later than 120 days prior to the date of the notice of annual meeting released to stockholders in connection with the current year’syear's annual meeting. The stockholder’sstockholder's nomination notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director: (a) the name, age, business address and residence address of the person; (b) the principal occupation or employment and business experience of the person for at least the previous five years; (c) the class and number of shares of our capital stock which are beneficially owned by the person; and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the rules and regulations of the SEC under Section 14 of the Exchange Act; and (ii) as to the stockholder giving the notice: (a) the name and record address of the stockholder; and (b) the class and number of shares of our capital stock which is beneficially owned by the stockholder. Such submission must be accompanied by the written consent of the
proposed nominee to be named as a nominee and to serve as a director, if elected. We may require any proposed nominee to furnish such other information as may reasonably be required by us to determine the eligibility of such proposed nominee to serve as a director.
The Committee has determined that, at the minimum, nominees for directorship should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’sCompany's stockholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment. The Company endeavors to have a board representing diverse experience in areas that are relevant to the Company’sCompany's business activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities efficiently, and should be committed to serve on the Board for an extended period of time.
Prior to nominating a candidate for election to the Board, the Committee will review the qualifications of each candidate. The Committee does not have a formal policy with regard to considering diversity in its identification of director candidates; however, the Committee does consider diversity in business and professional experience, education, and background that can benefit us by increasing the range of skills and perspectives available to our Board of Directors. Members will be selected without regard to race, gender, religious belief, ancestry, national origin or disability. Our Board of Directors believes that adherence to these principles will provide an environment and practices that will yield the best return for our shareholders. Each director is expected to act as the lead director in their respective area of expertise.stockholders.
Final candidates may be interviewed by the Company’sCompany's Chairman of the Board and one or more other Committee members. The Committee will then make a recommendation to the Board based on its review, the results of interviews with the candidate and all other available information.
In determining whether to nominate an incumbent director for reelection, the Committee will evaluate each incumbent’sincumbent's continued service, in light of the Board’sBoard's collective requirements, at the time such Director comes up for reelection.
In determining whether to include a stockholder nominee in the Board’sBoard's slate of nominees, the Committee will consider all information relevant in their business judgment to the decision of whether to nominate the particular candidate for a Board seat, taking into account the current composition of the Company’sCompany's Board.
In addition to the foregoing, stockholders may nominate directors for election without consideration by the Committee so long as we are provided with proper notice of such nomination, which notice includes all the information required pursuant to Regulation 14A under the Exchange Act
including the consent to serve as a director. The Nominating Committee met oncetwice during fiscal year 2010.2013. Mr. Cagan, a current member of the Nominating and Corporate Governance Committee, is retiring from the Board on December 5, 2013.
Annual Meeting Attendance
We do not have a policy requiring members of our Board of Directors to attend annual meetings of our stockholders.
Leadership Structure of the Board
As prescribed by our bylaws, the Chairman of our Board of Directors has the power to preside at all meetings of the Board. Robert S. Herlin, our Chief Executive Officer and President, serves as the Chairman of our Board of Directors. Although ourThe Board believesof Directors created the position of Lead Independent Director in 2012 and following the 2012 Annual Meeting elected Mr. DiPaolo to serve in that role until the combinationnext meeting of the Chairman and Chief Executive Officer positions is appropriate for our company inBoard of Directors following the current circumstances, there is no corporate policy requiring those positions to be held by the same person.2013 Annual Meeting.
Our Chief Executive Officer is appointed by the Board to manage our daily affairs and operations. We believe that Mr. Herlin’sHerlin's extensive industry experience and direct involvement in our operations make him best suited to serve as Chairman in order to (i) lead the Board in productive, strategic planning, (ii) determine necessary and appropriate agenda items for meetings of the Board with input from both our independent directors and management, and (iii) determine and manage the amount of time and information devoted to discussion and analysis of agenda items and other matters that may come before the Board. Our Board structure also fosters strong oversight by our independent directors, each of whom actswith Mr. DiPaolo currently serving as the lead director in their area of industry expertise.our Lead Independent Director. Mr. Herlin is the only member of management who serves on the Board, and all of the other directors are fully independent. Each of the committees of the Board is chaired by an independent director.
Meetings of Non-Management Directors
Our non-management Board members regularly meet in executive session outside the presence of management, generally at each Board meeting. Because thereExecutive sessions of our outside directors are only five non-management directors that meet in the executive sessions, they have determined that is not necessary to appoint a “lead director” to preside over such sessions. Any of the non-management directors is permitted to raise any item for discussion.led by our lead independent director, currently Mr. DiPaolo. These executive sessions may be attended by our outside legal counsel whoas requested by the non-management Board members. The Lead Independent Director is responsible for providing feedback regarding these meetings to the Chairman and serving as a liaison between the non-management directorsChairman.
Risk Oversight
The Audit Committee discusses with management and the Chairman.independent auditors the Company's major financial risk exposures (including potential or pending litigation) and steps management has taken to monitor and control such exposures, including the Company's risk assessment and risk management policies. The Board believes that this informal approach is appropriate and effective due to the size of our Board and effectively complements our combined Chief Executive Officer/Chairman structure.
Risk Oversight
The Board considershas oversight of our risk management efforts to be a responsibility of the entire Board.management. The Board’sBoard's role in risk oversight includes receiving regular reports from members of senior management on areas of material risk to us, including but not limited to operational, financial, personnel, information technology, environmental, legal and regulatory, strategic and reputational risks. The full Board receives these reports to enable the Board to understand our risk identification, risk management, and risk mitigation strategies. The Board also makes risk management an integral part of our annual strategic planning process, which addresses, among other things, the risks and opportunities facing us.
Transactions with Related Parties
Laird Q. Cagan, a member of our Board of Directors until the Annual Meeting, is a Managing Director and co-owner of Cagan McAfee Capital Partners, LLC ("CMCP"). CMCP has performed financial advisory services to us pursuant to a written agreement amended in December 2008. Also
pursuant to the Agreement, Mr. Cagan, as a registered representative of Colorado Financial Services Corporation and as a partner of CMCP, could serve as our placement agent in private equity financings, wherein CMCP could earn cash fees equal to 8% of gross equity proceeds, declining to 4% subject to the amount of equity raised through CMCP, and a fixed 4% warrant fee. Neither Mr. Cagan nor CMCP have provided any advisory services since December 2008, or placement services since May 2006. On May 3, 2012, 65,261 shares of common stock were issued to Mr. Cagan through a net cashless exercise of placement warrants. The placement warrants, which were issued to Mr. Cagan in 2004 in connection with a financing transaction, gave Mr. Cagan the right to purchase 91,200 shares, with a weighted average exercise price of $1.00 per share. On June 12, 2013, 922 shares of common stock were issued to Mr. Cagan through a net cashless exercise of placement warrants. The placement warrants, which were issued to Mr. Cagan in 2004 in connection with a financing transaction, gave Mr. Cagan the right to purchase 1,165 shares, with a weighted average exercise price of $2.25 per share. Mr. Cagan's term on the Board will expire at the Annual Meeting.
The Company has adopted policies and procedures for approval of related party transactions (a "Transaction"), which is set forth in our Code of Business Conduct and Ethics. The Audit Committee and the Board of Directors will be responsible for approving and negotiating the terms of such a proposed Transaction. If a Transaction involves a corporate opportunity, such opportunity must have been approved in writing by the Board. The Board has the authority to approve or disapprove the use of the rejected corporate opportunity by the individual who wants to utilize the opportunity that the Company has rejected. The Company will make all required disclosures as appropriate in its periodic or special filings.
None.
Code of Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including the principal executive officer, principal financial officer and principal accounting officer. It covers all areas of professional conduct, but not limited to, conflicts of interest, disclosure obligations, insider trading, confidential information, as well as compliance with all laws, rules and regulations applicable to Evolution’sEvolution's business.
Confidential and anonymous reports of suspected or actual violations of our Code of Ethics should be directed to our Compliance Officer, Sterling H. McDonald, either by writing to him at 2500 CityWest Boulevard, Suite 1300, Houston, TX,Texas 77042, or by calling him at 713-935-0122.(713) 935-0122. Reports of such violations would include, among other things:
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You can access the latest copy of our Code of Business Conduct and Ethics on our website, http://www.evolutionpetroleum.com/company_governance.html. Or, to obtain a copy of Evolution’sEvolution's Code of Business Conduct and Ethics, without charge, any person may submit a written request to Evolution Petroleum Corporation, c/o Corporate Secretary, 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042.
Legal Proceedings
Currently, no director or executive officer, to our knowledge, is a party to any material legal proceeding adverse to the interests of the Company. Additionally, no director or executive officer has a material interest in a material proceeding adverse to the Company.
Stockholder Communications with the Board
Any stockholder can communicate with all directors or with specified directors by sending correspondence to our Corporate Secretary at 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042. All such letters will be forwarded to the entire Board or to the Director(s) specified by the stockholder.
Except as noted, our directors receive compensation for serving on the board and for serving as committee members. Robert S. Herlin, who serves as the Chairman of the Board, President and Chief Executive Officer, receives no additional compensation for serving as a director or committee member. During fiscal 2012, Mr. Loyd began receiving compensation as an outside director and for his service on the Compensation and Nominating and Corporate Governance committees. Information is supplied with respect to Mr. Cagan, whose retirement from the Board will be effective at the Annual Meeting.
The compensation plan for our outside directors constitutes a cash retainer of $40,000 per year, plus meeting fees of $1,000 per day for board and committee meetings attended in person and $500 per day for those meetings attended telephonically, with a maximum of one fee paid per day in total. The Chair of the Audit Committee, who also chairs the Dividend Committee, is paid an additional retainer of $18,000 per annum, the Chair of the Compensation Committee is paid an additional retainer of $12,000 per annum, and the Chair of the Nominating and Governance Committee is paid an additional $7,500 per annum. In addition to the cash retainers and fees, the outside directors receive a payment of restricted stock with a fair market value of $50,000 per annum awarded as of the date of each annual stockholders meeting. These shares of restricted stock vest at the earlier of one year from the date of grant or the date of the next Annual Meeting. We also reimburse our non-employee directors for any direct expenses they incur in their capacity as directors, generally limited to travel costs related to board and committee meetings.
The following table sets forth a summary of the compensation the Company paid to its directors in fiscal 2013:
Director | Fees Earned or Paid in Cash(1) | Stock(2) Awards | All Other Compensation | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Laird Cagan | $ | 42,000 | $ | 50,000 | $ | — | $ | 92,000 | |||||
Edward DiPaolo | 59,875 | 50,000 | — | 109,875 | |||||||||
William Dozier | 64,500 | 50,000 | — | 114,500 | |||||||||
Kelly Loyd | 50,500 | 50,000 | — | 100,500 | |||||||||
Gene Stoever | 65,000 | 50,000 | — | 115,000 | |||||||||
Robert Herlin(3) | — | — | — | — |
Director Outstanding Equity Awards at Fiscal Year-End 2013
| Option Awards | Stock Awards | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Director | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of shares of Stock That Have Not Vested (#)(1) | Market Value of Shares of Stock That Have Not Vested ($) | |||||||||||||
Laird Cagan | 6,394 | $ | 69,759 | ||||||||||||||||
Edward DiPaolo | 100,000 | $ | 1.27 | 10/22/2014 | |||||||||||||||
28,000 | 1.10 | 8/22/2015 | |||||||||||||||||
50,000 | 3.03 | 5/10/2016 | |||||||||||||||||
6,394 | $ | 69,759 | |||||||||||||||||
William Dozier | 100,000 | $ | 1.21 | 12/12/2015 | |||||||||||||||
25,000 | 3.03 | 5/10/2016 | |||||||||||||||||
6,394 | $ | 69,759 | |||||||||||||||||
Kelly Loyd | 6,394 | $ | 69,759 | ||||||||||||||||
Gene Stoever | 100,000 | $ | 1.27 | 10/22/2014 | |||||||||||||||
28,000 | 1.10 | 8/22/2015 | |||||||||||||||||
50,000 | 3.03 | 5/10/2016 | |||||||||||||||||
6,394 | $ | 69,759 | |||||||||||||||||
Robert Herlin(2) |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based solely upon information made available to us, the following table sets forth information with respect to the beneficial ownership of our common stock as of October 18, 2013 (except as otherwise indicated) by (1) each person who is known by us to beneficially own more than five percent of our common stock (based solely on our review of SEC filings); (2) each of our directors; (3) each of the named executive officers listed in the Summary Compensation Table below under the caption "Executive Compensation"; and (4) all executive officers and directors as a group. Shares of common stock that are subject to outstanding options and warrants that are presently exercisable or exercisable within 60 days are deemed to be outstanding for purposes of computing the percentage ownership of the holder of the options and warrants, but not for any other. The number of shares beneficially owned by a person also includes restricted shares held by such person. Except as otherwise indicated in the footnotes, the owners listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, subject to community property laws where applicable, and
the address of each beneficial owner listed on the table is c/o Evolution Petroleum Corporation, 2500 CityWest Boulevard, Suite 1300, Houston, Texas 77042.
Name and Address of Beneficial Owner | Amount and nature of beneficial ownership | Percent of class(1) | |||||
---|---|---|---|---|---|---|---|
Robert S. Herlin(2) | 2,785,350 | 9.2 | % | ||||
Sterling H. McDonald(3) | 1,278,879 | 4.3 | % | ||||
Daryl V. Mazzanti(4) | 1,160,824 | 3.9 | % | ||||
Laird Q. Cagan(5) | 79,426 | * | |||||
Edward J. DiPaolo(6) | 257,368 | * | |||||
William E. Dozier(7) | 204,368 | * | |||||
Gene G. Stoever(8) | 257,368 | * | |||||
Kelly W. Loyd(9) | 13,243 | * | |||||
All executive officers and Directors as a group (eight persons)(2)(3)(4)(5)(6)(7)(8)(9) | 6,036,826 | 18.6 | % | ||||
Nokomis Capital, LLC.(10) | 1,659,951 | 5.0 | % | ||||
River Road Asset Management, LLC(11) | 2,045,738 | 6.1 | % | ||||
JVL Advisors(12) | 5,360,512 | 16.0 | % | ||||
Advisory Research, Inc.(13) | 1,712,345 | 5.1 | % | ||||
Wellington Management Company, LLP(14) | 1,536,494 | 4.6 | % |
COMPENSATION COMMITTEE REPORT ON 2013 EXECUTIVE COMPENSATION
The Compensation Committee, the members of which are listed below, is responsible for establishing and administering the executive compensation programs of the Company. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Respectively submitted by The Compensation Committee:
Mr. William Dozier, Chairman
Mr. Edward DiPaolo
Mr. Kelly Loyd
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis is intended to assist the reader in understanding the Company's compensation programs. It is intended to explain the philosophy underlying the Company's compensation strategy and the fundamental elements of compensation paid to the Company's President and Chief Executive Officer ("CEO") and other officers whose compensation is reported in the Summary Compensation Table (together with the CEO, the "Named Executive Officers"). This Compensation Discussion and Analysis is organized as follows:
I. Executive Summary
The Company's compensation programs are designed to incentivize the Named Executive Officers to build meaningful shareholder value over the long-term. Our primary strategy to achieve alignment between shareholders and the Named Executive Officers has been to provide a substantial portion of the Named Executive Officers' compensation in the form of long-term incentives. This strategy has complemented the life cycle of the Company, which as a relatively young organization has delivered a significant portion of employee compensation through the use of equity-based awards, thus aligning employees with shareholders and conserving cash to invest in operations. The Compensation Committee continues to believe that share ownership by the Named Executive Officers is an essential aspect of linking the actions and goals of management with the well-being of shareholders.
The Company attracts, retains and motivates the Named Executive Officers also through competitive base salaries and performance-based annual bonuses. For more information on the different elements of compensation paid to the Named Executive Officers during Fiscal 2013, see the section entitled "Elements of Our Compensation Program for Fiscal Year 2013."
As described later, the Compensation Committee takes many factors into consideration when making decisions affecting the compensation of our Named Executive Officers. During Fiscal 2013, the Compensation Committee considered, among other things, the exemplary performance of the Company during the year, including the following financial and strategic achievements:
Finally, the compensation programs for our Named Executive Officers are intended to be clear and not overly complicated. The Compensation Committee structures executive compensation to provide a direct link between pay and performance. In an effort to allow all employees, including our Named Executive Officers, to understand how their behavior and actions impact corporate performance, and ultimately their compensation, the Company has adopted an egalitarian approach to compensation whereby every employee in the Company receives grants of equity-based awards and participates in the same incentive compensation program. All employees are measured in part based on the same set of performance goals. Similarly, employee benefits and change in control provisions are the same for all employees, including Named Executive Officers, to foster an atmosphere of teamwork that is focused on achieving a consistent set of objectives, all of which are developed with a singular purpose in mind-to increase shareholder value.
II. Objectives and Key Considerations of Our Compensation Programs
The objectives of the Company's compensation programs for our Named Executive Officers are to attract, retain, and motivate capable individuals who are critical to developing our business plan and executing in key areas that are fundamental to meeting goals. These three objectives—attraction, retention and motivation—are central objectives and are paramount in the ultimate objective of our compensation programs: to create and protect shareholder value. As more fully described in Section V—"Elements of Our Compensation Program for Fiscal Year 2013," each element of compensation is utilized to further efforts to aid in attraction, retention and motivation. In general and at this stage of the Company's growth and size relative to its peers, the Company targeted Named Executive Officer compensation to such median Peer Group total compensation for above median performance.
The Company has historically considered, and will continue to consider, the above objectives in all material compensation decisions and intends to continue doing so in the future. The Committee believes that targeting these objectives will result in building a strong management team capable of creating long-term, sustainable growth for shareholders.
III. Roles in the Decision-Making Process
The primary participants in the decision-making process in matters involving executive compensation are the Compensation Committee and the CEO. The CEO makes recommendations to the Compensation Committee regarding certain elements of compensation for the Named Executive Officers, other than himself. However, the Compensation Committee makes the final determination on
all compensation recommendations to the Board of Directors impacting the Named Executive Officers and certain other members of senior management. The Company also from time to time may engage compensation consultants, who provide benchmark data regarding competitive levels of executive pay as well as compensation trends and best practices within our industry.
As described in its charter, the Compensation Committee is tasked with reviewing and making recommendations to the Board of Directors regarding executive compensation and benefit plans and programs. For the Named Executive Officers and certain other members of senior management, the Compensation Committee makes the final determination as to levels of base salary, annual incentive program targets and payouts, and long-term incentive program targets and grants, subject to Board of Director approval.
IV. Items the Compensation Committee Considers When Making Compensation Decisions
When making compensation decisions that affect the Named Executive Officers, the Compensation Committee takes a number of items into consideration, which are discussed below. In addition, the Compensation Committee may also find it necessary from time to time to consider other items not specifically listed below.
Market Practices
On a periodic basis, the Compensation Committee reviews trends in executive compensation, both within a group of comparable exploration and production companies (our "Peer Group") and in the broader industry. In addition, the Compensation Committee also considers the relative amount of compensation paid to similar executives within the Peer Group to establish median levels. Relative to Fiscal 2011, the Compensation Committee engaged Longnecker & Associates to perform a market study to analyze absolute and targeted levels of executive pay, pay mix, long-term incentive vehicle utilization, and annual incentive program targets and structures, utilizing data from proxy statement disclosures as well as published salary surveys. The Compensation Committee used the results and observations from the Longnecker and Associates compensation study as one of many reference points in making compensation decisions for Fiscal 2012.
At the beginning of Fiscal 2013, the Company engaged Alvarez & Marsal Taxand, LLC ("A&MT") to review, among other compensation matters, the Peer Group utilized in benchmarking executive compensation levels and trends and overall compensation structure. The Peer Group for Fiscal 2013 differs from Fiscal 2012 due to the deletion of Samson Oil & Gas Ltd, GMX Resources, Gastar and Double Eagle Petroleum, and the addition of Synergy Resources to better fit our operations, product mix, organization and size. In considering companies for inclusion in the Peer Group, the Compensation Committee took into account a variety of factors, including revenue, market capitalization, capital structure, production levels, reserves, and area of strategic focus (natural gas versus liquids). The resulting Peer Group for Fiscal 2013 is comprised of the following companies:
For Fiscal 2014, the peer group will be adjusted to exclude Crimson Exploration and Credo Petroleum due to mergers involving those companies.
Business Environment
As a public company engaged in the acquisition, exploitation and development of oil and natural gas properties, we operate in an extremely cyclical industry. In an effort to combat this volatile environment, the Company recruited a seasoned management team that has grown share value in an organic manner without taking on burdensome debt that could constrain future operations. However, financial success is and will continue to be heavily impacted by commodity prices that have experienced high volatility in recent years.
As discussed in "Elements of Our Compensation Program for Fiscal 2013," annual and long term incentive compensation includes many objective performance metrics that can be measured in numerical and/or operational terms. However, the Compensation Committee has exercised, and will continue to exercise, a degree of discretion in administering the compensation programs for the Named Executive Officers due to the volatile oil and gas business environment as well as a number of other factors, including the fact that much of Company revenue is dependent on the activities of third-party operators. The Compensation Committee believes that this is necessary in order to retain and reward management for efforts that may not immediately translate to specific performance metrics, but that ultimately will drive long-term, sustainable shareholder growth.
Consideration of Risk
The compensation programs have been constructed to provide the Named Executive Officers with incentives to build shareholder value over the long term, while avoiding excessive risk-taking in the short term. A significant portion of all employees' compensation has and will continue to be paid out over multiple years through equity grants vesting over four-year periods. In establishing performance goals for compensation programs, the Compensation Committee has utilized a mix of safety, regulatory, operational, and strategic metrics to avoid excessive weight on any single criterion.
The Compensation Committee believes that the Company's executive compensation practices are appropriate to (i) encourage our Named Executive Officers to take appropriate levels of risk; and (ii) create sustained shareholder value over a long period of time.
Tax and Accounting Considerations
The Company is aware of the tax and accounting implications regarding the delivery of various forms of compensation. Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), as amended, generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to a corporation's Principal Executive Officer and the three other most highly compensated executive officers (excluding the Principal Financial Officer). To date, this limitation has been an insignificant factor in the deliberations of the Compensation Committee, but it will continue to evaluate the need to consider such limitations in the future.
V. Elements of Our Compensation Program for Fiscal Year 2013
As discussed in more detail below, the compensation program during fiscal year 2013 for the Named Executive Officers consisted of the following elements:
Base Salary
The base salaries of the Named Executive Officers are the foundation on which all other compensation elements are built. We currently utilize base salary to attract qualified executive talent and retain our senior management team. The Company believes that paying base salaries that are competitive with companies with which we compete for talent is essential to maintaining stability in our leadership.
In the past, the Company's financial position has limited its ability to deliver competitive levels of base salary and annual cash incentive compensation to the Named Executive Officers and therefore relied more heavily on equity-based vehicles. However, as the Company has matured and begun to establish a consistent record of meaningful cash flow, we have increased cash compensation, including base salary, to levels more competitive with our peers. In establishing the Named Executive Officers' base salaries, the Compensation Committee also considers the responsibilities and duties of the individual, historical performance, industry experience, and overall importance to the Company.
The base salaries of our Named Executive Officers for Fiscal 2013 were approved by the Compensation Committee in August 2012. In August 2013, following the end of Fiscal 2013, the Compensation Committee again reviewed and made adjustments to the Named Executive Officer's base salaries after considering current pay, individual performance and market pay levels. Specifically, the Longnecker & Associates compensation study revealed that the base salaries of our Named Executive Officers were generally at or below the 25th percentile of the competitive market, and thus increases were necessary in Fiscal 2012 and 2013 to approach the competitive median. The following table sets forth the Named Executive Officers' base salaries for Fiscal 2012, 2013 and 2014.
Named Executive Officer | Fiscal 2012 Base Salary | Fiscal 2013 Base Salary | Fiscal 2014 Base Salary | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Robert S. Herlin | $ | 335,000 | $ | 380,000 | $ | 399,000 | ||||
Chairman, President and Chief Executive Officer | ||||||||||
Sterling H. McDonald | 230,000 | 260,000 | 273,000 | |||||||
Vice President, Chief Financial Officer and Treasurer | ||||||||||
Daryl V. Mazzanti | 230,000 | 260,000 | 273,000 | |||||||
Vice President, Operations |
Annual Incentive
Each fiscal year, our Named Executive Officers, as well as all employees of the Company, have the opportunity to earn cash payments under the annual incentive program designed to motivate all employees to achieve near-term corporate and individual goals. If employees are successful in satisfying their individual metrics, the annual incentive program provides for the payment of meaningful annual incentive payments.
Annual incentives are administered in a similar manner and structure for all employees of the Company. Elements of the corporate objectives that drive determination of the annual incentives for the Named Executive Officers are used in deciding cash incentive payouts for all staff. Annual incentives are determined using three inputs: the Individual Rating, Company performance relative to stretch incentive performance goals, and the Target Incentive.
The individual rating of the Chief Executive Officer was determined qualitatively based on performance of the Company in achieving the following goals:
The individual rating of the Chief Financial Officer was determined qualitatively based on individual performance in achieving goals including, but not limited to, the following:
The individual rating of the Vice President-Operations/NGS Technologies was determined qualitatively based on individual performance in achieving goals including, but not limited to, the following:
The Compensation Committee believes that disclosure of certain goals and certain quantitative targets could result in competitive harm to the Company, thus not all goals are disclosed publicly.
The Committee considered the CEO's recommendations as to the individual ratings of all employees other than the CEO and ultimately determined each Named Executive Officer's Individual Rating and ratified the CEO's ratings of employees other than the Named Executive Officers.
Once the Individual Ratings were determined, the addition of these ratings plus any special incentive awards is multiplied against the Named Executive Officer's Target Incentive. The Target Incentive is defined as a percentage of base salary. For recent years through fiscal 2012, the Target Incentives were 100% of base salary for Mr. Herlin and 75% of base salary for Messrs. McDonald and Mazzanti. Based on the three factors that determined annual incentives, the incentive payments to the Named Executive Officers in respect of Fiscal 2013 were determined as shown in the chart below. Such annual incentives generally fell within the middle two quartiles of the Peer Group.
For Fiscal year 2013, a special stretch incentive performance award of 15% was awarded to all employees including the Named Executive Officers. This was achieved due to the outstanding performance of the Company's common stock, with its total shareholder return coming into the top
quartile of the SIG Oil Exploration and Production Index (Nasdaq: EPX) for Fiscal year ending June 30, 2013.
Named Executive Officer | Individual Rating | | Special Performance Award | | Target Incentive | | Fiscal Year 2013 Bonus | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert S. Herlin | 95 | % | + | 15 | % | x | $ | 380,000 | = | $ | 418,000 | ||||||||
Chairman, President and Chief Executive Officer | |||||||||||||||||||
Sterling H. McDonald | 85 | % | + | 15 | % | x | 195,000 | = | 195,000 | ||||||||||
Vice President, Chief Financial Officer and Treasurer | |||||||||||||||||||
Daryl V. Mazzanti | 75 | % | + | 15 | % | x | 195,000 | = | 175,500 | ||||||||||
Vice President, Operations |
For Fiscal 2014, a special incentive performance award will be provided to all employees that could result in an incremental 25% of the Annual Target Incentive based on the Company attaining certain quantitative goals of TSR compared to the SIG Oil and Gas Exploration Index and a higher level of commercialization of the GARP® technology.
In addition to participation in the annual incentive program, Mr. Mazzanti is eligible to earn a royalty fee of $5,057, adjusted for inflation annually, for each commercial installation of GARP®. Payment of this incentive is pursuant to a June 2011 technology assignment agreement, as amended, between Mr. Mazzanti and the Company. During Fiscal 2013, Mr. Mazzanti was successful in securing four commercial installations. As such, Mr. Mazzanti received $20,226 in royalty fees during Fiscal 2013. This amount is reported in the Summary Compensation Table in the column "All Other Compensation."
Long-Term Incentives
We utilize a long-term incentive plan that currently awards restricted shares as a compensation vehicle that we believe aligns the interests of our Officers and all other employees with shareholders. Long-term incentives ("LTI") utilizing both restricted stock and stock options vesting over four years in quarterly amounts have also been a major and required tool to attract and retain experienced staff during the early life of the Company, and increasing use of restricted stock in place of options has mitigated dilution of shareholders. The Compensation Committee believes that delivering a significant portion of total compensation in the form of LTI that vest over a period of many years' acts to retain our management team over the long-term and motivates them to engage in activities that will promote sustainable growth in the price of our stock. Primarily through long-term incentive grants, our Named Executive Officers have accumulated significant share ownership, with beneficial ownership of approximately 18% of common shares. In addition, all employees, including the Named Executive Officers, are more fully aligned with shareholders as a result of our stock retention policy, which is described in more detail in the section "Other Compensation Policies Affecting the Named Executive Officers."
Since Fiscal 2009, the Company has solely utilized restricted shares to deliver LTI value to all employees. In earlier years, the Company utilized stock options to provide LTI to attract and retain employees during the startup phase of the Company. All employees of the Company are granted restricted shares on an annual basis, following completion and acceptance of the annual independent engineering reports and financial audit.
In prior years, the size of the restricted share grants for all employees, including the Named Executive Officers, was determined by considering two factors—individual LTI Targets and an overall corporate multiplier, which is determined based on Company performance during the trailing fiscal year. Following the end of the fiscal year, generally in September, the Compensation Committee, utilizing input and a recommendation from the CEO, makes an assessment of overall corporate performance. The overall corporate performance multiplier is then multiplied by each employee's Individual LTI Target to determine the value of the restricted stock grant.
In August 2012, the Compensation Committee made the determination that the overall corporate performance multiplier for Fiscal 2012 was 80%. As such, all employees, including the Named Executive Officers, were awarded restricted stock grants having a grant date fair value equal to 80% of each employee's respective Individual LTI Target. While these grants were awarded in respect of Fiscal 2012, the grants did not occur until Fiscal 2013, and as such are shown in the Grants of Plan-Based Awards Table. Details regarding these grants are also shown below for the Named Executive Officers.
Named Executive Officer | Overall Corporate Performance Multiplier | | Individual LTI Target | | Grant Date Fair Value—August 2012 Restricted Share Grant | Number of Restricted Shares(1) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert S. Herlin | 80 | % | x | $ | 502,500 | (2) | = | $ | 402,003 | 50,694 | |||||||
Chairman, President and Chief Executive Officer | |||||||||||||||||
Sterling H. McDonald | 80 | % | x | 230,000 | (3) | = | 184,000 | 23,203 | |||||||||
Vice President, Chief Financial Officer and Treasurer | |||||||||||||||||
Daryl V. Mazzanti | 80 | % | x | 230,000 | (3) | = | 184,000 | 23,203 | |||||||||
Vice President, Operations |
For Fiscal 2011 through 2013, the Company has awarded the following amounts of securities to employees and directors:
Fiscal Year | Sign-on Stock Awards | Stock Options | Stock Awards | Total Awards | Common Shares Outstanding | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 | 25,000 | 0 | 186,197 | 211,197 | 28,608,969 | |||||||||||
2012 | 0 | 0 | 188,472 | 188,472 | 27,882,224 | |||||||||||
2011 | 4,845 | 0 | 189,908 | 194,753 | 27,612,916 |
Benefits
The Company provides benefits to the Named Executive Officers that are the same as those provided to all employees, entitling them to dollar-for-dollar matching contributions pursuant to a 401(k) Plan (up to 6% of cash compensation, subject to certain limits), life insurance, accidental death and dismemberment insurance, medical benefits, and short-and long-term disability premiums paid by the Company. The value of these benefits is included in the Summary Compensation Table in the column "All Other Compensation."
The Company does not sponsor a defined benefit pension plan or any nonqualified deferred compensation plans. Company policy prohibits loans to Named Executive Officers and they receive no perquisites.
VI. Employment Agreements and Severance Arrangements
Employment Agreements
The Company has entered into employment agreements with each of the Named Executive Officers. Each of these agreements is discussed in more detail below.
On April 4, 2005, we entered into an employment agreement with Mr. Herlin. This employment agreement superseded the original employment agreement between Mr. Herlin and the Company. Pursuant to Mr. Herlin's employment agreement, he serves as our President and Chief Executive Officer. The employment agreement provided an initial annual salary of $180,000 with additional annual increases at the discretion of the Board of Directors. The employment agreement provides that Mr. Herlin is entitled to a bonus of up to 100% of his base salary payable in cash or securities. In the event Mr. Herlin is terminated by the Company other than for cause or permanent disability (both as defined in the employment agreement) or if Mr. Herlin is subject to a constructive termination (as defined in the employment agreement), he is entitled to continuation of his base salary for one year following termination. In addition, Mr. Herlin is subject to a number of restrictive covenants following termination of employment, including non-disclosure of confidential information, non-solicitation of clients and employees for a period of one year and a non-competition clause for one year. In the event Mr. Herlin enters into similar employment during the salary continuation period, the Company may elect to terminate the non-solicitation and non-competition restrictive covenants in exchange for a reduction of 50% of the remaining salary continuation severance payments.
On April 4, 2005, we entered into an employment agreement with Mr. McDonald. This employment agreement superseded the original employment agreement between Mr. McDonald and the Company with the exception that Mr. McDonald retained the stock options under the terms previously granted. Pursuant to Mr. McDonald's employment agreement, he serves as our Chief Financial Officer. The employment agreement provided an initial annual salary of $150,000 with additional annual increases at the discretion of the Board of Directors. The employment agreement provides that Mr. McDonald is entitled to a bonus of up to 75% of his base salary. In the event Mr. McDonald is terminated by the Company other than for cause or permanent disability (both as defined in the employment agreement) or if Mr. McDonald is subject to a constructive termination (as defined in the employment agreement), he is entitled to continuation of his base salary, medical benefits, and long-term disability coverage for six months following termination. If Mr. McDonald's termination or constructive termination, as the case may be, is within one year following a change in control (as defined in the employment agreement), he is entitled to an additional severance payment equal to six months' base salary, paid in monthly increments, subject to a 50% reduction in the event Mr. McDonald obtains similar employment during the six-month period. In addition, Mr. McDonald is subject to a number of restrictive covenants following termination of employment, including non-disclosure of confidential information and non-solicitation of clients and employees for a period of one year.
On June 23, 2005, we entered into an employment agreement with Mr. Mazzanti. Pursuant to Mr. Mazzanti's employment agreement, he serves as our Vice President of Operations. The employment agreement provided an initial annual salary of $155,000 with additional annual increases at the discretion of the Board of Directors. The employment agreement provides that Mr. Mazzanti is entitled to a bonus of up to 75% of his base salary. In the event Mr. Mazzanti is terminated by the Company other than for cause or permanent disability (both as defined in the employment agreement) or if Mr. Mazzanti is subject to a constructive termination (as defined in the employment agreement),
he is entitled to continuation of his base salary, medical benefits, and long-term disability coverage for six months following termination. If Mr. Mazzanti's termination or constructive termination, as the case may be, is within one year following a change in control (as defined in the employment agreement), he is entitled to an additional severance payment equal to six months' base salary, paid in monthly increments, subject to a 50% reduction in the event Mr. Mazzanti obtains similar employment during the six-month period. In addition, Mr. Mazzanti is bound by the provisions of a proprietary information and inventions agreement.
Severance Arrangements
All of our employees, including the Named Executive Officers, are covered by the Evolution Petroleum Corporation Severance Policy for Change in Control Events ("CIC Policy"), which was adopted by the Compensation Committee in August 2010. In the event a Named Executive Officer is entitled to benefits under an employment agreement and the CIC Policy, the greater benefit will prevail. Under the terms of the CIC Policy, a change in control event is defined as (i) the sale of all, or substantially all, of the corporation's assets with the intent to distribute the proceeds to shareholders; (ii) entry by the Company into a material definitive agreement for a merger or sale of the corporation with or into another entity in which the majority of the Board of Directors will change; or (iii) one or more affiliated entities or persons acquire common stock sufficient to collectively own or control forty percent (40%) of outstanding common stock. Prior to the closing on a change in control event that is pending, the CIC Policy provides that 50% of all unvested stock options, warrants and restricted stock held by employees and directors will accelerate vesting, with the remaining 50% being replaced with securities of equivalent value having a vesting term no longer than the awards which they replaced. In the event of termination by the Company or a constructive termination, the remaining 50% of unvested stock options, warrants and restricted shares would immediately vest. In addition, employees would be entitled to receive one year of base salary, their Target Annual Incentive, and continuation of health, disability and life insurance coverage for a period of twelve months or until the alternative insurance is obtained. Notwithstanding, employees may refuse a portion of their separation payments in order to avoid the imposition of an excise tax under Code section 4999. The Company does not bear any responsibility for the imposition of such excise tax.
VII. Other Compensation Policies Affecting the Named Executive Officers
Stock Retention Policy
In April 2012, the Board of Directors approved and adopted the Evolution Petroleum Corporation Stock Retention Policy for Directors and Employees (the "Stock Retention Policy"). The Stock Retention Policy requires all directors and employees, including the Named Executive Officers, to retain share ownership at specified levels, depending on level of responsibility. The Named Executive Officers must retain a number of shares or equivalent equity awards equal to 60% of the total number of awards received through long-term incentive grants during the trailing three years. Other corporate officers and managers are subject to similar requirements, except the look-back period is two years. For all other employees, the look-back period is one year. In addition, each non-employee director must retain a number of shares or equivalent equity awards equal to 60% of the total number of awards received through long-term incentive grants during the trailing three years, excluding stock awards received in lieu of a cash retainer. Employees and directors have two years from the date of employment or appointment to comply with the Stock Retention Policy. As a result of our substantial reliance on long-term incentives historically, coupled with the Stock Retention Policy, the Named Executive Officers beneficially own approximately 18% of the Company's common stock. As of September 30, 2013, all directors and employees were in compliance with this stock retention policy.
Timing of Grants and Release of Material Non-Public Information
The Company has historically maintained consistency in the timing of long-term incentive grants to all employees, including the Named Executive Officers. Such grants have consistently been made in late August or early September following approval of our financial statements and engineering reserves by the Audit Committee. The Company has not in the past timed, nor does it plan to time, the release of material, non-public information to affect the value of executive compensation.
Financial Restatement
The Compensation Committee will, if the need arises, make a determination as to whether and to what extent compensation should be recaptured should there be a financial restatement that affects results utilized to determine incentive compensation.
Trading in the Company's Stock and Derivatives
No employee or director is permitted to execute open market transactions in the Company's securities during any blackout period except as prearranged through an approved 10b5-1 sales trading plan. The Company is unaware that any of the Named Executive Officers have entered into any derivative transactions linked to Company's securities.
Executive Officers of the Company
Set forth below is information regarding our executive officers including their ages, positions with our company and principal occupations and employers for at least the last five years. For information concerning executive officers' ownership of our common stock, see the table and related information provided under the caption "Security Ownership of Certain Beneficial Owners and Management."
For information regarding Robert S. Herlin, our Chairman of the Board, President and Chief Executive Officer, see "Proposal 1—Election of Directors."
Sterling H. McDonald (64). Mr. McDonald joined us as our Chief Financial Officer in November 2003 and has also been responsible for our administrative functions. From 1999 to 2003, Mr. McDonald was as an independent consultant and interim Chief Financial Officer to various companies. From 1997 to 1999, he served as Chief Financial Officer for PetroAmerican Services, a subsidiary of an integrated NYSE-traded oil and gas company. Previously, he served as Chief Financial Officer of PetroStar Energy, an exploration and production company, and Treasurer of Reading and Bates Corporation, a NYSE-traded international offshore drilling services, exploration and production company. Mr. McDonald holds a B.S. in Finance, and an MBA with highest academic achievement, from the University of Tulsa.
Daryl V. Mazzanti (51). Mr. Mazzanti joined our company as our Vice President of Operations in July 2005, to lead all of our oil and gas operations. From 1985 to 2005, Mr. Mazzanti was employed by Union Pacific Resources (UPR) and Anadarko Petroleum (the successor to UPR), where he managed operational, engineering and geotechnical teams responsible for oil and gas fields in Texas, Oklahoma, Louisiana, the Rockies and offshore Gulf of Mexico. His duties included overseeing up to 1,200 horizontal wells, optimizing artificial lift methods for a 750 well program and supervising multi-rig drilling and service programs. Mr. Mazzanti began his career in 1985 as a Development Engineer with Champlin Oil (the predecessor to UPR), where he was responsible for drilling, completion, workover, recompletion, reservoir analysis and surface facility optimization across Texas and offshore Gulf of Mexico Mr. Mazzanti holds a Bachelor of Science in Petroleum Engineering, with distinction, from the University of Oklahoma at Norman.
The following table set forth a summary of executive compensation for our named executive officers for our fiscal year ended June 30, 2013, 2012 and 2011. We had no other executive officers during these periods.
Name and Principal Position | Fiscal Year | Salary | Bonus(1) | Stock Awards(2) | All Other(4) Compensation | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert S. Herlin | 2013 | $ | 372,500 | $ | 418,000 | $ | 402,003 | $ | 26,608 | $ | 1,219,111 | ||||||||
Chairman, President and Chief | 2012 | 327,292 | 271,350 | 303,188 | 27,308 | 929,138 | |||||||||||||
Executive Officer | 2011 | 286,458 | 161,700 | 412,500 | 23,039 | 883,697 | |||||||||||||
Sterling H. McDonald | 2013 | $ | 255,000 | $ | 195,000 | $ | 184,000 | $ | 34,348 | $ | 668,348 | ||||||||
Vice President, Chief Financial | 2012 | 227,244 | 139,725 | 149,426 | 33,994 | 550,389 | |||||||||||||
Officer and Treasurer | 2011 | 211,771 | 100,862 | 203,300 | 31,227 | 547,160 | |||||||||||||
Daryl V. Mazzanti(3) | 2013 | $ | 255,000 | $ | 175,500 | $ | 184,000 | $ | 57,900 | $ | 672,399 | ||||||||
Vice President, Operations | 2012 | 227,244 | 139,725 | 149,426 | 54,608 | 571,003 | |||||||||||||
2011 | 211,771 | 84,052 | 203,300 | 29,213 | 528,336 |
The following table sets forth information concerning annual incentive awards granted during fiscal year 2013 to each of our named executive officers:
Fiscal Year 2013 Grants of Plan-Based Awards
| | | | | All Other Stock Awards; Number of Shares of Stock (#)(1) | All Other Option Awards; Number of Securities Underlying SARs | | Grant Date Fair Value of Shares of Stock and SARs Awards ($)(2) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Estimated Future Payouts Under Equity Incentive Plan Awards | | ||||||||||||||||||||||
| | Exercise or Base Price of SARs ($/Share) | |||||||||||||||||||||||
Name | Grant Date | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||
Robert S. Herlin | 9/7/2012 | — | — | — | 50,694 | — | — | $ | 402,003 | ||||||||||||||||
Sterling H. McDonald | 9/7/2012 | — | — | — | 23,203 | — | — | 184,000 | |||||||||||||||||
Daryl V. Mazzanti | 9/7/2012 | — | — | — | 23,203 | — | — | 184,000 |
2013 Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding awarded securities for each named executive officer outstanding as of June 30, 2013.
| Option awards(1) | Stock awards | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of securities underlying unexercised options & warrants (#) exercisable | Number of securities underlying unexercised options & warrants (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option/ warrant exercise price ($) | Option/ warrant expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($)(2) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | |||||||||||||||||||
Robert S. Herlin | 787,500 | — | $ | 1.80 | 04/04/2015 | |||||||||||||||||||||||
400,000 | — | $ | 1.41 | 02/15/2016 | ||||||||||||||||||||||||
250,000 | — | $ | 2.19 | 09/07/2017 | ||||||||||||||||||||||||
127,210 | — | $ | 4.02 | 08/19/2015 | ||||||||||||||||||||||||
97,260 | $ | 1,061,107 | ||||||||||||||||||||||||||
Sterling H. McDonald | 350,000 | — | $ | 1.80 | 04/04/2015 | |||||||||||||||||||||||
300,000 | — | $ | 1.41 | 02/15/2016 | ||||||||||||||||||||||||
150,000 | — | $ | 2.19 | 09/07/2017 | ||||||||||||||||||||||||
67,140 | — | $ | 4.02 | 08/19/2015 | ||||||||||||||||||||||||
46,489 | $ | 507,195 | ||||||||||||||||||||||||||
Daryl V. Mazzanti | 550,000 | — | $ | 1.61 | 06/23/2015 | |||||||||||||||||||||||
150,000 | — | $ | 2.55 | 05/05/2016 | ||||||||||||||||||||||||
200,000 | — | $ | 2.19 | 09/07/2017 | ||||||||||||||||||||||||
67,140 | — | $ | 4.02 | 08/19/2015 | ||||||||||||||||||||||||
46,489 | $ | 507,195 |
The following table provides information about the value realized by the named executive officers on option exercises, vesting of restricted stock, and award payouts during fiscal year 2013:
Option Exercises and Stock Vested During Fiscal Year-End 2013
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Robert S. Herlin | 220,000 | $ | 2,233,000 | 63,296 | $ | 584,869 | |||||||
Sterling H. McDonald | 250,000 | 2,490,000 | 30,861 | 285,076 | |||||||||
Daryl V. Mazzanti | — | — | 30,861 | 285,076 |
Change in Control Policy
In August 2010, the Board of Directors approved an employee severance policy for a change in control event. A "change in control" event is generally defined to include a tender offer, takeover bid, exchange offer or acquisition for forty percent (40%) or more of the Company's outstanding common
stock. The new policy applies to all employees including Messrs. Herlin, McDonald and Mazzanti and provides that in the event of a change in control, employees terminated within one year of the event shall receive severance pay in the amount of one year of base pay and targeted annual discretionary bonus, plus one year continuation of the company's subsidy of health, disability and life insurance benefits. Pursuant to the Company's Plan, the Administrator under the Plan has provided that in the event of a "change in control," half of all unvested options and stock awards would vest on the date of such "change in control" and the remainder of unvested options and stock awards would vest upon the employee's termination within a year of the "change in control."
The following table shows, as of June 30, 2013, the estimated potential payments and benefits that would be received by our named executive officers based upon a hypothetical termination of employment in each of the circumstances indicated in the table.
Named Executive Officer | Severance Plan Payment(1) | Other Benefits(2) | Fair Market Value of Accelerated Equity Compensation(3) | Total Value | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert S. Herlin | |||||||||||||
Change in Control | $ | 760,000 | $ | 9,800 | $ | 1,061,107 | $ | 1,830,907 | |||||
Death or Disability | — | — | 1,061,107 | 1,061,107 | |||||||||
Sterling H. McDonald | |||||||||||||
Change in Control | 455,000 | 18,188 | 507,195 | 980,383 | |||||||||
Death or Disability | — | — | 507,195 | 507,195 | |||||||||
Daryl V. Mazzanti | |||||||||||||
Change in Control | 455,000 | 21,958 | 507,195 | 984,153 | |||||||||
Death or Disability | — | — | 507,195 | 507,195 |
Compensation Committee Interlocks and Insider Participation
None.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent (10%) of the shares of our common stock (collectively, "Reporting Persons") to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, except as noted below, based solely on our review of the copies of such reports received or written representations from the Reporting Persons, we believe that, with respect to the fiscal year ended June 30, 2013 all the Reporting Persons complied with all applicable Section 16 filing requirements. Each of Messer's Cagan, DiPaolo, Dozier, Loyd, and Stoever filed a late Form 4 with
respect to grants of restricted stock under the Company's Amended and Restated 2004 Stock Plan which occurred on December 6, 2012. In addition, in two instances during Fiscal 2013, late Form 4's were filed for Mr. Sterling McDonald for settlement of payroll tax liabilities with stock associated with vesting of restricted stock.
At the Annual Meeting each year, the Board of Directors submits to stockholders its nominees for election as directors. The Board of Directors may also submit other matters to the stockholders for action at the Annual Meeting. Any proposal which a stockholder intends to present in accordance with Rule 14a-8 of the Exchange Act at our next annual meeting of stockholders to be held in 20112014 must be received by Evolution Petroleum Corporation not less than one hundred twenty (120) calendar days prior to October 28, 2011.2014. Only proposals conforming to the requirements of Rule 14a-8 of the Exchange Act that are timely received by the Company will be included in the Proxy Statement and Proxy in 2011.2014. Any such proposal should be directed to our Secretary at our principal executive offices located at 2500 CityWest Boulevard, Suite 1300 Houston, Texas 77042.
NEW
SEC RULES CONCERNING THE ELECTION OF DIRECTORS
If you hold your shares through aYour broker bank or other financial institution, the U.S. Securities and Exchange Commission recently implemented a rule that changes the manner in which your vote in the election of directors will be handled at our upcoming 2010 Annual Meeting. Stockholders who hold shares of our common stock through a broker, bank or other financial institution receive proxy materials before each stockholder meeting.
In the past, if you didis not transmit your voting instructions before the stockholder meeting, your broker was allowed to vote on your behalf on the election of directors and other matters considered to be routine.
New Rules for Stockholder Voting
Effective January 1, 2010, your broker will no longer be permitted to vote on your behalf on the election of directors unless you provide specific instructions by completing and returning the proxy card. For your vote to be counted, you now will need to communicate your voting decisions to your broker, bank or other financial institution before the date of the stockholder meeting.
Your Participation in Voting the Shares You Own Is Important
Voting your shares is important to ensure that you have a say in the governance of your company. Please review the proxy materials and follow the instructions on the proxy card to vote your shares. We hope you will exercise your rights and fully participate as a stockholder in our company’scompany's future.
More Information Is Available
If you have any questions about this new rule or the proxy voting process in general, please contact the broker, bank or other financial institution where you hold your shares. The SEC also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder.
Miscellaneous
Our management does not intend to present any other items of business and is not aware of any matters other than those set forth in this Proxy Statement that will be presented for action at the Annual Meeting. However, if any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy intend to vote the shares of our common stock that they represent in accordance with their best judgment.
Annual Report
A copy of the Company’sCompany's Annual Report on Form 10-K without exhibits, for the fiscal year ended June 30, 20102013 filed with the Securities and Exchange Commission accompanies this Proxy Statement. Copies of the Form 10-K exhibits are available without charge. Stockholders who would like such
copies should direct their requests in writing to: Evolution Petroleum Corporation, 2500 CityWest Boulevard, Suite 1300 Houston, Texas 77042, Attention: Corporate Secretary.
Householding and Combining Accounts
We may deliver only one proxy statement and annual report to an address shared by multiple stockholders unless we receive contrary instructions from one or more of the stockholders. Any stockholder at a shared address to which a single copy of the proxy statement and annual report have been sent who would like an additional copy of this proxy statement and annual report or future copies of proxy statements and annual reports may make a written or oral request to: Continental Stock Transfer & Trust Company, 17 Battery Place New York, NY 10004, (212)-509-4000.(800) 509-5586.
Similarly, any stockholders sharing an address and currently receiving multiple copies of proxy statements and annual reports may request that only a single copy of a proxy statement and annual report be delivered to them in the future. In addition, any stockholder with multiple accounts (receiving multiple proxy cards) who wishes to consolidate the stockholder’sstockholder's shares into a single account can do so by contacting Continental at the address and telephone number above.
By Order of the Board of Directors | ||
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MCDONALD | ||
Vice President, Chief Financial Officer | ||
And Treasurer | ||
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20Houston, Texas
October 28, 2013
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS EVOLUTION PETROLEUM CORPORATION NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER |
ANNUAL MEETING OF STOCKHOLDERS OF EVOLUTION PETROLEUM CORPORATION December 5, 2013 NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Annual Meeting of Stockholders, Proxy Statement and Proxy Card are available at - www.evolutionpetroleum.com Please sign, date and mail your proxy card in the envelope provided as soon as possible. . PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. . This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will be voted for Proposals 1, 2, 3 and |