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.
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.
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.
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:
·
- •
- accounting practices, internal accounting controls, or auditing matters and procedures;
·
- •
- theft or fraud of any amount;
·
- •
- insider trading;
·
- •
- performance and execution of contracts;
·
- •
- conflicts of interest;
·
- •
- violations of securities and antitrust laws; and
·
- •
- violations of the Foreign Corrupt Practices Act.
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.
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.
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.
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, 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) | | | — | | | — | | | — | | | — | |
- (1)
- Represents fees earned for services as a director during fiscal year 2013, including annual base retainer fee and chairmanship, and fees earned for attending meetings of the Board and committees. During the fiscal year, there were three meetings of the Board of Directors, four meetings of the audit committee, two meetings of the nominating and corporate governance committee and nine meetings of the compensation committee.
- (2)
- Represents the fair value of restricted common stock granted during fiscal year 2013 as annual Board compensation computed in accordance with FASB ASC Topic 718. The value ultimately realized by the director may or may not be equal to this determined value. These shares of restricted stock cliff vest on December 5, 2013.
- (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 and Director.
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) | | | | | | | | | | | | | | | | | | | |
- (1)
- These shares of restricted common stock vest 100% on December 5, 2013.
- (2)
- Mr. Herlin, President and Chief Executive Officer of the Company, is not compensated separately for serving as Chairman of the Board and Director. All compensation paid to Mr. Herlin is reported in theSummary Compensation Table on page 27.
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 | % |
- *
- Indicates less than 1% of the outstanding Common Stock.
- (1)
- Based on 28,599,669 shares outstanding on October 18, 2013.
- (2)
- Includes (i) 1,139,996 shares directly held by Mr. Herlin; (ii) 80,644 shares of restricted stock directly held by Mr. Herlin; and (iii) 1,564,710 shares which are issuable upon exercise of options and warrants that are presently exercisable or exercisable within 60 days.
- (3)
- Includes (i) 373,328 shares directly held by Mr. McDonald; (ii) 38,411 shares of restricted stock directly held by Mr. McDonald; and (iii) 867,140 shares which are issuable upon exercise of options and warrants that are presently exercisable or exercisable within 60 days.
- (4)
- Includes (i) 155,273 shares directly held by Mr. Mazzanti; (ii) 38,411 shares of restricted stock directly held by Mr. Mazzanti; and (iii) 967,140 shares which are issuable upon exercise of options and warrants that are presently exercisable or exercisable within 60 days.
- (5)
- Includes (i) 73,032 shares directly held by Mr. Cagan,and (ii) 6,394 shares of restricted stock directly held by Mr. Cagan. Mr. Cagan's address is: Cagan McAfee Capital Partners, LLC, 20400 Stevens Creek Boulevard, Suite 700, Cupertino, CA 95014.
- (6)
- Includes (i) 72,974 shares directly held by Mr. DiPaolo; (ii) 6,394 shares of restricted stock directly held by Mr. DiPaolo; and (iii) 178,000 shares which are issuable upon exercise of options that are presently exercisable or exercisable within 60 days.
- (7)
- Includes (i) 72,974 shares directly held by Mr. Dozier; (ii) 6,394 shares of restricted stock directly held by Mr. Dozier; and (iii) 125,000 shares which are issuable upon exercise of options that are presently exercisable or exercisable within 60 days.
- (8)
- Includes (i) 72,974 shares directly held by Mr. Stoever; (ii) 6,394 shares of restricted stock directly held by Mr. Stoever; and (iii) 178,000 shares which are issuable upon exercise of options that are presently exercisable or exercisable within 60 days.
- (9)
- Includes (i) 6,849 shares directly held by Mr. Loyd and (ii) 6,394 shares of restricted stock directly held by Mr. Loyd. Mr. Loyd is employed by JVL Advisors, LLC, an entity controlled by Mr. John Lovoi. Mr. Loyd is not an affiliate of, and does not have beneficial ownership of any shares beneficially owned by JVL Advisors, LLC or Mr. Lovoi. See Note (12) below.
- (10)
- All information in the table and in this disclosure with respect to Nokomis Capital, LLC is based on the Form 13F-HR/A filed with the SEC on August 22, 2013 by Mr. Brett Hendrickson. According to the filing, Nokomis Capital, LLC is the beneficial owner of 1,659,951 shares of the common stock of the Company, of which Nokomis Capital, LLC has sole voting power. Nokomis Capital, LLC's address is: 2305 Cedar Springs Road, Suite 420, Dallas, TX 75201.
- (11)
- All information in the table and in this disclosure with respect to River Road Asset Management, LLC is based solely on the Form 13F-HR filed with the SEC by River Road Asset Management, LLC on August 9, 2013. According to the filing, River Road Asset Management, LLC is the beneficial owner of 2,045,738 shares of the common stock of the Company, of which River Road Asset Management, LLC has sole voting power of 1,340,985 of the shares beneficially owned. River Road Asset Management, LLC's address is: 462 South 4th Street, Suite 1600, Louisville, KY 40202.
- (12)
- All information in the table and in this disclosure with respect to JVL Advisors is based on the Form 4 filed with the SEC by Mr. John Lovoi on May 28, 2013. Total includes (i) 3,891,002 shares owned by Luxiver, LP, Navitas Fund LP, JVL Partners, LP, Asklepios Energy Fund, LP, Hephaestus Energy Fund, LP and Urja, LP; and (ii) 1,469,510 shares owned by Belridge Energy Advisors, LP ("Belridge"). Except with respect to the Belridge shares, all of the aforementioned limited partnerships are managed by JVL Advisors, LLC. The shares owned by Belridge are managed by Belridge's general partner, Peninsula—JVL Capital Advisors, LLC, whose co-managers are Messrs. Scott Bedford and John Lovoi. Mr. Lovoi, as co-managing member of Peninsula—JVL Capital Advisors, LLC, is deemed to have shared power to vote and shared power to dispose of Belridge's 1,469,510 shares of Common Stock. Mr. Lovoi, as managing member of JVL Advisors, LLC, which is the ultimate controlling entity of each of Navitas Fund LP, JVL Partners, LP, Asklepios Energy Fund, LP, Hephaestus Energy Fund, LP and Urja, LP, and Mr. Lovoi is a managing member of Lobo Baya, LLC, which is the ultimate controlling entity of Luxiver, LP, is deemed to have the shared power to vote and sole power to dispose of the aggregate 3,891,002 shares of Common Stock held by those entities. Mr. Lovoi is therefore deemed to have shared power to vote and shared power to dispose of a total of 5,360,512 shares of Common Stock. Mr. Lovoi's address is: 10000 Memorial Drive, Suite 550, Houston, TX 77024.
- (13)
- All information in the table and in this disclosure with respect to Advisory Research, Inc. is based solely on the Form 13F-HR filed with the SEC on August 8, 2013. According to the filing, Advisory Research, Inc. is the beneficial owner of 1,712,345 shares of common stock of the Company, of which Advisory Research, Inc. has sole voting power. Advisory Research, Inc.'s address is: 180 North Stetson, Suite 5780, Chicago, IL 60601.
- (14)
- All information in the table and in this disclosure with respect to Wellington Management Company, LLP is based solely on the Form 13F-HR filed with the SEC on August 13, 2013. According to the filing, Wellington Management Company, LLP is the beneficial owner of 1,536,494 shares of common stock of the Company, of which Wellington Management Company, LLP has sole voting power of 294,700 of the shares beneficially owned and shared voting power of 513,519 of the shares beneficially owned. Wellington Management Company, LLP's address is: 280 Congress Street, Boston, MA 02210.
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:
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
- II.
- Objectives and Key Considerations of Our Compensation Programs
- III.
- Roles in the Decision-Making Process
- IV.
- Items the Compensation Committee Considers When Making Compensation Decisions
- V.
- Elements of Our Compensation Program for Fiscal 2013
- VI.
- Employment Agreements and Severance Arrangements
- VII.
- Other Compensation Policies Affecting the Named Executive Officers
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:
- •
- Achieved $6.0 million in net income compared to $4.5 million in Fiscal 2012;
- •
- Increased revenues by 19% year-over-year to approximately $21.3 million;
- •
- Increased proved developed reserves by 26% year-over-year to 10.1 million BOE;
- •
- Increased Delhi proved reserves estimates by 23% to 13.5 million BOE;
- •
- Continued to operate and grow our business using a conservative capital structure, resulting in a strong balance sheet that provides flexibility to meet opportunities; and
- •
- Achieved an actual total shareholder return (TSR) of +31% during Fiscal 2013, compared to a 7% TSR for the SIG Oil Exploration & Production Index and -3% TSR for companies that make up our Peer Group.
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:
- •
- Abraxas Petroleum Corporation;
- •
- Callon Petroleum Company;
- •
- Credo Petroleum Corporation;
- •
- Crimson Exploration, Inc.;
- •
- Miller Energy Resources, Inc.;
- •
- Panhandle Oil & Gas, Inc.;
- •
- Saratoga Resources, Inc.;
- •
- Synergy Resources Corporation;
- •
- Triangle Petroleum Corporation; and
- •
- Warren Resources, Inc.
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:
- •
- Cash bonus paid via our annual incentive program;
- •
- Restricted stock grants for long term incentives; and
- •
- Standard employee benefits.
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:
- •
- Restructure of Company to better focus on core assets of Delhi and GARP®
- •
- Continued commercialization of GARP®
- •
- Excellence in health, safety, environmental and regulatory performance
- •
- Exceed the Company's peer group median total shareholder return
- •
- Completion of strategic review as to options for maximizing shareholder value, future growth and appropriate structure.
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:
- •
- Monetization of noncore assets
- •
- Completion of strategic review as to options for maximizing shareholder value, future growth and appropriate structure
- •
- Timely adherence to all regulatory filing requirements.
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:
- •
- Monetization of noncore assets
- •
- Maintenance of GARP® installed production
- •
- Increase of number of installations of GARP®
- •
- Management of independent reservoir engineering process
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 | | | | | | | | | | | | | | | | | |
- (1)
- Number of restricted shares determined by dividing grant date fair value by the closing market price of our common stock on the day immediately preceding the date of grant ($7.93 on September 5, 2012).
- (2)
- Represents 150% of fiscal year 2012 base salary ($335,000).
- (3)
- Represents 100% of fiscal year 2012 base salary ($230,000).
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.
Summary Compensation Table
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 | |
- (1)
- Represents the amounts earned based on our performance for the fiscal year indicated, even though they are actually paid in September of the subsequent June 30 fiscal year.
- (2)
- Represents the grant-date fair value of restricted common stock awards granted during the fiscal year indicated. All awards vest quarterly over a four year term.
- (3)
- Included in All Other Compensation for Mr. Mazzanti is $20,226 and $20,000 in royalty payments for four GARP® Technology installations, in 2013 and 2012, respectively, per technology assignment agreement dated June 2011.
- (4)
- Represents amounts for matching contributions to the 401(k) Plan on each Named Executive Officers' behalf; life, accidental death, dismemberment and short and long-term disability insurance premiums paid by the Company on each Named Executive's Officer's behalf. Also, includes a health savings account subsidy for those who qualify with a high deductible health plan.
The following table sets forth information concerning annual incentive awards granted during fiscal year 2013 to each of our named executive officers:
Fiscal Year 2013 Grants of Plan-Based Awards
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
| |
| |
| | All Other
Stock
Awards;
Number of
Shares of
Stock (#)(1) | | All Other
Option
Awards;
Number of
Securities
Underlying
SARs | |
| | Grant Date
Fair Value
of Shares
of Stock
and SARs
Awards ($)(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 | |
- (1)
- These shares of restricted stock vest1/16th per quarter from the date of grant. In addition to the foregoing vesting provisions, all of these shares vest upon a holder's death or disability, and 50% of these shares vest upon a change of control of the Company.
- (2)
- Represents the fair market value of restricted common stock as of the grant date.
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 | | | | | | | |
- (1)
- The unvested stock options, warrants and restricted stock vest1/16th per quarter from the date of grant. In addition, in the event of change of control, half of all the unvested options, warrants and restricted stock awards would vest on the date of such change of control and the remainder of the unvested options, warrants and restricted stock awards would vest on the employee's termination date within a year of the change of control.
- (2)
- The values were calculated based upon the closing price of our common stock on June 30, 2013, which was $10.91 per share. Unvested restricted stock generally vests1/16th per quarter from date of grant, with the last restricted shares vesting in September 2016.
The following table provides information about the value realized by the named executive officers on option exercises, vesting of restricted stock, and award payouts during fiscal year 2013:
Option Exercises and Stock Vested During Fiscal Year-End 2013
| | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name | | Number of
Shares
Acquired on
Exercise (#) | | Value
Realized on
Exercise ($) | | 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 | |
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 | |
- (1)
- Represents one year salary and one year of short term incentive bonus, based on each officer's target incentive.
- (2)
- Represents an estimate of health insurance benefits to be provided to the named executive officer and each eligible dependent under each scenario based on actual amounts paid out in fiscal 2013.
- (3)
- The fair market value of accelerated equity awards includes only those awards that were not currently vested as of June 30, 2013, using a closing stock price of $10.91 per share.
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.
STOCKHOLDER PROPOSALS
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.
IMPORTANT VOTING INFORMATION
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.
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.
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.
OTHER MATTERS
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.
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.
