|
PROPOSAL 1 – ELECTION OF TWO CLASS I DIRECTORS
|
Our
Board of Directors is divided into three classes, with each class
serving staggered three-year terms. The term of office of the Class
I directors expires at the 2017 Annual Meeting. Mr. Stuart E.
Davies resigned as a Class I director on December 20, 2016. In
April 2017, the Board reduced the number of directors serving on
the Board from seven to six and, as required by our Certificate of
Incorporation, it re-balanced the number of directors on each
class. As a result, Mr. Stoneburner resigned as a Class III
director and was immediately appointed as a Class I director and
Chairman of the Board. Accordingly, each of our three classes of
directors now has two members.
Our
Board has nominated two directors for election at this Annual
Meeting to hold office until the 2020 annual meeting and the
election of their successors. Both of the nominees currently are
directors and have agreed to be named in this proxy statement and
to serve if elected. The nominees are expected to attend the Annual
Meeting.
In the
election of directors, proxies will be voted for each of the Class
I director nominees unless the proxy withholds authority to vote
for one or both of the Class I director nominees.
We have
no reason to believe that either of the Class I director nominees
will be unable or unwilling for good cause to serve if elected. If
either nominee should become unable for any reason or unwilling for
good cause to serve, proxies may be voted for another person
nominated as a substitute by the Board, or the Board may reduce the
number of Class I directors.
Additional
information regarding Messrs. Christmas and Stoneburner and all of
our other directors, can be found under the “Our Board of
Directors” section, the “Security Ownership of
Management and Certain Beneficial Owners” section, and the
“Compensation of Directors” section of this proxy
statement.
Directors
are elected by a plurality vote of the shares present in person or
represented by proxy at the Annual Meeting, meaning that the
director nominee with the most affirmative votes for a particular
slot is elected for that slot. Any shares not voted (whether by
withholding the vote, broker non-vote or otherwise) will have no
impact in the election of the Class I directors. If you sign your
proxy card but do not give instructions with respect to the voting
of directors, your shares will be voted for Messrs. Christmas and
Stoneburner. However, if you hold your shares in street name and do
not instruct your broker how to vote in the election of the Class I
directors, your shares will constitute a broker non-vote and will
not be voted for either of the Class I director nominees. See the
section of this proxy statement entitled “General Information
about the Annual Meeting – Voting Instructions and
Information – Election of Directors.”
|
In
light of the individual skills and qualifications of each of our
Class I director nominees, our Board has concluded that each of our
Class I director nominees should be elected to our
Board.
Our Board unanimously recommends that stockholders vote FOR both of
our Class I director nominees.
|
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 6
On
October 26, 2016, following the consummation of the Davis Merger
and as required by the merger agreement, the Company expanded the
size of its Board from five to seven members, and one of our
directors, Ben T. Morris, resigned from our Board and Stuart E.
Davies, Neeraj Mital and J. Christopher Teets were appointed as
directors to serve on the Board until their successors are duly
elected and qualified. All of our executive officers continued in
their positions as of the closing of the Davis Merger.
Our
Certificate of Incorporation provides for the classification of the
Board into three classes with staggered three-year terms. Messrs.
Christmas and Stoneburner serve as Class I directors. Messrs. Mital
and Teets serve as Class II directors. Messrs. Banks and Lodzinski
serve as Class III directors.
We are
committed to high quality corporate governance, which helps us
compete more effectively, sustain our success and build long-term
stockholder value. The Board reviews our policies and business
strategies, and advises and counsels our executive officers who
manage the Company.
The
full text of the charters of our Audit, Compensation, and
Nominating and Governance Committees and our Business Conduct and
Code of Ethics can be found at
www.yuma
energyinc.com
.
Copies of these documents also may be obtained from our Corporate
Secretary.
Governance
is a continuing focus at the Company, starting with the Board and
extending to management and all employees. In this section, we
describe our key governance policies and practices. The Company is
governed by a Board of Directors and committees of the Board that
meet throughout the year. Directors discharge their
responsibilities at Board and committee meetings and also through
telephone contact and other communications with
management.
Director Attendance
During
2016, prior to the closing of the Davis Merger, our Board held four
meetings and all of our directors at the time attended 100% of the
meetings. In 2016, after the closing of the Davis Merger, our Board
held one meeting. Each of the directors attended 100% of the
meetings of the full Board after the Davis Merger, and meetings of
the committee(s) on which he served after the Davis Merger in 2016.
In addition, the Board acts from time to time by unanimous written
consent in lieu of holding a meeting. Prior to the closing of the
Davis Merger, the Board effected two actions by unanimous written
consent. After the closing of the Davis Merger, the Board effected
one action by unanimous written consent.
While
we do not have a formal policy regarding our Board members’
attendance at the annual meeting of stockholders, we encourage our
directors to attend the annual meeting of stockholders. We expect
each of our directors will attend our 2017 Annual Meeting. In 2016,
prior to the closing of the Davis Merger, Sam L. Banks and Ben T.
Morris, were the only directors that attended our special meeting
of stockholders.
Formerly a Controlled Company
In
2016, prior to the Davis Merger, our Board had determined that we
were a “controlled company” as defined under the
corporate governance rules of the NYSE MKT since more than 50% of
our issued and outstanding common stock was then held by Sam L.
Banks, our Chairman, President and Chief Executive Officer. As a
“controlled company,” we were exempted from certain
rules otherwise applicable to companies whose securities are listed
on the NYSE MKT, including: (a) the requirement that the
Company have a majority of independent directors; (b) the
requirement that nominations to the board be either selected or
recommended by a nominating committee consisting solely of
independent directors; and (c) the requirement that the
Company’s officers’ compensation be either determined
or recommended by a compensation committee consisting solely of
independent directors. As a result of the Davis Merger, we are no
longer a “controlled company” as defined under the
corporate governance rules of the NYSE MKT and therefore we are now
subject to the foregoing NYSE MKT requirements.
Director Independence
The
current Board consists of six directors, one of whom is currently
employed by the Company (Mr. Banks). In February 2017, the Board
conducted an annual review and affirmatively determined that our
five non-employee directors (Messrs. Christmas, Lodzinski, Mital,
Stoneburner and Teets) are “independent” as that term
is defined in the listing standards of the NYSE MKT. The Board made
a subjective determination as to each independent director that no
relationship exists, which, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. In making these
determinations, the Board reviewed and discussed information
provided with regard to each director’s business and personal
activities as they may relate to the Company and its
management. Further, the Board determined that Mr. Banks is
not independent because he is the Chief Executive Officer of the
Company.
Board of Directors Diversity
The
Board does not have a formal diversity policy. The Board considers
candidates that will make the Board as a whole reflective of a
range of talents, skills, diversity and expertise.
Stockholder-Recommended Director Candidates
Our
Board is responsible for identifying individuals qualified to
become Board members and nominees for directorship are selected by
the Board. Although the Board is willing to consider candidates
recommended by our stockholders, it has not adopted a formal policy
with regard to the consideration of any director candidates
recommended by our stockholders.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 7
The
Board believes that a formal policy is not necessary or appropriate
because of the small size of the Board and because the current
Board already has a diversity of business background and industry
experience. Our Board will consider director candidates recommended
by stockholders who are highly qualified in terms of business
experience and be both willing and expressly interested in serving
on the Board. Stockholders recommending candidates for
consideration should send their recommendations, including the
candidate’s name, age, business address, residence address,
principal occupation, number of shares of common stock and/or
Series D Preferred Stock held of record or beneficially owned by
the proposed director candidate and any derivative positions held
of record or beneficially owned by the director candidate, whether
and the extent to which any hedging or other transaction or series
of transactions has been entered into by or on behalf of the
nominee with respect to any securities of the Company, and a
description of any other agreement, arrangement or understanding,
the effect or intent of which is to mitigate loss to, or to manage
the risk or benefit of share price changes for, or to increase or
decrease the voting power of the director candidate, a description
of all arrangements or understandings between or among any of the
stockholder, each director candidate and/or any other person or
persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder or relating to the
director candidate’s potential service on the Board, a
written statement executed by the director candidate acknowledging
that as a director, the director candidate will owe a fiduciary
duty under Delaware law with respect to the Company and its
stockholders, and any other information relating to the director
candidate that would be required to be disclosed about such nominee
if proxies were being solicited for the election of the director
candidate as a director, or that is otherwise required under
Regulation 14A under the Exchange Act. The recommending stockholder
will need to provide the stockholder’s name, address and
number of shares of common stock and Series D Preferred Stock held
of record or beneficially owned and any derivative positions held
or beneficially owned, whether and the extent to which any hedging
or other transaction or series of transactions has been entered
into by or on behalf of the stockholder or any person associated
with the stockholder with respect to any securities of the Company,
and a description of any other agreement, arrangement or
understanding, the effect or intent of which is to mitigate loss
to, or to manage the risk or benefit of share price changes for, or
to increase or decrease the voting power of the stockholder or any
person associated with the stockholder, and any material interest
of the stockholder or any person associated with the stockholder in
such business. Such information should be provided to Yuma Energy,
Inc., Attn: President, 1177 West Loop South, Suite 1825, Houston,
Texas 77027. Please see the “General Information About the
Annual Meeting – Stockholder Proposals” section for
more information on the timing for providing a director
nominee.
Board Leadership
The
Board is responsible for the control and direction of the Company.
The Board represents the Company’s stockholders and its
primary purpose is to build long-term stockholder value. Mr. Banks
serves as our Chief Executive Officer and Mr. Stoneburner, an
independent director, serves as the Non-Executive Chairman of the
Board. Our Bylaws provides that the Chairperson of the Board will
be a director who is not currently an officer of the Company and
not currently employed by the Company unless the appointment of the
Chairperson is approved by two-thirds of the members of the Board
then in office.
Board Risk Oversight
Our
Board has ultimate responsibility for general oversight of risk
management processes. The Board receives regular reports from our
executive officers on areas of risk facing the Company. Our risk
management processes are intended to identify, manage and control
risks so that they are appropriate considering our scope,
operations and business objectives. The full Board (or the
appropriate Committee in the case of risks in areas for which
responsibility has been delegated to a particular Committee)
engages with the appropriate members of management to enable its
members to understand and provide input to and oversight of our
risk identification, risk management and risk mitigation
strategies. The Audit Committee also meets without management
present to, among other things, discuss the Company’s risk
management culture and processes. In the event, a Committee
receives a report from a member of management regarding areas of
risk, the Chairperson of the relevant Committee will report on the
discussion to the full Board to the extent necessary or
appropriate. This enables the Board to coordinate risk oversight,
particularly with respect to interrelated or cumulative risks that
may involve multiple areas for which more than one committee has
responsibility.
Communications with Directors
Stockholders
and other interested parties may communicate with any of our
independent directors, including Committee Chairs, by using the
following address:
Yuma
Energy, Inc.
Board
of Directors
c/o
James J. Jacobs, Corporate Secretary
1177
West Loop South, Suite 1825
Houston,
Texas 77027
E-mail:
info@yumacompanies.com
The
Corporate Secretary of the Company reviews communications to the
independent directors and forwards the communications to the
independent directors as appropriate. All such communications
should identify the author as a stockholder and clearly state
whether the intended recipients are all members of the Board or
just certain specified individual directors. Our Corporate
Secretary will make copies of all such communications and circulate
them to the appropriate director or directors. Communications
involving substantive accounting or auditing matters will be
immediately forwarded to the Chair of the Audit Committee.
Communications that pertain to non-financial matters will be
forwarded promptly to the appropriate Committee. Certain items that
are unrelated to the duties and responsibilities of the Board will
not be forwarded such as: business solicitation or advertisements;
product related inquiries; junk mail or mass mailings; resumes or
other job related inquiries; spam and overly hostile, threatening,
potentially illegal or similarly unsuitable
communications.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 8
Board Committees
To
assist it in carrying out its duties, the Board has delegated
certain authority to an Audit Committee, a Compensation Committee
and a Nominating and Governance Committee as the functions of each
are described below. Each member of the Audit, Compensation, and
Nominating and Governance Committees has been determined by the
Board to be “independent” for purposes of the listing
standards of the NYSE MKT and the rules of the Securities and
Exchange Commission (the “SEC”), including the
heightened “independence” standard required for members
of the Audit Committee. Additionally, our Board has determined that
each member of the Compensation Committee is an “outside
director” as defined for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the
“Code”), and is a “Non-Employee Director”
as defined in Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”).
Audit Committee
.
The Audit
Committee provides oversight of the Company’s accounting
policies, internal controls, financial reporting practices and
legal and regulatory compliance. Among other things, the Audit
Committee: appoints our independent auditor and evaluates its
independence and performance; maintains a line of communication
between the Board, our management and the independent auditor; and
oversees compliance with the Company’s policies for
conducting business, including ethical business standards. Our
Board of Directors has determined that Mr. Christmas qualifies
as an “audit committee financial expert” as that term
is defined in the listing standards of NYSE MKT and the applicable
rules of the SEC.
The
members of our Audit Committee prior to the closing of the Davis
Merger were Ben T. Morris (Chairperson), James W. Christmas and
Frank A. Lodzinski. The Board determined that Mr. Morris was an
“audit committee financial expert” prior to the closing
of the Davis Merger. In 2016, the Audit Committee held four
meetings prior to the closing of the Davis Merger. The members of
our Audit Committee as of the closing of the Davis Merger were
James W. Christmas (Chairperson), Stuart E. Davies and J.
Christopher Teets. In 2016, after the closing of the Davis Merger,
the Audit Committee held one meeting. Mr. Davies resigned from the
Board and the Audit Committee on December 20, 2016.
Compensation Committee.
The Compensation Committee oversees
the development and administration of the Company’s
compensation policies and programs. The primary function of this
Committee is to review and approve executive compensation and
benefit programs. Additionally, this Committee approves the
compensation of our named executive officers, including the Chief
Executive Officer. The Compensation Committee has retained a
compensation consultant to assist the Committee in oversight and
review of compensation policies of the Company. Our Chief Executive
Officer is expected to recommend to the Compensation Committee the
compensation for our other named executive officers.
The
members of our Compensation Committee prior to the closing of the
Davis Merger were Messrs. Stoneburner (Chairperson), Christmas and
Morris. During 2016 and prior to the Davis Merger, the Compensation
Committee held two meetings. The members of our Compensation
Committee as of the closing of the Davis Merger were Messrs. Teets
(Chairperson), Lodzinski and Stoneburner. In 2016, after the
closing of the Davis Merger, the Compensation Committee did not
hold any meetings.
Nominating and Governance Committee.
Prior to the closing of
the Davis Merger, we did not have a Nominating Committee because we
were not required to have one as a “controlled company”
as defined under the corporate governance rules of the NYSE MKT.
After the closing of the Davis Merger, we were no longer a
“controlled company” and established a Nominating and
Governance Committee for the purpose recommending prospective
directors to fill vacancies that may arise from time to time and to
propose individuals for election to the Board. The members of our
Nominating and Governance Committee as of the closing of the Davis
Merger were Messrs. Mital (Chairperson), Christmas and Davies.
After the closing of the Davis Merger, the Nominating and
Governance Committee did not hold any meetings. Mr. Davies resigned
from the Board and the Nominating and Governance Committee on
December 20, 2016.
Corporate Code of Business Conduct and Ethics
Our
Board adopted a Corporate Code of Business Conduct and Ethics
(“Code of Ethics”), which provides general statements
of our expectations regarding ethical standards that we expect our
directors, officers and employees to adhere to while acting on our
behalf. Among other things, the Code of Ethics provides
that:
●
we will comply with
all laws, rules and regulations;
●
our directors,
officers, and employees are to avoid conflicts of interest and are
prohibited from competing with the Company or personally exploiting
our corporate opportunities;
●
our directors,
officers, and employees are to protect our assets and maintain our
confidentiality;
●
we are committed to
promoting values of integrity and fair dealing; and
●
we are committed to
accurately maintaining our accounting records under generally
accepted accounting principles and timely filing our SEC periodic
reports and our tax returns.
Our
Code of Ethics also contains procedures for employees to report,
anonymously or otherwise, violations of the Code of
Ethics.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s directors
and certain executive officers, and persons who beneficially own
more than ten percent of our common stock, to file initial reports
of ownership and reports of changes in ownership of our common
stock and our other equity securities with the SEC. As a practical
matter, the Company assists its directors and officers by
monitoring transactions and completing and filing Section 16
reports on their behalf. Based solely on a review of the copies of
such forms in our possession and on written representations from
reporting persons, we believe that during 2016 all of our named
executive officers, directors and greater than ten percent holders
filed the required reports on a timely basis under Section 16(a) of
the Exchange Act.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 9
|
PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE
COMPENSATION
|
Our
Board is committed to high quality governance. As a part of that
commitment, and in accordance with SEC rules, our stockholders are
being asked to approve an advisory resolution on the compensation
of our named executive officers, as reported in this proxy
statement.
We seek
to closely align the interests of our named executive officers with
the interests of our stockholders. Our compensation programs are
designed to reward our named executive officers for the achievement
of short-term and long-term strategic and operational goals and the
achievement of increased total stockholder returns, while at the
same time avoiding the encouragement of unnecessary or excessive
risk-taking.
This
proposal, commonly known as a “say on pay” proposal,
gives you the opportunity to endorse or not endorse our fiscal year
2016 executive compensation program and policies for the named
executive officers through the following resolution:
“RESOLVED,
that stockholders of Yuma Energy, Inc. approve, on an advisory
basis, the compensation of the Company’s named executive
officers set forth in the Summary Compensation Table, the related
compensation tables and the narrative in this proxy
statement.”
This
vote is not intended to address any specific item of compensation,
but rather our overall compensation policies and procedures
relating to our named executive officers. Accordingly, your vote
will not directly affect or otherwise limit any existing
compensation or award arrangement of any of our named executive
officers. Because your vote is advisory, it will not be binding
upon the Board and the Compensation Committee. Our Board, including
the Compensation Committee, will, however, take into account the
outcome of the “say on pay” vote when considering
future compensation arrangements.
|
Our Board unanimously recommends that stockholders vote
FOR
approval of the advisory vote on executive
compensation.
|
Note:
The Company is providing this advisory vote as
required pursuant to Section 14A of the Securities Exchange
Act of 1934, as amended (15 U.S.C. 78n-1). The stockholder vote
will not be binding on the Company or the Board, and it will not be
construed as overruling any decision by the Company or the Board or
creating or implying any change to, or additional, fiduciary duties
for the Company or the Board.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 10
|
PROPOSAL 3 – ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY
VOTES ON EXECUTIVE COMPENSATION
|
In
Proposal 2 above, we are asking stockholders for any advisory vote
on executive compensation. Pursuant to Section 14A of the
Exchange Act, in this Proposal 3, we are asking stockholders to
vote on whether future advisory votes on executive compensation
should occur every year, every two years or every three years.
Stockholders will be able to specify one of four choices for this
proposal on the proxy card: one year, two years, three years or
abstain. Stockholders are not voting to approve or disapprove the
Board’s recommendation. This advisory vote on the frequency
of future advisory votes on executive compensation is non-binding
on our Board.
Our
Board understands that there are different views as to what is an
appropriate frequency for advisory votes on executive compensation.
Our Board has discussed this issue and believes that a majority of
our stockholders would prefer an annual vote. Our Board of
Directors is therefore recommending that stockholders vote FOR
holding the advisory vote on executive compensation EVERY
YEAR.
|
Our Board unanimously recommends that stockholders vote
FOR
conducting future advisory votes on executive compensation EVERY
YEAR.
|
Note:
The Company is providing this advisory vote as
required pursuant to Section 14A of the Securities Exchange
Act of 1934, as amended (15 U.S.C. 78n-1). The stockholder vote
will not be binding on the Company or the Board, and it will not be
construed as overruling any decision by the Company or the Board or
creating or implying any change to, or additional, fiduciary duties
for the Company or the Board.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 11
|
COMPENSATION OF DIRECTORS
|
Directors
who are employees of the Company receive no additional compensation
for serving on the Board. Non-employee directors are compensated
for their service on the Board as described below.
2016 Retainer Fees
The
Compensation Committee reviews our director compensation
periodically and recommends changes to the Board, when it deems
them appropriate.
The
following table describes our compensation program for non-employee
directors in effect during 2016:
|
|
|
2016
Compensation Program
|
|
|
Compensation Element
|
|
|
|
Annual
Cash Retainer
|
|
$40,000
|
|
|
Annual
Equity Grant
|
|
$50,000
|
|
|
Audit
Committee Chair Fee
|
|
$15,000
|
|
|
Compensation
Committee Chair Fee
|
|
$8,000
|
|
|
|
|
|
|
2016 Restricted Stock Awards
In
October 2016, we granted restricted stock awards to directors on
the Board at that time. At the closing of the Reincorporation
Merger we assumed restricted stock awards that had been granted to
Messrs. Christmas and Stoneburner. The Board did not grant any
equity awards from October 26, 2016 through December 31, 2016 to
non-employee directors.
2017 Retainer Fees
The
following table describes our compensation program for non-employee
directors approved by the Compensation Committee on April 20, 2017
and effective as of January 1, 2017:
|
|
|
2017 Compensation Program
|
|
|
Compensation Element
|
|
|
|
Annual
Cash Retainer
|
|
$45,000
|
|
|
Annual
Equity Grant
|
|
$75,000
|
|
|
Audit
Committee Chair Fee
|
|
$15,000
|
|
|
Non-Executive
Chairman of the Board Fee
|
|
$15,000
|
|
|
|
|
|
|
Director Compensation in 2016
The
following table sets forth the aggregate compensation paid by us
and Yuma California to our non-employee directors during the year
ended December 31, 2016:
|
Name
|
|
Fees Earned or Paid In Cash
($)
|
|
Stock awards
($)
|
|
Total
($)
|
|
James
W. Christmas
|
|
42,500
|
|
100,000
|
|
142,500
|
|
Stuart
E. Davies
(1)
|
|
-
|
|
-
|
|
-
|
|
Frank
A. Lodzinski
|
|
40,000
|
|
100,000
|
|
140,000
|
|
Neeraj
Mital
(2)
|
|
6,667
|
|
-
|
|
6,667
|
|
Ben T.
Morris
(3)
|
|
45,833
|
|
87,500
|
|
133,333
|
|
Richard
K. Stoneburner
|
|
46,667
|
|
100,000
|
|
146,667
|
|
J.
Christopher Teets
(2)
|
|
8,000
|
|
-
|
|
8,000
|
(1)
Mr. Davies became a
director at the closing of the Davis Merger. He resigned from the
Board on December 22, 2016.
(2)
Messrs. Mital and
Teets became directors at the closing of the Davis
Merger.
(3)
Mr. Morris resigned
from the Board effective at the closing of the Davis
Merger.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 15
The
following table sets forth the names and ages of all of our
executive officers, the positions and offices with us held by such
persons and the months and years in which continuous service as
executive officers began:
|
Name
|
|
Executive Officer Since
|
|
Age
|
|
Position
|
|
Sam L.
Banks
|
|
October
2016
|
|
67
|
|
Director
and Chief Executive Officer
|
|
James
J. Jacobs
|
|
October
2016
|
|
39
|
|
Executive
Vice President, Chief Financial Officer, Treasurer and Corporate
Secretary
|
|
Paul D.
McKinney
|
|
October
2016
|
|
58
|
|
President
and Chief Operating Officer
|
The
following paragraphs contain certain information about each of our
executive officers other than Mr. Banks, whose biographical
information is included under the heading “Our Board of
Directors” above.
James J. Jacobs
has been our Chief Financial Officer,
Treasurer and Corporate Secretary since the closing of the Davis
Merger on October 26, 2016. He was the Chief Financial Officer,
Treasurer and Corporate Secretary of Yuma California from December
2015 through October 26, 2016. He served as Vice President –
Corporate and Business Development of Yuma California immediately
prior to his appointment as Chief Financial Officer in December
2015 and has been with us since 2013. He has 15 years of experience
in the financial services and energy sector. In 2001, Mr. Jacobs
worked as an Energy Analyst at Duke Capital Partners. In 2003, Mr.
Jacobs worked as a Vice President of Energy Investment Banking at
Sanders Morris Harris where he participated in capital markets
financing, mergers and acquisitions, corporate restructuring and
private equity transactions for various sized energy companies.
From 2006 through 2013, Mr. Jacobs was the Chief Financial Officer,
Treasurer and Secretary at Houston America Energy Corp., where he
was responsible for financial accounting and reporting for U.S. and
Colombian operations, as well as capital raising activities. Mr.
Jacobs graduated with a Master’s Degree in Professional
Accounting and a Bachelor of Business Administration from the
University of Texas in 2001.
Paul D. McKinney
has been our President and Chief
Operating Officer since April 20, 2017 and was our Executive Vice
President and Chief Operating Officer from the closing of the Davis
Merger on October 26, 2016 until April 19, 2017. He was the
Executive Vice President and Chief Operating Officer of Yuma
California from October 2014 through October 26, 2016. Mr. McKinney
served as a petroleum engineering consultant for Yuma
California’s predecessor from June 2014 to September 2014 and
for Yuma California from September 2014 to October 2014. Mr.
McKinney served as Region Vice President, Gulf Coast Onshore, for
Apache Corporation from 2010 through 2013, where he was responsible
for the development and all operational aspects of the Gulf Coast
region for Apache. Prior to his role as Region Vice President, Mr.
McKinney was Manager, Corporate Reservoir Engineering, for Apache
from 2007 through 2010. From 2006 through 2007, Mr. McKinney was
Vice President and Director, Acquisitions & Divestitures for
Tristone Capital, Inc. Mr. McKinney commenced his career with
Anadarko Petroleum Corporation and held various positions with
Anadarko over a 23 year period from 1983 to 2006, including his
last title as Vice President of Reservoir Engineering, Anadarko
Canada Corporation. Mr. McKinney has a Bachelor of Science degree
in Petroleum Engineering from Louisiana Tech
University.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 16
Compensation Discussion and Analysis
Overview
The
following Compensation Discussion and Analysis, or CD&A,
provides information about the compensation program for our
principal executive officer and our other two most
highly-compensated executive officers (collectively, the
“named executive officers” or “NEOs”), and
is intended to place in perspective the information contained in
the executive compensation tables that follow this discussion. This
CD&A provides a general description of the material elements of
our compensation program and specific information about its various
components.
Although
this CD&A focuses on the information in the tables below and
related footnotes, as well as the supplemental narratives relating
to the fiscal year ended December 31, 2016, we also describe
compensation actions taken after the last completed fiscal year to
the extent it enhances the understanding of our named executive
officer compensation disclosure.
In
February 2017, the Compensation Committee retained Longnecker &
Associates (“Longnecker”), an independent compensation
consultant, to obtain objective, expert advice and assist with
compensation matters concerning our named executive officers and
directors.
In
connection with its engagement of Longnecker, the Compensation
Committee considered various factors bearing upon
Longnecker’s independence, including, but not limited to, any
other services provided by Longnecker to the Company, the amount of
fees received by Longnecker from the Company as a percentage of
Longnecker’s total revenues, Longnecker’s policies and
procedures designed to prevent and mitigate conflicts of interest,
any capital stock of the Company owned by Longnecker or its
employees, and the existence of any business or personal
relationships that could impact Longnecker’s independence.
After reviewing these and other factors, the Compensation Committee
determined that Longnecker was independent and that its engagement
did not present any conflicts of interest.
Compensation Philosophy and Objectives.
We operate in a
highly competitive and challenging environment and must attract,
motivate and retain highly talented individuals with the requisite
technical and managerial skills to implement our business strategy.
The objectives of our compensation program are to:
●
help to attract and
retain highly talented individuals to contribute to our progress,
growth and profitability by being competitive with compensation
paid to persons having similar responsibilities and duties in other
companies in the same industry;
●
align the interests
of the individual with those of our stockholders to encourage
long-term value creation;
●
be directly tied to
the attainment of our annual performance targets and reflect
individual contribution thereto; and
●
reflect the unique
qualifications, skills, experience and responsibilities of each
individual.
Elements of Our Compensation Program
|
Element
|
|
Characteristics
|
|
Primary Objective
|
|
Base
Salary
|
|
Cash
|
|
Retain
and attract highly talented individuals
|
|
Short-Term
Incentives
|
|
Cash
bonus
|
|
Reward
individual and corporate performance
|
|
Long-Term
Incentives
|
|
Equity
awards vesting over a period of time or based on performance
metrics
|
|
Align
the interests of our employees and stockholders by providing
employees with incentive to perform technically and financially in
a manner that promotes share price appreciation.
|
|
Other
Benefits
|
|
401(k)
matching plans and employee health benefit plans
|
|
Provide
benefits that promote employee health and support employees in
attaining financial security
|
Base Salary.
Base salary is the principal fixed component of
our compensation program. It provides our named executive officers
with a regular source of income to compensate them for their
day-to-day efforts in managing the Company. Base salary is
primarily used to attract and retain highly talented individuals.
Base salary varies depending on the named executive officer’s
experience, responsibilities, education, professional standing in
the industry, changes in the competitive marketplace and the
importance of the position to us. On March 21, 2017, the
Compensation Committee approved the following base salaries
effective April 1, 2017.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 17
|
|
|
2016
|
|
|
2017
(1)
|
|
Name
|
|
Base Salary ($)
|
|
|
Base Salary ($)
|
|
Sam L.
Banks
|
|
|
425,000
|
|
|
|
525,000
|
|
James
J. Jacobs
|
|
|
275,000
|
|
|
|
350,000
|
|
Paul D.
McKinney
|
|
|
350,000
|
|
|
|
400,000
|
(1)
Effective April 1,
2017.
Short-Term Incentives.
Short-term incentive compensation is
the short-term variable portion of our compensation program and is
based on the principle of pay-for-performance. The objective of
short-term incentives is to reward our named executive officers
based on our performance as a whole and the contributions of the
individual named executive officer in relation to our success. The
following table shows the cash bonuses paid by us and Yuma
California to our named executive officers for the years ended
December 31, 2015 and 2016:
|
|
|
2015
|
|
|
2016
|
|
Name
|
|
Cash Bonus ($)
|
|
|
Cash Bonus ($)
|
|
Sam L.
Banks
|
|
|
4,304
|
|
|
|
91,325
|
|
James
J. Jacobs
|
|
|
101,601
|
|
|
|
60,380
|
|
Paul D.
McKinney
|
|
|
50,000
|
|
|
|
75,150
|
Long-Term Incentives.
Long-term incentives are provided to
our named executive officers under the Yuma Energy, Inc. 2014
Long-Term Incentive Plan (the “2014 Plan”), which was
approved by the stockholders of Yuma California in September 2014
and assumed by us as part of the Reincorporation Merger in October
2016. These incentives are intended to align the interests of
stockholders with employees by providing employees with incentive
to perform technically and financially in a manner that promotes
total stockholder return. Furthermore, we believe that long-term
incentives create an incentive for future performance and create a
retention incentive. In determining long-term incentives, the
Compensation Committee considers a named executive officer’s
potential for future successful performance and leadership as part
of the executive management team, taking into account past
performance and leadership as a key indicator.
Under
the 2014 Plan, the Compensation Committee has the flexibility to
choose between a number of forms of long-term incentive
compensation, including stock options, stock appreciation rights,
restricted stock awards, performance units, performance shares, or
other incentive awards.
The
following table shows the restricted stock awards granted to our
named executive officers in 2016:
|
|
|
2016
|
|
Name
|
|
Restricted Stock Awards (#)
|
|
Sam L.
Banks
|
|
|
25,546
|
|
James
J. Jacobs
|
|
|
13,224
|
|
Paul D.
McKinney
|
|
|
21,038
|
Other Benefits
. All employees may participate in our
401(k) Retirement Savings Plan (“401(k) Plan”)
established many years ago. Each employee may make before-tax
contributions in accordance with the limits established by the
Internal Revenue Service. We provide the 401(k) Plan to help our
employees attain financial security by providing them with a
program to save a portion of their cash compensation for retirement
in a tax efficient manner. Our matching contribution is an amount
equal to 100% of the employee’s elective deferral
contribution not to exceed 4.0% of the employee’s
compensation. Prior to February 2017, our named executive officers
were not eligible to participate in the matching
contribution.
All
full time employees, including our named executive officers, may
participate in our health and welfare benefit programs, including
medical, dental and vision care coverage, disability insurance and
life insurance.
Roles of our CEO and the Compensation Committee.
The
Compensation Committee is comprised solely of independent directors
and has overall responsibility for the compensation of our named
executive officers. The Compensation Committee monitors our
director and named executive officer compensation and benefit
plans, policies and programs to insure that they are consistent
with our compensation philosophy and objectives, along with our
corporate governance guidelines. Our Chief Executive Officer, Mr.
Banks, makes recommendations to the Compensation Committee
regarding the base salary, short-term and long-term incentive
compensation with respect to the named executive officers (other
than himself) based on his analysis and assessment of their
performance. Such officers are not present at the time of these
deliberations. The Compensation Committee, in its discretion, may
accept, modify or reject any or all such recommendations. The
Compensation Committee independently determines the salary,
short-term and long-term incentive compensation for our Chief
Executive Officer with limited input from him. The Compensation
Committee makes periodic awards to our named executive officers
under the 2014 Plan.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 18
Other Compensation Practices – Accounting and Tax
Considerations.
The Compensation Committee reviews and takes
into account current tax, accounting and securities regulations as
they relate to the design of our compensation programs and related
decisions.
Stock Ownership Guidelines and Hedging Prohibition.
We do
not currently have ownership requirements or a stock retention
policy for our named executive officers or non-employee directors.
Our board has adopted a policy restricting all employees, including
our named executive officers, and members of the board from
engaging in any hedging transactions with respect to our common
stock held by them, which includes the purchase of any financial
instrument (including prepaid variable forward contracts, equity
swaps, collars and exchange funds) designed to hedge or offset any
decrease in the market value of such equity securities. The board
has also adopted a policy restricting our named executive officers
and members of the board from pledging, or using as collateral, our
common stock in order to secure personal loans or other
obligations, which includes holding shares of our common stock in a
margin account.
We will
continue to periodically review best practices and re-evaluate our
position with respect to stock ownership guidelines and hedging
prohibitions.
Clawback Provisions
. Although we do not presently have any
formal policies or practices that provide for the recovery of prior
incentive compensation awards that were based on financial
information later restated as a result of our material
non-compliance with financial reporting requirements, in such event
we reserve the right to seek all recoveries currently available
under law. The Compensation Committee has included a provision into
our equity grant agreements whereby the equity grants to named
executive officers are subject to any clawback policies we may
adopt which may result in the reduction, cancellation, forfeiture
or recoupment of such grants if certain specified events occur,
including, but not limited to, an accounting restatement due to any
material noncompliance with financial reporting regulations by
us.
Summary Compensation Table
The
following table presents, for the years ended December 31, 2016 and
2015, the compensation paid by us and Yuma California to Mr. Sam L.
Banks, our principal executive officer, and Messrs. McKinney and
Jacobs, our two most highly-compensated executive officers (other
than the principal executive officer) who were serving as executive
officers (collectively, the “named executive officers”
or “NEOs”) as of December 31, 2016. We have employment
contracts with each of our named executive officers. There has been
no compensation awarded to, earned by or paid to any employees
required to be reported in any table or column in the fiscal years
covered by any table, other than what is set forth in the following
table.
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
(1)
|
Option Awards($)
(2)
|
All Other Compensation
($)
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
Sam L. Banks
|
2016
|
425,000
|
91,325
|
121,548
|
-
|
(3)
|
637,873
|
|
Principal
Executive Officer
|
2015
|
425,000
|
4,304
|
411,040
|
181,449
|
(3)
|
1,021,793
|
|
James J. Jacobs
(4)
|
2016
|
275,000
|
60,380
|
62,920
|
-
|
-
|
398,300
|
|
Chief
Financial Officer, Treasurer and Corporate
Secretary
|
2015
|
251,042
|
101,601
|
193,279
|
85,321
|
-
|
631,243
|
|
Paul D. McKinney
|
2016
|
350,000
|
75,150
|
100,099
|
-
|
-
|
525,249
|
|
President
– Chief Operating Officer
|
2015
|
350,000
|
50,000
|
676,304
|
149,312
|
-
|
1,225,616
|
|
|
|
|
|
|
|
|
|
(1)
Represents the
grant date fair value of awards granted during the indicated year,
as determined in accordance with FASB ASC Topic 718. Pursuant to
SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. The grant
date fair value is calculated based on the closing stock price of
Yuma California common stock on the date of grant and adjusted for
the one-for-twenty reverse stock split as part of the
Reincorporation Merger.
(2)
The amounts for
stock appreciation rights awards represent the estimated fair value
of stock appreciation rights at the date of grant. Fair value of
the stock appreciation rights is determined by the Black-Scholes
option pricing model in accordance with FASB ASC Topic 718. The
grant date fair value is calculated based on the closing stock
price of Yuma California common stock on the date of grant and
adjusted for the one-for-twenty reverse stock split as part of the
Reincorporation Merger. The terms of the stock appreciation rights
grant are set forth below in the table “Outstanding Equity
Awards at 2016 Fiscal Year-End.”
(3)
Mr. Banks received
revenues under previously granted overriding royalty interests
pursuant to an overriding royalty plan that was terminated in 2014
and are excluded from the summary compensation table. Amounts
received as a result of overriding royalty grants under the program
made in previous years were $407,925 and $708,270 for the years
ended December 31, 2016 and 2015, respectively.
(4)
Mr. Jacobs became
an executive officer of Yuma California on December 15, 2015;
however, his full year compensation is included in the table for
the year ended December 31, 2015.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 19
Outstanding Equity Awards
The
following table provides information concerning unvested restricted
stock awards and equity incentive plan awards for our named
executive officers as of December 31, 2016.
Outstanding
Equity Awards at 2016 Fiscal Year-End
|
|
Option Awards
|
Stock awards
|
|
|
Name
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
(1)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of shares or units of stock that have not
vested
(#)
(2)
|
Market value of shares of units of stock that have not
vested
($)
(3)
|
Equity incentive plan awards: Number of unearned shares, units or
other rights that have not vested (#)
|
Equity incentive plan awards: market or payout value of unearned
shares, units or other rights that have not vested ($)
|
|
Sam L.
Banks
|
|
|
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
25,120
|
$85,408
|
-
|
-
|
|
|
9,510
|
19,020
|
$12.10
|
08/18/2022
|
-
|
-
|
-
|
-
|
|
James
J. Jacobs
|
|
|
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
11,629
|
$39,539
|
-
|
-
|
|
|
4,472
|
8,944
|
$12.10
|
08/18/2022
|
-
|
-
|
-
|
-
|
|
Paul D.
McKinney
|
|
|
|
|
|
|
|
|
|
|
-
|
-
|
-
|
-
|
18,057
|
$61,394
|
-
|
-
|
|
|
7,826
|
15,652
|
$12.10
|
08/18/2022
|
-
|
-
|
-
|
-
|
|
(1)
|
The
table below shows the vesting dates for the respective unvested
stock appreciation rights awards listed in the above Outstanding
Equity Awards at 2016 Fiscal Year-End Table:
|
|
|
Vesting Date
|
|
Mr. Banks
|
|
Mr. Jacobs
|
|
Mr. McKinney
|
|
|
|
|
|
|
May 31,
2017
|
|
9,510
|
|
4,472
|
|
7,826
|
|
|
|
|
|
|
May 31,
2018
|
|
9,510
|
|
4,472
|
|
7,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
The
table below shows the vesting dates for the respective unvested
restricted stock awards listed in the above Outstanding Equity
Awards at 2016 Fiscal Year-End Table:
|
|
|
Vesting Date
|
|
Mr. Banks
|
|
Mr. Jacobs
|
|
Mr. McKinney
|
|
|
|
|
|
|
January
1, 2017
|
|
1,893
|
|
707
|
|
-
|
|
|
|
|
|
|
May 31,
2017
|
|
11,614
|
|
5,461
|
|
7,810
|
|
|
|
|
|
|
October
15, 2017
|
|
-
|
|
-
|
|
2,437
|
|
|
|
|
|
|
May 31,
2018
|
|
11,613
|
|
5,461
|
|
7,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Calculated
based upon the closing market price of our common stock as of
December 30, 2016, the last trading day of our 2016 fiscal
year ($3.40) multiplied by the number of unvested restricted stock
awards at year-end.
|
Employment Contracts and Termination of Employment
On
April 20, 2017, we entered into amended and restated employment
agreements (the “Employment Agreements”) with Sam L.
Banks, our Chief Executive Officer, Paul D. McKinney, our President
and Chief Operating Officer, and James J. Jacobs, our Executive
Vice President and Chief Financial Officer.
Under
the terms of the Employment Agreements, Messrs. Banks, McKinney and
Jacobs will receive annual base salaries in the amount of $525,000,
$400,000, and $350,000, respectively, subject to any increase the
Compensation Committee (the “Committee”) of the Board
of Directors (the “Board”) of the Company may deem
appropriate from time to time. In addition, Messrs. Banks, McKinney
and Jacobs will have the opportunity to earn incentive compensation
in the form of an annual cash bonus with target amounts of 100%,
100% and 90%, respectively, of their base salaries. Messrs. Banks,
McKinney and Jacobs will be entitled to receive long-term equity
incentive awards on an annual basis with a target value of no less
than 400%, 300% and 250%, respectively, of their base salaries and
with vesting terms in the sole discretion of the
Board.
The
Employment Agreements include severance provisions that apply upon
certain terminations of employment. As a condition to the payment
of any severance benefit described below, the Company may require
the named executive officer to execute and not revoke a release of
claims in favor of the Company. The Employment Agreements also
contain certain restrictive covenants, including the obligation not
to compete against the Company and a confidentiality requirement.
In the event the named executive officer violates these restrictive
covenants, the Company may cease paying all severance benefits to
the named executive officer and may recover an amount equal to any
severance benefits previously paid to the named executive officer
under the Employment Agreement.
If the
named executive officer’s employment is terminated by the
Company other than for cause or termination by the named executive
officer for good reason, the Employment Agreements provide that (1)
(i) Mr. Banks will receive payment in a lump sum of accrued salary
and bonus and a severance payment of two (2) times the sum of his
(a) base salary and (b) target annual bonus for the year of
termination and (ii) Messrs. McKinney and Jacobs will receive
payment in a lump sum of accrued salary and bonus and a severance
payment of one and one-half (1.5) times the sum of his (a) base
salary and (b) target annual bonus for the year of termination; (2)
the Company will pay its portion of COBRA continuation coverage, as
well as pay certain costs of continuing medical coverage for the
named executive officer for up to twelve months after the
expiration of the maximum required period under COBRA; and (3) all
of the named executive officer’s granted but unvested awards
under the 2014 Plan shall immediately vest and related restrictions
shall be waived.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 20
If a
change of control has occurred and the named executive
officer’s employment is terminated without cause, or by the
named executive officer with good reason during the period
beginning six (6) months prior to and ending eighteen (18) months
following the change of control (the “change of control
period”), the named executive officers are entitled to the
same severance benefits described above, except that the severance
amount will be three (3) times for Mr. Banks and two (2) times for
Messrs. McKinney and Jacobs, the sum of the named executive
officer’s (a) base salary and (b) target annual
bonus.
The
Employment Agreements provide that in the event of a termination of
employment by the Company for cause or by the named executive
officer without good reason, the named executive officer will be
entitled to accrued but unpaid base salary and benefits through the
date of termination but will forfeit any other compensation from
the Company.
The
Employment Agreements also contain customary confidentiality and
non-solicitation provisions. The non-solicitation provisions of the
Employment Agreements prohibit the named executive officers from
soliciting for employment any employee of the Company or any person
who was an employee of the Company. This prohibition applies during
the named executive officer’s employment with the Company and
for up to two years depending on the severance benefits received by
the named executive officer following the termination of his
employment and extends to offers of employment for his own account
or benefit or for the account or benefit of any other person, firm
or entity, directly or indirectly.
Also,
see the section titled “Potential Payments Triggered Upon a
Change in Control.”
Compensation Committee Interlocks and Insider
Participation
The
members of our Compensation Committee until the Davis Merger were
Messrs. Stoneburner, Christmas and Morris and the members since the
closing of the Davis Merger are Messrs. Teets, Lodzinski and
Stoneburner. There are no members of our Compensation Committee who
were officers or employees of the Company or any of our
subsidiaries during fiscal year 2016. No members were formerly
officers of the Company or had any relationship otherwise requiring
disclosure hereunder. During fiscal year 2016, no interlocking
relationships existed between any of our named executive officers
or members of our Board or Compensation Committee, on the one hand,
and the executive officers or members of the board of directors or
compensation committee of any other entity, on the other
hand.
Potential Payments Triggered Upon a Change in Control
The
amounts shown in the following table reflect the potential value to
our named executive officers, as of December 31, 2016, of cash
payments under such named executive officer’s Employment
Agreement currently in effect, unvested restricted stock awards and
unvested stock appreciation rights where the vesting may accelerate
upon a change in control of the Company. The cash compensation and
the equity awards in the table below assume that the employment of
the named executive is terminated by the named executive officer
for good reason in accordance with the named executive
officer’s Employment Agreement after a change in control
(i.e. a double trigger). Consistent with SEC requirements, these
estimated amounts have been calculated as if the change in control
had occurred as of December 30, 2016, the last business day of
2016, and using the closing market price of our common stock on
December 30, 2016 ($3.40 per share); however, these amounts take
into account the provisions of the current Employment Agreements.
The amounts below are estimates of the incremental amounts that
would be received upon a change in control; the actual amount could
be determined only at the time of any actual change in
control.
Estimated Potential Payments Upon a Change in Control
|
Name
|
Cash Compensation
($)
|
Unvested Stock Appreciation Rights Awards at
12/30/2016
(#)
|
Value (Based on Closing Price of Stock at 12/30/2016)
($)
(1)
|
Unvested Restricted Stock Awards at 12/30/2016
(#)
|
Value (Based on Closing Price of Stock at 12/30/2016)
($)
|
Total
($)
|
|
Sam L.
Banks
|
3,150,000
|
19,020
|
-
|
25,120
|
85,408
|
3,235,408
|
|
James
J. Jacobs
|
1,330,000
|
8,944
|
-
|
11,629
|
39,539
|
1,369,539
|
|
Paul D.
McKinney
|
1,600,000
|
15,652
|
-
|
18,057
|
61,394
|
1,661,394
|
|
(1)
|
The
stock appreciation rights have an exercise price of $12.10 per
share and were underwater as of December 30, 2016 and accordingly
had no value.
|
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 21
|
INDEPENDENT PUBLIC ACCOUNTANTS
|
The
Audit Committee of the Board of Directors has retained Grant
Thornton LLP (“Grant Thornton”) as our independent
registered public accounting firm (our independent auditor). Grant
Thornton audited our financial statements for the year ended
December 31, 2016. Grant Thornton was also the independent
registered public accounting firm for Yuma California as of and for
the year ended December 31, 2015. A representative of Grant
Thornton is expected to be present at the Annual Meeting and will
respond to appropriate questions.
The
audit report of Grant Thornton on our consolidated financial
statements as of and for the year ended December 31, 2016 did not
contain an adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting
principles.
Although
the Company was the legal acquirer in the Davis Merger, for
financial reporting purposes it was accounted for as a reverse
acquisition of the Company by Davis.
PricewaterhouseCoopers
LLP (“PwC”) served as the independent accountant for
Davis for the fiscal years ended December 31, 2015 and 2014, and
for the subsequent interim period through the closing of the Davis
Merger on October 26, 2016. Prior to the Davis Merger, PwC informed
Davis that they would not stand for election as the independent
registered public accounting firm of the combined entity and Davis
agreed. Upon closing of the Davis Merger, it was determined that
Grant Thornton would serve as the independent registered public
accounting firm for the Company. The decision to engage Grant
Thornton following the Davis Merger was made by the Audit Committee
as of October 26, 2016 and effective November 1, 2016.
PwC’s
reports on Davis’ financial statements for the fiscal years
ended December 31, 2015 and 2014 did not contain an adverse opinion
or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope, or accounting principle.
During the fiscal years ended December 31, 2015 and 2014 and the
subsequent interim period through October 26, 2016, there were no
disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which if not resolved to the satisfaction of PwC, would
have caused them to make a reference to the subject matter of the
disagreement(s) in their reports on the financial statements for
such fiscal years. In addition, during the fiscal years ended
December 31, 2015 and 2014 and the subsequent interim period
through October 26, 2016 there were no “reportable
events,” as defined in Item 304(a)(1)(v) of Regulation
S-K.
During
the fiscal years ended December 31, 2015 and 2014, and the
subsequent interim period preceding the engagement of Grant
Thornton, Davis did not consult Grant Thornton regarding either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit
opinion that might be rendered on Davis’ financial
statements, and either a written report was provided to the Company
or oral advice was provided that Grant Thornton concluded was an
important factor considered by the Company in reaching a decision
as to the accounting, auditing or financial reporting issue; or
(ii) any matter that was the subject of a disagreement or a
“reportable event” (as described in Item 304(a)(1)(v)
of Regulation S-K).
The
decision to change accountants was recommended by the Audit
Committee and approved by the Board of the Company.
A copy
of PwC’s letter, dated November 3, 2016, stating its
agreement with the above statements, is attached as Exhibit 16 on
our Current Report on Form 8-K/A filed with the SEC on November 3,
2016.
Audit Committee Pre-Approval Policies and Procedures
To help
assure independence of our independent auditor, the Audit Committee
has established a policy whereby all audit, review, attest and
non-audit engagements of the principal auditor or other firms must
be approved in advance by the Audit Committee; provided, however,
that de minimis non-audit services may instead be approved in
accordance with applicable SEC rules. This policy is set forth in
our Audit Committee Charter. Of the fees shown in the table below,
which were paid to our independent auditors, 100% were approved by
the Audit Committee.
Fees Paid to Grant Thornton LLP and PricewaterhouseCoopers
LLP
The
following is a summary and description of fees for services
provided by Grant Thornton in 2016 and 2015, and PwC for 2016, to
the Company.
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2016
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2015
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Services
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Grant
Thornton
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PwC
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Grant
Thornton
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Audit
Fees
(1)
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$496,972
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$163,000
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$467,813
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Audit-Related Fees
(2)
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Tax
Fees
(3)
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All
Other Fees
(4)
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Total
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$496,972
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$163,000
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$467,813
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(1)
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Audit
Fees include professional services for the audit of our annual
financial statements, reviews of the financial statements included
in our Form 10-Q filings, and services normally provided in
connection with statutory and regulatory filings or
engagements.
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(2)
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Audit-Related
Fees comprise fees for professional services reasonably related to
the performance of the audit or review of the Company’s
financial statements and are not otherwise included in “Audit
Fees.”
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(3)
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Tax
Fees include professional services for tax compliance, tax advice
and tax planning.
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(4)
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All
Other Fees include fees for miscellaneous services other than the
services reported under “Audit Fees,” “Audit
Related Fees” and “Tax Fees” for the services in
question.
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Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 22
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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Registration Rights Agreement
As part
of the closing of the Davis Merger, we entered into a registration
rights agreement (the “Registration Rights Agreement”)
with Sam L. Banks, a director and our Chief Executive Officer,
affiliates of Red Mountain Capital Partners, LLC, Davis Petroleum
Investment, LLC, Sankaty Davis, LLC, and certain other former
stockholders of Davis (collectively, the
“Stockholders”), pursuant to which we agreed to
register, at our cost, with the SEC the resale of the common stock
issued to such holders of common stock and the common stock
issuable upon conversion of the Series D Preferred Stock. We agreed
to file a shelf registration statement (the “Registration
Statement”) with the SEC on or before April 24, 2017, subject
to certain exceptions. The Stockholders may request registration no
more than three (3) times during any twelve (12) consecutive
months, of shares having an estimated offering price of greater
than $5.0 million. No request may be made after the fourth
anniversary of the effectiveness of the Registration Statement. In
addition, if we file a registration statement within four years of
the effectiveness of the Registration Statement, we must offer to
the Stockholders the opportunity to include the resale of their
shares in the registration statement, subject to customary
qualifications and limitations.
Policies and Procedures for Approval of Related Party
Transactions
Our
officers and directors are required to obtain Audit Committee
approval for any proposed related party transactions. In addition,
our Code of Ethics requires that each director, officer and
employee must do everything he or she reasonably can to avoid
conflicts of interest or the appearance of conflicts of interest.
Our Code of Ethics states that a conflict of interest exists when
an individual’s private interest interferes in any way or
even appears to interfere with our interests and sets forth a list
of broad categories of the types of transactions that must be
reported to our Board. Under our Code of Ethics, we reserve the
right to determine when an actual or potential conflict of interest
exists and then to take any action we deem appropriate to prevent
the conflict of interest from occurring.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 25
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GENERAL INFORMATION ABOUT THE ANNUAL MEETING
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Voting Instructions and Information
Who Can Vote?
You are entitled to vote your common stock if
our records show that you held your shares as of the record date,
April 27, 2017. At the close of business on that date, a total of
12,540,747 shares of common stock and 1,807,386 shares of Series D
Preferred Stock, were outstanding and entitled to vote. Each share
of common stock is entitled to one vote on the matters submitted
for a vote at the Annual Meeting. On an as-if converted basis, each
share of Series D Preferred Stock is entitled to one vote on the
matters submitted for a vote at the Annual Meeting. The common
stock and the Series D Preferred Stock vote together as one class.
Your voting instructions are confidential and will not be disclosed
to persons other than those recording the vote, except if a
stockholder makes a written comment on the proxy card, otherwise
communicates his or her vote to management, as may be required in
accordance with the appropriate legal process, or as authorized by
you.
Voting Your Proxy.
If your shares of common stock are held
through a broker, bank or other nominee (held in street name), you
will receive instructions from them that you must follow in order
to have your shares voted. If you want to vote in person, you must
obtain a legal proxy from your broker, bank or other nominee and
bring it to the Annual Meeting.
If you
hold your shares of common stock or Series D Preferred Stock in
your own name as a holder of record with our transfer agent,
Computershare Trust Company, N.A., you may instruct the proxies how
to vote following the instructions listed on the proxy card, by
signing, dating and mailing the proxy card in the postage paid
envelope, by calling the toll-free telephone number or by using the
Internet as described in the instructions included with your proxy
card. Of course, you can always attend the meeting and vote your
shares of common stock or Series D Preferred Stock in
person.
Whichever
method you select to transmit your instructions, the proxies will
vote your shares of common stock or Series D Preferred Stock in
accordance with those instructions. If you sign and return a proxy
card without giving specific voting instructions, your shares of
common stock or Series D Preferred Stock will be voted as
recommended by our Board of Directors: for each director nominee,
for the approval of the advisory vote on executive compensation,
and for the ratification of the appointment of Grant Thornton as
our independent registered public accounting firm and will be
deemed to grant discretionary authority to vote upon any other
matters properly before the Annual Meeting.
Matters to be Presented.
We are not aware of any matters to
be presented at the meeting, other than those described in this
proxy statement. If any matters not described in the proxy
statement are properly presented at the meeting, the proxies will
use their own judgment to determine how to vote your shares of
common stock or Series D Preferred Stock. If the meeting is
adjourned or postponed, the proxies can vote your shares of common
stock or Series D Preferred Stock at the adjournment or
postponement as well.
Revoking Your Proxy.
If you hold your shares of common stock
in street name, you must follow the instructions of your broker,
bank or other nominee to revoke your voting instructions. If you
are a holder of record and wish to revoke your proxy instructions,
you must advise our Corporate Secretary in writing before the
proxies vote your shares of common stock or Series D Preferred
Stock at the meeting, deliver later-dated proxy instructions or
attend the meeting and vote your shares of common stock or Series D
Preferred Stock in person. We will honor the proxy with the latest
date.
How Votes Are Counted.
A quorum is required to transact
business at our Annual Meeting. A majority of the voting power of
the outstanding shares of stock entitled to vote at the Annual
Meeting must be represented at the meeting in person or by proxy to
constitute a quorum. If you have returned valid proxy instructions
or attend the meeting in person, your shares of stock will be
counted for the purpose of determining whether there is a quorum,
even if you abstain from voting on some or all matters introduced
at the meeting. In addition, broker non-votes will be treated as
present for purposes of determining whether a quorum is
present.
Voting.
You may either vote for, against or abstain on each
of the proposals. Broker non-votes and abstentions will have no
impact, as they are not counted as votes cast. Although the
advisory votes in Proposals 2 and 3 are non-binding, as provided by
law, our Board will review the results of the votes and, consistent
with our commitment to stockholder engagement, will take them into
account in making a determination concerning executive compensation
and the frequency of the advisory vote. If you hold your shares of
common stock in street name, and you do not submit voting
instructions to your broker, bank or other nominee, such person
will not be permitted to vote your shares of common stock in their
discretion on the election of directors, the advisory vote on
executive compensation, or the advisory vote on the frequency of
future advisory votes on executive compensation. However, if you
hold your shares of common stock in street name, and you do not
submit voting instructions to your broker, bank or other nominee,
such person will be permitted to vote your shares of common stock
in their discretion on the ratification of the appointment of the
independent registered public accounting firm.
Election of Directors.
In the election of directors, the two
nominees with the highest number of votes cast in their favor will
be elected as Class I directors to our Board of Directors assuming
a quorum is present at the Annual Meeting. Cumulative voting in the
election of directors is not permitted.
Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 26
Advisory Vote on Executive Compensation.
Approval of the
advisory vote on executive compensation requires the affirmative
vote of the holders of a majority in voting power of the shares
represented in person or by proxy at the Annual Meeting; provided
that a quorum is present.
Advisory Vote on Frequency of Future Advisory Votes on Executive
Compensation.
Approval of the frequency of future advisory
votes on executive compensation requires the affirmative vote of
the holders of a majority in voting power of the shares represented
in person or by proxy at the Annual Meeting; provided that a quorum
is present.
Ratification of Appointment of Grant Thornton LLP as Our
Independent Registered Public Accounting Firm.
Approval of
the appointment of Grant Thornton LLP as our independent registered
public accounting firm requires the affirmative vote of the holders
of a majority in voting power of the shares represented in person
or by proxy at the Annual Meeting; provided that a quorum is
present.
Board Recommendations.
THE BOARD RECOMMENDS THAT YOU VOTE
FOR
BOTH OF THE
DIRECTOR NOMINEES,
FOR
THE APPROVAL OF THE
ADVISORY VOTE ON EXECUTIVE COMPENSATION,
FOR
EVERY YEAR ON THE
FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION, AND
FOR
RATIFICATION OF
THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2017.
Cost of Proxy Solicitation.
We are providing these proxy
materials in connection with the solicitation by the Board of
Directors of proxies to be voted at the Annual Meeting. We will pay
the cost of this proxy solicitation. We have retained Issuer Direct
to aid in the solicitation of proxies, at an estimated cost of
$7,000 plus reimbursement of out of pocket expenses. In addition,
we expect that a number of our employees will solicit stockholders
personally, electronically and by telephone. None of these
employees will receive any additional compensation for doing this.
We will, on request, reimburse brokers, banks and other nominees
for their expenses in sending proxy materials to their customers
who are beneficial owners and obtaining their voting
instructions.
Stockholder Proposals
In
order to submit stockholder proposals for the 2018 Annual Meeting
of Stockholders for inclusion in the Company’s proxy
statement pursuant to Exchange Act Rule 14a-8, materials must be
received by our Corporate Secretary at the Company’s
principal executive offices in Houston, Texas, no later than
December 29, 2017. The proposals must comply with all of the
requirements of Rule 14a-8 of the Exchange Act. Proposals should be
addressed to: Yuma Energy, Inc., Corporate Secretary, 1177 West
Loop South, Suite 1825, Houston, Texas 77027. As the rules of the
SEC make clear, simply submitting a proposal does not guarantee its
inclusion. In order to curtail controversy as to the date on which
a proposal was received by us, it is suggested that proponents
submit their proposals by certified mail-return receipt requested.
Such proposals must also meet the other requirements
established by the SEC for stockholder proposals.
Our
Bylaws also establish an advance notice procedure for stockholders
who wish to present a proposal before an annual meeting of
stockholders but do not intend for the proposal to be included in
our proxy statement. Our Bylaws provide that the only business that
may be conducted at an annual meeting of stockholders is business
that is (i) specified in our proxy materials with respect to
such meeting, (ii) otherwise properly brought before such
meeting by or at the direction of our board of directors, or
(iii) properly brought before such meeting by a stockholder of
record entitled to vote at the annual meeting who has delivered
timely written notice to our Secretary, which notice must contain
the information specified in our Bylaws. To be timely for our 2018
annual meeting of stockholders, our Corporate Secretary must
receive the written notice at our principal executive offices: not
earlier than February 13, 2018; and not later than March 15,
2018.
In the
event that we hold our 2018 annual meeting of stockholders more
than 30 days before or more than 60 days after
the one-year anniversary of the Annual Meeting, notice of
a stockholder proposal that is not intended to be included in our
proxy statement must be received no earlier than the close of
business on the 120th day before our 2018 annual meeting of
stockholders and no later than the close of business on the later
of the following two dates: the 90th day prior to our 2018
annual meeting of stockholders; or the 10th day following the day
on which public announcement of the date of 2018 annual meeting of
stockholders is first made.
Annual Report on Form 10-K
A copy
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 and this Notice of the 2017 Annual Meeting and
Proxy Statement are available at https://www.iproxydirect.com/YUMA.
We will promptly provide to any
stockholder, without charge and upon written request, a copy
(without exhibits, unless otherwise requested) of our Annual Report
on Form 10-K as filed with the SEC for our fiscal year ended
December 31, 2016. Any such request should be directed
to Yuma Energy, Inc., Attn: Corporate Secretary, 1177 West
Loop South, Suite 1825, Houston, Texas 77027 or by calling (713)
968-7000.
The Annual Report on Form 10-K for the fiscal year
ended December 31, 2016 accompanying this proxy statement is not
part of the proxy soliciting materials.
Eliminating Duplicative Proxy Materials
Stockholders
having the same last name and address and individuals with more
than one account registered at Computershare Trust Company, N.A.,
with the same address and who receive paper copies of the proxy
materials will receive one copy of our proxy statement and annual
report on Form 10-K, unless contrary instructions have been
received from an affected stockholder. If you would like to enroll
in this service or receive individual copies of all documents,
please contact our Corporate Secretary by writing to Yuma Energy,
Inc., Attn: James J. Jacobs, Corporate Secretary, 1177 West Loop
South, Suite 1825, Houston, Texas 77027 or by calling (713)
968-7000.
Incorporation by Reference
To the
extent that this proxy statement has been or will be specifically
incorporated by reference into any other filing of Yuma Energy,
Inc. under the Securities Act of 1933, as amended, or the Exchange
Act, the sections of this proxy statement entitled “Audit
Committee Report” (to the extent permitted by the rules of
the SEC) shall not be deemed to be so incorporated, unless
specifically provided otherwise in such filing.
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By Order of The
Board of Directors,
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Dated: April 28,
2017
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By:
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/s/
James J. Jacobs
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James J. Jacobs
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Corporate
Secretary
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Yuma Energy, Inc.
Notice of 2017 Annual Meeting and Proxy Statement | 27
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YUMA ENERGY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
ANNUAL
MEETING OF STOCKHOLDERS - JUNE 13, 2017 AT 9:00 AM CDT
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CONTROL ID:
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REQUEST ID:
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The
undersigned hereby appoints Sam L. Banks and James J. Jacobs, or
either of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side of this ballot, all of the shares of
common stock and Series D Preferred Stock of Yuma Energy, Inc.
(“Yuma”) that the undersigned is entitled to vote at
the Annual Meeting of Stockholders to be held on June 13, 2017, at
9:00 a.m., Central Daylight Time, at the offices of the Company,
located at 1177 West Loop South, Suite 1825, Houston, Texas 77027,
and any adjournment or postponement thereof. A majority of the
proxies or substitutes present at the meeting may exercise all
power granted hereby.
This proxy, when properly executed, will be voted in the manner
directed herein. If no such direction is made, this proxy will be
voted in accordance with the Board of Directorsí
recommendations.
Your vote is very important. Thank you for voting.
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(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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VOTING INSTRUCTIONS
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If you vote by telephone or internet, please DO NOT mail your proxy
card.
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MAIL:
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Please
mark, sign, date, and return this Proxy Card promptly using the
enclosed envelope.
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INTERNET:
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https://www.iproxydirect.com/YUMA
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TELEPHONE:
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1-866-752-VOTE(8683)
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ANNUAL MEETING OF STOCKHOLDERS OFYUMA ENERGY, INC.
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PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE:
☒
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PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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The
Board of Directors recommends a vote FOR all of the listed
nominees, FOR Proposals 2, 4 and 5, and FOR ONE YEAR in Proposal
3.
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Proposal 1
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FOR ALL
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AGAINST
ALL
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FOR ALL
EXCEPT
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Election of Class I Directors. Nominees:
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☐
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☐
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CONTROL
ID:
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James W. Christmas
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☐
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REQUEST
ID:
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Richard K. Stoneburner
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☐
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Proposal 2
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FOR
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AGAINST
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ABSTAIN
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Approval, by a non-binding advisory vote, of the executive
compensation of the named executive officers of Yuma Energy,
Inc.
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☐
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☐
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☐
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Proposal 3
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1 Year
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2 Years
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3 Years
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ABSTAIN
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Advisory
vote regarding frequency of future advisory vote on executive
compensation
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☐
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☐
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☐
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☐
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Proposal 4
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FOR
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AGAINST
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ABSTAIN
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Ratification of the appointment of Grant Thornton LLP as Yuma
Energy, Inc.ís independent registered public accounting firm
for 2017.
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☐
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☐
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☐
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Proposal 5
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FOR
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AGAINST
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ABSTAIN
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Transaction of such other matters as may properly come before the
annual meeting or any adjournments or postponements of the annual
meeting.
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☐
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☐
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☐
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MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING:
☐
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Important Notice Regarding the Availability of Proxy Materials for
the Annual Meeting of Stockholders to be held on June 13,
2017:
The Notice, Proxy Statement and Form 10-K are
available at www.iproxydirect.com/YUMA.
This proxy, when properly executed, will be voted in the manner
directed herein. If no such direction is made, this proxy will be
voted in accordance with the Board of Directorsí
recommendations.
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MARK
HERE FOR ADDRESS CHANGE
☐
New Address (if
applicable):
___________________
IMPORTANT:
Please sign exactly as your name or names appear
on this Proxy. When shares are held jointly, each holder should
sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If the signer is a partnership,
please sign in the partnership name by an authorized
person.
Dated:
________________________, 2017
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(Print
Name of Stockholder and/or Joint Tenant)
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(Signature
of Stockholder)
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(Second
Signature if held jointly)
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