UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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| ☒ | Definitive Proxy Statement |
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| ☐ | Soliciting Material Pursuant to |
ENERJEX RESOURCES,
AGEAGLE AERIAL SYSTEMS INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
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AGEAGLE AERIAL SYSTEMS INC.
117 S. 4th Street
Neodesha, Kansas 66757
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4040 Broadway, Suite 508
San Antonio, TX 78209
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Toto be held on Thursday, April 27, 2017June 18, 2019
TO THE STOCKHOLDERS OF AGEAGLE AERIAL SYSTEMS INC.:
The annual meetingAnnual Meeting of the stockholders (the “Annual Meeting”) of EnerJex Resources,AgEagle Aerial Systems Inc., a Nevada corporation (the “Company”), will be held on Thursday, April 27, 2017,June 18, 2019, at 9:00 a.m., local time, at the offices of the Company located at 4040 Broadway, Ste. 508, San Antonio, Texas 78209,1415 Park Avenue West, Denver, CO 80205, for the following purposes:
(1) To elect four directors;
(2) To ratify the appointment of D. Brooks and Associates CPA’s, P.A., as the Company’s independent accountants, for the fiscal year ending December 31, 2019;
(3) To amend the Company’s Omnibus Stock Incentive Plan to increase the number of shares of Common Stock authorized for issuance under the plan to 3,000,000 shares;
(4) To approve the issuance of shares of our common stock representing more than 20% of our common stock outstanding upon exercise of a Warrant issued in connection with a private placement in accordance with NYSE American Rule 713(a)(ii); and
(5) To transact suchany other business as may properly come beforebe presented at the annual meeting,Annual Meeting or any postponements or adjournmentsadjournment thereof.
The Proxy Statement following this Notice
A proxy statement, providing information, and a form of Annual Meeting of Stockholders describes the formal business to be conducted at the annual meeting.
There are two (2) categories of stock outstanding that are entitledproxy to vote, atwith respect to the annual meeting, common stock and Series A preferred stock:foregoing matters accompany this notice.
| /s/ Bret Chilcott | |
| Bret Chilcott | |
| Chairman of the | |
| Dated: May 20, 2019 |
Only stockholders of record at the close of business on March 28, 2017, will be entitled to vote at the meeting. A list of stockholders will be available at our principal offices during normal business hours, for examination by any stockholder for any purpose germane to the annual meeting, for ten (10) days prior to the date thereof. The proxy materials will be furnished to stockholders on or around April 7, 2017.
The Company’s annual report for the fiscal year ended December 31, 2016 accompanies this Notice of Annual Meeting of Stockholders and Proxy Statement.
It is important that you use this opportunity to take part in the affairs of EnerJex by voting on the business to come before this annual meeting. After reading the Proxy Statement, please promptly mark, sign, date and return the enclosed proxy card in the envelope provided, to assure that your shares will be represented. Regardless of the number of shares you own, it is important that you carefully consider and vote upon the matters before our stockholders. You may always revoke your proxy and vote in person.
By Order of the Board of Directors,
Louis G. SchottInterim Chief Executive Officer
IMPORTANT
Whether or not you expect to attend the annual meeting in person, EnerJex urges you to please vote your shares at your earliest convenience. This will ensure the presence of a quorum at the meeting. Promptly voting your shares by signing, dating and mailing the enclosed proxy will save EnerJex the expenses and extra work of additional solicitation. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option.
Important Notice Regarding the Availability of Proxy Materials for the StockholderAnnual Meeting to be
To Be Held on April 27, 2017. Our Proxy Statement to Stockholders is available atwww.enerjex.com.June 18, 2019.
4040 Broadway, Suite 508San Antonio, Texas 78209 IMPORTANT
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
April 27, 2017
This statement is furnished in connection withWhether or not you expect to attend the solicitation byAnnual Meeting, please complete, date, and sign the board of directors of EnerJex Resources, Inc., a Nevada corporation (hereinafter “EnerJex” or the “Company”) of proxiesaccompanying proxy, and return it promptly in the accompanying form forenclosed return envelope or follow the annual meeting of stockholders to be heldinstructions on Thursday, April 27, 2017, at 9:00 a.m. Central Standard Time at the offices of the Company located at 4040 Broadway, Ste. 508, San Antonio, Texas 78209, and at any adjournment thereof.
This proxy statement and the enclosed form of proxy were first sentcard to stockholdersvote on the Internet or about April 7, 2017.
by telephone. If the form ofyou grant a proxy, enclosed herewith is executed and returned as requested,you may revoke it may nevertheless be revoked at any time prior to exercisethe Annual Meeting or nevertheless vote in person at the Annual Meeting.
PLEASE NOTE: If your shares are held in street name, your broker, bank, custodian, or other nominee holder cannot vote your shares in the election of directors, unless you direct the nominee holder how to vote, by filing an instrument revoking itreturning your proxy card or a duly executedby following the instructions on the enclosed proxy bearing a later date.card to vote on the Internet or by telephone.
Solicitation
AGEAGLE AERIAL SYSTEMS INC.
117 S. 4th Street
Neodesha, Kansas 66757
PROXY STATEMENT
for
Annual Meeting of Stockholders
to be held June 18, 2019
PROXY SOLICITATION
The Company is soliciting proxies will be made by mailon behalf of the Board of Directors in connection with the Annual Meeting of stockholders on June 18, 2019 and by EnerJex’s interim chief executive officer, Louis G. Schott. EnerJexat any adjournment thereof. The Company will bear the costsentire cost of such solicitationpreparing, assembling, printing and mailing this Proxy Statement, the accompanying proxy, and any additional material that may be furnished to stockholders. Proxies also may be solicited through the mails or direct communication with certain stockholders or their representatives by officers, directors, or employees of the Company, who will reimburse brokerage firms, banks, trusteesreceive no additional compensation therefor.
May 21, 2019 is the approximate date on which this Proxy Statement, the accompanying proxy card and others for their actual out-of-pocket expensesthe Company’s 2018 annual report are first being sent to stockholders.
RECENT DEVELOPMENTS
As disclosed in forwardingthe Company’s Current Report on Form 8-K filed on March 29, 2018, on March 26, 2018, EnerJex Resources, Inc. (“EnerJex” or the “Pre-Merger Company”), a Nevada corporation, consummated the transactions contemplated by that certain Agreement and Plan of Merger dated October 19, 2017, pursuant to which AgEagle Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems, Inc., a privately held company organized under the laws of the state of Nevada (“AgEagle Sub”), with AgEagle Sub surviving as a wholly-owned subsidiary of EnerJex (the “Merger”). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc. and AgEagle Sub changed its name to “Eagle Aerial Systems, Inc.” As a result of the Merger, at times we refer to AgEagle and its subsidiary, AgEagle Sub, as the “Company” or the “Post-Merger Company.”
Certain information contained in this proxy materialstatement with respect to fiscal year 2017 disclosures is referring to EnerJex prior to the beneficial owners of its common stockMerger. To the extent relevant and 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A preferred stock”).
Stockholders who send in proxies but attend the meeting in person may vote directly if they prefer and withdraw their proxies or may allow their proxies to be voted with the similar proxies sent in by other stockholders.
VOTING PROCEDURES AND TABULATION
EnerJex will appoint an election inspector to act at the meeting and to make a written report thereof. Prior to the meeting, the inspector will sign an oath to perform its duties in an impartial manner and to the best of its ability. The inspector will ascertain the number of shares outstanding and the voting power of such shares, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots and performapplicable, we have also included certain other duties as required by law. The inspector will tabulate the number of votes cast for, against or abstained from the proposals describedinformation in the foregoing notice.proxy statement with respect to fiscal year 2017 disclosures about AgEagle Sub, the private operating company pre-Merger, for fiscal year 2017. Throughout this proxy statement, as applicable, we refer to AgEagle and its subsidiary, AgEagle Sub, as the “Company” or the “Post-Merger Company.”)
The presence atGENERAL INFORMATION ABOUT VOTING
Record Date, Outstanding Shares, and Voting Rights
As of April 30, 2019, the meeting, in person or by proxy, ofrecord date for the holdersAnnual Meeting, the Company had outstanding 14,449,394 shares of common stock, holding inpar value $0.001 per share (the “Common Stock”), being the aggregate a majorityclass of the voting power of EnerJex’s common stock entitled to vote at the meeting shall constitute a quorum formeeting. Each share of Common Stock entitles its holder to one vote.
Voting Procedures; Revoking Proxies
You may vote your proxy by completing, dating, signing, and mailing the transactionaccompanying form of business.
The vote of holders of common stock holdingproxy in the aggregate a majority of the voting power of EnerJex’s stock present at the meeting, in personreturn envelope provided or by proxy, shall decide the proposals on which the holders of common stock are entitled to vote, as described in the foregoing notice.
The presence at the meeting, in person or by proxy, of the holders of Series A preferred stock holding in the aggregate a majority of the voting power of EnerJex’s Series A preferred stock entitled to vote at the meeting shall constitute a quorum for the transaction of business upon which the Series A preferred stock is entitled to vote.
The vote of holders of the Series A preferred stock holding in the aggregate a majority of the voting power of EnerJex’s Series A preferred stock present at the meeting, in person or by proxy, shall elect the Series A directors.
Abstentions will be counted for purposes of establishing a quorum for the meeting, but will not count as votes cast for the election of directors or any other question. Accordingly, abstentions will have the same effect as a vote cast “AGAINST” each proposal.
If EnerJex receives a signed proxy card with no indication of the manner in which shares are to be voted on the proposals, such shares will be voted in accordance with the recommendation of the board of directors for such proposal.
Brokers who hold shares in street name only have the authority to vote on certain items when they have not received instructions from beneficial owners. Any “broker non-votes” will be counted for the purposes of establishing a quorum for the meeting, but will not be counted as votes cast for the election of Directors or any other question. Accordingly, “broker non-votes” will have the same effect as a vote cast “AGAINST” each proposal.
Electronic Access to Proxy Materials
This proxy statement is available atwww.enerjex.com.
SUMMARY TERM SHEET
This summary term sheet highlights selected information in this proxy statement and may not contain all of the information about the debt satisfaction/asset conveyance transaction that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes hereto and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the meeting. You may obtain, without charge, copies of documents incorporated by reference into this proxy statement by following the instructions underon the sectionenclosed proxy card to vote on the Internet or by telephone. The persons authorized by any of thisthose means to vote your shares will vote them as you specify or, in absence of your specification, as stated on the form of proxy. Abstentions and broker non-votes have no effect on the proposals being voted upon
You may revoke any proxy statement entitled“Where by notifying the Company in writing at the above address, ATTN: Secretary, AgEagle Aerial Systems Inc., 117 South 4thStreet, Neodesha, Kansas 66757, or by voting a subsequent proxy or in person at the meeting.
Attending the Meeting
You Can Find Additional Information” beginning on page 59.
The Parties
EnerJex Resources,may obtain directions to the meeting at http://www.ageagle.com or by writing to the Company at the above address, ATTN: Secretary, AgEagle Aerial Systems Inc.
We operate as an oil exploration and production company engaged, 117 South 4thStreet, Neodesha, Kansas 66757. If you attend the meeting, you may vote there in person, regardless whether you have voted by any of the other means mentioned in the acquisition, development, explorationpreceding paragraph.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of the Common Stock, as of April 30, 2019, the record date of the meeting, by each of the Company’s nominees for director, and productionexecutive officers; all executive officers and directors as a group, and each person known to the Company to own beneficially more than 5% of oil in Eastern Kansasthe Common Stock. Except as otherwise noted, the persons identified have sole voting and South Texas.investment power with respect to their shares.
We
| Name and Address of Beneficial Owner(1) | Number of Shares(2) | Percent of Class | ||||||
| Bret Chilcott Chairman of the Board, President and Nominee Director | 5,800,321 | 40.14 % | ||||||
| Barrett Mooney Chief Executive Officer(3) | 46,119 | 0.32% | ||||||
| Nicole Fernandez-McGovern Chief Financial Officer(3) | 268,474 | 1.86% | ||||||
| Grant Begley Nominee Director(3) | 93,360 | 0.65% | ||||||
| Thomas Gardner Nominee Director(3) | 167,555 | 1.16% | ||||||
| Louisa Ingargiola(3) | 19,297 | 0.13% | ||||||
| All Directors and Executive Officers as a Group (six persons) | 6,395,126 | 44.26 % | ||||||
| GreenBlock Capital, LLC 420 Royal Palm Way Palm Beach, Florida 33480(4) | 846,569 | 5.86% | ||||||
| Alpha Capital Anstalt Pradafant 7, Furstentums 9490 Vaduz, Liechtenstein(5) | 2,509,873 | 9.99% | ||||||
* Less than one percent.
| (1) | Unless otherwise indicated, such individual’s address is c/o AgEagle Aerial Systems Inc., 117 South 4thStreet, Neodesha, Kansas 66757. | |
| (2) | The persons named in this table have sole voting and investment power with respect to all shares of Common Stock reflected as beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within sixty (60) days from April 30, 2019, the record date of the meeting, and the total outstanding shares used to calculate each beneficial owner’s percentage includes such shares, although such shares are not taken into account in the calculations of the total number of shares or percentage of outstanding shares. Beneficial ownership as reported does not include shares subject to option or conversion that are not exercisable within 60 days of April 30, 2019. | |
| (3) | All shares are comprised of those shares underlying options issued and fully vested as of April 30, 2019. | |
| (4) | Excludes options to purchase 207,055 shares of Common Stock which are subject to vesting and ownership limitation provisions. Mr. Chris Spencer, a Partner of GreenBlock Capital, LLC, has sole investment and voting power with respect to the shares. The address for GreenBlock Capital, LLC is 420 Royal Palm Way, Palm Beach, Florida 33480. Information regarding this beneficial owner is furnished in reliance upon its Schedule 13G, dated March 26, 2018. | |
| (5) | Includes 237,427 shares of Common Stock and 3,636 shares of Series C Preferred Stock, which are currently convertible into 6,733,067 shares of Common Stock, 2,000 Series D Preferred Shares and 3,703,703 warrants to purchase shares of Common Stock at an exercise price of $0.54. The table includes only 2,509,873 shares of Common Stock that Alpha is deemed to beneficially own because under the terms of the Series C Certificate of Designation, the holder thereof may not own in excess of 9.99% of the Company’s voting (i.e., Common) stock at any given time. The address for Alpha Capital Anstalt is Pradafant 7, Furstentums 9490, Vaduz, Liechtenstein. Konrad Ackermann holds voting and dispositive power over such shares. |
PROPOSAL 1
ELECTION OF DIRECTORS
Effective as of the closing date of the Merger, all of the EnerJex executive officers and directors resigned from their positions with EnerJex, and the officers and directors of AgEagle Sub were formerly knownappointed to serve as Millennium Plastics Corporationofficers and were incorporateddirectors of the Post-Merger Company. EnerJex’s named executive officers for the fiscal years ended December 31, 2017 are no longer current executive officers of the Company. As a result, and for ease of reference we have included separate executive compensation sections to reflect the prior years’ compensation for the EnerJex executive officers and directors and for the Post-Merger Company executive officers and directors. Only the Post-Merger Company directors are being nominated for election.
Nominees of the Board of Directors
The Board of Directors has nominated the persons identified below for election as directors, to serve until the next annual meeting at which time their successors have been elected and qualified. Directors are elected by a plurality of votes cast. If any nominee becomes unavailable for election, which is not expected, the persons named in the State of Nevada on March 31, 1999. We abandoned a prior business plan focusing onaccompanying proxy intend to vote for any substitute whom the development of biodegradable plastic materials. In August 2006, we acquired Midwest Energy, Inc., a Nevada corporation, pursuant to a reverse merger. After the merger, Midwest Energy became a wholly owned subsidiary,Board nominates.
| Name | Age | Other positions with the Company; other directorships held in last five years | Has served as the Company director since | |||||
| Bret Chilcott | 57 | Chairman of the Board, President and Secretary | April 2014 | |||||
| Grant Begley(1)(2)(3) | 65 | Director | June 2016 | |||||
| Louisa Ingargiola(1)(2)(3) | 51 | Director | November 2018 | |||||
| Thomas Gardner(1)(2)(3) | 43 | Director | June 2016 | |||||
| (1) | Member of the audit committee. |
| (2) | Member of the compensation committee. |
| (3) | Member of the nominating and corporate governance committee. |
Bret Chilcott. Mr. Chilcott has served as a resultmember of the merger the former Midwest Energy stockholders controlled approximately 98%Board of our outstanding shares of common stock. We changed our name to EnerJex Resources, Inc. in connection with the merger, and in November 2007 we changed the name of Midwest Energy (now our wholly owned subsidiary) to EnerJex Kansas, Inc. All of our current operations are conducted through EnerJex Kansas, Black Raven Energy, Inc., Black Sable Energy, LLC, and our leasehold interests are held in our wholly owned subsidiaries Adena, LLC, Black Raven Energy, Inc., Black Sable Energy, LLC, Working Interest, LLC, and EnerJex Kansas, Inc.
EnerJex's corporate offices are located at 4040 Broadway, Suite 508, San Antonio, Texas 78209 and its telephone number is (210) 451-5545. EnerJex's website is located atwww.enerjex.com. The information contained on or connected to EnerJex's website is expressly not incorporated by reference into this proxy statement. Additional information about EnerJex is included elsewhere in this proxy statement. See the sections entitled “Information about EnerJex”.
PWCM Investment Company IC LLC (the “Successor Lender”)
PWCM Investment Company IC LLC is an entity owned by a private investment fund affiliated with Pentwater Capital Management LP. Pentwater's corporate offices are located at 614 Davis Street, Evanston, Illinois, and its telephone number is (312) 589-6400. Pentwater is not affiliated with EnerJex.
Transaction to Satisfy a Portion of the Secured IndebtednessDirectors of the Company with a Conveyanceand as President since the inception of Assetsthe Company in April 2014 and Cash (page 25)
EnerJexhad served as Chief Executive Officer from February 2016 to July 18, 2018. As of July 18, 2018, Mr. Chilcott stepped down as Chief Executive Officer and its operating subsidiaries entered into a Letter Agreement with PWCM Investment Company IC LLCcurrently serves as President, Secretary and certain other investors,Chairman of the purchaserBoard of our secured indebtedness from our former bank (the “Successor Lender”). We agreed with the Successor Lender to several simultaneous transactions — the Successor Lender would forgive most of our secured loan in the approximate principal amount of $17,295,000, and amend and restate our secured note into a note for $4,500,000, which may be discharged at a discount for an aggregate payment of $3,300,000 provided we pay the note off in full prior to maturity.
We would conveyDirectors. The path to the Successor Lender our oil and gas properties in Colorado, Texas, and Nebraska, and all of our shares of Oakridge Energy, Inc. (together,Company started when Mr. Chilcott established his advanced composite manufacturing company, Solutions by Chilcott, LLC, whose manufacturing processes led the “conveyed oil and gas assets”).
A copyway to the initial fixed wing design of the Letter Agreement we entered on February 10, 2017,Company. Previously, Mr. Chilcott spent over 12 years with Cobalt Boats in Neodesha, Kansas, where he held a variety of positions from Director of Product Development and Engineering to Director of Sales and Marketing. In those positions, he was responsible for developing strategic product plans for the company as well as the management of regional sales managers. Prior to Cobalt Boats, Mr. Chilcott also spent a number of years working at the Cessna Aircraft Company and Snap-on Tools. It was at Snap-on Tools, acting as a national accounts manager, that Mr. Chilcott first amendmentestablished his blueprint for a dealer network, a model which he carried over successfully to the Letter Agreement dated March 30, 2017, both of which we refer to collectively asCompany when the Letter Agreement, is attached as Annex A-1Company began selling its product. Mr. Chilcott graduated from Kansas Community College in 1982 with a degree in Sales and A-2, respectively, to this proxy statement. Under the termsMarketing. The Company believes that Mr. Chilcott’s background and experience in composite parts manufacturing provides him with a broad familiarity of the Letter Agreement,range of issues confronting the parties agreed that: (i)Company in the Successor Lenders would agree to forgive mostmarket, which makes him a qualified member of our existing secured loan in the approximate principal amount of $17,295,000 in exchange for the Restated Secured Note
board.
in the original principal amount of $4,500,000; (ii) the Company would convey our oil and gas properties and certain other assets in Colorado, Texas, and Nebraska; (iii) the Company would retain its assets in Kansas, subject to Successor Lenders' first-priority lien on those assets; and (iv) the Company can prepay the loan at full at any time during the termGrant Begley. Mr. Begley has served as a member of the Restated Secured Note (which is initially six months with two options to extend the term by 90 days) upon paymentBoard of $3,300,000 to the Successor Lenders.
In addition, the Successor Lender has agreed to cause its affiliate, American Standard Energy (“ASEN”), to pay a portion of its delinquent payments under its agreement to engage the Company to provide oil and gas related services to ASEN, and to pay the Company $60,000 monthly on a going forward basis, and Successor Lender guaranteed such payments. The Company agreed to waive payments incurred prior to December 1, 2016, while ASEN agreed to make 2 monthly payments for December 2016 and January 2017 of $60,000 each upon signing the Letter Agreement. In the Amendment, the Company agreed to waive the payment for April 2017.
The Restated Secured Note shall (i) be secured solely by a first-priority lien in the Company's oil and gas producing assets situated in the State of Kansas; (ii) evidence accrued interest on the $4,500,000 principal balance at a rate of 16% per annum; (iii) bear interest from and after May 1, 2017, at a rate of 16.0% per annum; (iv) be pre-payable in full at a discount at any time during the term of the Restated Secured Note upon EnerJex's paying $3,300,000 to Successor Lender; (v) mature and be due and payable in full on November 1, 2017; and (vi) shall include two (2) options to extend the maturity date of the Restated Secured Note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.
We will retain our Kansas oil and gas assets, and contribute those assets to a newly-formed bankruptcy remote entity (the “Special Purpose Subsidiary”). Successor Lender will be paid all net revenues from the Kansas oil and gas assets, the Special Purpose Subsidiary shall enter into a deposit account agreement to secure the Successor Lender's interest in that revenue, and the Special Purpose Subsidiary shall guarantee the Restated Secured Note and secure that guarantee with a lien on the Kansas oil and gas assets.
In the Letter Agreement, we agreed to schedule a stockholder meeting on or before April 30, 2017 to seek stockholder approval of the debt satisfaction/asset conveyance transaction. The Letter Agreement also required us to use its reasonable best efforts to assist Successor Lender in correcting title or security interest deficiencies. Each party agreed to take such commercially reasonable actions as are necessary to complete the transactions by May 1, 2017.
For more information, please see the section of this proxy entitled “Certain Effects of Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets” beginning on page 45.
Recommendation of Our Board; Reasons for Recommending the Approval of the Letter Agreement (page 37)
After careful consideration, the board unanimously adopted the plan to satisfy the secured indebtednessDirectors of the Company since June 2016. Since July 2011, Mr. Begley has served as set forthPresident of Concepts to Capabilities Consulting LLC, which advises global executive clients on competitive positioning and performance in aerospace. From August 2010 to September 2011, Mr. Begley was Corporate Senior Vice President for Alion Science and Technology. Prior to Alion, Mr. Begley served as Pentagon Senior Advisor to the Office of the Under Secretary of Defense, for Unmanned Systems, advising on critical issues and leading development of DoD’s 2011 Unmanned Systems Roadmap. Mr. Begley’s career includes defense industry leadership positions for the development of advanced capabilities with Raytheon and Lockheed Martin where he initiated and led cross-corporation unmanned systems and robotics successes. Mr. Begley served in the Letter Agreement, approved EnerJex's execution, deliveryUnited States Navy for 26 years, where his duties included operational assignments flying fighter aircraft, designated Top Gun, followed by acquisition assignments for the development and performancemanagement of next generation manned and unmanned aircraft systems, weapon systems and joint executive acquisition assignments. Mr. Begley holds Master’s degrees in Aerospace and Aeronautic Engineering from the Naval Post-Graduate School and a Bachelor’s degree in General Engineering from the U.S. Naval Academy. The Company believes that Mr. Begley’s 20 plus years of experience as a UAV industry expert, focused on UAV technologies, regulations and commercial applications, will be an invaluable resource to the Board of Directors.
Louisa Ingargiola. Ms. Ingargiola has served as a member of the Letter AgreementBoard of Directors of the Company since November 27, 2018. In 1990, Ms. Ingargiola joined Boston Capital Partners as an Investment Advisor in their Limited Partnership Division. In this capacity, she worked with investors and resolvedpartners to report investment results, file tax forms, and recommend investments. In 1992, Ms. Ingargiola joined MetLife Insurance Company as a Budget and Expense Manager. In this capacity she managed a $30 million annual budget. Her responsibilities included budget implementation, expense and variance analysis and financial reporting. From 2007 through 2016, Ms. Ingargiola served as the Chief Financial Officer at MagneGas Corporation (NASDAQ: MNGA) and continues to serve as a director. Ms. Ingargiola currently serves as Chief Financial Officer of Avalon-Globocare (NASDAQ:AVCO) and as the Audit Committee Chair of FTE Networks, Inc. (NYSE:FTNW) and Electra Meccanica (NASDAQ:SOLO) where she has helped manage over $200 Million in equity and debt financing. Ms. Ingargiola also serves as a Director of The JBF Foundation Worldwide, a 501(c)(3) non-profit. Ms. Ingargiola graduated in 1989 from Boston University with a Bachelor’s degree in Business Administration and a concentration in Finance. In 1996, she received her MBA in Health Administration from the University of South Florida.
Thomas Gardner. Mr. Gardner has served as a member of the Board of Directors since June 2016 and he and his firm has been engaged as a consultant to the Company. Since May 2010, Mr. Gardner has served as COO and Director at NeuEon, Inc., a technology advisory consulting firm, where he oversees operations and provides strategic technology and business guidance to select clients. Mr. Gardner has extensive experience in the areas of business and technology leadership across many industries, including financial services, manufacturing, telecommunications and consumer goods. Within these sectors, Mr. Gardner has specific expertise in the areas of process improvement, digitization and standardization, mergers and acquisitions, system implementations, enterprise resource planning and work-force optimization. Mr. Gardner holds a dual Bachelor of Science in Accounting and Management from Bryant University. The Company believes that Mr. Gardner’s experience as a data analytics expert, along with his strategic technology and business expertise, brings a unique perspective to the stockholders voteBoard of Directors.
The Board of Directors has reviewed the independence of the directors based on the listing standards of the NYSE American. Based on this review, the Board of Directors determined that each of Grant Begley, Louisa Ingargiola and Thomas Gardner are independent within the meaning of the NYSE American. In making this determination, the Board of Directors considered the relationships that each of these non-employee directors has with the Company and all other facts and circumstances the Board of Directors deemed relevant in determining their independence.
Board Operations
The positions of principal executive officer and chairman of the Board of Directors of the Company are held by different persons. The chairman of the Board chairs the Board and stockholder meetings and participates in preparing their agendas. Given the limited number of directors comprising the Board, the independent directors call, plan, and chairs their executive sessions collaboratively and, between board meetings, communicate with management and one another directly. The Company believes that these arrangements afford the independent directors sufficient resources to approvesupervise management effectively, without being overly engaged in day-to-day operations.
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Risk Oversight
The Board of Directors oversees a company-wide approach to risk management. The Board of Directors assists management to determine the Letter Agreementappropriate risk level for the Company generally, assess the specific risks faced by the Company and reviews the steps taken by management to manage those risks. While the Board has ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.
Specifically, the Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements, and the transactions set forth therein. Accordingly,incentives created by the board unanimously recommends a vote “FOR”compensation awards it administers. The Audit Committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. The Board of Directors is responsible for overseeing the proposal to approvemanagement of risks associated with the Letter Agreement and the satisfaction of secured indebtedness transaction set forth therein.
The board has determined that the entry into the Letter Agreement is in the best interests of our stockholders. For a discussionindependence of the material factors thatBoard of Directors.
Board of Directors Meetings for the board considered in resolving to recommend that our stockholders vote to approvePost-Merger Company
For the Letter Agreementfiscal year ending December 31, 2018, the Board held five meetings and took actions via the satisfaction of secured indebtedness and conveyance of oil and gas assets set forth therein, please see the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Recommendation of Our Board; Reasons for Recommending the Approvalunanimous written consent of the Letter Agreement” beginning on page 37.
ConditionsBoard of Directors. All directors attended at least 75% of the Board of Directors meetings and committee meetings relating to the Debt Satisfaction/Asset Conveyance (page 43)
Our obligation to effect the debt satisfaction/asset conveyance is subject to the satisfaction or waiver (if permissible under applicable law)committees on or prior to the closing of the transaction of, among other things, the following conditions:
Each party’s obligation to consummate the debt satisfaction/asset conveyance is also subject to the following additional conditions:
In addition, the Successor Lender's obligation to consummate the debt satisfaction/asset conveyance is also subject to the condition that since the date of the Letter Agreement that there not have been a material adverse event with regard to the conveyed oil and gas properties.
You should read the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Letter Agreement” beginning on page 39 for a more complete discussion of the material terms of the letter agreement.
Interests of Directors and Executive Officers in the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets Transaction (page 44)
As of March 30, 2017, our directors and executive officers held and are entitled to vote, in the aggregate, 3,973,168 shares of Company common stock, representing approximately 47.17% of the voting power of the outstanding shares entitled to vote at the annual meeting.
Additional details of the beneficial ownership of our common stock by our directors and executive officers are set out in the section of this proxy statement entitled “Voting Securities” beginning on page 10. In addition to their interests in the debt satisfaction/asset conveyance transaction as stockholders, certainwhich each director served. All but one of the Company’s directors attended the Company’s fiscal year 2018 Annual Shareholder meeting held on December 28, 2018.
Board Committees
The Board of Directors has standing audit, compensation, and executive officers have interests innominating committees, comprised solely of independent directors. Each committee has a charter, which is available at the transaction that may be different from, or in additionCompany’s website, www.ageagle.com. Each committee member is independent under NYSE American committee independence requirements applicable to the interestscommittee on which such member serves.
Audit Committee
The Audit Committee, which is established in accordance with Section 3(a)(58)(A) of the our stockholders generally.
Our former CEO, Robert Watson, has entered into a separation agreement withSecurities Exchange Act of 1934, is responsible for assisting the Company pursuant to which he will provide transition consulting servicesBoard of Directors in the amount of $110,000, payable at a rate of $5,000 per month, until the earlierits oversight of the date our Coloradointegrity of the Company’s financial statements, the qualifications and Texas oilindependence of the Company’s independent auditors, and gas assetsthe Company’s internal financial and accounting controls. The Audit Committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of the Company’s independent auditors, and the Company’s independent auditors report directly to the Audit Committee.
The Post-Merger Company’s current members of the Audit Committee are disposed ofLouisa Ingargiola, Chair, Grant Begley, and Thomas Gardner. During the fiscal year ended December 31, 2017, at which timeMr. Scott Burell was the remainderChair of the separationAudit Committee and consulting consideration shall be paid. As partresigned from the Board of his transition services Mr. Watson is performing services on behalf of EnerJex to fulfill our obligations under the consulting agreement with ASEN, the Successor Lender’s affiliate.
In considering the proposals to be voted on at the annual meeting, you should be aware of these interests. The membersDirectors of the board were awareCompany on November 21, 2018. Ms. Louisa Ingargiola was appointed on November 27, 2018 as a director of and considered these interests, among other matters, in evaluating and reaching their decision to adopt the plan to satisfy the Company's secured indebtedness as set forth in the Letter Agreement and determining that entry into the Letter Agreement was in the best interestsBoard of Directors of the Company and its stockholders,as the Chair of the Audit Committee to replace Mr. Burell. Each member of the Audit Committee qualifies as an independent director under the corporate governance standards of the NYSE American and the independence requirements of Rule 10A-3 of the Exchange Act. The Board of Directors has determined that Louisa Ingargiola qualifies as an “audit committee financial expert” as such term is currently defined in resolvingItem 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NYSE American.
For the fiscal year ending December 31, 2018, the Audit Committee held three meetings.
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Audit Committee Report
With respect to recommendthe audit of Post-Merger Company’s financial statements for the year ended December 31, 2018, the members of the Audit Committee:
| • | reviewed and discussed the audited financial statements with management; | |
| • | discussed with Company’s independent accountants the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Commission; and | |
| • | received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with the independent accountant the independent accountant’s independence. |
Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors of the Company that the Company’s stockholders vote to approve the Letter Agreement and the transactions set forth therein.
For more information, please see the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Interests of the Company’s Directors and Executive Officers in the Satisfaction of SecuredIndebtedness/Conveyance of Oil and Gas Assets Transaction” beginning on page 44.
Certain Effects of the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets (page 45)
Upon the consummation of the debt satisfaction/asset conveyance transaction our secured indebtedness in the approximate principle amount of $17,925,000 will be restated into a $4,500,000 note with the remainder
of the debt forgiven. The restated note can be discharged in full with a $1,200,000 discount so long as we repay an aggregate of $3,300,000 to the Successor Lender prior to the maturity date of the restated secured note, and the conveyed oil and gas assets shall be transferred to Successor Lender. Pro formaaudited financial statements showing the effect of the transaction on EnerJex arebe included in the description of the effect of the transaction on the Company in the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Certain Effects of the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets” beginning on page 45 and “— Unaudited Pro Forma Financial Information” beginning on page 0.
Certain Effects if Debt Satisfaction/Asset Conveyance is Not Completed (page 45)
In the event that the proposal to approve the Letter Agreement and the plan to satisfy the Company's secured indebtedness in exchange for the conveyed oil & gas assets and a Restated Secured Note of $4,500,000 does not receive the required approval from the Company’s stockholders, or if the transaction is not completed for any other reason, the Company will be unable to pay its debt obligations and the Successor Lender will likely foreclose on its debt. While the Company will remain an independent public company and stockholders will continue to own their shares of Company stock, the Company may be forced to seek bankruptcy protection. For more information, please see the section of this proxy entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Certain Effects if Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets is Not Completed” beginning on page 45.
Termination of the Letter Agreement (page 43)
The Letter Agreement may be terminated at any time prior to the effective time in the following circumstances:
You should read the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Letter Agreement” beginning on page 39 for a more complete discussion of the material terms of the Letter Agreement.
Material U.S. Federal Income Tax Consequences (page 46)
The debt satisfaction/asset conveyance transaction will not, by itself, have any federal income tax consequences to our stockholders.
With regard to the Company, under general tax rules we would recognize taxable income to the extent that (a) the accrued and unpaid interest on and the unpaid principal of the debt that is forgiven,exceeds(b) the sum of (i) the fair market value of our Colorado, Texas and Nebraska being conveyed to the Successor Lenders,plus(ii) the fair market value of our shares of Oakridge Energy, Inc. However, under Section 108 of the Internal Revenue Code of 1986, or the “Code,” the cancellation of indebtedness is not taxable to the extent that it occurs at a time when the taxpayer is insolvent. While we have not obtained a definitive tax opinion regarding the extent of our insolvency, we believe that it is likely that, because of the amount by which our secured indebtedness exceeds the value of our assets, the exclusion available under Section 108 will shelter all or substantially all of the gain that otherwise would be taxable by virtue of the cancellation of our secured indebtedness by the Successor Lender.
It also is possible that the transaction may create taxable income to the extent that the value of our Colorado, Texas and Nebraska assets exceeds the basis of those shares. See Code Section 1001(a). However,
we have a substantial accumulated net operating loss, or “NOL,” and we presently believe that the amount of that NOL will be available to shelter any gain that we otherwise might be required to recognize by virtue of the transfer of our Colorado, Texas and Nebraska assets, and of the shares of Oakridge Energy, Inc. to the Successor Lenders in partial satisfaction of our secured indebtedness.
You should read the section of this proxy statement entitled “Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets — Income Tax Consequences of the Transaction” beginning on page 46 for a more complete discussion of the material U.S. federal income tax consequences of the transaction.
Additional Information (page 53)
You can find more information about the Company in the periodic reports and other information we file with the SEC. The information is available at the SEC’s public reference facilities and at the website maintained by the SEC atwww.sec.gov. See “Where You Can Find Additional Information” beginning on page 53.
FORWARD LOOKING STATEMENTS
This Proxy Statement contains “forward looking statements” (as defined in the Private Securities Litigation Reform Act of 1995). These statements are based on the Company’s current expectations and involve risks and uncertainties, which may cause results to differ materially from those set forth in the statements. The forward looking statements may include statements regarding actions to be taken by the Company. The Company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise. Forward looking statements should be evaluated together with the many uncertainties that affect the Company’s business, particularly those mentioned in the risk factors in Item 1A of the Company’s Annual Reportannual report on Form 10-K for the year ended December 31, 2016 and in2018.
Louisa Ingargiola, Chair
Grant Begley
Thomas Gardner
Compensation Committee
The Compensation Committee approves the Company’s periodic reports on Form 10-Q and Form 8-K.
QUESTIONS AND ANSWERS
ABOUT THE SOLICITATION AND VOTING
Q.How may I obtain EnerJex’s annual reportcompensation objectives for the year ended December 31, 2016?
Q.Who is entitled to vote?
AsCompany, approves the compensation of March 28, 2017, we had 8,423,936 shares of common stockthe chief executive officer and 938,248 shares of Series A preferred stock outstanding and entitled to vote.
Q.What is the difference between holding shares as a “stockholder of record” and as a “beneficial owner?”
Since a beneficial owner is not the stockholder of record, you may not vote your shares in person at the annual meeting unless you obtain a “legal proxy” from the broker, trusteeapproves or nominee that holds your shares, giving you the right to vote the shares at the meeting. Your broker, trustee or nominee should have enclosed or provided voting instructions for you to use in directing the broker, trustee or other nominee how to vote your shares.
Q.How can I attend the annual meeting?
Please let EnerJex know if you plan to attend the meeting by marking the box on the enclosed proxy card. The meeting will begin promptly at 9:00 a.m. local time. Check-in will begin at 8:30 a.m. local time, and you should allow ample time for the check-in procedures.
Q.How can I vote my shares in person at the annual meeting?
Q.Do I have appraisal rights?
Q.How can I vote my shares without attending the annual meeting?
Q.Can I change my vote?
Q.What are the Board’s recommendations?
VOTING SECURITIES
The following table presents information, to the bestBoard of EnerJex’s knowledge, aboutDirectors for approval the ownershipcompensation of EnerJex’s common stock on March 28, 2017 relating to those persons known to beneficially own more than 5% of EnerJex’s capital stockother executives. The Compensation Committee reviews all compensation components, including base salary, bonus, benefits and by EnerJex’s directors and executive officers. The percentage of beneficial ownership for the following table is based on 8,423,936 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after March 28, 2017 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of EnerJex’s common stock.perquisites.
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| Name and Address of Beneficial Owner(1) | Number of Shares | Percent of Outstanding Shares of Common Stock(2) | ||||||
| Louis G. Schott, Interim CEO/Secretary | 0 | 0 | % | |||||
| Robert G. Watson, Jr., Former CEO/President and Former Director(3) | 326,667 | 3.88 | % | |||||
| Ryan A. Lowe, Director(4) | 13,701 | .16 | % | |||||
| Lance W. Helfert, Director(4) | 381,306 | 4.53 | % | |||||
| James G. Miller, Director | 157,356 | 1.87 | % | |||||
| Richard E. Menchaca, Director | 12,432 | 0.15 | % | |||||
| Montecito Venture Partners, LLC(4) | 128,925 | 1.53 | % | |||||
| Douglas M. Wright, CFO | 70,000 | 0.83 | % | |||||
| Kent A. Roach, EVP | 43,748 | 0.52 | % | |||||
| Alpha Capital Anstalt(5) Pradafant 7, Furstenturns 9490 Vaduz, Liechtenstein | 832,259 | 9.9 | % | |||||
| Natalie Orfalea | 691,412 | 8.21 | % | |||||
| David L. Kunovic, EVP Exploration | 55,633 | 0.66 | % | |||||
| Paul Orfalea | 696,945 | 8.27 | % | |||||
| Newman Family Trust | 562,784 | 6.68 | % | |||||
| Directors, Officers and Beneficial Owners as a Group | 47.17 | % | ||||||
The following table presents information, to the best of EnerJex’s knowledge, about the ownership of EnerJex’s Series A preferred stock on March 28, 2017 relating to those persons known to beneficially own more than 5% of EnerJex’s capital stock and by EnerJex’s directors and executive officers. The percentage of beneficial ownership for the following table is based on 938,248 shares of Series A preferred stock outstanding.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of Series A preferred stock over which the stockholder has sole or shared voting or investment power. It also includes shares of Series A preferred stock that the stockholder has a right to acquire within 60 days after March 28, 2017 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of EnerJex’s common stock.
| | | ||||||
| Name and Address of Beneficial Owner(1) | Number of Shares | Percent of Outstanding Shares of Series A Preferred Stock(2) | ||||||
| Louis G. Schott, Interim CEO/Secretary | 0 | 0 | % | |||||
| Robert G. Watson, Jr., Former CEO/President and Former Director(3) | 2,000 | .21 | % | |||||
| Ryan A. Lowe, Director(5) | 0 | 0 | % | |||||
| Montecito Venture Partners, LLC(5) | 6,746 | .72 | % | |||||
| Lance W. Helfert, Director(4)(5) | 18,555 | 1.98 | % | |||||
| James G. Miller, Director | 0 | 0 | % | |||||
| Richard E. Menchaca, Director | 0 | 0 | % | |||||
| Douglas M. Wright, CFO | 2,000 | .21 | % | |||||
| Kent A. Roach, EVP | 0 | 0 | % | |||||
| David L. Kunovic, EVP Exploration | 0 | 0 | % | |||||
| Directors, Officers and Beneficial Owners as a Group | 2.69 | % | ||||||
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
At the 2017 annual meeting of stockholders, a board of directors consisting of four (4) members will be elected, each director to hold office until the next annual meeting of stockholders, or a successor is elected and qualified, or until the director resigns, is removed or becomes disqualified.
EnerJex’s governance, compensation and nominating committee has nominated for election all four (4) of thePost-Merger Company’s current members of the boardCompensation Committee are Grant Begley, Chairman, Louisa Ingargiola, and Thomas Gardner. Mr. Scott Burell was a member of directors: R. Atticus Lowe, Lance W. Helfert, James G. Millerthe Compensation Committee and Richard E. Menchaca. The nominees have consented to their nomination toresigned from the boardBoard of directors, and will serve if elected. However, ifDirectors of the nominees should become unavailable for election,Company on November 21, 2018. Ms. Louisa Ingargiola was appointed on November 27, 2018 as a director of the accompanying proxy will be voted in favorBoard of holding a vacancy to be filled by EnerJex’s current directors. EnerJex has no reason to believe that Messrs. Lowe, Helfert, Miller or Menchaca will be unavailable to serve as directors.
The following information is provided regardingDirectors of the nominees for election to the board of directors.
| | | | |||
R. Atticus Lowe. Mr. Lowe previously served as senior vice president of corporate development from December 31, 2010 to 2015,Company and as a director sincemember of the Compensation Committee to replace Mr. Burell’s role.
For the fiscal year ending December 31, 2010. Mr. Lowe previously served as2018, the chief investment officer of West Coast Asset Management, Inc. (WCAM) from 2006 to 2016, which was a registered investment advisor that invested more than $200 million in the oil and gas industry on behalf of its principals and clients. Mr. Lowe formerly served as a director and chairmanCompensation Committee held two meetings.
The members of the auditcompensation committee for Black Raven Energy, Inc., until we acquired Black Raven in September 2013.are Messrs. Begley and Gardner and Ms. Ingargiola. Mr. LoweBegley serves as chair of the compensation committee. Each member of the compensation committee is a CFA charterholdernon-employee director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act, each is an outside director as defined by Section 162(m) of the United States Internal Revenue Code of 1986, as amended, or the Code, and holdseach is an independent director as defined by the NYSE American. The compensation committee has adopted a degree in Businesswritten charter that satisfies the applicable standards of the SEC and Economics from Westmont College.the NYSE American, which is available on our website.
James G. Miller. Mr. MillerCompensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee has ever been an officer or employee of the Company. None of the Company’s executive officers serves, or has served as a director since December 31, 2010. Mr. Miller retired in 2002 after servinginception, as the Chief Executive Officer of Utilicorp United, Inc.’s business unit responsible for the company’s electricity generation and electric and natural gas transmission and distribution businesses, which served 1.3 million customers in seven mid-continent states. Utilicorp traded on the New York Stock Exchange, and the company was renamed Aquila in 2002. In 2007, Utilicorp’s electricity assets in northwest Missouri were acquired by Great Plains Energy Incorporated (NYSE: GXP) for $1.7 billion, and its natural gas properties and other assets were acquired by Black Hills Corporation (NYSE: BKH) for $940 million. Mr. Miller joined Utilicorp in 1989 through its acquisition of Michigan Gas Utilities, for which he served as the president from 1983 to 1991. Mr. Miller also is a member of the board of directors, compensation committee or other board committee performing equivalent functions of Guardian 8 Holdings. He currently servesany entity that has one or more executive officers serving as Chairman of The Nature Conservancy, Missouri Chapter, for which he has been a Trustee for the past 16 years.
Lance W. Helfert. Mr. Helfert has served as a director since December 31, 2010. Mr. Helfert previously served as the President and a co-founder of WCAM, a registered investment advisor located in Montecito, California. Prior to co-founding WCAM, he managed a portfolio at Wilshire Associates and was involved in a full range of financial strategies at M.L. Stern & Co. Mr. Helfert is a co-author ofThe Entrepreneurial Investor: The Art, Science and Business of Value Investing, a book published by John Wiley & Sons. He has been featured in Kiplinger’s Personal Finance, Forbes, Barron’s, Fortune Magazine, and the Market Watch for his unique market prospective. In addition, Mr. Helfert has been a guest commentator on CNBC and the Fox Business networks. Mr. Helfert has also served on the board of directors for Junior Achievement of Southern California and the Tri-Counties Make-A-Wish Foundation.
Richard E. Menchaca. Mr. Menchaca has been a director since June 7, 2013. Mr. Menchaca attended the University of Texas at Arlington where he received a BBA in Finance and pursued a MBA in Finance, and received a Graduate Degree from the SMU Southwestern School of Banking. Mr. Menchaca spent 18 years in the corporate banking industry with First Republic Bank (n.k.a. Bank of America), Bank One in Fort Worth and Fuji Bank, and Guaranty Bank in Houston. While at Guaranty Bank, Mr. Menchaca was one of the founding members of the Oil and Gas Banking Group, and within 18 months of its formation became the most profitable lending group within the bank with over $900 million of loans to oil and gas industry. Mr. Menchaca was the principal and founder of Petras Energy, LLC, an oil and gas production company based in Midland, Texas. The company was successfully sold in January 2006. Mr. Menchaca has been the founder and principal of several privately owned oil and gas companies with operations in Texas, Oklahoma and Louisiana. Mr. Menchaca served as President and Chief Executive Officer of Petroflow Energy Corporation, a Tulsa-based exploration and production company from May 2010 until June 2016, as well as a member of its board ofCompany’s directors from June 2009 to June 2016. Mr. Menchaca also serves as a directoror on the board of a non-profit organization based in Houston, Texas.Company’s compensation committee.
When the accompanying proxy is properly executedNominating and returned, the shares it represents will be voted in accordance with the directions indicated thereon or, if no direction is indicated, the shares will be voted in favor of the election of the four (4) nominees identified above. EnerJex expects each nominee to be able to serve if elected, but if any nominee notifies EnerJex before this meeting that he is unable to do so, then the proxies will be voted for the remainder of those nominated and, as designated by the Directors, may be voted (i) for a substitute nominee or nominees, or (ii) to elect such lesser number to constitute the whole Board as equals the number of nominees who are able to serve.Corporate Governance Committee
The vote of holders of common stock holding in the aggregate a majority of the voting power of EnerJex’s stock present at the meetingNominating and Corporate Governance Committee is required to elect each of the nominees.
Involvement in Certain Legal Proceedings
On December 23, 2013, the United States Securities and Exchange Commission (SEC) entered an order in an administrative proceeding, In the Matter of West Coast Asset Management, Inc., and Lance W. Helfert, File No. 3-15660. In that matter, WCAM and Mr. Helfert, without admitting or denying the allegations, entered into a settlement with the SEC regarding certain negligence-based violations of Section 17(a)(2) of the Securities Act and Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 (the Advisers Act). The matter was based upon an untrue statement made in an email that Mr. Helfert sent, in 2008, to an adviser to a prospective investor in an investment fund that was managed by WCAM. The SEC ordered WCAM and Mr. Helfert to cease and desist from committing or causing further such negligence-based violations, censured them, ordered WCAM to disgorge certain fees, and ordered WCAM and Mr. Helfert each to pay a monetary fine. WCAM and Mr. Helfert timely paid those amounts to the SEC.
Except as set forth above, none of our executive officers or directors has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES.
Director Independence
Under the corporate governance requirements of companies whose shares are listedresponsible for trading on the NYSE MKT, at least a majority of the members of the board of directors of each listed company must be “independent.” The EnerJex board of directors has determined that three of the four (4) current directors — James G. Miller, Richard Menchaca, and Lance W. Helfert — are “independent directors” under the NYSE MKT listing requirements. The NYSE MKT listing requirements provide a non-exclusive list of persons who are not considered independent. For example, under these rules, a director who is, or during the
past three years was, employed by the Company or by any parent or subsidiary of the company, other than prior employment as an interim chairman or chief executive officer, would not be considered independent. No director qualifies as independent unless the EnerJex board of directors affirmatively determines that the director does not have a material relationship with the company that would interfere with the exercise of independent judgment. In making an affirmative determination that a director is an “independent director,” the EnerJex board of directors reviewed and discussed information provided by these individuals and by EnerJex with regard to each of their business and personal activities as they may relate to EnerJex and its management.
Board of Directors’ Meetings, Committees, Directors’ Compensation and Nominations
The EnerJex board of directors held 11 meetings during 2016. All of EnerJex’s directors attended seventy-five percent (75%) or more of the aggregate meetings of the EnerJex board of directors and all committees on which they served during 2016. Directors are encouraged, but not required, to attend the annual meetings of EnerJex’s stockholders.
Audit Committee and Financial Expert
The primary responsibilities of the audit committee include:
The audit committee will have the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Our audit committee consists of Mr. Miller and Mr. Menchaca. The board of directors has determined that each member of the audit committee qualifies as “independent” for purposes of membership on audit committees pursuant to the NYSE MKT listing requirements and the rules and regulations of the SEC and is able to read and understand Fundamental Financial Statements as required by the NYSE MKT listing requirements. In addition, the board of directors has determined that Mr. Miller qualifies as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
A copy of the audit committee charter is available on EnerJex’s websitewww.enerjex.com.
Governance, Compensation and Nominating Committee
The primary responsibilities of the Governance, Compensation and Nominating Committee include:
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The Post-Merger Company’s current members of the businessNominating and affairsCorporate Governance Committee are Thomas Gardner, Chairman, Louisa Ingargiola, and Grant Begley. Mr. Scott Burell was a member of the company;
The governance, compensation and nominating committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
The governance, compensation and nominating committee consists of Mr. Menchaca and Mr. Helfert.
Stockholder Communications withresigned from the Board of Directors
Stockholders who wish of the Company on November 21, 2018. Ms. Louisa Ingargiola was appointed on November 27, 2018 as a director of the Board of Directors of the Company and as a member of the Nominating and Corporate Governance Committee to communicate with the board or a particularreplace Mr. Burell.
The Nominating and Corporate Governance Committee will consider director may send a lettercandidates recommended by security holders. Potential nominees to the secretaryBoard of EnerJex at: 4040 Broadway, Suite 508, San Antonio, Texas 78209. The mailing envelope must containDirectors are required to have such experience in business or financial matters as would make such nominee an asset to the Board of Directors and may, under certain circumstances, be required to be “independent”, as such term is defined under Section 121(a) of the listing standards of NYSE American and applicable SEC regulations. Security holders wishing to submit the name of a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-Director Communication.” All such letters must identify the authorperson as a stockholderpotential nominee to the Board of Directors must send the name, address, and clearly state whethera brief (no more than 500 words) biographical description of such potential nominee to the intended recipients are allNominating and Corporate Governance Committee at the following address: Nominating and Corporate Governance Committee of the Board of Directors, c/o AgEagle Aerial Systems Inc., 117 S. 4th Street, Neodesha, Kansas 66757. Potential director nominees will be evaluated by personal interview, such interview to be conducted by one or more members of the board Nominating and Corporate Governance Committee, and/or just certain specified individual directors.any other method the Nominating and Corporate Governance Committee deems appropriate, which may, but need not, include a questionnaire. The secretaryNominating and Corporate Governance Committee may solicit or receive information concerning potential nominees from any source it deems appropriate. The Nominating and Corporate Governance Committee need not engage in an evaluation process unless (i) there is a vacancy on the Board of Directors, (ii) a director is not standing for re-election, or (iii) the Nominating and Corporate Governance Committee does not intend to recommend the nomination of a sitting director for re-election. A potential director nominee recommended by a security holder will make copies of all such lettersnot be evaluated differently from any other potential nominee. Although it has not done so in the past, the Nominating and circulate themCorporate Governance Committee may retain search firms to the appropriateassist in identifying suitable director or directors.candidates.
Board Leadership Structure and Role in Risk Oversight
The board of directorsBoard does not have a separate risk oversight body. Instead,formal policy on Board candidate qualifications. The Board may consider those factors it deems appropriate in evaluating director nominees made either by the EnerJex board has overall responsibility for risk oversight,Board or stockholders, including as partjudgment, skill, strength of regular boardcharacter, experience with businesses and committee meetings, general oversight of executives’ management of risks relevant to us. In overseeing risks, the board seeks to understand the material risks, including financial, competitive, and operational risks, we face and the steps management is taking to manage those risks. It also has the responsibility for understanding what level of risk is appropriate. The board of directors reviews our business strategy and determines what constitutes an appropriate level of risk for EnerJex.
While the full EnerJex board has overall responsibility for risk oversight, the board has delegated oversight responsibility related to certain risks to its two committees. The audit committee, under its charter,
has been delegated the responsibility of reviewing and discussing with management our major financial risk exposures and the steps that management has taken to monitor and control such exposures (including management’s risk assessment and risk management policies). EnerJex’s governance, compensation and nominating committee is responsible for considering risks within its areas of responsibility. The board does not believe that our compensation policies encourage excessive risk-taking, as the compensation plans are designed to align our employees with short- and long-term corporate strategy. Generally, our equity awards vest over several years, which the board has determined encourages our employees to act with regardorganizations comparable in size or scope to the long term interestCompany, experience and skill relative to other Board members, and specialized knowledge or experience. Depending upon the current needs of EnerJexthe Board, certain factors may be weighed more or less heavily. In considering candidates for the Board, the directors evaluate the entirety of each candidate’s credentials and do not have any specific minimum qualifications that must be met. The directors will consider candidates from any reasonable source, including current Board members, stockholders, professional search firms or other persons. The directors will not evaluate candidates differently based on who has made the recommendation.
For the fiscal year ending December 31, 2018, the Nominating and Corporate Governance Committee held no meetings and acted by unanimous written consent on one occasion.
Stockholder Communications
Stockholders can mail communications to focus on sustained stock price appreciation.the Board of Directors, c/o Secretary, AgEagle Aerial Systems Inc., 117 S. 4th Street, Neodesha, Kansas 66757, who will forward the correspondence to each addressee.
The board’s roleDelinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires Company’s directors and executive officers and any beneficial owner of more than 10% of any class of Company equity security to file reports of ownership and changes in risk oversight has not had any effectownership with the Securities and Exchange Commission. Based solely on the board’s leadership structure.
CodeCompany’s review only of Ethics
EnerJex has adopted a code of business conduct and ethicsSection 16 reports that applies to all of its directors, officers and employees, as well as to directors, officers and employees of each subsidiary of EnerJex. A copy ofhave been filed on EDGAR Company believes that during 2018, the code of business conduct and ethics is available on EnerJex’s website atwww.enerjex.com. If any substantive amendments are made to the code of business conduct and ethicsfollowing reports were not filed or if EnerJex’s grants any waiver, including any implicit waiver, from a provision of the code to any of its officers and directors, EnerJex will satisfy any disclosure requirements of Form 8-K by disclosing the nature of such amendment or waiver on its website atwww.enerjex.com.untimely filed:
| Name | Late Reports | Transactions Covered | Number of Shares | |||||
| Barrett Mooney | Form 3 | Common Stock | 75,000 | |||||
| Form 4 | Stock Options | 125,000 | ||||||
| Corbett Kull | Form 3 | Stock Options | 41,250 | |||||
| Form 4 | Stock Options | 33,000 | ||||||
| Thomas Gardner | Form 4 | Stock Options | 66,000 | |||||
| Grant Begley | Form 4 | Stock Options | 66,000 | |||||
| Louisa Ingargiola | Form 4 | Stock Options | 16,500 | |||||
| Nicole Fernandez-McGovern | Form 4 | Stock Options | 37,500 | |||||
| Scott Burell | Form 4 | Stock Options | 49,500 | |||||
Limitation of Liability of DirectorsEXECUTIVE OFFICERS
Pursuant to the Nevada General Corporation Law, EnerJex’s amended and restated articles of incorporation exclude personal liability for its directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director’s liability under federal or applicable state securities laws. EnerJex has agreed to indemnify its directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a director if he acted in good faith and in a manner he believed to be in EnerJex’s best interests.
Executive Officers
The following table sets forth certain information regarding EnerJex’sthe names and ages of our current executive officers. EnerJex’s executive officers, serve at the discretiontheir respective positions and offices, and their respective principal occupations or brief employment history as of the board of directors, unless otherwise governed by employment contracts.date hereof.
| | | ||||
| 33 | Chief Executive Officer | |||||
| 57 | Chairman of the Board and President (former Chief Executive | |||||
| 46 | Chief Financial Officer | |||||
Barrett Mooney. Mr. Mooney joined as Chief Executive Officer as of July 18, 2018. Mr. Mooney brings an extensive track record of growing agriculture and sustainability businesses. From May 1, 2017 to July 18, 2018, he served as Group Product Lead for The Climate Corporation, a subsidiary of Monsanto (recently acquired by Bayer), where he led the satellite imagery team, managed a team focused on using artificial intelligence to enhance crop yield production an introduced a new organizational structure to improve sales efficiency. Prior to The Climate Corporation, from July 1, 2012 to May 1, 2017, Mr. Mooney co-founded and was CEO and president of HydroBio, a software company that used satellite-driven image analytics to conserve water and maximize crop yields. In May 2017, he sold HydroBio to The Climate Corporation. Mr. Mooney holds a Doctor of Philosophy in Agricultural and Biological Engineering from the University of Florida. He is also a member of the American Society of Agricultural and Biological Engineers.
Nicole Fernandez-McGovern. Ms. Fernandez-McGovern has served as Chief Financial Officer since April 2016. From April 2013 to January 2016, Ms. Fernandez-McGovern served as the CEO and CFO of Trunity Holdings, Inc. (OTCQB: TNTY), where she was able to lead a successful restructuring of the company by acquiring a new compounding pharmacy business and finalizing the spin-out of the legacy educational business into a newly formed private company. From January 2011 to April 2013, Ms. Fernandez-McGovern was President of RCM Financial Consulting, a consulting firm where she provided interim accounting and financial services to small and medium sized companies. Ms. Fernandez-McGovern was also a financial manager at Elizabeth Arden, Inc. (NASDAQ: RDEN) from July 2001 to October 2010, where she was involved in all aspects of the SEC and financial reporting process. Her career began with KPMG LLP in the audit and assurance practice where she managed various large scale engagements for both public and privately held companies. Ms. Fernandez-McGovern has a Master of Business Administration with a concentration in Accounting and International Business and a Bachelor of Business Administration with a concentration in accounting, both from the University of Miami. She is also a Certified Public Accountant in the State of Florida, serves on the boards of the South Florida Chapter of Financial Executives International and Pembroke Pines Charter Schools Advisory Board and is fluent in Spanish.
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Executive Compensation
Summary Compensation Table
The following table sets forth information regarding compensation of the Post-Merger Company’s named executive officers for each of the two fiscal years in the period ended December 31, 2018.
| Fiscal 2017 Summary Compensation Table | ||||||||||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary $ | Bonus | Stock Awards | Option Awards(4) $ | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total $ | |||||||||||||||||||||||||||
| Bret Chilcott(1) | 2018 | 120,539 | — | — | — | — | — | — | 120,539 | |||||||||||||||||||||||||||
| 2017 | 31,200 | — | — | — | — | — | — | 31,200 | ||||||||||||||||||||||||||||
| Barrett Mooney | 2018 | 95,615 | — | — | 54,995 | — | — | — | 150,610 | |||||||||||||||||||||||||||
| (Principal Executive Officer)(2) | 2017 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Nicole Fernandez-McGovern(3) | 2018 | 207,500 | — | — | 27,759 | — | — | — | 235,259 | |||||||||||||||||||||||||||
| (Principal Financial Officer) | 2017 | 20,000 | — | — | 6,339 | — | — | — | 26,339 | |||||||||||||||||||||||||||
| (1) | Bret Chilcott served as Chief Executive Officer and President of the Company until July 18, 2018, after which he stepped down as Chief Executive Officer and now serves as President. | |
| (2) | Barrett Mooney was appointed as Chief Executive Officer of the Company effective July 18, 2018. | |
| (3) | Nicole Fernandez-McGovern was appointed as Chief Financial Officer of the Company effective April 6, 2016. Amounts for 2018 include deferred compensation payments from 2017. | |
| (4) | The aggregate grant date fair value of the options awarded to each executive officer is computed in accordance with FASB ASC Topic 718 and excludes the effect of forfeiture assumptions. Also, these awards generally vest over a one period from the date of grant. The assumptions used to calculate the fair value of stock option awards are Black-Scholes option valuation model. |
Employment Agreements
Bret Chilcott
Louis G. Schott.
Mr. Schott, servesChilcott has served as interim chief executive officer and secretarya member of the Board of Directors of the Company and as President since the inception of the Company in 2010 and had served as Chief Executive Officer from February 2016 to July 18, 2018. As of July 18, 2018, Mr. Chilcott stepped down as Chief Executive Officer and currently serves as President, Secretary and Chairman of the Board of the Directors. Mr. Chilcott has no formal agreement with the Company but did hold the position of Chief Executive of the Company for an annual salary of $175,000. Upon his resignation as Chief Executive Officer of the Company his salary was reduced to $140,000, annually.
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Barrett Mooney
Pursuant to an employment offer letter dated July 9, 2018, Mr. Mooney will receive as compensation for his services as Chief Executive Officer a base salary of $220,000 per year, which shall be subject to annual performance review by the Compensation Committee of the Board and may be revised by the Board, in its subsidiaries.sole discretion. Mr. Schott has servedMooney received an initial grant of 75,000 shares of restricted Common Stock of the Company which is fully vested. Mr. Mooney shall also be eligible to receive an award of 75,000 shares of restricted Common Stock of the Company which shall fully vest as of January 1, 2019 if, and only if, the stock price of the Company reaches $3.55 per share and the closing price per share is at or above such price at the end of the day on January 1, 2019. In addition, Mr. Mooney is eligible to receive an award of 20,000 nonqualified stock options under the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”) upon securing one sustainability pilot program on or before October 31, 2018, and an additional award of 30,000 nonqualified stock options under the Equity Plan upon securing a second sustainability pilot program on or before January 31, 2019. Both awards shall provide for immediate vesting and exercisability at an exercise price equal to the fair market value of the Company’s shares of Common Stock underlying the options as of the date of grant. Mr. Mooney will also be eligible receive an award of up to 55,000 nonqualified stock options under the Equity Plan based upon the results of his annual performance review in the oilfirst quarter of 2019.
Effective December 18, 2018, an amendment was signed for the original employment offer letter dated July 9, 2018 hereby providing an amendment to provide that in lieu of the issuance of 75,000 shares of restricted Common Stock of the Company (the “Shares”), the Company shall award to Executive 125,000 Nonqualified Stock Options (the “Stock Options”) under the Company’s 2017 Omnibus Equity Incentive Plan (the “Equity Plan”). The Stock Options shall be subject to the terms of the Equity Plan and gas industry for 20standard option award agreement which shall have a term of 10 years and provide for vesting over a one-year period and exercisability at an exercise price equal to the fair market value of the Company’s Common Stock as of the date of the grant. The award of 75,000 shares were returned to the company and immediately cancelled.
Nicole Fernandez-McGovern
Based on her agreement commencing with the date of appointment as CFO in August 2016, Ms. Fernandez-McGovern earned a salary of $66,000 per year, payable in monthly installments of $5,500 for 2017. In 2018, her monthly installment payment increased to $8,000 and effective upon the closing of the Merger, Ms. Fernandez-McGovern’s salary increased to $150,000. As part of her compensation upon the closing of the Merger, Ms. Fernandez-McGovern also received 10-year stock options to purchase 265,033 shares of Common Stock at an exercise price of $0.06 per share, of which half of the options vested upon issuance and the remainder will vest equally over two years. Additionally, on a quarterly basis, Ms. Fernandez-McGovern will be awarded 12,500 shares of stock options to purchase Common Stock at an exercise price per share equal to the market price of our Common Stock at the time of issuance during the term of her employment.
Effective January 1, 2019, Ms. Fernandez-McGovern signed a new employment agreement with the Company, whereby her annual base salary increased to $180,000 and a ten-year grant of 50,000 stock options to purchase shares of Common Stock at an exercise price of $0.54 was awarded. In addition, Ms. Fernandez-McGovern will continue to receive quarterly grants of 12,000 stock options to purchase Common Stock at an exercise price equal to the market price of our Common Stock at the time of issue during the term of her employment. All of the awards will vest equally over two years.
The Company has 24 yearsno other formal employment agreements with executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement or any other termination of legalnamed executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control. However, it is possible the Company will enter into formal employment agreements with executive officers in the future.
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Company 2017 Omnibus Equity Incentive Plan
The 2017 Omnibus Equity Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and business experience, including but not limitedother incentive awards to mergersofficers, employees and acquisitions, public company regulationsdirectors of, and requirements, title, energy finance, business development, general negotiationsconsultants and land. Mr. Schott was most recently general counseladvisers to, the Company The purpose of the Plan is to help the Company attract, motivate and treasurerretain such persons and thereby enhance shareholder value. The Plan provides for the grant of TexOak Petro Holdings LLC,awards which are incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), unrestricted shares , restricted shares, restricted stock units, performance stock, performance units, SARs, tandem stock appreciation rights, distribution equivalent rights, or any combination of the foregoing, to key management employees, non-employee directors, and non-employee consultants of the Company or any of its subsidiaries where he performed all legal functions,(each a “participant”) (however, solely Company employees or employees of the Company’s subsidiaries are eligible for incentive stock option awards). The Company has reserved a total of 2,000,000 shares of common stock for issuance as or under awards to be made under the Plan.
Types of Stock Awards
The Plan, provides for the grant of incentive stock options and negotiated oilnon-qualified stock options. Stock options may be granted to employees, including officers, non-employee directors and gas acquisitions. Priorconsultants of the Company or its affiliates, except that incentive stock options may be granted only to working at TexOak Petro Holdings LLC, Mr. Schott served various roles with TDC Energy from 1996 through 2005,employees.
Share Reserve
The aggregate number of shares of Common Stock that have been reserved for issuance under the Plan is 2,000,000. As of the date of this Proxy Statement, there are 1,756,665 shares underlying options granted under the Plan and was an oil and gas attorney with Liskow & Lewis243,335 shares of Common Stock available for future issuance under the Plan. If a stock option award expires, terminates, is canceled or is forfeited for any reason, the number of shares subject to the stock option award will again be available for issuance. In addition, if stock awards are settled in New Orleans. Mr. Schott is a graduatecash, the share reserve will be reduced by the number of Tulane Universityshares of common stock with a MBAvalue equal to the amount of the cash distributions as of the time that such amount was determined and if stock options are exercised using net exercise, the share reserve will be reduced by the gross number of shares of common stock subject to the exercised portion of the option. We also have 207,055 shares underlying options that have been granted outside of the Plan.
Administration
The Board of Directors or a Juris Doctorate,duly authorized committee thereof, has the authority to administer the Plan. Subject to the terms of the Plan, the Board of Directors or the authorized committee, referred to herein as the committee, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock option awards, including the period of exercisability and vesting schedule applicable to a stock option award. Subject to the limitations set forth below, the committee will also determine the exercise price and the types of consideration to be paid for the award. The committee has the authority to modify outstanding awards under the Plan. The committee has the authority to adopt, alter and repeal administrative rules, guidelines and practices governing the Plan and to perform all other acts, including delegating administrative responsibilities, as it deems advisable to construe and interpret the terms and provisions of the Plan and any stock option award granted under the Plan. Decisions and interpretations or other actions by the committee are in the discretion of the committee and are final binding and conclusive on the company and all participants in the Plan.
Stock Options
Incentive stock options and non-qualified stock options are granted pursuant to stock option award agreements adopted by the committee. The committee determines the exercise price for a stock option, within the terms and conditions of the Plan, provided that the exercise price shall not be less than (i) in the case of a grant of any NQSO or an ISO to a key employee who at the time of the grant does not own stock representing more than ten percent (10%) of the total combined voting power of all classes of our stock or of any subsidiary, one hundred percent (100%) of the fair market value of a share of common stock as determined on the date the stock option award is granted; (ii) in the case of a non-practicing Certified Public Accountant.grant of an ISO to a key employee who, at the time of grant, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of our stock or of any subsidiary, one hundred ten percent (110%) of the fair market value of a share of common stock, as determined on the date the stock option award is granted. The fair market value of the common stock for purposes of determining the exercise price shall be determined by the committee in accordance with any reasonable method of valuation consistent with applicable requirements of Federal tax law, including, as applicable, the provisions of Code Section 422(c)(8) and 409A as applicable. Stock options granted under the Plan will become exercisable at the rate specified by the committee and may be exercisable for restricted stock, if determined by the committee.
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The committee determines the term of stock options granted under the Plan, up to a maximum of ten years. The option holder’s stock option agreement shall provide the rights, if any, that such holder has to exercise the stock option at such time that such holder’s service relationship with us, or any of our affiliates, ceases for any reason, including disability, death, with or without cause, or voluntary resignation. All unvested stock option awards are forfeited if the participant's employment or service is terminated for any reason, unless our compensation committee determines otherwise.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the committee and may include (i) check, bank draft or money order, or wire transfer, (ii) if the company's common stock is publicly traded, a broker-assisted cashless exercise, or (iii) such other methods as may be approved by the committee, including without limitation, the tender of shares of our common stock previously owned by the option holder or a net exercise of the option.
Unless the committee provides otherwise, options generally are not transferable except by will, the laws of descent and distribution. The committee may provide that a non-qualified stock option may be transferred to a family member, as such term is defined under the applicable securities laws.
Tax Limitations on Incentive Stock Options
The aggregate fair market value, determined at the time of grant, of our common stock with respect to incentive stock options that are exercisable for the first time by an option holder during any calendar year may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as non-qualified stock options. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (ii) the term of the incentive stock option does not exceed five years from the date of grant.
Adjustments for Changes in Capital Structure and other Special Transactions
In the event of a stock dividend, stock split, or recapitalization, or a corporate reorganization in which we are a surviving corporation (and our shareholders prior to such transaction continue to own at least 50% of our capital stock after such transaction), including without limitation a merger, consolidation, split-up or spin-off, or a liquidation, or distribution of securities or assets other than cash dividends, the number or kinds of shares subject to the Plan or to any stock option award previously granted, and the exercise price, shall be adjusted proportionately by the committee to reflect such event.
In the event of a merger, consolidation, or other form of reorganization with or into another corporation (other than a merger, consolidation, or other form of reorganization in which we are the surviving corporation and our shareholders prior to such transaction continue to own at least 50% of the capital stock after such transaction), a sale or transfer of all or substantially all of the assets of the Company or a tender or exchange offer made by any corporation, person or entity (other than an offer made by us), all stock options held by any option holder shall be fully vested and exercisable by the option holder.
Furthermore, the committee, either before or after the merger, consolidation or other form of reorganization, may take such action as it determines in its sole discretion with respect to the number or kinds of shares subject to the Plan or any option under the Plan.
Amendment, Suspension or Termination
The committee may at any time amend, suspend, or terminate any and all parts of the Plan, any stock option award granted under the Plan, or both in such respects as the committee shall deem necessary or desirable, except that no such action may be taken which would impair the rights of any option holder with respect to any stock option award previously granted under the Plan without the option holder’s consent.
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table sets forth, for each Post-Merger Company named executive officer, information regarding unexercised stock options, unvested stock awards, and equity incentive plan awards outstanding as of December 31, 2018.
| Outstanding Equity Awards At 2018 Fiscal Year End | ||||||||||||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option 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 ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||
| Bret Chilcott | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Nicole Fernandez-McGovern | 3,125 | 9,375 | — | 1.82 | 06/29/2023 | — | — | — | — | |||||||||||||||||||||||||||
| Nicole Fernandez-McGovern | 1,563 | 10,938 | — | 1.64 | 10/2/2027 | — | — | — | — | |||||||||||||||||||||||||||
| Barrett Mooney | 4,452 | 120,548 | — | 0.62 | 12/17/2028 | — | — | — | — | |||||||||||||||||||||||||||
Compensation of Directors
The following table sets forth information regarding compensation of each Post-Merger Company’s independent directors for fiscal 2018
| Fiscal 2018 Director Compensation | ||||||||||||||||||||||||||||
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Grant Begley | — | — | 25,527 | — | — | — | 25,527 | |||||||||||||||||||||
| Scott Burell(1) | — | — | 21,721 | — | — | — | 21,721 | |||||||||||||||||||||
| Thomas Gardner | — | — | 27,247 | — | — | — | 27,247 | |||||||||||||||||||||
| Corbett Kull(2) | — | — | 20,188 | — | — | — | 20,188 | |||||||||||||||||||||
| Luisa Ingargiola(3) | — | — | 3,842 | — | — | — | 3,842 | |||||||||||||||||||||
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(1) Mr. Burell resigned from the board of directors on November 21, 2018.
Douglas M. Wright.(2) Mr. Wright has been chief financial officer since August 2012. Mr. Wright servedKull joined the board of directors in July 2018 and resigned from the board of director on April 15, 2019.
(3) Ms. Ingargiola joined the board of directors on November 27, 2018.
Pursuant to their respective offer letters, Messrs. Grant Begley, Thomas Gardner and Scott Burell are entitled to receive for their service on the board: (1) an initial grant of five year options to purchase 77,356 shares of Common Stock as corporate controller and chief accounting officer of Nations Petroleum Company Ltd. from 2006 to August 2012. Prior to Nations, heaccrued for time served as a managerboard member since 2016, at an exercise price of financial reporting$0.06 per share that vested half upon issuance and the remainder is vesting equally over 2 years and (2) additional five year options to purchase 16,500 shares of Common Stock issuable per calendar quarter of service at an exercise price per share equal to the market price of our Common Stock at the time of issuance that will vest equally over two years.
Pursuant to his offer letter, Mr. Corbett Kull is entitled to receive for Noble Energy (contract). In 1996, he founded Fashion Investments Inc.his service on the board: (1) an initial grant of five year options to purchase 41,250 shares of Common Stock upon appointment, which was at an exercise price of $1.77 (equal to the market price of our Common Stock on the date of grant) that will vest in equal installments every calendar quarter over a one year period, and served as its chief executive officer until 2005. Fashion Investments owned(2) five year options to purchase 16,500 shares of Common Stock per calendar quarter of service at an exercise price per share equal to the market price of our Common Stock at the time of issuance that will vest in equal installments every calendar quarter for the two year period after date the grant. Mr. Kull resigned from the board of directors on April 15, 2019.
Effective November 21, 2018, Mr. Scott Burell resigned from the Board of Directors of the Company and operated the largest independent commercial laundry facility in Colorado Springs. From 1986 to 1996, Mr. Wright worked for Oryx Energy Company in various capacities including, manager, financial reporting, manager, strategic planning and general auditor. From 1977 to 1986, he servedhis positions as a senior manager with Deloitte & Touche.member of the Compensation and Nominating and Corporate Governance Committee and Chairman of the Audit Committee. As a result of his resignation, Mr. WrightBurell did not receive any options for the last quarter of 2018 as options are awarded upon completion of the term. To replace Mr. Burell, Ms. Louisa Ingargiola was appointed on November 27, 2018 as a director of the Board of Directors of the Company, a member of the Compensation and Nominating and Corporate Governance Committee and Chairman of the Audit Committee.
Pursuant to her offer letter, Ms. Ingargiola is entitled to receive for her service on the board: (1) an initial grant of five year options to purchase 41,250 shares of Common Stock upon appointment, which was at an exercise price of $0.77 (equal to the market price of our Common Stock on the date of grant) that will vest in equal installments every calendar quarter over a one year period, and (2) five year options to purchase 16,500 shares of Common Stock per calendar quarter of service at an exercise price per share equal to the market price of our Common Stock at the time of issuance that will vest in equal installments every calendar quarter for the two year period after date the grant.
Option Exercises for Fiscal 2018 and 2017
Mr. Scott Burell exercised 60,724 options on December 4, 2018 at an exercise price of $0.06 of which 55,801 shares were delivered due to the Company’s withholding obligation relating to the exercise of these options.
Certain Relationships and Related Transactions
The Company is a certified public accountantparty to a consulting agreement dated as of March 1, 2015 with GreenBlock Capital, LLC, or GreenBlock, which beneficially owns approximately 8.33% of the Common Stock. Under the terms of the agreement, the Company agreed to issue 368,099 (post-split) shares of the Common Stock on May 1, 2015, an additional 368,099 (post-split) shares of Common Stock on January 15, 2016 and earned his B.A.207,055 (post-split) stock options exercisable for five years from the Universityissuance date at an exercise price per share of Pittsburgh$0.06 pursuant to the consulting agreement. As of December 31, 2015, no shares had been issued to the consultant. The Company recognized $1,250,000 of consulting expense during 2015 and his MBA from2016 related to the Universityvalue of North Texas.
David L. Kunovic. Mr. Kunovic joined Black Raven Energy, Inc.the shares earned, which was based on October 1, 2010the estimated fair value of the stock as vice president of exploration managing all phasesDecember 31, 2015, based on the terms of geologic and geophysical exploration and development activitya transaction which ultimately closed in February 2016, as there was no dis-incentive for non-performance. No additional expense was recorded for the company. Mr. Kunovic has over 34 years of experience as an exploration geologist, including 11 years as president of Kachina Energy, Inc., managing geologic and geophysical projects for several independent oil companies. He has also held positions as Vice President of Exploration for Canyon Energy, Inc. from 1994 – 2000 managing all exploration activitiesnine months September 30, 2017 for the Rocky Mountain region; Petroleum Incorporated from 1991 – 1994 as exploration manager for all US exploration; Newport Exploration from 1984 – 1991 as exploration managercommon shares granted in connection with the strategic consulting agreement executed in March 2015. During 2015, the Company recorded $69,528 of non-cash compensation expense related to the vested stock options granted to GreenBlock. The consulting agreement terminated by mutual agreement of the parties on August 31, 2016. During 2016, the Company recognized $138,802 related to the stock options. During the nine months ended September 30, 2017, the Company recognized $6,397 of additional consulting expense related to the issuance of the common stock for the Rocky Mountain region; Apache Corporationstock options as a result of the modification of the exercise price of the options from 1980 – 1984 as senior geologist working$2.60 per share to $0.10 per share.
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On (i) December 15, 2016, the Powder RiverCompany issued a promissory note with an aggregate principal amount of $30,000 to GreenBlock Capital, a related party, (ii) January 24, 2017, the Company issued a 2nd promissory note with an aggregate principal amount of $30,000 to GreenBlock, and Denver Basins(iii) June 14, 2017, a 3rd promissory note with an aggregate principal amount of $16,050 was issued to GreenBlock (the “Related Party Notes A”). The Related Party Notes A accrue interest at an annual rate of 2% and Union Texas Petroleum from 1978 – 1980 as geologist — Rocky Mountain Basins. Mr. Kunovic holdsmatured on November 6, 2017. On or about August 1, 2017, GreenBlock entered into extension and modification agreements with the Company whereby they agreed to extend the maturity date of the Related Party Notes A to February 28, 2018, and in exchange a Bachelor’s degree in Geology fromconversion feature was added whereby the Universitydebt can be converted into the Company’s Common Stock at $2.00 per share, and amended the interest rate on the note retroactively to accrue at a rate of Colorado8% annually.
Between the dates of March 15 and also completed Masters level course work in Environmental EngineeringJuly 12, 2017 the Company issued seven new promissory notes totaling an aggregate amount of $55,000 to Bret Chilcott, who is the Company’s Chairman of the Board and GroundwaterPresident, and at the Universitytime was also the Company’s Chief Executive Officer. The promissory notes (the “Related Party Notes B”) accrue interest at an annual rate of Colorado.2% and matured on November 6, 2017. On or about August 1, 2017, Mr. Chilcott entered into extension and modification agreements with the Company whereby both parties agreed to extend the maturity date of the Related Party Notes B to February 28, 2018, and in exchange a conversion feature was added whereby the debt can be converted into the Company’s Common Stock at $2.00 per share, and amended the interest rate on the note retroactively to accrue at a rate of 8% annually.
Kent A. Roach. Mr. Roach joined EnerJexPolicies and Procedures for Related Person Transactions
While the Company has not adopted a written related party transaction policy for the review, approval and ratification of transactions involving “related parties,” related parties are deemed to be directors and nominees for director, executive officers and immediate family members of the foregoing, as well as security holders known to beneficially own more than five percent of our common stock. The policy covers any transaction, arrangement or relationship, or series of transactions, arrangements or relationships, in October 2014 aswhich the Company was, is or will be a participant and the amount exceeds $120,000, and in which a related party has any direct or indirect interest. The policy is administered by the Audit Committee.
In determining whether to approve or ratify a related party transaction, the Audit Committee will consider whether or not the transaction is in, or not inconsistent with, the best interests of the appropriate company. In making this determination, the Audit Committee is required to consider all of the relevant facts and circumstances in light of the following factors and any other factors to the extent deemed pertinent by the committee:
| • | The position within or relationship of the related party with the Company; | |
| • | The materiality of the transaction to the related party and the Company, including the dollar value of the transaction, without regard to profit or loss; | |
| • | The business purpose for and reasonableness of the transaction, taken in the context of the alternatives available for attaining the purposes of the transaction; | |
| • | Whether the transaction is comparable to a transaction that could be available on an arms-length basis or is on terms and conditions offered generally to parties that are not related parties; | |
| • | Whether the transaction is in the ordinary course of business and was proposed and considered in the ordinary course of business; and | |
| • | The effect of the transaction on the business and operations, including on internal control over financial reporting and system of disclosure controls or procedures, and any additional conditions or controls (including reporting and review requirements) that should be applied to such transactions. |
The policy contains standing pre-approvals for certain types of transactions which, even though they may fall within the definition of a related party transaction, are deemed to be pre-approved by the Company given their nature, size and/or degree of significance to the company. These include compensation arrangements with directors and executive vice presidentofficers for which disclosure is required in the proxy statement and sales of Engineering. products or services in the ordinary course of business.
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In this role, Mr. Roach focuses on designingthe event the Company inadvertently enters into a related party transaction that requires, but has not received, pre-approval under the policy, the transaction will be presented to the appropriate Board for review and executing a broad range of IORratification promptly upon discovery. In such event, the committee will consider whether such transaction should be rescinded or modified and reservoir management related opportunities for both existingwhether any changes in our controls and future oil and gas assets. Additionally, he provides technical guidance and oversight for multiple engineering and operational functions from an executive level. Prior to joining EnerJex, he worked primarily in reservoir engineering roles at Occidental, Exxon Mobil, and variousprocedures or other North American E&P companies. He has diverse subsurface experiences in reservoir simulation, geologic modeling, formation evaluation, pressure transient analysis, acquisitions and divestments, and reserve studies. His worldwide experience includes large-scale Middle East carbonate development planning, tight oil & gas deliverability and appraisal, unconventional shale plays, and exploration phase portfolio analysis. Mr. Roach holds a Bachelor of Science in Petroleum Engineering degree from the University of Missouri-Rolla.actions are needed.
Executive CompensationPRE-MERGER COMPANY NAMED EXECUTIVE COMPENSATION
The following table sets forth summary compensation information for the fiscal year ended December 31, 2016,2017, and the year ended December 31, 2015, for our2018, of the Pre-Merger Company’s chief executive officer, chief financial officer and other highly compensated executive officers. Weofficers as of the December 31, 2017 and 2018. The Pre-Merger Company did not have any other executive officers as of the end of 20162018 or 2015,2017, whose total compensation exceeded $100,000. We refer to these persons as our named executive officers elsewhere in this report.
| | | | | | | | |||||||||||||||||||||
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Robert G. Watson, Jr.(1) Former President, Chief Executive Officer | 2016 | $ | 234,375 | $ | $ | — | $ | — | $ | — | $ | 234,375 | ||||||||||||||||
| 2015 | $ | 215,625 | $ | $ | — | $ | — | $ | — | $ | 215,625 | |||||||||||||||||
| Douglas M. Wright Chief Financial Officer | 2016 | $ | 192,708 | $ | — | $ | $ | — | $ | — | $ | 192,708 | ||||||||||||||||
| 2015 | $ | 175,292 | $ | — | $ | $ | 63,900 | $ | — | $ | 239,192 | |||||||||||||||||
| David L. Kunovic Executive Vice President, Exploration | 2016 | $ | 229,167 | $ | — | $ | — | $ | 78,907 | $ | — | $ | 297,711 | |||||||||||||||
| 2015 | 210,833 | — | 94,700 | 305,533 | ||||||||||||||||||||||||
| Kent A. Roach Executive Vice President, Engineering | 2016 | $ | 229,167 | $ | $ | — | $ | — | $ | 297,711 | ||||||||||||||||||
| 2015 | 210,833 | $ | — | $ | 279,377 | |||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | |||||||||||||||||||||
| Louis G. Schott, Former Interim | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Chief Executive Officer and Secretary (1) | 2017 | $ | 75,000 | $ | — | $ | — | $ | — | $ | — | $ | 75,000 | |||||||||||||||
| Robert Schleizer, Former Chief | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Financial Officer (4) | 2017 | $ | 75,000 | $ | — | $ | — | $ | — | $ | — | $ | 75,000 | |||||||||||||||
| Robert G. Watson, Jr., Former | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| President, Chief Executive Officer (2) | 2017 | $ | 15,000 | $ | — | $ | — | $ | — | $ | — | $ | 15,000 | |||||||||||||||
| Douglas M. Wright, Former Chief | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Financial Officer (3) | 2017 | $ | 96,000 | $ | — | $ | — | $ | — | $ | — | $ | 96,000 | |||||||||||||||
| David L. Kunovic, Former Executive | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Vice President, Exploration (5) | 2017 | $ | 108,865 | $ | — | $ | — | $ | — | $ | — | $ | 108,865 | |||||||||||||||
| Kent A. Roach, Former Executive | 2018 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Vice President, Engineering (5) | 2017 | $ | 108,865 | $ | — | $ | — | $ | — | $ | — | $ | 108,865 | |||||||||||||||
| (1) | |
| (2) | Mr. Watson resigned as a director and officer of the Company on February 10, 2017. |
| (3) | Mr. Wright resigned on February 10, 2017. |
| (4) | Mr. Schleizer joined the Company as Chief Financial Officer on August 17, 2017 and resigned in connection with the Merger. |
| (5) | Resigned in connection with the Merger. |
Equity Compensation Plans
We currently have three equity compensation plans, each of which has been approved by our stockholders. Any outstanding stock options issued under our prior equity compensation plans remain effective in accordance with their terms. Officers (including officers who are members of the board of directors), directors, employees and consultants are eligible to receive options under our stock option plans.
These plans are intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for our continued success and growth, to aid in retaining individuals who put forth such effort, and to assist in attracting the best available individuals in the future.
2000/2001 Stock Option Plan
The Board of Directors approved our 2000/2001 Stock Option Plan on September 25, 2000 (the “2000/2001 Stock Option Plan”), and our stockholders ratified the plan.
Summary of the 2000/2001 Stock Option Plan
Administration of Plan; Board Authority to Select Grantees and Determine Awards. The 2000/2001 Stock Option Plan shall be administered by our board of directors. The Board shall have the power and authority to grant awards consistent with the terms of the 2000/2001 Stock Option Plan. The board may delegate this authority to a compensation committee of the board.
Stock Issuable Under the Plan; Mergers; Substitutions. The total number of options that can be granted under the 2000/2001 Stock Option Plan is 13,333 shares and all such shares were previously granted to the former chief executive officer, C. Stephen Cochennet. On August 3, 2009, we exchanged these outstanding options for 13,333 shares of restricted common stock. Therefore, all 13,333 shares reserved for issuance under this plan are available again for issuance.
Eligibility. Grantees under the 2000/2001 Stock Option Plan will be such officers, directors, full or part-time employees, and other key persons (including consultants and prospective employees) of us and our subsidiaries, if any, as are selected from time to time by the board in its sole discretion.
Stock Options. Any stock option granted under the 2000/2001 Stock Option Plan shall be in such form as the board may from time to time approve. Stock options granted under the 2000/2001 Stock Option Plan may be non-qualified stock options or incentive stock options. Incentive stock options may be granted only to employees of the Company or any subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.
Exercise Price. Non-qualified stock options will be granted by the board of directors with an option price not less than 85% of the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. In no event may the option price with respect to an incentive stock option granted under the stock option plan be less than the fair market value of such common stock. However the price shall not be less than 110% of the fair market value per share on the date of the grant in the case of an individual then owning more than 10% of the total combined voting power of all classes of stock of the corporation.
Option Term. Each option granted under the stock option plan will be assigned a time period for exercising not to exceed ten years after the date of the grant. Certain other restrictions will apply in connection with this plan when some awards may be exercised. Generally, all options under this plan terminate 90 days after a change of control if the option holder is terminated other than for cause.
Amendments and Termination. The board may, at any time, amend or discontinue the 2000/2001 Stock Option Plan. We must obtain stockholder approval of any 2000/2001 Stock Option Plan amendment to the extent necessary and desirable to comply with Section 422 of the Internal Revenue Code or other applicable law, including the requirements of any exchange or quotation system on which our common stock is listed or quoted. Such plan amendments are subject to approval by our stockholders entitled to vote at a meeting of stockholders. We may not amend, alter, suspend, or terminate the 2000/2001 Stock Option Plan if doing so would impair the rights of any holder, unless both the holder and the 2000/2001 Stock Option Plan’s
administrator agree in writing and sign the writing. The 2000/2001 Stock Option Plan terminated on September 25, 2010, and no further options will be granted under this plan after that date.
The 2002 – 2003 Stock Option Plan/Stock Incentive Plan
The Board of Directors approved the EnerJex Resources, Inc. Stock Option Plan on August 1, 2002 (the “2002 – 2003 Stock Option Plan”). We had previously granted 15,900 options under this plan. On August 3, 2009, we exchanged all 15,900 outstanding options for 3,980 shares of our restricted common stock. In addition, we granted 10,116 shares of restricted common stock under the Stock Incentive Plan to employees for fiscal 2009 bonuses and 3,953 shares to our officers and directors for the prior rescission of stock options in fiscal 2008.
Summary of the 2002/2003 Stock Option Plan
Administration of Plan; Board Authority to Select Grantees and Determine Awards. The 2002 – 2003 Stock Option Plan shall be administered by our board of directors. The Board shall have the power and authority to grant awards consistent with the terms of the 2002 – 2003 Stock Option Plan.
Stock Issuable Under the Plan. Originally, the total number of options that could be granted under the 2002 – 2003 Stock Option Plan was not to exceed 26,666 shares. In September 2007, our stockholders approved a proposal to amend and restate the 2002 – 2003 Stock Option Plan to increase the number of shares issuable to 66,666. On October 14, 2008, our stockholders approved a proposal to amend and restate the 2002 – 2003 Stock Option Plan to (i) rename it the EnerJex Resources, Inc. Stock Incentive Plan (the “Stock Incentive Plan”), (ii) increase the maximum number of shares of our common stock that may be issued under the Stock Incentive Plan from 66,666 to 83,333, and (iii) add restricted stock as an eligible award that can be granted under the Stock Incentive Plan.
Eligibility. Grantees under the Stock Incentive Plan will be such officers, directors, full or part-time employees, and other key persons (including consultants and prospective employees) of us and our subsidiaries, if any, as are selected from time to time by the board in its sole discretion.
Stock Options. Any stock option granted under the Stock Incentive Plan shall be in such form as the board may from time to time approve. Stock options granted under the Stock Incentive Plan may be non-qualified stock options or incentive stock options. Incentive stock options may be granted only to employees of us or any subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.
Exercise Price. Non-qualified stock options will be granted by the committee with an option price equal to the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. The governance, compensation and nominating committee may, in its discretion, determine to price the non-qualified option at a different price. In no event may the option price with respect to an incentive stock option granted under the plans be less than the fair market value of such common stock to which the incentive stock option relates on the date the incentive stock option is granted. However the price of an incentive stock option will not be less than one hundred ten percent (110%) of the fair market value per share on the date of the grant in the case of an individual then owning more than ten percent (10%) of the total combined voting power of all of our classes of stock.
Option Term. Each option granted under the Stock Incentive Plan will be assigned a time period for exercising not to exceed ten (10) years after the date of the grant. Certain other restrictions will apply in connection with this plan when some awards may be exercised. Generally, all options under this plan terminate ninety (90) days after a change of control if the option holder is terminated other than for cause.
Restricted Stock. Restricted stock will have full dividend, voting and other ownership rights, unless otherwise indicated in the applicable award agreement pursuant to which it is granted. If any dividends or distributions are paid in shares of common stock during the restricted period, the applicable award agreement may provide that such shares will be subject to the same restrictions as the restricted stock with respect to which they were paid.
Amendments and Termination. The board may, at any time, amend or discontinue the Stock Incentive Plan. We must obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Section 422 of the Internal Revenue Code or other applicable law, including the requirements of any exchange or quotation system on which our common stock is listed or quoted. Such plan amendments are subject to approval by our stockholders entitled to vote at a meeting of stockholders. We may not amend, alter, suspend, or terminate the Plan if doing so would impair the rights of any holder, unless both the holder and the Plan’s administrator agree in writing and sign the writing. As amended, the 2002 – 2003 Stock Inventive Plan terminated on August 1, 2012, and no options will be granted under this plan after that date.
The 2013 Stock Incentive Plan
Our board of directors and stockholders have approved and adopted the EnerJex Resources, Inc., 2013 Stock Incentive Plan, which we refer to herein as the “Plan.”
Summary of the Plan
Administration of Plan; Board Authority to Select Grantees and Determine Awards. The Plan shall be administered by our board of directors. The Board shall have the power and authority to grant awards consistent with the terms of the Plan. The board may delegate this authority to a compensation committee of the board.
Stock Issuable Under the Plan; Mergers; Substitutions. The number of shares of stock initially reserved and available for issuance under the Plan shall be 333,300 shares, subject to adjustment as provided in Section 3.1(b) of the Plan. We will increase the number of shares reserved and set aside specially on each January 1st by the lowest of the following: (i) five percent (5.0%) of the number of shares of stock issued and outstanding on the immediately preceding December 31st, (ii) 33,333 shares, or (iii) such lesser number of shares as is determined by the board. For purposes of this limitation, the shares of stock underlying any awards that are forfeited, canceled, held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock or otherwise terminated (other than by exercise) shall be added back to the shares of stock available for issuance under the Plan. Subject to such overall limitations, shares of stock may be issued up to such maximum number pursuant to any type or types of award. The shares available for issuance under the Plan may be authorized but unissued shares of stock or shares of stock reacquired by us.
Eligibility. Grantees under the Plan will be such officers, directors, full or part-time employees, and other key persons (including consultants and prospective employees) of us and our subsidiaries, if any, as are selected from time to time by the board in its sole discretion.
Stock Options. Any stock option granted under the Plan shall be in such form as the board may from time to time approve. Stock options granted under the Plan may be non-qualified stock options or incentive stock options. Incentive stock options may be granted only to employees of us or any subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.
Exercise Price. The exercise price per share for the stock covered by a stock option shall be determined by the board at the time of grant but shall not be less than 100% of the fair market value on the date of grant. In the case of an incentive stock option that is granted to a 10% owner, the option price of such Incentive stock option shall be not less than 110% of the fair market value on the grant date.
Option Term. The term of each stock option shall be fixed by the board, but no stock option shall be exercisable more than ten (10) years after the date the stock option is granted. In the case of an incentive stock option that is granted to a 10% owner, the term of such stock option shall be no more than five (5) years from the date of grant.
Unrestricted and Restricted Stock Awards. The board may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the board) an unrestricted stock Award or restricted stock award under the Plan. Unrestricted stock awards and restricted stock awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
Amendments and Termination. The board may, at any time, amend or discontinue the Plan. We must obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Section 422 of the Internal Revenue Code or other applicable law, including the requirements of any exchange or quotation system on which our common stock is listed or quoted. Such plan amendments are subject to approval by our stockholders entitled to vote at a meeting of stockholders. We may not amend, alter, suspend, or terminate the Plan if doing so would impair the rights of any holder, unless both the holder and the Plan’s administrator agree in writing and sign the writing. The 2013 plan terminates on June 6, 2023, and no options will be granted under this plan after that date.
Employment Agreements
Louis G. Schott. — InterimSchott —Interim Chief Executive Officer
On February 10, 2017, the CompanyEnerJex entered into an employment agreement with Louis G. Schott, as interim chief executive officer of the Company.EnerJex. The employment agreement provides an annual base salary of $225,000.
Douglas M. Wright — Chief Financial Officer
Mr. Wright has resigned from employment as of February 10, 2017, but will continue to serve as the Company’s chief financial officer pursuant to a consulting agreement, under which his focus will be on the completion of the Annual Report on Form 10-K for the year ending December 31, 2016, and the preparation of materials for the Annual Meeting.
Termination Under the Equity Plans
Under the 2000/2001 Stock Option Plan, if the person receiving the option (the optionee) ceases to be employed by the Company for any reason other than for disability or cause, the optionee’s options will expire not later than three (3) months afterwards. During this three (3) month period and prior to the time the option expires under the terms of the option, the optionee may exercise any option that the Company has granted to him, but only to the extent that the options were exercisable on the date of termination of his employment. Unless exercised during this period, these options will expire at the end of the three (3) month period unless the options are to terminate sooner under the terms and conditions of the option. The decision as to whether a termination for a reason other than disability, cause or death has occurred is made by the board of directors, whose decision shall be final and conclusive. If an optionee ceases to be employed by the Company for reason of disability, the optionee’s options will expire not later than one (1) year after the date that he or she is terminated. During this one (1) year period and prior to the expiration of the option under its terms, the optionee may exercise any option granted to him, but only to the extent that the options were exercisable on the date of termination of his employment because of his or her disability. Except as so exercised, optionee’s options will expire at the end of the one (1) year period unless the options are to terminate sooner under the terms and conditions of the option. The decision as to whether a termination by reason of disability has occurred is determined by the board.
Under our Amended and Restated 2002 – 2003 Stock Option Plan, if an optionee ceases to be employed by, or ceases to have a relationship with us for any reason other than for disability or cause, the optionee’s options will expire not later than three (3) months thereafter. During the three month period and prior to the expiration of the option by its terms, the optionee may exercise any option granted to him, but only to the extent such options were exercisable on the date of termination of his employment or relationship and except as so exercised, such options shall expire at the end of such three month period unless such options by their terms expire before such date. The decision as to whether a termination for a reason other than disability, cause or death has occurred are made by the governance, compensation and nominating committee, whose decision shall be final and conclusive, except that employment shall not be considered terminated in the case of sick leave or other bona fide leave of absence approved by us.
Under our 2013 Plan, if the optionee ceases to be employed by us for any reason other than for death, disability or cause, the optionee’s options will expire not later than three (3) months afterwards. During this three (3) month period and prior to the time the option expires under the terms of the option, the optionee may exercise any option that we have granted to him, but only to the extent that the options were exercisable on the date of termination of his employment. Unless exercised during this period, these options will expire at
the end of the three (3) month period unless the options are to terminate sooner under the terms and conditions of the option. The decision as to whether a termination for a reason other than disability, cause or death has occurred is made by the board of directors, whose decision shall be final and conclusive. If an optionee ceases to be employed by us for reason of death or disability, the optionee’s options will expire not later than one hundred eighty (180) days after the date that he or she is terminated. During this one hundred eighty (180) day period and prior to the expiration of the option under its terms, the optionee may exercise any option granted to him, but only to the extent that the options were exercisable on the date of termination of his employment because of his or her disability. Except as so exercised, optionee’s options will expire at the end of the one hundred eighty (180) day period unless the options are to terminate sooner under the terms and conditions of the option. The decision as to whether a termination by reason of disability has occurred is determined by the board.
Option Exercises for Fiscal 20162018 and 2015
2017There were no options exercised by our named executive officersthe EnerJex Pre-Merger Named Executive Officers in fiscal years 20162018 and 2015.2017, as all pre-merger options issued by EnerJex were cancelled upon the date of Merger.
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Grants of Plan-Based Awards in Fiscal Year 20162017 and 20152016
We have granted to Mr. Wright an option expiring on July 31, 2017, to purchase 50,000 shares of our common stockCommon Stock at a cash exercise price equal to $10.50. One third of the options vest on the first anniversary of the date of grant, and the remaining options vest in twenty-four (24) equal tranches each month for the next two (2) year period. Mr. Wright’s employment with the company ended effective February 17, 2017, and therefore pursuant to the 2013 Plan he must exercise the options within three (3) months of employment termination (May 17, 2017) or forfeit them. The options were not exercised.
Outstanding Equity Awards at 20162017 Fiscal Year-End
The following table lists the outstanding equity incentive awards held by our named executive officersthe Pre- Merger Company’s Named Executive Officers as of the fiscal year ended December 31, 2016.2017.
| | | | | | | Option Awards | |||||||||||||||||||||||||||||||||||||||
| Name and Principal Position | Fiscal Year | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Un-exercisable (#) | Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | ||||||||||||||||||||||||||||||||||||||||
| Option Awards | ||||||||||||||||||||||||||||||||||||||||||||||
| David L. Kunovic | 2013 | 50,000 | — | — | 10.50 | 12/31/2023 | ||||||||||||||||||||||||||||||||||||||||
| Fiscal Year | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Un-exercisable (#) | Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | |||||||||||||||||||||||||||||||||||||||||
| Robert G. Watson, Jr.(1) | 2011 | 60,000 | — | — | $ | 6.00 | 05/11/2017 | (2) | ||||||||||||||||||||||||||||||||||||||
| Douglas M. Wright | 2012 | 50,000 | — | — | $ | 10.50 | 12/31/2022 | |||||||||||||||||||||||||||||||||||||||
| David L. Kunovic | 2013 | 50,000 | — | — | $ | 10.50 | 12/31/2023 | |||||||||||||||||||||||||||||||||||||||
| Kent A. Roach | 2014 | 39,743 | 10,417 | — | $ | 10.50 | 12/31/2019 | 2014 | 39,743 | 10,417 | — | 10.50 | 12/31/2019 | |||||||||||||||||||||||||||||||||
Director Compensation
For the fiscal year ended December 31, 2016,2017, the Pre-Merger Company’s non-employee directors received no compensation.
Certain Relationships and Related Transactions
The board of directors of EnerJex has delegated to the audit committee, pursuant to the terms of a written policy, the authority to review, approve and ratify related party transactions. If it is not feasible for the audit committee to take an action with respect to a proposed related party transaction, the board of directors or another committee of the board of directors, may approve or ratify it. No member of the board of directors or any committee may participate in any review, consideration or approval of any related party transaction with respect to which such member or any of his or her immediate family members is the related party.
EnerJex’s policy defines a “related party transaction” as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which EnerJex (including any of its subsidiaries) were, are or will be a participant and in which any related party had, has or will have a direct or indirect interest.
Prior to entering into or amending any related party transaction, the party involved must provide notice to EnerJex of the facts and circumstances of the proposed transaction, including:
If EnerJex determines the proposed transaction is a related party transaction and the amount involved will or may be expected to exceed $10,000 in any calendar year, the proposed transaction is submitted to the audit and finance committee for its prior review and approval or ratification. In determining whether to approve or ratify a proposed related party transaction, the audit committee will consider, among other things, the following:
Related party transactions that involve $10,000 or less must be disclosed to the audit committee but are not required to be approved or ratified by the audit committee.
EnerJex also produces quarterly reports to the audit committee of any amounts paid or payable to, or received or receivable from, any related party. These reports allow EnerJex to identify any related party transactions that were not previously approved or ratified. In that event, the transaction will be promptly submitted to the audit committee for consideration of all the relevant facts and circumstances, including those considered when a transaction is submitted for pre-approval. Under EnerJex’s policy, certain related party transactions as defined under the policy, such as certain transactions not requiring disclosure under the rules of the SEC, will be deemed to be pre-approved by the audit committee and will not be subject to these procedures.
Section 16(a) Beneficial Owner Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent (10%) of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent (10%) beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this report they were all current in their 16(a) reports and that all reports were filed on a timely basis.
PROPOSAL 2
ELECTION OF SERIES A PREFERRED DIRECTORS
NOTICE: THIS PROPOSAL HAS BEEN TABLED UNTIL WE IDENTIFY SUITABLE NOMINEES FOR SERIES A PREFERRED DIRECTOR
If:
the number of directors then constituting our board of directors will increase by two (2), and the holders of Series A preferred stock, voting together as a class (with the holders of any other parity shares upon which like voting rights have been conferred), will have the right to elect two (2) additional directors to serve on our board of directors at any meeting of stockholders called for the purpose of electing directors until such dividend default or listing default has been cured. The term of office of all directors so elected will terminate with the termination of such voting rights, provided however that such voting rights shall be reinstated upon any subsequent dividend default or listing default.
We have not declared a dividend on the Series A preferred stock since July 31, 2015. Since we have now failed to pay dividends for the past 6 dividend periods, the annual dividend rate has increased to 12.00% per $25.00 stated liquidation preference, or $3.00 per annum per share of Series A preferred stock.
As a result of this dividend failure the holders of Series A preferred stock are now entitled to elect 2 directors to the board.
The Series A preferred stock was delisted on October 26, 2016. If we fail to keep the Series A preferred stock listed on a national market for trading for a period of 180 consecutive days, the annual dividend rate shall increase to 12.00% per $25.00 stated liquidation preference, or $3.00 per annum per share of Series A preferred stock. In addition, upon such failure to list for 180 consecutive dates, the holders of Series A preferred stock shall be entitled to elect 2 directors to the board. The ability to elect 2 directors arising from the dividend default and the listing default are not cumulative, the maximum number of additional Series A preferred directors is 2.
Therefore, because a dividend default and a liquidation default have occurred, the size of the board of directors shall increase by 2 and the holders of Series A preferred stock shall be entitled to elect 2 directors to the board.
These two (2) directors shall continue until such time as all dividends in arrears have been paid in full and any listing failure has been remedied.
The vote of holders of Series A Preferred Stock holding in the aggregate a majority of the voting power of EnerJex’s Series A Preferred Stock present at the meeting is required to elect the Series A preferred nominees.
The Company has not identified any nominees for Series A preferred directors.
The Company is in contact with the placement agents and other representatives of certain holders of Series A preferred stock, but as of the date of the mailing of this proxy statement the Company has not received any nominations or identified any nominees to propose to the Series A preferred stockholders. The Company’s governance, compensation and nominating committee will continue to solicit qualified nominees to present to holders the Series A preferred stock either at a special meeting or at the next annual meeting of the stockholders.
THE BOARD OF DIRECTORS HAS TABLED THE VOTE FOR THE ELECTION OF THE SERIESA PREFERRED DIRECTORS UNTIL SUITABLE NOMINEES ARE IDENTIFIED
PROPOSAL 3
APPROVAL OF TRANSACTION WITH SUCCESSOR LENDERS, SATISFACTION OFSECURED INDEBTEDNESS AND DISPOSITION OF COLORADO, TEXAS, ANDNEBRASKA ASSETS AND CERTAIN OTHER ASSETS, AND DEBT FINANCING
Overview
We are seeking the approval by our stockholders of the letter agreement we entered into on February 10, 2017, as amended March 30, 2017 (as amended, the “Letter Agreement”), attached hereto as Annex A-1 and A-2, and the transactions described therein. EnerJex and its operating subsidiaries entered into the Letter Agreement with PWCM Investment Company IC LLC and certain investors (referred to collectively as the “Successor Lender”), the purchaser of our secured indebtedness from our former bank. We agreed with the Successor Lender to several simultaneous transactions:
The Restated Secured Note shall:
The Restated Secured Note will be guaranteed by the Special Purpose Subsidiary, and the Special Purpose Entity will secure the guarantee with a lien on the Kansas oil and gas assets.
We will have 2 options to extend the maturity date of the Restated Secured Note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.
So long as we repay the $3,300,000 in indebtedness on or prior to the maturity date, as extended, all other amounts payable under the Restated Secured Note shall be forgiven.
In addition, the Successor Lender has agreed to cause its affiliate, American Standard Energy (“ASEN”), to pay a portion of its delinquent payments under its agreement to engage the Company to provide oil and gas related services to ASEN, and to pay the Company $60,000 monthly on a going forward basis, and successor lender guaranteed such payments. The Company agreed to waive payments incurred prior to December 1, 2016, while ASEN agreed to make 2 monthly payments for December 2016 and January 2017 of $60,000 each upon signing the Letter Agreement. The Company has also agreed to waive the payment for April 2017.
While the proposed transaction represents a dramatic and material change to our business, we believe this transaction provides EnerJex with the best opportunity to survive the past and current oil and gas markets and continue as a going concern. If the proposed transaction is not approved we may be unable to continue operating and will likely seek out bankruptcy protection.
Background
Summary
The continued low oil and natural gas prices during 2015 and 2016 had a significant adverse impact on our business, and, as a result of our financial condition, substantial doubt exists that we will be able to continue as a going concern.
We ceased making dividend payments on our Series A preferred stock in November 2015. On April 1, 2016, we ceased making mandatory monthly borrowing base reduction payments on our credit facility. Texas Capital Bank, which we refer to, along with its affiliates and co-lender Iberia Bank, as our “bank,” agreed to forbear on any exercise of its remedies due to our defaults under the credit facilities 3 times, on April 2016, May 2016, and August 2016. The last forbearance period expired on October 1, 2016.
We ceased making any payments under our loan on October 1, 2016.
On October 26, 2016, the NYSE MKT delisted our Series A preferred stock from the NYSE MKT due to the failure to maintain a market capitalization of above $1,000,000.
On January 11, 2017, we announced that we received a letter of noncompliance from the NYSE MKT with regard to our common stock because we failed to hold an annual meeting for the fiscal year ended December 31, 2015.
On January 17, 2017, we announced that the NYSE MKT had accepted our plan to restore compliance with certain NYSE MKT regulations on or before March 31, 2017. The holding of this stockholder meeting is part of our plan to restore compliance.
On February 10, 2017, we, the bank, and Successor Lender, entered into a loan sale agreement where the bank sold to Successor Lender all of its right, title and interest in, to and under our credit facility with the bank. The Successor Lender purchased all of the bank’s interest in the loan for (i) $5,000,000 cash (ii) a synthetic equity interest equal to 10% of the proceeds, after Successor Lender’s realization of 150% return on the cash purchase price within five (5) years of the closing date, with payment being distributed 65.78947368% to TCB and 34.21052632% to Iberia Bank, and (iii) at any time prior to February 10, 2022, Successor Lender may acquire the interest in clause (ii) above. In connection with the loan sale agreement, Enerjex agreed to release the bank and its successors (including the Successor Lender), from any and all claims under the Credit Agreement and Loan Documents.
Also on February 10, 2017, we entered into the Letter Agreement with the Successor Lender with regard to the proposed transaction. We amended that Letter Agreement on March 30, 2017.
We have continually sought strategic alternatives to our debt structure and we have sought alternatives to restructure our current obligations under our existing outstanding debt and preferred stock instruments. We believe the proposed transaction with the Successor Lender provides Enerjex with its best chance of continuing operations as a going concern.
The following background provides a description of the background of:
History of Senior Secured Credit Facility
We first entered into the credit facility with our bank on July 3, 2008, and the credit facility was refinanced on October 3, 2011.
Between 2011 and 2014, we amended the credit facility nine (9) times, increasing our borrowing base, adding acquired assets as collateral, amending the interest rate, adding Iberia Bank as a lender, and other various amendments.
In 2014 oil prices (WTI) declined from an average $105.79 in June 2014 to $59.29 in December 2014.
In 2015 we began having difficulty complying with our loan covenants. We revised our credit facility several times to re-determine our borrowing base, allow the sale of certain assets and repay the loan with only portions of the proceeds, and waive continuing defaults.
On April 1, 2016, Mr. Watson and EnerJex’s bankruptcy counsel met with the bank to discuss options for the Company. Mr. Watson and the Company’s bankruptcy counsel informed the bank that we would cease making the mandatory monthly borrowing base reduction payments and did not make the required April 1, 2016 payment.
In 2016 we entered into several agreements with the bank where they agreed to forbear on enforcing their rights under the credit facility in exchange for principal payments.
On October 1, 2016, EnerJex and the bank could not reach an agreement to extend the forbearance agreement.
We stopped making interest payments after October 1, 2016.
Since then we continued to evaluate plans to restructure, amend or refinance existing debt through private options.
History of Relationship with Successor Lender and its Affiliates
Our bank sold its rights under our loan to Successor Lender. Successor Lender is an affiliate of Pentwater Capital Management.
Over the course of the past several years as we evaluated strategic transactions, our officers and directors, including Robert Watson, Atticus Lowe, and Richard Menchaca, met with many investment bankers and potential acquisition, merger, joint venture and investment candidates. These candidates included Pentwater Capital Management and its affiliates from time to time.
On October 21, 2014, an investment banker (the sixth one the Company had met with that year) introduced Mr. Watson, our CEO, to Mr. Steve Person, CEO of American Standard Energy Corp. (“ASEN”). The investment banker, Mr. Watson, and Mr. Person discussed potential merger strategies and agreed to continue discussions in the future. Pentwater Capital Management, an affiliate of the Successor Lender, was the secured lender for ASEN.
On October 28, 2014, the Company engaged an investment banker and pursued a number of strategic transactions.
On December 17, 2014, the investment banker, Mr. Watson, and Mr. Person of ASEN conducted a call with the principals of Pentwater Capital Management to discuss a potential business combination with Enerjex and ASEN.
On December 30, 2014 Mr. Watson, Mr. Person, Frank Strezo (a Principal from Pentwater Capital Management), and ASEN’s investment banker conducted meetings at EnerJex’s office to review each company’s portfolio of assets and to discuss potential pathways to a combination transaction. While no agreement was reached, the parties left the meeting agreeing to continue working toward a potential transaction. EnerJex continued evaluating this and several alternative transactions.
By January 12, 2015, the Company’s board of directors met telephonically where Mr. Watson updated the board with regard to three (3) strategic transactions being pursued by the Company, including a transaction with ASEN.
Between January 13 and January 16, 2015, Mr. Watson and members of the EnerJex executive team toured several properties in West Texas owned by ASEN with Mr. Person, Mr. Strezo from Pentwater, and ASEN’s investment banker. The parties discussed the assets and various potential deal points related to a potential combination.
On February 10, 2015, Mr. Person informed Mr. Watson of the pending sale of an asset in the Permian basin. The companies began evaluating the asset and the possibility of a Joint venture with those assets, but no agreement was reached.
On April 13, 2015, EnerJex’s investment banker, Mr. Watson, Mr. Person and ASEN’s investment bankers discussed the potential for a transaction between EnerJex and ASEN. On April 15, 2015, the parties met again to continue discussion, but Pentwater and ASEN elected to pursue a Chapter 11 reorganization instead.
On April 20, 2015, the Company’s board of directors met telephonically where Mr. Watson and the Company’s investment banker updated the board with regard to the discussions held with ASEN, among several other potential strategic transactions.
Between April and November of 2015, Enerjex and its management team explored a variety of strategic alternatives for the Company, including acquisition candidates, potential sales or a portion or all of the Company’s oil & gas assets, merger candidates, joint ventures, raising capital investments and exploring a bankruptcy reorganization. During this time the bank continued to revise its valuation of its collateral downward.
In May 2015, EnerJex raised additional capital through the sale of shares of its Series A preferred stock.
On November 4, 2015, Mr. Watson re-engaged with Mr. Person of ASEN and Mr. Strezo of Pentwater Capital Management at a meeting in San Antonio, Texas, to discuss potential merger and/or acquisition strategies for Enerjex and ASEN. The parties discussed a variety of potential transactions and solutions for EnerJex to avoid a bankruptcy filing. Mr. Watson informed Mr. Person and Mr. Strezo that Enerjex was continuing to pursue multiple strategic transactions with third parties. The parties agreed to continue discussions
On November 11, 2015, the Company’s board of directors met telephonically where Mr. Watson updated the board with regard to the discussions held with ASEN and three (3) other candidates for a strategic transaction. The success of a strategic transaction was becoming more difficult due to the continued weakness in oil & gas prices and corresponding valuation declines in our oil and gas assets resulting in the bank being under collateralized. The board and Reicker Pfau, the Company’s corporate counsel, discussed the board’s and management’s fiduciary duties in this context to the Company’s stockholders and lenders.
Between November 2015 and January 2016, EnerJex’s management pursued negotiations with another transaction candidate (the 15th candidate since 2014), meeting with the candidate several times, meeting with the bank to discuss restructuring our debt in connection with this transaction, and exploring conducting the transaction pursuant to a prepackaged bankruptcy.
On December 11, 2015, the board met telephonically where Mr. Watson provided a discussion of all strategic initiatives being conducted by the Company that could be considered viable options.
On December 15, 2015, the board met telephonically where Mr. Watson and the board discussed in detail the proposed transaction with candidate number 15, which was dependent upon the bank underwriting the
candidate’s oil and gas asset portfolio and extending credit on those assets. The transaction was dependent upon completing an asset sale thought a pre-packaged Chapter 11 bankruptcy filing.
On January 6, 2016, Mr. Watson communicated to the board that a letter of intent from candidate number 15 was expected with terms similar to those discussed on December 15, 2015. Mr. Watson informed the board that one remaining candidate (the 16th candidate) was exploring purchasing Enerjex or its assets, but that the continuing deterioration of commodity prices was negatively impacting most strategic options, if not making them outright impossible. Oil prices (WTI) averaged $31.68 in January 2016, compared to $105.79 in June 2014, and $59.29 in December 2014.
On January 8, 2016, Mr. Watson updated the board that while the proposed transaction with candidate number 15 was slipping, the candidate asked EnerJex to make a presentation to its board of directors. Mr. Watson noted that candidate number 16 had provided a preliminary valuation for EnerJex that was substantially lower than its outstanding indebtedness. Mr. Watson also indicated that he was in discussions with ASEN for Enerjex to provide consulting services for a monthly cash fee, and that he hoped the consulting arrangement could lead to a solution for the Company.
On February 10, 2016, at the request of Iberia Bank (one of our lenders in the senior secured credit facility) Mr. Watson met with Iberia Bank management in Houston, Texas, and provided them with an update on the strategic options the Company was pursuing.
On February 17, 2016, the board met telephonically. Mr. Watson informed the board that the bank had elected not to extend credit to candidate number 15, and that therefore candidate number 15 could not proceed with the transaction. The board discussed the structural issues with the oil and gas market caused by the low commodity prices, and that the number of transactions in the oil and gas industry were low due to the bearish sentiment on the commodity market and that large bid/ask valuation spreads persisted throughout the industry. Mr. Watson and the board discussed the fact that the value of EnerJex’s assets was lower than its secured indebtedness. The board discussed transaction alternatives with the potential to save some value for stockholders.
On February 24, 2016, the board met telephonically. Mr. Watson updated the board with regard to ASEN, informing the board that the company would start providing consulting services for ASEN in exchange for monthly payments. He also informed the board that the Company was no longer exploring any potential strategic alternatives. Oil prices (WTI) averaged $30.32 in February 2016.
In February and March 2016, Mr. Watson held several conference calls with representatives of the holders of its Series A and Series B preferred stock to discuss potential equity restructuring transactions to convert those shares to common shares. Mr. Watson met with restructuring advisors in New York, New York to discuss strategies with regard to the Company’s impaired bank debt. In addition, Mr. Watson met with a private equity investor (the 3rd private equity investor he met with since August 2015).
From March 7 – 9, 2016, Mr. Watson and EnerJex’s operations manager traveled to Midland, Texas to discuss logistics and timing with ASEN to implement the consulting agreement for EnerJex to take over ASEN’s operations.
In March 21 and March 22, 2016, Mr. Watson met with two (2) other financial investors in Dallas, Texas, to discuss the EnerJex oil and gas portfolio, potential investment options, and potential strategic solutions to the bank debt.
On March 31, 2016, Mr. Person, the CEO of ASEN, introduced Mr. Watson to another potential investor (the 6th Enerjex was pursuing) in Ft. Worth, Texas. Mr. Watson met with investor number 6 to discuss the EnerJex portfolio, potential investment options, and potential solutions to the bank issues. The parties agreed to continue discussions and conduct high level due diligence.
In April 2016, EnerJex and its bankruptcy counsel began negotiating a forbearance agreement with the bank.
On April 1, 2016, EnerJex entered into a consulting agreement with Baylor Operating, a subsidiary of ASEN. Per the terms of this consulting agreement, Baylor Operating agreed to pay EnerJex $60,000 per month for consulting services while Enerjex provided back office support, operations management, and technical support to Baylor Operating.
On April 4, 2016, the board met telephonically and Mr. Watson provided an update to the board with regard to negotiations with the bank.
On April 8, 2016, Mr. Watson and Mr. Person met with principals of Pentwater Capital Management in Chicago to discuss EnerJex’s oil and gas portfolio and discuss a potential investment in the Company. The parties also discussed how such an investment could potentially foster a business combination between EnerJex and ASEN. The parties agreed to proceed with evaluating strategic options and due diligence.
On April 11, 2016, Mr. Watson discussed the Company’s assets with another investor (investor number 7). The parties discussed a potential investment and potential solutions for the bank debt, and agreed to continue due diligence.
On April 27 Mr. Watson conducted a strategic update call with the bank, noting that he was speaking with several potential investors to generate interest in the Company’s oil and gas assets and to consider an investment in the company or to provide other potential options for the bank. He indicated that a transaction with Pentwater Capital Management had the highest current probability.
In late April and early May 2016, Mr. Watson contacted two (2) hedge funds and a Dallas based energy investor to discuss the Company’s assets and potential investments or other solutions to the bank debt. One of the potential investor candidates, a hedge fund pursuing event-driven investing strategies (investor number 9) was introduced to Mr. Watson by Mr. Person from ASEN on May 5, 2016.
In May 2016, Mr. Watson provided the bank with updates regarding its discussions with Pentwater Capital Management and the six (6) other potential investors the Company was currently in discussions with. Mr. Watson also began discussions with another investor (investor number 11) that quickly ceased.
In June 2016, Mr. Watson met with nine (9) other potential investors and continued discussions with all potential investors to date that were still open to discussions. He updated the bank with regard to these potential investors, noting the initial contacts and the continuing discussions (Mr. Watson had by this time met with 20 potential investors). He noted that discussions with Pentwater Capital Management and investor number 5 and number 7 had stalled.
On June 13, 2016, Mr. Person introduced Mr. Watson to another hedge fund (investor number 21). By the end of June Mr. Watson had met with four (4) more potential investors, with a total of 25 potential investors solicited, including private equity firms, hedge funds, and strategic investors.
History of the proposed transaction
On July 7, 2016, Pentwater Capital Management informed Mr. Person and Mr. Watson that they were going to submit an initial indication of interest to the bank for the purchase of Enerjex’s secured debt. Mr. Watson introduced principals of Pentwater Capital Management to Texas Capital Bank. Mr. Watson did not participate in any subsequent conversations or negotiations between Pentwater Capital Management and the bank.
On July 19, 2016, at the bank’s request, Mr. Watson provided an update on all strategic and operational activities. Mr. Watson informed the bank that we was aware that the bank and Pentwater Capital Management were pursuing negotiations for a potential transaction. Mr. Watson indicated that the Company was still in discussions with a variety of third parties for a potential transaction or investment, but he noted that valuation feedback he was receiving indicated that this would be a very challenging transaction.
On several occasions throughout his negotiations with the bank, the bank made it clear to Mr. Watson that it would not entertain proposals regarding the purchasing of the debt from any affiliate of the company.
Through July and August, 2016, Mr. Watson continued meeting with potential investors. By the end of August he had met with over 30 potential investors in the aggregate. Most investors declined for various reasons.
On August 31, 2016, Mr. Watson met with two (2) potential investors that intended to co-invest with Pentwater Capital Management.
On September 29, 2016, Mr. Watson provided an operational update to the bank. The bank let Mr. Watson know that they were in negotiations with two (2) potential buyers of the EnerJex debt.
On September 30, 2016, the discussions with the bank regarding extending the forbearance period on the loan default ceased. Mr. Watson indicated to the bank that a Chapter 11 bankruptcy filing would likely be the Company’s next course of action. The bank indicated that it was still pursuing a sale of the debt, and the Company informed the bank that it would delay filing for bankruptcy protection as long as possible to support the negotiations. To preserve cash, EnerJex ceased making all payments under the debt.
The Company and the bank continued negotiating a forbearance extension, but did not reach an agreement. On October 10, 2016, the Company informed Mr. Watson that it was still working on potential transactions with either Pentwater Capital Management or another investor (investor number 7 that EnerJex had met with).
On October 11, 2016, Mr. Watson and board members Atticus Lowe and Lance Helfert met with Mr. Person, now representing Pentwater Capital Management, in Los Angeles. The purpose of the meeting was to introduce Mr. Lowe and Mr. Helfert to Mr. Person. Mr. Person provided an update on the status of Pentwater Capital Management’s negotiations with the banks. Mr. Person indicated that he represented a group of investors that intended to co-invest with Pentwater Capital Management in the acquisition of the EnerJex debt. Mr. Person communicated to Mr. Lowe and Mr. Helfert that Mr. Watson had requested that Mr. Person speak with Mr. Lowe and Mr. Helfert to discuss the potential for negotiating a restructuring of EnerJex’s debt in the event that the Pentwater Capital Management investor group was successful in acquiring the EnerJex debt from the banks. The parties discussed potential concepts and restructuring options.
At the October 11, 2016 meeting, Mr. Watson indicated that he planned to resign from EnerJex, regardless of the outcome of the negotiations, and that the entire EnerJex executive team intended to leave EnerJex with Mr. Watson. Mr. Watson indicated that he was seeking a variety of opportunities, and that it was possible that he would join Mr. Person in the management of a new company that could end up owning assets once owned by EnerJex (since he and the team were experienced in managing those assets), as well as additional assets. Mr. Person closed the meeting by informing Mr. Lowe and Mr. Helfert that he had a desire to work out a potential deal that would preserve some value for EnerJex stockholders and that they would reach out directly to the EnerJex board at the appropriate time to discuss restructuring options if the purchased the debt.
On October 17, 2016, Mr. Watson and EnerJex management made a presentation to investor number 7 (the other potential purchaser of the EnerJex debt). The parties did not discuss the potential bank transaction.
On October 25, 2017, Mr. Watson provided an update to the bank, and indicated that the company intended to file for bankruptcy protection by the end of November 2016. He urged the bank to move expeditiously with its negotiations with the two (2) investors to sell the loan if they had a desire to do so.
On or around November 3, 2016, Mr. Watson received a call from Northland Securities, the placement agent with regard to the Company’s preferred stock. Northland Securities indicated that representatives of Enerjex’s Series B preferred stock holder, had requested them to ask Mr. Watson to join them on a call that they intended to place to the bank. Mr. Watson declined to participate on that call, informed Northland Securities that the bank was entertaining two different proposals from independent third party investors, and that the Company would likely file for bankruptcy protection at the end of November. Mr. Watson indicated that the Series B holder’s representatives were free to call the bank on its own accord. Northland Securities informed Mr. Watson that the Series B representative decided to wait one week before they called the bank.
On or around November 10, 2016, Mr. Watson received a call from Northland Securities. Northland Securities indicated that the Series B representative had requested them to inform Mr. Watson that they intended to call the bank on November 21, 2016, unless the Company provided options to the Series B holder by November 18, 2016. Mr. Watson communicated that the Company’s status had not changed, and that the Series B representative was free to call the bank on its own accord. Mr. Watson indicated that any offers
should be provided in writing directly to the bank, and reiterated that the bank was considering two different proposals. Northland Securities requested valuation feedback on the current process. Mr. Watson informed Northland Securities that he was unaware of the financial terms of the negotiations with the bank and that Mr. Watson was not participating in any negotiations between the bank and the third party investors. Mr. Watson provided Northland Securities only with the bank’s contact information.
On November 16, 2016, the board met telephonically. Mr. Watson informed the board that the bank was entertaining proposals from two different investors, the Pentwater Capital Management investor group (which would eventually become the successor lender) and investor number 7. Mr. Watson informed the board that to his knowledge the bank failed to respond to the current offers and he was unaware if the bank had earnestly entered into negotiations on either. Mr. Watson informed the board that Loeb had recommended that the Company file for Chapter 11 bankruptcy protection before the end of November in the event the bank did not reach an agreement with a potential investor. During the discussions the board asked and Mr. Watson clarified that he informed the bank of the Company’s intentions with respect to filing bankruptcy, and that the Company had consistently provided financial projections to the bank throughout 2016 that showed the Company reaching minimum liquidity levels in the 4th quarter 2016. Mr. Watson also updated the board with regard to his conversations with LH Financial through intermediary Northland Securities the week before.
On November 28, 2016, the board met telephonically. Mr. Watson informed the board that the Pentwater Capital Management investor group indicated that it intended to present the bank with one final offer later that evening. Mr. Watson informed the board that it was his belief (although he could not verify it and did not know the terms of the offer) that the offer was to purchase the Company’s secured debt from the Banks. Mr. Watson indicated that the Pentwater Capital Management investor group intended to approach the board to begin negotiating a framework for a debt restructuring so that Enerjex and its stockholders would have a path forward. Mr. Watson informed the board that the Company’s only other option was to file for bankruptcy in the event that the bank declined the Pentwater Capital Management investor group’s offer. Mr. Watson indicated that the Company’s cash position had deteriorated to minimum levels and that all other options had been explored and vetted. Mr. Watson informed the board that its bankruptcy counsel had requested that the board to authorize the Company and all of its subsidiaries to file for bankruptcy protection and authorize Loeb to serve as bankruptcy counsel. Mr. Watson indicated that he had not had any further communication with the Series B representative and that he was unaware if they submitted a proposal to the bank. Mr. Watson reiterated to the board that he had communicated to the Series B representative through Northland Securities that the Company would likely need to file for Chapter 11 bankruptcy protection in the event that the bank declined the offer from the Pentwater Capital Management investor group.
On November 30, 2016, the bank requested more time from the Company to reach a transaction with the Pentwater Capital Management investor group.
On December 2, 2016, Mr. Watson was advised and informed the board that the bank and the Pentwater Capita Management investor group reached an agreement. He confirmed to the board on or around December 5, 2016, that the bank and the Pentwater Capital Management investor group (which was to become the successor lender) had signed a letter of intent.
On December 7, 2016, Mr. Watson introduced Mr. Person and Mr. Frank Strezo, a principal of Pentwater Capital Management, to the board.
On December 7, 2016, Mr. Robert Watson recused himself from any further board discussions, activities, and meetings as he intended to resign shortly. Given the fact that he and his management team were likely to be employed in the same geographic areas EnerJex operated in, and potentially would be employed by the purchaser of EnerJex’s assets, he did not participate in any further discussions or negotiations between the Company and the Pentwater Capital Management investor group which became the Successor Lender.
Mr. Watson recused himself from any further board meeting after December 7, 2017. Mr. Watson was not present at any of the meetings of the EnerJex board of directors referred to below, therefore references to meetings or calls where the board was present did not include Mr. Watson.
On December 10, 2016, Mr. Watson provided Reicker Pfau, the Company’s corporate counsel, with an update on all deal points with regard to the proposed transaction with Successor Lender that he was aware of.
On December 13, 2016, non-management members of the EneJex board met with members from the Pentwater Capital Management investor group in Dallas to discuss the outline of the proposed transaction. As explained to the board, the framework of the deal revolved around the investor group forgiving the senior debt, to be acquired by them, in exchange for the Colorado, Nebraska, and Texas assets and a monetary amount to be determined. They indicated Enerjex would retain the Kansas assets, the public vehicle and the NOL’s. The investor group emphasized the need for a quick process following their closing of the purchase of the debt from bank. They mentioned their important points were understanding the process, the valuation of the assets being retained by EnerJex, and the transition. We agreed to continue discussions and departed.
On December 14, 2016, Mr. Watson and the EnerJex technical team made a presentation to the Pentwater Capital Management investor group in Midland, Texas.
On December 22, 2016, Mr. Lowe and Mr. Menchaca spoke to Mr. Person to continue discussions regarding the remaining topics of process, timing and price. Discussions regarding timing and process revolved around the need to obtain stockholder approval. The parties discussed the value of the Kansas assets. Mr. Person indicated again that they were significantly lower than what was hoped, but it was within the range that a deal could be done. Mr. Lowe and Mr. Menchaca agreed to resume discussions after gathering information related to the timing and process of a stockholder meeting.
On December 28, 2016, Mr. Lowe and Mr. Menchaca attempted to reach Mr. Person but were unable to do so due to the holiday.
On December 29, 2016, Mr. Watson had separate discussions with Reicker Pfau and directors Lance Helfert and Richard Menchaca to discuss various updates with the proposed transaction with the Pentwater Capital Management investor group.
On December 29, 2016, Mr. Watson emailed the board with regard to his intentions to resign on December 31, 2016.
On December 30, 2016, Mr. Helfert and Mr. Watson discussed the terms of a separation agreement. Mr. Helfert asked Mr. Watson if he would wait to resign until the separation agreement was negotiated and until the proposed transactions were announced so that the Company could make a concurrent announcement. Mr. Watson indicated that he was willing postpone his resignation if it helped the Company. However, Mr. Watson indicated that he had concerns that he was still technically a director and chief executive officer of the Company in which he effectively had no decision making authority because of his recusal, and wanted to limit his further risk of liability. As noted above, Mr. Watson recused himself from any board meeting after December 7, 2016. Therefore, any reference to a meeting or call of the Enerjex board of directors in the discussion below does not include Mr. Watson.
On January 2, 2017, EnerJex director Richard Menchaca had a telephone call with Mr. Person, who was speaking on behalf of the Pentwater Capital Management investor group/Successor Lender regarding the amount EnerJex offered to pay the Successor Lender for retaining the asset was lower than expected, but in the right ballpark. The conversation emphasized the need to conclude a transaction quickly, and Mr. Person noted that there would be a call among the principals of the Successor Lender to discuss the proposal on January 3rd. Mr. Person asked the Company to prepare a simple bullet point outline of the most expeditious process and how a transaction could occur.
On January 3, 2017, Mr. Menchaca and Mr. Person spoke again via telephone, and Mr. Person noted that the Successor Lender would like a summary of a proposed process before they would make an offer, again emphasizing that the timing of the proposal would have an impact on the negotiations.
On January 3 and 4, 2017, members of the EnerJex board of directors and Mr. Schott had numerous conferences between themselves and with Reicker Pfau to develop a plan and process to propose to the Successor Lender.
On January 4, 2017, the EnerJex board of directors met via conference call at which they discussed, among other things, alternative proposals to present to the successor lender.
On January 5, 2017, members of the EnerJex board of directors and management team had numerous conferences between themselves and with Reicker Pfau to develop a timeline for a stockholder meeting.
On January 6, 2017, Reicker Pfau and the Successor Lender’s counsel discussed via telephone the need to focus on the process of how the proposed transaction could occur and the timing for the same. The attorneys also discussed valuation and transition issues.
Between January 6 and 10, 2017, members of the EnerJex board and Mr. Schott had numerous conferences between themselves and with Reicker Pfau, regarding the process for the transaction.
On January 10, 2017, the EnerJex board of directors met via conference call to discuss the status of the proposed transaction and negotiations regarding same.
Between January 10 and 12, 2017, the members of the EnerJex board and Mr. Schott had numerous conferences between themselves and with Reicker Pfau regarding the structure of the transaction.
On January 10, 2017, the EnerJex board of directors met via conference call to discuss the status of the proposed transaction.
On January 13, 2017, Mr. Lowe spoke with representatives of our prior lender, where the bank informed Mr. Lowe that any transaction should include a release of the prior lender from any current or future claims before it agreed to sell the loan to the Successor Lender.
On January 13, 2017, the Successor Lender provided a draft of the loan sale agreement between the prior lender, the Successor Lender, and EnerJex.
On January 13, 2017, the board met via conference call to discuss the terms of the loan sale agreement.
On January 14, 2017, the board met via conference call to discuss the terms of Mr. Watson’s separation from the Company.
Between January 13 and 14, 2017, the members of the EnerJex board and Mr. Schott had numerous conferences between themselves and with Reicker Pfau, regarding the proposed loan sale agreement and potential subsequent transaction with the Successor Lender.
On January 15, 2017, the EnerJex board of directors met via conference call to discuss the loan sale agreement.
Between January 15 and 17, 2017, the members of the EnerJex board and Mr. Schott team discussed the terms of the loan sale agreement and the revisions to the same that should be requested by the Company.
On January 17, 2017, the EnerJex board of directors met twice via conference call to discuss the potential transaction proposed by the Successor Lender and the Company’s response to same.
On January 17 and 18, 2017, the members of the EnerJex board of directors and Mr. Schott worked with Reicker Pfau to develop a counter offer to the proposed terms of the transaction with the Successor Lender to be implemented after the loan sale agreement became effective.
On January 18, 2017, the EnerJex board of directors met via conference call to finalize the Company’s counter offer to the potential transaction proposed by the Successor Lender.
On January 18, 2017, Reicker Pfau and the Company’s retained bankruptcy counsel, Loeb & Loeb, discussed with the prior lender counsel issues related to the loan sale agreement and the proposed transaction.
On January 20, 2017, Mr. Menchaca and Mr. Person discussed revisions to the terms of the proposed transaction.
On January 23, 2017, EnerJex was informed that the Successor Lender and the bank had successfully negotiated the loan sale, the only remaining issue was the release from EnerJex.
On January 23, 2017, EnerJex and the Successor Lender reached an agreement with regard to the terms of the proposed transaction.
On January 24, 2017, Reicker Pfau distributed a first draft of the Letter Agreement between the Successor Lender and the Company.
On January 25, 2017, the bank informed EnerJex that a release from EnerJex would be required in the loan sale agreement with the Successor Lender.
On January 29, 2017, the board met telephonically to discuss the status of the agreements between the bank, Successor Lender, and the Company.
On January 31, 2017, Mr. Menchaca provided a revised proposal to Mr. Person.
The Company continued to negotiate with the bank and Successor Lender regarding the Company’s willingness to release the bank and its successors from any liability and with Successor Lender regarding the terms and conditions of the proposed transaction.
On February 7, 2017, the bank indicated to Mr. Louis G. Schott, our interim CEO, that it would not sell the loan without a release from EnerJex.
On February 8, 2017, Mr. Schott and Mr. Person and Mr. Strezo on behalf of Successor Lender negotiated the terms of the proposed transaction, and Successor Lender agreed to cause Baylor Operations (the ASEN subsidiary) to make two payments under its consulting agreement with the Company in aggregate amount of $120,000, which satisfied the Company’s immediate cash needs. Baylor was in default under its payment obligations.
On February 9, 2017, the bank indicated its desire to be repaid fees prior to signing the loan sale agreement. The board held a meeting via telephone call to discuss this proposal, ultimately rejecting it.
On February 10, 2017, Mr. Person telephoned Mr. Schott that the bank and Successor Lender had resolved the fee issue.
On February 10, 2016, the Enerjex and Mr. Watson entered into a separation agreement.
On February 10, 2017, Successor Lender entered into the loan sale agreement with the bank and the Company to purchase from the bank all of its rights to our secured indebtedness pursuant to the Letter Agreement.
On February 10, 2017, and concurrently with the loan sale transaction we entered into a definitive written Letter Agreement, subject to the approval of the stockholders, to effect a transaction with the Successor Lenders in which:
On February 10, 2017, all documents were signed and signatures were held in escrow until released.
On February 13, 2017, the parties released signatures.
From February 22 to March 9, 2017, Mr. Schott had multiple discussions with the Company's reserve engineer, on the status of the Company's annual reserve report. Mr. Schott provided status updates to Mr. Strezo and Mr. Person from time to time.
On March 9, 2017, we received the preliminary reserve reports from the Company's reserve engineer. The members of the board had multiple calls with Mr. Schott and the reserve engineer from March 9 to March 13, 2017.
We provided the initial reserve report to Mr. Person and Mr. Strezo on March 10, 2017.
On March 14, 2017, Mr. Schott had a discussion with Mr. Strezo and Mr. Person on behalf of Successor Lender regarding the results of the preliminary reserve report indicated a value less than what the parties were expecting. Successor Lender indicated that the terms of the transaction needed to be amended. Mr. Schott updated the board.
On March 15, 2017, we received the final reserve report. Mr. Schott and the members of the Company's board of directors discussed the findings of the reserve report, its impact on the timing of the transaction planned in the original Letter Agreement and the Company's need to raise $3,300,000 in cash in a very short period based upon the original terms of the transaction.
Later on the 15th, we sent to Successor Lender a draft amendment to the Letter Agreement outlining three alternatives. Mr. Schott discussed these alternatives with representatives of Successor Lender. Mr. Schott then reviewed the alternatives with the Company's board of directors.
From March 16 to March 23, 2017, we negotiated terms with Successor Lender.
On March 25, 2017, Mr. Schott had multiple calls with Mr. Strezo and Mr. Person regarding proposal and revisions to the proposal.
From March 25 to March 26, 2017, Mr. Schott had multiple calls with the members of the Company's board regarding the Successor Lender's proposals.
On March 28, 2017, EnerJex and its corporate counsel had multiple conference calls with Successor Lender and its counsel. On March 27, 2017, we delivered a revised Amendment to Successor Lender.
Later on the 28th, the members of the Company's board of directors met telephonically regarding the proposed revision. The Company then prepared and sent a revised Amendment to Letter Agreement. For the first time the agreement called for the creation of a bankruptcy-remote special purpose entity.
On March 30, 2017, the parties signed the first amendment to the Letter Agreement.
Restated Secured Note
EnerJex’s loan will be restructured in the proposed transaction pursuant to the terms of Restated Secured Note.
The Restated Secured Note shall:
We will have two (2) options to extend the maturity date of the Restated Secured Note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.
So long as we repay the $3,300,000 in indebtedness on or prior to the maturity date, as extended, all other amounts payable under the Restated Secured Note shall be forgiven, including but not limited to the remaining principal amount of $1,200,000.
We are exploring alternative financing of the $3,300,000 cash payment to retire the, and expect to raise between $3,500,000 and $5,000,000 in capital through debt or equity financing, or a combination of both. If we are unable to do so we intend to pursue other strategic financing alternatives to monetize our Kansas oil and gas properties and assets. These alternative financing transactions may be in any form, such as a joint venture, partnership, leasing arrangement, or working interest sales. In addition, the Company may explore outright fee sales of properties as a method of raising capital. The actual structure will likely be a combination of these alternatives.
Recommendation of Our Board; Reasons for Recommending the Approval of the Letter Agreement
On February 10, 2017, the board convened a meeting at which it unanimously (i) resolved to recommend that our stockholders approve the Letter Agreement and the debt satisfaction/asset disposition transactions set forth therein, (ii) determined that the entry into the letter agreement is in the best interests of the Company and its stockholders, and (iii) directed that the Letter Agreement be submitted to a vote at a meeting of the stockholders to consider the approval of the Letter Agreement and the transactions set forth therein. In evaluating the Letter Agreement and the transactions contemplated thereby, the board consulted with the Company’s senior management and legal and financial advisors, and considered and evaluated a range of factors that it believed supported its decision to enter into the Letter Agreement and its recommendation that the stockholders of the Company approve the Letter Agreement, including, but not limited to, the following factors:
In the course of its deliberations, the board also considered a variety of risks, uncertainties and other countervailing factors related to entering into the Letter Agreement and the transactions contemplated thereby, including:
For more information on the interests of the Company’s directors and executive officers in the transaction, see the section entitled “— Interests of the Company’s Directors and Executive Officers in the Interests of Directors and Executive Officers in the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets Transaction” beginning on page 44;
The board conducted an overall analysis of the reasons and factors described above and determined in its business judgment that, in the aggregate, the potential benefits of the transactions contemplated by the Letter Agreement to the stockholders of the Company outweighed the risks and potential negative consequences of the transactions.
The foregoing discussion of certain reasons and factors considered by the board is intended to be illustrative, and is not exhaustive, but includes the material reasons and factors considered by the board in reaching its conclusions and recommendation in relation to the Letter Agreement and the transactions contemplated thereby. In view of the wide variety of reasons and factors considered by the board in connection with its evaluation of the proposed transaction and the complexity of these matters, the board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific reasons or factors it considered in reaching its determination and did not undertake to make any specific determination as to whether any particular reason or factor, or any aspect thereof, was favorable or unfavorable to the ultimate determination of the board. Rather, the board made its recommendation based on the totality of information presented to it and the investigation conducted by it. In addition, individual members of the board may have given different weights to different factors or may have had different reasons or factors for their ultimate determination.
It should be noted that this explanation of the reasoning of the board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 7 of this proxy statement.
The board unanimously recommends that the stockholders of the Company vote “FOR” approval of the Letter Agreement and the debt satisfaction/asset conveyance transaction set forth therein.
Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets Transaction
Summary
The Company and its wholly-owned subsidiaries EnerJex Kansas, Inc., a Nevada corporation, Working Interest, LLC, a Kansas limited liability company, Black Sable Energy, LLC, a Texas limited liability company, Black Raven Energy, Inc., a Nevada corporation, and Adena, LLC, a Colorado limited liability company (collectively, the “Subsidiaries”), entered into a letter agreement dated February 10, 2017 (the “Letter Agreement”), with PWCM Investment Company IC LLC, a Delaware limited liability company (“PWCM”), pursuant to which (a) PWCM agreed to deem satisfied and forgive a substantial majority of the Company’s and the Subsidiaries’ obligations under the Loan Documents (as defined below), which, as of the date hereof, evidence Company indebtedness in an outstanding principal balance of approximately $17,925,000 by restating the Company’s secured promissory note into a note for $4,500,000, and (b) in consideration of that deemed satisfaction and forgiveness, the Company and the Subsidiaries agree to convey or provide to PWCM or its designees (i) all of their real property leases, oil and gas producing properties, and other assets situated in Colorado, Texas, and Nebraska, (ii) all of their shares in Oakridge Energy, Inc. The Company will retain its oil and gas properties and assets located in Kansas, which generate the majority of the Company’s revenue and cash flow from operations, and contribute those assets to a bankruptcy-remote entity. The Successor Lender shall have a security interest in those revenues and the retained Kansas oil and gas assets. After we executed the Letter Agreement, the following parties were added to the Letter Agreement as additional purchasers of our secured indebtedness: Cibolo Holdings, LLC, a Texas limited liability company; RES Investment Group, LLC, a North Carolina limited liability company; and Round Rock Development Partners, LP, a Delaware limited partnership (such entities, together with PWCM, collectively the “Successor Lenders”).
Secured Loan
The Company and the Subsidiaries are parties to an Amended and Restated Credit Agreement, dated October 3, 2011, by and among the Company and the Subsidiaries, as Borrowers, Texas Capital Bank, N.A. (“TCB”), as Administrative Agent, and the other financial institutions and banks party thereto from time to time, which we refer to as the Bank, as amended (the “Credit Agreement”), and certain documents ancillary and related to the Credit Agreement (the Credit Agreement and all ancillary and related documents, the “Loan Documents”). The loans made under the Loan Documents are secured by certain of the Company’s and the Subsidiaries’ assets.
Successor Lender
In a transaction that closed on February 17, 2017, the initial Successor Lender (others have been added by the Successor Lender, and we refer to them collectively as the Successor Lender) purchased from our bank lenders under the Loan Documents all rights of such bank lenders under those Loan Documents, including the right to payment of our indebtedness under the Loan Documents and all rights to the security pledged as security for the obligations of EnerJex and its Subsidiaries.
As a result, all of our obligations under the Loan Documents are now owed to the Successor Lender. As of the date hereof, the outstanding amount of principal owed by the Company and the Subsidiaries under the Loan Documents is approximately $17,925,000.
Letter Agreement
The following is a summary of the material terms and conditions of the Letter Agreement as amended. This summary does not purport to be complete and may not contain all of the information about the Letter Agreement that is important to you. The description of the Letter Agreement in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Letter Agreement, a copy of which is attached to this proxy statement as Annex A-1 and A-2 and is incorporated by reference into this proxy statement. We encourage you to read the Letter Agreement carefully and in its entirety because it is the primary contractual document that governs the debt satisfaction/asset disposition transaction and its express terms and conditions govern the rights and obligations of the parties.
While the Successor Lender was working with the bank the finalize its debt purchase transaction, it was also working with the Company to structure a transaction in which the Company had an opportunity to satisfy
the entire outstanding indebtedness of the Company (which likely exceeded the value of its assets) with a portion of the assets and a cash payment. On February 10, 2017, a week before the Successor Lender finalized the purchase of the loans, we entered into the Letter Agreement with the Successor Lender. We amended the Letter Agreement on March 30, 2017.
Loan Forgiveness; Consideration for Loan Forgiveness
The transaction set forth in the Letter Agreement provides a means for the Company to satisfy all outstanding amounts indebtedness, and any other outstanding amounts, owed to the Successor Lenders and continue as a going concern.
The current value of our assets exceeds the current value of our liabilities, making our ability to remain a going concern doubtful. The terms of the Letter Agreement provide the Company with an opportunity to remain a going concern by retaining its Kansas assets and continue operating to assets by conveying to the Successor Lender all of its remaining oil and gas assets and a Restated Secured Note in the original principal amount of $4,500,000, payable in full at a discount by the payment of $3,300,000 any time before the maturity date, as extended.
Under the Letter Agreement, the EnerJex’s indebtedness and all other obligations under the Loan Documents will be deemed satisfied in full and forgiven. In exchange, we will convey and provide to the Successor Lenders or its designees:
After completion of those transactions, the Company will be free and clear of the lien formerly securing our bank debt and will own the retained Kansas assets, which generate the majority of the Company’s revenue and cash flow from operations. Subject to the lien securing the debt evidenced by the Restated Secured Note.
In short, the transactions contemplated in the Letter Agreement will result in (a) all of the our obligations under the Loan Documents being satisfied in full, such that neither the Company nor any of the Subsidiaries have any further obligations under the Loan Documents, (b) the conveyance of our interest in their oil and gas properties and assets in Colorado, Texas, and Nebraska and our stock in Oakridge Energy, Inc., and (c) our ability to retain its Kansas operating assets subject only to the lien securing the debt evidenced by the Restated Secured Note.
Restated Secured Note
EnerJex’s loan will be restructured in the proposed transaction pursuant to the terms of Restated Secured Note. The Restated Secured Note shall:
We will have two (2) options to extend the maturity date of the Restated Secured Note by 90 days each upon payment of an extension fee of $100,000, which shall be applied against the principal balance of the note.
The loan is payable in full at a discount to the restated principal amount of $4,500,000. So long as $3,300,000 is paid to the Successor Lender on or prior to the maturity date, as extended, all other amounts payable under the Restated Secured Note shall be forgiven, including but not limited to the remaining principal amount of $1,200,000.
We will explore alternative financing of the $3,300,000 discounted repayment amount before the maturity date of the Restated Secured Note. We expect to raise between $3,500,000 and $5,000,000 in capital through debt or equity financing, or a combination of both for the purpose of raising the amounts to repay the Restated Secured Note and provide working capital to fund operations. If we are unable to do so we intend to pursue other strategic financing alternatives to monetize our Kansas oil and gas properties and assets. These alternative financing transactions may be in any form, such as a joint venture, partnership, leasing arrangement, or working interest sales. In addition, the Company may explore outright fee sales of properties as a method of raising capital. The actual structure will likely be a combination of these alternatives, and we feel the restructuring of our loan as provided by the Restated Secured Note provides the Company with the best chance of raising these funds to continue operating as going concern.
Additional Agreements
The Letter Agreement includes undertakings other than those listed above.
Retained Kansas Oil and Gas Assets Shall be Contributed to a Special Purpose Entity
Prior to or concurrently with the closing of the transaction, EnerJex will contribute its remaining oil and gas properties and assets located in Kansas to a wholly-owned, single-purpose, bankruptcy-remote, Delaware limited liability company, which we refer to as the Special Purpose Subsidiary. The Special Purpose Subsidiary shall be managed by EnerJex and will engage an independent manager approved by Successor Lender, whose vote will be required for the Special Purpose Subsidiary to file for bankruptcy protection. The Restated Secured Note will be guaranteed by the Special Purpose Subsidiary, and the Special Purpose Entity will secure the guarantee with a lien on the Kansas oil and gas assets.
All Income from Kansas Assets Shall be Payable to Lender
The Letter Agreement provides that during the term of the Restated Secured Note, the Special Purpose Subsidiary we will pay to Successor Lender all of our net revenues from our existing oil and gas properties in the state of Kansas, and all equipment and tangible personal property owned by EnerJex in Kansas and used by EnerJex in Kansas. Successor Lender and EnerJex shall execute a Deposit Account Control Agreement covering each bank account of EnerJex into which the net revenues from EnerJex’s Kansas assets shall be deposited in order to perfect a lien in the amount of such net revenues.
Employment Offers
The Successor Lender may, but shall not be obligated to, extend (a) to any of our employees an offer to commence employment with (or an offer to be engaged as a consultant to) successor lender from and after the closing, and will assume accrued benefit costs for any such employees that accept the offer, and (b) to each consultant or other person then engaged by the Company to provide services to the Company an offer to provide such services with Successor Lender.
None of our senior executive team or former executive team, including Mr. Watson, our former CEO and Mr. Doug Wright, our CFO, have any agreements or understandings regarding any future employment with the Successor Lender or its affiliates.
Stockholders’ Meeting
We agreed to (a) schedule a meeting of our stockholders to occur on or before May 1, 2017, and (b) at such meeting, to seek the approval of our stockholders to debt satisfaction/asset conveyance transaction.
American Standard Energy Corp. Consulting Agreement
On April 1, 2016, Enerjex entered into a consulting agreement with Baylor Operating, an affiliate of American Standard Energy (“ASEN”) to provide accounting, field operation, payroll and employee management, regulatory compliance, and technical consulting and assistance with regard to the operation of certain oil and assets owned by ASEN. In exchange, EnerJex is entitled to payments of $60,000 per month.
Successor Lender is also the secured lender of ASEN. Prior to entering into the Letter Agreement with the Successor Lender, ASEN was delinquent on its monthly payments to EnerJex required by the consulting agreement. Pursuant to the terms of the Letter Agreement, we agreed to waive payments incurred prior to December 1, 2016, while ASEN (or its affiliates) agreed to make the two (2) monthly payments of $60,000 each owed for December 2016 and January 2017 upon signing the Letter Agreement. In addition, Successor Lender agreed to guarantee the obligation of its affiliate ASEN to pay the company $60,000 monthly on a going forward basis. The Company has also agreed to waive the payment for April 2017.
Conduct of Parties Prior to Closing
We agreed to use commercially reasonable efforts to:
In addition, both parties agreed to take such commercially reasonable action as is necessary to satisfy the conditions to and facilitate the closing of the debt satisfaction/asset conveyance transaction on or before May 1, 2017.
Representations and Warranties
The Letter Agreement contains representations and warranties made by EnerJex and the Successor Lender to each other. The statements embodied in those representations and warranties were made for purposes of the Letter Agreement and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Letter Agreement. In addition, some of those representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from that generally applicable to stockholders or may have been used for the purpose of allocating risk between EnerJex on the one hand, and Successor Lender on the other, rather than establishing matters as facts.
We made customary representations and warranties (including, in certain cases, with respect to our subsidiaries) to Successor Lender in the Letter Agreement. These representations and warranties relate to, among other things, the following:
Successor Lender made customary representations and warranties to the Company in the letter agreement. These representations and warranties relate to, among other things, the following:
Conditions to the Debt Satisfaction/Asset Conveyance Transaction
The respective obligations of EnerJex and Successor Lender to effect the debt satisfaction/asset conveyance transaction are subject to the satisfaction or waiver, on or prior to the closing, of certain closing conditions.
Each party’s obligation to consummate the debt satisfaction/asset conveyance is also subject to the following additional conditions:
Our obligation to effect the debt satisfaction/asset conveyance is subject to the satisfaction or waiver (if permissible under applicable law) on or prior to the closing of the transaction of the following conditions:
In addition, the Successor Lender’s obligation to consummate the debt satisfaction/asset conveyance is also subject to the condition that since the date of the Letter Agreement that there not have been a material adverse event with regard to the conveyed oil and gas properties.
Termination of the Letter Agreement
The Letter Agreement may be terminated upon the mutual written consent of the Company and Successor Lender.
The Letter Agreement also may be terminated by either the Company or Successor Lender if any of the following events occurs:
Amendment of the Letter Agreement
At any time prior to the effective time, the Letter Agreement may be amended by written agreement of the parties thereto. However, following receipt of the Company stockholder approval, there shall be no amendment or change to the provisions of the Letter Agreement which by law would require further approval by our stockholders without such approval.
Governing Law
The Letter Agreement is governed by and will be construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of laws provision or rule that would cause the application of the laws of any jurisdiction other than the State of Texas.
Interests of Directors and Executive Officers in the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets Transaction
As of March 30, 2017, our directors and executive officers held and are entitled to vote, in the aggregate, 3,973,168 shares of company common stock, representing approximately 47.17% of the voting power of the outstanding shares entitled to vote at the annual meeting.
Additional details of the beneficial ownership of our common stock by our directors and executive officers are set out in the section of this proxy statement entitled “ Voting Securities” beginning on page 10. In addition to their interests in the debt satisfaction/asset conveyance transaction as stockholders, certain of the Company’s directors and executive officers have interests in the transaction that may be different from, or in addition to, the interests of the our stockholders generally.
Our former CEO, Robert Watson, has entered into a separation agreement with the Company pursuant to which he will provide transition consulting services in the amount of $110,000, payable at a rate of $5,000 per month. Mr. Watson will be paid the entire remaining separation and consulting consideration on the earlier of: (1) the date our Colorado and Texas oil and gas assets are disposed of, and (2) December 31, 2017.
In addition, included in the transition services Mr. Watson is performing pursuant to his separation agreement are services on behalf of EnerJex to fulfill our obligations under the consulting agreement with ASEN, an affiliate of the Successor Lender. Mr. Watson has no other agreement, arrangement, or understanding with Successor Lender following the closing.
The Successor Lender also may, but is not obligated to, extend to any of our employees or advisors after the closing of the transaction offers of employment with (or an offer to be engaged as a consultant to) Successor Lender.
In considering the proposals to be voted on at the special meeting, you should be aware of these interests. The members of the board were aware of and considered these interests, among other matters, in evaluating and reaching their decision to adopt the plan to satisfy the Company’s secured indebtedness as set forth in the Letter Agreement and determining that entry into the Letter Agreement was in the best interests of the Company and its stockholders, and in resolving to recommend that the Company’s stockholders vote to approve the Letter Agreement and the transactions set forth therein.
Certain Effects of the Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets
If the proposal to approve the Letter Agreement and the debt satisfaction/asset conveyance transaction set forth therein receives the affirmative vote of the holders of more than a majority of outstanding shares of Company common stock entitled to vote at the meeting, and the other conditions to the closing of the transaction are either satisfied or waived in accordance with the Letter Agreement:
Prior to or concurrently with the closing of the transaction, EnerJex will contribute its remaining oil and gas properties and assets located in Kansas, which generate the majority of the Company’s revenue and cash flow from operations, to a wholly-owned, single-purpose, bankruptcy-remote, Delaware limited liability company, which we refer to as the Special Purpose Subsidiary. The Special Purpose Subsidiary shall be managed by EnerJex and will engage an independent manager approved by Successor Lender, whose vote will be required for the Special Purpose Subsidiary to file for bankruptcy protection.
The Restated Secured Note will be guaranteed by the Special Purpose Subsidiary, and the Special Purpose Entity will secure the guarantee with a lien on the Kansas oil and gas assets.
The board believes this transaction is in the best interests of the Company and its stockholders. Although this transaction will materially decrease the size of our business operations, it provides the Company with an opportunity to continue as a going concern.
Unaudited Pro Forma Financial Information
On February 10, 2017 we entered into the Letter Agreement (as amended March 30, 2017) pursuant to which Enerjex and its operating subsidiaries agreed with PWCM Investment Company IC LLC and certain investors (referred to collectively as the “Successor Lender”), the purchaser of our secured indebtedness from our former bank, to consummate several simultaneous transactions:
The following selected unaudited pro forma condensed financial information of Enerjex shows the effect on Enerjex of the proposed satisfaction of secured indebtedness/conveyance of assets transaction.
The unaudited pro forma consolidated balance sheet as of December 31, 2016, and the unaudited pro forma consolidated statement of operations for the year ended December 31, 2016 have been derived from our historical financial statements. The pro forma adjustments have been prepared as if the satisfaction of indebtedness conveyance of oil and gas assets transaction had taken place on December 31, 2016, in the case of the unaudited pro forma consolidated balance sheet and on January 1, 2016, in the case of the unaudited pro forma consolidated statement of operations for the year ended December 31, 2016.
Following our unaudited pro forma consolidated financial statements, we are providing an unaudited pro forma balance sheet as of December 31, 2016, and an unaudited pro forma consolidated statement of operations for the year ended December 31, 2016 for the oil and gas assets we are conveying to Successor Lender, as if those assets were a stand-alone business.
EnerJex presents the unaudited pro forma condensed consolidated financial information for informational purposes only. The pro forma information is not necessarily indicative of what the divided business's financial position or results of operations actually would have been had EnerJex and the Successor lender completed the transaction on the dates indicated. In addition the unaudited pro forma condensed consolidated financial information does not purport to project the future financial position or operating results of the separated businesses.
EnerJex Resources, Inc.Unaudited Pro Forma Consolidated Balance SheetAs of December 31, 2016(in thousands)
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| EnerJex Resources, Inc. | Pro forma Adjustments To Remove Conveyed Oil and Gas Assets | Other Pro Forma Adjustments | EnerJex Resources, Inc. After Conveyance of Oil and Gas Assets | |||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 128,035 | (79,751 | ) | (32 | )(1.b) | $ | 48,252 | ||||||||
| Cash, restricted | 50,000 | (50,000 | )(1.a) | — | ||||||||||||
| Accounts receivable | 610,825 | (357,803 | ) | 253,022 | ||||||||||||
| Inventory | 185,733 | (127,316 | ) | 58,417 | ||||||||||||
| Marketable Securities | 210,990 | (210,990 | )(1.c) | — | ||||||||||||
| Deposits and prepaid expenses | 493,384 | (17,440 | ) | (191,393 | )(1.d) | 284,551 | ||||||||||
| Total current assets | 1,678,967 | (582,310 | ) | (452,415 | ) | 644,242 | ||||||||||
| — | ||||||||||||||||
| Non-current assets: | — | |||||||||||||||
| Fixed assets net of accumulated depreciation of $1,817,711 | 2,077,055 | (1,816,143 | ) | 260,912 | ||||||||||||
| Oil and gas assets net of accumulated DD&A of $15,189,716 | 3,437,030 | (9,261,918 | ) | 7,320,248 | (1.e) | 1,495,360 | ||||||||||
| Other non-current assets | 798,809 | (578,019 | ) | (220,790 | )(1.f) | |||||||||||
| Total non-current assets | 6,312,894 | (11,656,080 | ) | 7,099,458 | 1,756,272 | |||||||||||
| Total assets | $ | 7,991,861 | $ | (12,238,390 | ) | $ | 6,647,043 | $ | 2,400,514 | |||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 294,241 | (94,582 | ) | $ | 199,659 | ||||||||||
| Accrued liabilities | 1,535,165 | (20,218,749 | ) | 19,585,507 | (1.g) | 901,923 | ||||||||||
| Current portion of long term debt | 17,925,000 | (17,925,000 | )(1.h) | — | ||||||||||||
| New Debt Assumed | 4,500,000 | (1.i) | 4,500,000 | |||||||||||||
| Total current liabilities | 19,754,406 | (20,313,331 | ) | 6,160,507 | 5,601,582 | |||||||||||
| Asset retirement obligation | 3,314,191 | (1,776,601 | ) | 1,537,590 | ||||||||||||
| Other long-term liability | 3,401,149 | 3,401,149 | ||||||||||||||
| Total non-current liabilities | 6,715,340 | (1,776,601 | ) | 4,938,739 | ||||||||||||
| Total liabilities | 26,469,746 | (22,089,932 | ) | 6,160,507 | 10,540,321 | |||||||||||
| Contingencies and commitments: | ||||||||||||||||
| Stockholders' equity: | ||||||||||||||||
| Series A Preferred stock, $.001 par value, 25,000,000 shares authorized; 751,815 shares issued and outstanding | 938 | 938 | ||||||||||||||
| Series B Preferred Stock, $.001 par value | 2 | 2 | ||||||||||||||
| Common stock, $0.001 par value, 250,000,000 shares authorized; 8,424,161 shares issued and outstanding | 8,424 | 8,424 | ||||||||||||||
| Paid in capital | 69,090,613 | 1,206,536 | (1.j) | 70,297,149 | ||||||||||||
| Accumulated deficit | (87,577,862 | ) | 5,471,786 | 3,659,754 | (1.k) | (78,446,322 | ) | |||||||||
| Total stockholders' equity | (18,477,885 | ) | 5,471,786 | 4,866,290 | (8,139,809 | ) | ||||||||||
| Total liabilities and stockholders' equity | $ | 7,991,861 | $ | (16,618,146 | ) | $ | 11,026,797.0 | $ | 2,400,512 | |||||||
EnerJex Resources, Inc.Unaudited Pro Forma Consolidated Statement of OperationsAs of December 31, 2016(in thousands, except per share data)
| | | | | ||||||||||||
| EnerJex Resources, Inc. | Pro forma Adjustments To Remove Revenues and Expenses of the Conveyed Oil and Gas Assets | Other Pro Forma Adjustments | EnerJex Resources, Inc. After Conveyance of Oil and Gas Assets | |||||||||||||
| Oil and natural gas revenues | $ | 2,461,727 | (1,002,318 | ) | 1,459,409 | |||||||||||
| Expenses: | ||||||||||||||||
| Direct operating expense | 2,661,258 | (1,477,808 | ) | 1,183,450 | ||||||||||||
| Depreciation, depletion and amortization | 413,967 | (235,357 | ) | 178,610 | ||||||||||||
| Impairment of oil and gas assets | 8,032,670 | (4,020,563 | ) | 4,012,107 | ||||||||||||
| Professional fees | 310,471 | — | 310,471 | |||||||||||||
| Salaries | 1,642,593 | (1,207,176 | )(2.a) | 435,417 | ||||||||||||
| Administrative expense | 539,571 | — | (309,369 | )(2.b) | 230,202 | |||||||||||
| Total expenses | 13,600,530 | (5,733,728 | ) | (1,516,545 | ) | 6,350,257 | ||||||||||
| Income from operations | (11,138,803 | ) | 4,731,410 | 1,516,545 | (4,890,848 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (1,911,906 | ) | 1,115,944 | (2.c) | (795,962 | ) | ||||||||||
| Gain on derivatives | (2,531,401 | ) | 1,429,988 | (2.d) | (1,101,413 | ) | ||||||||||
| Other income (loss) | 2,406,340 | (1,347,617)(2.e) | 1,058,723 | |||||||||||||
| Total other income (expense): | (2,036,967 | ) | 1,198,315 | (838,652 | ) | |||||||||||
| Net Income (loss) | $ | (13,175,770 | ) | $ | 4,731,410 | $ | 2,714,860 | $ | (5,729,500 | ) | ||||||
| Net (loss) | $ | (13,175,770 | ) | $ | (5,729,500 | ) | ||||||||||
| Preferred dividend | (3,010,211 | ) | (3,010,211 | ) | ||||||||||||
| Net (loss) attributable to common stockholders | $ | (16,185,981 | ) | $ | (8,739,711 | ) | ||||||||||
| Net (loss) per common share basic and diluted | $ | (1.92 | ) | $ | (1.04 | ) | ||||||||||
| Weighted average shares | 8,423,936 | 8,423,936 | ||||||||||||||
Conveyed Oil & Gas AssetsUnaudited Pro Forma Consolidated Balance SheetAs of December 31, 2016
| | |||
| December 31, 2016 | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | 129,782 | |||
| Accounts receivable | 417,803 | |||
| Inventory | 127,316 | |||
| Marketable securities Oakridge Energy | 210,990 | |||
| Deposits and prepaid expenses | 269,868 | |||
| Total current assets | 1,155,759 | |||
| Fixed assets | 3,398,481 | |||
| Accumulated Depreciation | (1,641,494 | ) | ||
| Fixed assets (net) | 1,756,987 | |||
| Oil and gas properties using full cost accounting | 8,622,616 | |||
| Accumulated DD&A | (6,680,946 | ) | ||
| Oil and gas properties (net) | 1,941,670 | |||
| Other non-current assets | 578,019 | |||
| Total assets | $ | 5,432,435 | ||
| Liabilities and Stockholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | 94,582 | |||
| Accrued liabilities | 502,106 | |||
| Total current liabilities | 596,688 | |||
| Asset retirement obligation | 1,776,602 | |||
| Other long-term liability | 3,401,149 | |||
| Total non-current liabilities | 5,177,751 | |||
| Total liabilities | 5,774,439 | |||
| Contingencies and commitments: | ||||
| Stockholders' equity: | ||||
| Paid in capital | 39,607,289 | |||
| Retained deficit | (39,949,292 | ) | ||
| Total stockholders' equity | (342,003 | ) | ||
| Total liabilities and stockholders' equity | $ | 5,432,435 | ||
Conveyed Oil & Gas AssetsUnaudited Pro Forma Consolidated Statement of OperationsAs of December 31, 2016(in thousands, except per share data)
| | |||
| 2016 | ||||
| Oil and natural gas revenues | $ | 1,002,318 | ||
| Expenses: | ||||
| Direct operating costs | 1,426,192 | |||
| Depreciation, depletion and amortization | 235,357 | |||
| Impairment of oil and gas assets | 4,517,845 | |||
| Salaries | 1,259,578 | |||
| Administrative expense | 307,490 | |||
| Total expenses | 7,746,463 | |||
| Income from operations | (6,744,146 | ) | ||
| Other income (expense): | ||||
| Interest expense | (156,254 | ) | ||
| Gain (loss) on derivatives | (1,429,989 | ) | ||
| Other income (loss) | 1,347,617 | |||
| Total other income (expense) | (238,625 | ) | ||
| Net Income (loss) | $ | (6,982,771 | ) | |
| Net (loss) per common share basic and diluted | $ | (0.83 | ) | |
| Weighted average shares | 8,423,936 | |||
Notes to the Unaudited Pro Forma Consolidated Financial Information
The unaudited pro forma consolidated balance sheet as of December 31, 2016, and the unaudited pro forma consolidated statement of operations for the year ended December 31, 2016 have been derived from our historical financial statements. The pro forma adjustments have been prepared as if the transaction had taken place on December 31, 2016, in the case of the unaudited pro forma consolidated balance sheet and on January 1, 2016, in the case of the unaudited pro forma consolidated statement of operations for the year ended December 31, 2016.
The following adjustments were made in the preparation of the unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statements of operations:
Conveyance of Texas and Colorado Oil and Gas Assets
Certain Effects if Satisfaction of Secured Indebtedness/Conveyance of Oil and Gas Assets is not Completed
In the event that the proposal to approve the Letter Agreement and the debt satisfaction/asset conveyance transaction set forth therein does not receive the required approval from the our stockholder, or if the transaction is not completed for any other reason, EnerJex will retain all of its business assets and its secured debt will remain outstanding. We are currently in default under the terms of our Loan Documents, and our liabilities likely exceed the value of the assets. Therefore, we will have substantial difficulty continuing to operate as a going concern.
Income Tax Consequences of Transaction
Under general tax rules, the Successor Lenders’ forgiveness of our secured indebtedness is a taxable transaction and normally would generate taxable income to the extent that (a) the accrued and unpaid interest on and the unpaid principal of the debt that is forgiven,exceeds (b) the sum of (i) the fair market value of our Colorado, Texas and Nebraska being conveyed to the Successor Lenders,plus (ii) the fair market value of our shares of Oakridge Energy, Inc., plus (iii) the $4,500,000 Restated Secured Note being issued to the Successor Lender. However, under Section 108 of the Internal Revenue Code of 1986, or the “Code,” the cancellation of indebtedness is not taxable to the extent that it occurs at a time when the taxpayer is insolvent. While we have not obtained a definitive tax opinion regarding the extent of our insolvency, we believe that it is likely that, because of the amount by which our secured indebtedness exceeds the value of our assets, the exclusion available under Section 108 will shelter all or substantially all of the gain that otherwise would be taxable by virtue of the cancellation of our secured indebtedness by the Successor Lenders.
It also is possible that the transaction may create taxable income to the extent that the value of our Colorado, Texas and Nebraska assets exceeds the basis of those shares. See Code Section 1001(a). However, we have a substantial accumulated net operating loss, or “NOL,” and we presently believe that the amount of that NOL will be available to shelter any gain that we otherwise might be required to recognize by virtue of the transfer of our Colorado, Texas and Nebraska assets, and of the shares of Oakridge Energy, Inc. to the Successor Lenders in partial satisfaction of our secured indebtedness.
The vote of holders of common stock holding in the aggregate a majority of the voting power of EnerJex’s common stock present at the meeting is required to approve the proposed transaction with the Successor Lenders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR AND RATIFYING” THE LETTERAGREEMENT ANDELECTION OF THE TRANSACTIONS CONTEMPLATED THEREIN (INCLUDING THECOMPANY’S DISPOSITIONBOARD OF CERTAIN OF ITS ASSETS AND RESTATEMENT OFSECURED NOTE THEREUNDER).
PROPOSAL 4
DIRECTORS’ PROPOSAL TO AMEND THE RESTATED ARTICLES
TO EFFECT REVERSE STOCK SPLIT OF COMMON STOCK
General
NOMINEES.Our boardPLEASE NOTE: If your shares are held in street name, your broker, bank, custodian, or other nominee holder cannot vote your shares in the election of directors, unless you direct the holder how to vote, by marking your proxy card or by following the instructions on the enclosed proxy card to vote on the Internet or by telephone.
| 18 |
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Audit Committee has approvedappointed D. Brooks and recommended a proposalAssociates CPA’s, P.A. (“D. Brooks”) as independent accountants for fiscal 2019. Representatives of D. Brooks have been invited to authorizeattend the boardAnnual Meeting in person or by tele-conference to effect a reverse stock split of all of our outstanding common stock at a ratio of not less than 1-for-2respond to appropriate questions and not more than 1-for-25, with our board having the discretion as to whether or not the reverse split is to be effected, and with the exact ratio of any reverse split to be set at a whole number within the above range as determined by our board in its sole discretion. The proposal provides that our board will have sole discretion pursuantan opportunity to Section 78.390(5) of the Nevada Revised Statutes to elect, at any time before the first anniversary of the date of this meeting, as it determines to be in our best interest, whether or not to effect the reverse split, and,make a statement, if they so the number of our shares of common stock between and including 1-for-2 and 1-for-25 that will be combined into one share of our common stock. Our board believes that this range of reverse split ratios will provide it with the flexibility to implement the reverse stock split in a manner designed to maximize the anticipated benefits for us and our stockholders. In determining whether to implement the reverse split following the receipt of stockholder approval, our board of directors may consider, among other things, factors such as:
If approved by stockholders and implemented by the Board, the Reverse Split will become effective on such date as may be determined by the Board upon the filing of the necessary amendments to our Restated Articles with the Secretary of State of the State of Nevada (the “Effective Date”).
Reasons for the Reverse Stock Split
The board believes that a reverse stock split may be desirable for two reasons. First, the board believes that a reverse stock split could improve the marketability and liquidity of our common stock. Second, the board believes that a reverse stock split may facilitate the continued listing of our common stock on the NYSE MKT. While the board currently has no plans to effect the reverse stock split, it would like the authority to do so at any time before the first anniversary of the date of this meeting should the board determine that such a reverse stock split is in the best interests of the Company and its stockholders.
Marketability
Our board of directors believes that the increased market price of our common stock expected as a result of implementing a reverse split could improve the marketability and liquidity of our stock and will encourage interest and trading in our stock. Theoretically, the number of shares outstanding and the share price should
desire.
not, by themselves, affect the marketability of our common stock, the type of investor who acquires them, or our reputation in the financial community. However, in practice, this is not necessarily the case, as many investors look upon low-priced stocks as unduly speculative in nature and, as a matter of policy, avoid investment in such securities. Our board is aware of the reluctance of many leading brokerage firms to recommend low-priced stocks to their clients. Further, a variety of brokerage house policies and practices tend to discourage individual brokers within brokerage firms from dealing in low-priced stocks. Institutional investors typically are restricted from investing in companies whose stocks trade at less than five dollars per share. Stockbrokers may also be subject to restrictions on their ability to recommend stocks trading at less than five dollars per share because of the general presumption that such securities may be highly speculative. In addition, the structure of trading commissions tends to adversely affect holders of low-priced stocks because the brokerage commission on a sale of such securities generally represents a higher percentage of the sales price than the commission on a relatively higher-priced issue.
If approved by stockholders and implemented by the board, the reverse split would be intended, in part, to result in a price level for our common stock that would increase investor interest and eliminate the resistance of brokerage firms and institutional investors. On March 28, 2017,26, 2018, after the closing bid priceMerger, we engaged D. Brooks as our independent registered public accounting firm and dismissed RBSM LLP (“RBSM”), EnerJex’s auditor. D. Brooks was the independent registered public accounting firm for our common stock, as reported by the NYSE MKT, was $0.35 per share. No assurances can be given that the market price for our common stock would increase in the same proportion as the reverse split or, if increased, that such price would be maintained. In addition, no assurances can be given that the reverse split would increase the price of our common stock to a level in excess of the $5.00 threshold discussed above or otherwise to a level that is attractive to brokerage houses and institutional investors.
Effects of the Reverse Split
If the reverse stock split is approved and implemented, the principal effect will be to proportionately decrease the number of outstanding shares of our common stock, based on the reverse stock split ratio selected by our board of directors. We have registered our common stock under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we are subject to the periodic reporting and other requirements of the Exchange Act. Our shares of common stock currently trade on the NYSE MKT. The reverse stock split would not affect the registration of our common stock under the Exchange Act or the listing of our common stock on the NYSE MKT.
The reverse stock split would be effected simultaneously for all issued and outstanding shares of common stock and the exchange ratio would be the same for all issued and outstanding shares of common stock. The reverse stock split would affect all of our stockholders uniformly and would not affect any stockholder’s percentage ownership interests in the Company, except to the extent that the reverse stock split results in any of our stockholders owning a fractional share. After the reverse stock split, the shares of our common stock would have the same voting rights and rights to dividends and distributions and would be identical in all other respects to our common stock now authorized. Common stock issued pursuant to the reverse stock split would remain fully paid and non-assessable. The reverse stock split would not affect us continuing to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The reverse stock split is not intended to be, and would not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act.
Proportionate voting rights and other rights and preferences of the holders of our common stock and preferred stock would not be affected by the proposed reverse stock split (other than as a result of the payment of cash in lieu of fractional shares). For example, a holder of 2% of the voting power of the outstanding shares of our common stock immediatelyAgEagle Sub prior to the effectiveness of the reverse stock split would generally continueMerger. The decision to hold 2% of the voting power of the outstanding shares of our common stock immediately after the reverse stock split. Moreover, the number of stockholders of record would not be affectedengage D. Brooks and to dismiss RBSM was approved by the reverse stock split (except toPost-Merger Company's Audit Committee.
During the extent any stockholders are cashed out as a result of holding fractional shares).
Board Discretion to Implement or Abandon Reverse Split
The reverse split would only be effected upon a determination by our board that the reverse split (with an exchange ratio determined by our Board as described above) is in our best interest. Such determination shall be based upon certain factors, including, but not limited to, our ability to meet stock exchange listing
requirements, existing and expected marketability and liquidity of our common stock, our financial condition and ability to execute our business plans, and the expense of effecting the reverse split. Notwithstanding approval of the reverse split by our stockholders, our board may, in its sole discretion, abandon the proposal and determine, prior to the effectiveness of any filing with the Secretary of State of the State of Nevada, not to affect the reverse split. If our Board fails to implement the reverse split on or prior to the one year anniversary of this meeting, stockholder approval again would be required prior to implementing any reverse stock split.
Effective Date
If the amendment to our Restated Articles is approved by our stockholders and implemented by our board, the reverse split would become effective upon the filing of an amendment to our Restated Articles with the Secretary of State of the State of Nevada. Except as explained below with respect to fractional shares, on the effective date, shares of common stock issued and outstanding immediately prior thereto would be combined and converted, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with reverse split ratio determined by the board within the limits set forth in this proposal.
Fractional Shares
No fractional shares of common stock would be issued as a result of the reverse split. Instead, stockholders who otherwise would be entitled to receive fractional shares would be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing price of our shares of common stock on the day immediately preceding the effective date of the reverse split, as reported on the NYSE MKT,times (ii) the number of shares of our common stock held by such stockholder that would otherwise have been exchanged for such fractional share interest.
Other Effect
If approved, the reverse split will result in some stockholders owning “odd-lots” of fewer than 100 shares of common stock. Brokerage commissions and other costs of transactions in odd-lots are generally somewhat higher than the costs of transactions in “round-lots” of even multiples of 100 shares.
Interests of Directors and Executive Officers
Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this reverse split proposal except to the extent of their ownership of shares of our common stock.
Exchange of Stock Certificates
As soon as practicable after the effective date of the reverse stock split, stockholders will be notified that the reverse split has been effected. Our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. We refer to such person as the “exchange agent.” Holders of pre-reverse split shares (“Old Shares”) will be asked to surrender to the exchange agent certificates representing pre-reverse split shares in exchange for certificates representing post-reverse split shares (“New Shares”) in accordance with the procedures to be set forth in a letter of transmittal to be sent by us. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent.Stockholders should not destroy any stock certificate and should not submit any certificates until requested to do so.
No Appraisal Rights
Under the Nevada Revised Statutes, our stockholders are not entitled to appraisal rights with respect to the proposed amendment to our Restated Articles to affect the reverse split.
Tax Consequences
The proposed reverse split is being presented for approval based upon the expectation that, among other things, no gain or loss will be recognized by the holders of our common stock (except to the extent of cash, if any, received in lieu of fractional shares) or preferred stock by EnerJex Resources, Inc. A holder who receives
cash will generally recognize gain or loss equal to the difference between (i) the portion of the tax basis of the Old Shares allocated to the fractional share interest, and (ii) the cash received.
Each stockholder will have a basis in the New Shares equal to the basis of the Old Shares (except to the extent the basis is allocated to fractional shares). For purposes of determining whether gain or loss on a subsequent disposition is long-term or short-term, the holding period of the New Shares will include the period during which the corresponding Old Shares were held, provided such corresponding Old Shares were held as a capital asset on the date of filing of the amendment to our Restated Certificate.
No ruling has been requested from the Internal Revenue Service with respect to the foregoing tax matters.Stockholders should consult their own tax advisors as to the effect of the reverse split under applicable tax laws.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE“FOR” PROPOSAL NO. 4.
PROPOSAL 5
ADVISORY (NON-BINDING) VOTE ON THE FREQUENCY OF FUTURE ADVISORY “SAY
ON PAY” VOTES
Section 14A of the Exchange Act provides our stockholders with the opportunity to recommend, on an advisory basis, how frequently the Company should provide future advisory “say on pay” votes. By voting on this Proposal 5, stockholders may tell us whether they would prefer to have an advisory “say on pay” vote each year, every two (2) years, or every three (3) years.
Our board of directors has determined that having an advisory “say on pay” vote every three (3) years is the most appropriate policy for our company at this time. Therefore, we recommend that you vote to have future advisory “say on pay” votes every three (3) years. Our executive compensation program is designed to promote a long-term connection between pay and performance, and our board believes that having advisory say on pay votes more frequently than every three years will subject us to additional expenses related to the preparing of our disclosures and the tallying of results of the voting without providing our stockholders with corresponding benefits. This is because the advisory vote on executive compensation occurs well after the beginning of the performance year and because the different elements of our executive compensation program are designed to operate in an integrated manner and complement one another. Therefore, in many cases it may not be appropriate or feasible to change our executive compensation program in consideration of any one year’s advisory vote on executive compensation before our next annual meeting of stockholders.
Although our board of directors believes that holding an advisory “say on pay” vote on executive compensation every three (3) years currently reflects the appropriate balance, our board of directors may reassess this issue periodically and decide that it is in the best interests of our stockholders and our company to hold an advisory “say on pay” vote more or less frequently than the option preferred by our stockholders. We may also decide to vary our practice based on factors such as discussions with our stockholders and the adoption of any material changes to our compensation programs.
Because this is an advisory vote, the voting results will not be binding on our board of directors. Although the vote is advisory, our board of directors will consider the frequency receiving the most votes when deciding how often to have advisory “say on pay” votes in the future. Stockholders can choose one of four choices for this proposal on the proxy card: one (1) year, two (2) years, three (3) years, or abstain. Stockholders are not voting to approve or disapprove our board of directors’ recommendation.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO HAVE FUTUREADVISORY VOTES ON EXECUTIVE COMPENSATIONEVERY THREE (3) YEARS (PROPOSAL 5ON THE PROXY CARD).
PROPOSAL 6
RATIFICATION OF RBSM, LLP AS AUDITORS FOR FISCAL YEAR ENDED 2015
Our board of directors has selected RBSM, LLP as its independent auditor for the fiscal year ended December 31, 2015,2017 and the board is asking stockholderssubsequent period through March 26, 2018, neither EnerJex nor anyone on its behalf consulted D. Brooks regarding either (i) the application of accounting principles to ratifya specified transaction, either completed or proposed, or the type of audit opinion that selection. Although current law, rules,might be rendered on EnerJex’s consolidated financial statements, and regulations require EnerJex’sneither a written report nor oral advice was provided to EnerJex that D. Brooks concluded was an important factor considered by EnerJex in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event.
Our independent auditor, to be engaged, retained,D. Brooks and supervised by the audit committeeAssociates CPA’s billed an aggregate of the board of directors, our board of directors considers the selection of the independent auditor to be an important matter of stockholder concern and is submitting the selection of RBSM, LLP for ratification by stockholders as a matter of good corporate practice.
The vote of holders of common stock holding in the aggregate a majority of the voting power of EnerJex’s stock present at the meeting is required to approve the ratification of the selection of RBSM, LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF RBSM, LLPAS AUDITORS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015.
PROPOSAL 7
REAFFIRM THE APPOINTMENT OF RBSM, LLP AS AUDITORS FOR
THE FISCAL YEAR ENDED 2016
Our board of directors has selected RBSM, LLP as its independent auditor$32,078 for the fiscal year ended December 31, 2016,2018 audit and the board is asking stockholders to ratify that selection. Although current law, rules, and regulations require EnerJex’s independent auditor to be engaged, retained, and supervised by the audit committee of the board of directors, our board of directors considers the selection of the independent auditor to be an important matter of stockholder concern and is submitting the selection of RBSM, LLP for ratification by stockholders as a matter of good corporate practice.
It is expected that a representative of RBSM, LLP will be present at the annual meeting to respond to questions, but not to make a statement.
The vote of holders of common stock holding in the aggregate a majority of the voting power of EnerJex’s stock present at the meeting is required to approve the ratification of the selection of RBSM, LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE REAFFIRMATION OF RBSM, LLP AS AUDITORS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016.
Independent Public Accountants
RBSM, LLP was engaged in January 2015 to perform the 2014 audit of the EnerJex financial statements. Aggregate fees billed to usquarterly reviews for the fiscal yearsyear ended December 31, 20152018. D. Brooks and 2016Associates CPA’s billed $26,076 for the December 31, 2017 audit, quarterly reviews for the year ended December 31, 2017 and audit related fees. In addition, $17,515 and $1,400 was billed for tax services in 2018 and 2017, respectively. Audit Fees and Audit Related Fees consist of fees billed for professional services rendered for auditing our Financial Statements, reviews of interim Financial Statements included in quarterly reports, services performed in connection with other filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements. Tax Fees consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions. RBSM billed $124,200 of the Audit Fees in 2017 and the $21,000 in All Other Fees, which consisted of fees billed for professional services associated with a consent provided by RBSM LLP were as follows:related to the audited financial statements of EnerJex,
| 2018 | 2017 | |||||||
| Audit Fees | $ | 32,078 | $ | 150,276 | ||||
| Audit-Related Fees | 1,000 | 1,064 | ||||||
| Tax Fees | 17,515 | 1,400 | ||||||
| All Other Fees | 21,000 | — | ||||||
| Total | $ | 71,593 | $ | 152,740 | ||||
Audit Fees
Audit Fees include fees billed and expected to be billed for services performed to comply with Generally Accepted Auditing Standards (GAAS), including the reviews of the quarterly financial statements included in the Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. This category also includes fees for audits provided in connection with statutory filings or procedures related to audit of income tax provisions and related reserves, consents and assistance with and review of documents filed with the SEC.
| | | ||||||
| Year Ended December 31, 2015 | Year Ended December 31, 2016 | |||||||
| Audit Fees(1) | $ | 91,800 | $ | |||||
| Audit-Related Fees(2) | $ | 20,500 | $ | 16,500 | ||||
| Tax fees(3) | $ | $ | ||||||
| All Other Fees | $ | $ | ||||||
| Total fees of our principal accountant | $ | 112,300 | $ | 16,500 | ||||
Audit-Related Fees
Audit-Related Fees include fees for services associated with assurance and reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to assistance in financial due diligence related to mergers and acquisitions, consultations regarding Generally Accepted Accounting Principles, reviews and evaluations of the impact of new regulatory pronouncements, general assistance with implementation of Sarbanes-Oxley Act of 2002 requirements and audit services not required by statute or regulation.
Tax Fees.
Tax fees consist of fees related to the preparation and review of our federal and state income tax returns.
Pre-Approval of Services
The Audit Committee Policiesappoints the independent accountant each year and Procedures
Our board of directors pre-approves all services to be provided to us by our independent auditor. . This process involves obtaining (i) a written description of the proposed services, (ii) the confirmation of our chief financial officer that the services are compatible with maintaining specific principles relating to independence, and (iii) confirmation from our securities counsel that the services are not among those that our independent auditors have been prohibited from performing under SEC rules. After engaging in this process, the members of the boardBoard of directors determinedDirectors determine to approve or disapprove the engagement of the auditors for the proposed services. In fiscal 2016services..
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT ACCOUNTANTS.
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PROPOSAL NO. 3
RATIFICATION OF AMENDMENT TO ENERJEX RESOURCES, INC. 2017 OMNIBUS EQUITY INCENTIVE PLAN
Summary and 2015, all fees paid to RBSM, LLP were unanimously pre-approved in accordance with this procedure.
ReportPurpose of the Audit CommitteeAmendment to Enerjex Resources, Inc. 2017 Omnibus Equity Incentive Plan
Our audit committee submits the following report:
The audit committee retainsBoard of Directors has voted to amend the Enerjex Resources, Inc. 2017 Omnibus Equity Incentive Plan (the “Plan”) to increase the number of shares of Common Stock authorized for issuance under the Plan by 1,000,000 shares.
Increase in Number of Authorized Shares
The Plan has been in place since 2017. Currently, there are 2,000,000 shares of Common Stock authorized for issuance under the Plan. However, as of the date hereof, the Company has 1,756,665 awards granted under the Plan, and overseesonly has 243,335 shares of Common Stock remaining for future issuance under the Plan. The Board of Directors believes that the Company’s independent registered public accountants, discussessuccess depends in large part on its ability to attract, retain, and reviews with management accounting policies and financial statements, evaluates external and internal audit performance, investigates complaintsmotivate its executive officers and other allegationskey personnel and that grants of fraudawards under the Plan may be a significant element of compensation for such persons. The Board of Directors believes that the proposed increase in the number of shares of Common Stock available for issuance as provided in the Plan will provide the Compensation Committee with greater flexibility in the administration of the Plan and is appropriate in light of the growth of the Company in order to attract and retain key individuals. Following the proposed increase, the total authorized number of shares under the Plan will be 3,000,000 shares, which shall represent approximately 20% of the issued and outstanding shares of Common Stock of the Company as of the date hereof.
The amendment to the Plan is attached as Appendix A to this Proxy Statement.
Awards to be Granted to Certain Individuals and Groups
As of the date hereof, the Company cannot determine the benefits or misconductamounts that will be received by or allocated to any individual or group resulting from the approval of the amendment to the Plan.
Equity Compensation Plan Information
The following table provides information as of December 31, 2018 about our equity compensation plan and arrangements.
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
| Equity compensation plans approved by security holders | 1,287,103 | $ | 0.45 | 712,897 | ||||||||
| Equity compensation plans not approved by security holders | 207,055 | 0.06 | — | |||||||||
| Total | 1,494,158 | $ | 0.46 | 712,897 | ||||||||
A vote of a majority of shares present in person or by proxy at such meeting and entitled to vote is required to approve Proposal No. 3.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT TO THE PLAN TO INCREASE THE NUMBER OF AWARDS AVAILABLE FOR FUTURE ISSUANCE.
PLEASE NOTE: If your shares are held in street name, your broker, bank, custodian, or other nominee holder cannot vote your shares to amend the Plan, unless you direct the holder how to vote, by marking your proxy card, or by following the instructions on the enclosed proxy card to vote on the Internet or by telephone.
PROPOSAL NO. 4
APPROVAL OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK REPRESENTING MORE THAN 20% OF OUR COMMON STOCK OUTSTANDING UPON EXERCISE OF A WARRANT ISSUED IN A PRIVATE PLACEMENT IN ACCORDANCE WITH NYSE AMERICAN RULE 713(A)(II).
Our common stock is currently listed on the NYSE American. We are subject to NYSE American Rule 713(a)(ii), which requires us to obtain shareholder approval when shares will be issued in connection with a transaction involving the sale, issuance or potential issuance by the Company’s managementissuer of common stock (or securities convertible into common stock) equal to 20% or more of presently outstanding shares for less than the greater of book or market value of the shares.
On December 27, 2018, we entered into a Securities Purchase Agreement (the “Agreement”) with an institutional investor (the “Purchaser”). Pursuant to the terms of the Agreement, the Board of Directors of the Company (the “Board”) designated a new series of preferred stock, the Series D Preferred Stock, which is non-convertible, provides for an 8% annual dividend and employees and evaluates policies and procedures. The audit committee operates under a written charter adopted by our board of directors. The remainder of this report relatesis subject to certain actions takenoptional redemption by the audit committee in fulfilling its roles as they relateCompany (the “Preferred Stock”). We issued 2,000 shares of Preferred Stock and a warrant (the “Warrant”) to ascertaining the independence of our registered public accountants and recommending the inclusionpurchase 3,703,703 shares of the Company’s financial statementscommon stock, par value $0.001 per share (the “Common Stock”), for $2,000,000 in its special report.gross proceeds. The shares of Common Stock underlying the Warrant are referred to as the “Warrant Shares.”
During fiscal 2016The Warrant is exercisable for a period of five years through December 26, 2023, at an exercise price equal to $0.54 per share, and 2015,is subject to customary adjustments for stock splits dividend, rights offerings, pro rata distributions and fundamental transactions. In addition, in the audit committee discussed withevent the Company’s independent registered public accounting firmCompany undertakes a subsequent equity financing or financings at an effective price per share that is less than $0.54, the overall scope and plansexercise price of the Warrant shall be reduced to the lower price.
The Warrant provides that the Warrant holder shall have a “Beneficial Ownership Limitation” equal to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Warrant holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, as provided for their audit. The audit committee also met periodically within the independent registered public accounting firmWarrant.
At the time of issuance, the Warrant was exercisable for more than 20% of our Common Stock outstanding at the time of the issuance, at an exercise price equal to discuss$0.54, which was less than the results of their examinations, the overall qualityclosing price of the Company’s financial reporting and their evaluationsCommon Stock. As a result, NYSE American Rule 713(a)(ii) requires that we obtain stockholder approval of its internal controls.the Common Stock issuable in connection with the Warrant. Accordingly, we seek your approval of Proposal No. 4 in order to satisfy the requirements of NYSE American Rule 713(a)(ii).
The audit committeeapproval of Proposal 4 requires the affirmative vote of a majority of the board has received fromtotal votes cast at the Company’s independent registered public accounting firm, written disclosuresshareholders meeting, either in person or by proxy. Abstentions and broker “non-votes” will have no effect with respect to the letter required by the Independence Standards Board’s Standard No. 1, “Independence Discussions with Audit Committees,” that discloses all relationships between the Company and RBSM, LLP that may be thought to bear on the independence of RBSM, LLP from the Company. The audit committee has discussed with both firms the contentsapproval of the written disclosure and letter as well as the matters required to be discussed by Statement on Auditing Standards No. 114. Proposal 4.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” ” PROPOSAL 4.
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OTHER INFORMATION
The audit committee has reviewed and discussed the audited financial statements of the Company for the years ended December 31, 2016 and 2015, with the Company’s management, which has primary responsibility for the financial statements.
In addition, the audit committee has received the written disclosures and the letter from RBSM, LLP, required by relevant professional and regulatory standards and has discussed with both firms their independence from the Company and its management. In concluding that RBSM, LLP, was independent for its respective audit periods, the audit committee considered, among other factors, whether the non-audit services provided by the firm were compatible with its independence.
Based on the reviews and discussions referred to above, we recommended to the board of directors that the Company’s audited financial statements be included in its Annual Report2018 annual report on Form 10-K, forexcluding exhibits, will be mailed without charge to any stockholder entitled to vote at the fiscal year ended December 31, 2015meeting, upon written request to Bret Chilcott, Secretary, AgEagle Aerial Systems Inc., 117 S. 4th Street, Neodesha, Kansas 66757.
Important Notice Regarding Delivery of Stockholder Documents
If your shares are held in street name, your broker, bank, custodian, or other nominee holder may, upon request, deliver only one copy of this proxy statement and 2016.
The foregoingthe annual report is furnished by the audit committeeto stockholders to multiple stockholders sharing an address, absent contrary instructions from one or more of the board.stockholders. The Company will, upon request, deliver a separate copy of the proxy materials to a stockholder at a shared address to which a single copy was delivered, upon written or oral request, to Bret Chilcott, Secretary, AgEagle Aerial Systems Inc., 117 S. 4th Street, Neodesha, Kansas 66757, Tel: 620-325-6363. Stockholders sharing an address and receiving multiple copies of the proxy materials who wish to receive a single copy should contact their broker, bank, custodian or other nominee holder.
James G. Miller (Chairman)Richard E. MenchacaOther Matters to Be Presented at the Annual Meeting
OTHER MATTERS
AsCompany did not have notice, as of the date of this proxy statement, EnerJex’s management knows of no businessany matter to be presented tofor action at the meeting that is not referred toAnnual Meeting, except as discussed in this proxy statement. The persons authorized by the accompanying notice. Asform of proxy will vote in their discretion as to any other businessmatter that may properly comecomes before the meeting, it is intended that proxies properly executed and returned will be voted in respect thereof at the discretion of the person voting the proxies in accordance with their best judgment, including upon any stockholder proposal about which EnerJex did not receive timely notice.Annual Meeting.
Expenses of Proxy Solicitation
The principal solicitation of proxies will be made by mail. Expense of distributing this proxy statement to stockholders, which may include reimbursement to banks, brokers and other custodiansStockholder Proposals for their expenses in forwarding this proxy statement, will be borne exclusively by EnerJex.Next Annual Meeting
Proposals of Stockholders
Any stockholder proposalStockholder proposals intended to be considered for inclusionincluded in the proxy statement for presentation at the EnerJex 2018next annual meeting must be received by EnerJexCompany by April 16, 2017.January 7, 2020. The proposal mustpersons authorized by the form of proxy to be sent in connection with the solicitation of proxies on behalf of Company’s board of directors for next year’s annual meeting will vote in their discretion as to any matter of which Company has not received notice by March 23, 2020.
| By Order of the Board of Directors, | |
| /s/ Bret Chilcott | |
| Bret Chilcott | |
| Chairman of the Board, President and Secretary | |
| May 20, 2019 |
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APPENDIX A
ENERJEX RESOURCES, INC.
2017 OMNIBUS EQUITY INCENTIVE PLAN
(Amendment No. 1)
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ENERJEX RESOURCES, INC.
2017 OMNIBUS EQUITY INCENTIVE PLAN
(Amendment No. 1)
Article I
PURPOSE
The purpose of this Enerjex Resources, Inc. 2017 Omnibus Equity Incentive Plan (the “Plan”) is to benefit Enerjex Resources, Inc., a Nevada corporation (the “Company”) and its stockholders, by assisting the Company and its subsidiaries to attract, retain and provide incentives to key management employees, directors, and consultants of the Company and its Affiliates, and to align the interests of such service providers with those of the Company’s stockholders. Accordingly, the Plan provides for the granting of Non-qualified Stock Options, Incentive Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Performance Stock Awards, Performance Unit Awards, Unrestricted Stock Awards, Distribution Equivalent Rights or any combination of the foregoing.
Article II
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless the context otherwise requires:
2.1 “Affiliate” shall mean any corporation which, with respect to the Company, is a “subsidiary corporation” within the meaning of Section 424(f) of the Code or other entity in which the Company has a controlling interest in such entity or another entity which is part of a chain of entities in which the Company or each entity has a controlling interest in another entity in the unbroken chain of entities ending with the applicable entity.
2.2 “Award” shall mean, individually or collectively, any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, Performance Unit Award, Stock Appreciation Right, Distribution Equivalent Right or Unrestricted Stock Award.
2.3 “Award Agreement” shall mean a written agreement between the Company and the Holder with respect to an Award, setting forth the terms and conditions of the Award, as amended.
2.4 “Board” shall mean the Board of Directors of the Company.
2.5 “Base Value” shall have the meaning given to such term in Section 14.2.
2.6 “Cause” shall mean (i) if the Holder is a party to an employment or service agreement with the Company or an Affiliate which agreement defines “Cause” (or a similar term), “Cause” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “Cause” shall mean termination by the Company or an Affiliate of the employment (or other service relationship) of the Holder by reason of the Holder’s (A) intentional failure to perform reasonably assigned duties, (B) dishonesty or willful misconduct in the performance of the Holder’s duties, (C) involvement in a transaction which is materially adverse to the Company or an Affiliate, (D) breach of fiduciary duty involving personal profit, (E) willful violation of any law, rule, regulation or court order (other than misdemeanor traffic violations and misdemeanors not involving misuse or misappropriation of money or property), (F) commission of an act of fraud or intentional misappropriation or conversion of any asset or opportunity of the Company or an Affiliate, or (G) material breach of any provision of the Plan or the Holder’s Award Agreement or any other written agreement between the Holder and the Company or an Affiliate, in each case as determined in good faith by the Board, the determination of which shall be final, conclusive and binding on all parties.
2.7 “Change of Control” shall mean: (i) for a Holder who is a party to an employment or consulting agreement with the Company or an Affiliate which agreement defines “Change of Control” (or a similar term), “Change of Control” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “Change of Control” shall mean the satisfaction of any one or more of the following conditions (and the “Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied):
(a) Any person (as such term is used in paragraphs 13(d) and 14(d)(2) of the Exchange Act, hereinafter in this definition, “Person”), other than the Company or an Affiliate or an employee benefit plan of the Company or an Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities;
(b) The closing of a merger, consolidation or other business combination (a “Business Combination”) other than a Business Combination in which holders of the Shares immediately prior to the Business Combination have substantially the same proportionate ownership of the common stock or ordinary shares, as applicable, of the surviving corporation immediately after the Business Combination as immediately before;
(c) The closing of an agreement for the sale or disposition of all or substantially all of the Company’s assets to any entity that is not an Affiliate;
(d) The approval by the holders of shares of Shares of a plan of complete liquidation of the Company, other than a merger of the Company into any subsidiary or a liquidation as a result of which persons who were stockholders of the Company immediately prior to such liquidation have substantially the same proportionate ownership of shares of common stock of the surviving corporation immediately after such liquidation as immediately before; or
(e) Within any twenty-four (24) month period, the Incumbent Directors shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company;provided,however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office, shall be deemed to be an Incumbent Director for purposes of this paragraph (e), but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or “group” other than the Board (including, but not limited to, any such assumption that results from paragraphs (a), (b), (c), or (d) of this definition).
2.8 “Code” shall mean the United States of America Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulation under such section.
2.9 “Committee” shall mean a committee comprised of two (2) or more members of the Board who are selected by the Board as provided in Section 4.1.
2.10 “Company” shall have the meaning given to such term in the introductory paragraph, including any successor thereto.
2.11 “Consultant” shall mean any non-Employee (individual or entity) advisor to the Company or an Affiliate who or which has contracted directly with the Company or an Affiliate to render bona fide consulting or advisory services thereto.
2.12 “Director” shall mean a member of the Board or a member of the board of directors of an Affiliate, in either case, who is not an Employee.
2.13 “Distribution Equivalent Right” shall mean an Award granted under Article XIII of the Plan which entitles the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the period the Holder held the Distribution Equivalent Right.
2.14 “Distribution Equivalent Right Award Agreement” shall mean a written agreement between the Company and a Holder with respect to a Distribution Equivalent Right Award.
2.15 “Effective Date” shall mean [•]
2.16 “Employee” shall mean any employee, including any officer, of the Company or an Affiliate.
2.17 “Exchange Act” shall mean the United States of America Securities Exchange Act of 1934, as amended.
2.18 “Fair Market Value” shall mean, as of any specified date, the closing sales price of the Shares for such date (or, in the event that the Shares are not traded on such date, on the immediately preceding trading date) on the NASDAQ Stock Market (“NASDAQ”), as reported by NASDAQ, or such other domestic or foreign national securities exchange on which the Shares may be listed. If the Shares are not listed on NASDAQ or on a national securities exchange, but are quoted on the OTC Bulletin Board or by the National Quotation Bureau, the Fair Market Value of the Shares shall be the mean of the highest bid and lowest asked prices per Share for such date. If the Shares are not quoted or listed as set forth above, Fair Market Value shall be determined by the Board in good faith by any fair and reasonable means (which means may be set forth with greater specificity in the applicable Award Agreement). The Fair Market Value of property other than Shares shall be determined by the Board in good faith by any fair and reasonable means consistent with the requirements of applicable law.
2.19 “Family Member” of an individual shall mean any child, stepchild, grandchild, parent, stepparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee of the Holder), a trust in which such persons have more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or the Holder) control the management of assets, and any other entity in which such persons (or the Holder) own more than fifty percent (50%) of the voting interests.
2.20 “Holder” shall mean an Employee, Director or Consultant who has been granted an Award or any such individual’s beneficiary, estate or representative, who has acquired such Award in accordance with the terms of the Plan, as applicable.
2.21 “Incentive Stock Option” shall mean an Option which is intended by the Committee to constitute an “incentive stock option” and conforms to the applicable provisions of Section 422 of the Code.
2.22 “Incumbent Director” shall mean, with respect to any period of time specified under the Plan for purposes of determining whether or not a Change of Control has occurred, the individuals who were members of the Board at the beginning of such period.
2.23 “Non-qualified Stock Option” shall mean an Option which is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.
2.24 “Option” shall mean an Award granted under Article VII of the Plan of an option to purchase Shares and shall include both Incentive Stock Options and Non-qualified Stock Options.
2.25 “Option Agreement” shall mean a written agreement between the Company and a Holder with respect to an Option.
2.26 “Performance Criteria” shall mean the criteria selected by the Committee for purposes of establishing the Performance Goal(s) for a Holder for a Performance Period.
2.27 “Performance Goals” shall mean, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon the Performance Criteria, which may be related to the performance of the Holder, the Company or an Affiliate.
2.28 “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of the Performance Goals shall be measured for purposes of determining a Holder’s right to, and the payment of, a Qualified Performance-Based Award.
2.29 “Performance Stock Award” or “Performance Stock” shall mean an Award granted under Article XII of the Plan under which, upon the satisfaction of predetermined Performance Goals, Shares are paid to the Holder.
2.30 “Performance Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to a Performance Stock Award.
2.31 “Performance Unit” shall mean a Unit awarded to a Holder pursuant to a Performance Unit Award.
2.32 “Performance Unit Award” shall mean an Award granted under Article XI of the Plan under which, upon the satisfaction of predetermined Performance Goals, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
2.33 “Performance Unit Agreement” shall mean a written agreement between the Company and a Holder with respect to a Performance Unit Award.
2.34 “Plan” shall mean this Enerjex Resources, Inc. 2017 Omnibus Equity Incentive Plan, as amended from time to time, together with each of the Award Agreements utilized hereunder.
2.35 “Qualified Performance-Based Award” shall mean an Award that is intended to qualify as “performance-based” compensation under Section 162(m) of the Code.
2.36 “Restricted Stock Award” and “Restricted Stock” shall mean an Award granted under Article VIII of the Plan of Shares, the transferability of which by the Holder is subject to Restrictions.
2.37 “Restricted Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
2.38 “Restricted Stock Unit Award” and “RSUs” shall refer to an Award granted under Article X of the Plan under which, upon the satisfaction of predetermined individual service-related vesting requirements, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
2.39 “Restricted Stock Unit Agreement” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
2.40 “Restriction Period” shall mean the period of time for which Shares subject to a Restricted Stock Award shall be subject to Restrictions, as set forth in the applicable Restricted Stock Agreement.
2.41 “Restrictions” shall mean the forfeiture, transfer and/or other restrictions applicable to Shares awarded to an Employee, Director or Consultant under the Plan pursuant to a Restricted Stock Award and set forth in a Restricted Stock Agreement.
2.42 �� “Rule 14a-816b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act. It is suggestedAct, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the proposal be submitted by certified mail — return receipt requested. Stockholderssame or a substantially similar function.
2.43 “Shares” or “Stock” shall mean the common stock of the Company, par value $0.001 per share.
2.44 “Stock Appreciation Right” or “SAR” shall mean an Award granted under Article XIV of the Plan of a right, granted alone or in connection with a related Option, to receive a payment equal to the increase in value of a specified number of Shares between the date of Award and the date of exercise.
2.45 “Stock Appreciation Right Agreement” shall mean a written agreement between the Company and a Holder with respect to a Stock Appreciation Right.
2.46 “Tandem Stock Appreciation Right” shall mean a Stock Appreciation Right granted in connection with a related Option, the exercise of some or all of which results in termination of the entitlement to purchase some or all of the Shares under the related Option, all as set forth in Article XIV.
2.47 “Ten Percent Stockholder” shall mean an Employee who, intend to present a proposal at the EnerJex 2017 annual meetingtime an Option is granted to him or her, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code), within the meaning of Section 422(b)(6) of the Code.
2.48 “Termination of Service” shall mean a termination of a Holder’s employment with, or status as a Director or Consultant of, the Company or an Affiliate, as applicable, for any reason, including, without including such proposallimitation, Total and Permanent Disability or death, except as provided in EnerJex’s proxy statement must have provided EnerJex noticeSection 6.4. In the event Termination of such proposal no later than June 15, 2017. EnerJex reserves the right to reject, rule out of order, or take other appropriate actionService shall constitute a payment event with respect to any proposalAward subject to Code Section 409A, Termination of Service shall only be deemed to occur upon a “separation from service” as such term is defined under Code Section 409A and applicable authorities.
2.49 “Total and Permanent Disability” of an individual shall mean the inability of such individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, within the meaning of Section 22(e)(3) of the Code.
2.50 “Unit” shall mean a bookkeeping unit, which represents such monetary amount as shall be designated by the Committee in each Performance Unit Agreement, or represents one Share for purposes of each Restricted Stock Unit Award.
2.51 “Unrestricted Stock Award” shall mean an Award granted under Article IX of the Plan of Shares which are not subject to Restrictions.
2.52 “Unrestricted Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to an Unrestricted Stock Award.
Article III
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the Effective Date, provided that does notthe Plan is approved by the stockholders of the Company within twelve (12) months of such date.
Article IV
ADMINISTRATION
4.1 Composition of Committee. The Plan shall be administered by the Committee, which shall be appointed by the Board. If necessary, in the Board’s discretion, to comply with these and other applicable requirements.
DOCUMENTS INCORPORATED BY REFERENCE
As permitted by Item 13(b) of Schedule 14A of Regulation 14ARule 16b-3 under the Exchange Act weand Section 162(m) of the Code, the Committee shall consist solely of two (2) or more Directors who are “incorporating by reference” into this proxy statement specific documentseach (i) “outside directors” within the meaning of Section 162(m) of the Code (“Outside Directors”), (ii) “non-employee directors” within the meaning of Rule 16b-3 (“Non-Employee Directors”) and (iii) “independent” for purposes of any applicable listing requirements;provided,however, that we filedthe Board or the Committee may delegate to a committee of one or more members of the Board who are not (x) Outside Directors, the authority to grant Awards to eligible persons who are not (A) then “covered employees” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such Award, or (B) persons with respect to whom the Company wishes to comply with the SEC, which means that we may disclose important informationrequirements of Section 162(m) of the Code, and/or (y) Non-Employee Directors, the authority to you by referring yougrant Awards to those documents thateligible persons who are considered partnot then subject to the requirements of this proxy statement. Information that we file subsequently with the SEC will automatically update and supersede this information.
We are incorporating by reference the Company’s filings listed below and any additional documents that we may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d)16 of the Exchange Act onAct. If a member of the Committee shall be eligible to receive an Award under the Plan, such Committee member shall have no authority hereunder with respect to his or afterher own Award.
4.2 Powers. Subject to the other provisions of the Plan, the Committee shall have the sole authority, in its discretion, to make all determinations under the Plan, including but not limited to (i) determining which Employees, Directors or Consultants shall receive an Award, (ii) the time or times when an Award shall be made (the date of grant of an Award shall be the date hereof and prior toon which the terminationAward is awarded by the Committee), (iii) what type of Award shall be granted, (iv) the term of an Award, (v) the date or dates on which an Award vests, (vi) the form of any offering, except we are not incorporating by reference any information furnished (but not filed) under Item 2.02 or Item 7.01 of any Current Report on Form 8-K and corresponding information furnished under Item 9.01 as an exhibit thereto:
This proxy statement or information incorporated by reference herein, contains summaries of certain agreements that we have filed as exhibits to various SEC filings, as well as certain agreements that we entered into in connection with the transactions discussed in this proxy statement. The descriptions of these agreements contained in this proxy statement or information incorporated by reference herein do not purportpayment to be complete and are subjectmade pursuant to or qualified in their entirety by reference to, the definitive agreements. Copies of the definitive agreements will be made available without charge to you by making a written or oral request to us.
Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this proxy statement to the extent that a statement contained herein, in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified and superseded, to constitute a part of this proxy statement.
WHERE YOU CAN FIND MORE INFORMATION
The Company files reports, proxy statements, and other information with the Securities and Exchange Commission (“SEC”). You can read and copy these reports, proxy statements, and other information concerning our company at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the SEC’s Public Reference Room. The SEC also maintains an Internet site that contains all reports, proxy statements and other information that we file electronically with the SEC. The address of that website is http://www.sec.gov.
We will provide, without charge, to each person, including any beneficial owner, to whom a copy of this prospectus has been delivered a copy of any and all of the documents referred to herein that are summarized in this prospectus, if such person makes a written or oral request directed to:
EnerJex Resources, Inc.4040 Broadway, Suite 508San Antonio, TX 78209Attn: Louis G. Schott(210) 451-5545
Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this proxy statement. The documents referred to above are also available from the EDGAR filings that can be obtained through the SEC’s website atwww.sec.gov or our website atwww.enerjex.com.
By order of the board of directors
Louis G. Schott, Interim Chief Executive Officer
San Antonio, TexasApril 7, 2017
EnerJex Resources, Inc.
4040 Broadway, Suite 508
San Antonio, Texas 78209
(210) 451-5545
February 10, 2017
By EmailPWCM Investment Company IC LLC614 Davis StreetEvanston, IL 60201
Gentlemen:
We are writing to summarizeAward, (vii) the terms and conditions of an Award (including the proposed transactions described below (the “Transactions”):forfeiture of the Award, and/or any financial gain, if the Holder of the Award violates any applicable restrictive covenant thereof), (viii) the Restrictions under a Restricted Stock Award, (ix) the number of Shares which may be issued under an Award, (x) Performance Goals applicable to any Award and certification of the achievement of such goals, and (xi) the waiver of any Restrictions or Performance Goals, subject in all cases to compliance with applicable laws. In making such determinations the Committee may take into account the nature of the services rendered by the respective Employees, Directors and Consultants, their present and potential contribution to the Company’s (or the Affiliate’s) success and such other factors as the Committee in its discretion may deem relevant.
Parties4.3 Additional Powers. The Committee shall have such additional powers as are delegated to it under the other provisions of the Plan. Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and Transactions
the respective Award Agreements executed hereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the intent of the Plan, to determine the terms, restrictions and provisions of each Award and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in which EnerJex Resources, Inc., a Nevada corporation (the “Company”), EnerJex Kansas, Inc. (f/k/a Midwest Energy, Inc.), a Nevada corporation (“EnerJex Kansas”), Working Interest, LLC, a Texas limited liability company (“Working Interest”), Black Sable Energy, LLC, a Texas limited liability company (“Black Sable”), Black Raven Energy, Inc., a Nevada corporation (“Black Raven”),any Award Agreement in the manner and Adena, LLC, a Colorado limited liability company (“Adena”to the extent the Committee shall deem necessary, appropriate or expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Article IV shall be conclusive and together withbinding on the Company EnerJex Kansas, Working Interest, Black Sable, and Black Raven, collectively “Borrower”), and PWCM Investment Company IC LLC,all Holders.
4.4 Committee Action. Subject to compliance with all applicable laws, action by the Committee shall require the consent of a Delaware limited liability company andmajority of the other Buyers listedmembers of the Committee, expressed either orally at a meeting of the Committee or in writing in the Loan Sale Agreement dated February 10, 2017 (collectively, the “Successor Lender” and, together with Borrower, individuallyabsence of a “Party” and together the “Parties”), in which (i) Borrower will transfer certain of its assets to Successor Lender or the controlled affiliates of Successor Lender, and (ii) Successor Lender will agree to accept those assets in complete satisfactionmeeting. No member of the Company's secured indebtedness to the Successor Lender in the current aggregate unpaid principal amount of approximately $17,925,000 plus all accrued and unpaid interest and other charges thereon and thereunder and all other costs and claims (collectively, the “Secured Indebtedness”) arising under that certain Amended and Restated Credit Agreement dated October 3, 2011, as amended prior to the date hereof (as so amended, the “Credit Agreement”), by and among Texas Capital Bank, N.A. (“TCB”) and IberiaBank (“IberiaBank” and, together with TCM, “Original Lender”); Borrower; TCB, in its capacity as “Administrative Agent” under the Credit Agreement; and DD Energy, Inc., a Nevada corporation (“DD Energy”), and all promissory notes, mortgages, collateral assignments, guaranties, and other documents and instruments evidencingCommittee shall have any liability for any good faith action, inaction or securing such Secured Indebtedness, as further described onAppendix 1 hereto (collectively, the “Loan Documents”). All rights of Original Lender under the Credit Agreement and other documents and instruments evidencing and securing the indebtedness of Borrower under the Credit Agreement have been sold and assigned to Successor Lender pursuant to that certain Loan Sale Agreement dated February 10, 2017, by and among Original Lender (as “Seller”), Successor Lender, and Borrower.
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BINDING AND ENFORCEABLE AGREEMENTS
Upon execution of counterparts of this Letter Agreement by Successor Lender, the following numbered Sections shall constitute the legally binding and enforceable agreement of Borrower and Successor Lender (in recognition of the significant costs to be borne by Successor Lender and Borrower in pursuing the Transactions and further in consideration of their mutual undertakings as to the matters described herein).
1.Consideration for Loan Forgiveness. In Transactions that will close concurrently at the “Closing” described inSection 5, below:
1.1Conveyance of Colorado and Texas Assets.
(a)Oil and Gas Properties. Borrower shall convey to Successor Lender all right, title, and interest in and to all real property leases and oil and gas producing properties and other assets of Borrower situated in the State of Colorado, the State of Texas and the State of Nebraska including all equipment and tangible personal property owned by Borrower, situated in such States, and used by Borrowerdetermination in connection with the ownershipPlan.
Article V
SHARES SUBJECT TO PLAN AND LIMITATIONS THEREON
5.1 Authorized Shares and operationAward Limits. The Committee may from time to time grant Awards to one or more Employees, Directors and/or Consultants determined by it to be eligible for participation in the Plan in accordance with the provisions of Borrower's real property leasesArticle VI. Subject to Article XV, the aggregate number of Shares that may be issued under the Plan shall not exceed Three Million (3,000,000) Shares (based on a post-merger, post-reverse split basis). Shares shall be deemed to have been issued under the Plan solely to the extent actually issued and oil and gas producing properties located indelivered pursuant to an Award. To the extent that an Award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its Holder terminate, any Shares subject to such states, which assets (i)Award shall again be available for the avoidancegrant of doubt, shall include Borrower's assetsa new Award. Notwithstanding any provision in the Adena Field, the NECO Project, Weld County, East Crown, and (ii) also shall include the Oil and Gas Plugging, Lease and other Bonds associated therewith, as described in more detail onAppendix 2 to this Agreement the Operating Bonds (the assets described in thisSection 1.1(a) collectively, the “Oil and Gas Properties”). PriorPlan to the Closing,contrary, the parties will evaluate whether itmaximum number of Shares that may be more efficientsubject to structure the conveyanceAwards of such Oil and Gas Properties as a transfer of the ownership interestsOptions under Article VII and/or Stock Appreciation Rights under Article XIV, in either or both cases granted to any one person during any calendar year, shall be 500,000 Shares (subject to adjustment in the Company subsidiaries (i.e., Black Sable Energy, LLC; Black Raven Energy, Inc.; and Adena, LLC) (the “CO and Texas Operating Subsidiaries”) that own record title to those Oil and Gas Properties, excluding therefrom any cash assets of such CO and Texas Operating Subsidiaries.
(b)Effective Date; Adjusting Payment. The conveyance of such Oil and Gas Properties shall occursame manner as of January 1, 2017 (the “Effective Date”), and at the Closing pursuant toSection 5, below, the Parties shall prorate the income from and direct expenses of such Oil and Gas Properties (or, if applicable, the CO and Texas Operating Subsidiaries) for the period from the Effective Date to the Closing Date (the “Adjusting Period”), and if,provided in Article XV with respect to Shares subject to Awards then outstanding). The limitation set forth in the preceding sentence shall be applied in a manner which shall permit compensation generated in connection with the exercise of Options or Stock Appreciation Rights to constitute “performance-based” compensation for purposes of Section 162(m) of the Code, including, but not limited to, counting against such Adjusting Period, (i)maximum number of Shares, to the income from such Oilextent required under Section 162(m) of the Code, any Shares subject to Options or Stock Appreciation Rights that are canceled or re-priced.
5.2 Types of Shares. The Shares to be issued pursuant to the grant or exercise of an Award may consist of authorized but unissued Shares, Shares purchased on the open market or Shares previously issued and Gas Properties exceededoutstanding and reacquired by the direct expenses of such Oil and Gas Properties, thenCompany.
Article VI
ELIGIBILITY AND TERMINATION OF SERVICE
6.1 Eligibility. Awards made under the Plan may be granted solely to individuals or entities who, at the Closing, Borrower shall pay to Seller an amount equaltime of grant, are Employees, Directors or Consultants. An Award may be granted on more than one occasion to the amount of such income,same Employee, Director or (ii) the direct expenses of such OilConsultant, and, Gas Properties exceeded the income from such Oil and Gas Properties, then at the Closing, Seller shall pay to Borrower (or credit against the Cash Payment due underSection 1.3, below) an amount equalsubject to the amountlimitations set forth in the Plan, such Award may include, a Non-qualified Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, an Unrestricted Stock Award, a Distribution Equivalent Right Award, a Performance Stock Award, a Performance Unit Award, a Stock Appreciation Right, a Tandem Stock Appreciation Right, or any combination thereof, and solely for Employees, an Incentive Stock Option.
6.2 Termination of such income (the payment due between the Parties under thisSection 1.1(b)Service, the “Adjusting Payment”). Expenses incurred priorExcept to the Effective Date but paid duringextent inconsistent with the Adjusting Period are to be excluded from the calculationterms of the Adjusting Payment. If any informationapplicable Award Agreement and/or the provisions of Section 6.3 or 6.4, the following terms and conditions shall apply with respect to a Holder’s Termination of Service with the income fromCompany or an Affiliate, as applicable:
(a) The Holder’s rights, if any, to exercise any then exercisable Options and/or Stock Appreciation Rights shall terminate:
(i) If such termination is for a reason other than the Holder’s Total and direct expenses of the Oil and Gas Properties in the Adjusting Period is not available until after the Closing, then as promptly as practicable following the first date as of which such information becomes available, the Parties shall provide to each other a summary thereof and agree upon the Adjusting Payment due with respect thereto (which shall be paid within 30Permanent Disability or death, ninety (90) days after the date on which the Parties agree upon the amount of such Adjusting Payment).Termination of Service;
1.2Oakridge Energy Shares. Borrower shall transfer to Successor Lender all right, title, and interest in and to all shares of Oakridge Energy, Inc. (the “Oakridge Shares” and, together with the Oil and Gas Properties, the “Transferred Assets”), that are owned by Borrower.
1.3Cash Payment(ii) . Borrower shall pay to Successor Lender by wire transfer of immediately available funds the sum of $3,300,000, subject to adjustment pursuant toSection 1.1(b), above (the “Cash Payment”).
2.Forgiveness of Secured Loan. Successor Lender (a) agrees to accept the conveyances, transfers, and payments described inSection 1, above, in complete satisfaction of all amounts due under the Loan Documents and with respect to the Secured Loan, and (b) agrees that at the Closing pursuant toSection 5, below, and in consideration of Borrower's conveyances, transfers, and payments described inSection 1, above, Successor Lender shall make, execute and deliverIf such documents and instruments as may be
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necessary or appropriate for evidencing the release of Borrower and its assets from any further obligation to make any additional payments under the Credit Agreement or anytermination is on account of the other Loan Documents or otherwise with respect to the Secured Loan.
3.Additional Agreements of Parties.
3.1Retention of Kansas Assets. For the avoidance of doubt, fromHolder’s Total and Permanent Disability, one (1) year after the Closing, Borrowerdate of such Termination of Service; or
(iii) If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
Upon such applicable date the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall retain its existing oil and gas properties situatedforfeit any rights or interests in the State of Kansas (and all equipment and tangible personal property then owned by Borrower, situated in such States, and used by Borrower in connection with the ownership and operation of Borrower's real property leases and oil and gas producing properties located in Kansas), and Successor Lender shall not have any claim against or with respect to any such assets.
3.2Forbearance. The Parties agree that:
(a)SuspensionOptions and Stock Appreciation Rights. Notwithstanding the foregoing, the Committee, in Payments. Borrower shallits sole discretion, may provide for a different time period in the Award Agreement, or may extend the time period, following a Termination of Service, during which the Holder has the right to exercise any vested Non-qualified Stock Option or Stock Appreciation Right, which time period may not be obligated to make any payments to Successor Lender underextend beyond the Loan Documents or with respect to the Secured Loan prior to the Closing; and
(b)Forbearance. Successor Lender shall not enforce or exercise prior to the Closing any remedies available to Successor Lender under the Loan Documents by reason of any default by Borrower of any of its obligations under the Loan Documents.
3.3Company Shareholder Approval. The Company covenants and agrees to (a) schedule a meeting of its shareholders to occur on or before March 31, 2017, and (b) at such meeting, to seek approval of its shareholders for the Transactions contemplated by this Letter Agreement.
3.4ASEN Service Agreement.
(a)Successor Lender hereby (i) acknowledges that (A) pursuant to a letter agreement dated April 1, 2016 (the “ASEN Service Agreement”), American Standard Energy (“ASEN”), an affiliate of Successor Lender, engaged the Company to provide certain services to ASEN and agreed to compensate the Company for such services at a rate of $60,000 per month, and (B) ASEN is delinquent in paying amounts due to the Company under that ASEN Service Agreement, (ii) agrees that (A) concurrently with the execution of this Letter Agreement, ASEN shall pay to the Company the sum of $120,000 in satisfactionexpiration date of the monies due to the Company with respect to December 2016 and January 2017, and (B) ASEN shall pay on or before the last day of each calendar month ending on or prior to the Closing the $60,000 monthly fee due to the Company under the ASEN Agreement with respect to such respective previous calendar month, and (iii) guaranties the due, full, and punctual payment of the amounts that ASEN is obligated to pay to the Company under the preceding clause “(ii)” and the ASEN Agreement.Award term.
(b)Subject to ASEN (or Successor Lender) timely paying all amounts due to the Company under clause “(ii)” ofSection 3.4(a), above, and to Successor Lender's performance of its obligations under this Letter Agreement, the Company agrees that, at the Closing, the Company shall forgive ASEN's obligation to pay any additional amounts under the ASEN Service Agreement with respect to all periods prior to December 1, 2016. In the event of a terminationHolder’s Termination of this agreement, provided ASEN (or Successor Lender) have performed its obligations under 3.4 (a)Service for any reason prior to the actual or deemed satisfaction and/or lapse of the Restrictions, vesting requirements, terms and 3.4 (b),conditions applicable to a Restricted Stock Award and/or Restricted Stock Unit Award, such Restricted Stock and/or RSUs shall immediately be canceled, and the CompanyHolder (and such Holder’s estate, designated beneficiary or other legal representative) shall forgive ASEN's obligation to payforfeit any additional amounts under the ASEN Service Agreementrights or interests in and with respect to all periodsany such Restricted Stock and/or RSUs. Notwithstanding the immediately preceding sentence, the Committee, in its sole discretion, may determine, prior to December 1, 2016.
3.5Employment Offers. Effective as ofor within thirty (30) days after the date of the Closing, Successor Lender may extend (butsuch Termination of Service that all or a portion of any such Holder’s Restricted Stock and/or RSUs shall not be obligated to extend) (a) to any of Borrower's employees an offer to commence employment with (or an offer to be engaged as a consultant or advisor to) Successor Lender fromso canceled and after the Closing, and will assume accrued benefit costs for any such employees that accept that offer, and (b) to each consultant or other person then engaged by Borrower to provide services to Borrower and offer to provide services to Successor Lender or its affiliate.forfeited.
3.6
Alternative Transactions6.3 Special Termination Rule. Borrower covenants and agrees that if the Company is unable to obtain on or before March 31, 2017, the shareholder approval contemplated bySection 3.3, above, then Borrower shall take such commercially reasonable actions as may be necessary or appropriate for enabling the Parties to
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effectuate in compliance with applicable law as promptly as reasonably practicable thereafter and as efficiently as reasonably practicable, the Transactions contemplated by this Letter Agreement.
3.7Reasonable Best Efforts. Borrower covenants and agrees to use reasonable best efforts to assist Successor Lender in correcting any deficiencies in title or security interest relatedExcept to the assets of Borrower.
3.8Satisfaction of Conditions. Each Party covenants and agrees to take such commercially reasonable actions as may be reasonably necessary in order to satisfyextent inconsistent with the conditions to and to facilitate the Closingterms of the Transactions on or before April 30, 2017.
3.9Daily Operations. Borrower shall use commercial reasonable efforts to (a) maintain, preserveapplicable Award Agreement, and protect all of its properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement); (c) use the standard of care typical in the industry in the operation and maintenance of its facilities; and (d) cause its tangible property relating to the Oil and Gas Properties to be maintained in good repair and condition, cause all necessary replacements thereof to be made, and cause such property to be operated in a good and workmanlike manner in accordance with standard industry practices, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect, provided that, notwithstanding the foregoing or any other provision hereof or of the Loan Documentsanything to the contrary Borrowercontained in this Article VI, if a Holder’s employment with, or status as a Director of, the Company or an Affiliate shall terminate, and if, within ninety (90) days of such termination, such Holder shall become a Consultant, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been a Consultant for the entire period during which such Award or portion thereof had been outstanding. Should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be obligated to paytreated as if his or incur any costs for any capital improvements to the Oil and Gas Properties that are to be transferred to Successor Lender hereunder.
4.Representations and Warranties of Parties.
4.1Borrower Representations and Warranties. Borrower represents and warrants to Successor Lender that:
(a)Authorization; Enforceability. Except for the approval of the Company's shareholdersher employment or Director status had terminated until such time as contemplated bySection 3.3, above, the execution and delivery by Borrower of this Letter Agreement, the performance by Borrower of its respective obligations under this Letter Agreement, and the consummation of the Transactions contemplated herebyhis or her Consultant status shall terminate, in which case his or her Award, as it may have been duly authorized by all necessary corporate or limited liability action, as applicable, and no other proceedings on the part of Borrower, its Board of Directors, shareholders, members, or managers, as applicable, are necessary to approve and adopt this Letter Agreement or to approve the consummation of the transactions contemplated hereby. This Letter Agreement has been duly executed and delivered by Borrower, and, when approved by the Company's shareholders as contemplated bySection 3.3, above, and executed and delivered by the Successor Lender, will be, the legal, valid and binding obligations of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by (A) general principles of equity (whether considered in a proceeding at law or in equity), and (B) bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally.
(b)Ownership. Borrower is the sole legal and beneficial owner of the Transferred Assets, free and clear of all liens, security interests, claims, and encumbrances (other than (i) the liens securing the Secured Loan, and (ii) with respect to the Adena Oil and Gas Property, an existing after-payout reversionary working interest evidenced in documents of records, and (iii) a lien securing taxes not yet due and payable). Subject to obtaining the approval of the Company's shareholders as contemplated bySection 3.3, above, Borrower has full power and every right and lawful authority, without the consent of any other Person, to make, execute, and deliver this Letter Agreement and perform its obligations hereunder.
(c)Title. No Person (other than Successor Lender pursuant to this Letter Agreement) has any option or other right to acquire the Transferred Assets. Upon execution and delivery of this Letter Agreement and the performance by Successor Lender of its respective obligations hereunder, Successor Lender shall acquire title to the Transferred Assets, free and clear of all liens, security interests, claims, and encumbrances whatsoever arising by or through Borrower.
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(d)Brokers and Finders. Borrower has not engaged and is not obligated to pay any fees to any broker or finder or other agentreduced in connection with the Transactions contemplated hereunder.
4.2Successor Lender RepresentationsHolder’s becoming a Consultant, shall be treated pursuant to the provisions of Section 6.2, provided, however, that any such Award which is intended to be an Incentive Stock Option shall, upon the Holder’s no longer being an Employee, automatically convert to a Non-qualified Stock Option. Should a Holder’s status as a Consultant terminate, and Warranties. Successor Lender hereby represents and warrants to Borrower that:
(a)Authorization; Enforceability. The execution and delivery by Successor Lenderif, within ninety (90) days of this Letter Agreement, the performance by Successor Lender of its respective obligations under this Letter Agreement, and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability action, and no other proceedings on the part of Successor Lender, its memberssuch termination, such Holder shall become an Employee or managers are necessary to approve and adopt this Letter Agreement or to approve the consummation of the transactions contemplated hereby. This Letter Agreement has been duly executed and delivered by Successor Lender, and when executed and delivered by Borrower will be, the legal, valid and binding obligations of Successor Lender, enforceable against it in accordancea Director, such Holder’s rights with its terms, except as such enforceability may be limited by (A) general principles of equity (whether considered in a proceeding at law or in equity), and (B) bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally.
(b)Ownership. Successor Lender is the sole legal and beneficial owner of all rights of the lender (including those of all “Banks”) under the Credit Agreement and all other Loan Documents, free and clear of all liens, security interests, claims, and encumbrances (other than the liens securing the Secured Loan). Successor Lender has full power and every right and lawful authority, without the consent of any other Person, to make, execute, and deliver this Letter Agreement and perform its obligations hereunder.
(c)Brokers and Finders. Successor Lender has not engaged and is not obligated to pay any feesrespect to any brokerAward or finder or other agent in connection with the Transactions contemplated hereunder.
5.Conditions to Closing.
5.1Conditions to Borrower Obligations. The obligations of Borrower under this Letter Agreement are subject to satisfaction or waiver by Borrower of the following conditions at orportion thereof granted thereto prior to the Closing:
(a)Eachdate of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been an Employee or a Director, as applicable, for the entire period during which such Award or portion thereof had been outstanding, and, should the Committee effect such determination with respect to such Holder, for all purposes of the representations and warranties of Successor Lender containedPlan, such Holder shall not be treated as if his or her Consultant status had terminated until such time as his or her employment with the Company or an Affiliate, or his or her Director status, as applicable, shall terminate, inSection 4.2 which case his or her Award shall be truetreated pursuant to the provisions of Section 6.2.
6.4 Termination of Service for Cause. Notwithstanding anything in this Article VI or elsewhere in the Plan to the contrary, and correct onunless a Holder’s Award Agreement specifically provides otherwise, in the event of a Holder’s Termination of Service for Cause, all of such Holder’s then outstanding Awards shall expire immediately and be forfeited in their entirety upon such Termination of Service.
Article VII
OPTIONS
7.1 Option Period. The term of each Option shall be as specified in the Option Agreement;provided,however, that except as set forth in Section 7.3, no Option shall be exercisable after the expiration of the Closing with the same effect as though such representations and warranties had been made on and as often (10) years from the date of its grant.
7.2 Limitations on Exercise of Option. An Option shall be exercisable in whole or in such installments and at such times as specified in the Closing;Option Agreement.
(b)Successor Lender shall have performed and complied
7.3 Special Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all agreements and obligations contained in this Letter Agreement that are required to be performed or complied with by Successor Lender on or before such Closing;
(c)The shareholdersplans of the Company shall have approvedand any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Transactions contemplated by this Letter Agreement;
(d)ASENCode) which provide for the grant of Incentive Stock Options exceeds One Hundred Thousand Dollars ($100,000) (or Successor Lender) shall have paid prior to delinquency all payments due to the Company in accordance withSection 3.4(a), above.
(e)The Company shall have received from the issuance of debt or equity securities or from another source after the date hereof and prior to the Closing at least $5,000,000 of net offering proceeds.
(f)No injunction or order mustsuch other individual limit as may be in effect by any Court or other governmental agency prohibitingunder the Transactions.
5.2Conditions to Successor Lender's Obligations.
(a)Each of the representations and warranties of Borrower contained inSection 4.1 shall be true and correctCode on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing;
(b)Borrower shall have performed and complied with all agreements and obligations contained in this Letter Agreement that are required to be performed or complied with by Borrower on or before such Closing;
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(c)There shall not have occurred any material adverse event with respect to the Oil and Gas Properties.
(d)No injunction or order must be in effect by any Court or other governmental agency prohibiting the Transactions.
6.Closing. The closing of the Transactions contemplated by this Letter Agreement (the “Closing”) shall occur at the offices of the Company, 4040 Broadway, Suite 508, San Antonio, Texas 78209, at 10:00 a.m.grant), Central time, on or before April 30, 2017. At the Closing:
6.1Borrower Deliveries. Borrower shall:
(a)Make, execute and deliver such deeds, bills of sale, and other instruments of transfer as may be necessary to vest in Successor Lender title to the Transferred Assets, free and clear of all liens, claims, and encumbrances (other than the liens under the Loan Documents);
(b)Deliver to Successor Lender the sum of $3,300,000 (as adjusted for Adjusting Payments) by wire transfer of immediately available funds; and
(c)Make, execute and deliver such other commercially reasonable documents and instruments, and take such other commercially reasonable actions, as may be necessary or convenient for effectuating the Transactions in accordance with this Letter Agreement.
6.2Successor Lender Deliveries. Successor Lender shall:
(a)Make, execute and deliver in recordable form such reconveyances, releases, and other documents and instruments as may be necessary to release all assets of the Company (other than the Transferred Assets) from the lien securing the Secured Loan;
(b)Make, execute and deliver an instrument in commercially reasonable form to memorialize the discharge of the Secured Loan in full and the release of Borrower from all further claims under the Loan Documents; and
(c)Make, execute and deliver such other commercially reasonable documents and instruments, and take such other commercially reasonable actions, as may be necessary or convenient for effectuating the Transactions in accordance with this Letter Agreement.
(d)Make all remaining payments, if any, that are due to the Company underSection 3.4(a), above, with respect to all periods ending on or prior to the Closing Date.
7.Indemnification. Successor Lender hereby agrees to indemnify, defend, and hold Borrower free and harmless from any and all claims arising from or related to Successor Lender's operation of the Oil and Gas Properties arising after the Closing Date, including the cost of defense of any such claims, and further indemnifies Borrower from any and all claims arising from or related to the environmental condition of the Oil and Gas Properties, whether arising before or after the Closing Date. Buyer shall assume all obligations and liabilities for the proper plugging of all wells at the Oil and Gas Properties and any other unplugged wells located on the leases for any portion of the Oil and Gas Properties. Successor Lender's obligations under thisSection 7such Incentive Stock Options that exceeds such threshold shall survive the Closing of the Transactions pursuant to this Letter Agreement.
8.Termination of Agreement.
8.1Termination. This Letter Agreement may be terminated prior to the Closing as follows:
(a)by written consent of Borrower and Successor Lender;
(b)by either of the Parties, if any order of any Governmental Authority permanently restraining, enjoining or otherwise prohibiting the consummation of the Transaction shall have become final and non-appealable;
Annex A-1-6
(c)by Borrower, if there shall be a breach by Successor Lender of any representation or warranty or any covenant or agreement contained in this Letter Agreement which would result in a failure of a condition set forth inSection 4.1 and which breach cannot be cured or has not been cured within 15 calendar days after the giving of written notice to Successor Lender of such breach;
(d)by Successor Lender, if there shall be a breach by Seller of any representation or warranty or any covenant or agreement contained in this Letter Agreement which would result in a failure of a condition set forth inSection 4.2 and which breach cannot be cured or has not been cured within 15 calendar days after the giving of written notice to Borrower of such breach;
(e)by Borrower, on the one hand, or Successor Lender, on the other hand, if the Closing does not occur by the close of business on April 30, 2017 (the “Termination Date”);providedthat, notwithstanding the foregoing, Borrower may not terminate this Letter Agreement pursuant to thisSection 8.1(e) if Borrower is, and Successor Lender may not terminate this Letter Agreement pursuant to thisSection 8.1(e) if Successor Lender is, in material breach of any of its respective obligations or representations, warranties, covenants or agreements contained in this Letter Agreement. For the avoidance of doubt, a Party not then in breach of its obligations hereunder may terminate this Letter Agreement pursuant to thisSection 8.1(e) if any of the conditions to such Party’s obligations shall not have been satisfied by the Termination Date.
The termination of this Letter Agreement shall be effectuated by the delivery by the Party terminating this Letter Agreement to each other Party of a written notice of such termination.
8.2Survival after Termination. If this Letter Agreement is terminated in accordance withSection 8.1, above, then (a) no Party thereafter shall have any further obligations to consummate the Transactions pursuant to this Letter Agreement and (b) each Party shall retain all claims arising from a breach by such Party of its obligations under this Letter Agreement.
9.Miscellaneous.
9.1Notices. All notices, requests, demands or other communications permitted or required under this Letter Agreement shall be effective only if in writing, and shall be deemed to have been given, received and delivered (a) when personally delivered; (b) on the third (3rd) business day after the date on which mailed by certified or registered United States mail, postage prepaid and return receipt requested; or (c) on the same date on which transmitted by facsimile or other similar electronic means generating a receipt evidencing a successful transmission; or (d) on the next business day after the business day on which deposited with a public carrier regulated under United States laws for the fastest commercially available delivery (e.g., overnight), with a return receipt (or equivalent thereof administered by such regulated public carrier) requested, in a sealed envelope addressed to the Party for whom intended at the address set forth on the signature page of this Letter Agreement or such other address, notice of which is given as provided in thisSection 9.1.
9.2Severability. If any provision of this Letter Agreement is for any reason found to be ineffective, unenforceable, or illegal by any court having jurisdiction, such condition shall not affect the validity or enforceability of any of the remaining portions hereof, unless it deprives any Party hereto of any material right or license held by such Party under this Letter Agreement. The Parties shall negotiate in good faith to replace any such ineffective, unenforceable or illegal provisions as soon as is practicable, and the substituted provision shall, as closely as possible, have the same economic effect as the eliminated provision.
9.3Independent Contractors. Performance by the Parties under this Letter Agreement shall be as independent contractors. This Letter Agreement is not intended and shall not be construed as creating a joint venture or partnership, or as causing either Party to be treated as the agent of the other Party for any purpose or in any sense whatsoever, or to create any fiduciary or any other obligations other than those expressly imposed by this Letter Agreement.
9.4Binding Effect. This Letter AgreementNon-qualified Stock Options. The Committee shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns.
Annex A-1-7
9.5Force Majeure. Neither Party shall be liable for any default or delay in performance of any of its obligations under this Letter Agreement if such default or delay is caused, directly or indirectly, by fire, flood, earthquake or other acts of God; labor disputes, strikes or lockouts; wars, rebellions or revolutions; riots or civil disorder; accidents or unavoidable casualties; interruptions in transportation or communications facilities or delays in transit or communication; supply shortages or the failure of any Person to perform any commitment to such Party related to this Letter Agreement; or any other cause (whether similar or dissimilar to those expressly enumerated in thisSection 9.5) beyond such Party's reasonable control.
9.6Entire Agreement; Amendments. This Letter Agreement, and the exhibits hereto (a) set forth the entire understanding of the Parties concerning the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings relating to the subject matter hereof, whether oral or written, and (b) may not be modified or amended, except by a written instrument executed after the effective date of this Letter Agreement by the Party sought to be charged by the amendment or modification.
9.7Governing Law; Jurisdiction; Venue. This Letter Agreement shall be governed by and construeddetermine, in accordance with applicable provisions of the lawsCode, Treasury Regulations and other administrative pronouncements, which of a Holder’s Options, which were intended by the Committee to be Incentive Stock Options when granted to the Holder, will not constitute Incentive Stock Options because of such limitation, and shall notify the Holder of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an Employee if, at the time the Incentive Stock Option is granted, such Employee is a Ten Percent Stockholder, unless (i) at the time such Incentive Stock Option is granted the Option price is at least one hundred ten percent (110%) of the StateFair Market Value of Texas (without regardthe Shares subject to applicationthe Incentive Stock Option, and (ii) such Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. No Incentive Stock Option shall be granted more than ten (10) years from the earlier of the Effective Date or date on which the Plan is approved by the Company’s stockholders. The designation by the Committee of an Option as an Incentive Stock Option shall not guarantee the Holder that the Option will satisfy the applicable requirements for “incentive stock option” status under Section 422 of the Code.
7.4 Option Agreement. Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the other provisions of the Plan as the Committee from time to time shall approve, including, but not limited to, provisions intended to qualify an Option as an Incentive Stock Option. An Option Agreement may provide for the payment of the Option price, in whole or in part, by the delivery of a number of Shares (plus cash if necessary) that have been owned by the Holder for at least six (6) months and having a Fair Market Value equal to such Option price, or such other forms or methods as the Committee may determine from time to time, in each case, subject to such rules and regulations as may be adopted by the Committee. Each Option Agreement shall, solely to the extent inconsistent with the provisions of Sections 6.2, 6.3, and 6.4, as applicable, specify the effect of Termination of Service on the exercisability of the Option. Moreover, without limiting the generality of the foregoing, a Non-qualified Stock Option Agreement may provide for a “cashless exercise” of the Option, in whole or in part, by (a) establishing procedures whereby the Holder, by a properly-executed written notice, directs (i) an immediate market sale or margin loan as to all or a part of Shares to which he is entitled to receive upon exercise of the Option, pursuant to an extension of credit by the Company to the Holder of the Option price, (ii) the delivery of the Shares from the Company directly to a brokerage firm and (iii) the delivery of the Option price from sale or margin loan proceeds from the brokerage firm directly to the Company, or (b) reducing the number of Shares to be issued upon exercise of the Option by the number of such Shares having an aggregate Fair Market Value equal to the Option price (or portion thereof to be so paid) as of the date of the Option’s exercise. An Option Agreement may also include provisions relating to: (i) subject to the provisions hereof, accelerated vesting of Options, including but not limited to, upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and requiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made upon a Change of Control resulting from the operation of the Plan or of such Option Agreement) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its conflict-of-law principles)sole discretion determine. The terms and conditions of the respective Option Agreements need not be identical.
7.5 Option Price and Payment. The price at which an Share may be purchased upon exercise of an Option shall be determined by the Committee;provided,however, that such Option price (i) shall not be less than the Fair Market Value of an Share on the date such Option is granted (or 110% of Fair Market Value for an Incentive Stock Option held by Ten Percent Stockholder, as provided in Section 7.3), and each Party hereby consents(ii) shall be subject to adjustment as provided in Article XV. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the jurisdictionCompany. The Option price for the Option or portion thereof shall be paid in full in the manner prescribed by the Committee as set forth in the Plan and the applicable Option Agreement, which manner, with the consent of the courtsCommittee, may include the withholding of Shares otherwise issuable in connection with the exercise of the State of Texas for purposes of all actions commenced to construe or enforce this Letter Agreement. This Letter Agreement has been negotiated, executed, and delivered in Bexar County, Texas, andOption. Separate share certificates shall be performed in such County, andissued by the exclusive venueCompany for all actions arising under with this Letter Agreement shall bethose Shares acquired pursuant to the District Court inexercise of an Incentive Stock Option and for Bexar, Texas.those Shares acquired pursuant to the exercise of a Non-qualified Stock Option.
9.8
Attorneys' Fees7.6 . If any action or proceeding is commenced to construe this Letter Agreement or enforce the rightsStockholder Rights and duties set forth herein, then the Party prevailing in that actionPrivileges. The Holder of an Option shall be entitled to recover its costsall the privileges and feesrights of a stockholder of the Company solely with respect to such Shares as have been purchased under the Option and for which share certificates have been registered in the Holder’s name.
7.7 Options and Rights in Substitution for Stock or Options Granted by Other Corporations. Options may be granted under the Plan from time to time in substitution for stock options held by individuals employed by entities who become Employees, Directors or Consultants as a result of a merger or consolidation of the employing entity with the Company or any Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing entity, or the acquisition by the Company or an Affiliate of stock or shares of the employing entity with the result that action,such employing entity becomes an Affiliate.
7.8 Prohibition Against Re-Pricing. Except to the extent (i) approved in advance by holders of a majority of the shares of the Company entitled to vote generally in the election of directors, or (ii) as wella result of any Change of Control or any adjustment as provided in Article XV, the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price under any outstanding Option or Stock Appreciation Right, or to grant any new Award or make any payment of cash in substitution for or upon the cancellation of Options and/or Stock Appreciation Rights previously granted.
Article VIII
RESTRICTED STOCK AWARDS
8.1 Award. A Restricted Stock Award shall constitute an Award of Shares to the Holder as of the date of the Award which are subject to a “substantial risk of forfeiture” as defined under Section 83 of the Code during the specified Restriction Period. At the time a Restricted Stock Award is made, the Committee shall establish the Restriction Period applicable to such Award. Each Restricted Stock Award may have a different Restriction Period, in the discretion of the Committee. The Restriction Period applicable to a particular Restricted Stock Award shall not be changed except as permitted by Section 8.2.
8.2 Terms and Conditions. At the time any Award is made under this Article VIII, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the costs and feesCommittee may determine to be appropriate. The Company shall cause the Shares to be issued in the name of enforcing any judgment entered therein.
9.9Waiver. No waiverHolder, either by book-entry registration or issuance of any term, provision or condition of this Letter Agreement, the breach or default thereof, by conduct or otherwise, in one or more instances shall be deemed to be either a continuing waiverstock certificates evidencing the Shares, which Shares or a waiver of a subsequent breach or default of any such term, provision or condition of this Letter Agreement. The failure of any Party hereto to enforce at any time any provision of this Letter Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Letter Agreement or any part hereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of this Letter Agreementcertificates shall be held by the Company or the stock transfer agent or brokerage service selected by the Company to constitute a waiverprovide services for the Plan. The Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order, and if any certificate is issued, such certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. After any Shares vest, the Company shall deliver the vested Shares, in book-entry or certificated form in the Company’s sole discretion, registered in the name of Holder or his or her legal representatives, beneficiaries or heirs, as the case may be, less any other or subsequent breach.
9.10Construction. This Letter Agreement isShares withheld to pay withholding taxes. If provided for under the result of negotiations between the Parties and neither of the Parties entering into this Letter Agreement has acted under any duress or compulsion, whether legal, economic or otherwise. The Parties hereby waive the application of any rule of law that ambiguous or conflicting terms or provisions should be construed against the Party who (or whose attorney) prepared this Letter Agreement or any earlier draft of the same. In this LetterRestricted Stock Agreement, the word “Person” includes any individual, company, trustHolder shall have the right to vote Shares subject thereto and to enjoy all other stockholder rights, including the entitlement to receive dividends on the Shares during the Restriction Period. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or other legal entity of any kind, and the word “include(s)” means “include(s), without limitation,” and the word “restrictions relating to Restricted Stock Awards, including,” means “including, but not limited to.” Unless the context of this Letter Agreement otherwise clearly requires, referencesto, rules pertaining to the plural includeeffect of Termination of Service prior to expiration of the singular and the singular the plural. Unless otherwise expressly indicated herein, the words “hereof,” “hereunder,” and similarRestriction Period. Such additional terms, in this Letter Agreement refer to this Letter Agreement as a whole and not to any particular provision of this Letter Agreement. All references to “Section” hereinconditions or restrictions shall, refer to the sections and paragraphs of this Letter Agreement unless specifically stated otherwise. The section and other headings, if any, contained in this Letter Agreement are inserted for convenience of reference only, and they neither form a part of this Letter Agreement nor are they to be used in the construction or interpretation of this Letter Agreement.
9.11Counterparts; Electronic Signatures. This Letter Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument, binding on each signatory thereto. This Letter Agreement may be executed by signatures delivered by facsimile or email, and a copy hereof that is executed and delivered by a Party by facsimile or email will be binding upon that Party to the same extent as a copy hereof containing that Party's original signature.
Annex A-1-8
Acceptance of Terms
Ifinconsistent with the provisions of this LetterSections 6.2, 6.3 and 6.4, as applicable, be set forth in a Restricted Stock Agreement are acceptable, then please signmade in conjunction with the Award. Such Restricted Stock Agreement may also include provisions relating to: (i) subject to the provisions hereof, accelerated vesting of Awards, including but not limited to accelerated vesting upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and date this Letter Agreementrequiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made in connection with a Change of Control resulting from the spaces provided belowoperation of the Plan or of such Restricted Stock Agreement) and return a copy to me by facsimile or email. If we do(iii) any other matters not receive from you prior 11:59 p.m., Central Time, on February 10, 2017, a copyinconsistent with the terms and provisions of this Letter Agreementthe Plan that you have executed to indicate your acceptance, then the offer memorialized above will expire at that time.
[Signatures appear on following page.]
Annex A-1-9
We look forward to hearing from you.
Sincerely,
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Annex A-1-10
Acceptance
Committee shall in its sole discretion determine. The undersigned agrees to and accepts the foregoing terms and conditions of the respective Restricted Stock Agreements need not be identical. All Shares delivered to a Holder as part of a Restricted Stock Award shall be delivered and reported by the Company or the Affiliate, as applicable, to the Holder at the time of vesting.
8.3 Payment for Restricted Stock. The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to a Restricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to a Restricted Stock Award, except to the extent otherwise required by law.
Article IX
UNRESTRICTED STOCK AWARDS
9.1 Award. Shares may be awarded (or sold) to Employees, Directors or Consultants under the Plan which are not subject to Restrictions of any kind, in consideration for past services rendered thereby to the Company or an Affiliate or for other valid consideration.
9.2 Terms and Conditions. At the time any Award is made under this LetterArticle IX, the Company and the Holder shall enter into an Unrestricted Stock Agreement setting forth each of the matters contemplated hereby and agreessuch other matters as the Committee may determine to be legally boundappropriate.
9.3 Payment for Unrestricted Stock. The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to an Unrestricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to an Unrestricted Stock Award, except to the extent otherwise required by law.
Article X
RESTRICTED STOCK UNIT AWARDS
10.1 Award. A Restricted Stock Unit Award shall constitute a promise to grant Shares (or cash equal to the Fair Market Value of Shares) to the Holder at the end of a specified Restriction Period. At the time a Restricted Stock Unit Award is made, the Committee shall establish the Restriction Period applicable to such Award. Each Restricted Stock Unit Award may have a different Restriction Period, in the discretion of the Committee. A Restricted Stock Unit shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares prior to the time the Holder shall receive a distribution of Shares pursuant to Section 10.3.
10.2 Terms and Conditions. At the time any Award is made under this Article X, the Company and the Holder shall enter into a Restricted Stock Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Restricted Stock Unit Agreement shall set forth the individual service-based vesting requirement which the Holder would be required to satisfy before the Holder would become entitled to distribution pursuant to Section 10.3 and the number of Units awarded to the Holder. Such conditions shall be sufficient to constitute a “substantial risk of forfeiture” as such term is defined under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Unit Awards in the Restricted Stock Unit Agreement, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable vesting period. The terms and conditions of the respective Restricted Stock Unit Agreements need not be identical.
10.3 Distributions of Shares. The Holder of a Restricted Stock Unit shall be entitled to receive a cash payment equal to the Fair Market Value of an Share, or one Share, as determined in the sole discretion of the Committee and as set forth in the Restricted Stock Unit Agreement, for each Restricted Stock Unit subject to such Restricted Stock Unit Award, if the Holder satisfies the applicable vesting requirement. Such distribution shall be made no later than by the provisionsfifteenth (15th) day of the lettered paragraphsthird (3rd) calendar month next following the end of the calendar year in which the Restricted Stock Unit first becomes vested (i.e., no longer subject to a “substantial risk of forfeiture”).
Article XI
PERFORMANCE UNIT AWARDS
11.1 Award. A Performance Unit Award shall constitute an Award under which, upon the satisfaction of predetermined individual and/or Company (and/or Affiliate) Performance Goals based on selected Performance Criteria, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder. At the time a Performance Unit Award is made, the Committee shall establish the Performance Period and applicable Performance Goals. Each Performance Unit Award may have different Performance Goals, in the discretion of the Committee. A Performance Unit Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares.
11.2 Terms and Conditions. At the time any Award is made under this Article XI, the Company and the Holder shall enter into a Performance Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Performance Unit Agreement the Performance Period, Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to payment pursuant to Section 11.3, the number of Units awarded to the Holder and the dollar value or formula assigned to each such Unit. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Unit Awards, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable performance period. The terms and conditions of the respective Performance Unit Agreements need not be identical.
11.3 Payments. The Holder of a Performance Unit shall be entitled to receive a cash payment equal to the dollar value assigned to such Unit under the heading “Bindingapplicable Performance Unit Agreement if the Holder and/or the Company satisfy (or partially satisfy, if applicable under the applicable Performance Unit Agreement) the Performance Goals set forth in such Performance Unit Agreement. If necessary to satisfy the requirements of Code Section 162(m), if applicable, the achievement of such Performance Goals shall be certified in writing by the Committee prior to any payment. All payments shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such performance goals and Enforceable Provisions,” above.objectives relate.
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Annex A-1-11
Appendix 1
to
Letter Agreement
List of Loan Documents
Appendix 1, Page-1
Appendix 1, Page-2
Appendix 1
to
Letter Agreement
Description of Colorado Bonds
[To Follow.]
EnerJex Resources, Inc.
4040 Broadway, Suite 508
San Antonio, Texas 78209
(210) 451-5545
March 30, 2017
By EmailPWCM Investment Company IC LLC614 Davis StreetEvanston, IL 60201
Gentlemen:
We are writing this letter (the “Article XIIAmendmentPERFORMANCE STOCK AWARDS”)
12.1 Award. A Performance Stock Award shall constitute a promise to confirm certain amendmentsgrant Shares (or cash equal to the termsFair Market Value of that certain letter agreement dated February 10, 2017, “Re: SatisfactionShares) to the Holder at the end of Secured Indebtedness; Confirmationa specified Performance Period subject to achievement of Terms” (the “Letter Agreement”) byspecified Performance Goals. At the time a Performance Stock Award is made, the Committee shall establish the Performance Period and amongapplicable Performance Goals based on selected Performance Criteria. Each Performance Stock Award may have different Performance Goals, in the “Borrower”discretion of the Committee. A Performance Stock Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares unless and until the Holder shall receive a distribution of Shares pursuant to Section 11.3.
12.2 Terms and Conditions. At the time any Award is made under this Article XII, the Company and the “Successor Lender” named therein. All capitalizedHolder shall enter into a Performance Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Performance Stock Agreement the Performance Period, selected Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to the receipt of Shares pursuant to such Holder’s Performance Stock Award and the number of Shares subject to such Performance Stock Award. Such distribution shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. If such Performance Goals are achieved, the distribution of Shares (or the payment of cash, as determined in the sole discretion of the Committee), shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such goals and objectives relate. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms that appear in this Amendment and areconditions or restrictions relating to Performance Stock Awards, including, but not defined herein shall havelimited to, rules pertaining to the effect of the Holder’s Termination of Service prior to the expiration of the applicable performance period. The terms and conditions of the respective meanings ascribed theretoPerformance Stock Agreements need not be identical.
12.3 Distributions of Shares. The Holder of a Performance Stock Award shall be entitled to receive a cash payment equal to the Fair Market Value of a Share, or one Share, as determined in the Letter Agreement.
1.Amendment of Letter Agreement.
1.1Amendment of Section 1.3. Section 1.3sole discretion of the LetterCommittee, for each Performance Stock Award subject to such Performance Stock Agreement, if the Holder satisfies the applicable vesting requirement. If necessary to satisfy the requirements of Code Section 162(m), if applicable, the achievement of such Performance Goals shall be certified in writing by the Committee prior to any payment. Such distribution shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
Article XIII
DISTRIBUTION EQUIVALENT RIGHTS
13.1 Award. A Distribution Equivalent Right shall entitle the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the specified period of the Award.
13.2 Terms and Conditions. At the time any Award is hereby amendedmade under this Article XIII, the Company and restated in its entiretythe Holder shall enter into a Distribution Equivalent Rights Award Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to read as follows:
“1.3Secured Note. Borrowerbe appropriate. The Committee shall execute in favor of Successor Lender a secured promissory note (the “Restated Secured Note”)set forth in the original principal amountapplicable Distribution Equivalent Rights Award Agreement the terms and conditions, if any, including whether the Holder is to receive credits currently in cash, is to have such credits reinvested (at Fair Market Value determined as of $4,500,000.
(a)The Restated Secured Notethe date of reinvestment) in additional Shares or is to be entitled to choose among such alternatives. Such receipt shall (i) be securedsubject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such Award becomes vested, the distribution of such cash or Shares shall be made no later than by a first-priority lienthe fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which the Holder’s interest in the Company’s oil and gas producing assets situatedAward vests. Distribution Equivalent Rights Awards may be settled in cash or in Shares, as set forth in the Stateapplicable Distribution Equivalent Rights Award Agreement. A Distribution Equivalent Rights Award may, but need not be, awarded in tandem with another Award (other than an Option or a SAR), whereby, if so awarded, such Distribution Equivalent Rights Award shall expire, terminate or be forfeited by the Holder, as applicable, under the same conditions as under such other Award.
13.3 Interest Equivalents. The Distribution Equivalent Rights Award Agreement for a Distribution Equivalent Rights Award may provide for the crediting of Kansas as described in the Loan Documents, (ii) evidence accrued interest on a Distribution Rights Award to be settled in cash at a future date (but in no event later than by the $4,500,000 principal balancefifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which such interest is credited and vested), at a rate of 16% per annum, (iii) bear interest from and after May 1, 2017, at a rate of sixteen percent (16.0%) per annum, (iv) be prepayableset forth in full at a discount at any time during the term of the Restated Secured Note upon Borrower’s paying $3,300,000 to Successor Lender, and (v) mature and be due and payable in fullapplicable Distribution Equivalent Rights Award Agreement, on November 1, 2017,provided that (A) Borrower shall have two options to extend the maturity date of the Restated Secured Note for a period of up to 90 days each by delivering to Successor Lender prior to the then-scheduled maturity date both a written notice of extension and payment of an extension fee in the amount of $100,000, (B) each such extension feecash payable thereunder.
Article XIV
STOCK APPRECIATION RIGHTS
14.1 Award. A Stock Appreciation Right shall be applied against the $3,300,000 discounted payoff amount, (C) the $3,300,000 payoff amount shall be further reducedconstitute a right, granted alone or in accordanceconnection withSection 1.3(b), below, and (D) for the avoidance of doubt, if Borrower pays a related Option, to Lender $3,300,000 (less previously paid extension fees, if any) prior to the final maturity date of the Restated Secured Note (as extended by Borrower), then Successor Lender thereupon shall (x) forgive the remaining principal of the Restated Secured Note, all accrued and unpaid interest, and other costs and fees accrued under the Restated Secured Note, and (y) release Borrower’s Kansas assets from the lien securing the Restated Secured Note.
(b)The terms of the Restated Secured Note shall require Borrower to pay to Successor Lender all net revenues of Borrower from the operation of its Kansas oil and gas asset, which net revenues shall reduce the $3,300,000receive a payment required to discharge the Restated Secured Note. For purposes of the foregoing, the term “net revenues” shall mean the gross revenues, reduced by royalties, lease operating expenses, taxes, capital expenditures (other than drilling costs), and other operating expenses.
(c)Successor Lender and Borrower shall execute a Deposit Account Control Agreement covering each bank account of Borrower into which the net revenues from Borrower’s Kansas assets shall be deposited in order to perfect a lien in the amount of such net revenues.
(d)The Restated Note shall be a nonrecourse obligation of Borrower, and upon any default by Borrower thereunder, Successor Lender shall look solely to its lien in and shall exercise its remedies
Annex A-2-1
solely with respect to the Company’s oil and gas assets that are situated in Kansas and pledged, and the net revenues therefrom, as security for such Restated Note.
1.2Amendment of Section 5.1(e). Section 5.1(e) of the Letter Agreement is hereby deleted in entirety.
1.3Amendment of Section 3.6. The reference to March 31, 2017 shall be April 30, 2017.
1.4Amendment of Sections 3.8, 6, and 8.1(e): Closing Date. The parties hereby agree that the Closing Date shall be May 1, 2017. In furtherance thereof, the references to “April 30, 2017,” in Sections 3.8, 6 and 8.1(e) are hereby amended to be references to “May 1, 2017.”
1.5Amendment of Section 6.1.
(a)Section 6.1(b) of the Letter Agreement is hereby amended and restated in its entirety to read as follows:
“(b) Deliver to Successor Lender the Restated Secured Note in the principal amount of $4,500,000”
(b)Section 6.1 of the Letter Agreement is hereby amended by adding at the end thereof the following new Sections 6.1(d), 6.1(e), and 6.1(f) to read as follows:
“(d) Make, execute and deliver Deposit Account Control Agreements in furtherance ofSection 1.3(c), above.
(e) Make, execute and deliver the Restated Secured Note.
(f) Make, execute and deliver a written amendment to the ASEN Service Agreement, by which the Borrower shall forgive any requirement that ASEN pay the invoice for services delivered by Borrower thereunder in the month of April 2017.”
(c)Section 6.2 of the Letter Agreement is hereby amended and restated in its entirety to read as follows:
“6.2 Successor Lender Deliveries. Successor Lender shall:
(a)Make, execute and deliver in recordable form such amendments, reconveyances, releases, and other documents and instruments as may be necessary to release from the lien securing the Secured Loan and the Restated Note (i) all bank accounts of the Borrower, other than the Borrower’s bank accounts into which net revenues from such Kansas assets shall be deposited, and (ii) all assets first acquired by Borrower after March 29, 2017.
(b)Make, execute and deliver an instrument in commercially reasonable form to memorialize the reduction in the principal balance of the Secured Loan to be equal to the original principal amountincrease in value of a specified number of Shares between the Restated Secured Note.date of Award and the date of exercise.
(c)Execute a written acceptance of
14.2 Terms and Conditions. At the Restated Secured Note, agreeing to the terms thereof as described inSection 1.3, above.
(d)Make, execute and deliver such other commercially reasonable documents and instruments, and take such other commercially reasonable actions, as may be necessary or convenient for effectuating the Transactions in accordance withtime any Award is made under this Letter Agreement.”
2.Conveyance of Kansas Assets to SPE Subsidiary.
2.1Prior to or concurrently with the Closing on or before May 1, 2017, Borrower will form (or merge all existing subsidiary entities that own Borrower's Kansas assets with and into) a wholly-owned, single-purpose, bankruptcy-remote, Delaware limited liability company (the “SPE Sub”), (a) of which the Company is the sole member and whose sole purpose is to own and operate the Kansas Assets, and (b) which (i) will be managed byArticle XIV, the Company and (ii) will engage an independent manager approved by Successor Lender, whose vote is required asthe Holder shall enter into a condition of such SPE Sub filing a bankruptcy petition under the United States Bankruptcy Code.
Annex A-2-2
2.2At the Closing on or before May 1, 2017, the SPE Sub will (a) guarantee the obligations of Borrower under Restated Secured Note, and (b) secure that guaranty by a mortgage encumbering the Kansas oil and gas producing assets.
3.Consideration for Amendment. The parties acknowledge and agree that Borrower’s waiverStock Appreciation Right Agreement setting forth each of the fees accruing undermatters contemplated thereby and such other matters as the ASEN ServiceCommittee may determine to be appropriate. The Committee shall set forth in the applicable Stock Appreciation Right Agreement pursuant to Section 6.1(f) of the Letter Agreement (as added thereto pursuant toSection 1.4(b), above) is the consideration for Successor Lender’s agreement to execute this Amendment and discharge the obligations of Successor Lender hereunder.
4.Miscellaneous. Except as expressly modified bySections 1,2, and3, above, all of the terms and conditions of the Letter Agreement are hereby ratified and confirmed and remain in full force and effect. This AmendmentStock Appreciation Right, including (i) the base value (the “Base Value”) for the Stock Appreciation Right, which shall be not less than the Fair Market Value of an Share on the date of grant of the Stock Appreciation Right, (ii) the number of Shares subject to the Stock Appreciation Right, (iii) the period during which the Stock Appreciation Right may be executedexercised;provided,however, that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant, and (iv) any other special rules and/or requirements which the Committee imposes upon the Stock Appreciation Right. Upon the exercise of some or all of the portion of a Stock Appreciation Right, the Holder shall receive a payment from the Company, in counterparts, eachcash or in the form of Shares having an equivalent Fair Market Value or in a combination of both, as determined in the sole discretion of the Committee, equal to the product of:
(a) The excess of (i) the Fair Market Value of an Share on the date of exercise, over (ii) the Base Value, multiplied by,
(b) The number of Shares with respect to which the Stock Appreciation Right is exercised.
14.3 Tandem Stock Appreciation Rights. If the Committee grants a Stock Appreciation Right which is intended to be a Tandem Stock Appreciation Right, the Tandem Stock Appreciation Right shall be granted at the same time as the related Option, and the following special rules shall apply:
(a) The Base Value shall be equal to or greater than the per Share exercise price under the related Option;
(b) The Tandem Stock Appreciation Right may be exercised for all or part of the Shares which are subject to the related Option, but solely upon the surrender by the Holder of the Holder’s right to exercise the equivalent portion of the related Option (and when a Share is purchased under the related Option, an equivalent portion of the related Tandem Stock Appreciation Right shall be canceled);
(c) The Tandem Stock Appreciation Right shall expire no later than the date of the expiration of the related Option;
(d) The value of the payment with respect to the Tandem Stock Appreciation Right may be no more than one hundred percent (100%) of the difference between the per Share exercise price under the related Option and the Fair Market Value of the Shares subject to the related Option at the time the Tandem Stock Appreciation Right is exercised, multiplied by the number of the Shares with respect to which the Tandem Stock Appreciation Right is exercised; and
(e) The Tandem Stock Appreciation Right may be exercised solely when the Fair Market Value of the Shares subject to the related Option exceeds the per Share exercise price under the related Option.
Article XV
RECAPITALIZATION OR REORGANIZATION
15.1 Adjustments to Shares. The shares with respect to which Awards may be granted under the Plan are Shares as presently constituted;provided,however, that if, and whenever, prior to the expiration or distribution to the Holder of Shares underlying an Award theretofore granted, the Company shall effect a subdivision or consolidation of the Shares or the payment of an Share dividend on Shares without receipt of consideration by the Company, the number of Shares with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding Shares, shall be proportionately increased, and the purchase price per Share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding Shares, shall be proportionately reduced, and the purchase price per Share shall be proportionately increased. Notwithstanding the foregoing or any other provision of this Article XV, any adjustment made with respect to an Award (x) which is an Incentive Stock Option, shall comply with the requirements of Section 424(a) of the Code, and in no event shall any adjustment be made which would render any Incentive Stock Option granted under the Plan to be other than an “incentive stock option” for purposes of Section 422 of the Code, and (y) which is a Non-qualified Stock Option, shall comply with the requirements of Section 409A of the Code, and in no event shall any adjustment be made which would render any Non-qualified Stock Option granted under the Plan to become subject to Section 409A of the Code.
15.2 Recapitalization. If the Company recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of a previously granted Award, the Holder shall be entitled to receive (or entitled to purchase, if applicable) under such Award, in lieu of the number of Shares then covered by such Award, the number and class of shares and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of Shares then covered by such Award.
15.3 Other Events. In the event of changes to the outstanding Shares by reason of an extraordinary cash dividend, reorganization, merger, consolidation, combination, split-up, spin-off, exchange or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for under this Article XV, any outstanding Awards and any Award Agreements evidencing such Awards shall be adjusted by the Board in its discretion in such manner as the Board shall deem equitable or appropriate taking into consideration the applicable accounting and tax consequences, as to the number and price of Shares or other consideration subject to such Awards. In the event of any adjustment pursuant to Sections 15.1, 15.2 or this Section 15.3, the aggregate number of Shares available under the Plan pursuant to Section 5.1 (and the Code Section 162(m) limit set forth therein) may be appropriately adjusted by the Board, the determination of which shall be deemedconclusive. In addition, the Committee may make provision for a cash payment to a Holder or a person who has an original and alloutstanding Award. In addition, the Committee may make provision for a cash payment to a Holder or a person who has an outstanding Award.
15.4 Change of Control. The Committee may, in its sole discretion, at the time an Award is made or at any time prior to, coincident with or after the time of a Change of Control, cause any Award either (i) to be canceled in consideration of a payment in cash or other consideration in amount per share equal to the excess, if any, of the price or implied price per Share in the Change of Control over the per Share exercise, base or purchase price of such Award, which taken together,may be paid immediately or over the vesting schedule of the Award; (ii) to be assumed, or new rights substituted therefore, by the surviving corporation or a parent or subsidiary of such surviving corporation following such Change of Control; (iii) accelerate any time periods, or waive any other conditions, relating to the vesting, exercise, payment or distribution of an Award so that any Award to a Holder whose employment has been terminated as a result of a Change of Control may be vested, exercised, paid or distributed in full on or before a date fixed by the Committee; (iv) to be purchased from a Holder whose employment has been terminated as a result of a Change of Control, upon the Holder’s request, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment or distribution of such rights had such Award been currently exercisable or payable; or (v) terminate any then outstanding Award or make any other adjustment to the Awards then outstanding as the Committee deems necessary or appropriate to reflect such transaction or change. The number of Shares subject to any Award shall constitute onebe rounded to the nearest whole number.
15.5 Powers Not Affected. The existence of the Plan and the same instrument, bindingAwards granted hereunder shall not affect in any way the right or power of the Board or of the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change of the Company’s capital structure or business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Shares or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.
15.6 No Adjustment for Certain Awards. Except as hereinabove expressly provided, the issuance by the Company of shares of any class or securities convertible into shares of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect previously granted Awards, and no adjustment by reason thereof shall be made with respect to the number of Shares subject to Awards theretofore granted or the purchase price per Share, if applicable.
Article XVI
AMENDMENT AND TERMINATION OF PLAN
The Plan shall continue in effect, unless sooner terminated pursuant to this Article XVI, until the tenth (10th) anniversary of the date on each signatory thereto. A copywhich it is adopted by the Board (except as to Awards outstanding on that date). The Board in its discretion may terminate the Plan at any time with respect to any shares for which Awards have not theretofore been granted;provided,however, that the Plan’s termination shall not materially and adversely impair the rights of this Amendmenta Holder with respect to any Award theretofore granted without the consent of the Holder. The Board shall have the right to alter or amend the Plan or any part hereof from time to time;provided,however, that is executedwithout the approval by a party and transmittedmajority of the votes cast at a meeting of stockholders at which a quorum representing a majority of the shares of the Company entitled to vote generally in the election of directors is present in person or by that partyproxy, no amendment or modification of the Plan may (i) materially increase the benefits accruing to Holders, (ii) except as otherwise expressly provided in Article XV, materially increase the number of Shares subject to the other partyPlan or the individual Award Agreements specified in Article V, (iii) materially modify the requirements for participation in the Plan, or (iv) amend, modify or suspend Section 7.7 (re-pricing prohibitions) or this Article XVI. In addition, no change in any Award theretofore granted may be made which would materially and adversely impair the rights of a Holder with respect to such Award without the consent of the Holder (unless such change is required in order to cause the benefits under the Plan to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code or to exempt the Plan or any Award from Section 409A of the Code).
Article XVII
MISCELLANEOUS
17.1 No Right to Award. Neither the adoption of the Plan by facsimilethe Company nor any action of the Board or asthe Committee shall be deemed to give an attachment ( e.g., in “.tif”Employee, Director or “.pdf” format)Consultant any right to an email shallAward except as may be binding upon the signatory to the same extent as a copy hereof containing that party's original signature.
Annex A-2-3
Sincerely,
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Annex A-2-4
Acceptance
The undersigned agrees to and accepts the foregoing terms and conditions of this Amendment, and agrees to be legally boundevidenced by the numbered paragraphs therein.
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Annex A-2-5
ENERJEX RESOURCES, INC.
PROXY
Annual Meeting of StockholdersApril 27, 2017
This Proxy is solicitedan Award Agreement duly executed on behalf of the EnerJex boardCompany, and then solely to the extent and on the terms and conditions expressly set forth therein.
17.2 No Rights Conferred. Nothing contained in the Plan shall (i) confer upon any Employee any right with respect to continuation of directorsemployment with the Company or any Affiliate, (ii) interfere in any way with any right of the Company or any Affiliate to terminate the employment of an Employee at any time, (iii) confer upon any Director any right with respect to continuation of such Director’s membership on the Board, (iv) interfere in any way with any right of the Company or an Affiliate to terminate a Director’s membership on the Board at any time, (v) confer upon any Consultant any right with respect to continuation of his or her consulting engagement with the Company or any Affiliate, or (vi) interfere in any way with any right of the Company or an Affiliate to terminate a Consultant’s consulting engagement with the Company or an Affiliate at any time.
17.3 Other Laws; No Fractional Shares; Withholding. The undersigned appoints Richard E. MenchacaCompany shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or R. Atticus Loweto otherwise sell or issue Shares in violation of EnerJex Resources, Inc.any laws, rules or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Award. Neither the Company nor its directors or officers shall have any obligation or liability to a Holder with respect to any Award (or Shares issuable thereunder) (i) that shall lapse because of such postponement, or (ii) for any failure to comply with the requirements of any applicable law, rules or regulations, including but not limited to any failure to comply with the requirements of Section 409A of this Code. No fractional Shares shall be delivered, nor shall any cash in lieu of fractional Shares be paid. The Company shall have the right to deduct in cash (whether under this Plan or otherwise) in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations. In the case of any Award satisfied in the form of Shares, no Shares shall be issued unless and until arrangements satisfactory to the Company shall have been made to satisfy any tax withholding obligations applicable with respect to such Award. Subject to such terms and conditions as the Committee may impose, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Holders to elect to tender, Shares (including Shares issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld.
17.4 No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No Employee, Director, Consultant, beneficiary or other person shall have any claim against the Company or any Affiliate as a result of any such action.
17.5 Restrictions on Transfer. No Award under the Plan or any Award Agreement and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a Holder except (i) by will or by the laws of descent and distribution, or (ii) where permitted under applicable tax rules, by gift to any Family Member of the Holder, subject to compliance with applicable laws. An Award may be exercisable during the lifetime of the Holder only by such Holder or by the Holder’s guardian or legal representative unless it has been transferred by gift to a Family Member of the Holder, in which case it shall be exercisable solely by such transferee. Notwithstanding any such transfer, the Holder shall continue to be subject to the withholding requirements provided for under Section 17.3 hereof.
17.6 Beneficiary Designations. Each Holder may, from time to time, name a beneficiary or beneficiaries (who may be contingent or successive beneficiaries) for purposes of receiving any amount which is payable in connection with an Award under the Plan upon or subsequent to the Holder’s death. Each such beneficiary designation shall serve to revoke all prior beneficiary designations, be in a form prescribed by the Company and be effective solely when filed by the Holder in writing with the Company during the Holder’s lifetime. In the absence of any such written beneficiary designation, for purposes of the Plan, a Holder’s beneficiary shall be the Holder’s estate.
17.7 Rule 16b-3. It is intended that the Plan and any Award made to a person subject to Section 16 of the Exchange Act shall meet all of the requirements of Rule 16b-3. If any provision of the Plan or of any such Award would disqualify the Plan or such Award under, or would otherwise not comply with the requirements of, Rule 16b-3, such provision or Award shall be construed or deemed to have been amended as necessary to conform to the requirements of Rule 16b-3.
17.8 Section 162(m). The following conditions shall apply if it is intended that the requirements of Section 162(m) of the Code be satisfied such that Awards under the Plan which are made to Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall constitute “performance-based” compensation within the meaning of Section 162(m) of the Code: Any Performance Goal(s) applicable to Qualified Performance-Based Awards shall be objective, shall be established not later than ninety (90) days after the beginning of any applicable Performance Period (or at such other date as may be required or permitted for “performance-based” compensation under Section 162(m) of the Code) and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the outcome of the Performance Goal or Goals be substantially uncertain (as defined in the regulations under Section 162(m) of the Code) at the time established. The Performance Criteria to be utilized under the Plan to establish Performance Goals shall consist of objective tests based on one or more of the following: earnings or earnings per share, cash flow or cash flow per share, operating cash flow or operating cash flow per share revenue growth, product revenue growth, financial return ratios (such as return on equity, return on investment and/or return on assets), share price performance, stockholder return, equity and/or value, operating income, operating margins, earnings before interest, taxes, depreciation and amortization, earnings, pre- or post-tax income, economic value added (or an equivalent metric), profit returns and margins, credit quality, sales growth, market share, working capital levels, comparisons with various share market indices, year-end cash, debt reduction, assets under management, operating efficiencies, strategic partnerships or transactions (including co-development, co-marketing, profit sharing, joint venture or other similar arrangements), and/or financing and other capital raising transaction. Performance criteria may be established on a Company-wide basis or with respect to one or more Company business units or divisions or subsidiaries; and either in absolute terms, relative to the performance of one or more similarly situated companies, or relative to the performance of an index covering a peer group of companies. When establishing Performance Goals for the applicable Performance Period, the Committee may exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting principles including, without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, other unusual or non-recurring items, and the cumulative effects of accounting changes, and as identified in the Company’s financial statements, notes to the Company’s financial statements or management’s discussion and analysis of financial condition and results of operations contained in the Company’s most recent annual report filed with the U.S. Securities and Exchange Commission pursuant to the Exchange Act. Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall be eligible to receive payment under a Qualified Performance-Based Award which is subject to achievement of a Performance Goal or Goals only if the applicable Performance Goal or Goals are achieved within the applicable Performance Period, as determined by the Committee. If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Section 162(m) of the Code as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Section 162(m) of the Code. The Committee may postpone the exercising of Awards, the issuance or delivery of Shares under any Award or any action permitted under the Plan to prevent the Company or any subsidiary from being denied a federal income tax deduction, provided that such deferral satisfies the requirements of Section 409A of the Code. For purposes of the requirements of Treasury Regulation Section 1.162-27(e)(4)(i), the maximum aggregate amount that may be paid in cash during any calendar year to any one person (measured from the date of any payment) with respect to one or more Awards payable in cash shall be $500,000.
17.9 Clawback Policy. Notwithstanding any contained herein or in any incentive “performance based” Awards under the Plan shall be subject to reduction, forfeiture or repayment by reason of a correction or restatement of the Company’s financial information if and to the extent such reduction or repayment is required by any applicable law.
17.10 Section 409A. Notwithstanding any other provision of the Plan, the Committee shall have no authority to issue an Award under the Plan with terms and/or conditions which would cause such Award to constitute non-qualified “deferred compensation” under Section 409A of the Code unless such Award shall be structured to be exempt from or comply with all requirements of Code Section 409A. The Plan and all Award Agreements are intended to comply with the requirements of Section 409A of the Code (or to be exempt therefrom) and shall be so interpreted and construed and no amount shall be paid or distributed from the Plan unless and until such payment complies with all requirements of Code Section 409A. It is the intent of the Company that the provisions of this Agreement and all other plans and programs sponsored by the Company be interpreted to comply in all respects with Code Section 409A, however, the Company shall have no liability to the Holder, or any successor or beneficiary thereof, in the event taxes, penalties or excise taxes may ultimately be determined to be applicable to any payment or benefit received by the Holder or any successor or beneficiary thereof.
17.11 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred thereby in connection with or resulting from any claim, action, suit, or proceeding to which such person may be made a party or may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid thereby in settlement thereof, with the Company’s approval, or paid thereby in satisfaction of any judgment in any such action, suit, or proceeding against such person;provided,however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
17.12 Other Benefit Plans. No Award, payment or amount received hereunder shall be taken into account in computing an Employee’s salary or compensation for the purposes of determining any benefits under any pension, retirement, life insurance or other benefit plan of the Company or any Affiliate, unless such other plan specifically provides for the inclusion of such Award, payment or amount received. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees, in cash or property, in a manner which is not expressly authorized under the Plan.
17.13 Limits of Liability. Any liability of the Company with respect to an Award shall be based solely upon the contractual obligations created under the Plan and the Award Agreement. None of the Company, any member of the Board nor any member of the Committee shall have any liability to any party for any action taken or not taken, in good faith, in connection with or under the Plan.
17.14 Governing Law. Except as otherwise provided herein, the Plan shall be construed in accordance with the laws of the State of Nevada, without regard to principles of conflicts of law.
17.15 Severability of Provisions. If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such invalid or unenforceable provision had not been included in the Plan.
17.16 No Funding. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to ensure the payment of any Award. Prior to receipt of Shares or a cash distribution pursuant to the terms of an Award, such Award shall represent an unfunded unsecured contractual obligation of the Company and the Holder shall have no greater claim to the Shares underlying such Award or any other assets of the Company or Affiliate than any other unsecured general creditor.
17.17 Headings. Headings used throughout the Plan are for convenience only and shall not be given legal significance.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
AGEAGLE AERIAL SYSTEMS INC.
TO BE HELD ON JUNE 18, 2019
Barrett Mooney and Nicole Fernandez-McGovern, and each of them, each with full power of substitution, hereby are authorized to vote as specified below or, with respect to any matter not set forth below, as a majority of those or their substitutes present and acting at the attorney and proxymeeting shall determine, all of the undersigned, to attendshares of capital stock of the annual meeting of stockholders of EnerJex Resources, Inc., to be held Thursday, April 27, 2017, beginning at 9:00 a.m., local time, at the Company's offices located at 4040 Broadway, Suite 508, San Antonio, Texas, and at any adjournment thereof, and to vote the stockCompany. that the undersigned would be entitled to vote, if personally present, on all matters set forth inat the Proxy Statement to2019 annual meeting of stockholders dated April 7, 2017,and any adjournment thereof.
Unless otherwise specified, this proxy will be votedFOR Proposals 1, 2, 3 and 4. The Board of Directors recommends a copy of which has been received by the undersigned, as follows:voteFORProposals 1, 2, 3 and 4.
| 1. |
| | FOR all nominees listed below (except as marked to the contrary below) | ☐ | WITHHOLD AUTHORITY to vote for all nominees listed below |
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| Louisa Ingargiola | ||||||
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INSTRUCTION: To withhold authority to vote for any nominee, write the nominee’s name in the space provided below.
| 2. | RATIFICATION OF INDEPENDENT ACCOUNTANTS |
| ☐ | FOR | ☐ | AGAINST | ☐ | ABSTAIN | |
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| 3. | TO AMEND ENERJEX RESOURCES, INC. 2017 OMNIBUS EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER THE PLAN TO 3,000,000 SHARES. | |||||
| ☐ | FOR | ☐ | AGAINST | ☐ | ABSTAIN | |
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| 4. | TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK REPRESENTING MORE THAN 20% OF OUR COMMON STOCK OUTSTANDING UPON EXERCISE OF A WARRANT ISSUED IN CONNECTION WITH A PRIVATE PLACEMENT. | |||||
| ☐ | FOR | ☐ | AGAINST | ☐ | ABSTAIN | |
Please sign exactly as your name appears below. When shares are held by joint tenants, each should sign. When signing as attorney, executor, administrator, trustee, guardian, corporate officer, or partner, please give full title as such.
| Date: __________, 2019 | ||
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC INDICATIONS ABOVE. IN THE ABSENCE OF SUCH INDICATIONS, THIS PROXY, IF OTHERWISE DULY EXECUTED, WILL BE VOTED FOR EACH OF THE MATTERS SET FORTH ABOVE.
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| , 2017 | Signature if held jointly |
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Please check the following box if you intend to attend the annual meeting in person: [ ]
PLEASE MARK, SIGN, DATE AND RETURN THISTHE PROXY ON OR PRIOR TO APRIL 27, 2017.
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.Mail To: Standard Registrar and Transfer Company, The Annual Meeting of the stockholders (the “Annual Meeting”) of AgEagle Aerial Systems Inc.440 East 400 South, Suite 200Salt Lake City, UT 84111or facsimile to (801) 328-4058, a Nevada corporation (the “Company”), will be held on June 18, 2019, at 9:00 a.m., local time, at 1415 Park Avenue West, Denver, CO 80205.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, 10-K is/are available at www.standardtransferco.com
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF AGEAGLE AERIAL SYSTEMS INC. AgEagle Aerial Systems Inc., Annual Meeting of Stockholders June 18, 2019 at 9:00 AM Local Time This proxy is solicited by the Board Of Directors Barrett Mooney and Nicole Fernandez-McGovern, and each of them, each with full power of substitution, hereby are authorized to vote as specified below or, with respect to any matter not set forth below, as a majority of those or their substitutes present and acting at the meeting shall determine, all of the shares of capital stock of the Company. that the undersigned would be entitled to vote, if personally present, at the 2019 annual meeting of stockholders and any adjournment thereof. . Unless otherwise specified, this proxy will be voted FOR Proposals 1, 2, 3 and 4. The Board of Directors recommends a vote FOR Proposals 1, 2, 3 and 4. Continued and to be signed on reverse side |