Document:

yuma_ex101.htm

Exhibit 10.1

 

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”) is made as of this ____ day of ________, 2014, by and between Yuma Energy, Inc., a California corporation (the “Company”), and _____________ (“Indemnitee”).

WHEREAS, the Company and Indemnitee recognize the difficulty in obtaining directors and officers liability insurance that fully and adequately covers directors and officers for their acts and omissions on behalf of the Company and its subsidiaries;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks that may not be fully covered by liability insurance;

WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law.

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

Section 1. Services By Indemnitee. Indemnitee hereby agrees to serve or continue to serve, at the will of the Company, as a director, officer or key employee of the Company, for as long as Indemnitee is duly elected or appointed, as the case may be, or until Indemnitee tenders his or her resignation or is removed. For avoidance of doubt, the Company’s obligations under this Agreement shall continue to the extent provided for in this Agreement, notwithstanding that Indemnitee may have ceased to be a director, officer or key employee of the Company.

Section 2. Indemnification.

(a) Third Party Proceedings. In connection with any Proceeding other than those instituted by or in the right of the Company, the Company shall indemnify Indemnitee against any and all Expenses and Liabilities, in either case, actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf by reason of Indemnitee’s Corporate Status unless the Company shall establish, in accordance with the procedures described in Section 3 of this Agreement, that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.

(b) Proceedings by or in the Right of the Company. In connection with any Proceeding instituted by or in the right of the Company, the Company shall indemnify Indemnitee against any and all Expenses and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf by reason of Indemnitee’s Corporate Status unless the Company shall establish, in accordance with the procedures described in Section 3 of this Agreement, that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee’s duty to the Company or any Subsidiary of the Company unless and only to the extent that the court in which such Proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for Expenses or amounts paid in settlement and then only to the extent that the court shall determine.

(c) Witness Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified against all Expenses incurred by Indemnitee or on his or her behalf in connection therewith.

Section 3. Advancement of Expenses; Indemnification Procedure.

(a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee in connection with any Proceeding referenced in Section 2(a) or Section 2(b) of this Agreement (but not amounts actually paid in settlement of any such Proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within 20 days following delivery of a written request therefor by Indemnitee to the Company. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay such amounts and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.

  

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(b) Notice by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any Proceeding in respect of which Indemnitee intends to seek indemnification or advancement of Expenses hereunder. Notice to the Company shall be directed to the Chief Financial Officer of the Company at the address shown in Section 16(a) of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). The omission by Indemnitee to so notify the Company will not relieve the Company from any liability that it may have to Indemnitee hereunder or otherwise.

(c) Determination of Entitlement.

(i) Where there has been a written notice by Indemnitee for indemnification pursuant to Section 3(b), then as soon as is reasonably practicable (but in any event not later than 60 days) after final disposition of the relevant Proceeding, the Company shall make a determination, if and in the manner required by applicable law, with respect to Indemnitee’s entitlement thereto; provided, however, that, if a Change in Control shall have occurred, the determination shall be made by an Independent Counsel (selected pursuant to Section 3(c)(ii)) in a written opinion to the Company’s Board of Directors, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 10 days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification).

(ii) If entitlement to indemnification is to be determined by an Independent Counsel after a Change in Control pursuant to Section 3(c)(i), such Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. Within 10 days after such written notice of selection shall have been received, the Company may deliver to Indemnitee a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13(a) of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as the Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as the Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company to Indemnitee’s selection of the Independent Counsel and/or for the appointment as the Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as the Independent Counsel under Section 3(c)(i) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 4(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(iii) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel serving under this Agreement.

(d) Presumptions and Burdens of Proof.

(i) In making any determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall have, to the fullest extent not prohibited by law, the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. Neither the failure of the person, persons or entity to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the person, persons or entity that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (ii) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(iii) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is in good faith reliance on the records or books of account of any Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of such Enterprise in the course of their duties, or on the advice of legal counsel for such Enterprise or on information or records given or reports made to such Enterprise by an independent certified public accountant or by an appraiser or other expert selected by such Enterprise. The provisions of this Section 3(d)(iii) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) Notice to Insurers. If, at the time of the receipt of a notice of a Proceeding pursuant to Section 3(b) of this Agreement, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. Thereafter, the Company shall take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

  

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(f) Relationship to Other Sources. Indemnitee shall not be required to exercise any rights against any other parties (for example, under any insurance policy purchased by the Company, Indemnitee or any other person or entity) before Indemnitee enforces this Agreement. However, to the extent the Company actually indemnifies Indemnitee or advances Expenses, the Company shall be entitled to enforce any such rights that Indemnitee may have against third parties. Indemnitee shall assist the Company in enforcing those rights if the Company pays Indemnitee’s reasonable costs and expenses of doing so.

(g) Defense of Claims; Selection of Counsel.

(i) The Company shall not settle any action, claim, or Proceeding (in whole or in part) that would impose any Expense, judgment, fine, penalty or limitation on Indemnitee, without Indemnitee’s prior written consent; provided, however, that, with respect to settlements requiring solely the payment of money either by the Company or by Indemnitee for which the Company is obligated to reimburse Indemnitee promptly and completely, in either case without recourse to Indemnitee, no such consent of Indemnitee shall be required. Indemnitee shall not settle any action, claim or Proceeding (in whole or in part) that would  impose any Expense, judgment, fine, penalty or limitation on the Company without the Company’s prior written consent, such consent not to be unreasonably withheld.

(ii) In the event the Company shall be obligated under Section 3(a) of this Agreement to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee shall have the right to employ Indemnitee’s own counsel in any such Proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have concluded in good faith that there may be a conflict of interest between the Company and Indemnitee or between Indemnitee and any other persons represented by the same counsel, in the conduct of any such defense, or (C) the Company, in fact, shall not have employed counsel to assume the defense of such Proceeding, then the reasonable fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

Section 4. Remedies of Indemnitee.

(a) In the event of any dispute between Indemnitee and the Company hereunder as to entitlement to indemnification, contribution or advancement of Expenses (including where (i) a determination is made pursuant to Section 3(c) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 3(a) of this Agreement, (iii) payment of indemnification pursuant to Section 3(c) of this Agreement is not made within 10 days after a determination has been made that Indemnitee is entitled to indemnification, (iv) no determination as to entitlement to indemnification is timely made pursuant to Section 3(c) of this Agreement, or (v) a contribution payment is not made in a timely manner pursuant to Section 9 of this Agreement), then Indemnitee shall be entitled to an adjudication by a court of Indemnitee’s entitlement to such indemnification, contribution or advancement. Alternatively, in such case, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 3(c) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 4 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 4, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 3(c) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 4, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 3(a) until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 3(c) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 4, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with such determination of Indemnitee’s entitlement to indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4 that the procedures and presumptions of this Agreement are not valid, binding or enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company (or otherwise for the enforcement, interpretation or defense of his or her rights) under this Agreement or any other agreement, including any other indemnification, contribution or advancement agreement, or any provision of the Company’s Articles of Incorporation or Bylaws now or hereafter in effect or (ii) recovery or advances under any directors and officers liability insurance policy maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, contribution, advancement or insurance recovery, as the case may be; provided, however, that this Section 4(e) shall not apply if, as part of such judicial proceeding or arbitration, the court of competent jurisdiction or the arbitrator, as the case may be, determines that the material assertions made by Indemnitee as a basis for such judicial proceeding or arbitration were not made in good faith or were frivolous.

  

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Section 5. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Articles of Incorporation, as amended, the Company’s Bylaws, as amended, or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule that expands the right of a California corporation to indemnify a member of its or a Subsidiary’s Board of Directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and the Company’s obligations, under this Agreement. In the event of any change in any applicable law, statute or rule that narrows the right of a California corporation to indemnify a member of the Board of Directors or an officer of the Company or a Subsidiary, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b) Nonexclusivity. The rights of indemnification, contribution and advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Articles of Incorporation, as amended, its Bylaws, as amended, any agreement, any vote of shareholders or disinterested directors, the  General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee’s official capacity and as to action or inaction in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity at the time of any covered Proceeding is commenced.

Section 6. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses and Liabilities actually or reasonably incurred by Indemnitee in any Proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses and Liabilities to which Indemnitee is entitled.

Section 7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that, in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future in certain circumstances to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court for a determination of the Company’s right under public policy to indemnify Indemnitee.

Section 8. Directors and Officers Liability Insurance. The Company, from time to time, shall make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors and officers liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a Subsidiary or parent of the Company.

Section 9. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Liabilities and/or for Expenses, in connection with any Proceeding relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (1) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; and (2) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

Section 10. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 10. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

Section 11. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director, officer, employee or agent may not be relieved of liability under applicable law; or

  

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(b) Claims Initiated by Indemnitee. To indemnify or advance Expenses to Indemnitee with respect to any Proceeding initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Company’s Board of Directors has approved the initiation or bringing of such Proceeding; or

(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that the material assertions made by the Indemnitee in such Proceeding were not made in good faith or were frivolous; or

(d) Insured Claims. To indemnify Indemnitee for Expenses or Liabilities that have been paid directly to Indemnitee by an insurance carrier under a policy of directors and officers liability insurance maintained by the Company; or

(e) Claims under Section 16(b). To indemnify Indemnitee for Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute; or

(f) Claims under Sarbanes-Oxley Act of 2002. To indemnify Indemnitee for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002).

Section 12. Effectiveness of Agreement. This Agreement shall be effective as of the date set forth on the first page and shall apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was serving in any Corporate Status at the time such act or omission occurred.

Section 13. Construction of Certain Phrases.

(a) As used in this Agreement:

“Change of Control” means any one of the following circumstances occurring after the date hereof: (i) there shall have occurred an event required to be reported with respect to the Company in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item or any similar schedule or form) under the Exchange Act, regardless of whether the Company is then subject to such reporting requirement; (ii) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) shall have become, without prior approval of the Company’s Board of Directors by approval of at least a majority of the Continuing Directors, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding voting securities (provided that, for purposes of this clause (ii), the term “person” shall exclude (x) the Company, (y) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (z) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company); (iii) there occurs a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; (iv) all or substantially all the assets of the Company are sold or disposed of in a transaction or series of related transactions; (v) the approval by the stockholders of the Company of a complete liquidation of the Company; or (vi) the Continuing Directors cease for any reason to constitute at least a majority of the members of the Company’s Board of Directors.

“Continuing Director” means (i) each director on the Company’s Board of Directors on the date hereof or (ii) any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who were directors on the date hereof or whose election or nomination was so approved.

“Corporate Status” means the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, board of directors’ committee member, employee or agent of the Company or of any other Enterprise.

“Enterprise” means the Company, any Subsidiary and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, board of directors’ committee member, employee or agent.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

  

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“Expenses” means all direct and indirect costs (including without limitation attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses) reasonably and actually incurred in connection with (i) prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or (ii) establishing or enforcing a right to indemnification under this Agreement, the Company’s Articles of Incorporation, as amended or Bylaws, as amended, applicable law or otherwise. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. For the avoidance of doubt, however, Expenses shall not include any Liabilities.

“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither currently is, nor in the five years prior to its selection or appointment has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

“Liabilities” means any losses or liabilities, including without limitation any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement, arising out of or in connection with any Proceeding (including all interest, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, ERISA excise taxes and penalties, penalties or amounts paid in settlement).

“Proceeding” means any threatened, pending or completed action, derivative action, suit, claim, counterclaim, cross claim, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether civil (including intentional and unintentional tort claims), criminal, administrative or investigative, including any appeal therefrom, and whether instituted by or on behalf of the Company or any other party, or any inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit or other proceeding hereinabove listed in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of any Corporate Status of Indemnitee, or by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while serving in any Corporate Status.

(b) For purposes of this Agreement:

References to “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that, if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

References to “Subsidiary” shall include a corporation, company or other entity:

(i) 50% or more of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or

(ii) that does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but 50% or more of whose ownership interest representing the right to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company, or one or more Subsidiaries.

References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company that imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries.

Section 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

Section 15. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns.

Section 16. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand or recognized courier and receipted for by the party addressee, on the date of such receipt, (ii) if mailed by domestic certified or registered mail with postage prepaid, on the fifth business day after the date postmarked, or (iii) if sent by confirmed facsimile, on the date sent. Notices shall be addressed as follows:

  

6

  

(a) if to the Company:

Yuma Energy, Inc.

1177 West Loop South, Suite 1825

Houston, Texas 77027

Telephone: (713) 968-7068

Facsimile: (713) 968-7016

Attention: Chief Financial Officer;

(b) if to Indemnitee, to the address of Indemnitee set forth under Indemnitee’s signature below; or to such other address or attention of such other person as any party shall advise the other parties in writing.

Section 17. Consent to Jurisdiction; Choice of Venue. The Company and Indemnitee each hereby irrevocably consents to the jurisdiction of the courts of the State of Texas and the federal courts within the State for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agrees that any action instituted under this Agreement shall be brought only in the United States District Court for the Southern District of Texas and any Texas State court within that District.

Section 18. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California.

 

[Signature Page Follows]

  

7

  

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

	  	  	  	  
	  	  	
YUMA ENERGY, INC.

	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	
By:

	  	  
	  	  	
Name:

	  	  
	  	  	
Title:

	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	
INDEMNITEE

	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	
By:

	  	  
	  	  	
Name:

	  	  
	  	  	  	  	  

 

[Signature Page to Indemnification Agreement]

8yuma_ex104.htm

Exhibit 10.4

 

EMPLOYMENT AGREEMENT

The following shall evidence the agreement between The Yuma Companies, Inc., its subsidiaries and affiliates (“Yuma” or “the Company”) and Kirk F. Sprunger (“Employee”), for the purpose of Employee functioning as Chief Financial Officer, Treasurer and Corporate Secretary in accordance with the following terms and/or conditions.

ARTICLE I.  DEFINITIONS

The terms defined in the attached Exhibit “A” shall have the meaning therein described for purposes of this Agreement.

ARTICLE II.  TERM

This Agreement shall become effective as of June 1, 2012.  (This Agreement supersedes the previous Employment Agreement dated June 1, 2012 and executed July 11, 2012.)  This Agreement shall continue in full force and effect for a primary period of two (2) years (the “Initial Term”), unless terminated pursuant to Article V of this Agreement.  At the end of the Initial Term, the Agreement will be automatically extended for subsequent monthly periods (“Renewal Terms”) unless and until terminated pursuant to Article V.  The period during which Employee is employed under this Agreement (including any Renewal Terms) will be referred to as the “Employment Period”.

ARTICLE III.  DUTIES

During the Employment Period, Employee shall be responsible for the performance of such duties and services of an executive, administrative and managerial nature as shall be specified from time to time by the Company or its Board of Directors in connection with the business and activities of the Company. In general, Employee will be responsible for Company-wide planning, directing and coordinating finance activities and other non-operating activities, including accounting, computer systems, legal, tax, human resources, and general office administration.  Employee will perform his duties in a manner consistent with standards established by law and by the applicable rules of professional conduct as promulgated by the American Institute of Certified Public Accountants (“Professional Conduct”).

Employee’s primary duties shall be as follows:

	
A.

	
Financial reporting (both internal and external), including the decisions associated with the application of U.S. GAAP accounting, SEC reporting and any other form of external financial reporting, as well as financial covenants associated with any debt agreements, preferred stock covenants, or any other terms or covenants of other financial instruments.

	
B.

	
Tax planning and compliance with the assistance and input from either the outside consulting accounting firm or the outside auditing firm; treasury operations; developing financing alternatives; and establishing internal controls, accounting procedures and accounting policies.

	
C.

	
Employee will work with the various other units of the Company in the preparation of various budgets and the analytical analysis and reporting against the financial plan.  The Employee is responsible for the development of the plan in concert with the overall Corporate strategy, and the presentation of the plan to the COO, CEO and Board for approval.

	
D.

	
Employee will be involved in any currency or commodity hedging strategies and will make recommendations to the COO, CEO and the Company’s Board of Directors as to hedging strategy and techniques.  Once the CEO has given approval, Employee will implement the strategy.

	
E.

	
Employee will analyze various investment options, capital allocation and overall corporate strategy and will present recommendations as to cost-of-capital, discounted cash flow, risk factors and hurdle rates to the COO, CEO and the Company’s Board of Directors for consideration and decision.

	
F.

	
Employee will act as the point representative regarding banking relations and will have the responsibility for selecting and recommending the bank to the COO, CEO and the Company’s Board of Directors.

  

1

  

	
G.

	
Other functions and responsibilities of Employee include safe guarding of assets and risk analysis through appropriated insurance coverage; providing the Company’s Board of Directors independent information as requested; being responsible for various administrative areas including personnel, benefits, information technology and office equipment.  Employee will also act as Corporate Secretary and be responsible for preparing Corporate Minutes, Board Resolutions, Board meeting agendas, and Corporate records.  Employee will handle stock transfers and shareholder recommendations.

The Employee will perform such other duties and responsibilities as directed by the COO and the CEO.

ARTICLE IV.  COMPENSATION

Yuma shall pay Employee as compensation for his services hereunder the following:

	
  

	
A.

	
A base compensation of $21,666.67 per month ($260,000.00 per year), paid semi-monthly on the fifteenth and the last day of each month, consistent with Yuma’s normal payroll procedures.

	
  

	
B.

	
Employee is eligible to participate in Yuma’s Restricted Stock Plan and may, as determined by the Company’s Board of Directors in its sole discretion, periodically receive grants under that Restricted Stock Plan, subject to the terms and conditions thereof.

	
  

	
C.

	
Employee is eligible to participate in Yuma’s Annual Incentive Plan and may, as determined by the Company’s Board of Directors in its sole discretion, receive annual bonuses based on performance criteria to be developed by the Compensation Committee.

	
  

	
D.

	
Employee shall be provided coverage in Yuma’s group medical, dental, and life insurance plans, 401(k) retirement plan, and other insurance plans or benefits provided by Yuma at the levels of coverage and/or amounts commensurate with other employees of the Company and consistent with Yuma’s policies.

	
  

	
E.

	
Employee shall be entitled to four weeks paid annual vacation, to be taken in accordance with Yuma’s policies.

	
  

	
F.

	
Conventional Prospects and 3-D Seismic Projects

	
  

	
Subject to Paragraphs H and I below, on new Prospects or Prospects developed from 3-D Seismic Projects which are 1) generated by Yuma’s staff during the Employment Period and accepted by the Company as a 3-D Seismic Project or Conventional Prospect, 2) assembled and Sold by Yuma’s staff during the Employment Period, and 3) the initial well on the prospect or a prospect within the 3-D Seismic Project has been spudded during the Employment Period, Yuma shall assign to Employee the following interests:

	
1)  

	
An Overriding Royalty Interest (“ORRI”) of 0.29% to the 8/8’s, proportionately reduced as defined in Articles VI and VII below to the working interest owned by Yuma prior to its sale of the Prospect to third parties. The ORRI shall be assigned to Employee once a Prospect is Sold and the initial well has been spudded.

	
2)  

	
Yuma will also enter into an Area of Mutual Interest (“AMI”), with Employee once the Prospect is Sold. This AMI will be the same as the AMI entered into by the third party drilling participants.  In the absence of a written AMI agreement, it will be considered that the AMI entered into with the third party drilling participant will control.

	
  

	
G.

	
Unconventional Projects and Prospects

	
  

	
Subject to Paragraphs H and I below, on those Projects which are 1) generated by Yuma’s staff during the Employment Period and accepted by the Company as a Unconventional Project or Unconventional Prospect, 2) assembled and Sold by Yuma’s staff during the Employment Period, and 3) the initial well in the first designated spacing unit has been spudded during the Employment Period, Yuma shall assign to Employee the following interests:

	
1)  

	
An Overriding Royalty Interest (“ORRI”) of 0.29% to the 8/8’s, proportionately reduced as defined in Articles VI and VII below to the working interest owned by Yuma prior to its sale of the Prospect to third parties. The ORRI shall be assigned on the acreage located within a designated spacing unit (i.e. Voluntary, Commissioner, or by adopted field rule) to Employee once a Prospect or Project is Sold and the initial well in that spacing unit has been spudded.

	
2)  

	
Yuma will also enter into an Area of Mutual Interest (“AMI”), with Employee once the Prospect is Sold. This AMI will be the same as the AMI entered into by the third party drilling participants.  In the absence of a written AMI agreement, it will be considered that the AMI entered into with the third party drilling participant will control.

	
  

	
H.

	
If Employee is dismissed for Cause, he will lose any right to earn all or any part of a bonus or ORRI not yet received on any Prospects not yet Sold, and any salary, bonus or other benefits owed on the remaining Employment Period of this Agreement.

  

2

  

	
  

	
I.

	
Treatment upon Separation from Company

	
  

	
Notwithstanding Paragraphs F and G of this Article IV, if this Agreement is terminated by Yuma or the Employee for reasons other than for Cause, and there are specific Prospects or Projects which are in the process of being developed, but have not been drilled at the time Yuma or the Employee terminates this Agreement, Employee will be entitled to an ORRI as calculated based on the schedules described below.

Conventional Prospects Generated by Yuma’s Staff Which are Developed From Yuma-Initiated 3-D Seismic Surveys

 

	
Status as of Employee Termination Date

	 	
ORRI Multiplier

	 
	
 3-D Seismic Survey Project brochure approved

	 	 	.10	 
	
 3-D Seismic Survey Project Sold and money collected

	 	 	.20	 
	
Prospect from Project area accepted by Yuma

	 	 	.40	 
	
Prospect from Project area Leased and money collected

	 	 	.50	 
	
Prospect Completed: Participants in the 3-D Seismic Project have elected to drill their interest, or interest has been placed, and drilling money collected

	 	 	.90	 
	
Prospect spud

	 	 	1.00	 

Conventional Prospects Generated by Yuma’s Staff Which are Developed From 2-D Seismic or Yuma-Licensed 3-D Seismic Surveys

 

	
Status as of Employee Termination Date

	 	
ORRI Multiplier

	 
	
Prospect accepted by Yuma

	 	 	.25	 
	
Prospect Leased and Front End Money collected

	 	 	.50	 
	
Prospect Completed: Participants have elected to drill and drilling money collected

	 	 	.90	 
	
Prospect spud

	 	 	1.00	 

Unconventional Projects and Prospects Generated by Yuma’s Staff

 

	
Status as of Employee Termination Date

	 	
ORRI Multiplier

	 
	
Play/Prospect accepted by Yuma and leases acquired

	 	 	.20	 
	
Play/Prospect Sold and Money Collected

	 	 	.50	 
	
Initial Well on each Spacing Unit spudded

	 	 	1.00	 

Employee’s ORRI awarded on Prospects or Projects Sold and drilled after separation from the Company will be determined by multiplying the ORRI set forth under Article IV, Paragraph F or G by the ORRI Multiplier above, subject to the provisions of Articles VI and VII.

	
  

	
After separation from the company and notwithstanding the above, for any prospect in a Conventional Project, or on any undrilled leasehold in an Unconventional Project, which is not drilled or tested before the leasehold on that prospect expires, the Employee’s rights to earn an ORRI will terminate six (6) months after the expiration of the remaining leases in that prospect.  If, however, during the six (6) months following the expiration of the remaining leases in any undrilled prospect Yuma starts reassembling that leasehold, the separated Employee would be entitled to earn an ORRI subject to the ORRI Multipliers above and the provisions of Articles VI and VII.

ARTICLE V.  TERMINATION

	
  

	
A.

	
Except as set forth below in Paragraphs C and D of this Article V, this Agreement may not be terminated during the Initial Term or any Renewal Term for any reason other than Employee’s dismissal for Cause, Employee’s resignation due to illness, or Employee’s death.

	
  

	
B.

	
This Agreement may be terminated at the end of the Initial Term or at the end of any Renewal Term by either party upon sixty (60) days written notice to the other party (“Notice Period”). In the case of the Employee wishing to tender his resignation under the provisions of this paragraph, Employee and Yuma agree to keep such resignation quiet and confidential in order for Yuma to find a replacement and make the proper announcement to the other employees of Yuma.  Employee agrees to cooperate and assist any employee of Yuma in the transition phase of his duties at Yuma during the Notice Period.

  

3

  

	
  

	
C.

	
Separation from the Company for Good Reason

In the event that there is a material adverse change in Employee’s position or employment Duties, as described in Article III (“Material Adverse Change”), or if Employee is required by the Company, as a condition to his continued employment with the Company, to engage in acts in his capacity as an employee of the Company that are in violation of the law or of applicable rules of Professional Conduct (“Required Violation”), Employee will have the right to terminate this Employee Agreement upon 60 days notice, provided that Employee has put the Company on notice in writing of the occurrence, and the Company has failed to remedy the matter within 30 days after the Company received such written notice.  Yuma shall pay the Employee any unpaid portion of the Employee’s base compensation and benefits accrued through the termination notice date plus severance equal to twelve (12) months of base compensation, or the remainder of the Initial or Renewal Term under this Employment Agreement, whichever is greater, as well as medical, dental, and life insurance premiums for that severance period. If Employee terminates due to a Material Adverse Change as described above, any unvested Stock Awards will be forfeited at the end of the 60 day notice period; if Employee terminates due to an uncured “Required Violation” as described above, any unvested stock awards will not be forfeited.

	
  

	
D.

	
Separation from the Company for Good Reason during period of Change in Control

If Employee terminates his employment pursuant to the procedures of Paragraph C above within a period beginning sixty (60) days before, and ending twelve (12) months after the date of a Change of Control (the “Change Period”) Yuma shall pay the Employee any unpaid portion of the Employee’s base compensation and benefits accrued through the termination notice date plus severance equal to twelve (12) months of base compensation, or the remainder of the Initial or Renewal Term under this Employment Agreement, whichever is greater; as well as medical, dental, and life insurance premiums for that severance period.  In the event of a termination for Good Reason within the Change Period, any Stock Awards will become fully vested and immediately exercisable and all restrictions on any restricted stock held by Employee will be removed.

ARTICLE VI.  ADJUSTMENT OF ORRI WHEN CARRIED WORKING INTEREST IS LESS THAN 15 PERCENT

For all of the provisions in this Article VI, the carried working interest requirements are proportionately reduced to Yuma’s original working interest in the Prospect or Project.  For clarification purposes, if Yuma has rights to 50 percent of a Prospect or Project, the Carried Working Interest (“CWI”) threshold requirement is reduced to 7.5% from 15%.

When determining a possible proportionate reduction in ORRI, if Yuma is able to earn greater than 3.5% ORRI on the Prospect, that portion in excess of 3.5% ORRI will be treated as CWI at the ratio of 2.0% CWI for each 1.0% of ORRI in excess of 3.5% ORRI.  Any reversionary interests held by third parties will be included for purposes of the computation outlined in this section.

On Prospects where Yuma chooses not to sell the Prospect but elects to drill the Prospect on a 100% basis, then Employee earns the ORRI from Article IV, Paragraph F above with no proportionate reduction of ORRI as described under this Article.

On Prospects where Yuma is marketing 100% of the Prospect, agrees to retain and drill some working interest percentage but earns a 15% or greater carry (on average) on the portion sold, then Employee earns the ORRI from Article IV, Paragraph F above with respect to that interest retained by the Company.

On all exploration Prospects where Yuma’s CWI is less than 15%, then Employee’s ORRI will be proportionately reduced and subject to the provisions of Article VII.  For clarification, assuming the Employee was due a 0.29% ORRI under the provisions of Article IV and the Company is only able to earn a 10% CWI, the Employee’s ORRI would be reduced from 0.29% to .1933% (0.29% x 10% / 15%) assuming the Company is able to earn a 3.5% ORRI on the Prospect.

Employee’s share will be from the retained overriding royalty and rounded to the seventh decimal place.

ARTICLE VII.  ADJUSTMENT OF ORRI WHEN ORRI EARNED IS LESS THAN 3.5%

For all of the provisions in this Article VII, the ORRI requirements are proportionately reduced to Yuma’s original working interest in the Prospect or Project.  For clarification purposes, if Yuma has rights to 50 percent of a Prospect or Project, the ORRI threshold requirement is reduced to 1.75% from 3.5%.

On Prospects where Yuma chooses not to sell the Prospect but elects to drill the Prospect on a 100% basis, then Employee earns the full ORRI as described above with no proportionate reduction of ORRI.

On Prospects where Yuma is marketing 100% of the Prospect, agrees to retain and drill some working interest percentage but earns a 3.5% ORRI (on average) on the portion sold, then Employee earns the full ORRI as described above with no proportionate reduction of ORRI subject to the provisions of Article VI above.

On all generated and Sold Prospects where Yuma’s ORRI is less than 3.5%, then Employee’s ORRI will be proportionately reduced.  If, for example, the Company is only able to carve out a 2.0% ORRI upon the sale of the Employee Prospect, and assuming Employee would ordinarily be due a 0.29% ORRI, then Employee’s ORRI would be reduced to .1657% (0.29% x 2.0% / 3.5%) assuming Yuma was able to earn a 15% CWI.

  

4

  

In all cases, the provisions of the proportionate reduction articles are not mutually exclusive but are to be taken together as a whole (both Articles VI and VII are considered in the calculation of the ORRI) and Employee may be subject to proportional reduction under the provisions of both articles in serial.  Any reversionary interests held by third parties will be included for purposes of the computation outlined in this section.

 

ARTICLE VIII.  PROSPECTS CONTAINING LEASES WITH VARYING NET REVENUE INTERESTS

Customarily, Prospects contain acreage blocks with different owners.  It is rare that large Prospects can be formed from tracts covered by leases that provide for identical NRI’s.  When necessary or appropriate, the ORRI due Employee will be computed and conveyed on a drilling or Production unit basis and the formulas contained in Articles VI and VII will be applied to each such drilling or Production unit.  The ORRI awarded Employee will be adjusted from unit to unit to approximate the average ORRI that should be awarded on the Prospect taken as a whole.

ARTICLE IX.  TIMING AND NATURE OF THE ASSIGNMENT OF ORRI

Yuma will make an assignment of Employee’s override within sixty (60) days of Yuma’s receipt of the assignment of Yuma’s override.  Yuma’s assignment to Employee shall be on the same terms and conditions as the assignment received by Yuma.  Yuma will make assignments or provide a letter documenting the ORRI due prior to the well(s) spudding.

If Yuma fails to make such assignment within the sixty (60) day period, Employee shall make a written request for assignment to Yuma and Yuma shall make such assignment to Employee within ten (10) days of such written request.  If Yuma fails to provide a recordable instrument documenting Employee’s ORRI after sixty (60) days following Yuma’s receipt of the assignment and after the subsequent ten (10) days following Employee’s notice as called for above, then Employee may hire a land professional to document the ORRI due Employee in the form of a recordable assignment.  Once this assignment has been documented to the satisfaction of both Employee and Yuma, Yuma will then execute the assignment and reimburse Employee for the costs of the land professional and recordation.

The Area of Mutual Interest (AMI) on which the Employee’s override is owed will be the same as the AMI entered into by Yuma with the third party drilling participants, and will be subject to any amendment of the agreement with the third party participants.

 

ARTICLE X.  SELLING OF ORRI

If Employee wishes to sell his ORRI on any Yuma Prospect during his employment with Yuma, Employee shall notify Yuma in writing of his intent to sell.  Yuma will have 30 days from the date of Employee’s notice of intent to sell to provide Employee with a bona fide offer in writing.

ARTICLE XI.  EXPENSES

Yuma agrees to reimburse Employee for all normal business expenses needed to carry out his duties, including, without limitation, expenses of attending pre-approved seminars and conferences, business-related travel, and business-related entertainment.  Yuma will reimburse Employee expenses associated with professional associations and continuing professional education with preapproval.  Employee must submit a proper expense report consistent with Company policy and regulations promulgated by the Internal Revenue Service in order to obtain reimbursement.

ARTICLE XII.  RELATIONSHIP OF PARTIES

During the Employment Period of this Agreement, Employee shall be an employee of Yuma and shall not directly or indirectly render any services of a commercial or professional nature to any other person or business organization (excluding church or family matters), whether or not for compensation, without the prior written consent of the Company.

ARTICLE XIII.  NONDISCLOSURE OF INFORMATION CONCERNING BUSINESS

Except as may be required in the performance of his duties under this Agreement, Employee will not at any time, in any fashion, form, or manner, either directly or indirectly divulge, disclose, or communicate to any person (exclusive of Yuma employees), firm, or corporation in any manner whatsoever any information of any kind, nature, or description concerning any matters affecting or relating to the business of Yuma, including, without limitation, information concerning any of its Prospects, acquisitions, or joint ventures, the name of any customers, the prices it obtains or has obtained, or at which it sells or has sold its products, or any other information concerning the business of Yuma, its manner of operation, or its plans, processes, or other data of any kind, nature, or description without regard to whether any or all of the foregoing matters would be deemed confidential, material, or important. The parties hereby stipulate that, as between them, the foregoing matters are important, material, and confidential, and gravely affect the effective and successful conduct of the business of Yuma, and its good will, and that any breach of the terms of this section is a material breach of this Agreement.

  

5

  

ARTICLE XIV.  CONFIDENTIAL INFORMATION AND NON-SOLICITATION

Employee acknowledges that in the course of his affiliation with Yuma, he has been provided with confidential and proprietary information about Yuma and its business, and that concurrently with the execution hereof and during the Employment Period of this Agreement, Employee will be provided with Confidential Information, as hereinafter defined, of which Employee has not had previous knowledge.  Employee acknowledges that all Confidential Information is of great value to Yuma, and essential to Yuma's preservation of its business and goodwill. In recognition and in consideration of the foregoing and of the training and education to be provided by Yuma, Employee expressly covenants and agrees:

	
  

	
A.

	
Definition of Confidential Information.  For purposes hereof, “Confidential Information” shall mean:

	
1)  

	
The financial condition of Yuma; records of transactions, and other information concerning the business of Yuma; or any information acquired from the inspection of Yuma’s records or property;

	
2)  

	
The name and location of any Yuma Prospects, Projects, acquisitions or joint ventures;

	
3)  

	
Leads, Prospects, Projects, potential discoveries of hydrocarbons, seismic data and interpretations thereof, geological and Prospect maps, future development drilling locations, drilling reports, well logs, technical processes, pricing and bidding methods, proprietary marketing and proprietary sales techniques, production and processing techniques, systems, products, services, designs, inventions, research records, technical data, information about costs, profits, and key personnel, heretofore or hereafter acquired, developed and/or used by Yuma;

	
4)  

	
2D seismic lines and seismic data, which are licensed and/or the property of Yuma.  Employee will not keep copies of such data;

	
5)  

	
Terms and provisions of any seismic, joint venture, farm-out, farm-in, seismic survey participation, or drilling participation agreements; terms of any special JOA provisions;

	
6)  

	
Terms and provisions of this Agreement, and of Yuma polices, manuals, guidelines or internal directives.

	
  

	
B.

	
Employee Shall Not Disclose Confidential Information.  Employee agrees that the direct or indirect disclosure of any Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, and cause irreparable harm to the Company.  Employee also agrees that disclosure of Confidential Information may constitute improper appropriation and/or use of proprietary information and trade secrets.  Except as set forth in Paragraph C below, or when the Confidential Information is part of the marketing effort for Prospects and Projects, or where authorized by the CEO of Yuma for the benefit of Yuma, Employee agrees that Employee shall not, directly or indirectly, at any time, divulge to any persons, firms, corporations, governmental entities or agencies or other entities, any Confidential Information.  This non-disclosure of Confidential Information covenant shall extend for a period of two years following the termination of this agreement.

	
  

	
C.

	
Exceptions to Non-Disclosure of Confidential Information.  Notwithstanding the foregoing, the restrictions on disclosure shall not apply to any Confidential Information or portion thereof which:

	
1)  

	
At the time of disclosure by Employee is generally and readily available to the public other than by an act or omission on the part of Employee;

	
2)  

	
At the time of disclosure by Employee has been acquired from or made available to Employee by a third party having the lawful right to disclose such information;

	
3)  

	
Employee is required to disclose pursuant to any state or federal law, rule or regulation or by an applicable judgment, order or decree of any court or government body or agency having jurisdiction over such matter. However, if possible Employee will notify Yuma in writing at least twenty (20) days prior to the date of such required disclosure to enable Yuma to seek an appropriate protective order to take such other actions as it deems necessary or appropriate;

	
4)  

	
Employee may disclose the terms of this Agreement to his creditors, mortgage lenders, and financial institutions as required. In addition, Employee may divulge information relating to the occurrence of a change in control, to calculations of payments required under this Agreement, or to a termination of this Agreement, to Employee's attorney or accountant solely for such attorney's or accountant's confidential use with respect thereto. Employee shall provide Yuma with a copy of such information and the name of the accountant or attorney given such information.

	
  

	
D.

	
Non-Solicitation. Employee acknowledges and agrees that the Company has concurrently with the signing of this Agreement and will during the Employment Period provide Confidential Information to Employee.  Therefore, Employee will acquire unique knowledge of the operations and business of the Company.  Employee further acknowledges and recognizes that the Company is placing its confidence and trust in Employee and that it would be impossible for Employee to perform Employee’s duties with the Company without the Company disclosing the Confidential Information or without Employee utilizing the Confidential Information to which Employee is being given concurrently with the execution hereof and during the course of Employee’s employment.  In consideration of disclosing the Confidential Information to Employee, the receipt of which is hereby acknowledged by Employee, Employee covenants and agrees that:

  

6

  

	
1)  

	
Employee shall not at any time, solicit or cause or authorize directly or indirectly to be solicited, or accept or cause or authorize directly or indirectly to be accepted, for or on behalf of himself or third parties, any business from third parties who are not considered normal industry participants.  For clarification, this non-solicitation provision would include contacts developed personally by Sam Banks such as Ignacio Rivas and Ricardo Goizueta from Madrid, Spain. Further, this covenant extends for a period of two (2) years following the termination of this Agreement.

	
2)  

	
For the Employment Period of this Agreement, and for two (2) years after this Agreement is terminated, Employee agrees not to solicit or cause or authorize directly or indirectly to be solicited for employment, or cause or authorize directly or indirectly to be employed, for or on behalf of the Employee or any third parties, any person who is a current employee of Yuma.

	
  

	
E.

	
Return of Confidential Information upon Termination.  Employee expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protected business interest of the Company.  All files, records, documents, memoranda, software, electronic data or other writings whatsoever made, compiled, acquired, or received by Employee during the Employment Period with Company arising out of, in connection with, or related to any activity or business of the Company are the sole and exclusive property of the Company, and shall, together with all copies thereof, be returned to the Company by Employee immediately, without demand, upon the termination of Employee’s employment with the Company.

	
  

	
F.

	
Injunctive and Other Relief.  Employee acknowledges and agrees that the services to be rendered by him to the Company are of a special, unique and extraordinary character and, in connection with such services, he will have access to business opportunities, intellectual property and Confidential Information vital to the Company’s business.  Employee acknowledges that a remedy at law for any breach or attempted breach of the foregoing under this Article will be inadequate, and agrees that the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity under this Agreement or otherwise:

	
1)  

	
The right and remedy to have each and every one of the covenants in this Agreement specifically enforced and the right and remedy to obtain injunctive relief, it being agreed that any breach or threatened breach of any of the non-solicitation or other restrictive covenants and agreements contained herein would cause irreparable injury to the Company and its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy at law to the Company and its subsidiaries, affiliates, successors or assigns.  The Company shall not be prohibited by this provision from pursuing all other remedies at law or equity available to the Company, including a claim for losses and damages.

	
  

	
G.

	
Reasonableness of Limitations.  Employee acknowledges and agrees that the restrictive covenants and agreements contained herein are reasonable and valid in geographic, temporal and subject matter scope and in all other respects, and do not impose limitations greater than are necessary to protect the goodwill, Confidential Information, and other business interests of the Company, and its affiliates, successors and assigns.  If, however, any court subsequently determines that any of such covenants or agreements, or any part thereof, is invalid or unenforceable, the remainder of such covenants and agreements shall not thereby be affected and shall be given full effect without regard to the invalid portions.

	
  

	
H.

	
Survival.  Each covenant provided in this agreement under Article XIV hereof shall survive the termination of this Agreement and of Employee’s employment with the Company, whether by resignation, discharge or otherwise.

ARTICLE XV.  NOTICES

All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or by registered mail, return receipt requested in the United States mail, postage paid, addressed as follows:

 

	 	Company: 	The Yuma Companies, Inc.
	 	 	 
Attn: Mr. Michael F. Conlon

	 	 	 
1177 West Loop South, Suite 1825

	 	 	 
Houston, Texas 77027

	 	 	 
	 	Employee: 	On file with the Company.

 

Either party may change such addresses from time to time by providing written notice in the manner set forth above.

  

7

  

ARTICLE XVI.  ENTIRETY OF AGREEMENT

This Agreement supersedes all other agreements, either oral or in writing, between the parties to this Agreement, with respect to the employment of the Employee by Yuma.  This Agreement contains the entire understanding of the parties and all of the covenants and agreements between the parties with respect to such employment.

ARTICLE XVII.  AMENDMENT

This Agreement may be modified or amended only if the modification or amendment is made in writing and is signed by both parties.

ARTICLE XVIII.  SEVERABILITY

If any provisions of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable.  If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it should become valid or enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.

ARTICLE XIX.  WAIVER OF CONTRACTUAL RIGHT

The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party’s right to subsequently enforce and compel strict compliance with every provision of this Agreement.

ARTICLE XX.  APPLICABLE LAW

The laws of the State of Texas shall govern this Agreement.

ARTICLE XXI.  ALTERNATIVE DISPUTE RESOLUTION

All controversies, claims and disputes arising under or relating to this Agreement, including tort claims and including the issue of arbitrability shall be first submitted to mediation, and if that is unsuccessful, then the dispute shall be finally resolved by arbitration under the procedures hereafter detailed.

	
  

	
A.

	
Mediation.  Mediation, as defined in Section 154-023 of the Texas Civil Practices and Remedies Code, shall be initiated by written notice from one party to the other.  The notice shall reasonably describe and identify the issues or claims to be mediated.  The other party can respond with a written notice of additional issues or claims.  The parties shall schedule a mediation to take place within 30 days from the receipt of the written notice of mediation, pursuant to the Mediation Procedures of the CPR International Institute for Conflict Prevention & Resolution (“CPR”) in effect on the date of this Agreement. Unless otherwise agreed, the parties will select a mediator from the CPR Panels of Distinguished Neutrals.  All proceedings pursuant to this paragraph are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence and any additional confidentiality protections provided by applicable law.

	
  

	
B.

	
Arbitration.

	
1)  

	
If the dispute has not been resolved by the mediation provided for herein, it shall then be finally resolved by arbitration in accordance with the CPR Rules for Non-Administered Arbitration (the “CPR Rules”) in effect on the date of this Agreement.  Either party may initiate the arbitration by filing its statement of claim within fifteen days after the mediation provided for herein.

	
2)  

	
The arbitration shall be conducted and decided by a person mutually agreeable to the parties and knowledgeable and experienced in the type of matter that is the subject of the dispute.  If the parties cannot agree on an arbitrator within fifteen (15) days after arbitration has been initiated by the filing of the notice, then he/she shall be selected from the CPR Panel using the CPR Rules.

	
3)  

	
The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. 1-16.  The arbitration shall occur in Houston, Texas, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.

	
4)  

	
If reasonably possible, arbitration shall be commenced within 30 days of the selection of the arbitrator.  The arbitrator shall render the award not later than 30 days after the last hearing date.

  

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5)  

	
The arbitrator shall bill his or her fees and costs attributable to such binding arbitration in equal shares to the parties and each party shall bear its own attorneys’ fees and/or out-of-pocket costs expended by it. If any party seeks to modify or overturn all or a portion of the arbitrator’s award and is unsuccessful, then the opposing party shall be awarded all of its reasonable attorneys’ fees incurred in the arbitration.  If it becomes necessary for a prevailing party to secure judicial confirmation of the award and to otherwise undertake legal action to collect an award, then such party shall be entitled to its reasonable attorneys’ fees and all costs for such action.

	
6)  

	
No Punitive Damages.  No punitive damages are recoverable in the arbitration.  The arbitrator is not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover any punitive or exemplary damages with respect to any dispute between them.

ARTICLE XXII.  EMPLOYEE ACKNOWLEDGMENT

Employee has read the contents of this Agreement, understands its terms, and agrees that, in consideration for his employment or continuing employment, training with the Company, and any other consideration recited herein, he will be bound by the terms, covenants and restrictions set forth in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement this 1st day of June, 2012.

THE YUMA COMPANIES, INC.

/s/ Michael F. Conlon

By:         Michael F. Conlon, President & COO

/s/ Kirk F. Sprunger

Kirk F. Sprunger

 

  

9

  

 

EXHIBIT “A”

To that Employment Agreement

Dated June 1, 2012

Between The Yuma Companies, Inc.

and

Kirk F. Sprunger

Definitions

As used herein, each term defined in the Agreement shall have the meaning assigned in the Agreement, unless expressly provided below to the contrary.  The Agreement has been divided into articles and paragraphs for convenience only, and it is understood that the rights, powers, privileges, duties, and other legal relations of the parties hereto shall be determined as an entirety without regard to such divisions into articles and paragraphs and without regard to headings prefixed to such articles and paragraphs.

	
(a)

	
The term “AFE” shall mean authorization for expenditure.  An AFE is a form which is widely used in the oil and gas industry when wells are drilled or a capital expenditure is planned by multiple parties.

	
(b)

	
The term “Agreement” shall mean this Employment Agreement, as amended, modified, or supplemented from time to time.

	
(c)

	
The term “Area of Mutual Interest” or “AMI” shall mean an agreement between or among parties to a farm-out agreement or a joint operating agreement or other agreement by which the parties attempt to describe a geographical area within which they agree to share certain additional leases or other interests acquired by any of them in the future.

	
(d)

	
The term “Article” shall mean an article of this agreement, unless the context otherwise requires.

	
(e)

	
Regarding a dismissal for cause, the term “Cause” shall be defined as any of the following: fraud or dishonesty committed by Employee against or with respect to Yuma, its affiliates or customers as shall be reasonably determined to have occurred by the Board of Directors of the Company; conviction of Employee of a felony by a court of competent jurisdiction; continued violation of the policies outlined in the Company’s Employee Handbook; unprofessional behavior as determined by a majority of the Company’s Board of Directors; continued and willful failure or refusal by Employee to perform the duties and services required of Employee hereunder if such failure and/or refusal is not cured within thirty (30) days after written notice thereof is provided to Employee by Yuma.

	
(f)

	
The term “Carried Working Interest” or “CWI” shall mean an agreement between Yuma and other participants in the well where one or more participants agree to pay a disproportionate amount of Yuma’s costs in a Seismic Project, the drilling and/or completion costs of a well(s), or a combination of both.

	
(g)

	
The term “Change in Control” shall mean the occurrence of any of the following:

	
i.  

	
Any transaction or series of related transactions resulting in the sale or issuance of securities by Yuma, or any rights to securities of Yuma, representing in the aggregate more than 50% of its issued and outstanding voting securities (or more than 50% of the voting power), on a fully diluted basis; or any transaction or series of related transactions resulting in the sale, transfer, assignment or other conveyance or disposition of any securities, or any rights to securities of Yuma, by any holder or holders thereof representing in the aggregate more than 50% of the issued and outstanding voting securities of Yuma (or more than 50% of the voting power), on a fully diluted basis and the receipt of any consideration in connection therewith;

	
ii.  

	
A merger, consolidation, reorganization, recapitalization or share exchange in which the stockholders of Yuma, immediately prior to such transaction, receive in exchange for securities of Yuma owned by them, cash, property or securities of the resulting or surviving entity and, as a result thereof, Persons who were holders of voting securities of Yuma hold less than 50% of the capital stock, calculated on a fully diluted basis, of the resulting corporation entitled to vote in the election of directors.

	
(h)

	
The term “CEO” shall mean Chief Executive Officer.

	
(i)

	
The term “COO” shall mean Chief Operating Officer.

  

10

  

	
(j)

	
The term “Employee Prospect” shall mean a Prospect originated or generated by Employee and accepted by the President of the Company in writing.  The Prospect cannot have come from a third-party source, but must be the unique idea of Employee, sponsored within the Company by Employee, and formally accepted as such by the Company.

	
(k)

	
The term “Finding Costs” shall mean the cost of finding commercial oil or gas, including all expenses involved in acquiring acreage, survey work and the cost of drilling.

	
(l)

	
The term “Lead” shall mean any idea which suggests a direction for further geological and or geophysical investigation.  A Lead can be a step in the direction toward creating a Prospect.  A Lead is a geological or geophysical idea which lacks the supporting data to be considered drillable.

	
(m)

	
The term “Net Revenue Interest” or “NRI” shall mean the share of Production after satisfaction of all royalty, overriding royalty, and other interests burdening the revenue stream.

	
(n)

	
The term “New Prospect” shall mean any Prospect not tested (a well drilled to evaluate the presence of hydrocarbons) and not specifically listed in Exhibits “B”, “C”, or “D”.

	
(o)

	
The term “ORRI” shall mean overriding royalty interest, or interest in oil and gas produced at the surface, free of the expense of Production, and in addition to the usual land owner’s royalty reserved to the lessor in an oil and gas lease.  An ORRI shall be free and clear of any costs of drilling, development and operations, but shall bear its proportionate part of all severance and other taxes and all marketing costs on Production, including costs incurred in dehydrating, treating, transporting, boosting, compressing or otherwise processing oil and gas in order to make same marketable.

	
(p)

	
The term “Peer Review” shall mean the process of vetting an idea or Lead by Company employees or outside parties prior to accepting the idea or Lead as a Prospect.

	
(q)

	
The term “Play” shall mean a producing trend or area believed to have the potential of additional oil and/gas accumulations within a particular geologic interval.

	
(r)

	
The term “Prior Developed Prospect” shall mean any Prospect or Project idea which Employee developed and illustrated through maps, cross-sections, or other interpretations in Employee’s possession prior to joining Yuma as either a full time employee or consultant.

	
(s)

	
The term “Production” shall mean: (i) the act or process of producing; (ii) the products of an oil and gas well; or (iii) the well itself.

	
(t)

	
The term “Prospect” shall mean the identification of the existence of a certain geological structure, conducive to the Production of oil and gas underlying a certain area of land.

	
  

	 

	
(u)

	
The term “Reserve” shall mean that portion of the identified oil and/or gas resource from which a usable mineral and energy commodity can be economically and legally extracted at the time of determination.

	
(v)

	
The term “Sold” shall mean that all participants have executed their participation agreements and joint operating agreements, and all monies, including drilling dollars on the Prospects operated by Yuma, are received and, on those not operated by Yuma, when all monies due the operator are received.

	
(w)

	
The term “3-D Seismic Project” shall mean the identification of the existence of “Lead”(s) in a geographical area, requiring a 3-D seismic survey to be conducted in order to mature the “Lead”(s) to a “Prospect”(s) status.

	
(x)

	
The term “Unconventional” Projects and Prospects shall mean those projects/prospects which are regional in nature and typically lack definable water contacts and/or hydrocarbon traps.  For clarification, plays such as the Bakken and Eagle Ford are “Unconventional”.  “Conventional” Projects and Prospects shall mean those projects/prospects which are localized hydrocarbon traps formed by discrete structural or stratigraphic closures.

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