TENGASCO, INC.
If your share ownership is beneficial (that is, your shares are held in the name of a bank, broker or other nominee referred to as in “street name”), your broker, bank, or nominee will issue you a voting instruction form that you use to instruct them how to vote your shares. Your brokervoting instruction must follow your voting instructions.be followed. Although most brokers and nominees offer mail, telephone and internet voting, availability and specific procedures will depend on their respective voting arrangements.If you wish to vote your shares that are held in street name in person at the Annual Meeting, you must request and obtain a “legal proxy” from your bank or broker (not from the Company) and bring the “legal proxy” to the annual meeting or you will not be permitted to vote your shares in person at the meeting. You must bring a “legal proxy” to vote in person at the meeting even if you have not instructed your broker to vote your shares. A legal proxy is necessary to assure that shares held in street name that are to be voted in person at the Annual Meeting have not been double-counted as a result of the vote collecting process. You may not use the form of proxy set out at the end of this Proxy Statement in the place of a “legal proxy” obtained from your bank or broker, to vote shares held in street name in person at the Annual Meeting.
The cost of preparing, assembling and mailing the Notice of Internet Availability of Proxy materials, notice of meeting, proxy statement, the enclosed Annual Report on Form 10-K and proxy card will be borne by the Company. In addition to solicitation of the proxies by use of the mails, some of the officers and regular employees of the Company, without extra remuneration, may solicit proxies personally or by telephone, fax transmission or e-mail. The Company may also request brokerage houses, nominees, custodians and fiduciaries to forward soliciting material to the beneficial owners of the common stock. The Company will reimburse such persons for their expenses in forwarding soliciting material.
The following table sets forth the share holdings of those persons who own more than 5% of the Company's common stock as of April 2, 2012October 12, 2015 with these computations being based upon 60,737,41360,842,413 shares of common stock being outstanding as of that date and as to each shareholder, as it may pertain, assumes the exercise of options or warrants granted or held by such shareholder as of April 2, 2012.date:
PROPOSAL NO. 1:
Name | Positions Held | Date of Initial Election or Designation |
| | |
Jeffrey R. Bailey
| Director;
Chief Executive Officer
| 2/28/03-8/11/04; 10/21/04
7/17/02
|
Matthew K. Behrent | Director | 3/27/07 |
| | |
Hughree F. Brooks | Director | 12/03/10 |
| | |
Peter E. Salas | Director; Chairman of the Board | 10/8/02 10/21/04 |
| | |
Richard M. Thon | Director | 11/22/13 |
Background of Directors
Background of Directors
The following is a brief account of the experience, for at least the past five (5) years, of each nominee for director.
Jeffrey R. Bailey is 54 years old. He graduated in 1980 from New Mexico Institute of Mining and Technology with a B.S. degree in Geological Engineering. Upon graduation he joined Gearhart Industries as a field engineer working in Texas, New Mexico, Kansas, Oklahoma and Arkansas. Gearhart Industries later merged with Halliburton Company. In 1993, after 13 years working in various field operations and management roles primarily focused on reservoir evaluation, log analysis and log data acquisition he assumed a global role with Halliburton as a petrophysics instructor in Fort Worth, Texas. His duties were to teach Halliburton personnel and customers around the world log analysis and competition technology and to review analytical reservoir problems. In this role Mr. Bailey had the opportunity to review reservoirs in Europe, Latin America, Asia Pacific and the Middle East developing a special expertise in carbonate reservoirs. In 1997, he became technical manager for Halliburton in Mexico focusing on finding engineering solutions to the production challenges of large carbonate reservoirs in Mexico. He joined the Company as its Chief Geological Engineer on March 1, 2002. The experience, qualifications, attributes, and skills gained by Mr. Bailey in these oil and gas exploration and production industry positions directly apply to the operations of the Company and lead to the conclusion that Mr. Bailey should serve as a Director of the Company. Mr. Bailey was elected as President of the Company on July 17, 2002 and is presently the Company’s Chief Executive Officer. He was elected as a Director on February 28, 2003 and served as a Director until August 11, 2004. He was again elected to the Company’s Board of Directors on October 21, 2004 and has remained a Director since that time.
Matthew K. Behrent is 4145 years old. He currently is the Executive Vice President, Corporate Development of EDCI Holdings, Inc (OTC Pink Sheets: EDCI)Inc., a company that is currently engaged in carrying out a plan of dissolution. Before joining EDCI in June 2005, Mr. Behrent was an investment banker, working as a Vice-President at Revolution Partners, a technology focused investment bank in Boston, from March 2004 until June 2005 and as an associate in Credit Suisse First Boston Corporation's technology mergers and acquisitions group from June 2000 until January 2003. From June 1997 to May 2000, Mr. Behrent practiced law, most recently with Cleary, Gottlieb, Steen & Hamilton in New York, advising financial sponsors and corporate clients in connection with financings and mergers and acquisitions transactions. Mr. Behrent received his J.D. from Stanford Law School in 1997, and his B.A. in Political Science and Political Theory from Hampshire College in 1992. He became a Director of the Company on March 27, 2007. He is also a Director and Chairman of the Audit Committee of Asure Software, Inc. (Nasdaq: ASUR). The experience, qualifications, attributes, and skills gained by Mr. Behrent in these sophisticated legal and financial positions directly apply to and support the financial oversight of the Company’s operations and lead to the conclusion thatqualify Mr. Behrent shouldto serve as a Director of the Company.
Hughree F. Brooks is 5761 years old. In 2010, he co-founded Powerhouse Energy Solutions LLC, a company engaged in providing equipment and services to clients in renewable and alternative energy industries in the United States and abroad. Powerhouse is a provider of solar energy systems as well as advisory services to biofuel producers. Since 1998, Mr. Brooks has continuously provided consulting services in the oil and gas exploration industry. These services include land management, landowner representation, deal structuring and financing, and expert witness services. Mr. Brooks has 35 years of experience as a land manager with independent and major oil companies including Amoco Production, Mitchell Energy, Ladd Petroleum, Phoenix Exploration and Renown Petroleum Inc. His clients own in excess of 16,000 acres in South Louisiana with a long history of oil and gas production. In 2002, he founded and continues to serve as the Executive Director of Friends Of The Farm, a Texas nonprofit. Mr. Brooks is a licensed attorney who received his J.D. from Loyola Law School in 1980. He received a Bachelor of Science Degree in 1976 from Loyola University in New Orleans. The experience, qualifications, and skills of Mr. Brooks gained in an extensive career in the oil and gas exploration and production industry are directly related to the operations of the Company and lead to the conclusion thatqualify Mr. Brooks shouldto serve as a Director of the Company.
Peter E. Salas is 5761 years old. He has been President of Dolphin Asset Management Corp. and its related companies since he founded it in 1988. Prior to establishing Dolphin, he was with J.P. Morgan Investment Management, Inc. for ten years, becoming Co-manager, Small Company Fund and Director-Small Cap Research. He received an A.B. degree in Economics from Harvard in 1978. Mr. Salas was elected to the Board of Directors on October 8, 2002. Mr. Salas also serves on2002 and has served as Chairman of the board of Williams Controls, Inc.Board since October 12, 2004. During a portion of the last five years, Mr. Salas also served on the Board of Directors of Southwall Technologies, Inc. and Williams Controls, Inc. The business experience, attributes, and skills gained by Mr. Salas in these sophisticated financial positions, together with his service as director of other public companies and his capacity as controlling person of the Company’s largest shareholder directly apply to and support his qualification as a director, and lead to the conclusion that Mr. Salas should serve as a Director of the Company.
Richard M. Thon is 60 years old. He began a career with ARAMARK Corporation in 1987. ARAMARK is based in Philadelphia, has 270,000 employees worldwide, and provides food services, facilities management, and uniform and career apparel to health care institutions, universities, and businesses in 21 countries. Mr. Thon served in various capacities in the Corporate Finance Department of ARAMARK culminating with the position of Assistant Treasurer when he retired in June 2002. His responsibilities included bank credit agreements, public debt issuance, interest rate risk management, foreign subsidiary credit agreements, foreign exchange, letters of credit, insurance finance, off-balance-sheet finance, and real estate and equipment leasing. Prior to joining ARAMARK, Mr. Thon was a Vice President in the International Department of Mellon Bank. Since his retirement in 2002, Mr. Thon has served in a variety of volunteer charitable and civic activities. In addition, during a portion of the past five years, he served on the board of ACT Conferencing and Boston Restaurant Associates, Inc. Mr. Thon received a B.A. in Economics degree from Yale College in 1977 and a Masters of Business Administration degree in Finance from The Wharton School, University of Pennsylvania in 1979. The experience, professional qualifications, and skills gained by Mr. Thon and demonstrated during a career spanning several decades in the fields of banking and finance directly apply to the business needs of the Company and lead to the conclusions that Mr. Thon will provide significant benefit to the Board, and that he is eminently qualified to serve as a Director of the Company.
Director Independence
The Rules of the NYSE AmexMKT (the “NYSE AmexMKT Rules”) require that issuers,an issuer, such as the Company, which areis a Smaller Reporting Company pursuant to Regulation S-K Item 10(f)(1) maintain a board of directors of which at least one-half of the members are independent in that they are not officers of the Company and are free of any relationship that would interfere with the exercise of their independent judgment. The NYSE AmexMKT Rules also require that as a Smaller Reporting Company, the Company’s Board of Directors’ Audit Committee be comprised of at least two members all of whom qualify as independent under the criteria set forth in Rule 10 A-3 of the Securities Exchange Act of 1934 and NYSE AmexMKT Rule 803(b)(2)(c). The Board of Directors has determined that threeall four of the four director-nominees, Matthew K. Behrent, Hughree F. Brooks, Richard M. Thon, and Peter E. Salas, are independent as defined by the NYSE AMEXMKT Rules, and that Matthew K. Behrent, and Hughree F. Brooks, and Richard M. Thon are also independent as defined by Section 10A(m)(3) of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission and that each of these nominees does not have any relationship which would interfere with the exercise of his independent judgment in carrying out his responsibilities as a director. In reaching its determination, the Board of Directors reviewed certain categorical independence standards to provide assistance in the determination of director independence. The categorical standards are set forth below and provide that a director will not qualify as an independent director under the NYSE AmexMKT Rules if:
| · | The Director is, or has been during the last three years, an employee or an officer of the Company or any of its affiliates; |
· | · | The Director has received, or has an immediate family member32 who has received, during any twelve consecutive months in the last three years any compensation from the Company in excess of $120,000, other than compensation for service on the Board of Directors, compensation to an immediate family member who is an employee of the Company other than an executive officer, compensation received as an interim executive officer or benefits under a tax-qualified retirement plan, or non-discretionary compensation; |
| · | The Director is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the Company or any of its affiliates as an executive officer; |
| · | The Director, or an immediate family member, is a partner in, or controlling shareholder or an executive officer of, any for-profit business organization to which the Company made, or received, payments (other than those arising solely from investments in the Company’s securities) that exceed 5% of the Company’s or business organization’s consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years; |
| · | The Director, or an immediate family member, is employed as an executive officer of another entity where at any time during the most recent three fiscal years any of the Company’s executives serve on that entity’s compensation committee; or |
2 Under these categorical standards “immediate family member” includes a person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person’s home (other than a domestic employee). | · | The Director, or an immediate family member, is a current partner of the Company’s outside auditors, or was a partner or employee of the Company’s outside auditors who worked on the Company’s audit at any time during the past three years. |
The following additional categorical standards were employed by the Board in determining whether a director qualified as independent to serve on the Audit Committee and provide that a director will not qualify if:
| · | The Director directly or indirectly accepts any consulting, advisory, or other compensatory fee from the Company or any of its subsidiaries; or |
| · | The Director is an affiliated person43 of the Company or any of its subsidiaries. subsidiaries; or |
| · | The Director did not participateparticipated in the preparation of the Company’s financial statements at any time during the past three years. |
The independent members of the Board meet as often as necessary to fulfill their responsibilities, but meet at least annually in executive session without the presence of non-independent directors and management.
Committees
The Company’s Board has operating audit and compensation/stock option committees.
Audit Committee
In Fiscal 2011,2014, director-nominees Hughree F. Brooks and Matthew K. Behrent and director Dr. John A. Clendening who resigned as a director of the Company for health reasons on April 3, 2012 and is not being proposed as a director-nominee for election or reelection in this proxy statement,Richard M. Thon were the members of the Audit Committee.
Mr. Behrent was the Chairman of the Committee and theCommittee. The Board of Directors determined that both Mr. Behrent wasand Mr. Thon are qualified as an “audit committee financial expert” as defined by applicable Securities and Exchange Commission (“SEC”) regulations and the NYSE AmexMKT Rules. Each of the members of the Audit Committee met the independence and experience requirements of the NYSE AMEX Rules,MKT exchange rules, the applicable Securities Laws,securities laws, and the regulations and rules promulgated by the SEC.
The Audit Committee adopted an Audit Committee Charter during fiscal 2001. In 2004, the Board adopted an amended Audit Committee Charter, a copy of which is available on the Company’s internet website, www.tengasco.com. The Audit Committee Charter fully complies with the requirements of the NYSE AmexMKT Rules. The Audit Committee reviews and reassesses the Audit Committee Charter annually.
The Audit Committee's functions are:
| · | To review with management and the Company’s independent auditors the scope of the annual audit and quarterly statements, significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements; |
| · | To review major changes to the Company’s auditing and accounting principles and practices suggested by the independent auditors; |
| · | To monitor the independent auditor's relationship with the Company; |
| · | To advise and assist the Board of Directors in evaluating the independent auditor's examination; |
| · | To supervise the Company's financial and accounting organization and financial reporting; |
| · | To nominate, for approval of the Board of Directors, a firm of certified public accountants whose duty it is to audit the financial records of the Company for the fiscal year for which it is appointed; and |
| · | To review and consider fee arrangements with, and fees charged by, the Company’s independent auditors. |
The Audit Committee met each quarter and a total of five (5) times in Fiscal 2011 with the Company’s auditors, including discussing the audit of the Company’s year end financial statements. It is intended that if elected as directors in 2011, Messrs. Behrent and Brooks will continue to serve as members of the Audit Committee with Mr. Behrent again serving as the Chairman of the Committee and as its designated financial expert. Dr. Clendening resigned as a director of the Company for health reasons on April
3 2012 and is not being proposed as a director-nominee for election or reelection in this proxy statement.
.
Audit Committee Report
The Audit Committee has:
| I. | Reviewed and discussed the Company’s unaudited financial statements for the first three quarters of Fiscal 2011 and the Company’s audited financial statements for the year ended December 31, 2011 with the management of the Company and the Company’s independent auditors; |
| II. | Discussed with the Company’s independent auditors the matters required to be discussed by Statement of Auditing Standards No. 61, as the same was in effect on the date of the Company’s financial statements; and |
| III. | Received the written disclosures and the letter from the Company’s 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 the foregoing materials and discussions, the Audit Committee recommended to the Board of Directors that the unaudited financial statements for each of the first three quarters of Fiscal 2011 be included in the Quarterly Reports on Form 10-Q for those quarters and that the audited financial statements for the year ended December 31, 2011 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Members of the Audit Committee
Matthew K. Behrent
Hughree F. Brooks
3 Under these categorical standards “immediate family member” includes a person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person’s home (other than a domestic employee).
4 For purposes of this categorical standard, an “affiliated person of the Company” means a person that directly or indirectly through intermediaries controls, or is controlled by, or is under common control with the Company. A person will not be considered to be in control of the Company, and therefore not an affiliate of the Company, if he is not the beneficial owner, directly or indirectly of more than 10% of any class of voting securities of the Company and he is not an executive officer of the Company. Executive officers of an affiliate of the Company as well as a director who is also an employee of an affiliate of the Company will be deemed to be affiliates of the Company.
The Audit Committee's functions are:
| · | To review with management and the Company’s independent auditors the scope of the annual audit and quarterly statements, significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements; |
| · | To review major changes to the Company’s auditing and accounting principles and practices suggested by the independent auditors; |
| · | To monitor the independent auditor's relationship with the Company; |
| · | To advise and assist the Board of Directors in evaluating the independent auditor's examination; |
| · | To supervise the Company's financial and accounting organization and financial reporting; |
| · | To nominate, for approval of the Board of Directors, a firm of certified public accountants whose duty it is to audit the financial records of the Company for the fiscal year for which it is appointed; and |
| · | To review and consider fee arrangements with, and fees charged by, the Company’s independent auditors. |
The Audit Committee met each quarter and a total of five (5) times in Fiscal 2014 with the Company’s auditors, including discussing the audit of the Company’s year end financial statements. It is intended that if elected as directors in 2015, Messrs. Behrent and Thon will continue to serve as members of the Audit Committee with Mr. Behrent again serving as the Chairman of the Committee and with Messrs. Behrent and Thon each being an audit committee financial expert.
Audit Committee Report
The Audit Committee has:
| I. | Reviewed and discussed the Company’s unaudited financial statements for the first three quarters of Fiscal 2014 and the Company’s audited financial statements for the year ended December 31, 2014 with the management of the Company and the Company’s independent auditors; |
| II. | Discussed with the Company’s independent auditors the matters required to be discussed by Statement of Auditing Standards No. 61, as the same was in effect on the date of the Company’s financial statements; and |
| III. | Received the written disclosures and the letter from the Company’s 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 the foregoing materials and discussions, the Audit Committee recommended to the Board of Directors that the unaudited financial statements for each of the first three quarters of Fiscal 2014 be included in the Quarterly Reports on Form 10-Q for those quarters and that the audited financial statements for the year ended December 31, 2014 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
| Members of the Audit Committee |
| |
| Matthew K. Behrent |
| Richard M. Thon |
Nominations for the Board of Directors are determined by the independent directors pursuant to procedures adopted by the Board. Those procedures provide that the qualifications that should be met by any person recommended as a nominee for a position on the Company’s Board of Directors should include one or more of the following: a background or experience in oil and gas exploration, production, transportation, geology, construction, finance or in another business, government service, or profession that would reasonably enable the nominee to provide seasoned and reputable service to the shareholders of the Company in the performance of the duties of a member of the Board of Directors. The Board has not paid fees to any third party to identify, evaluate or to assist in identifying or evaluating, potential nominees, but may do so in the future if itthe Board determines it necessary.doing so is necessary or appropriate.
The Board has no policy regarding the consideration of “diversity” in identifying nominees for director. The Company has no separate policy with regard to the consideration of any director candidates recommended by security holders. However, the Board will consider director candidates recommended by security holders provided that such nominations are timely made as set forth hereinafter under the heading “Stockholders Proposals”. Any person recommended by a security holder to serve on the Board of Directors is considered upon the same terms as candidates recommended by any other person. To date, the Company has not received any recommendations from shareholders requesting that the Company consider a candidate for inclusion among the Committee’s slate of nominees in the Company’s proxy statement.
Among the nominating procedures are the following:
| · | Any shareholder, officer, or director may recommend for nomination any person for the slate of candidates for membership on the Company’s Board of Directors to be presented to the shareholders at the Company’s annual meeting of shareholders. Such recommendations must be furnished in writing addressed to the Company’s Board of Directors at the Company’s principal offices. All such nominations will be furnished to the Board which may conduct interviews, investigations or make other determinations as to the qualifications of such recommended persons. |
| · | Any then-current members of the Board of Directors desiring to stand for re-election may be placed on the slate of directors for re-election without further inquiry as to their qualifications. |
| · | The Board will determine the slate of candidates for the Board in such a manner and at such a time so as not to delay either the mailing of the proxy statement to the Company’s shareholders or the annual meeting of shareholders. |
| · | The adopted procedures apply only to the determination of the slate of directors to be presented for election at the annual meeting of the shareholders. Any vacancies on the Board of Directors following the annual meeting of shareholders may be filled in the manner currently applicable under the Company’s Charter, Bylaws, and applicable state law. |
| · | The procedures adopted may be amended from time to time by the Board of Directors in order to comply with any applicable provision or interpretation of any rule, statute, or stock exchange rule of the exchange on which the Company’s stock may be listed. |
The nomination procedures adopted are posted on the Company’s internet website at www.tengasco.com. In the event of any such amendment to the procedures, the Company intends to disclose the amendments on the Company's internet website within five business days following such amendment.
The independent members of the Board determined the slate of candidates for the Board of Directors presented for election at this year’s Annual Meeting.
Compensation/Stock Option Committee
The members of the Compensation/Stock Option Committee in Fiscal 20112014 were John A. Clendening, Matthew K. Behrent, Richard M. Thon, and Hughree F. Brooks with Mr. Brooks acting as Chairman. Messrs. Behrent, Salas, and Brooks meet the current independence standards established by the NYSE AmexMKT Rules. On November 22, 2013, Mr. Thon was elected to the Board and replaced Mr. Salas on the Compensation/Stock Option Committee. Mr. Thon is also independent under the exchange rules. It is intended that if elected as a director in 2012, Mr.2015, Messrs. Behrent and Thon will continue to serve as a membermembers of the Compensation/Stock Option Committee along with Mr. Brooks who will again serve as the Chairman of the Committee. Dr. Clendening resigned as a director of the Company for health reasons on April 3, 2012 and is not being proposed as a director-nominee for election or reelection in this proxy statement.
The Board of Directors has adopted a charter for the Compensation/Stock Option Committee which is available at the Company’s internet website, www.tengasco.com.www.tengasco.com.
The Compensation/Stock Option Committee’s functions, in conjunction with the Board of Directors, are to provide recommendations with respect to general and specific compensation policies and practices of the Company for directors, officers and other employees of the Company. The Compensation/Stock Option Committee expects to periodically review the approach to executive compensation and to make changes as competitive conditions and other circumstances warrant and will seek to ensure the Company's compensation philosophy is consistent with the Company's best interests and is properly implemented. The Committee determines or recommends to the Board of Directors for determination the specific compensation of the Company’s Chief Executive Officer and all of the Company’s other officers. Although the Committee may seek the input of the Company’s Chief Executive Officer in determining the compensation of the Company’s other executive officers, the Chief Executive Officer may not be present during the voting or deliberations with respect to his compensation. The Committee may not delegate any of its responsibilities unless it is to a subcommittee formed by the Committee, but only if such subcommittee consists entirely of directors who meet the independence requirements of the NYSE Amex Rules.MKT exchange rules.
The Compensation/Stock Option Committee is also charged with administering the Tengasco, Inc. Stock Incentive Plan (the “Stock Incentive Plan”). The Compensation/Stock Option Committee has complete discretionary authority with respect to the awarding of options and Stock Appreciation Rights (“SARs”), under the Stock Incentive Plan, including, but not limited to, determining the individuals who shall receive options and SARs; the times when they shall receive them; whether an option shall be an incentive or a non-qualified stock option; whether an SAR shall be granted separately, in tandem with or in addition to an option; the number of shares to be subject to each option and SAR; the term of each option and SAR; the date each option and SAR shall become exercisable; whether an option or SAR shall be exercisable in whole, in part or in installments and the terms relating to such installments; the exercise price of each option and the base price of each SAR; the form of payment of the exercise price; the form of payment by the Company upon the exercise of an SAR; whether to restrict the sale or other disposition of the shares of common stock acquired upon the exercise of an option or SAR; to subject the exercise of all or any portion of an option or SAR to the fulfillment of a contingency, and to determine whether such contingencies have been met; with the consent of the person receiving such option or SAR, to cancel or modify an option or SAR, provided such option or SAR as modified would be permitted to be granted on such date under the terms of the Stock Incentive Plan; and to make all other determinations necessary or advisable for administering the Plan.
The Compensation/Stock Option Committee met eight (8)four (4) times in Fiscal 2011.2014. The Committee has the authority to retain a compensation consultant or other advisors to assist it in the evaluation of compensation and has the sole authority to approve the fees and other terms of retention of such consultants and advisors and to terminate their services. The Committee did not retain any such consultants or advisors in 2014.
Compensation/Stock Option Committee Interlocking and Insider Participation
No interlocking relationship existed or exists between any member of the Company's Compensation/Stock Option Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member or nominee of the Compensation/Stock Option Committee is now or was during Fiscal 2011previously an officer or an employee of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who beneficially own more than 10% of the Company’s Common Stock to file initial reports of ownership and reports of changes in ownership with the SEC no later than the second business day after the date on which the transaction occurred unless certain exceptions apply. In fiscal 2011,2014, the Company, its officers, and directors and its shareholders owning more than 10% of its common stock were not delinquent in filing of any of their Form 3, 4, and 5 reports.
Family and Other Relationships
There are no family relationships between any of the present directors or executive officers of the Company.
Involvement in Certain Legal Proceedings
To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficially of more than 5% of the Company's common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.
To the knowledge of management, during the past ten years, unless specifically indicated below with respect to any numbered item, no present director, executive officer or person nominated to become a director or an executive officer of the Company:
| (1) | Filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing; provided however that the Company’s Chief Executive Officer and Chief Financial Officer Michael J. Rugen during 2007 through mid 2009 was Vice President of Accounting and Finance for Nighthawk Oilfield Services in Houston, Texas (Nighthawk); Nighthawk filed for bankruptcy protection under Chapter 7 of the bankruptcy laws on July 10, 2009 and such fact was affirmatively disclosed to the Company’s Board before Mr. Rugen was appointed to the position of Chief Financial Officer of the Company in September 2009, and the Board determined that the circumstances surrounding bankruptcy filing did not disclose any reason to question the integrity or qualifications of Mr. Rugen for the position of Chief Financial Officer of the Company. |
| (2) | Was convicted in a criminal proceeding or named the subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| (3) | Was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting the following activities: (a) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; (b) engaging in any type of business practice; or (c) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; |
| (4) | Was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting him or her for more than 60 days from engaging inanyin any activity described in paragraph 3(a) above, or being associated with any persons engaging in any such activity; |
| (5) | Was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; |
| (6) | Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission (“CFTC”) to have violated any federal commodities law, and the judgment in such civil action or finding by the CFTC has not been subsequently reversed, suspended, or vacated; |
| (7) | Was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; (ii) any law or regulation respecting financial institutions or insurance companies including but not limited to a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease and desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| (8) | Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act [15 U.S.C. 78c(a)(26)], any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act [7 U.S.C. 1(a)(29)], or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Stockholder Communications with the Board of Directors
Stockholders may communicate with the Board of Directors of the Company by writing to: Cary V. Sorensen, Secretary, Tengasco, Inc., 11121 Kingston Pike,6021 S. Syracuse Way, Suite E, Knoxville TN 37934117, Greenwood Village, CO 80111 or by e-mail: to: csorensen@tengasco.com Subject: Communication to Board of Directors. All letters and e-mails will be answered, if possible, and will be distributed to Board members as appropriate. Notwithstanding the foregoing, the Company has the authority to discard or disregard any communication, which is unduly hostile, threatening, illegal or otherwise inappropriate or to take any other appropriate actions with respect to such communications.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Name and Address | Title | Number of Shares | Percent of |
| | | |
Jeffrey R. Bailey
| Director;
Chief Executive
Officer
| | 1.4% |
Matthew K. Behrent | Director | Director | | Less than 1% |
| | | |
Hughree F. Brooks | Director | | Less than 1% |
| | | |
Michael J. Rugen | Chief Financial Officer | | Less than 1%- |
| | | |
Peter E. Salas | Director; Chairman of the Board | | 34.8%34.5% |
| | | |
Cary V. Sorensen | Vice President; General Counsel; Secretary | | Less than 1% |
Charles P. McInturff
| Vice President | | |
Richard M. Thon | Director | | Less than 1% |
| | | |
All Officers and Director-Nominees As Directors as a group | | | 38.1%35.5% |
54Unless otherwise stated, all shares of common stock are directly held with sole voting and dispositive power. The shares set forth in the table are as of April 2, 2012.
October 12, 2015.65Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of 1934 based upon 60,737,41360,842,413 shares of common stock being outstanding as of April 2, 2012.October 12, 2015. Shares not outstanding that are subject to options or warrants exercisable by the holder thereof within 60 days of April 2, 2012October 12, 2015 are deemed outstanding for the purposes of calculating the number and percentage owned by such stockholder, but not deemed outstanding for the purpose of calculating the percentage of any other person. Unless otherwise noted, all shares listed as beneficially owned by a stockholder are actually outstanding.
7Consists of 749,494 shares held directly and vested, fully exercisable options to purchase 127,000 shares.
86Consists of 33,000 shares held directly and vested, fully exercisable options to purchase 131,250143,750 shares.
97 Consists of vested, fully exercisable options to purchase 31,250118,750 shares.
10 Consists of vested, fully exercisable8 Mr. Rugen’s options to purchase 160,000 shares.
400,000 shares expired on September 27, 2015.119Consists of 218,000 shares held directly, vested, fully exercisable options to purchase 131,250143,750 shares, 218,000 shares held individually, and 20,839,49220,639,156 shares held directly by Dolphin Offshore Partners, L.P. (“Dolphin”). Peter E. Salas is the sole shareholder of and controlling person of Dolphin Management,Mgmt. Services, Inc. which is the general partner of Dolphin.
1210Consists of 236,226 shares held directly and vested, fully exercisable options to purchase 74,000 shares.
directly.1311Consists of vested, fully exercisable options to purchase 400,00050,000 shares.
1412Consists of 1,236,72021,126,382 shares held directly by directors and management, 20,839,492 shares held by Dolphin and vested, fully exercisable options to purchase 1,054,750456,250 shares.
Change in Control
To the knowledge of the Company’s management, there are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.
EXECUTIVE COMPENSATION
Executive OfficerThe Company is a “smaller reporting company” under the rules promulgated by the Securities and Exchange Commission and complies with the disclosure requirements specifically applicable to smaller reporting companies. This Section and Summary Compensation Table are not intended to meet the “Compensation Disclosure and Analysis” disclosure that is required to be made by larger reporting companies.
The following table sets forth a summary of all compensation awarded to, earned or paid to, the Company's Chief Executive Officer, Chief Financial Officer and other executive officers whose compensation exceeded $100,000 during fiscal years ended December 31, 20112014 and December 31, 2010.2013.
SUMMARY COMPENSATION TABLE | |
| | | Salary | | | Bonus | | | Option Awards | | | All Other Compensation13 | | | Total | |
Name and Principal Position | Year | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
Michael J. Rugen, | 2014 | | | 186,716 | | | | 68,343 | | | | - | | | | 53,597 | | | | 308,656 | |
Chief Executive Officer (interim)14 Chief Financial Officer | 2013 | | | 155,770 | | | | 52,500 | | | | - | | | | 14,828 | | | | 223,098 | |
Cary V. Sorensen, | 2014 | | | 137,940 | | | | 5,000 | | | | - | | | | 9,788 | | | | 152,728 | |
General Counsel | 2013 | | | 137,940 | | | | - | | | | - | | | | 10,221 | | | | 148,161 | |
Jeffrey R. Bailey, | | | | | | | | | | | | | | | | | | | | | |
C. E. O. (former)15 | 2013 | | | 98,500 | | | | 27,000 | | | | - | | | | 6,933 | | | | 132,433 | |
Charles P. McInturff, | | | | | | | | | | | | | | | | | | | | | |
Vice President16 | 2013 | | | 182,970 | | | | - | | | | - | | | | 12,335 | | | | 195,305 | |
SUMMARY COMPENSATION TABLE |
| | Salary | Bonus | | | Total |
Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) |
Jeffrey R. Bailey, | 2011 | 189,750 | 59,297 | - | 14,278 | 263,325 |
Chief Executive Officer | 2010 | 189,750 | 68,073 | 28,523 | 14,740 | 301,086 |
| | | | | | |
Michael J. Rugen, | 2011 | 150,000 | 37,500 | - | 15,759 | 203,259 |
Chief Financial Officer | 2010 | 150,000 | 43,050 | - | 12,311 | 205,361 |
| | | | | | |
Cary V. Sorensen, | 2011 | 137,940 | 27,588 | - | 9,545 | 175,073 |
General Counsel | 2010 | 137,940 | 39,588 | 16,620 | 8,149 | 202,297 |
| | | | | | |
Charles P. McInturff, | 2011 | 92,500 | 18,500 | - | 17,024 | 128,024 |
Vice President | 2010 | 92,500 | 26,548 | - | 13,493 | 132,541 |
| | | | | | |
15The amounts represented in this column are equal to the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718, Compensation-Stock Compensation, in connection with options granted under the Tengasco, Inc. Stock Incentive Plan. See Note 12 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for information on the relevant valuation assumptions.
1613The amounts in this column consist of Tengasco'sthe Company’s matching contributions to its 401 (k) plan, personal use of company vehicles, moving expenses, and the portion of company-wide group term life insurance premiums allocable to these named executive officers.
14Mr. Rugen was appointed interim Chief Executive Officer on June 28, 2013. The information for Mr. Rugen for 2014 and 2013 includes compensation for his services as both CEO and CFO. The bonus in 2014 and 2013 include $33,068 and $15,000 respectively for quarterly bonuses paid to Mr. Rugen as compensation to serve in the capacity as CEO.
15Mr. Bailey resigned as Chief Executive Officer of the Company on June 28, 2013.
16Mr. McInturff resigned as Vice President of the Company on December 16, 2013.
Outstanding Equity Awards at Fiscal Year-End2014Year-End
| OPTION AWARDS |
| Number of securities underlying unexercised options | Number of securities underlying unexercised options | | |
| (#) | (#) | Option exercise price | |
Name | exercisable | | ($) | Option expiration date |
Jeffrey R. Bailey | 127,000 | | $ 0.44 | 8/29/2015 |
Michael J. Rugen | 160,000 | 240,000 | $ 0.50 | 9/27/2015 |
Cary V. Sorensen | 74,000 | | $ 0.44 | 8/29/2015 |
Charles P. McInturff | 400,000 | | $ 0.57 | 2/1/2013 |
| | OPTION AWARDS |
| | Number of securities underlying unexercised options | | | Number of securities underlying unexercised options | | | Option exercise price | | Option expiration date |
| | exercisable | | | unexercisable | | | | | |
Michael J. Rugen | | | 400,000 | | | | - | | | $ | 0.50 | | 9/27/2015 |
Cary V. Sorensen | | | 74,000 | | | | - | | | $ | 0.44 | | 8/29/2015 |
Option and Award Exercises
NoneIn January 2013, Mr. McInturff received a $59,520 payment in 2011.lieu of exercising his fully exercisable options to purchase 400,000 shares. This payment is the same economic benefit to Mr. McInturff as if he had made a cashless exercise of the options, and the Company elected to make such payment in lieu of issuing the shares and the resulting dilutive effect of doing so. These options were to expire on February 1, 2013. No other options were exercised by any person during 2013 or 2014.
Employment Contracts
Employment Contracts and Compensation Agreements
On September 18, 2013, the Company and its Chief Financial Officer and interim Chief Executive Officer Michael J. Rugen entered into a written Compensation Agreement as reported on Form 8-K filed on September 24, 2013. Under the terms of the Compensation Agreement, Mr. Rugen’s annual salary will increase from $150,000 to $170,000 per year in his capacity as Chief Financial Officer, and he will receive a bonus of $7,500 per quarter for each quarter during which he also serves as interim Chief Executive Officer. At June 1, 2014, Mr. Rugen’s salary was increased to $199,826 per year in his capacity as Chief Financial Officer, the quarterly bonus received while in the capacity as interim Chief Financial Officer was increased to $8,815 per quarter. The increases at June 1, 2014 were for cost of living adjustments related to the relocation of the corporate office from Knoxville to Greenwood Village. The Compensation agreement is not an employment contract, but does provide that in the event Mr. Rugen were terminated without cause, he would receive a severance payment in the amount of six month’s salary in effect at the time of any such termination.
On February 25, 2015, the Company and its Vice President, General Counsel, and Corporate Secretary Cary V. Sorensen entered into a written Compensation Agreement as reported on Form 8-K filed on February 19, 2015. Under the terms of the Compensation Agreement, effective March 2, 2015, Mr. Sorensen’s annual salary will be reduced from $137,500 to $91,000 in consideration of the Company's agreement to permit Mr. Sorensen to serve as a full time employee from a virtual office in Galveston, Texas with presence in the Denver area headquarters as required. He will remain eligible for certain existing benefits: 401-K plan, bonus potential; Company-paid state bar membership dues and charges, and mobile phone charges. The Company also pays reasonable and customary office operating expenses. The Company would pay for business travel on a mileage basis and out of pocket travel costs. However, as to health insurance, Mr. Sorensen will obtain a combination of private/governmental health and disability insurance in lieu of the Company plans, with the Company reimbursing up to $13,000 per year in premiums incurred by him. The Compensation agreement is not an employment contract, but does provide that in the event Mr. Sorensen were terminated without cause, he would receive a severance payment in the amount of six month’s salary in effect at the time of any such termination.
In addition, during the quarter ended March 31, 2015, the Company initiated cost reduction measures including compensation reductions for each employee, the Board of Directors, and both of the two executive officers of the Company. Mr. Rugen’s annual salary was reduced 18% from $199,826 to $163,857 and his quarterly payment was also reduced 18% from $8,815 to $7,228; and Mr. Sorensen’s annual salary was reduced by 10% from the $91,000 stated above. These compensation reductions for the executive officers and employees will remain in place until such time, if any, that the market price of crude oil, calculated as a thirty day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $70 per barrel when compensation shall revert to the levels in place before the reductions became effective. At such time, if any, that the market price of crude oil, calculated as a thirty day trailing average of WTI postings as published by the U.S. Energy Information Administration meets or exceeds $85 per barrel, all previous reductions made will be reimbursed to each officer, employee and member of the Board of Directors if he is still employed by the Company or still a member of the Board of Directors.
There are presently no other employment contracts relating to any member of management. However, depending upon the Company's operations and requirements, the Company may offer long-term contracts to executive officers or key employees in the future.
Compensation of Directors
The Board of Directors has resolved to compensate members of the Board of Directors for attendance at meetings at the rate of $250 per day,diem, together with direct out-of-pocket expenses incurred in attendance at the meetings, including travel. The Directors, however, have waived suchper diem fees due to them as of this date for all prior meetings.
Members of the Board of Directors may also be requested to perform consulting or other professional services for the Company from time to time, although at this time no such arrangements are in place. The Board of Directors has reserved to itself the right to review all directors' claims for compensation on an ad hoc basis.
Board members currently receive fees from the Company for their services as director. They may also from time to time be granted stock options under the Tengasco, Inc. Stock Incentive Plan. A separate plan to issue cash and/or shares of stock to independent directors for service on the Board and various committees of the Board of Directors was authorized by the Board of Directors and approved by the Company’s shareholders. A copy of the Planthat plan is posted at the Company’s website at www.tengasco.com. No award was made to any independent director under thisthat plan in Fiscal 2011.2014.
DIRECTOR COMPENSATION FOR FISCAL 2014 | |
| | Fees earned or paid in cash | | | Option awards compensation 17 | | | Total | |
Matthew K. Behrent | | $ | 15,000 | | | $ | 5,464 | | | $ | 20,464 | |
Hughree F. Brooks | | $ | 15,000 | | | $ | 5,464 | | | $ | 20,464 | |
Richard M. Thon | | $ | 15,000 | | | $ | 5,464 | | | $ | 20,464 | |
Peter E. Salas | | $ | 15,000 | | | $ | 5,464 | | | $ | 20,464 | |
CERTAIN TRANSACTIONS
DIRECTOR COMPENSATION FOR FISCAL 2011 |
| Fees earned or paid in cash | Option awards compensation 18 | Total |
Name | ($) | ($) | ($) |
| | | |
Matthew K. Behrent | $ 30,000 | $ 23,990 | $ 53,990 |
| | | |
John A. Clendening | $ 30,000 | $ 23,990 | $ 53,990 |
| | | |
Hughree F. Brooks | $ 20,000 | $ 9,734 | $ 29,734 |
| | | |
Peter E. Salas | $ 30,000 | $ 23,990 | $ 53,990 |
CERTAIN TRANSACTIONS
There have been no material transactions, series of similar transactions or currently proposed transactions entered into during Fiscal 20102014 and 2011,2013, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for its last two completed fiscal years in which any director or executive officer or any security holder who is known to the Company to own of record or beneficially more than 5% of the Company's common stock, or any member of the immediate family of any of the foregoing persons, had a material interest.
17 Mr. Rugen's 240,000 unexercisable share options will vestIn its Report on Form 10-K for the year ended December 31, 2014 (“2014 10-K”), the Company described three transactions of the type described above, that the Company entered into with Hoactzin in 2007 that remained in existence in 2013 and 2014. As noted above in Item 1, Business, page 9 of the 2014 10-K, Peter E. Salas, the Chairman of the Board of Directors of the Company, is the controlling person of Hoactzin and of Dolphin Offshore Partners, L.P., the Company’s largest shareholder. These three 2007 transactions between the Company and Hoactzin are described at the ratefollowing page locations in the 2014 10-K and in the attached Notes to Consolidated Financial Statements: (1) the Ten Well Program, see Item 1, Business, pages 9 and F-16; (2) the net profits agreement at the Methane Project, see Item 1, Business, pages 13 and F-16; and (3) the Management Agreement, see Item 1, Business, pages 13 and F-17.
The approximate dollar value of 80,000 share options per year on 9/27/2012, 9/27/the amount of Hoactzin’s interest in each of these three 2007 transactions during each of the years 2014 and 2013 was as follows:(1) Ten Well Program- $148,000 in 2014; $568,000 in 2013 (calculated as the total payments attributable to Hoactzin for its program interest); (2) Net Profits agreement at the Methane Project - $0 in 2014; $0 in 2013 (calculated as the amount of net profits payable to Hoactzin; the project generated no net profits as described in the agreement, and 9/27/2014.therefore no amount was paid to Hoactzin for net profits, in either 2014 or 2013); and (3) Management Agreement - $0 in 2014; $21,000 in 2013 (calculated as the amount payable by Hoactzin to the Company in reimbursement of one half of the salary and benefits of Patrick McInturff, as manager employed by the Company and excluding all vendor payables, bond premiums, and all other operating costs of Hoactzin’s properties, all of which were paid at all times by Hoactzin and not by the Company, in the ordinary course of Hoactzin’s ownership and not under the Management Agreement).
18
17 The amounts represented in this column are equal to the aggregate grant date fair value of the
award computed in accordance with FASB ASC Topic 718, Compensation-Stock Compensation,
in connection with options granted under the Tengasco, Inc. Stock Incentive Plan. See Note 12
13 Stock Options in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 20112014 for information on the relevant valuation assumptions.
As of December 31, 2011,2014, Mr. Behrent held 118,750143,750 unexercised options; Mr. Brooks held 93,750 unexercised options; Mr. Salas held 143,750 unexercised options; and Mr. Thon held 25,000 unexercised options.
As of December 31, 2011, Mr. Clendening held 118,750 unexercised options.
As of December 31, 2011, Mr. Brooks held 18,750 unexercised options.
As of December 31, 2011, Mr. Salas held 118,750 unexercised options.
On July 14, 2015, the federal district court affirmed an agency determination made by BSEE during 2012 concerning one of Hoactzin’s properties imposing a civil penalty against the Company as operator of $386,000 for failure to provide, upon request, documentation to the BSEE evidencing that certain safety inspections and tests had been conducted in 2011. On September 22, 2014, the Company sought judicial review of this agency action in the federal district court in the Eastern District of Louisiana. The Company had recorded a liability of $386,000 in the Company’s Consolidated Balance Sheets under “Accrued and other current liabilities” and an expense in its Consolidated Statements of Operations under “Production costs and taxes” for the year ended December 31, 2014. In the third quarter of 2015, the Company paid the civil penalty affirmed on appeal from funds borrowed under its credit facility, and will receive the cash collateral previously provided to RLI Insurance Company, and is considering seeking reimbursement of such payment from Hoactzin pursuant to the terms of the Management Agreement. However, there can be no assurance that the Company would be successful in such a claim. During the second quarter of 2015, the Company had received from Hoactzin a copy of an internal analysis prepared by Hoactzin setting out certain issues that Hoactzin may consider to form the basis of operational and other claims against the Company primarily under the Management Agreement. This analysis raised issues other than the “Incident of Non-Compliance” in 2012. The Company is discussing this analysis with Hoactzin in an effort to determine whether there is possibility of a reasonable resolution of some or all of these matters on a negotiated basis.
In addition to the three 2007 transactions, Hoactzin owns a drilling program interest in the Company’s “6 Well Program” in Kansas, acquired in 2005 by Hoactzin in exchange for surrender of the Company’s promissory notes given by the Company for borrowings to fund the redemption in 2004 of the Company’s three series of preferred stock, all as previously disclosed. Hoactzin’s interest in the 6 Well Program was $30,000 in 2014; and $45,000 in 2013 (calculated as the total payments attributable to Hoactzin for its program interest) and is expected to decrease in the future as the wells involved naturally decline in produced volumes.
Review, Approval or Ratification of Transactions with Related Parties1918
The Company’s Board of Directors has adopted a written Related Party Transactions Approval Policy which is posted on the Company’s website at www.tengasco.com. It is the Company’s preference to avoid entering into a material related-party transaction if a transaction with a non-related party is available on an equally timely and equally beneficial basis. However, if a Related Party Transaction appears to be in the Company’s best interest then it will be approved or ratified if the Board of Directors pursuant to the Company’s Related Party Transaction Approval Policy expressly finds that the terms of the transaction are comparable to or more beneficial to the Company than those that could be obtained in arm’s length dealings with an unrelated third party; or, the transaction is approved by the majority of disinterested membersdirectors of the Company’s BoardBoard.
18 A “Related Party” is any director or executive officer of Directors.the Company, any nominee for director, any shareholder known to be the beneficial owner of more than 5% of any class of the Company’s voting stock, and any Immediate Family Member of any such Party. “Immediate Family Member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a person, and any person (other than a tenant or an employee) sharing the household of such person.
Parent of Issuer
The Company has no parent.
BOARD RECOMMENDATION AND VOTE REQUIRED
For Proposal No. 1 regarding the election of directors, votes may be cast in favor of all nominees, may be withheld with regard to all nominees or may be withheld only with regard to nominees specified by the stockholder. Directors will be elected by a plurality of the votes of the shares of the Company's common stock present in person or represented by proxy, and entitled to vote on the election of directors at a meeting at which a quorum is present. Abstentions are tabulated in determining the votes present at a meeting. Consequently, an abstention has the same effect as a vote against a director-nominee, as each abstention would be one less vote in favor of a director nominee. If a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular matter (i.e., a “broker non-vote”), those shares will not be considered as present and entitled to vote with respect to that matter. The Board of Directors recommends that stockholders vote "FOR"“FOR” the nominees set forth above. Unless marked to the contrary, proxies received will be voted FOR the nominees set forth above.
19 A “Related Party” is any director or executive officer of the Company, any nominee for director, any shareholder known to be the beneficial owner of more than 5% of any class of the Company’s voting stock, and any Immediate Family Member of any such Party. “Immediate Family Member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a person, and any person (other than a tenant or an employee) sharing the household of such person.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF
HEIN & ASSOCIATES, LLP AS INDEPENDENT AUDITORS
On September 21, 2011, the Company engaged Hein & Associates (“Hein”) to serve as its independent registered public accounting firm and dismissed Rodefer Moss & Co, PLLC (“Rodefer Moss”). The change in independent registered public accounting firms was approved by the Audit Committee of the Company’s Board of Directors. Hein audited the Company’s financial statements for the year ended December 31, 2011. The Board’s Audit Committee has recommended and the Board of Directors has approved the engagement of Hein & Associates, LLP (“Hein”) as independent certified public accountants, to audit the accounts for the Company for Fiscal 2012.2015.
The Company’s change of independent accountants was reported on a Current Report on Form 8-K, dated September 22, 2011 filed with the Securities and Exchange Commission (“SEC”). The Company provided Rodefer Moss with a copy of the Current Report on Form 8-K and requested that Rodefer Moss furnish it with a letter addressed to the SEC stating whether or not it agreed with such statements. Rodefer Moss has provided the Company with a copy of the letter it sent to the SEC stating that it had reviewed and agreed with the Company’s statements.
Rodefer MossHein audited the Company’s financial statements for the years ended December 31, 20102014 and 2009. The report of Rodefer Moss2013. Hein was engaged on the Company’s financial statements as of and for the years ended December 31, 2010 and 2009 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the fiscal years ended December 31, 2010 and 2009, and in the subsequent interim period through September 21, 2011 the date the Company changed accounting firms, there were no disagreements with Rodefer Moss on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Rodefer Moss, would have caused them to make a reference to the subject matter of the disagreements in connection with their reports.
During the fiscal years ended December 31, 2010 and 2009, and in the subsequent interim period through September 21, 2011, the date the Company changed accounting firms, there were no reportable events of the kind defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934,serve as amended (“Regulation S-K”).
Prior to its engagement of Hein as its new independent auditors, the Company did not consult with Hein regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered by Hein on the Company’s financial statements; or (iii) any other matter that was the subject of a disagreement between the Company and its former auditors as described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as that term is defined in Item 304(a)(1)(v).
independent registered public accounting firm. The Company is advised that neither Hein nor any of its partners has any material direct or indirect relationship with the Company. The Audit Committee considers Hein to be well qualified for the function of serving as the Company's auditors. Delaware law does not require the approval of the selection of auditors by the Company's stockholders, but in view of the importance of the financial statements to stockholders, the Board of Directors deems it desirable that they pass upon its selection of auditors. In the event the stockholders disapprove of the selection, the Board of Directors will consider the selection of other auditors.
AUDIT AND NON-AUDIT FEES
Audit and Non-Audit Fees
The following table presents the fees for professional audit services rendered by the Company’s current independent accountants, Hein & Associates (“Hein”), for the audit of the Company’s annual consolidated financial statements and fees for professional audit services rendered for the quarterly reviews for the fiscal years ended December 31, 20112014 and fees associated with services performed for the quarter ended September 30, 201,and the fees for professional audit services rendered by the Company’s previous independent accountants, Rodefer Moss & Co, PLLC, for the audit of the Company’s annual consolidated financial statements for the fiscal year ended December 31, 2010 and fees associated with services performed for the quarters ended March 31, 2011 and June 30, 2011, and fees for other services rendered by each of them during each of those periods:2013:
AUDIT AND NON-AUDIT FEES | | | AUDIT AND NON-AUDIT FEES | |
| | | | 2014 | | | 2013 | |
| | | | | | | | |
| 2011 | 2010 | |
| | | |
Audit Fees | $ 127,668 | $ 113,360 | | $ | 134,316 | | | $ | 131,275 | |
| | | |
Audit-Related Fees | - | - | | | - | | | | - | |
| | - | |
Tax Fees | - | - | | | - | | | | - | |
| | | |
All Other Fees | - | - | | | - | | | | - | |
| | | |
Total Fees | $ 127,668 | $ 113,360 | | $ | 134,316 | | | $ | 131,275 | |
Audit fees include fees related to the services rendered in connection with the annual audit of the Company’s consolidated financial statements, the quarterly reviews of the Company’s quarterly reports on Form 10-Q and the reviews of and other services related to registration statements and other offering memoranda.statutory filings or engagements for the subject fiscal years.
Audit-related fees are for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements.
Tax Fees include services for (i) tax compliance, (ii) tax advice, (iii) tax planning and (iv) tax reporting.
All Other Fees includes fees for all other services provided by the principal accountants not covered in the other categories such as litigation support, etc.
All of the services for 20102014 and 20112013 were performed by the full-time, permanent employees of Hein and Rodefer Moss.Hein.
All of the 20112014 services described above were approved by the Audit Committee pursuant to the SEC rule that requires audit committee pre-approval of audit and non-audit services provided by the Company’s independent auditors. The Audit Committee considered whether the provisions of such services, including non-audit services, by Hein were compatible with maintaining its independence and concluded they were.
BOARD RECOMMENDATION AND VOTE REQUIRED
The Board of Directors recommends that you vote in favor of the above proposal to ratify the appointment of Hein & Associates, LLP as independent auditors of the Company for Fiscal 2011. A representative of Hein & Associates, LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he desires to do so, and is expected to be available to respond to appropriate questions.
2015. Ratification will require the affirmative vote of a majority of the shares present and voting at the meeting in person or by proxy. In the event ratification is not provided, the Audit Committee and the Board of Directors will review the future selection of the Company's independent auditors.
Unless otherwise directed by the stockholder giving the proxy, the proxy will be voted for the ratification of the selection by the Board of Directors of Hein & Associates, LLP as the Company's independent certified public accountants for Fiscal 2012.2015. Shares voted as abstaining will count as votes cast. If a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular matter (i.e., a “broker non-vote”), those shares will not be considered as present and entitled to vote with respect to that matter. An abstention from voting by a stockholder present in person or by proxy at the meeting has the same legal effect as a vote "against"“against” Proposal No. 2 because it represents a share present or represented at the meeting and entitled to vote, thereby increasing the number of affirmative votes required to approve this proposal.
PROPOSAL NO. 3
TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE COMPENSATION