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 20122014 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, 20122014 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.2014.
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.
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.
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 MKT Rules.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.
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 previously an officer or an employee of the Company.
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 2012,2014, 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.
There are no family relationships between any of the present directors or executive officers of the Company.
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:
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.
15
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Name and Address | Title | Number of Shares Beneficially Owned64 | Percent of Class75 |
| | | |
Matthew K. Behrent | Director | 170,500Director
| 176,75086 | Less than 1% |
| | | |
Hughree F. Brooks | Director | 62,500118,75097
| Less than 1% |
| | | |
Michael J. Rugen | Chief Financial Officer | 320,00008
| - |
| | | |
Peter E. Salas | Director; Chairman of the Board | 21,000,9069 | 34.5% |
| | | |
Cary V. Sorensen | Vice President; General Counsel; Secretary | 236,22610 | Less than 1% |
Peter E. Salas | Director; Chairman of the Board | 21,194,99211
| 34.8% |
Cary V. SorensenRichard M. Thon | Vice President; General Counsel; SecretaryDirector | 310,22650,0001211
| Less than 1% |
| | | |
All Officers and Director-Nominees As Directors as a group | | | 22,058,21821,582,6321312
| 35.8%35.5% |
4 Unless 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 October 12, 2015.5 Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of 1934 based upon 60,842,413 shares of common stock being outstanding as of October 12, 2015. Shares not outstanding that are subject to options or warrants exercisable by the holder thereof within 60 days of October 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.
6 Consists of 33,000 shares held directly and vested, fully exercisable options to purchase 143,750 shares.
7 Consists of vested, fully exercisable options to purchase 118,750 shares.
8 Mr. Rugen’s options to purchase 400,000 shares expired on September 27, 2015.
9 Consists of directly, vested, fully exercisable options to purchase 143,750 shares, 218,000 shares held individually, and 20,639,156 shares held directly by Dolphin Offshore Partners, L.P. (“Dolphin”). Peter E. Salas is the sole shareholder of and controlling person of Dolphin Mgmt. Services, Inc. which is the general partner of Dolphin.
10 Consists of 236,226 shares held directly.
11 Consists of vested, fully exercisable options to purchase 50,000 shares.
12 Consists of 21,126,382 shares held directly by directors and management, and vested, fully exercisable options to purchase 456,250 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
The 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.
6Unless 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 August 20, 2013.7Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of 1934 based upon 60,842,413 shares of common stock being outstanding as of August 20, 2013. Shares not outstanding that are subject to options or warrants exercisable by the holder thereof within 60 days of August 20, 2013 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.
8Consists of 33,000 shares held directly and vested, fully exercisable options to purchase 137,500
9Consists of vested, fully exercisable options to purchase 62,500 shares.
10Consists of vested, fully exercisable options to purchase 240,000 shares and options to purchase 80,000 shares that will vest on September 28, 2013.
11Consists of directly, vested, fully exercisable options to purchase 137,500 shares and 15,676,321 held directly by SSB Ventures LLC over which he has voting control and 5,381,171 shares held directly by Dolphin Offshore Partners, L.P. (“Dolphin”). Peter E. Salas is a member of SSB Ventures LLC and is the sole shareholder of and controlling person of Dolphin Management, Inc. which is the general partner of Dolphin.
12Consists of 36,226 shares held directly and vested, fully exercisable options to purchase 74,000 shares and 200,000 shares held directly by SSB Ventures LLC over which he has voting control. Cary V. Sorensen is a member of SSB Ventures LLC.
13Consists of 69,226 shares held directly by management, 15,876,321 held by SSB Ventures LLC, 5,381,171 shares held by Dolphin, and vested, fully exercisable options to purchase 651,500 shares, and options to purchase 80,000 shares to vest on September 28, 2013.
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 $100,000 during fiscal years ended December 31, 20122014 and December 31, 2011.2013.
| | | Salary | | | Bonus | | | All Other Compensation14 | | | Total | |
Name and Principal Position | Year | | ($) | | | ($) | | | ($) | | | ($) | |
Jeffrey R. Bailey, | 2012 | | | 189,750 | | | | - | | | | 13,628 | | | | 203,378 | |
Chief Executive Officer15 | 2011 | | | 189,750 | | | | 59,297 | | | | 14,278 | | | | 263,325 | |
Michael J. Rugen, | 2012 | | | 150,000 | | | | - | | | | 13,500 | | | | 163,500 | |
Chief Financial Officer | 2011 | | | 150,000 | | | | 37,500 | | | | 15,759 | | | | 203,259 | |
Cary V. Sorensen, | 2012 | | | 137,940 | | | | - | | | | 9,697 | | | | 147,637 | |
General Counsel | 2011 | | | 137,940 | | | | 27,588 | | | | 9,545 | | | | 175,073 | |
Charles P. McInturff, | 2012 | | | 92,500 | | | | - | | | | 17,842 | | | | 110,342 | |
Vice President | 2011 | | | 92,500 | | | | 18,500 | | | | 17,024 | | | | 128,024 | |
Outstanding Equity Awards at Fiscal Year-End
| | OPTION AWARDS |
| | Number of securities underlying unexercised options | | | Option exercise price | | Option expiration date |
Name | | exercisable | | | unexercisable | | | ($) | | |
Jeffrey R. Bailey | | | 127,000 | | | | | | $ | 0.44 | | 8/29/2015 |
Michael J. Rugen | | | 240,000 | | | | 160,000 | 16 | | $ | 0.50 | | 9/27/2015 |
Cary V. Sorensen | | | 74,000 | | | | | | | $ | 0.44 | | 8/29/2015 |
Charles P. McInturff | | | 400,000 | 17 | | | | | | $ | 0.57 | | 2/1/2013 |
Option and Award Exercises
None in 2012.
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 | |
1413 The 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.1514 Jeffrey R. Bailey resigned asMr. Rugen was appointed interim Chief Executive Officer on June 28, 2013. Michael J.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 Company’s Chief Financial Officer, was appointed to also actcapacity as CEO.
15Mr. Bailey resigned as Chief Executive Officer of the Company on an interim basis until such time as a new Chief Executive Officer may be named.June 28, 2013.
16 Mr. Rugen's 160,000 unexercisable shareMcInturff resigned as Vice President of the Company on December 16, 2013.
Outstanding Equity Awards at Fiscal 2014Year-End
| | 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
In January 2013, Mr. McInturff received a $59,520 payment in lieu of exercising his fully exercisable options will vest atto purchase 400,000 shares. This payment is the ratesame economic benefit to Mr. McInturff as if he had made a cashless exercise of 80,000 sharethe options, per year on 9/27/2013 and 9/27/2014.
17Mr. McInturff’sthe Company elected to make such payment in lieu of issuing the shares and the resulting dilutive effect of doing so. These options expiredwere 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 $250 per day,diem, together with direct out-of-pocket expenses incurred in attendance at the meetings, including travel. The Directors, however, have waived suchper diem fees due to them as of this date for all prior meetings.
Members of the Board of Directors may also be requested to perform consulting or other professional services for the Company from time to time, although at this time no such arrangements are in place. The Board of Directors has reserved to itself the right to review all directors' claims for compensation on an ad hoc basis.
Board members currently receive fees from the Company for their services as director. They may also from time to time be granted stock options under the Tengasco, Inc. Stock Incentive Plan. A separate plan to issue cash and/or shares of stock to independent directors for service on the Board and various committees of the Board of Directors was authorized by the Board of Directors and approved by the Company’s shareholders. A copy of the Planthat plan is posted at the Company’s website at www.tengasco.com. No award was made to any independent director under thisthat plan in Fiscal 2012.2014.
DIRECTOR COMPENSATION FOR FISCAL 2012 | |
| | Fees earned or paid in cash | | | Option awards compensation18 | | | Total | |
Name | | ($) | | | ($) | | | ($) | |
| | | | | | | | | |
Matthew K. Behrent | | $ | 15,000 | | | $ | 8,353 | | | $ | 23,353 | |
John A. Clendening | | $ | 3,750 | | | $ | 3,586 | | | $ | 7,336 | |
Hughree F. Brooks | | $ | 15,000 | | | $ | 8,353 | | | $ | 23,353 | |
Peter E. Salas | | $ | 15,000 | | | $ | 8,353 | | | $ | 23,353 | |
18 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 13 Stock Options in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for information on the relevant valuation assumptions.19
As of December 31, 2012, Mr. Behrent held 143,750 unexercised options.
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 | |
As of December 31, 2012, Mr. Brooks held 43,750 unexercised options.
As of December 31, 2012, Mr. Salas held 143,750 unexercised options.
CERTAIN TRANSACTIONS
There have been no material transactions, series of similar transactions or currently proposed transactions entered into during Fiscal 20112014 and 2012,2013, 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.
In 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 following 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 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 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).
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 13 Stock Options in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for information on the relevant valuation assumptions.As of December 31, 2014, Mr. Behrent held 143,750 unexercised options; Mr. Brooks held 93,750 unexercised options; Mr. Salas held 143,750 unexercised options; and Mr. Thon held 25,000 unexercised options.
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” the nominees set forth above. Unless marked to the contrary, proxies received will be voted FOR the nominees set forth above.
22
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
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.
Hein audited the Company’s financial statements for the years ended December 31, 20122014 and 2011.2013. Hein was engaged on September 21, 2011 to serve as the Company’s its independent registered public accounting firm when the Company dismissed Rodefer Moss & Co, PLLC (“Rodefer Moss”) on that same date. The change in independent registered public accounting firms was approved by the Audit Committee of the Company’s Board of Directors.
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 Moss audited the Company’s financial statements for the years ended December 31, 2010 and 2009. The report of Rodefer Moss 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 the 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 the 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, 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).
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 yearyears ended December 31, 2012, the audit of the Company’s annual consolidated financial statements for the fiscal year ended2014 and December 31, 2011 and fees associated with services performed for the quarter ended September 30, 2011, and the fees for professional audit services rendered by the Company’s previous independent accountants, Rodefer Moss & Co, PLLC (“Rodefer Moss”), for 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 | |
| | 2012 | | | 2011 | | | | | | | |
Audit Fees | | $ | 132,375 | | | $ | 127,668 | | | $ | 134,316 | | | $ | 131,275 | |
Audit-Related Fees | | | - | | | | - | | | | - | | | | - | |
Tax Fees | | | - | | | | - | | | | - | | | | - | |
All Other Fees | | | - | | | | - | | | | - | | | | - | |
Total Fees | | $ | 132,375 | | | $ | 127,668 | | | $ | 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 20122014 and 20112013 were performed by the full-time, permanent employees of Hein and Rodefer Moss.Hein.
All of the 20122014 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.
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.
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 2013.2015. 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 2013.2015. 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” 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.
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PROPOSAL NO. 3
TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE COMPENSATION
OF NAMED EXECUTIVE OFFICERS
The Company is asking its stockholders to approve a non-binding advisory resolution on the Company’s compensation of its named executive officers as reported in this Proxy Statement (See, “Proposal No. 1: Election of Directors, EXECUTIVE COMPENSATION). In accordance with Section 14A of the Exchange Act, the Company is asking stockholders to approve the following advisory resolution:Stockholders’ Resolution:
RESOLVED, that the stockholders of Tengasco, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company's named executive officers as disclosed in this proxy statement, including as discussed in the section entitled “EXECUTIVE COMPENSATION”, the Summary Compensation Table and the related compensation tables and notes in the Proxy Statement for the Company's 20132015 Annual Meeting of Stockholders.
This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board. Although non-binding, the Board and the Compensation Committee will consider the voting results when evaluating the compensation of the Company’s executive officers.
BOARD RECOMMENDATION AND VOTE REQUIRED
The Board of Directors recommends that you vote in favor of the above proposal to approve by shareholder resolution the compensation of the Company's named executive officers as disclosed in this Proxy Statement, including as discussed in the section entitled “EXECUTIVE COMPENSATION”, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company's 20132015 Annual Meeting of Stockholders.
Unless otherwise directed by the stockholder giving the proxy, the proxy will be voted for the approval of the advisory resolution. 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” Proposal No. 3 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. 4
TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE FREQUENCY OF FUTURE VOTES TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS.
The Company is asking its stockholders to approve a non-binding advisory resolution on the frequency of future advisory votes by the stockholders on whether to approve the compensation paid to the Company’s named executive officers.
Pursuant to this non-binding advisory vote on the frequency of future non-binding advisory votes on compensation paid by the Company to its executive officers, stockholders will be able to specify one of four choices for this proposal on the proxy card or voting instruction: every year, every two years, every three years or abstain.
The Board of Directors believes that an “Every 2 years” advisory vote by the stockholders on executive compensation is the most appropriate policy for the Company, and recommends that stockholders vote for future non-binding advisory votes on named executive officer compensation to occur “Every 2 years”. The Board believes holding an non-binding advisory vote on executive officer compensation every two years will provide sufficient feedback on the Company’s compensation practices.
Stockholders are not voting to approve or disapprove the Board of Director's recommendation. The vote is non-binding on the Board. Nevertheless, the Board and the Compensation Committee will review and consider the voting results. Notwithstanding the Board’s recommendation or the outcome of the stockholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to named executive officer compensation.
BOARD RECOMMENDATION AND VOTE REQUIRED
The Board of Directors recommends that you vote that future advisory votes to approve the compensation paid by the Company to its named executive officers occur “Every two years”. The frequency receiving the highest number of votes will be accepted as the vote of the shareholders on this proposal.
Unless otherwise directed by the stockholder giving the proxy, the proxy will be voted for future advisory votes to approve the compensation of the Company's named executive officers to occur “Every two years”. 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 will have the effect of allowing the vote of stockholders voting on this proposal to determine the result of the advisory vote for frequency of future votes by the stockholders on executive compensation.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 20142016 annual meeting must be received in writing, by the Chief Executive Officer of the Company at its offices by May 9, 2014July 6, 2016 in order to be considered for inclusion in the Company's proxy statement relating to that meeting.
SEC rules and regulations provide that if the date of the Company's 20142016 Annual Meeting is advanced or delayed more than 30 days from the date of the 20132015 Annual Meeting, stockholder proposals intended to be included in the proxy materials for the 20142016 Annual Meeting must be received by the Company within a reasonable time before the Company begins to print and mail the proxy materials for the 20142016 Annual Meeting. Upon determination by the Company that the date of the 20142016 Annual Meeting will be advanced or delayed by more than 30 days from the date of the 20132015 Annual Meeting, the Company will disclose such change no later than in the earliest possible Quarterly Report on Form 10-Q filed by the Company.
| By Order of the Board of Directors |
| |
| /s/ Cary V. Sorensen |
| |
| Cary V. Sorensen, Secretary |
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TENGASCO, INC.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael J. Rugen and Cary V. Sorensen as proxies (the “Proxies”), each with power of substitution and re-substitution, to vote all shares of Common Stock, $.001 par value per share, of Tengasco, Inc. (the “Company”) held of record by the undersigned on August 20, 2013October 12, 2015 at the Annual Meeting of stockholders to be held at the Homewood SuitesDoubletree by Hilton 10935 Turkey Drive, Knoxville, Tennessee,Hotel Denver Tech Center, 7801 E. Orchard Rd., Greenwood Village, CO 80111 on Thursday October 17, 2013December 9, 2015 at 1:00 P.M.8:30 AM local (Mountain ) time, or at any adjournments thereof, as directed below, and in their discretion on all other matters coming before the meeting or any adjournments thereof.
Please mark boxes o☐ in blue or black ink.
1. | Election of Directors: Matthew K. Behrent, Hughree F. Brooks, and Peter E. Salas. |
1.Election of Directors: Matthew K. Behrent, Hughree F. Brooks, Peter E. Salas, and Richard M. Thon.
(Mark only one of the two boxes for this item)
| o☐ | VOTE FOR all nominees named above except those who may be named on these two lines: |
(OR)
| o☐ | VOTE WITHHELD as to all nominees named above. |
2. Proposal to ratify appointment of Hein & Associates, LLP as the Company's independent certified public accountants for Fiscal 2013:2015:
3. Proposal to approve, by non-binding advisory vote, the compensation paid byof the Company to itsCompany’s executive officers:
4.Proposal to approve by non-binding advisory vote, the frequency of future votes by the Company’s stockholders to approve the compensation paid by the Company to its executive officers.
EVERY YEAR o EVERY 2 YEARS o EVERY 3 YEARS o ABSTAIN o
5.4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
When properly executed, this Proxy will be voted as directed. If no direction is made, this Proxy will be voted “FOR” election of all Directors named in Proposal 1,1; FOR Proposals 2,Proposal 2; and 3, and “Every two years” in response toFOR Proposal 4.3.
Please mark, date, and sign and return this Proxy promptly in the enclosed envelope.
Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
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| | Signature, if held jointly | |