6021 S. SYRACUSE WAY,Syracuse Way, Suite 117
1
INTERNET AVAILABILITY OF PROXY MATERIALS
This Notice of AnnualSpecial Meeting and Proxy Statement along with the form of proxy card and the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 will be available online at http://www.cstproxy.com/tengasco/2015sm2016 on the first day these materials are mailed to shareholdersstockholders which is anticipated to be October 30,February 5, 2015.
TENGASCO, INC. - PROXY STATEMENT
GENERAL
This proxy statement is furnished by the Board of Directors of Tengasco, Inc., a Delaware corporation (sometimes the “Company” or “Tengasco”), with offices located at
6021 S. Syracuse Way, Suite 117
Greenwood Village, COColorado 80111 in connection with the solicitation of proxies to be used at the annual meeting of stockholders of the Company to
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
To be held on December 9, 2015 and at any adjournments thereof (the “Annual Meeting”).March 17, 2016
If your share ownership is recorded directly (i.e. your shares are in paper certificate form and are registered as such by the Company’s transfer agent) you may vote in person at the Annual Meeting or you may vote by proxy. If your share ownership is recorded directly or registered, you will receive a proxy card by mail at the address shown on the transfer agent’s records. Voting instructions are included on the proxy card. We recommend that you vote by proxy even if you plan to attend the Annual Meeting.
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 voting instruction must 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.
If a proxy is properly executed and returned, the shares represented thereby will be voted as instructed on the proxy. Any proxy may be revoked by a stockholder prior to its exercise upon written notice to the Chief Executive Officer of the Company, or by a registered stockholder voting in person at the Annual Meeting. (See the procedure set out in the preceding paragraph for persons wishing to vote at the Annual Meeting any shares they hold in street name.) Unless instructions to the contrary are indicated, proxies will be voted FOR the election of the directors named therein; FOR the ratification of the selection by the Audit Committee of the Board of Directors of Hein & Associates, LLP, as the independent certified public accountants of the Company; and FOR the advisory approval of the compensation of the Company’s executive officers.
A copy of the Company’s Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2014 (“Fiscal 2014”), which contains financial statements audited by the Company's independent certified public accountants accompanies this proxy statement.
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.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The Board of Directors has fixed October 12, 2015 as the record date (the “Record Date”) for determination of stockholders entitled to notice of and to vote at the Annual Meeting. Only stockholders on Record Date will be able to vote at the Annual Meeting. As of the Record Date, 60,842,413 shares of the Company's common stock were outstanding, and each share will be entitled to one (1) vote, with no shares having cumulative voting rights. Holders of shares of common stock are entitled to vote on all matters. Unless otherwise indicated herein, a majority of the votes represented by shares present or represented at the Annual Meeting is required for approval of each matter that will be submitted to the stockholders.
Management knows of no business other than that specified in Items 1, 2 and 3 of the Notice of Annual Meeting that will be presented at the Annual Meeting. If any other matter is properly presented, the persons named in the enclosed proxy intend to vote in their best judgment.
Five Percent Stockholders
The following table sets forth the share holdings of those persons who own more than 5% of the Company's common stock as of October 12, 2015 with these computations being based upon 60,842,413 shares of common stock being outstanding as of that date:
| Name and Address | Title | Number of Shares Beneficially Owned | Percent of Class |
| | | | |
Dolphin Offshore Partners, L.P. c/o Dolphin Mgmt. Services, Inc. P.O. Box 16867 Fernandina Beach, FL 32035 | Stockholder | 20,857,1561 | 34.3% |
| | | | |
ICN Fund I, LLC c/o Rodney D. Giles P.O. Box 131420 Spring, TX 77393 | Stockholder | 3,112,121 | 5.1% |
1Consists of 218,000 shares held directly by Peter E. Salas 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.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
GENERAL
Article 3.1 of the Company's Bylaws provides that the number of directors of the Company shall be a minimum of three and a maximum of ten. The members ofThis proxy statement is furnished by the Board of Directors (the “Board”) of Tengasco, Inc., a Delaware corporation (which we refer to as the “Company”, “Tengasco”, “we” or “us”), with offices located at 6021 S. Syracuse Way, Suite 117, Greenwood Village, CO 80111, in connection with the solicitation of proxies to be used at the Special Meeting of stockholders of the Company to be held on March 17, 2016 at 9:30 a.m. MT and at any adjournments thereof (the “Special Meeting”).
If your share ownership is recorded directly (i.e. your shares are each elected forin paper certificate form and are registered as such by the Company’s transfer agent) you may vote in person at the Special Meeting or you may vote by proxy. If your share ownership is recorded directly or registered, you will receive a one-year term or until their successorsproxy card by mail at the address shown on the transfer agent’s records. Voting instructions are elected and qualify withincluded on the proxy card. We recommend that you vote by proxy even if you plan to attend the Special Meeting. Any proxy may be revoked by a plurality of votes cast in favor of their election. Four nominees are put forth before the stockholders for electionstockholder prior to its exercise upon written notice to the BoardChief Executive Officer of Directorsthe Company, or by a registered stockholder voting in person at the AnnualSpecial Meeting. All
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 voting instruction must 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 Special 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 Special 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 Special Meeting have not been double-counted as a result of the nominees are presently directorsvote collecting process. You may not use the form of proxy set out at the Company.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 Special Meeting.
THE ENCLOSED PROXY, IF EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED ON THE PROXY OR, IN THE ABSENCE OF SUCH DIRECTION, FOR THE APPROVAL OF THE REVERSE SPLIT (Proposal No. 1); FOR THE APPROVAL OF THE PLAN AMENDMENT (Proposal No. 2); AND FOR THE ADJOURNMENT OF THE SPECIAL MEETING (Proposal No. 3). IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED BY THE HOLDERS OF THE PROXIES IN ACCORDANCE WITH THEIR BEST JUDGMENT.
The directorscost of preparing, assembling and mailing the Notice of Internet Availability of Proxy materials, notice of meeting, proxy statement, and proxy card will serve untilbe borne by the next annualCompany. 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.
QUESTIONS AND ANSWERS REGARDING THE SPECIAL MEETING
Why am I receiving these materials?
These proxy materials are being sent to the holders of shares of the common stock of Tengasco in connection with the solicitation of proxies by our Board for use at the Special Meeting of Stockholders to be held at 9:30 A.M. Mountain Time on Thursday, March 17, 2016 at our corporate headquarters at 6021 S. Syracuse Way, Suite 117, Greenwood Village, Colorado. The proxy materials relating to the Special Meeting are first being mailed to stockholders entitled to vote at the meeting on or about February 5, 2016.
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the full set of proxy materials?
SEC rules allow us to furnish the proxy materials over the Internet. As a result, we are mailing to most of our stockholders a Notice of the Internet availability of the proxy materials instead of mailing a paper copy of the proxy materials. All stockholders receiving the notice will have the ability to access the proxy materials over the Internet. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice of the Internet availability of the proxy materials.
Who is entitled to vote?
Our Board has fixed the close of business on January 25, 2016 as the Record Date for a determination of stockholders entitled to notice of, and thereafter until their successors shallto vote at, this Special Meeting or any adjournment thereof. On the Record Date, there were 60,842,413 shares of common stock outstanding. Each share of Tengasco common stock represents one vote that may be voted on each matter that may come before the Special Meeting.
What is the difference between holding shares as a record holder or as a beneficial owner?
If your shares are registered in your name with our transfer agent, Continental Stock Transfer and Trust, you are the “record holder” of those shares. If you are a record holder, these proxy materials have been elected and qualified.provided directly to you by our transfer agent.
Unless authorityIf your shares are held in a stock brokerage account, a bank or other holder of record, you are considered the “beneficial owner” of those shares held in “street name” by the broker/banker as the record owner. If your shares are held in street name, these proxy materials have been forwarded to you by that broker, bank, or other holder of record. As the beneficial owner, you have the right to instruct that broker, bank, or other record holder on how to vote your shares.
What constitutes a quorum?
To carry on the business of the Special Meeting, we must have a quorum. A quorum is withheld,present when a majority of the outstanding shares of the Company’s common stock, as of the Record Date, are represented in person or by proxy. Any broker non votes or abstentions are counted as present for the purpose of determining the existence of a quorum.
What happens if Tengasco is unable to obtain a quorum?
If a quorum is not present to transact business at the Special Meeting, the persons named as proxies may propose one or more adjournments of the Special Meeting to permit solicitation of proxies.
What is a broker non-vote?
Brokers and other intermediaries holding shares of Common Stock in street name for their customers are required to vote such shares in the accompanying formmanner directed by their customers. If their customers do not give any direction on proposals considered to be “routine” proposals under applicable law and stock exchange rules and regulations, brokers may vote such shares on “routine” matters (see “What is broker discretionary voting?” in the following paragraph.) In contrast, if the broker’s customers do not give any direction on proposals determined to be “non-routine” matters, brokers may not vote your shares on those “non-routine” matters. This is called a “broker non-vote.” Broker non-votes do not count as a vote “FOR” or “AGAINST” any non-routine proposal.
What is broker discretionary voting?
If your shares are held in street name and you do not provide specific voting instructions to the organization that holds your shares, that organization -- frequently your broker -- may generally vote your shares at the broker’s discretion on routine matters (even though a broker may not do so on non-routine matters; see “What is a broker non-vote” immediately above.) If you do not provide instructions on how your broker should vote at the Special Meeting, your broker will exercise its discretion to vote your shares as recommended by our Board on routine matters. Our management expects that the Reverse Split and the Adjournment Proposal will be votedcategorized as routine matters. Our management expects that the Plan Amendment will not be categorized as a routine matter. Accordingly, if you do not give any direction, brokers will be eligible to exercise their discretion to vote your shares in favor of the election ofReverse Split and the nominees named aboveAdjournment Proposal as directors. If any nominee should subsequently become unavailable for election, the persons voting the accompanying proxy may in their discretion vote for a substitute.
BOARD OF DIRECTORS
Therecommended by our Board of Directors has the responsibility for establishing broad corporate policies and for the overall performance of the Company. The members of the Board are kept informed of the Company's business by various reports and documents sent to them as well as by operating and financial reports madebe voted upon at Board meetings. The Board of Directors held 11 meetings in Fiscal 2014. All directors who are up for re-election attended at least 75% of the aggregate number of meetings of the Board of Directors and of the committees on which such directors served during Fiscal 2014. Although it has no formal policy requiring attendance, the Company encourages all of its directors to attend the annual meeting of stockholders. All of the Company’s directors attended last year’s Annual Meeting and it is anticipated that all of the director-nominees will attend this year’s AnnualSpecial Meeting.
ThereWhy is no understandingthe Company proposing a Reverse Split?
The rules of the NYSE MKT LLC (the “NYSE MKT” or arrangement betweenthe “Exchange”) where our common stock is listed for trading, permit the staff of the Exchange to consider periods of low prices of stock of any director and any other persons pursuant to which such individual was or is to be selectedlisted company as a director or nomineefactor in determining whether that company may remain listed for trading. We have received a letter from the staff of the Company.
Exchange stating that members of its staff believe that the Company’s common stock may not be suitable for auction market trading due to its low selling price. The Company’s Chief Executive Officer does not currently serve as a Director. InCompany believes that the event a Chief Executive Officer also serves as a Director,proposed Reverse Split will increase the Board has previously determined as a matterstock price of policy to divide the functionsshares of CEO and Chairman between two individuals. Placing the CEO on the Board as a director may have the dual beneficial effects of assisting both the CEO in making operational decisions as he is expected to do in the ongoing operation ofits common stock so that the Company will remain in compliance with accessibilitythe policy of NYSE MKT exchange regarding stock price and will not be made subject to any delisting process; however, by no means would the guidance of the Board, while allowing the Board to more effectively oversee the business risk withoutstock split guarantee continued compliance with any additional influence from the CEO/Director if he were also serving as Chairman.minimum price per share requirements.
Identification of Director-NomineesHow many votes are needed for each proposal to pass, and is broker discretionary voting expected to be allowed on each proposal?
| Proposal | Vote Required |
1.To approve an amendment to the Certificate of Incorporation to effect a Reverse Split of our issued and outstanding shares of Common Stock | The affirmative vote of a majority of the outstanding shares of common stock as of the Record Date. An abstention will have the effect of a vote against the proposal. Brokers have discretion to vote on this matter even without specific voting instructions from the beneficial owner of shares. |
2.To approve an amendment to the Stock Incentive Plan | The affirmative vote of a majority of the shares present and entitled to vote. An abstention and a broker non-vote will not be counted as votes cast on the proposal and therefore will have no effect on the outcome of the proposal. |
3.To approve the adjournment of the Special Meeting, if necessary, to solicit additional proxies to vote in favor of the foregoing Proposal No. 1 | The affirmative vote of a majority of the shares present and entitled to vote. Abstentions will not be counted as votes cast on the proposal and therefore will have no effect on the outcome of the proposal. Brokers have discretion to vote on this matter even without specific voting instructions from the beneficial owner of shares. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the namesprovides information regarding beneficial ownership of all director-nominees.
Name
| Positions Held
| Date of Initial Election
or Designation
|
| | |
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 |
Backgroundour common stock as of Directors
The following is a brief account of the experience, for at least the past five (5) years, of each nominee for director.
Matthew K. Behrent is 45 years old. He currently is the Executive Vice President, Corporate Development of EDCI Holdings, 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 qualify Mr. Behrent to serve as a Director of the Company.
Hughree F. Brooks is 61 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 qualify Mr. Brooks to serve as a Director of the Company.
Peter E. Salas is 61 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 and has served as Chairman of the 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 MKT (the “NYSE MKT Rules”) require that an issuer, such as the Company, which is 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 MKT 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 MKT Rule 803(b)(2)(c). The Board of Directors has determined that all four of the director-nominees, Matthew K. Behrent, Hughree F. Brooks, Richard M. Thon, and Peter E. Salas, are independent as defined25, 2016 by the NYSE MKT Rules, and that Matthew K. Behrent, Hughree F. Brooks, and Richard M. Thon are also independent as definedfollowing: each person known 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 standardsus 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 MKT 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 member2 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; |
| · | The Director is an affiliated person3 of the Company or any of its subsidiaries; or |
| · | The Director participated 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 audit and compensation/stock option committees.
Audit Committee
In Fiscal 2014, director-nominees Matthew K. Behrent and Richard M. Thon were the members of the Audit Committee. Mr. Behrent was the Chairman of the Committee. The Board determined that both Mr. Behrent and Mr. Thon are qualified as an “audit committee financial expert” as defined by applicable Securities and Exchange Commission (“SEC”) regulations and the NYSE MKT Rules. Each of the members of the Audit Committee met the independence and experience requirements of the NYSE MKT exchange rules, the applicable 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 MKT Rules. The Audit Committee reviews and reassesses the Audit Committee Charter annually.
3 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%five percent of any classour common stock; each of voting securitiesour directors and named executive officers, and all executive officers and directors as a group. The address of the Company and he is not aneach executive officer of the Company. Executive officers of an affiliate of the Company as well as aand 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 the Board determines 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 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 2014 were 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 MKT 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 2015, Messrs. Behrent and Thon will continue to serve as a members of the Compensation/Stock Option Committee along with Mr. Brooks who will serve as the Chairman of the Committee.
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.
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 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 four (4) times in Fiscal 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 previously 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 2014, the Company, its officers, directors and shareholders owning more than 10% of its common stock were not delinquent in filing any 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 in 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,c/o Tengasco, Inc., 6021 S. Syracuse Way, Suite 117, Greenwood Village CO 80111 or by e-mail: to: csorensen@tengasco.com Subject: Communication80111. Shares included in the “Right to BoardAcquire” column consist of Directors. All letters and e-mails willshares that may be answered, if possible, and will be distributed to Board members as appropriate. Notwithstandingpurchased through 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.exercise of options that are exercisable within 60 days of January 25, 2016.
Name and Address | | Title | | Number of Shares Beneficially Owned1 | | Percent of Class2 |
| | | | | | | |
Matthew K. Behrent | | Director | | 183,0003 | | Less than 1% |
| | | | | | | |
| Hughree F. Brooks | | Director | | 125,0004 | | Less than 1% |
| | | | | | | |
| Michael J. Rugen | | Chief Executive Officer (interim); Chief Financial Officer | | 05 | | - |
| | | | | | | |
Peter E. Salas | | Director; Chairman of the Board | | 21,007,1566 | | 34.5% |
| | | | | | | |
Cary V. Sorensen | | Vice President; General Counsel; Secretary | | 236,2267 | | Less than 1% |
| | | | | | | |
| Richard M. Thon | | Director | | 56,2508 | | Less than 1% |
| | | | | | | |
| All directors and executive officers as a group | | | | 21,607,632 | | 35.5% |
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Name and Address | Title | Number of Shares
Beneficially Owned 4
| Percent of
Class5
|
| | | |
Matthew K. Behrent
| Director
| 176,7506
| Less than 1% |
| | | |
Hughree F. Brooks | Director | 118,7507
| Less than 1% |
| | | |
Michael J. Rugen | Chief Financial
Officer
| 08
| - |
| | | |
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% |
| | | |
Richard M. Thon | Director | 50,00011
| Less than 1% |
| | | |
All Officers and
Directors as a group
| | 21,582,63212
| 35.5% |
41 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.January 25, 2016.52 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.January 25, 2016. Shares not outstanding that are subject to options or warrants exercisable by the holder thereof within 60 days of October 12, 2015January 25, 2016 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.
63 Consists of 33,000 shares held directly and vested, fully exercisable options to purchase 143,750150,000 shares.
74 Consists of vested, fully exercisable options to purchase 118,750125,000 shares.
85 Mr. Rugen’s options to purchase 400,000 shares expired on September 27, 2015.
96 Consists of directly, vested, fully exercisable options to purchase 143,750150,000 shares, 218,000 shares held individually, and 20,639,156 shares held directly by Dolphin Offshore Partners, L.P. (“Dolphin”)., the Company’s largest shareholder and the only shareholder holding more than 5% of the Company’s stock as of January 25, 2016. Peter E. Salas is the sole shareholder of and controlling person of Dolphin Mgmt. Services, Inc. which is the general partner of Dolphin.
107 Consists of 236,226 shares held directly.
118 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 456,25056,250 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.
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 $100,000 during fiscal years ended December 31, 20142015 and December 31, 2013.2014.
| SUMMARY COMPENSATION TABLE | |
| | | | Salary | | | Bonus | | | Option Awards | | | All Other Compensation13 | | | Total | |
| Name and Principal Position | Year | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| 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 | | | Option Awards | | | All Other Compensation1 | | | Total | |
| Name and Principal Position | Year | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| Michael J. Rugen, | 2015 | | | 168,008 | | | | 29,442 | | | | | | | 1,674 | | | | 199,124 | |
Chief Executive Officer (interim)2 | 2014 | | | 186,716 | | | | 68,343 | | | | - | | | | 53,597 | | | | 308,656 | |
| Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | |
| Cary V. Sorensen, | 2015 | | | 92,677 | | | | - | | | | | | | | 945 | | | | 93,622 | |
| General Counsel | 2014 | | | 137,940 | | | | 5,000 | | | | - | | | | 9,788 | | | | 152,728 | |
_______________131 The amounts in this column consist of the 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.
142Mr. Rugen was appointed interim Chief Executive Officer on June 28, 2013. The information for Mr. Rugen for 20142015 and 20132014 includes compensation for his services as both CEO and CFO. The bonus in 2015 and 2014 include $29,442 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 2014Year-End
| OUTSTANDING EQUITY AWARDS AT FISCAL 2015 YEAR-END | | OUTSTANDING EQUITY AWARDS AT FISCAL 2015 YEAR-END |
| | | OPTION AWARDS | | OPTION AWARDS |
| | | Number of securities underlying unexercised options | | | Number of securities underlying unexercised options | | | Option exercise price | | Option expiration date | | Number of securities underlying unexercised options | | | Number of securities underlying unexercised options | | | Option exercise price | | Option expiration date |
| | | exercisable | | | unexercisable | | | | | | | exercisable | | | unexercisable | | | | | |
| Michael J. Rugen | | | 400,000 | | | | - | | | $ | 0.50 | | 9/27/2015 | | 0 | | | 0 | | | - | | - |
| Cary V. Sorensen | | | 74,000 | | | | - | | | $ | 0.44 | | 8/29/2015 | | 0 | | | 0 | | | - | | - |
Option and Award Exercises
In January 2013, Mr. McInturff received a $59,520 payment in 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 20132014 or 2014.
Employment Contracts2015.
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-K401(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.
CompensationChange in Control
To the knowledge of Directorsthe 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.
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 diem, together with direct out-of-pocket expenses incurred in attendance at the meetings, including travel. The Directors, however, have waived per diem fees 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.Plan (the “Plan”). A separate plan to issue cash and/or shares of stock to independent directors for service on the Board and committees of the Board of Directors was authorized by the Board and approved by the Company’s shareholders. A copy of that plan is posted at the Company’s website at www.tengasco.com. No award was made to any independent director under that plan in Fiscal 2014.2015.
| DIRECTOR COMPENSATION FOR FISCAL 2015 | |
| | | Fees earned or paid in cash | | | Option awards compensation | | | Total | |
| Matthew K. Behrent | | $ | 5,625 | | | $ | 3,251 | | | $ | 8,876 | |
| Hughree F. Brooks | | $ | 5,625 | | | $ | 3,251 | | | $ | 8,876 | |
| Richard M. Thon | | $ | 5,625 | | | $ | 3,251 | | | $ | 8,876 | |
| Peter E. Salas | | $ | 5,625 | | | $ | 3,251 | | | $ | 8,876 | |
| 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 | |
PROPOSAL NO. 1
CERTAIN TRANSACTIONSAPPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT OF THE COMPANY’S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AT A RATIO OF 1:10 (THE “REVERSE SPLIT”); PROVIDED, THAT THE BOARD MAY ABANDON THE REVERSE SPLIT IN ITS DISCRETION.
There have been no material transactions, seriesOverview
The Board unanimously approved an amendment to the Certificate of similar transactions or currently proposed transactions entered into during 2014Incorporation to effect a reverse split of all outstanding shares of our common stock at an exchange ratio of one-for-ten (1:10) and 2013,recommended that a proposal to whichapprove the Company or any of its subsidiaries was or isReverse Split be submitted to be a party, in which the amount involved exceeds the lesser of $120,000 or one percent of the averageholders of the Company’s total assetscommon stock. You are now being asked to vote upon this amendment to the Certificate of Incorporation. Should the Company receive the required stockholder approval, the Board will have the sole authority to elect, at year-endany time prior to filing the amendment to the Certificate of Incorporation, whether or not to effect the Reverse Split. Even with stockholder approval of this proposal, the Board would not be obligated to pursue the Reverse Split. Rather, the Board would have the flexibility to decide whether or not a Reverse Split would be in the best interests of the Company.
The Board presently intends to effect the Reverse Split in order to maintain its listing on the NYSE MKT. NYSE MKT Rule 1003(f)(v) provides that the NYSE MKT “will normally consider” suspending trading or delisting a company’s common stock where it is “selling for a substantial period of time at a low price per share.” Authorization to effect a reverse split would be helpful in maintaining, but would by no means guarantee, continued compliance with the NYSE MKT rule. The Board may consider a variety of factors in determining whether or not to proceed with the proposed amendment of the Certificate of Incorporation, including overall trends in the stock market, recent changes and anticipated trends in the per share market price of our common stock, business developments, and our actual and projected financial performance. However, for the reasons set out below, it is expected that the Board will authorize filing the amendment to the Certificate of Incorporation at the earliest possible time following stockholder approval.
Purpose and Background of the Reverse Split
The Company’s primary objective in effectuating the Reverse Split would be to attempt to raise the per share trading price of our common stock in an effort to maintain compliance with NYSE MKT Rule 1003(f)(v) . The NYSE MKT does not have any specific minimum price, but does have has a policy in effect requiring, among other things, a review of all specific factors bearing on continued listing should the average closing price of the common stock of a listed company fall below $0.20 per share for thirty consecutive trading days and not increase to a point above that level within a reasonable period of time. In such event, the NYSE MKT will provide notice to the listed company that if the share price does not increase above that level within a reasonable time, the Exchange could, among other things initiate delisting procedures, with certain appeal rights granted to the listed company to contest such determination.
On December 29, 2015, we received notice from NYSE MKT that over the last 30 trading days, the average closing price of TGC common stock has dipped below $0.20 per share. The notice stated that members of its last two completed fiscal years in which any director or executive officer or any security holder who is knownstaff believe that the Company’s common stock may not be suitable for auction market trading due to its low selling price. The notice further stated that “This letter constitutes notification that the staff [of NYSE MKT- Ed.] deems it appropriate for the Company to owneffect a reverse stock split.” The Board is therefore seeking approval for the authority to effectuate the Reverse Split as a means of record or beneficially more than 5%increasing the share price of the Company'sour common stock or any member ofper share in order to remain in compliance with the immediate family of any ofrules established by 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,NYSE MKT. We expect that the Company entered into with Hoactzin in 2007 that remained in existence in 2013 and 2014. As notedReverse Split will increase the bid price per share of our common stock 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$0.20 per share minimum price utilized 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.NYSE MKT policy. However, there can be no assurance that the CompanyReverse Split will have that effect, initially or in the future, or that it will enable us to maintain compliance with the NYSE MKT policy.
In addition, we believe that the low per share market price of our common stock may impair its marketability to and acceptance by institutional investors and other members of the investing public. In addition, the low per share market price may create a negative impression of the Company. Theoretically, decreasing the number of shares of common stock outstanding should not, by itself, affect the marketability of the shares, the type of investor who would be successfulinterested in acquiring them, or our reputation in the financial community. In practice, however, many investors, brokerage firms and market makers consider low-priced stocks as unduly speculative in nature and, as a matter of policy, avoid investment and trading in such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. The presence of these factors may be adversely affecting, and may continue to adversely affect, not only the pricing of our common stock but also its trading liquidity. In addition, these factors may affect our ability to raise additional capital through the sale of stock.
We further believe that 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 operationalhigher stock price could help us attract and retain employees and other claims againstservice providers. We believe that some potential employees and service providers are less likely to work for a company with a low stock price, regardless of the Company primarily undersize of the Management Agreement. This analysis raised issuescompany's market capitalization. If the Reverse Split successfully increases the per share price of our common stock, we believe this increase will enhance our ability to attract and retain employees and service providers.
We anticipate that the decrease in the number of shares of our outstanding common stock as a consequence of the Reverse Split, and the anticipated increase in the price per share, will encourage greater interest in our common stock by the financial community and the investing public, help us attract and retain employees and other service providers, and possibly promote greater liquidity for our stockholders with respect to those shares presently held by them. However, the possibility also exists that liquidity may be adversely affected by the reduced number of shares which would be outstanding if the Reverse Split is made effective, particularly if the price per share of our common stock decreases after the Reverse Split is made effective.
There can be no assurance that the Reverse Split will achieve any of the desired results. There also can be no assurance that the price per share of our common stock immediately after the Reverse Split will increase proportionately with the Reverse Split, or that any increase in the price per share will be sustained for any period of time.
If stockholders do not approve this Proposal and our stock price does not otherwise increase to greater than $0.20 per share for at least thirty consecutive trading days, we expect our common stock to be made subject to a delisting procedure to be initiated at a by the NYSE MKT. We believe the Reverse Split is the most likely way to assist the stock price in reaching the minimum bid level required by the NYSE MKT policy, although effecting the Reverse Split cannot guarantee that we will be in compliance with the minimum price policy of the NYSE MKT.
If our common stock were delisted from the NYSE MKT at some point in the future, trading of our common stock would thereafter be conducted on the OTC Bulletin Board or the "pink sheets". As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, our common stock. To relist shares of our common stock on the NYSE MKT, we would be required to meet the initial listing requirements for the NYSE MKT, which are more stringent than the maintenance requirements.
If our common stock were delisted from the NYSE MKT and the price of our common stock were below $5.00 at such time, such stock would come within the definition of "penny stock" as defined in the Securities Exchange Act of 1934, as amended, and would be covered by Rule 15g-9 of the Securities Exchange Act of 1934. That rule imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the “Incidentbroker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. These additional sales practice restrictions will make trading in our common stock more difficult and the market less efficient.
The Reverse Split May Not Result in an Increase in the Per Share Price of Non-Compliance”Our Common Stock; There Are Other Risks Associated with the Reverse Split
We cannot predict whether the Reverse Split will increase the market price for our common stock. The history of similar stock split combinations for companies in 2012. like circumstances is varied. There is no assurance that:
the market price per share will either exceed or remain in excess of the $0.20 closing price as required by the NYSE MKT policy;
we will otherwise meet the requirements for continued listing for trading on the NYSE MKT exchange;
the market price per share of our common stock after the Reverse Split will rise in proportion to the reduction in the number of shares outstanding before the Reverse Split;
the Reverse Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks; or
the Reverse Split will result in a per share price that will increase our ability to attract and retain employees and other service providers.
The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Split is made effective and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a Reverse Split.
Principal Effects of Reverse Split on Market for Common Stock
By decreasing the number of shares of common stock outstanding without altering the aggregate economic interest represented by the shares, we believe the market price will be increased. The greater the market price rises above $0.20 per share, the less risk there will be that we will fail to meet the policy for maintaining a share price meeting NYSE MKT policy. However, there can be no assurance that the market price of the common stock will rise to or maintain any particular level or that we will at all times be able to meet the minimum share price policy requirements for maintaining the listing of our common stock on the NYSE MKT.
Principal Effects of Reverse Split on Common Stock; No Fractional Shares; No Change to Par Value; No Change to Number of Authorized Shares
If stockholders approve granting the Board the authority to exercise its discretion to amend the Certificate of Incorporation to effect a Reverse Split, and if the Board decides to effectuate such amendment and Reverse Split, the principal effect of the Reverse Split will be (i) to reduce the number of issued and outstanding shares of our common stock, in accordance with an exchange ratio approved by the stockholders and determined by the Board as set forth in this Proposal, from approximately 60,842,413 shares to approximately 6,084,242 shares. The total number of shares of common stock each stockholder holds will be reclassified automatically into the number of shares of common stock equal to the number of shares of common stock each stockholder held immediately before the Reverse Split divided by the exchange ratio approved by the stockholders as set forth in this Proposal.
The Reverse Split will affect all of our stockholders uniformly and will not affect any stockholder's percentage ownership interests, except to the extent that the Reverse Split would result in any stockholder owning a fractional share. Stockholders holding fractional shares after the Reverse Split because the number of shares of common stock they hold before the Reverse Split is not evenly divisible by the split ratio will be issued one whole share in exchange for any fractional interest that such stockholder would have been eligible to receive as a result of the Reverse Split. The par value of our common stock and preferred stock would remain unchanged at $0.001 per share. We will continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934.
The Company is discussing this analysiscurrently authorized to issue 100,000,000 shares of common stock. Upon effectiveness of the Reverse Split, the number of authorized shares of common stock that are not issued or outstanding will increase substantially because the proposed amendment will not reduce the number of authorized shares while it will reduce the number of outstanding shares by a factor of ten. In other words, if stockholders approve Proposal No. 1 and our Board effectuates the amendment, the number of authorized but unissued shares of common stock would increase from approximately 39.2 million shares to approximately 93.9 million shares that will be available for issuance, and we may issue such shares in financings or otherwise. If we issue additional shares, the ownership interest of holders of our common stock may also be diluted.
Principal Effects of Reverse Split on Outstanding Options and Stock Plan
As of the Record Date, we had outstanding stock options under the Plan to purchase an aggregate of 481,250 shares of common stock with Hoactzinexercise prices per share ranging from $0.12 to $1.16 per share. Under the terms of the Plan, when the Reverse Split becomes effective, the maximum number of shares subject to the Plan as well as the number of shares of common stock covered by each option outstanding under the Plan will be reduced to one tenth the number of shares currently covered and the exercise or conversion price per share will be increased by ten times the current exercise or conversion price, resulting in the same aggregate price being required to be paid therefor upon exercise or conversion thereof as was required immediately preceding the Reverse Split. The maximum number of shares available under the Plan will be adjusted to one tenth of the maximum number of shares currently stated in the Plan.
Principal Effects of Reverse Split on Legal Ability to Pay Dividends
The Board has not in the past declared, nor does it have any plans to declare in the foreseeable future, any distributions of cash, dividends or other property. Therefore, we do not believe that the Reverse Split will have any effect with respect to future distributions, if any, to holders of our common stock.
Accounting Matters
The Reverse Split will not affect the par value of our common stock. As a result, on the effective date of the Reverse Split, the stated capital on our balance sheet attributable to our common stock will be reduced by a factor of ten. In other words, stated capital will be reduced to one tenth of its present amount, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. The per-share net income or loss and net book value of our common stock will be increased because there will be fewer shares of common stock outstanding.
Potential Anti-Takeover Effect
The increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an effort to determine whether there is possibilityanti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a reasonable resolutionperson seeking to effect a change in the composition of our Board or contemplating a tender offer or other transaction for the combination of the Company with another company). However, this Proposal is not being proposed to facilitate implementing a poison pill in response to any effort of which we are aware to accumulate shares of our common stock or obtain control of the Company, nor is it part of a plan by management to recommend a series of similar amendments to our Board and stockholders.
Exchange of Stock Certificates
If Proposal One is approved by our stockholders and the Reverse Split is effected, the reduction in the number of our shares of common stock that you hold will occur automatically on the date of effectiveness, without any further action on your part and without regard to the date that you physically surrender any certificates representing pre-split shares of common stock for certificates representing post-split shares. As soon as practicable after the effective date of the Reverse Split we expect that our transfer agent, Continental Stock Transfer & Trust Company, will mail transmittal forms to each holder of record of certificates representing the number of shares of our common stock that you previously held prior to the Reverse Split. However, we may decide at a later time to utilize another agent. The letter of transmittal should be used by you in forwarding any pre-split certificates you will be entitled to receive as a consequence of the Reverse Split. The transmittal form will be accompanied by instructions specifying other details of the exchange.
After receipt of a transmittal form, you should surrender your old certificates and will receive in exchange therefor certificates representing the number of shares of our common stock that you now hold. No stockholder will be required to pay a transfer or other fee to exchange his, her or its certificates. Stockholders should not send in certificates until they receive a transmittal form from the transfer agent. In connection with the Reverse Split, our common stock will change its current Committee on Uniform Securities Identification Procedures (CUSIP) number. This new CUSIP number will appear on any new stock certificates issued representing shares of our post-split common stock.
As of the effective date of the Reverse Split, each certificate representing pre-split shares of common stock will, until surrendered and exchanged as described above, be deemed cancelled and, for all corporate purposes, will be deemed to represent only the number of post-split shares of common stock as a result of the Reverse Split. It is very important for you to note that you will not be entitled to receive any dividends or other distributions payable by us after the Reverse Split is effective until you surrender and exchange your certificates. If we issue and pay any dividends or distributions, these amounts will be withheld, accumulated and will be paid to you, without interest, once you surrender your certificates for exchange.
Certain of our registered holders of common stock may hold some or all of these matters ontheir shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a negotiated basis.statement reflecting the number of shares registered in their accounts.
If a stockholder holds registered shares in book-entry form with the transfer agent, they will be sent a transaction statement by our transfer agent after the effective time of the Reverse Split indicating the number of post-reverse split shares they own.
No Dissenters' Rights
Under the Delaware General Corporation Law, stockholders are not entitled to dissenter's rights with respect to the Reverse Split, and the Company will not independently provide stockholders with any such right.
Material Federal Income Tax Consequences of the Reverse Split
The following is a summary of the material federal income tax consequences of the Reverse Split to holders of our common stock and to the Company. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed and temporary Treasury Regulations promulgated thereunder, Internal Revenue Service ("IRS") rulings, administrative pronouncements and judicial decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) or to different interpretations. The summary does not address all aspects of federal income taxation that may apply to a stockholder as a result of the Reverse Split and is included for general information only. In addition, the summary does not address any state, local or non-U.S. income or other tax consequences of the Reverse Split.
The summary does not address tax consequences to stockholders that are subject to special tax rules, including, without limitation, banks, insurance companies, regulated investment companies, personal holding companies, non-U.S. entities, nonresident alien individuals, broker-dealers, S corporations, entities treated as partnerships or partners of such partnerships, persons who acquired our common stock pursuant to the three 2007 transactions, Hoactzin ownsexercise of compensatory stock options or the vesting of restricted shares of common stock, estates, trusts and tax-exempt entities. The summary further assumes that stockholders have held our common stock subject to the Reverse Split as a drilling program interest incapital asset within the Company’s “6 Well Program” in Kansas, acquired in 2005 by Hoactzin in exchange for surrendermeaning of Section 1221 of the Company’s promissory notes givenCode, and will continue to hold such common stock as a capital asset following the Reverse Split. No ruling from the IRS or opinion of counsel will be obtained regarding the federal income tax consequences to stockholders as a result of the Reverse Split.
THE FOLLOWING DISCUSSION IS BASED ON CURRENT LAW AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE REVERSE SPLIT. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE REVERSE SPLIT IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES. THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE.
We believe that the Reverse Split, if implemented, would be a tax-free recapitalization under the Code. If the Reverse Split qualifies as a recapitalization under the Code, then, generally, for United States federal income tax purposes, no gain or loss will be recognized by the Company in connection with the Reverse Split, and no gain or loss will be recognized by stockholders that exchange their shares of pre-split common stock for borrowingsshares of post-split common stock. The post-split common stock in the hands of a stockholder following the Reverse Split will have an aggregate tax basis equal to fund the redemption in 2004aggregate tax basis of the Company’s three series of preferredpre-split common stock all as previously disclosed. Hoactzin’s interest inheld by that stockholder immediately prior to the 6 Well Program was $30,000 in 2014; and $45,000 in 2013 (calculatedReverse Split. Similarly, a stockholder’s holding period for the post-split common stock will be the same as the total payments attributable to Hoactzinholding period 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 Parties18
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 directors of the Company’s Board.
18 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 votingpre-split common 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.exchanged therefor.
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 pluralityAlternative characterizations of the votesReverse Split are possible. For example, while the Reverse Split, if implemented, would generally be treated as a tax-free recapitalization under the Code, stockholders whose fractional shares resulting from the Reverse Split are rounded up to the nearest whole share may recognize gain for federal income tax purposes equal to the value of the shares ofadditional fractional share. However, we believe that, in such case, 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 willresulting tax liability may 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.
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 2015.
Hein audited the Company’s financial statements for the years ended December 31, 2014 and 2013. Hein was engaged on September 21, 2011 to serve as the Company’s 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 importancelow value of such fractional interest. Stockholders should consult their own tax advisors regarding alternative characterizations of the financial statementsReverse Split for federal income tax purposes.
THE COMPANY'S VIEW REGARDING THE TAX CONSEQUENCE OF THE REVERSE SPLIT IS NOT BINDING ON THE IRS OR THE COURTS. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISORS REGARDING ALL OF THE POTENTIAL TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE SPLIT.
Vote Required
This Proposal to stockholders,approve granting the Board the authority to exercise its discretion to amend the Certificate of Directors deems it desirable that they pass upon its selection of auditors. InIncorporation to effect 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, 2014 and December 31, 2013:
| AUDIT AND NON-AUDIT FEES | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Audit Fees | | $ | 134,316 | | | $ | 131,275 | |
| Audit-Related Fees | | | - | | | | - | |
| Tax Fees | | | - | | | | - | |
| All Other Fees | | | - | | | | - | |
| Total Fees | | $ | 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 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 2014 and 2013 were performed by the full-time, permanent employees of Hein.
All of the 2014 services described above wereReverse Split must be 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 2015. Ratification will require the affirmative vote of a majority of the number of 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 selectioncommon stock outstanding as of the Company's independent auditors.
Unless otherwise directed by the stockholder giving the proxy, the proxy will be voted for the ratificationRecord Date, being a majority of the selection by the Board of Directors of Hein & Associates, LLP as the Company's independent certified public accountants for Fiscal 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 shares60,842,413, or 30,421,207 votes. Broker non-votes (if any) and abstentions (if any) will not be considered as affirmative vote for the proposal and thus have the effect of a vote against the proposal.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1 GRANTING THE BOARD THE AUTHORITY TO EXERCISE ITS DISCRETION TO AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT OF THE COMPANY’S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK, AT AN EXCHANGE RATIO OF ONE-FOR-10 (1:10).
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY’S STOCK INCENTIVE PLAN TO PROVIDE THAT GRANTS OF VESTED AND UNVESTED SHARES OF THE COMPANY’S COMMON STOCK MAY BE ISSUED UNDER THE PLAN
The Board of Directors of the Company on October 25, 2000 adopted the Tengasco, Inc. Stock Incentive Plan (the “Plan”) to provide an incentive to key employees, officers, directors and consultants of the Company and its present and future subsidiary corporations, and to offer an additional inducement in obtaining the services of such individuals. The plan was approved by the Company’s stockholder on June 26, 2001. The Plan currently provides for the grant of stock options and stock appreciation rights to employees, directors, and consultants of the Company.
Background
On January 14, 2016, the Board of Directors approved an amendment to the Plan that authorizes grants of vested and unvested shares of the Company’s common stock as an additional type of equity compensation award permitted under the Plan. The purpose of this amendment to the Plan is to provide the Company with greater flexibility in attracting and retaining qualified employees, consultants, officers and directors. In particular, because the current price environment for crude oil has significantly decreased the Company’s revenues and cash flow, the availability of grants of common stock in lieu of cash components of salary could provide the Company with an effective means of retaining or attracting qualified individuals while preserving cash. The grant of vested or unvested stock as compensation has the additional benefit of exposing the recipient of such a grant to the same risk of diminution of value of the stock over time as that borne by the Company’s other shareholders. Such risk is unlike that of a stock option, which exposes a recipient only to the possibility that the underlying stock may not appreciate over time.
Brief Description of Plan, as Amended
Participants
Employees, consultants and directors of the Company are eligible to participate in the Plan and to receive awards under the Plan, although only employees are entitled to receive “incentive stock options” (as described below). As of January 25, 2016, there were approximately 17 employees, 0 consultants, and 4 directors who may be eligible to receive awards under the Plan.
Shares Reserved For Issuance
By previous amendments to the Plan approved by stockholder vote, the maximum number of shares of common stock that may be issued under the Plan has been increased to and currently stands at 7,000,000 shares, of which 3,043,118 shares are available as of January 25, 2016 under the Plan for issuance of options or SARS. As of January 25, 2016, the closing price of our common stock as reported on NYSE MKT was $0.15.
Adjustment of Shares
The Plan expressly provides that the aggregate number shares available under the Plan, and all existing options issued under the Plan will be adjusted to reflect any reverse split of the Company’s issued and outstanding shares. Accordingly, if the Reverse Split contemplated in Proposal No. 1 of this Proxy Statement is approved and becomes effective, the aggregate number of shares available under the Plan would be reduced from 7 million shares to 700,000 shares, and the available number of shares would be adjusted from 3,043,118 shares to approximately 304,312 shares. Existing options issued under the plan would be adjusted both as to volume and strike price as set out in the Plan to reflect the Reverse Split if made effective.
Awards
The Plan provides for the issuance of stock options (both “incentive stock options” as defined in the Internal Revenue Code of 1986, as amended (the “Code”) and non-qualified stock options), stock appreciation rights, and outright grants of vested and unvested shares of the Company’s common stock. Option and stock appreciation rights generally have a maximum term of 10 years (5 years in the case of incentive stock options issued to 10% or more stockholders). Options and SARs generally must have an exercise price that is at least equal to the fair market value of the underlying common stock on the date of grant. All awards may be issued subject to such other terms and conditions as may be proscribed by the Committee (defined below) in its discretion.
Administration
The Plan is generally administered by our Compensation Committee, which has broad authority to take such actions that are consistent with the terms of the Plan as it deems necessary or desirable in the administration of the Plan,
Amendment and Termination
The Committee generally reserves the right to amend or terminate the Plan in its discretion, although no such amendment shall be made without stockholder approval if such approval is required in accordance with applicable NYSE MKT rules. In addition, no such amendment or termination may adversely affect the rights of any award holder without his or her consent. Unless sooner terminated by the Committee, the Plan will terminate in accordance with its terms on January 31, 2018.
A copy of the Plan as it is proposed to be amended upon approval of Proposal 2 is attached hereto as Appendix B.
Benefits Not Determinable
Participation in the Plan is at the discretion of the Committee, and accordingly, future benefits under the Plan are not determinable.
Certain Federal Income Tax Consequences
The following description of the material federal income tax consequences of awards under the Plan is a general summary. State, local, and other taxes may also be imposed in connection with awards. This discussion is intended for the information of shareholders considering how to vote at the annual meeting and not as tax guidance to individuals who participate in the Plan.
Incentive Stock Options
A participant who is granted an incentive stock option (an “ISO”) recognizes no taxable income when the ISO is granted. A participant will not recognize taxable income upon exercise of an ISO for regular income tax purposes but generally will recognize taxable income upon the exercise of an ISO for alternative minimum tax (“AMT”) purposes (see below). A participant who exercises an ISO will recognize taxable gain or loss upon the sale of the shares underlying the option. Any gain or loss recognized on the sale of shares acquired upon exercise of an ISO is taxed as capital gain or loss if the shares have been held for more than one year after the option was exercised and for more than two years after the option was granted. If the participant disposes of the shares before the required holding periods have elapsed (a “disqualifying disposition”), the participant is subject to income tax (but not FICA taxes) as though he or she had exercised a non-qualified stock option, except that the ordinary income on exercise of the option is recognized in the year of the disqualifying disposition and generally is the lesser of (1) the excess of the fair market value of the shares acquired on the date of its exercise over the option price, or (2) the excess of the amount realized in the sale of the stock over the original option price. The Company will not be entitled to a deduction with respect to the grant or exercise of the ISO or the sale of the ISO shares, except in the case of a disqualifying disposition of the ISO shares, upon which event the amount of the Company’s deduction is equal to the amount of the compensation income recognized by the participant.
Alternative Minimum Tax. The exercise of an ISO may result in tax liability under the AMT. The AMT provides for additional tax equal to the excess, if any, of (a) 26% or 28% of “alternative minimum taxable income” in excess of an applicable exemption amount, over (b) regular income tax for the taxable year. For purposes of calculating alternative minimum taxable income, an ISO is treated as if it were a non-qualified stock option (as described below under “Non-Qualified Stock Options”), so the difference between the fair market value of the shares received on exercise and the option price will be deemed to be income for this purpose and the taxpayer will hold the shares with a tax basis equal to such fair market value for subsequent AMT purposes. Application of the AMT to any exercise of an ISO and to a disqualifying disposition of shares is complex and will vary depending upon each person’s circumstances.
Non-Qualified Stock Options
The tax treatment of non-qualified stock options (“NQSOs”) differs significantly from the tax treatment of ISOs. In general, no taxable income is recognized when an NQSO is granted, but upon exercise, the difference between the fair market value of the shares received and the exercise price is taxable as ordinary compensation income to the recipient and is generally deductible by the Company. If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding.
SARs
A participant will generally not recognize taxable income upon receipt of a stock appreciation right (a “SAR”). Upon exercise of the SAR, the participant will recognize ordinary income in an amount equal to the amount of cash received and/or the fair market value of any shares of the Company’s common stock received at the time of exercise. The Company is generally entitled to a deduction equal to the amount of ordinary income recognized by a participant upon exercise of an SAR. If the recipient is an employee of the Company, the income will constitute wages, subject to FICA taxes and withholding.
Common Stock Grants
A participant receiving stock ordinarily recognizes income at the time stock award vests. Upon vesting (or if the shares are issued without a vesting schedule to begin with), the participant will generally recognize ordinary compensation income in an amount equal to the fair market value of the shares on the vesting date. If the shares are unvested upon issuance, the participant may elect under Section 83(b) of the Code to recognize ordinary compensation income upon the grant of the restricted shares, as opposed to on the vesting date (the ordinary compensation income is equal to the fair market value of the shares on the grant date). Any dividends paid on or with respect to unvested stock are generally taxable upon receipt as ordinary compensation income. If the participant is an employee of the Company, any compensation income will constitute additional wages, subject to FICA taxes and withholding. The Company generally is entitled to deduct an amount equal to the income recognized by the participant at the time the participant recognizes the income.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information regarding the number of shares of Common Stock that were subject to outstanding stock options under the Plan as of December 31, 2015:
| Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | (a) | (b) | (c) |
| Equity compensation plans approved by security holders (the Plan) | 481,250 | $0.58 | 3,043,118 |
Vote Required
This Proposal to approve the amendments to the Plan must be approved by a majority of shares present and entitled to vote with respecton the proposal. Abstentions and broker non-votes will not be counted as votes cast on the proposal and therefore will have no effect on the outcome of the proposal.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 2 TO AMEND THE PLAN.
PROPOSAL NO. 3
APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO SEEK ADDITIONAL PROXIES
In this Proposal No. 3, we are asking our stockholders to vote in favor of a proposal that matter. An abstentionif Special Meeting is convened and a quorum is present, but there are not sufficient votes to approve the Reverse Split (Proposal 1), we may move to adjourn the special meeting at that time to solicit additional proxies in favor of Proposal 1.
If the stockholders approve Proposal No. 3, we could adjourn the special meeting and use the additional time to solicit proxies from voting bystockholders in favor of Proposal 1, including soliciting proxies from stockholders who have previously voted against the proposal. If it is necessary to adjourn the special meeting, no notice of the adjourned meeting is required to be given to stockholders if the date, time and place of the adjournment are announced at the special meeting at which the adjournment is taken and a stockholdernew record date is not set for the adjourned meeting. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.
The number of votes required to approve Proposal No. 1 is a majority of outstanding shares of the Company’s common stock. However, the same number of shares, a majority of outstanding shares, constitutes a quorum. It is therefore possible that a quorum may be present but a sufficient number of votes may not be cast in favor of Proposal No. 1, the Reverse Split. However, our Board believes that if the number of shares of our common stock present, in person or by proxy at the meeting hasSpecial Meeting and voting in favor of Proposal 1 is insufficient to approve Proposal 1, it is in the same legal effect asbest interests of our stockholders to authorize our Board to continue to seek to obtain a vote “against” Proposal No. 2 because it represents a share present or represented at the meeting and entitled to vote, thereby increasing thesufficient number of affirmativeadditional votes required to approve this proposal.
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 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 2015 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 for its approval. Due to the limited time provided under NYSE MKT procedures to take action to increase the share price of the Company’s common stock, it is in the best interest of the stockholders to attempt to effectuate the Reverse Split rather than to seek other avenues to increase the share price which may prove to be either less effective or not available to accomplish that important objective within the time period allowed under NYSE MKT procedures.
Vote Required
This Proposal to approve by shareholder resolution the compensationadjournment 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 2015 AnnualSpecial Meeting must be approved by a majority 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 aton the meeting hasproposal. Abstentions and broker non-votes will not be counted as votes cast on the same legalproposal and therefore will have no effect as a vote “against” Proposal No.on the outcome of the proposal.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” 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.TO APPROVE THE ADJOURNMENT OF THE SPECIAL MEETING IF AT THE SPECIAL MEETING A QUORUM IS PRESENT, BUT THERE ARE NOT SUFFICIENT VOTES TO APPROVE THE REVERSE SPLIT (PROPOSAL 1) SO THAT THE COMPANY MAY SOLICIT ADDITIONAL PROXIES IN FAVOR OF PROPOSAL 1.
STOCKHOLDERS'STOCKHOLDERS’ PROPOSALS
Proposals of stockholders or director nominations intended to be presented at the 2016 annual meeting must be received in writing, by the Chief Executive Officer of the Company at its offices by July 6, 2016 in order to be considered2, 2016. In addition, proposals of stockholders or director nominations intended for inclusion in the Company's proxy statement relating to that meeting.meeting must be received in writing, by the Chief Executive Officer of the Company at its offices by July 2, 2016.
SEC The Securities and Exchange Commission rules and regulations provide that if the date of the Company's 2016 Annual Meeting is advanced or delayed more than 30 days from the date of the 2015 Annual Meeting, stockholder proposals intended to be included in the proxy materials for the 2016 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 2016 Annual Meeting. Upon determination by the Company that the date of the 2016 Annual Meeting will be advanced or delayed by more than 30 days from the date of the 2015 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.
ADDITIONAL INFORMATION
The Securities and Exchange Commission permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for notice of internet availability of proxy materials with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report to those stockholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information stockholders receive and reduce expenses for companies. Both the Company and some of our intermediaries may be householding our notice of internet availability of proxy materials. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of the notice of internet availability of proxy materials in the future, we will promptly deliver a separate copy of this document to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the attention of the Company Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our annual report and proxy statement in the future, you should contact your bank, broker or other nominee record holder.
| | By Order of the Board of Directors |
| | |
| | /s/ Cary V. Sorensen |
| |
| Cary V. Sorensen, Secretary |
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 October 12,January 25, 2015 at the AnnualSpecial Meeting of stockholders to be held at the Doubletree by Hilton Hotel Denver Tech Center, 7801 E. Orchard Rd.,Company’s offices at 6021 S. Syracuse Way, Suite 117, Greenwood Village, CO 80111 on December 9, 2015March 17, 2016 at 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 ☐/ / in blue or black ink.
1. ElectionProposal to approve an amendment to the Company’s Certificate of Directors: Matthew K. Behrent, Hughree F. Brooks, Peter E. Salas,Incorporation to effect a reverse split of its issued and Richard M. Thon.outstanding shares of common stock at a ratio of 1:10; provided that the Company’s Board of Directors may abandon the reverse split in its discretion at any time prior to filing the amendment to the Certificate of Incorporation.
(Mark only one of the two boxes for this item)
| FOR ☐ AGAINST ☐ ABSTAIN ☐ | VOTE FOR all nominees named above except those who may be named on these two lines: |
(OR)
| ☐ | VOTE WITHHELD as to all nominees named above. |
2. Proposal to ratify appointmentapprove an amendment to the Company’s Stock Incentive Plan to expand the types of Hein & Associates, LLPawards available under the Plan to include grants of vested and unvested shares of the Company’s stock, in addition to grants of options and stock appreciation rights as currently provided by the Company's independent certified public accountants for Fiscal 2015:Plan.
| FOR FOR ☐ AGAINST ☐ ABSTAIN ☐
| AGAINST ☐
| ABSTAIN ☐
|
3. Proposal to approve by non-binding advisory vote, the compensationadjournment of the Company’s executive officers:
4.In their discretion, the Proxies are authorizedSpecial Meeting, if necessary, to solicit additional proxies to vote upon such other business as may properly come beforein favor of the meeting.foregoing Proposal No. 1.
FOR ☐ AGAINST ☐ ABSTAIN ☐
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; FOR Proposal 2; and FOR Proposal 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.
| | X | | |
| | | Signature | |
| | | | |
| | | | |
| X | | |
| | | Print Name(s) | |
| | | | |
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| X | | |
| | | Signature, if held jointly | |
APPENDIX A
CERTIFICATE OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION OF TENGASCO, INC.
TENGASCO, INC. (the “Corporation”), a corporation organized and existing under of the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: The name of the Corporation is Tengasco, Inc.
SECOND: The Certificate of Incorporation of the Corporation is hereby amended as follows.
By inserting the following paragraph as a new paragraph 4 (a) (6) thereof:
Upon the effectiveness of the amendment to the Certificate of Incorporation adding this paragraph thereto (the “Effective Time”), each share of Common Stock, par value $.001 per share issued and outstanding immediately prior to the Effective Time (the “Original Common Stock”), shall be reclassified into 1/10 shares of Common Stock, such Common Stock to have the rights and powers set forth in the Certificate of Incorporation and under the General Corporation Law of the State of Delaware (the “Reverse Split”). All shares of Common Stock issued to any holder of Original Common Stock as a result of the Reverse Split shall be aggregated for the purpose of determining the number of shares of Common Stock to which such holder shall be entitled, and no fractional shares shall be issued in connection with the Reclassification. At and after the Effective Time, outstanding certificates that prior thereto represented shares of Original Common Stock shall be deemed for all purposes to evidence ownership of and to represent that number of shares of Common Stock into which the shares previously represented by such certificates have been reclassified as herein provided. No fractional shares shall be issued in connection with the Reverse Split. Stockholders who otherwise would be entitled to receive fractional share interests of Common Stock as a result of the Reverse Split shall be entitled to receive in lieu of such fractional share interests, upon the Effective Time, one whole share of Common Stock in lieu of such fractional share interest. Until any such outstanding stock certificates have been surrendered for transfer or otherwise accounted for to the Corporation, the registered owner thereof on the books and records of the Corporation shall have and be entitled to exercise any voting and other rights with respect to, and receive any dividend and other distributions upon, the shares of Common Stock issued in respect of the Original Common Stock formerly evidenced by such certificates.
THIRD: The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. The foregoing amendment shall be effective upon filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to be signed by Michael J. Rugen, its Chief Executive Officer, thereto duly authorized, this ____day of ___________, 20__.
Tengasco, Inc.
| BY: | | |
| Michael J. Rugen | |
| Chief Executive Officer | |
APPENDIX B
TENGASCO, INC. STOCK INCENTIVE PLAN
ARTICLE 1
The Plan
1.1. Name. The name of this Plan is the Tengasco, Inc. Stock Incentive Plan.
1.2 Purpose and Scope.
(a) The purposes of the Plan are to (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) encourage ownership of the Company's common stock by Employees of the Company (and any current or future Parent or Subsidiary of the Company), (iii) encourage ownership of the Company's common stock by the Company’s Directors (and any current or future Parent or Subsidiary of the Company), and (iv) promote the Company's business success by creating a long-term mutuality of interests between its Employees, non-employee Directors, other Plan participants and the Company’s shareholders.
(b) The Plan provides for the granting of (i) Incentive Stock Options, Nonqualified Stock Options and stock appreciation rights (“SARs”) to Employees;, (ii) Nonqualified Stock Options and SARs to non-employee Directors of the Company and Consultants to the Company; and (iii) Common Stock to Employees, Directors, Officers, and Consultants to the Company.
1.3 Effective Date and Duration of Plan. This Plan is effective for a ten-year period commencing on February 1, 2008, and ending on January 31, 2018, provided that options and SARs granted under the Plan prior to the termination date shall continue to be exercisable in accordance with the terms of the Agreement granting such option or SAR beyond termination of the Plan.
ARTICLE 2
Definitions
Capitalized terms in this Plan shall have the following meanings (unless the context plainly requires that a different meaning apply):
2.1 Act. The Securities Act of 1933, as amended from time to time, or any replacement legislation.
2.2Agreement. Written agreement between the Company and the Recipient granting the option or SAR to the Recipient.
2.3 Board. The Board of Directors of the Company.
2.4 Code. The Internal Revenue Code of 1986, as amended from time to time, or any replacement legislation and regulations promulgated thereunder.
2.5 Committee. The stock option or compensation committee appointed by the Board, if one is appointed. If no Committee has been appointed, the term Committee shall mean the Board. The Committee shall consist solely of two or more Non-Employee Directors as that term is defined under Regulation 240.16b-3 promulgated by the Securities and Exchange Commission.
2.6 Common Stock. The Company’s $.001 par value common stock.
2.7 Company. Tengasco, Inc. and any successor to such corporation, whether by merger, consolidation, liquidation or otherwise.
2.8 Consultant. Any person engaged by the Company (or any Parent or Subsidiary) as a non-employee service provider pursuant to the terms of a written contract.
2.9 Director. Any duly elected member of the Board.
2.10 Disability. Permanent and total disability within the meaning of Section 22(e)(3) of the Code.
2.11 Employee. All persons employed by the Company or any Parent or Subsidiary, including officers, whether full-time or part-time.
2.12 Exchange Act. The Securities Exchange Act of 1934, as amended from time to time, or any replacement legislation.
2.13 Fair Market Value. The closing price per share of Common Stock on the American Stock Exchange or nationally recognized securities exchange on which the stock is listed. If the stock is not listed on a generally recognized securities exchange, Fair Market Value shall be determined by the Committee in good faith, using such criteria as the Committee may, in its sole discretion, deem appropriate.
2.14 Incentive Stock Option. Any stock option granted under this Plan which is intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
2.15 Nonqualified Stock Option. Any stock option granted under this Plan which is not intended to qualify as an Incentive Stock Option.
2.16 Optioned Shares. Those Shares subject to a stock option granted pursuant to this Plan.
2.17 Parent. A parent corporation, whether now or hereafter existing, within the meaning of Section 424(e) of the Code.
2.18 Plan. The Tengasco, Inc. Stock Incentive Plan, as amended from time to time.
2.19 Recipient. An individual who has received a stock option or SAR or Common Stock pursuant to this Plan.
2.20 Share. One share of the Company’s Common Stock, as adjusted in accordance with Section 5.7 of this Plan.
2.20 SAR. A stock appreciation right which entitles the holder upon exercise of that right to the product of (a) the excess of the Fair Market Value of one Share on the date of exercise over the price per share established by the Committee (in its sole discretion) for the grant and (b) the number of Shares subject to the grant, payable in either Shares, cash or a combination of the two, as provided in Section 5.4(b).
2.21 Subsidiary. A subsidiary corporation, whether now or hereafter existing, within the meaning of Section 424(f) of the Code.
ARTICLE 3
Plan Administration
3.1 Administration.
(a) The Plan shall be administered by the Committee. The Committee shall have the authority, in its sole discretion, including, but not limited to, determining the individuals who shall receive options, SARs, and Common Stock; the times when they shall receive them; whether an option shall be an Incentive or a Nonqualified 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 if in installments, the number of shares to be subject to each installment; whether the installments shall be cumulative, the date each installment shall become exercisable and the term of each installment; whether to accelerate the date of exercise of any installment; whether shares may be issued on exercise of an option as partly paid, and, if so, the dates when future installments of the exercise price shall become due and the amounts of 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 Recipient's exercise of an SAR; whether to require that the Recipient remain in the employ of the Company or its Subsidiary for a period of time from and after the date the option or SAR is granted to him; the amount necessary to satisfy the Company's obligation to withhold taxes; whether to restrict the sale or other disposition of the shares of Common Stock either granted under this Plan or acquired upon the exercise of an option and to waive any such restriction; to subject the exercise of all or any portion of an option or SAR to the fulfillment of contingencies as specified in the Agreement, including without limitations, contingencies relating to financial objectives (such as earnings per share, cash flow return, return on investment or growth in sales) for a specified period for the Company, and/or the period of continued employment of the Recipient with the Company or its Subsidiary, and to determine whether such contingencies have been met; to construe the respective Agreements granting such options and SARs; with the consent of the Recipient, 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 Plan; and to make all other determinations necessary or advisable for administering the Plan. The determinations of the Committee on the matters referred to herein shall be conclusive.
(b) Options and SARs granted under this Plan shall be evidenced by duly adopted resolutions of the Committee included in the minutes of the meeting at which they are adopted or in a unanimous written consent.
(c) The Committee shall endeavor to administer the Plan and grant options, SARs, and Common Stock hereunder in a manner that is compatible with the obligations of persons subject to Section 16 of the Exchange Act, although compliance with Section 16 is the obligation of the Recipient, not the Company. Neither the Committee, the Board, nor the Company can assume any legal responsibility for a Recipient’s compliance with his obligations under Section 16 of the Exchange Act.
(d) No member of the Committee or the Board shall be liable for any action taken or determination made in good faith with respect to the Plan or any option or SAR granted hereunder.
ARTICLE 4
Eligibility For Grants
4.1 Eligibility and Terms of Grants.
(a) The Committee shall have full discretionary authority to determine the persons eligible to receive an option or SAR or Common Stock.
(b) In determining the persons to whom options or SARs or Common Stock shall be granted and the number of shares to be covered by each option or SAR or grant of Common Stock, the Committee shall take into account the duties of the respective persons, their past, present and potential contributions to the success of the Company, and such other factors as the Committee shall deem relevant to accomplish the purposes of the Plan.
(c) A Recipient shall be eligible to receive more than one grant of an option or SAR or Common Stock during the term of the Plan, on the terms and subject to the restrictions set forth herein.
4.2 Granting of Options.
(a) The granting of any option or SAR or Common Stock shall be entirely in the discretion of the Committee and nothing in the Plan shall be construed as giving any Employee, Director or Consultant any right to participate under this Plan or to receive any option or right or stock under it.
(b) The Committee may, in its sole discretion, accept the cancellation of outstanding options or SARs in return for the grant of new options or SARs for the same or different number and at the same or different option price.
ARTICLE 5
General Provisions
5.1 Stock Subject to Plan.
(a) The stock subject to options or SARs or grant of Common Stock hereunder shall be shares of Common Stock. Such shares, in whole or part, may be authorized but unissued shares, reacquired shares or both. The aggregate number of shares of Common Stock as to which options and SARs may be granted from time to time under the Plan shall not exceed 7,000,000, subject to adjustment as provided in Section 5.7 hereof. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan
(b) Any shares subject to an option or SAR which for any reason expire, are canceled or are terminated unexercised (other than those which expire, are canceled or terminated pursuant to the exercise of a tandem SAR or option) shall again become available for the granting of options or SARs under the Plan. The number of shares of Common Stock underlying that portion of an option or SAR which is exercised (regardless of the number of shares actually issued) shall not again become available for grant under the Plan.
5.2 Terms and Conditions; Agreements.
Each option or SAR or grant of Common Stock granted under this Plan shall be evidenced by a written agreement (the “Agreement”) between the Company and the Recipient. The Agreement shall be in the form determined by the Committee in its discretion and shall be subject to such amendment or modification from time to time as the Committee shall deem necessary or appropriate to comply with or take advantage of applicable laws or regulations. Each Agreement shall specifically identify the portion, if any, of the option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Nonqualified Stock Option. Each Agreement shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Agreement shall state the number of shares covered by the option or SAR or grant of Common Stock.
(b) Exercise Price and Base Price.
(1) Each Agreement shall state the exercise price for the option or the base price for the SAR which price shall be determined by the Committee.
(2) The date on which the Committee adopts a resolution expressly granting an option or SAR shall be considered the day on which such option or SAR is granted, unless a future date is specified in the resolution, and the Fair Market Value of the Common Stock to which such option or SAR relates shall be determined at the close of the day on which the resolution is adopted, unless another value and/or another date is specified in the resolution.
(c) Term. Each Agreement shall state the period during and times at which the option or SAR shall be exercisable, in accordance with the following limitations:
(1) The date on which the Committee adopts a resolution expressly granting an option or SAR shall be considered the day on which such option or SAR is granted, although such grant shall not be effective until the Recipient has executed an Agreement with respect to such option or SAR.
(2) Subject to the provisions of section 7.4 hereof, the exercise period of any option or SAR shall not exceed ten (10) years from the date of the grant of the option or SAR.
(3) The Committee shall have the authority to accelerate or extend the exercisability of any outstanding option or SAR at such time and under such circumstances as it, in its sole discretion, deems appropriate. No exercise period may be so extended to increase the term of an option or SAR beyond ten (10) years from the date of the grant.
(4) The exercise period shall be subject to earlier termination as provided in Sections 5.5 and 5.6 hereof, and furthermore, shall be terminated upon surrender of the option or SAR by the Recipient if such surrender has been authorized in advance by the Committee.
5.3 Notice of Intent to Exercise Option or SAR.
An option or SAR granted under the Plan may be exercised in whole or in part by notifying the Company (or its designee) in the manner and upon the terms as may be provided in the Agreement.
5.4 Exercise of Option or SAR.
(a) Upon receipt by the Company (or its designee) of the notice provided in Section 5.3, an option shall deemed to be exercised as to the number of Shares specified in such notice and Shares in that amount shall be issued to the Recipient upon payment to the Company of the amount specified in Section 6.2 or 7.5, whichever is applicable. The option purchase price shall be paid in full upon exercise unless the Agreement permits installment payments. The purchase price for the option shall be paid in cash, or in shares of Common Stock having a Fair Market Value equal to such option price, or in property or in a combination of cash shares and property and, subject to approval of the Committee, may be effected in whole or in part with funds received from the Company at the time of exercise as a compensatory cash payment. The Committee shall have the sole and absolute discretion to determine whether or not property other than cash or Common Stock may be used to purchase the Optioned Shares.
(b) Upon receipt by the Company (or its designee) of the notice provided in Section 5.3 of the exercise of a SAR, the SAR shall deemed to be exercised as to the number of Shares specified in the notice and the Committee shall (as it may determine in its sole discretion) issue to the Recipient either (1) Shares of Common Stock based on the Fair Market Value on the date of payment (with any fractional Shares to be paid in cash), (2) cash or (3) a combination of Shares and cash, equal in value (in United States dollars) to the amount payable under the SAR. Any cash payment to be made by the Company under this Section may, as determined by the Committee in its sole discretion, be payable in installments over a period of no more than 6 months.
5.5 Termination.
Except as provided herein or in the Agreement, an option or SAR may not be exercised unless the Recipient then is an Employee or Director of or consultant to the Company (or a corporation or a parent or subsidiary corporation of such corporation issuing or assuming the option or SAR in a transaction to which Section 424(a) of the Code applies), and unless the Recipient has remained continuously as an Employee or officer or Director or consultant to the Company since the date of grant of the option or SAR.
(a) Unless otherwise provided in the Agreement, if the Recipient ceases to be an Employee or Director of, or consultant to, the Company (other than by reason of death, Disability or retirement), all options and SARs theretofore granted to such Recipient that are exercisable at the time of such cessation may, unless earlier terminated in accordance with their terms, be exercised within three months after such cessation; provided, however, that if the employment or consulting relationship of a Recipient shall terminate, or if a Director shall be removed, for cause, all options and SARs theretofore granted to such Recipient shall to the extent not previously exercised, terminate immediately. Any such determination by the Committee as to whether termination is for cause shall be final and binding upon the Recipient.
(b) Options and SARs granted under the Plan shall not be affected by any change in the status of a Recipient so long as he continues to be associated with the Company or its Subsidiary.
(c) Nothing in the Plan or in any Option or SAR granted hereunder shall confer upon a Recipient any right to continue in the employ of or maintain any other relationship with the Company or interfere in any way with the right of the Company to terminate such employment or other relationship between the Recipient and the Company.
5.6Death, Disability or Retirement of Recipient.
Unless otherwise provided in the Agreement, if a Recipient shall die while an Employee or Director of or a consultant to the Company, or if the Recipient's employment, officer status or consulting relationship shall terminate by reason of Disability or retirement, all options or SARs theretofore granted to such Recipient, whether or not otherwise exercisable, unless earlier terminated in accordance with their terms, may be exercised by the Recipient or by the Recipient’s estate or by a person who acquired the right to exercise such options or SARs by bequest or inheritance or otherwise by reason of the death or Disability of the Recipient, at any time within one year after the date of death, Disability or retirement of the Recipient; provided, however, that in the case of Incentive Stock Options such one-year period shall be limited to three months in the case of retirement.
5.6 Non-Transferability of Options; Restrictions on Transferability.
(a) No option or SAR granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, or qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, and options and SARs may be exercised, during the lifetime of the holder thereof, only by him or his legal representatives. Notwithstanding the foregoing, at the discretion of the Committee, Nonqualified Stock Options may be transferred in a transaction for estate planning purposes.
(b) Any attempted sale, pledge, assignment, hypothecation or other transfer of an option contrary to the provisions hereof and/or the levy of any execution, attachment or similar process upon an option, shall be null and void and without force or effect and shall result in a termination of the option.
(c) As a condition to the transfer of any shares of Common Stock issued upon exercise of an option granted under this Plan, or grant of any shares of Common Stock under this Plan, the Company may require an opinion of counsel, satisfactory to the Company, to the effect that such transfer will not be in violation of the Act or any other applicable securities laws or that such transfer has been registered under Federal and all applicable state securities laws. Further, the Company shall be authorized to refrain from delivering or transferring shares of Common Stock issued under this Plan until the Committee determines that such delivery or transfer will not violate applicable securities laws and the Recipient has tendered to the Company any Federal, state or local tax owed by the Recipient as a result of exercising the Option or SAR or disposing of any Common Stock when the Company has a legal liability to satisfy such tax. The Company shall not be liable for damages due to delay in the delivery or issuance of any stock certificate for any reason whatsoever, including, but not limited to, a delay caused by listing requirements of any securities exchange or any registration requirements under the Act, the Exchange Act, or under any other state, federal or provincial law, rule or regulation. The Company is under no obligation to take any action or incur any expense in order to register or qualify the delivery or transfer of shares of Common Stock under applicable securities laws or to perfect any exemption from such registration or qualification. Furthermore, the Company will not be liable to any Recipient for failure to deliver or transfer shares of Common Stock if such failure is based upon the provisions of this paragraph.
5.7 Recapitalization; Effect of Other Changes.
(a) Subject to any required action by the shareholders of the Company, the aggregate number of Shares for which options may be granted hereunder, the number of Shares covered by any outstanding option or SAR, and the price per Share thereof under each such option or SAR shall be proportionately adjusted for the following: (a) any dividend or other distribution declared as to Common Stock which is payable in Shares: and (b) an increase or decrease in the number of outstanding shares of Common Stock resulting from a stock split or reverse split of shares, recapitalization or other capital adjustment. All fractional Shares or other securities which result from such an adjustment shall be eliminated and not carried forward to any subsequent adjustment.
(b) In the event of the proposed dissolution or liquidation of the Company, or any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or a merger or consolidation of the Company with another corporation, the Committee may provide that the holder of each option and SAR then exercisable shall have the right to exercise such Option or SAR (at its then current exercise price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, corporate separation or division, or merger or consolidation by a holder of the number of Shares of Common Stock for which such option or SAR might have been exercised immediately prior to such dissolution, liquidation, corporate separation or division, or merger or consolidation.
(c) Paragraph (b) of this Section 5.7 shall not apply to a merger or consolidation in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the Shares of Common Stock (excluding a change in par value, or from no par value to par value, or any change as a result of a subdivision or combination, but including any change in such Shares into two or more classes or series of shares), the Committee may provide that the Recipient of each option or SAR then exercisable shall have the right to exercise such option or SAR solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such option or SAR might have been exercised.
(d) Except as expressly provided in this Section 5.7, the Recipient shall have no rights by reason of any subdivision or consolidation of shares of stock of any class other than the Company’s Common Stock, or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class other than the Company’s Common Stock, or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation; and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, other than the Company’s Common Stock, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option or SAR. The grant of an option or SAR pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures, or to merge or consolidate, or to dissolve, liquidate, or sell or transfer all or any part of its business or assets.
(e) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.
5.8 No Rights As a Shareholder; Non-Distributive Intent.
(a) Neither a Recipient of an option, nor such Recipient's legal Representative, heir, legatee or distributee, shall be deemed to be the holder of, or to have any rights of a holder with respect to any shares subject to such option until after the option is exercised and the shares are issued.
(b) No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 5.7 hereof.
(c) Upon exercise of an option at a time when there is no registration statement in effect under the Act relating to the shares issuable upon exercise, Shares may be issued to the Recipient only if the Recipient represents and warrants in writing to the Company that the shares purchased are being acquired for investment and not with a view to the distribution thereof and provides the Company with sufficient information to establish an exemption from the registration requirements of the Act.
5.9 Conversion of Outstanding Options to SARs.
The Company may, in its sole discretion and without the consent of the Recipient, elect at any time to convert any option granted under the Plan to a SAR. In the event of such an election, any converted SAR shall remain in effect until the option involved would have expired under the terms of the Agreement with the Recipient. The base price of such SAR shall be determined using the Fair Market Value of the Shares subject to the option on the date the option was first granted. Notice of such an election shall be provided to the Recipient as soon as feasible after the date of the election.
5.10 Withdrawal. A Recipient may at any time elect in writing to abandon an option or SAR with respect to the number of Shares as to which the option or SAR shall not have been exercised.
5.11 Compliance with Applicable Laws and Articles of Incorporation.
(a) The Company shall have the right to place appropriate legends upon the certificate for any Shares issued pursuant to this Plan and take such other acts as it may deem necessary or appropriate to ensure that the issuance of Optioned Shares or the exercise of a SAR complies with applicable provisions of Federal and state securities laws.
(b) The Company shall not be obligated to issue Shares under any option or in payment of any SAR granted under this Plan that would violate any law. Each Recipient may be required to make representations, enter into restrictive agreements, or take such other actions as may be deemed necessary or appropriate by the Company to ensure compliance with applicable law and the Company’s Articles of Incorporation and By-laws.
ARTICLE 6
Special Rules for Nonqualified Stock Options
6.1 Option Price. The purchase price of Shares subject to a Nonqualified Stock Option shall be determined by the Committee at the time the option is granted; provided, that the purchase price shall not be less than 85% of the Fair Market Value of such Shares on the date of the grant.
6.2 Payment Upon Exercise of Option. The amount to be paid by the Recipient upon exercise of a Nonqualified Stock Option shall be the full purchase price for the Shares involved provided in the Agreement to be paid in the manner determined by the Committee, together with the amount of any required federal, state, and local tax withholding (as determined by the Committee in its sole discretion). The Committee may, in its sole discretion, permit a Recipient to elect to pay the required tax withholding by having the Company withhold Shares having a Fair Market Value at the time of exercise equal to the amount required to be withheld. An election by a Recipient to have shares withheld for this purpose will (together with such additional restrictions as the Company may impose) be subject to the following:
(a) If a Recipient has received multiple option grants, a separate election must be made for each grant;
(b) The election must be made prior to the date the option is exercised;
(c) The election will be irrevocable;
(d) The election may be rejected by the Company;
(e) If the Recipient is an "officer" of the Company within the meaning of Section 16 of the Exchange Act ("Section 16") as defined in Rule 16a-1(f) promulgated by the Securities Exchange Commission, the election may not be made within six months following the grant of the option; and,
(f) If the Recipient is an "officer" of the Company within the meaning of Section 16, the election must be made either six months prior to the day the option is exercised or during the period beginning on the third business day following the date of release of the Company's quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such date.
ARTICLE 7
Special Rules for Incentive Stock Options
7.1 Conformance With Code Requirements. Incentive Stock Options granted under this Plan shall conform to, be governed by, and be interpreted in accordance with Section 422 of the Code and any regulations thereunder including, without limitation, those provisions of Section 422 of the Code that prohibit an option by its terms to be exercisable after ten (10) years from the date that it was granted. All Incentive Stock Options granted under the Plan shall at the time of the grant be specifically designated as such in the Agreement. Only Employees may be granted Incentive Stock Options. To the extent that any option granted as an Incentive Stock Option fails to conform to the applicable requirements, it shall be treated and honored by the Company as a Nonqualified Stock Option.
7.2 Option Price. The purchase price of each Share optioned under the Incentive Stock Option provisions of this Plan shall be determined by the Board in its sole discretion but shall, in no event, be less than the Fair Market Value on the date of grant.
7.3 Limitation on Amount of Incentive Stock Option. The aggregate Fair Market Value (determined on the date of grant) of the Shares with respect to which Incentive Stock Options are exercisable for the first time during any calendar year under all plans of the Company (and any Parent or Subsidiary) shall not exceed $100,000 (or such other limit as may be established by law from time to time).
7.4 Limitation on Grants to Substantial Shareholders. An Employee may not, immediately prior to the grant of an Incentive Stock Option hereunder, own stock in the Company representing more than ten percent (10%) of the total voting power of all classes of stock of the Company (after taking into account the attributions rules of Section 424(d) of the Code) unless the per share option price specified by the Board for the Incentive Stock Options granted such an Employee is at least one hundred ten percent (110%) of the Fair Market Value of the Company's stock on the date of grant and such option, by its terms, is not exercisable after the expiration of five (5) years from the date such option is granted. For purposes of this limitation, Section 424(d) of the Code governs the attributes of stock ownership.
7.5 Payment upon Exercise of Option. The amount to be paid by the Recipient upon exercise of an Incentive Stock Option shall be the full purchase price thereof provided in the Agreement to be paid in the manner determined by the Committee.
ARTICLE 8
Amendment and Termination
8.1 Amendment.
(a) The Committee shall have the right to amend the Plan at any time and from time to time; provided, that no such amendment of the Plan shall, without stockholder approval, (1) increase the number of shares which may be issued under the Plan as set forth in Section 5.1, (2) change in any way the class of employees eligible to receive Incentive Stock Options under the Plan, (3) extend the duration of the Plan, or (4) be effective if stockholder approval of the amendment is required at such time in order for the Plan’s stock options or SARs to qualify for any available exemption from Section 16 of the Exchange Act or by any other applicable law, regulation, rule of order.
(b) No amendment may be made that would cause options granted hereunder not to qualify as Incentive Stock Options under the Code or would cause options or SARs under the Plan not to qualify for exemption under Section 16 of the Exchange Act.
(c) No amendment of the Plan shall, without the written consent of the holder of an option or SAR awarded under the Plan prior to the date of the amendment or termination adversely affect the rights of such holder with respect to such option or SAR.
(d) Notwithstanding anything herein or in any Agreement to the contrary, the Committee shall have the power to amend the Plan in any manner deemed necessary or advisable for options or SARs granted under the Plan to qualify to be treated as Incentive Stock Options under the Code or for any exemption provided under Section 16 of the Exchange Act and any such amendment shall, to the extent deemed necessary or advisable by the Board, be applicable to any outstanding stock options previously granted under the Plan. In the event of such an amendment to the Plan, the holder of any option or SAR outstanding under the Plan shall, upon request of the Committee and as a condition for exercising of such option or SAR, execute a conforming amendment in the form prescribed by the Committee to the Agreement within such reasonable period of time as the Committee shall specify in such request.
8.2 Termination. The Committee shall have the right to terminate the Plan at any time; provided, that no such termination shall terminate any outstanding option or SAR previously granted under the Plan or adversely affect the rights of such holder without his or her written consent. No new options or SARs may be granted under the Plan on or after the date of termination.
ARTICLE 9
Foreign Employees, Directors and Consultants
9.1 Option Grants to Foreign Nationals. The Committee may grant Options and SARs under this Plan to eligible Employees, Directors or consultants who are foreign nationals on such additional or different terms and conditions as may in the judgment of the Committee, in its sole discretion, be necessary or appropriate to comply with the provisions of any applicable laws of a foreign country.
ARTICLE 10
Miscellaneous
10.1 Adoption By Board; Approval of Shareholders. This Plan was initially approved by the Board effective October 25, 2000 and approved by the shareholders of the Company within twelve (12) months of that date on June 26, 2001 as required by section 422(b) of the Code. Thereafter, an amendment to the Plan was approved by the Board on May 19, 2005 and the amendment was approved by the shareholders on July 19, 2005. A further amendment to the Plan was approved by the Board on February 1, 2008 and by the shareholders of the Company on June 2, 2008.
10.2 Assumption. Subject to the provisions of Section 5.7 hereof, the terms and conditions of any outstanding option or SAR granted pursuant to this Plan shall be assumed by, be binding upon and shall inure to the benefit of any successor corporation to the Company and shall, to the extent applicable, continue to be governed by the terms and conditions of this Plan. Such successor corporation may, but shall not be obligated to, assume this Plan.
10.3 Termination of Right of Action. Every right of action arising out of or in connection with the Plan by or on behalf of the Company, or by any shareholder of the Company against any past, present or future member of the Board or the Committee, or against any Employee, or by an Employee (past, present or future) against the Company, irrespective of the place where an action may be brought and of the place of residence of any such shareholder, Director or Employee, will cease and be barred by the expiration of three (3) years from the date of the act or omission in respect of which such right of action is alleged to have arisen or such shorter period as may be provided by law.
10.4 Tax Litigation. The Company shall have the right, but not the obligation, to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue which is related to the Plan and which the Committee believes to be important to holders of options and SARs granted under this Plan and to conduct any such contest or litigation arising therefrom to a final decision.
10.5 No Restrictions On Adoption of Other Plans. Nothing in this Plan shall restrict the Company's rights to adopt other option plans pertaining to any or all of the Employees, Directors or Consultants covered under this Plan or other Employees, Directors or Consultants not covered under this Plan.
10.6 Costs And Expenses. Except as provided herein, all costs and expenses of administering the Plan shall be paid by the Company.
10.7 Plan Unfunded. This Plan shall be unfunded. Except for the Company's reservation of a sufficient number of authorized shares to the extent required by law to meet the requirements of the Plan, the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure payment of any grant under the Plan.
10.8 Government Regulations. The rights of Recipients and the obligations of the Company hereunder shall be subject to all applicable laws, rules, and regulations and to such approvals as may be required by any governmental agency.
10.9 Proceeds From Sale of Stock. Proceeds of the purchase of Optioned Shares by a Recipient may be used by the Company for any business purpose.
10.10 Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of Tennessee.
10.11 Invalidity. If any provision of the Plan shall be held invalid or unlawful for any reason, such event shall not affect or render invalid or unenforceable the remaining provisions of the Plan.
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