UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
GASCO ENERGY, INC.
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(Name of Registrant as Specified In Its Charter)
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GASCO ENERGY, INC.
14 INVERNESS DRIVE E. SUITE H-236
ENGLEWOOD, CO 80112
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 2005
To the Stockholders:
The 2005 Annual Meeting of the Stockholders of Gasco Energy, Inc., a Nevada
corporation, will be held on Thursday, June 9, 2005 at 10:00 a.m., Mountain
Daylight Time, at the Inverness Meeting Room, Residence Inn by Marriott Denver
South/Park Meadows, 8322 South Valley Highway Road, Englewood, Colorado. The
Annual Meeting will be held for the following purposes:
1. To elect eight directors to serve until the 2006 Annual Meeting of
Stockholders.
2. To ratify the appointment of Hein & Associates LLP as independent
auditors of the Company for the fiscal year ending December 31, 2005.
3. To approve an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of common stock from
100,000,000 shares to 300,000,000 shares.
4. To transact such other business as may properly come before such
meeting or any adjournment(s) thereof.
The close of business on April 22, 2005 has been fixed as the record date for
the determination of stockholders entitled to receive notice of and to vote at
the Annual Meeting or any adjournment(s) thereof.
Stockholders are cordially invited to attend the meeting in person. Whether or
not you plan to be present at the meeting, you are requested to sign and return
the enclosed proxy in the enclosed envelope so that your shares may be voted in
accordance with your wishes and in order that the presence of a quorum may be
assured. The giving of such proxy will not affect your right to vote in person,
should you later decide to attend the meeting. Please date and sign the enclosed
proxy and return it promptly in the enclosed envelope. Your vote is important.
By Order of the Board of Directors,
/s/ W. King Grant
-------------------
W. King Grant
Secretary
May 5, 2005
GASCO ENERGY, INC.
14 Inverness Drive East, Suite H-236
Englewood, Colorado 80112
(303) 483-0044
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 9, 2005
GENERAL INFORMATION The enclosed proxy is solicited by and on behalf of the
Board of Directors of Gasco Energy, Inc., a Nevada corporation (the "Company" or
"Gasco"), for use at the 2005 Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Inverness Meeting Room, Residence Inn by Marriott
Denver South/Park Meadows, 8322 South Valley Highway Road, Englewood, Colorado
on Thursday, June 9, 2005 at 10:00 a.m., Mountain Daylight Time, or at any
adjournment(s) thereof. This Proxy Statement and the enclosed Proxy Card has
been sent to stockholders on or about May 5, 2005.
The enclosed proxy, even though executed and returned, may be revoked at any
time prior to the voting of the proxy (a) by the execution and submission of a
revised proxy, (b) by written notice to the Secretary of the Company or (c) by
voting in person at the Annual Meeting. In the absence of such revocation,
shares represented by the proxies will be voted at the Annual Meeting.
All shares represented by valid proxies will be voted in accordance therewith at
the Annual Meeting. If no direction is made, validly executed and returned
proxies will be voted for the election of the nominees for director named below,
for ratification of the appointment of independent auditors, for the approval of
the increase in the number of authorized shares of common stock form 100,000,000
shares to 300,000,000 shares and in the discretion of the proxy holders with
respect to any other matters properly brought before the Annual Meeting.
The cost of this solicitation of proxies is being borne by the Company.
Solicitations will be made only by the use of mail, except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, email or facsimile, without being paid additional compensation for
such services. Brokerage houses, custodians, nominees and fiduciaries will be
requested to forward the proxy soliciting material to the beneficial owners of
the Company's Common Stock and Preferred Stock and the Company will reimburse
them for their reasonable expenses incurred in doing so.
The Company's Annual Report on Form 10-K for the year ended December 31, 2004
has been mailed with this proxy statement to all stockholders entitled to vote
at the Annual Meeting. The Form 10-K does not constitute a part of this proxy
soliciting material.
SHARES OUTSTANDING AND VOTING RIGHTS
At the close of business on April 22, 2005, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding 71,341,894 shares of Common Stock and 943 shares of the Company's
Series B Convertible Preferred Stock ("Preferred Stock"). Each stockholder is
entitled to one vote for each share of Common Stock held and 628.57 votes for
each share of Preferred Stock held. The holders of the Preferred Stock are
entitled to vote as a separate class to elect one director at the Annual
Meeting. For the remaining matters to be voted on at the Annual Meeting, the
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holders of Common Stock and Preferred Stock will vote together as a single
class.
A quorum of stockholders is necessary for a valid meeting. The required quorum
for the transaction of business at the Annual Meeting is a majority of the total
outstanding shares of Common Stock and Preferred Stock entitled to vote at the
Annual Meeting, either present in person or represented by proxy. Abstentions
and proxies returned by brokerage firms for which no voting instructions have
been received from their principals will be counted for the purpose of
determining the presence of a quorum.
If a quorum is present at the Annual Meeting, the seven director nominees who
receive the greatest number of votes cast by shares of Common Stock and
equivalent shares of Preferred Stock present in person or by proxy and entitled
to vote shall be elected as directors. The Preferred Stock director nominee who
receives the greatest number of votes cast by shares of Preferred Stock present
in person or by proxy and entitled to vote shall also be elected as director.
The affirmative vote by the holders of a majority of the shares of Common Stock
and equivalent shares of Preferred Stock present and voting is required to
ratify the selection of Hein & Associates LLP as the Company's independent
auditors for 2005 and to approve the increase in the number of authorized shares
of common stock from 100,000,000 shares to 300,000,000 shares, provided such
shares voting affirmatively also constitute a majority of the number of shares
required for a quorum.
Abstentions and broker non-votes will have no effect on the outcome of the
election of directors, assuming a quorum is present or represented by proxy at
the Annual Meeting. With respect to all other matters, abstentions and broker
non-votes are not considered to be votes cast and therefore will have no effect
on such matters. A broker non-vote occurs if a broker or other nominee of shares
does not have discretionary authority and has not received voting instructions
with respect to a particular matter.
ELECTION OF DIRECTORS
(Items A 1. & 2. on Proxy Card)
Eight directors are to be elected at the Annual Meeting. If elected, each
director will serve until the Company's 2006 Annual Meeting or until his
successor has been elected and qualified. Each of the nominees serves as a
director of the Company and all of the directors are required to stand for
election at the Annual Meeting because the directors hold annual terms. The
holders of the Company's Preferred Stock, voting as a separate class, are
entitled to elect one director (the "Preferred Stock Nominee"). The remaining
directors will be elected by the Common and Preferred Stockholders, voting as a
single class, with each share of Common Stock afforded one vote and each share
of Preferred Stock afforded 628.57 votes (the "Common Stock Nominees").
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual Meeting,
the persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
The following table sets forth information regarding the names, ages and
positions with the Company and the length of continuous service as a director of
the Company.
The Board of Directors Recommends Voting "For" the Election of Each of the
Director Nominees
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NOMINEES FOR ELECTION AT THE ANNUAL MEETING
Age as
of
Name Positions with the Company 3/31/05
Common Stock Nominees
Marc A. Bruner Director of Gasco since 2001; Chairman of the Board of 55
Directors and Strategic Consultant for the Company
Richard J. Burgess Director of Gasco since 2003 73
Charles B. Crowell Director of Gasco since 2002 61
Mark A. Erickson Director of Gasco since 2001; Chief Executive Officer and 45
President
Carmen J. (Tony) Lotito Director of Gasco since 2001 60
Carl Stadelhofer Director of Gasco since 2001 51
John A. Schmit Director of Gasco since 2003 37
Preferred Stock Nominee
Richard S. Langdon Director of Gasco since 2003 54
The following sets forth certain biographical information concerning each of the
Company's directors.
At Large Directors
Marc A. Bruner. Mr. Bruner has served as the Chairman of the Board of Directors
of Gasco and as a member of Gasco's Executive Committee since February 2001.
From November 2004 until April 1, 2005, Mr. Bruner served as Chairman and Chief
Operating Officer of Mako Energy Corporation ("Mako"). Mako merged with Falcon
Oil and Gas Ltd. ("Falcon") on April 1, 2005 at which time Mr. Bruner became the
Chairman and Chief Operating Officer of Falcon. Falcon is listed on the Toronto
Venture Exchange. From November 2002 until present Mr. Bruner has served as a
strategic consultant of Galaxy Energy Corporation, a publicly traded natural gas
and coalbed methane exploration and development company. From January 1996 to
January 1999, Mr. Bruner was founding Chairman of the Board of Ultra Petroleum,
an American Stock Exchange listed natural gas company. Ultra's business is
focused on tight sand development in the Green River Basin of Wyoming. In late
1997, Mr. Bruner co-founded Pennaco Energy, Inc., a coal bed methane company. In
1996, Mr. Bruner co-founded RIS Resources International, a natural gas company,
and served as a Director until late 1997.
Richard J. Burgess. Mr. Burgess has served as a director and a member of the
compensation committee of the Company since May 2003. Mr. Burgess served as
President and CEO of NOMECO before retiring in 1994. NOMECO later became CMS Oil
and Gas Company, which is a wholly owned subsidiary of CMS Energy Corporation
(NYSE). Mr. Burgess received a B.S. degree (honors) in Geology from the
University of Manitoba and has held various positions in the oil and gas
industry since 1954. Mr. Burgess currently serves on the Board of Directors of
Michigan Oil and Gas Association and ROC Oil Company and is a former director of
Miller Exploration, Seagull Energy, Command Petroleum and Sydney Oil Company.
Mr. Burgess has been involved, in various capacities, with the American
Association of Petroleum Geologists, Independent Petroleum Association of
America, Ontario Petroleum Institute and Potential Gas Committee.
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Charles B. Crowell. Mr. Crowell has served as a director and a member of the
audit, compensation and executive committees of Gasco since July 2002. Since
1993, Mr. Crowell has been a practicing attorney and a consultant to oil and gas
companies, and was a senior member of Crowell & Bishop, PLLC, Attorneys from
November 1995 through June 1998. From September 1996 until June 2000, Mr.
Crowell held the position of Manager at Enigma Engineering Company, LLC. Mr.
Crowell also worked at Triton Energy Corporation where he held the positions of
Executive Vice President, Administration from November 1991 to May 1993, Senior
Vice President and General Counsel from August 1989 to October 1991 and Vice
President and General Counsel from November 1981 to July 1989. From June 1999 to
February 2001, Mr. Crowell served as a director of Comanche Energy, Inc. He has
also held public directorships at Arakis Energy Corporation from June 1997 to
October 1998, at Aero Services International, Inc. from December 1989 to May
1993 (where he was Chairman of the Board from August 1990 to December 1992) and
at Triton Europe, plc. from October 1989 to May 1993. Mr. Crowell holds a BA
degree from John Hopkins and a JD from University of Arkansas. He was admitted
to the practice of law in Texas in 1974.
Mark A. Erickson. Mr. Erickson has served as a Director, Chief Executive Officer
and President of Gasco since February 2001. Mr. Erickson served as President of
Pannonian Energy Inc. from mid-1999 until the Company's merger with Pannonian
Energy in February 2001. In late 1997, Mr. Erickson co-founded Pennaco Energy,
Inc., an AMEX listed oil and gas company with properties in the Powder River
basin of Wyoming. He served as an officer and Director of Pennaco from its
inception until mid-1999. Mr. Erickson served as President of RIS Resources
(USA), a natural gas company from late 1997 to the end of 1998. Mr. Erickson is
a Registered Petroleum Engineer with twenty years of experience in business
development, finance, strategic planning, marketing, project management and
petroleum engineering. He holds a MS in Mineral Economics from the Colorado
School of Mines.
Carmen J. (Tony) Lotito. Mr. Lotito became the Executive Vice President, Chief
Financial Officer, Treasurer and a director of Galaxy Energy Corporation, a
publicly traded natural gas and coalbed methane exploration and development
company upon its acquisition of Dolphin Energy Corporation in November 2002. Mr.
Lotito has served as the Chief Financial Officer, Treasurer and a Director of
Dolphin Energy Corporation since September 2002. Mr. Lotito has served as a
Director of Gasco and as the Chairman of Gasco's Audit and Compensation
Committees since April 2001. Mr. Lotito has served as Vice President, Chief
Financial Officer and a Director of Coriko Corporation, a private business
development company from November 2000 to May 2002. Mr. Lotito has been a member
of Equistar Capital LLC, an investment-banking firm since December 1999. From
March 2000 to September 2001, Mr. Lotito served as a Director of marketing for
Impact Web Development. Prior to joining Coriko from Utah Clay Technology, Inc.,
Mr. Lotito was self-employed as a financial consultant. In 1988, Mr. Lotito
joined ConAgra, Inc., in San Antonio, Texas as a brand manager. In 1966, Mr.
Lotito joined the firm of Pannell, Kerr Forester & Co. as a senior accountant in
management and audit services for the company's Los Angeles and San Diego,
California offices. Mr. Lotito holds a BS degree in Accounting from the
University of Southern California.
Carl Stadelhofer. Mr. Stadelhofer has served as a Director since February 2001
and a member of the Audit Committee and the Compensation Committee of Gasco
since April 2001. Mr. Stadelhofer is a partner with the law firm of Rinderknecht
Klein & Stadelhofer in Zurich, Switzerland, where he has practiced law for over
twenty years. He was admitted to the practice of law in Switzerland in 1982. He
took his law degree in 1979 in Switzerland and studied law in the United States
at Harvard Law School and at Georgetown University Law School. His practice
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specializes in banking and financing, mergers and acquisitions, investment funds
and international securities transactions.
John A. Schmit. Mr. Schmit became a Director of Gasco in October 2003 and a
member of the Compensation committee since December 2004. Mr. Schmit is a
portfolio manager for Crestview Capital Funds, a hedge fund with over $180
million in assets under management that focuses on private placements for small
public companies. From May 1997 through December 31, 2004, Mr. Schmit served as
Vice President of Investments for RENN Capital Group, Inc., a registered
investment advisor, where he was a portfolio manager of closed-end funds. From
September 1992 to September 1994, he practiced law with the law firm of Gibson,
Ochsner & Adkins, in Amarillo, Texas. He holds a BBA in Finance from Texas
Christian University, a JD from the University of Oklahoma College of Law and an
LLM in International and Comparative Law from The Georgetown University Law
Center. Mr. Schmit is also a director of Obsidian Enterprises, Inc. Mr. Schmit
was originally designated by the holders of Gasco's formerly outstanding
Convertible Debentures as their representative on the Board of Directors.
Preferred Stock Director
Richard S. Langdon. Mr. Langdon became a Director of Gasco and a member of the
audit committee in March 2003. Mr. Langdon is currently the President and Chief
Executive Officer of Matris Exploration Company, a privately held exploration
and production company active in California. From 1997 until December 2002, Mr.
Langdon served as Executive Vice President and Chief Financial Officer of EEX
Corporation, a NYSE-listed exploration and production company that was acquired
by Newfield Exploration in late 2002. Before joining EEX Corporation, Mr.
Langdon was an oil and gas consultant from August 1996 to March 1997. Prior to
that, he held various positions with the Pennzoil Companies since 1991,
including Executive Vice President--International Marketing--Pennzoil Products
Company, from June 1996 to August 1996; Senior Vice President--Business
Development & Shared Services--Pennzoil Company from January 1996 to June 1996;
and Senior Vice President--Commercial & Control--Pennzoil Exploration &
Production Company from December 1991 to December 1995. Mr. Langdon holds a B.S.
in Mechanical Engineering and a Masters of Business Administration, both from
the University of Texas at Austin.
Executive Officers
The following sets forth certain biographical information concerning each of the
Company's executive officers, other than executive officers who also serve as
directors:
Age as
of
Name Position with the Company 3/31/05
Michael K. Decker Executive vice president and chief operating officer 50
W. King Grant Executive vice president and chief financial officer 41
Michael K. Decker. Mr. Decker has served as Executive Vice President and Chief
Operating Officer of Gasco since July 2001 and as Director from July 2001 until
October 2003. From August 1999 until July 2001, Mr. Decker founded and served as
the President of Black Diamond Energy, LLC. From 1990 to August 1999 Mr. Decker
served as the Vice President of Exploitation of Prima Energy Corporation, a
Nasdaq traded oil and gas company. From 1988 to 1990, Mr. Decker was employed by
5
Bonneville Fuels Corporation as a Senior Geologist. From 1977 to 1988, Mr.
Decker was employed by Tenneco Exploration and Production Company as a Senior
Project Geological Engineer. Mr. Decker has over twenty-seven years of oil and
gas exploration, development, operations and mergers and acquisitions
experience. He holds a BS degree in Geological Engineering from the Colorado
School of Mines and is the Chairman of the Board of the Potential Gas Committee,
an independent natural gas resource assessment organization.
W. King Grant. Mr. Grant has served as Chief Financial Officer of Gasco since
July 2001 and as Director from July 2001 until March 2003. From November 1999 to
May 2001, Mr. Grant served as Executive Vice President and Chief Financial
Officer for KEH.com, a catalog/internet retailer of new and used camera
equipment. From February 1997 to March 1999, Mr. Grant was a Senior Vice
President in the Natural Resources Group of ING Baring, LLC where he was
responsible for providing financing and advisory services to mid-cap and smaller
energy companies. For the previous eleven years, Mr. Grant held several
positions at Chase Manhattan Bank and its affiliates, most recently as a Vice
President in the Oil & Gas group. Mr. Grant holds a BSE in Chemical Engineering
from Princeton University and an MBA from the Wharton School at the University
of Pennsylvania.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information with respect to the beneficial ownership
of the Company's common stock as of March 31, 2005 by: any individual,
partnership or corporation that is known to the Company, solely by reason of its
examination of Schedule 13D and 13G filings made with the SEC, to be the
beneficial owner of more than 5% of each class of shares issued and outstanding
and each executive officer, director and all executives, officers and directors
as a group. As of March 31, 2005, the Company had 71,341,894 shares of common
stock outstanding and 943 shares of Preferred stock outstanding. If a person or
entity listed in the following table is the beneficial owner of less than one
percent of the Company's common stock outstanding, this fact is indicated by an
asterisk in the table. Unless otherwise noted, each person listed has sole
voting and dispositive power over the shares indicated, and the address of each
stockholder is the same as the Company's address. The number of shares
beneficially owned by a person includes the common shares that are issuable upon
conversion of Preferred Stock or Convertible Notes. These shares are deemed
outstanding for the purpose of computing their percentage ownership but are not
outstanding for the purposes of computing the percentage ownership of any other
person. The number of shares beneficially owned by a person also includes shares
that are subject to stock options that are exercisable within 60 days of March
31, 2005. These shares are also deemed outstanding for the purpose of computing
their percentage ownership. These shares are not outstanding for the purpose of
computing the percentage ownership of any other person.
Number of Shares
Name Beneficially Owned Percent of Class
5% or Greater Holders
Saranac Capital Management LP (1) Common 11,783,450 15.5%
Saranac Capital Management GP LLC
Ross Margolies
31 West 52nd Street
New York, NY 10019
Advisory Research, Inc. (2) Common 6,104,396 8.6%
180 North Stetson Street, Suite 5500
Chicago, IL 60601
6
Number of Shares
Name Beneficially Owned Percent of Class
Amaranth LLC (3) Common 4,250,000 5.6%
Corporate Actions, Amaranth Group Inc.
1 American Lane
Greenwich, CT 06831
Morgan Stanley (4) Common 3,736,350 5.2%
1585 Broadway
New York, NY 10036
Richard C. McKenzie, Jr. (5) Common 113,143 *
114 John Street Preferred 180 19.1%
Greenwich, Connecticut 06831
Directors and Executive Officers
Marc Bruner (7) (8) Common 4,253,088 5.9%
Mark A. Erickson (6) (7) (9) Common 3,820,035 5.3%
Preferred 212 22.5%
Michael K. Decker (6) (7) Common 1,024,289 1.4%
Preferred 105 11.1%
W. King Grant (6) (7) Common 1,139,651 1.6%
Preferred 104 11.0%
Carmen J. (Tony) Lotito (7) Common 388,832 *
Carl Stadelhofer (7) Common 208,332 *
Charles B. Crowell (6)(7) Common 344,756 *
Preferred 212 22.5%
Richard S. Langdon (7) Common 84,189 *
Richard J. Burgess (7)(10) Common 162,998 *
John A. Schmit (7) Common 31,664 *
All Directors and Executive Officers as a Group (10 Common 11,449,504 15.1%
persons) (6) (7) (8)(9)(10) Preferred 738 67.1%
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(1) Saranac Capital Management GP LLC is the general partner of Saranac
Capital Management LP and, in such capacity may be deemed to have
investment discretion over and may be deemed to be the beneficial
owner of securities held for the account of Saranac Capital Management
LP. In his capacity as the managing member of Saranac Capital
Management LP, Mr. Ross Margolies may be deemed to have investment
discretion over, and may be deemed to be the beneficial owner of
securities held for the account of Saranac Capital Management LP. The
securities are comprised of 7,264,700 shares of common stock and
4,518,750 shares of common stock issuable upon the conversion of
$18,075,000 of 5.5% Convertible Notes.
7
(2) Advisory Research, Inc. acts as investment advisor to and therefore
has investment discretion over the shares held by its clients.
(3) Amaranth Advisors L.L.C., the Trading Advisor for Amaranth LLC,
exercises voting and dispositive power over the securities comprised
of 4,250,000 shares of common stock issuable upon the conversion of
$17,000,000 of 5.5% Convertible Notes. Nicholas M. Maounis is the
managing member of Amaranth Advisors L.L.C.
(4) Morgan Stanley is the parent company of, and indirect beneficial owner
of securities held by one of its business units. None of the accounts
which are managed on a discretionary basis by Morgan Stanley hold more
than 5% of the class.
(5) The common shares owned by Mr. McKenzie are issuable upon the
conversion of 180 shares of Preferred Stock.
(6) The following number of shares of common stock issuable upon the
conversion of the Series B Convertible Preferred Stock are included in
the amounts shown: Mr. Erickson, 133,257 shares; Mr. Decker, 66,000
shares; Mr. Grant, 65,370 shares, and Mr. Crowell, 133,257 shares.
(7) The following number of shares of common stock issuable upon the
exercise of options that are exercisable within 60 days of March 31,
2005 are included in the amounts shown: Mr. Bruner, 1,041,666 shares;
Mr. Erickson, 1,058,332 shares; Mr. Decker, 797,332 shares; Mr. Grant,
670,332 shares; Mr. Lotito, 208,332 shares; Mr. Stadelhofer, 208,332
shares; Mr. Crowell, 166,664 shares; Mr. Langdon, 83,332 shares; Mr.
Burgess, 49,998 shares; Mr. Schmit, 8,333 shares.
(8) The common stock held by Mr. Bruner includes 8,707 shares of common
stock that is held by Resource Venture Management, which is a company
owned by Mr. Bruner.
(9) The common stock held by Mr. Erickson includes 149,524 shares of
common stock owned by his wife as custodian for their children.
(10)The common stock held by Mr. Burgess includes 40,000 shares of common
stock held in a trust for Mr. Burgess' wife of which he is the
trustee.
Directors' Meetings and Committees of the Board of Directors
The Board of Directors held five meetings during 2004. During 2004, each of the
directors attended at least 75 percent of the aggregate of (i) the total number
of meetings of the Board of Directors held during the period that such director
served as a director and (ii) the total number of meetings held by each
committee of the Board of Directors on which such director served during the
period that such director so served. Although we have no formal policy with
respect to Director attendance at our annual meeting, we invite our Directors to
attend. Last year all of our Directors attended our annual meeting.
The Board of Directors of Gasco has formed an Audit Committee, a Compensation
Committee and an Executive Committee.
8
The Audit Committee currently consists of Messrs. Lotito, Stadelhofer, Langdon
and Crowell, all of whom are independent under the definition of independence
used in the AMEX listing standards. Mr. Lotito serves as the chairman of the
Audit Committee. The Board of Directors has determined that Mr. Lotito is an
audit committee financial expert with the meaning proscribed by the rules and
regulations under the Securities and Exchange Act of 1934. The Audit Committee
met four times during 2004. The Board of Directors has adopted a written charter
for the Audit Committee, which is available on the Company's internet website at
www.gascoenergy.com. The Audit Committee is primarily responsible for:
- selecting the independent auditors for recommendation to the Board;
- selecting the securities legal counsel for recommendation to the
Board;
- reviewing the scope of the proposed audit for the current year
including the audit procedures to be utilized and the conclusions and
comments or recommendations of the independent auditors;
- reviewing the adequacy and effectiveness of the accounting controls of
the corporation;
- reviewing the internal audit function including the independence and
authority of its reporting obligations;
- reviewing the financial statements contained in the annual and
quarterly reports to shareholders;
- reviewing the accounting and financial human resources and succession
planning within the Company, and
- investigating any matter brought to its attention within the scope of
its duties.
The Audit Committee has performed its annual review and assessment of the Audit
Committee Charter, which was adopted in March 2001. The report of the Audit
Committee is set forth below.
The Compensation Committee currently consists of Messrs. Lotito, Stadelhofer,
Burgess, Crowell and Schmit. The Compensation Committee met two times during
2004. Mr. Lotito serves as chairman of the Compensation Committee. The report of
the Compensation Committee with regard to compensation matters is set forth
below. The Compensation Committee is responsible for:
- administering and granting awards under all equity incentive plans;
- reviewing the compensation of the Company's Chief Executive Officer
and recommendations of the Chief Executive Officer as to appropriate
compensation for the other executive officers and key personnel;
- examining periodically the Company's general compensation structure;
and
- supervising the Company's welfare and pension plans and compensation
plans.
The Executive Committee currently consists of Messrs. Bruner, Erickson and
Crowell. The Executive Committee met twelve times during 2004. The principal
9
responsibility of the Executive Committee is to aid and assist the Company's
management in the day-to-day operations of the Company. The purpose of the
Executive Committee in particular, is to act on behalf of the Board of
Directors, subject to certain limitations, when it is not feasible to call and
convene a full board meeting.
Report of the Audit Committee
The Audit Committee of the Board of Directors is composed of four non-employee
directors who satisfy the requirements of the AMEX listing standards as to
independence. The Audit Committee operates under a written charter, which was
approved by the Board of Directors in April 2001.
The Audit Committee's primary duties and responsibilities are to provide
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee annually reviews and recommends to the
Board the selection of the Company's independent auditors, subject to
shareholder ratification.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's financial statements in accordance with
generally accepted auditing standards and to issue a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes.
The Audit Committee has reviewed and discussed the audited financial statements
with management and with the independent auditors. The Audit Committee has also
discussed with the independent auditors, the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees), as
currently in effect.
The independent auditors also provided to the Audit Committee the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee has
discussed with the independent auditors their independence with respect to the
Company.
Based on the above discussions and review with management and the independent
auditors, the Audit Committee recommended to the Board that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004 for filing with the Securities and Exchange
Commission.
Audit Committee:
CHARLES B. CROWELL
RICHARD S. LANGDON
CARMEN J. (TONY) LOTITO
CARL STADELHOFER
Audit Fees Summary
During the year ended December 31, 2003 and through September 8, 2004 the
Company retained Deloitte & Touche LLP as its principal auditors to provide
audit and tax services. On September 8, 2004, Deloitte resigned as the Company's
independent registered public accounting firm. On September 14, 2004, our Audit
Committee engaged Hein & Associates LLP to serve as the Company's independent
public accountants for the fiscal year 2004. The Audit Committee also decided to
continue to retain Deloitte to advise the Company with respect to tax matters.
10
Audit fees relate to the quarterly reviews, the financial statement and internal
control audit for the years ended December 31, 2004 and 2003 and all other
services provided in connection the statutory and regulatory filings during
these fiscal years. The significant increase in these fees during 2004 includes
approximately $100,000 of costs associated with Hein's audit of internal
controls as required under the Sarbanes Oxley Act of 2002.
Audit related fees during 2004 relate to the audit services performed in
connection with the Company's 5.5% Convertible Note offering during October
2004.
Tax fees during the years ended December 31, 2004 and 2003 relate to the
preparation of the federal and state tax returns as well as the services
rendered for tax advice and planning.
The following table summarizes the fees paid to the independent accountants
during the periods presented.
For the Year Ended December 31,
--------------------------------------
2004 2003
---- ----
Audit Fees $ 237,151 $ 81,602
Audit Related Fees 61,200 -
Tax Fees 47,571 45,356
--------- ---------
Total $ 345,922 $ 126,958
========= =========
The fees paid to the independent accountants during the year ended December 31,
2004 in the above table are comprised of the following: audit fees of $193,812
paid to Hein and $43,339 paid to Deloitte; audit related fees paid to Hein of
$32,200 and $29,000 paid to Deloitte; and tax fees of $47,571 paid to Deloitte.
The Audit Committee pre-approves the fees associated with the Company's audit
and tax engagements. During the course of the year, if additional non-audit
services are identified, these services are presented to the Audit Committee for
pre-approval. All fees incurred during 2004 and 2003 were approved by the full
Audit Committee. The Audit Committee of the Board of Directors considered the
services listed above to be compatible with maintaining the accountants'
independence.
Compensation of Directors
From January through November 2004, each director of the Company who was not a
full-time employee or consultant was paid a monthly director's fee of $2,500
plus an additional monthly fee of $500 for each committee on which the director
serves. Beginning in December 2004, these fees were increased to a monthly
director fee of $3,000 plus an additional monthly fee of $1,000 for each
committee on which the director serves. Directors are also entitled to receive
additional compensation of $500 per half day for each half day spent on Gasco
business in excess of five whole days in a single month. In addition, each
director was reimbursed for reasonable travel expenses incurred in connection
with such director's attendance at Board of Directors and Committee meetings.
During August 2004, the non-employee directors were granted options to purchase
an aggregate 425,000 shares of the Company's common stock at an exercise price
of $2.15 per common share. The options vest 16 2/3% at the end of each
four-month period after the issuance date.
11
Director Nominations Process
The Board of Directors does not have a nominating committee; however, given the
fact that a majority of the Board of Directors is comprised of independent
directors, the Board of Directors believes the functions of a nominations
committee are adequately addressed by the following process for the nomination
of director candidates, which has been adopted by the Board of Directors.
Stockholders seeking to recommend director candidates for consideration may do
so by writing the Secretary of the Company, giving the recommended candidates'
name, biographical data and qualifications; provided that such recommendations
are submitted by shareholders within the time period set forth below under
"Stockholder Proposals and Nominations."
A majority of our independent directors is required to approve the director
nominations. The members of the Audit Committee participate in the nomination
process and approve the selection of director nominees. The full Board of
Directors, including directors that are not independent, also approve the
director nominations. When identifying director nominees, the Board of Directors
considers, among other factors, the candidate's reputation, integrity,
independence from the Company, skills and business, government or other
professional acumen, bearing in mind the composition of the Board of Directors
and the current state of the Company and the industry generally; the number of
other public companies for which the candidate serves as director; the
availability of the candidate's time and commitment to the Company and the
candidate's specific experience in the oil and gas business. In the case of
current directors being considered for re-nomination, the Board of Directors
also takes into account the director's tenure as a member of the Board of
Directors, the director's history of attendance at meetings of the Board of
Directors and committees thereof; and the director's preparation for and
participation in such meetings. The same criteria will be evaluated with respect
to candidates recommended by stockholders. In addition, the Board of Directors
takes into account whether a candidate has been designated by one or more groups
of holders of the Company's equity securities pursuant to the terms of such
security. The holders of the Company's Preferred Stock have the right to
designate one candidate for nomination by the Board of Directors.
Stockholders Communications
Stockholders can contact any director or committee of the Board of Directors by
writing them c/o Secretary, Gasco Energy, Inc., 8 Inverness Drive E., Suite 100,
Englewood, Colorado 80112.
Certain Transactions
Marc A. Bruner Strategic Consulting Agreement The Company has entered into a
Strategic Consulting Agreement with Mr. Bruner, effective January 2, 2003, that
expires on January 31, 2006. The Consulting Agreement was amended and restated
effective January 2, 2003. The amended and restated agreement entitles Mr.
Bruner to an annual fee of $120,000 and an annual bonus payment equal to 0.875%
of Gasco's cash flow from wells drilled by or on behalf of the Company. The
agreement provided for the award to Mr. Bruner of 187,500 shares of common stock
of the Company from a restricted stock plan in exchange for the surrender by Mr.
Bruner of vested options to purchase 150,000 shares of common stock at $3.15 per
share, 50,000 shares of common stock at $3.00 per share and 925,000 shares of
common stock at $2.00 per share. Mr. Bruner also has the right to receive 25% of
all option grants made by the Company each calendar year during the term of the
agreement. In addition, the employment agreement provides that each year Mr.
Bruner and the Company shall mutually agree on a performance-based bonus plan
for Mr. Bruner. The employment agreement also contains non-compete provisions in
the event of the termination of the agreement.
12
Mr. Bruner's agreement also provides for certain payments in the event that the
agreement is terminated for any reason other than his voluntary termination,
death, disability or termination for cause. In the event that Mr. Bruner's
agreement is terminated by the Company without cause or due to certain change of
control events, Mr. Bruner is entitled to receive an amount equal to his annual
fee for the remaining term of the agreement plus an additional cash payment of
$500,000. If the termination occurs at anytime when the average closing price
for the Company's common stock for the 30 trading days prior to termination is
equal to between $1.50 per share and $1.99 per share, the additional cash
payment will increase to $1,000,000. This payment will be further increased as
such average closing price increases, up to a maximum of $3,500,000 if such
average closing price is greater than $3.50 per share. If the termination is
because of a change of control of the Company, the additional cash payment will
be based on the consideration per share paid to the Company's shareholders in
connection with the change of control instead of the market price of the
Company's common stock.
Other Transactions
On October 11, 2004, the Board of Directors of Gasco, other than Mr. Erickson
and Mr. Bruner, approved a transaction pursuant to which Marc Bruner, the
chairman of Gasco's Board of Directors, and Mark Erickson, a director and
President and Chief Executive Officer of Gasco, would transfer to Gasco their
rights to receive certain overriding royalty interests in its properties in
exchange for the grant to each of them of options to purchase 100,000 shares of
Gasco common stock at the market price on the date of grant. Messrs. Bruner and
Erickson subsequently agreed to transfer such rights to Gasco for no options or
other consideration.
For each individual, these interests range between .06% and 0.6% of Gasco's
working interest in certain of its Utah and Wyoming properties. Gasco will also
agree to convey equivalent royalty interests to Mr. Bruner and Mr. Erickson, or
either of them, in the event that it sells any of the property subject to the
royalty interests, upon certain change of control events or upon the involuntary
termination of either individual. Mr. Bruner and Mr. Erickson acquired these
rights under a Trust Termination and Distribution Agreement, dated December 31,
2002, with respect to the Pannonian Employee Royalty Trust ("Royalty Trust").
The Royalty Trust had been established by Pannonian Energy, Inc. ("Pannonian")
prior to Pannonian becoming a wholly owned subsidiary of Gasco, to provide
additional compensation to the employees and founding directors of Pannonian,
which included Mr. Bruner and Mr. Erickson, in the form of oil and gas
interests. The terms of the Trust Termination and Distribution Agreement
("Termination Agreement") required Gasco to assign to the participants of the
Royalty Trust overriding royalty interests that arise out of the production of
oil and gas from certain properties as a result of future drilling. The
transaction was reviewed and approved by Gasco's Audit Committee and was signed
by Mr. Erickson and Mr. Bruner on December 23, 2004.
During May 2004, the Company's Board of Directors authorized the payment of
approximately $65,000 to the chairman of the Gasco Board of Directors as
reimbursement of legal fees paid by Mr. Bruner for legal services provided to
the Company.
During the year ended December 31, 2003 a clerical error was made in the payroll
process, which caused the president and chief executive officer of the Company,
Mark Erickson, to be overpaid by $55,000 during 2003, and $9,196 during the
first quarter of 2004. The error was discovered during February 2004, and Mr.
Erickson made restitution as soon as possible thereafter. Since the repayment
was made as soon as possible, no interest was charged and Mr. Erickson owes no
further amounts to the Company.
13
Mr. Lotito earned consulting fees of $16,000 from the Company during the year
ended December 31, 2002. During the both of the years ended December 31, 2004
and 2003 and during the year ended December 2002, the Company paid $120,000 and
$240,000, respectively in consulting fees to a company owned by Mr. Bruner
pursuant to the Strategic Consulting Agreement described above. The Company is
committed to pay consulting fees of $120,000 per year to Mr. Bruner's company
through January 31, 2006.
During the year ended December 31, 2002, the Company paid $110,266 in consulting
fees to an unrelated third party. The obligation to pay these fees was a joint
and several liability of Gasco and a Company of which Mr. Lotito and Mr. Bruner
have a combined 66.67% ownership.
Section 16 (a) Beneficial Ownership Reporting Requirements
Section 16 (a) of the Securities Exchange Act of 1934 requires the officers,
directors and persons who own more than ten percent of the Company's stock, to
file reports of ownership and changes in ownership with the Securities Exchange
Commission ("SEC"). Officers, directors and greater than ten percent owners are
required by SEC regulations to furnish the Company with copies of all Section 16
(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that each of its officers, directors and greater than ten
percent owners complied with all Section 16 (a) filing requirements applicable
to them during the year ended December 31, 2003, except for the following late
filings:
Marc A. Bruner Form 4 dated 08/12/04
Mark Erickson Form 4 dated 01/08/04
Form 4 dated 06/14/04
Form 4 dated 06/30/04
Form 4 dated 07/28/04
Form 4 dated 08/12/04
Carl Stadelhofer Form 4 dated 08/12/04
Carmen (Tony) Lotito Form 4 dated 08/12/04
W. King Grant Form 4 dated 06/14/04
Form 4 dated 06/30/04
Form 4 dated 07/27/04
Michael Decker Form 4 dated 06/14/04
Form 4 dated 06/30/04
Form 4 dated 07/27/04
Charles Crowell Form 4 dated 06/30/04
Form 4 dated 08/12/04
Richard Langdon Form 4 dated 06/30/04
Form 4 dated 08/12/04
Richard Burgess Form 4 dated 08/12/04
Form 4 dated 12/31/04
John Schmit Form 4 dated 12/01/04
Form 4 dated 12/08/04
14
Executive Compensation
The following table sets forth the compensation paid to our President and Chief
Executive Officer and each of our next highly compensated executive officers and
other employees for services rendered during the years ended December 31, 2004,
2003 and 2002.
Long Term
Annual Compensation Compensation
Restricted Securities
Stock Underlying All Other
Name & Principal Position Year Salary Bonus Awards Options (#) Compensation
- ------------------------- ---- ------ ----- ------ ---------- ------------
(1) (2)
Mark A. Erickson (2) 2004 $ 127,722 $ 52,500 $ 239,399 100,000 $ 8,200
President 2003 120,000 5,000 131,250 - 5,400
Chief Executive Officer 2002 240,000 - - - 7,335
W. King Grant 2004 $ 175,000 $ 52,500 $ 151,200 100,000 $ 8,200
Executive Vice President 2003 175,000 5,000 35,000 200,000 5,400
Chief Financial Officer 2002 262,002 - - - 7,011
Michael K. Decker 2004 $ 175,000 $ 52,500 $ 151,200 100,000 $ 8,200
Executive Vice President 2003 175,000 5,000 - 350,000 5,400
Chief Operations Officer 2002 200,000 - - - 6,135
John D. Longwell 2004 $ 121,250 $ 10,000 $ 54,179 100,000 $ 4,760
Operations Manager 2003 120,000 2,500 - 50,000 4,900
2002 110,000 - - 150,000 2,190
Mark J. Choury 2004 $ 108,583 $ 5,000 $ 28,350 50,000 $ 4,329
Land Manager 2003 4,846 - - 100,000 -
- ----------------------
(1) Amount represents the value of the shares of restricted stock
calculated using the trading price of the Company's common stock on
the date of grant. As of December 31, 2004, Mr. Erickson held 299,769
shares of restricted stock valued at $1,277,016 as of such date, Mr.
Grant held 130,000 shares of restricted stock valued at $553,800 as of
such date, Mr. Decker held 80,000 shares valued at $340,800 as of such
date, Mr. Longwell held 28,666 shares of restricted stock valued at
$122,117 at such date, and Mr. Choury held 15,000 shares of restricted
stock valued at $63,900 as of such date. The restricted shares were
issued on June 14, 2004 and on August 12, 2003 and vest 20% on the
first anniversary, 20% on the second anniversary and 60% on the third
anniversary of the awards.
(2) Amount represents the employer contribution to the 401(k) plan of the
individual, unless otherwise noted.
The following table sets forth information with respect to all stock options
granted during the year ended December 31, 2004 to the named Executive Officers
and other highly compensated employees.
15
Potential Realized
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term (1)
Individual Grants
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration 5% 10%
Name Granted Fiscal Year ($/Share) Date Share Price Share Price
---- -------- ----------- --------- ------- ---------- -----------
Mark A. Erickson 100,000 12% $ 1.92 7/27/14 $136,000 $356,000
W. King Grant 100,000 12% $ 1.92 7/27/14 $136,000 $356,000
Michael K. Decker 100,000 12% $ 1.92 7/27/14 $136,000 $356,000
John D. Longwell 100,000 12% $ 1.92 7/27/14 $136,000 $356,000
Mark J. Choury 50,000 6% $ 1.92 7/27/14 $68,000 $178,000
(1) Securities and Exchange Commission Rules require calculation of
potential realizable value assuming that the market price of the
Common Stock appreciates in value at 5% and 10% annualized rates
from the date of grant to the expiration date of the option. The
market price of the Company's common stock on the date of grant
was $1.92 per share. No gain to an executive officer or employee
is possible without an appreciation in Common Stock value, which
will benefit all holders of Common Stock. The actual value an
executive officer or employee may receive depends on market
prices for the Common Stock, and there can be no assurance that
the amounts reflected will actually be realized.
No options were exercised by executive officers, employees or other officer
during either of the years ended December 31, 2004, 2003 or 2002. The following
table sets forth the value of options held by the executive officers and highly
compensated employees at December 31, 2004.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option/ Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ----- -------------------------- ----------------------------
Mark A. Erickson 1,041,667/83,333 $3,355,501/$194,999
W. King Grant 620,333/116,667 $1,254,953/$303,667
Michael K. Decker 738,899/125,001 $1,634,804/$330,836
John D. Longwell 208,333/91,667 $576,833/$222,167
Mark J. Choury 91,667/58,333 $291,168/$151,832
The value of in-the-money options is equal to the fair market value of a share
of Common Stock on December 31, 2004 of $4.26, less the exercise price.
16
Employment Agreements
Michael K. Decker Employment Agreement. Mr. Decker's 2002 compensation was
determined under the terms of an employment agreement, effective July 1, 2001,
between Gasco and Mr. Decker that expired on June 30, 2004. Mr. Decker's
employment agreement was amended and restated effective January 2, 2003 and is
effective until January 31, 2006. Mr. Decker serves as Chief Operating Officer
and Executive Vice President of Gasco. Mr. Decker's previous employment
agreement entitled him to an annual salary of $200,000, subject to increase at
the discretion of the Board of Directors, and an annual bonus equal to 0.75% of
Gasco's cash flow from wells drilled by or on behalf of the Company. The
original employment agreement provided for the award to Mr. Decker of options to
purchase 300,000 shares of common stock of the Company pursuant to the terms of
the Company's Stock and Option and Incentive Award Plan at an exercise price of
$3.15 per share. Options to purchase 100,000 shares vested upon the execution of
the agreement and the remaining options vested in equal amounts over the
following eight fiscal quarters. Mr. Decker's amended and restated employment
agreement reduced his annual salary to $175,000 and provided for the award of
options to purchase 350,000 shares of common stock at $1.00 per share. The
options vested 16 2/3% at the end of each four month period after the issuance
date, February 14, 2003, until they became fully vested on February 14, 2005.
Mr. Decker is also entitled to receive 10% of all option grants made by the
Company each calendar year during the term of the agreement. In addition, the
employment agreement provides that each year Mr. Decker and the Company shall
mutually agree on a performance-based bonus for Mr. Decker. The employment
agreement also contains non-compete provisions in the event of Mr. Decker's
termination of employment.
Mr. Decker's employment agreement also includes provisions governing the payment
of severance benefits if his employment is terminated for any reason other than
his voluntary resignation, death, disability or discharge for cause. In the
event that Mr. Decker's employment is terminated by the Company without cause or
due to certain change of control events, Mr. Decker is entitled to receive an
amount equal to his salary for the remaining term of the agreement plus an
additional cash payment of $250,000. If the termination occurs at anytime when
the average closing price for the Company's common stock for the 30 trading days
prior to termination is equal to between $1.50 per share and $1.99 per share,
the additional cash payment will increase to $500,000. This payment will be
further increased as such average closing price increases, up to a maximum of
$1,750,000 if such average closing price is greater than $3.50 per share. If the
termination is because of a change of control of the Company, the additional
cash payment will be based on the consideration per share paid to the Company's
shareholders in connection with the change of control instead of the market
price of the Company's common stock.
Mark A. Erickson Employment Agreement. Mr. Erickson's 2002 compensation was
determined under the terms of an employment agreement, effective February 1,
2001, between Gasco and Mr. Erickson that expired on January 31, 2006. Mr.
Erickson's employment agreement was amended and restated effective January 2,
2003 and is effective until January 31, 2006. Mr. Erickson serves as Chief
Executive Officer and President of Gasco. Mr. Erickson's employment agreement
entitled him to an annual salary of $240,000, subject to increase at the
discretion of the Board of Directors, and an annual bonus equal to 0.875% of
Gasco's cash flow from wells drilled by or on behalf of the Company. The
original employment agreement provided for the award to Mr. Erickson of options
to purchase 1,000,000 shares of common stock of the Company pursuant to the
terms of the Company's Stock and Option and Incentive Award Plan at an exercise
price of $1.00 per share and options to purchase 250,000 shares of common stock
of the Company pursuant to such plan at an exercise price of $2.50 per share.
All of these options have vested. Mr. Erickson's amended and restated employment
agreement reduced his annual salary to $120,000 and provided for the issuance of
17
187,500 shares of common stock from a restricted stock plan in exchange for the
surrender by Mr. Erickson of vested options to purchase 250,000 shares of common
stock at $3.00 per share and 875,000 shares of common stock at $2.00 per share.
Mr. Erickson also has the right to receive 25% of all option grants made by the
Company each calendar year during the term of the agreement. In addition, the
employment agreement provides that each year Mr. Erickson and the Company shall
mutually agree on a performance-based bonus for Mr. Erickson. The employment
agreement also contains non-compete provisions in the event of Mr. Erickson's
termination of employment.
Mr. Erickson's employment agreement also includes provisions governing the
payment of severance benefits if his employment is terminated for any other
reason other than his voluntary resignation, death, disability or discharge for
cause. In the event that Mr. Erickson's employment is terminated by the Company
without cause or due to certain change of control events, Mr. Erickson is
entitled to receive an amount equal to his salary for the remaining term of the
agreement plus an additional cash payment of $500,000. If the termination occurs
at anytime when the average closing price for the Company's common stock for the
30 trading days prior to termination is equal to between $1.50 per share and
$1.99 per share, the additional cash payment will increase to $1,000,000. This
payment will be further increased as such average closing price increases, up to
a maximum of $3,500,000 if such average closing price is greater than $3.50 per
share. If the termination is because of a change of control of the Company, the
additional cash payment will be based on the consideration per share paid to the
Company's shareholders in connection with the change of control instead of the
market price of the Company's common stock.
W. King Grant III Employment Agreement. Mr. Grant's 2002 compensation was
determined under the terms of an employment agreement, effective June 1, 2001,
between Gasco and Mr. Grant that expired on May 31, 2004. Mr. Grant's employment
agreement was amended and restated effective January 2, 2003 and is effective
until January 31, 2006. Mr. Grant serves as Chief Financial Officer and
Executive Vice President of Gasco. Mr. Grant's employment agreement entitled him
to an annual salary of $120,000, subject to increase at the discretion of the
Board of Directors, and an annual bonus equal to 0.5% of Gasco's cash flow from
wells drilled by or on behalf of the Company. The employment agreement provided
for the award to Mr. Grant of options to purchase 200,000 shares of common stock
of the Company pursuant to the terms of the Company's Stock and Option and
Incentive Award Plan at an exercise price of $3.00 per share and options to
purchase 100,000 shares of common stock of the Company pursuant to such plan at
an exercise price of $3.15. Options to purchase 100,000 shares at an exercise
price of $3.00 per share vested upon the execution of the agreement and the
remaining options vest in equal amounts over the following eight fiscal
quarters. Mr. Grant's amended and restated employment agreement set his annual
salary at $175,000 and provided for the award of options to purchase 200,000
shares of common stock at $1.00 per share. The options vested 16 2/3% at the end
of each four month period after the issuance date, February 14, 2003, until they
became fully vested on February 14, 2005. Mr. Grant is also entitled to receive
10% of all option grants made by the Company each calendar year during the term
of the agreement. In addition, the employment agreement provides that each year
Mr. Grant and the Company shall mutually agree on a performance-based bonus for
Mr. Grant. The employment agreement also contains non-compete provisions in the
event of Mr. Grant's termination of employment.
Mr. Grant's employment agreement also includes provisions governing the payment
of severance benefits if his employment is terminated for any other reason other
than his voluntary resignation, death, disability or discharge for cause. In the
event that Mr. Grant's employment is terminated by the Company without cause or
due to certain change of control events, Mr. Grant is entitled to receive an
18
amount equal to his salary for the remaining term of the agreement plus an
additional cash payment of $250,000. If the termination occurs at anytime when
the average closing price for the Company's common stock for the 30 trading days
prior to termination is equal to between $1.50 per share and $1.99 per share,
the additional cash payment will increase to $500,000. This payment will be
further increased as such average closing price increases, up to a maximum of
$1,750,000 if such average closing price is greater than $3.50 per share. If the
termination is because of a change of control of the Company, the additional
cash payment will be based on the consideration per share paid to the Company's
shareholders in connection with the change of control instead of the market
price of the Company's common stock.
Anti-Dilution Provisions of Employment Agreements and Consulting Agreement
Each of the above original Employment Agreements for Messrs. Decker, Erickson
and Grant and the Strategic Consulting Agreement for Mr. Bruner described under
"Certain Transactions" above, contained the following described anti-dilution
provision during the year 2002. Upon the completion of any subsequent
transaction involving the issuance of common stock of the Company, or the
issuance of any security which is convertible, by its terms into common stock of
the Company (a "Financing"), the Company shall grant the person additional
options to purchase shares of the Company's common stock at the same per share
price as that involved in the Financing. The number of options granted to the
person shall be sufficient to maintain his ownership interest in the Company
(the ratio of (a) the sum of the number of his unexercised options (both vested
and unvested) plus the number of shares owned by him as result of exercising
options to (b) the total number of outstanding shares of the Company's common
stock plus the number of shares represented by all unexercised options) at the
level that existed immediately prior to such Financing. Messrs. Decker,
Erickson, Grant and Bruner waived their rights under this anti-dilution
provision with respect to (1) the issuance by the Company of 9,500,000 shares of
common stock to Shama Zoe on May 1, 2002, and (2) the issuance by the Company of
6,500,000 shares of common stock for cash in a private placement on August 14,
2002. The amended and restated employment agreements that became effective
January 2, 2003 as described above, do not contain any anti-dilution provisions.
Compensation Committee Interlocks and Insider Participation
During 2004, the Compensation Committee of the Board was comprised of five
directors, Mr. Lotito, Mr. Crowell, Mr. Stadelhofer, Mr. Schmit and Mr. Burgess.
None of these directors is or was an officer of the Company or any of its
subsidiaries at any time now or in the past. None of our executive officers
served as a director or member of a compensation committee of any entity that
employed any of our directors during 2004.
Report of the Compensation Committee of the Company
The Compensation Committee of the Board of Directors is responsible for setting
and administering the policies that govern the annual compensation and the
long-term compensation for the Company's executive officers. The Compensation
Committee for the year ended December 31, 2004 was composed of Mr. Lotito, Mr.
Crowell, Mr. Stadelhofer, Mr. Schmit and Mr. Burgess, none of whom is employed
by the Company or any of its subsidiaries. The Compensation Committee makes all
decisions concerning the compensation of executive officers who receive annual
compensation in excess of $100,000, determines the total amount of bonuses, if
any, to be paid and grants all awards of stock options. The Compensation
Committee's compensation practices are designed to attract, motivate and retain
key personnel by recognizing individual contributions, as well as the overall
performance of the Company.
19
The current executive compensation consists of base salary, potential cash bonus
awards and long-term incentive opportunities in the form of restricted stock and
stock options. Although the Compensation Committee has not adopted a formal
compensation plan, executive compensation is reviewed by the Compensation
Committee and is set for individual executive officers based on subjective
evaluations of each individual's performance, the Company's performance, and a
comparison to salary ranges for similar positions in other companies within the
oil and gas industry. The goal of the Compensation Committee is to ensure that
the Company retains qualified executives and whose financial interests are
aligned with those of the shareholders.
Base Salaries: The base salary for each executive officer is determined based on
the individual's performance, industry experience and the compensation levels of
industry competitors. The Compensation Committee reviews various surveys and
publicly filed documents to determine comparable salary levels within the
industry.
Potential Cash Bonus Awards: The Compensation Committee does not currently have
a formal cash bonus plan. Cash bonuses may be awarded from time to time for
exceptional effort and performance. The Compensation Committee considers the
achievements of the Company to determine the level of the cash bonus, if any, to
be awarded. The Compensation Committee focuses the earnings of the Company, the
return on stockholders' equity, the growth in proved oil and gas reserves and
the successful completion of specific projects of the Company to determine the
level of bonus awards, if any.
Stock Options and Restricted Stock: The Compensation Committee utilizes stock
option awards as a method of aligning the executives' interests with those of
the stockholders by giving the key employees a direct stake in the performance
of the Company. The Compensation Committee uses the same criteria described
above to determine the level of stock option awards. During 2004 1,260,000
common stock options and 395,850 shares of common stock were issued to the
Company's employees and directors. During 2003 1,608,000 common stock options
and 425,000 shares of restricted stock were granted to the Company's employees
and directors. There were no common stock options granted to the executive
officers during the year ended December 31, 2002.
Compensation of the Chief Executive Officer: During the year ended December 31,
2004, Mark Erickson, President and Chief Executive Officer received total
compensation of $188,422 which is comprised of an annual salary of $127,722,
which Mr. Erickson is entitled to under his employment agreement, a cash bonus
of $52,500 and deferred compensation pursuant to the Company's 401(k) plan of
$8,200. The Compensation Committee considered the factors described above to
determine that the compensation paid to Mr. Erickson during 2004 was
appropriate.
The foregoing report is made by the Compensation Committee of the Company's
Board of Directors. The members of the Committee during 2004 were Mr. Lotito,
Mr. Crowell, Mr. Stadelhofer, Mr. Schmit and Mr. Burgess.
CARMEN LOTITO
CHARLES B. CROWELL
CARL STADELHOFER
JOHN A. SCHMIT
RICHARD J. BURGESS
The Company has adopted a Financial Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer and controller and is available on the Company's internet website at
www.gascoenergy.com. The Company's Corporate Code of Business Conduct and Ethics
20
that applies to all directors, officers and employees is also available on the
Company's internet website. In the event that an amendment to, or a waiver from,
a provision of the Company's Financial Code of Ethics or its Corporate Code of
Business Conduct and Ethics is necessary, the Company intends to post such
information on its website.
Performance Chart
The following chart shows the changes in the value of $100, over the period of
January, 2001, when the Company began trading, until December 31, 2004, invested
in: (1) Gasco Energy, Inc.; (2) the AMEX Market Index; (3) the NASDAQ Market
Index; and (4) a peer group consisting of all the publicly-held companies within
SIC code 1311, Crude Petroleum and Natural Gas, consisting of approximately 200
companies. We selected the AMEX Market Index as a comparison index for the first
time this year due to our being listed on the AMEX during 2004. The year-end
value of each investment is based on share price appreciation and assumes that
$100 was invested on January 1, 2000 and that all dividends were reinvested.
Calculations exclude trading commissions and taxes. The comparison of past
performance in the graph is required by the SEC and is not intended to forecast
or be indicative of possible future performance of the Company's Common Stock.
January 1, December 31, December 31, December 31, December 31,
2001 2001 2002 2003 2004
---- ---- ---- ---- ----
Gasco Energy, Inc. $100.00 $46.30 $ 18.25 $33.86 $112.70
Peer Group Index 100.00 91.75 104.72 165.89 $210.74
AMEX Market Index 100.00 97.97 94.07 128.03 146.61
NASDAQ Market Index 100.00 80.00 73.86 111.26 $120.61
21
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item B 3. on Proxy Card)
The Board of Directors has appointed the firm of Hein & Associates LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2005, and recommends ratification by the stockholders of such appointment.
Representatives of Hein & Associates LLP are expected to be present at the
annual meeting, have an opportunity to make statements regarding the Company and
to be available to respond to appropriate questions.
During the third quarter of 2004, our Audit Committee, certain members of
management and Deloitte & Touche LLP ("Deloitte"), our prior independent
registered public accounting firm, engaged in several discussions regarding
whether Deloitte would continue to provide audit services to us. These
discussions focused partly on Deloitte's increased staffing requirements for us
and many of Deloitte's other clients, due in part to additional requirements of
Rule 404 under the Securities Exchange Act of 1934 and other rules promulgated
under the Sarbanes-Oxley Act. Deloitte indicated that it had to make a choice in
the deployment of its resources. On September 8, 2004, Deloitte resigned as our
independent registered public accounting firm. On September 14, 2004, our Audit
Committee engaged Hein & Associates LLP to serve as our independent public
accountants for the fiscal year 2004. The Audit Committee has decided to
continue to retain Deloitte to advise us with respect to tax matters. The
reports of Deloitte on Gasco's consolidated financial statements for each of the
past two years did not contain an adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles, except that in its report dated March 25, 2004, Deloitte included an
emphasis paragraph related to the adoption of Statement of Financial Accounting
Standards No. 143. During Gasco's two most recent fiscal years and the
subsequent interim period through September 8, 2004, there were no disagreements
with Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to Deloitte's satisfaction, would have caused it to make reference
to the subject matter of the disagreements in connection with its report on
Gasco's consolidated financial statements for such years; and during such
period, there were no "reportable events" of the kind listed in Item
304(a)(1)(v) of Regulation S-K.
The Board of Directors recommends a vote "For" approval of the proposal to
ratify the appointment of Hein & Associates LLP as the Company's independent
auditors for 2005.
APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 100,000,000 SHARES TO 300,000,000 SHARES
(Item B 4. on Proxy Card)
The Company's articles of incorporation currently authorize the Company to issue
up to 100,000,000 share of common stock. There were 71,341,894 shares of common
stock outstanding as of March 31, 2005. In addition, as of such date, there were
7,735,992 shares of common stock issuable upon exercise of outstanding common
stock options and conversion of our Series B Convertible Preferred Stock, and
16,500,000 shares issuable upon conversion of our outstanding 5.5% Convertible
Notes.
On March 9, 2005, the Board of Directors approved an amendment to the Company's
articles of incorporation to increase the number of authorized shares of common
stock to 300,000,000 shares, subject to approval by the stockholders. While the
Company has no present intention of issuing shares of common stock except as
22
contemplated by the stock option plan, the restricted stock plan, the Series B
Convertible Preferred Stock and 5.5% Convertible Notes, the Board of Directors
believes that having additional shares authorized for issuance under the
articles of incorporation will provide additional financial flexibility for
possible future issuances of common stock for the acquisition of oil and gas
properties or to raise funds through the sale of common stock or securities
convertible into common stock.
The Board of Directors recommends a vote "For" approval of the proposal to
approve the amendment to the Company's articles of incorporation to increase the
number of authorized shares of common stock from 100,000,000 shares to
300,000,000 shares.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons named in the proxy.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material for the Company's 2006 Annual Meeting of Stockholders must comply with
Rule 14a-8 under the Securities Exchange Act of 1934. Under Rule 14a-8, such
proposal must be submitted to the Secretary of the Company at the address
indicated on the cover page of this proxy statement, so that the Secretary
receives it no later than January 6, 2006. However, if the date of the 2006
Annual Meeting of Stockholders is more than 30 days from June 9, 2006, the
deadline is a reasonable time prior to the Company's printing of the proxy
materials, which deadline will be communicated to the stockholders in the
Company's public filings.
In addition, the Company's Bylaws provide that only such business as is properly
brought before the Annual Meeting will be conducted. For business to be properly
brought before the meeting or for nominations of persons for election to the
Board of Directors to be properly made at the Annual Meeting by a stockholder
and not included in the Company's proxy statement for such meeting, notice must
be received by the Secretary of the Company at the address indicated on the
cover page not earlier than the close of business on February 9, 2006 and not
later than the close of business on March 11, 2006; provided that in the event
that the date of the 2006 annual meeting is more than thirty days before or more
than seventy days after June 9, 2006, such notice must be so delivered not
earlier than the close of business on the 120th day prior to such annual meeting
and not later than the close of business on the later of the 90th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Company. On
request, the Secretary of the Company will provide detailed instructions for
submitting proposals or nominations. A copy of the Bylaws may also be obtained
upon request from the Secretary of the Company.
By Order of the Board of Directors,
/s/ W. King Grant
W. King Grant
Secretary
May 5, 2005
23
Proxy - Gasco Energy, Inc.
Meeting Details
Proxy Solicited by Board of Directors for Annual Meeting - June 9, 2005
Charles B. Crowell and Richard S. Langdon, or any of them, each with the power
of substitution, are hereby authorized to represent and vote the shares of the
undersigned, with all the powers which the undersigned would possess if
personally present, at the Annual Meeting of Stockholders of Gasco Energy, Inc.
to be held on June 9, 2005 10:00 a.m., at the Inverness Meeting Room, Residence
Inn by Marriott Denver South/Park Meadows, 8322 South Valley Highway Road,
Englewood, CO 80112, or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted as directed by the stockholder.
If no such directions are indicated, the Proxies will have authority to vote FOR
the nominees listed in Proposals 1 and 2, and FOR proposals 3 and 4.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
(Continued and to be voted on reverse side.)
Annual Meeting Proxy Card
A. Election of Directors.
1. The Board of Directors recommends a vote FOR the listed nominees.
For Withhold
01 Marc A. Bruner [ ] [ ]
02 Charles B. Crowell [ ] [ ]
03 Mark A. Erickson [ ] [ ]
04 Richard J. Burgess [ ] [ ]
05 Carmen J. (Tony) Lotito [ ] [ ]
06 Carl Stadelhofer [ ] [ ]
07 John A. Schmit [ ] [ ]
Election of Preferred Stock Director (only holders of Series B Preferred Stock
are entitled to vote) 2. The Board of Directors recommends a vote FOR the listed
nominee.
For Withhold
08 Richard S. Langdon [ ] [ ]
B. Proposals
The Board of Directors recommends a vote FOR the following proposals.
For Against Abstain
3. Proposal to ratify the appointment of Hein & [ ] [ ] [ ]
Associates LLP as independent auditors of
Gasco Energy, Inc. for the fiscal year ending
December 31, 2005.
For Against Abstain
4. Proposal to approve an amendment to the Gasco [ ] [ ] [ ]
Energy, Inc. Articles of Incorporation to
increase the number of authorized shares of
common stock from 100,000,000 shares to
300,000,000 shares.
C. Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed. NOTE: Please sign your name(s) EXACTLY as your
name(s) appear(s) on the proxy. All joint holders must sign. When signing as
attorney, trustee, executor, administrator, guardian or corporate officer,
please provide your FULL title.
Signature 1 - Please keep Signature 2 - Please keep Date (mm/dd/yyyy)
signature within the box signature within the box
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