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.
-------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------
GASCO ENERGY, INC.
8 INVERNESS DRIVE E. SUITE 100
ENGLEWOOD, CO 80112
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 2006
To the Stockholders:
The 2006 Annual Meeting of the Stockholders of Gasco Energy, Inc., a Nevada
corporation, will be held on Wednesday, June 14, 2006 at 10:00 a.m., Mountain
Daylight Time, in Conference Room 10 of the Sheraton Denver Tech Center, located
at 7007 South Clinton Street, Greenwood Village, Colorado. The Annual Meeting
will be held for the following purposes:
1. To elect eight directors to serve until the 2007 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, 2006.
3. To transact such other business as may properly come before such
meeting or any adjournment(s) thereof.
The close of business on April 27, 2006 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 8, 2006
GASCO ENERGY, INC.
8 Inverness Drive East, Suite 100
Englewood, Colorado 80112
(303) 483-0044
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 14, 2006
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 2006 Annual Meeting of Stockholders (the "Annual Meeting") to be held in
Conference Room 10 of the Sheraton Denver Tech Center, located at 7007 South
Clinton Street, Greenwood Village, Colorado on Wednesday, June 14, 2006 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 8, 2006.
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 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, 2005
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 27, 2006, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding 85,714,609 shares of Common Stock.
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 entitled to vote at the Annual Meeting,
either present in person or represented by proxy. Abstentions and proxies
1
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 eight director nominees who
receive the greatest number of votes cast by shares of Common Stock present in
person or by proxy and entitled to vote shall be elected as directors. The
affirmative vote by the holders of a majority of the shares of Common Stock
present and voting is required to ratify the selection of Hein & Associates LLP
as the Company's independent auditors for 2006 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
(Item A on Proxy Card)
Eight directors are to be elected at the Annual Meeting. If elected, each
director will serve until the Company's 2007 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.
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
2
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
Age as of
Name Positions with the Company 3/31/06
Common Stock Nominees
Marc A. Bruner Director of Gasco since 2001; 56
Chairman of the Board of Directors
and Strategic Consultant for the Company
Richard J. Burgess Director of Gasco since 2003 74
Charles B. Crowell Director of Gasco since 2002 62
Mark A. Erickson Director of Gasco since 2001; Chief 46
Executive Officer and President
Richard S. Langdon Director of Gasco since 2003 55
Carmen J. (Tony) Lotito Director of Gasco since 2001 62
John A. Schmit Director of Gasco since 2003 38
Carl Stadelhofer Director of Gasco since 2001 52
The Board of Directors has determined that each of the above nominees other than
Messrs. Bruner and Erickson is independent pursuant to the rules and regulations
of the American Stock Exchange. 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, Chief
Executive Officer and President 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, Chief Executive Officer and President of Falcon.
Falcon is listed on the Toronto Venture Exchange. From November 2002 until
present Mr. Bruner has been the largest shareholder 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.
3
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 Chief Executive Officer and
President of Gasco and as a Director and a member of the executive committee,
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.
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.
Carmen J. (Tony) Lotito. 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 Executive Vice President, Chief Financial Officer,
Secretary - Treasurer and a director of GSL Energy Corporation from August 2005
through the present. He served as Executive Vice President, Chief Financial
Officer, Treasurer and as 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
served as the Chief Financial Officer, Treasurer and a Director of Dolphin
Energy Corporation from September 2002 through November 2002. Mr. Lotito served
4
as Vice President, Chief Financial Officer and a Director of Coriko Corporation,
a private business development company from November 2000 to August 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.
John A. Schmit. Mr. Schmit became a Director of Gasco in October 2003 and a
member of the Compensation committee in December 2004. Mr. Schmit is a Manager
of Crestview Capital Partners, LLC, a private investment firm specializing in
private placements for small public companies. Prior to joining Crestview in
February 2005, 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 May 1997 through December 2004. 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.
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
completed 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 specializes in banking and financing, mergers and acquisitions,
investment funds and international securities transactions.
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 3/31/06
Michael K. Decker Executive vice president and chief operating officer 51
W. King Grant Executive vice president and chief financial officer 42
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
Bonneville Fuels Corporation as a Senior Geologist. From 1977 to 1988, Mr.
Decker was employed by Tenneco Exploration and Production Company as a Senior
5
Project Geological Engineer. Mr. Decker has over twenty-nine 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 April 15, 2006 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 April 15, 2006, the Company had 85,672,388 shares of common
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 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 April 15, 2006. 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
Advisory Research, Inc. (1) 11,835,705 13.8%
180 North Stetson Street, Suite 5500
Chicago, IL 60601
Morgan Stanley ((2)) 6,108,920 7.1%
1585 Broadway
New York, NY 10036
6
Number of Shares
Name Beneficially Owned Percent of Class
5% or Greater Holders
Saranac Capital Management LP (3) 5,626,575 6.3%
Saranac Capital Management GP LLC
Ross Margolies
31 West 52nd Street
New York, NY 10019
CNH Partners, LLC (4) 4,525,000 5.0%
CNH CA Master Account, L.P.
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
Amaranth LLC ((5)) 4,512,910 5.0%
Corporate Actions, Amaranth Group Inc.
1 American Lane
Greenwich, CT 06831
Directors and Executive Officers
Marc Bruner (6) (7) 4,334,337 5.0%
Mark A. Erickson (6) ((8)) 3,933,055 4.5%
Michael K. Decker (6) 1,089,619 1.3%
W. King Grant (6) 1,200,520 1.4%
Carmen J. (Tony) Lotito (6) 393,000 *
Carl Stadelhofer (6) 337,500 *
Charles B. Crowell (6) 505,172 *
Richard S. Langdon ((6)) 198,772 *
Richard J. Burgess ((6)) ((9)) 260,915 *
John A. Schmit ((6)) (10) 71,523 *
All Directors and Executive Officers as a Group (10
persons) (6) (7) (8) (9) (10) 12,324,413 13.6%
- ---------------
(1) Advisory Research, Inc. acts as investment advisor and therefore
has investment discretion over the shares held by its clients.
7
(2) 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.
(3) 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 1,426,575
shares of common stock and 4,200,000 shares of common stock
issuable upon the conversion of $16,800,000 of 5.5% Convertible
Notes.
(4) CNH CA Master Account, L.P. exercises voting and dispositive power
over the securities comprised of 4,525,000 shares of common stock
issuable upon the conversion of $18,100,000 of 5.5% Convertible
Notes.
(5) Amaranth Advisors L.L.C., the Trading Advisor for Amaranth LLC,
exercises voting and dispositive power over the securities
comprised of 37,000 shares of common stock and 4,475,410 shares of
common stock issuable upon the conversion of $17,901,640 of 5.5%
Convertible Notes. Nicholas M. Maounis is the managing member of
Amaranth Advisors L.L.C.
(6) The following number of shares of common stock issuable upon the
exercise of options that are exercisable within 60 days of April
15, 2006 are included in the amounts shown: Mr. Bruner, 1,122,915
shares; Mr. Erickson, 1,188,328 shares; Mr. Decker, 867,328
shares; Mr. Grant, 750,328 shares; Mr. Lotito, 212,500 shares; Mr.
Stadelhofer, 337,500 shares; Mr. Crowell, 327,080 shares; Mr.
Langdon, 197,915 shares; Mr. Burgess, 147,915 shares; Mr. Schmit,
56,250 shares.
(7) 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.
(8) The common stock held by Mr. Erickson includes 161,524 shares
of common stock owned by his wife as custodian for their children.
(9) The common stock held by Mr. Burgess includes 60,000 shares of
common stock held in a trust for Mr. Burgess' wife of which he is
the trustee.
(10) The common stock held by Mr. Schmit includes 273 shares of common
stock which represents shares of stock owned by Crestview Capital
Master, LLC multiplied by Mr. Schmit's ownership interest in
Crestview at the time the shares were purchased. He does not own
or share voting or dispositive power over such shares.
Directors' Meetings and Committees of the Board of Directors
The Board of Directors held six meetings during 2005. During 2005, 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.
8
The Board of Directors of Gasco has formed an Audit Committee, a Compensation
Committee and an Executive Committee.
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 five times during 2005. 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 four times during
2005. 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;
9
- 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 twenty times during 2005. The principal
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, 2005 for filing with the Securities and Exchange
Commission.
Audit Committee:
CHARLES B. CROWELL
RICHARD S. LANGDON
CARMEN J. (TONY) LOTITO
CARL STADELHOFER
10
Audit Fees Summary
Audit fees relate to the quarterly reviews, the financial statement and internal
control audit for the years ended December 31, 2005 and 2004 and all other
services provided in connection with the statutory and regulatory filings during
these fiscal years. During 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.
Tax fees during the year ended December 31, 2004 which were paid to Deloitte
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,
-------------------------------
2005 2004
---- ----
Audit Fees $ 325,935 $298,351
Audit Related Fees - -
Tax Fees - 47,571
--------- ---------
Total $ 325,935 $ 345,922
========= =========
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 2005 and 2004 were approved by the full
Audit Committee. The Audit Committee and the Board of Directors considered the
services listed above to be compatible with maintaining the accountants'
independence.
Compensation of Directors
During 2005, each director of the Company who was not a full-time employee or
consultant was paid a monthly director's 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.
In June 2005, the non-employee directors were granted options to purchase an
aggregate 625,000 shares of the Company's common stock at an exercise price of
$3.39 per common share. The options vest 25% at the end of each calendar quarter
beginning September 30, 2005.
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
11
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 approves 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.
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 entered into a
Strategic Consulting Agreement with Mr. Bruner, effective January 2, 2003, that
expires on January 31, 2007. The agreement is automatically extended each year
for an additional one year-term from the next anniversary date unless the
Company notifies Mr. Bruner in writing at least 120 days prior to the next
anniversary date that the Company will not be renewing the agreement on the next
anniversary date. The 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. Mr. Bruner received an annual bonus of
$86,887 for the year ended December 31, 2005. 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.
Mr. Bruner waived this right with respect to all option grants during 2005 and
2004. In addition, the agreement provides that each year Mr. Bruner and the
Company shall mutually agree on a performance-based bonus plan for Mr. Bruner.
The agreement also contains non-compete provisions in the event of the
termination of the agreement.
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
12
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 the years ended December 31, 2005, 2004 and 2003 the Company paid
$120,000 in consulting fees each year and an annual bonus of $86,887 during the
year ended December 31, 2005 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,
2007. During the year ended December 31, 2005 Mr. Bruner was awarded 75,000
options to purchase shares of common stock at an exercise price of $3.39 per
share. These options vest 25% at the end of each calendar quarter beginning
September 30, 2005. During the year ended December 31, 2004 Mr. Bruner was
awarded 50,000 options to purchase common stock at an exercise price of $2.15
per share. These options vest 16 2/3% at the end of each four-month period after
the issuance date. During the year ended December 31, 2003, the Company issued
187,500 shares of common stock to Mr. Bruner from the Company's restricted stock
plan. These restricted shares vest 20% on the first anniversary, 20% on the
second anniversary and 60% on the third anniversary of the award.
13
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, 2005, except for the following late
filings: Mark Erickson filed a Form 4 dated 6/14/05 on 6/28/05 and a Form 4
dated 12/15/05 on 12/23/05: W. King Grant filed a Form 4 dated 6/14/05 on
6/28/05, a Form 4 dated 8/12/05 on 8/18/05 and a Form 4 dated 12/15/05 on
12/23/05; and Michael Decker filed a Form 4 dated 6/14/05 on 6/28/05 and a Form
4 dated 12/15/05 on 12/23/05.
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, 2005,
2004 and 2003.
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) 2005 $ 175,000 $ 186,887 $ 3,645 160,000 $ 8,400
President 2004 127,722 52,500 239,399 100,000 8,200
Chief Executive Officer 2003 120,000 5,000 131,250 - 5,400
W. King Grant 2005 $ 175,000 $ 149,650 $ 3,645 160,000 $ 8,400
Executive Vice President 2004 175,000 52,500 151,200 100,000 8,200
Chief Financial Officer 2003 175,000 5,000 35,000 200,000 5,400
Michael K. Decker 2005 $ 175,000 $ 174,475 $ 3,645 160,000 $ 8,400
Executive Vice President 2004 175,000 52,500 151,200 100,000 8,200
Chief Operations Officer 2003 175,000 5,000 - 350,000 5,400
John D. Longwell 2005 $ 135,000 $ 40,000 $ 3,645 160,000 $ 6,839
Operations Manager 2004 121,250 10,000 54,179 100,000 4,760
2003 120,000 2,500 - 50,000 4,900
Mark J. Choury 2005 $ 115,000 $ 15,000 $ 3,645 75,000 $ 5,180
Land Manager 2004 108,583 5,000 28,350 50,000 4,329
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, 2005, Mr. Erickson held 298,225
14
shares of restricted stock valued at $1,947,409 as of such date, Mr.
Grant held 123,872 shares of restricted stock valued at $808,884 as of
such date, Mr. Decker held 75,335 shares of restricted stock valued at
$491,938 as of such date, Mr. Longwell held 27,315 shares of
restricted stock valued at $178,367 at such date, and Mr. Choury held
14,382 shares of restricted stock valued at $93,914 as of such date.
The restricted shares were issued on December 15, 2005, June 14, 2004
and on August 12, 2003 and vest 20% on the first anniversary, 20% on
the second anniversary and 60% on the third anniversary of the awards.
(2) Amount represents the employer contribution to the 401(k) plan of the
individual.
The following table sets forth information with respect to all stock options
granted during the year ended December 31, 2005 to the named Executive Officers
and other highly compensated employees.
Potential Realized
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
----------------- ------------
Number of % of Total Options
Securities Granted to Exercise
Underlying Employees, Directors or Base
Options and Consultants in Price Expiration 5% 10%
Name Granted Fiscal Year ($/Share) Date Share Price Share Price
---- -------- ----------- --------- ---- ----------- -----------
Mark A. Erickson 160,000 7% $ 3.39 6/9/15 $385,600 $1,004,800
W. King Grant 160,000 7% $ 3.39 6/9/15 $385,600 $1,004,800
Michael K. Decker 160,000 7% $ 3.39 6/9/15 $385,600 $1,004,800
John D. Longwell 160,000 7% $ 3.39 6/9/15 $385,600 $1,004,800
Mark J. Choury 75,000 3% $ 3.39 6/9/15 $180,750 $ 471,000
(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 $3.39 per share. No gain to an executive officer or employee
is possible without an appreciation in Common Stock value, which
will benefit all holders of Common Stock. The actual value an
executive officer or employee may receive depends on market
prices for the Common Stock, and there can be no assurance that
the amounts reflected will actually be realized.
The following table sets forth the value of options exercised during 2005 and
held by the executive officers and highly compensated employees at December 31,
2005.
15
Aggregated Option Exercises in Last Fiscal Year and FY-End Option/ Values
Number of Securities Underlying Value of Unexercised
Unexercised Options at FY-End (#) In-the-Money Options at FY-End ($)(2)
--------------------------------- -------------------------------------
Shares Acquired Value
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Mark A. Erickson - - 1,118,330 166,670 $6,034,302 $572,348
W. King Grant 50,000 $241,000 680,670 166,670 $2,985,162 $572,348
Michael K. Decker - - 815,663 166,670 $3,856,972 $572,348
John D. Longwell 185,000 $787,250 108,330 166,670 $390,271 $572,348
Mark J. Choury 50,000 $241,000 129,166 95,834 $614,498 $365,252
(1) The dollar value realized equals the difference between the fair market
value of the Company's Common Stock on the date of exercise and the
grant price, multiplied by the number of shares acquired on exercise.
(2) The value of in-the-money options is equal to the fair market value of
a share of Common Stock on December 31, 2005 of $6.53, less the
exercise price.
Employment Agreements
Michael K. Decker Employment Agreement. Gasco entered into an employment
agreement with Mr. Decker effective July 1, 2003, that currently expires on
January 31, 2007. The agreement is automatically extended each year for an
additional one year-term from the next anniversary date unless the Company
notifies Mr. Decker in writing at least 120 days prior to the next anniversary
date that the Company will not be renewing the agreement on the next anniversary
date. Mr. Decker serves as Chief Operating Officer and Executive Vice President
of Gasco. Mr. Decker's employment agreement entitles him to an annual salary of
$175,000 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 Board of Directors approved an increase in Mr.
Decker's annual salary to $200,000 effective January 1, 2006. The employment
agreement also 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. Mr. Decker waived this right with respect to all option grants during
2005 and 2004. 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
16
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. Gasco entered into an employment
agreement with Mr. Erickson effective January 2, 2003, that currently expires on
January 31, 2007. The agreement is automatically extended each year for an
additional one year-term from the next anniversary date unless the Company
notifies Mr. Erickson in writing at least 120 days prior to the next anniversary
date that the Company will not be renewing the agreement on the next anniversary
date. Mr. Erickson serves as Chief Executive Officer and President of Gasco. Mr.
Erickson's employment agreement entitles 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 0.875% of Gasco's cash flow from wells drilled by or on behalf of
the Company. The Board of Directors increased Mr. Erickson's annual salary to
$175,000 during 2005. Additionally, the Board of Directors approved an increase
in Mr. Erickson's annual salary to $200,000 effective January 1, 2006. Mr.
Erickson's employment agreement provided for the issuance of 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. Mr. Erickson waived this right
with respect to all option grants during 2005 and 2004. 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. Gasco entered into an employment
agreement with Mr. Grant's effective January 2, 2003, that currently expires on
January 31, 2007. The agreement is automatically extended each year for an
additional one year-term from the next anniversary date unless the Company
notifies Mr. Grant in writing at least 120 days prior to the next anniversary
date that the Company will not be renewing the agreement on the next anniversary
date. Mr. Grant serves as Chief Financial Officer and Executive Vice President
of Gasco. Mr. Grant's employment agreement entitles him to an annual salary of
$175,000, 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 Board of Directors approved an increase in Mr.
Grant's annual salary to $200,000 effective January 1, 2006. The employment
agreement provided for the award to Mr. Grant 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
17
10% of all option grants made by the Company each calendar year during the term
of the agreement. Mr. Grant waived this right with respect to all option grants
during 2005 and 2004. 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
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
The employment agreements for Messrs. Decker, Erickson and Grant and the
Strategic Consulting Agreement with Mr. Bruner described under "Certain
Transactions" that became effective January 2, 2003, as described above, do not
contain any anti-dilution provisions.
Compensation Committee Interlocks and Insider Participation
During 2005, 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 2005.
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, 2005 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.
The current executive compensation consists of base salary, potential cash bonus
awards and long-term incentive opportunities in the form of restricted stock and
18
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 2005 2,450,000
common stock options and 23,700 shares of restricted stock were issued to the
Company's employees and directors. 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.
Compensation of the Chief Executive Officer: During the year ended December 31,
2005, Mark Erickson, President and Chief Executive Officer received total
compensation of $370,287 which is comprised of an annual salary of $175,000, a
cash bonus of $186,887 and deferred compensation pursuant to the Company's
401(k) plan of $8,400. The Compensation Committee considered the factors
described above to determine that the compensation paid to Mr. Erickson during
2005 was appropriate.
The foregoing report is made by the Compensation Committee of the Company's
Board of Directors. The members of the Committee during 2005 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
that applies to all directors, officers and employees is also available on the
19
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, 2005, invested
in: (1) Gasco Energy, Inc.; (2) the AMEX Market Index; and (3) a peer group
consisting of all the publicly-held companies within SIC code 1311, Crude
Petroleum and Natural Gas, consisting of approximately 214 companies. The
year-end value of each investment is based on share price appreciation and
assumes that $100 was invested on January 1, 2001 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, December 31,
2001 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Gasco Energy, Inc. $100.00 $46.30 $ 18.25 $ 33.86 $112.70 $172.75
Peer Group Index 100.00 96.89 103.29 165.89 210.74 302.76
AMEX Market Index 100.00 97.97 94.07 128.03 146.61 161.69
20
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item B 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,
2006, 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 the years
ended December 31, 2003 and 2002 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 the fiscal years
2002 and 2003 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 2006.
21
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 2007 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 8, 2007. However, if the date of the 2007
Annual Meeting of Stockholders is more than 30 days from June 14, 2007, 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 14, 2007 and not
later than the close of business on March 16, 2007; provided that in the event
that the date of the 2007 annual meeting is more than thirty days before or more
than seventy days after June 14, 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 8, 2006
22
Proxy - Gasco Energy, Inc.
Meeting Details
Proxy Solicited by Board of Directors for Annual Meeting - June 14, 2006
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 14, 2006, 10:00 a.m., Mountain Daylight Time, in Conference
Room 10 of the Sheraton Denver Tech Center, located at 7007 South Clinton
Street, Greenwood Village, Colorado, 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 Proposal A, and FOR Proposal B.
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.)
23
Annual Meeting Proxy Card
A. Election of Directors.
The Board of Directors recommends a vote FOR the listed nominees.
For Withhold
01 Marc A. Bruner [ ] [ ]
02 Richard J. Burgess [ ] [ ]
03 Charles B. Crowell [ ] [ ]
04 Mark A. Erickson [ ] [ ]
05 Richard S. Langdon [ ] [ ]
06 Carmen J. (Tony) Lotito [ ] [ ]
07 John A. Schmit [ ] [ ]
08 Carl Stadelhofer [ ] [ ]
B. Proposal
The Board of Directors recommends a vote FOR the following proposal.
For Against Abstain
Proposal to ratify the appointment of Hein & [ ] [ ] [ ]
Associates LLP as independent auditors of
Gasco Energy, Inc. for the fiscal year ending
December 31, 2006.
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 Signature 2 - Please keep Date
within the box signature within the box (mm/dd/yyyy)
- ----------------------------- ---------------------- --/--/--
24