SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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DELTA PETROLEUM CORPORATION
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(Name of Registrant as Specified in its Charter)
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PRELIMINARY COPY
DELTA PETROLEUM CORPORATION
370 SEVENTEENTH STREET, SUITE 4300
DENVER, COLORADO 80202
(303) 293-9133
December 22, 2005
Dear Delta Shareholders:
On behalf of the Board of Directors, it is a pleasure to invite you to
attend the Annual Meeting of Shareholders to be held at 10:00 a.m. on
Tuesday, January 31, 2006, in Denver, Colorado in the Georgetown Room of the
Brown Palace Hotel, 321 17th Street, Denver, Colorado 80202.
Business matters expected to be acted upon at the meeting are described
in detail in the accompanying Notice of the Annual Meeting and Proxy
Statement. Members of management will report on our operations, followed by
a period for questions and discussion.
We hope you can attend the meeting. Regardless of the number of shares
you own, your vote is very important. Please ensure that your shares will be
represented at the meeting by signing and returning your proxy now, even if
you plan to attend the meeting.
Thank you for your continued support.
Sincerely,
Roger A. Parker, President and CEO
PRELIMINARY COPY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 31, 2006
TO THE SHAREHOLDERS OF DELTA PETROLEUM CORPORATION:
As a shareholder of Delta Petroleum Corporation, a Colorado corporation
("Delta" or the "Company"), you are invited to be present in person or to be
represented by proxy at the Annual Meeting of Shareholders, to be held in the
Georgetown Room of the Brown Palace Hotel, 321 17th Street, Denver, Colorado
80202, on Tuesday, January 31, 2006 at 10:00 a.m. (MST) for the following
purposes:
1) To elect nine directors;
2) To consider and vote upon the ratification of the appointment of
KPMG LLP as independent registered public accounting firm
for Delta for the transition period ending December 31, 2005;
3) To consider and vote on a merger to reincorporate the Company in the
State of Delaware; and
4) To transact such other business as may be properly brought before
the meeting and any adjournments thereof.
Shareholders of Delta of record at the close of business on December 22,
2005 are entitled to vote at the meeting and all adjournments thereof.
One-third of the outstanding shares of Common Stock of Delta must be
represented at the meeting to constitute a quorum. Therefore, all
shareholders are urged either to attend the meeting or to be represented by
proxy. If a quorum is not present at the meeting, a vote for adjournment
will be taken among the shareholders present or represented by proxy. If a
majority of the shareholders present or represented by proxy vote for
adjournment, it is Delta's intention to adjourn the meeting until a later
date and to vote proxies received at such adjourned meeting(s).
If you do not expect to attend the meeting in person, please complete,
sign, date and return the accompanying proxy card in the enclosed business
reply envelope. If you later find that you can be present or for any other
reason desire to revoke your proxy, you may do so at any time before the
voting.
By Order of the Board of Directors
Roger A. Parker, President and CEO
December 22, 2005
PROXY STATEMENT
OF
DELTA PETROLEUM CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 31, 2006
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (our "Board" or our "Board of Directors") of Delta
Petroleum Corporation ("us," "our," "we" or "Delta") of proxies to be voted
at our Annual Meeting of Shareholders (the "Annual Meeting" or the "Meeting")
to be held on January 31, 2006, in the Georgetown Room of the Brown Palace
Hotel, 321 17th Street, Denver, Colorado 80202, at 10:00 a.m., and at any
adjournment thereof. Each shareholder of record at the close of business on
December 22, 2005 of shares of our Common Stock, par value $0.01 per share
(the "Common Stock"), will be entitled to one vote for each share so held.
As of December 22, 2005, there were ____________ shares of Common Stock
issued and outstanding.
Shares represented by properly executed proxy cards received by us at or
prior to the Annual Meeting will be voted according to the instructions
indicated on the proxy card. Unless contrary instructions are given, the
persons named on the proxy card intend to vote the shares so represented for
(i) the election of the nominees for directors and (ii) the ratification of
the appointment of KPMG LLP as our independent auditors for the transition
period ending December 31, 2005.
As to any other business which may properly come before the Meeting, the
persons named on the proxy card will vote according to their judgment. The
enclosed proxy may be revoked prior to the Meeting by written notice to our
Secretary at 370 Seventeenth Street, Suite 4300, Denver, Colorado 80202, or
by written or oral notice to the Secretary at the Annual Meeting prior to
being voted. This Proxy Statement and the enclosed proxy card are expected
to be first sent to our shareholders on or about December 30, 2005.
Votes cast in favor of and against proposed actions (whether in person
or by proxy) will be counted for us by our Secretary at the Meeting, but this
count may be at least partially based upon information tabulated for us by
our transfer agent or others. Proxies that include abstentions and broker
non votes will be counted as being present for the purpose of determining
whether or not a quorum is present, but will not be counted as votes for or
against particular agenda items.
If a quorum is not present at the Meeting, a vote for adjournment will
be taken among the shareholders present or represented by proxy. If a
majority of the shareholders present or represented by proxy vote for
adjournment, it is our intention to adjourn the Meeting until a later date
and to vote proxies received at such adjourned meeting(s).
ELECTION OF DIRECTORS
(Proposal 1 of the Proxy)
Our Directors are elected annually by the shareholders to serve until
the next Annual Meeting of Shareholders and until their respective successors
are duly elected. Our bylaws provide that the number of directors comprising
the whole Board shall from time to time be fixed and determined by resolution
adopted by our Board of Directors. Our Board has established the size of the
Board at nine directors. Our Board is recommending that our nine current
directors be re elected. If any nominee becomes unavailable for any reason,
a substitute nominee may be proposed by our Board and the shares represented
by proxy will be voted for any substitute nominee, unless the Board reduces
the number of directors. We have no reason to expect that any nominee will
become unavailable. Assuming the presence of a quorum, the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock
represented in person or by proxy at the Annual Meeting is required for the
election of directors.
At the Annual Meeting, the shares of Common Stock represented by proxies
will be voted in favor of the election of the nominees named below unless
otherwise directed.
The Board of Directors recommends a vote for each of the nominees.
NOMINEES FOR RE ELECTION AS DIRECTORS TO SERVE
UNTIL NEXT ANNUAL MEETING
Name Age Positions Period of Service
---- --- --------- -----------------
Roger A. Parker 43 President, Chief May 1987 to Present
Executive Officer
and Chairman of
the Board
Kevin R. Collins 48 Director March 2005 to Present
Jerrie F. Eckelberger 61 Director September 1996 to
Present
Aleron H. Larson, Jr. 60 Director May 1987 to Present
Russell S. Lewis 50 Director June 2002 to Present
Jordan R. Smith 70 Director October 2004 to Present
Neal A. Stanley 58 Director October 2004 to Present
James P. Van Blarcom 43 Director July 2005 to Present
James B. Wallace 75 Director November 2001 to
Present
The following is biographical information as to the business experience of
each of our current Directors and Executive Officers.
2
Roger A. Parker has been our President and a Director since May of 1987
and Chief Executive Officer since April of 2002. He was named Chairman of
the Board on July 1, 2005. Since April 1, 2005, he has also served as a
Director of DHS Drilling Company. Mr. Parker also serves as President, Chief
Executive Officer and Director of Amber Resources. He received a Bachelor of
Science in Mineral Land Management from the University of Colorado in 1983.
He is a member of the Rocky Mountain Oil and Gas Association and is a board
member of the Independent Producers Association of the Mountain States
(IPAMS). He also serves on other boards, including Community Banks of
Colorado.
Kevin R. Collins was most recently Executive Vice President and Chief
Financial Officer of Evergreen Resources, Inc., having served in various
management capacities with that company from 1995 until 2004. Evergreen
Resources was acquired by Pioneer Natural Resources in September 2004. Mr.
Collins became a Certified Public Accountant in 1983 and has over 13 years of
public accounting experience. He has served as Vice President and a Board
Member of the Colorado Oil and Gas Association, President of the Denver
Chapter of the Institute of Management Accountants, Director of Pegasus
Technologies, Inc. and Board Member and Chairman of the Finance Committee of
Independent Petroleum Association of Mountain States. He received his B.S.
degree in Business Administration and Accounting from the University of
Arizona.
Jerrie F. Eckelberger is an investor, real estate developer and attorney
who has practiced law in the State of Colorado since 1971. He graduated from
Northwestern University with a Bachelor of Arts degree in 1966 and received
his Juris Doctor degree in 1971 from the University of Colorado School of
Law. From 1972 to 1975, Mr. Eckelberger was a staff attorney with the
Eighteenth Judicial District Attorney's Office in Colorado. From 1975 to
present, Mr. Eckelberger has been engaged in the private practice of law and
is presently a member of the law firm of Eckelberger & Jackson, LLC. Mr.
Eckelberger previously served as an officer, director and corporate counsel
for Roxborough Development Corporation. Since March, 1996, Mr. Eckelberger
has engaged in the investment and development of Colorado real estate through
several private companies in which he is a principal.
Aleron H. Larson, Jr. has operated as an independent in the oil and gas
industry individually and through public and private ventures since 1978.
Mr. Larson served as Chairman of the Board, Secretary and Director of Delta,
as well as Amber, until his retirement on July 1, 2005, at which time he
resigned as Chairman of the Board. However, he continues to serve as a
Director of the Company. Mr. Larson practiced law in Breckenridge, Colorado
from 1971 until 1974. During this time he was a member of a law firm, Larson
& Batchellor, engaged primarily in real estate law, land use litigation, land
planning and municipal law. In 1974, he formed Larson & Larson, P.C., and
was engaged primarily in areas of law relating to securities, real estate,
and oil and gas until 1978. Mr. Larson received a Bachelor of Arts degree in
Business Administration from the University of Texas at El Paso in 1967 and a
Juris Doctor degree from the University of Colorado in 1970.
Russell S. Lewis is President and CEO of Lewis Capital, LLC which makes
private investments in, and provides general business and M&A consulting
services to, growth-oriented firms. He has been a member of the board of
Delta Petroleum Corporation since June 2002. From February 2002 until
3
January 2005 Mr. Lewis served as Executive Vice President and General Manager
of VeriSign Name and Directory Services (VRSN) Group, which managed a
significant portion of the internet's critical .com and .net addressing
infrastructure. For the preceding 15 years Mr. Lewis managed a wireless
transportation systems integration company. Previously Mr. Lewis managed an
oil and gas exploration subsidiary of a publicly traded utility and was Vice
President of EF Hutton in its Municipal Finance group. Mr. Lewis also serves
on the board of directors of Castle Energy Corporation (NASDAQ: CECX) and
Advanced Aerations Systems, a privately held firm engaged in subsurface soil
treatment. Mr. Lewis has a BA degree in Economics from Haverford College and
an MBA from the Harvard School of Business.
Jordan R. Smith is President of Ramshorn Investments, Inc., a wholly
owned subsidiary of Nabors Drilling USA LP, where he is responsible for
drilling and development projects in a number of producing basins in the
United States. He has served in such capacity for more than the past five
years. Mr. Smith has served on the Board of the University of Wyoming
Foundation and the Board of the Domestic Petroleum Council, and is also
Founder and Chairman of the American Junior Golf Association. Mr. Smith
received Bachelors and Masters degrees in geology from the University of
Wyoming in 1956 and 1957, respectively.
Neal A. Stanley founded Teton Oil & Gas Corporation in Denver, Colorado
and has served as President since June 2003. From 1996 to June 2003, he was
Senior Vice President - Western Region for Forest Oil Corporation. Mr.
Stanley has approximately thirty years of experience in the oil and gas
business. Since 1995, he has been a member of the Executive Committee of the
Independent Petroleum Association of Mountain States, and served as its
President from 1999 to 2001. Mr. Stanley received a B.S. degree in
Mechanical Engineering from the University of Oklahoma in 1975.
James P. Van Blarcom has been Managing Director of The Payne Castle
Group, LLC, which has provided sales solutions business development and
government affairs services in the cable, high-speed internet and
communications industries since 2004. From 1998 to 2004, he was employed by
Comcast Cable Communications Management, LLC, a division of Comcast
Corporation, where he served as National Telecommunications Manager,
Corporate Telecommunications Manager, and finally as Commercial Development
Manager, Comcast High-Speed Internet. Mr. Van Blarcom received a B.A. degree
in History from Hobart College in 1984.
James B. Wallace has been involved in the oil and gas business for over
40 years and has been a partner of Brownlie, Wallace, Armstrong and Bander
Exploration in Denver, Colorado since 1992. From 1980 to 1992 he was
Chairman of the Board and Chief Executive Officer of BWAB Incorporated. Mr.
Wallace formerly served as a member of the Board of Directors and as the
Chairman of Tom Brown, Inc., an oil and gas exploration company then listed
on the New York Stock Exchange. He received a B.S. Degree in Business
Administration from the University of Southern California in 1951. James B.
Wallace is the father of John R. Wallace, the Executive Vice President,
Exploration and Chief Operating Officer of Delta.
4
Kevin K. Nanke, Treasurer and Chief Financial Officer, joined Delta in
April 1995. Since April 1, 2005 he has also served as Chief Financial
Officer, Treasurer and Director of DHS Drilling Company. Since 1989, he has
been involved in public and private accounting with the oil and gas industry.
Mr. Nanke received a Bachelor of Arts in Accounting from the University of
Northern Iowa in 1989. Prior to working with us, he was employed by KPMG
LLP. He is a member of the Colorado Society of CPA's and the Council of
Petroleum Accounting Society. He is 40 years old.
John R. Wallace, Executive Vice President, Exploration and Chief
Operating Officer, joined Delta in October 2003. Since April 1, 2005 he has
also served as Executive Vice President and Director of DHS Drilling Company.
Mr. Wallace was Vice President of Exploration and Acquisitions for United
States Exploration, Inc. ("USX"), a publicly-held oil and gas exploration
company, from May 1998 to October 2003, when he became employed by Delta.
For more than five years prior to joining USX, Mr. Wallace was President of
The Esperanza Corporation, a privately held oil and gas acquisition company,
and Vice President of Dual Resources, Inc., a privately held oil and gas
exploration company. Esperanza effected more than 25 acquisitions of
producing properties throughout the United States. In addition, Esperanza
formed and administered royalty programs for private investors, primarily in
the Rocky Mountain region, and has participated in a number of international
exploration projects. Dual Resources is in the business of engineering and
selling exploration prospects, several of which have resulted in new field
discoveries. Mr. Wallace is the son of James B. Wallace, a Director of the
Company. He is 44 years old.
At the present time Messrs. Collins, Eckelberger, Lewis, Smith and
Stanley serve as the Audit Committee; Messrs. Eckelberger, Collins, Lewis,
Smith and Stanley serve as the Compensation Committee; and Messrs. Smith,
Collins, Eckelberger, Lewis and Stanley serve as the Nominating & Governance
Committee. The Board of Directors has determined that Mr. Russell Lewis is an
"audit committee financial expert" as that term is defined by SEC rules.
All directors will hold office until the next annual meeting of
shareholders.
All of our Executive Officers will hold office until the next annual
directors' meeting, or until they are removed by the Board of Directors or
they resign. There is no arrangement or understanding among or between any
such officers or any persons pursuant to which such officer is to be selected
as one of our officers.
BOARD OF DIRECTORS AND COMMITTEES
During fiscal year ended June 30, 2005, our Board of Directors met on
four occasions either in person or by telephone conference call. Our Board
has appointed four committees: the Audit, Compensation, Nominating and
Incentive Plan Committees. At the present time Messrs. Collins, Eckelberger,
Lewis, Smith and Stanley serve as the Audit Committee; Messrs. Eckelberger,
Collins, Lewis, Smith and Stanley serve as the Compensation Committee; and
Messrs. Smith, Collins, Eckelberger, Lewis and Stanley serve as the
Nominating & Governance Committee. Each of these Directors is "independent"
5
as that term is defined by the Nasdaq Stock Market Marketplace Rules.
During fiscal year 2005 our Compensation Committee met on two occasions; our
Audit Committee met on four occasions; and our nominating and Nominating &
Corporate Governance Committee met on one occasion; either in person or by
telephone conference call. Each Director attended at least 75% of the
aggregate number of meetings held by the Board of Directors and its
committees held in person or by phone during the time each such Director was
a member of the Board or of any committee of the Board.
Our Compensation Committee makes recommendations to our Board in the
area of executive compensation. Our Audit Committee is appointed for the
purpose of overseeing and monitoring our independent audit process. It is
also charged with the responsibility for reviewing all related party
transactions for potential conflicts of interest.
The Nominating & Governance Committee makes recommendations to the Board
of the persons who shall be nominated for election as Directors. On October
29, 2004, the Board of Directors adopted a charter for the Nominating &
Governance Committee. A copy of the charter is available on Delta's website
(www.deltapetro.com.) The Nominating Committee has not established any
minimum qualifications for persons to be considered for nomination, but will
be guided by the following criteria: that the individual be of the highest
character and integrity; be free of any conflict of interest that would
violate any applicable law or regulation or interfere with proper performance
of the responsibilities of a Director; possess substantial and significant
experience that would be of particular importance to Delta in the performance
of the duties of a Director; have sufficient time available to devote to the
affairs of Delta; and have a desire to represent the balanced best interests
of the shareholders as a whole.
Shareholders who wish to recommend persons to the Nominating &
Governance Committee should submit a letter addressed to the Chairperson of
the Nominating & Governance Committee no later than 120 days prior to the
date of the next Annual Meeting of Shareholders that sets forth the name,
age, and address of the person recommended for nomination; the principal
occupation or employment of the person recommended for nomination; a
statement that the person is willing to be nominated and will serve if
elected; and a statement as to why the shareholder believes that the person
should be considered for nomination for election to the Board of Directors
and how the person meets the criteria to be considered by the Committee
described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 2005, until October 1, 2004 James
B. Wallace, Jerrie F. Eckelberger and Joseph L. Castle II served as members
of the Compensation Committee. Joseph L. Castle II was Chairman of the Board
and Chief Executive Officer of Castle Energy Corporation, a principal
shareholder of Delta. Beginning October 1, 2004, the Compensation Committee
was composed of Jerrie F. Eckelberger, Russell S. Lewis, John P. Keller and
Jordan R. Smith. Messrs. Lewis and Keller are also directors of Castle
Energy Corporation. On July 1, 2005, Kevin R. Collins replaced Mr. Keller on
the Compensation Committee.
6
CODE OF ETHICS
The Board of Directors adopted a Code of Business Conduct and Ethics in
November 2003 (and amended in October 2004), which applies to all of the
Company's Executive Officers, Directors and employees. A copy of the Code of
Business Conduct and Ethics is available in the "Conduct and Ethics" section
of the Company's website (www.deltapetro.com) or by writing to our Corporate
Secretary at 370 Seventeenth Street, Suite 4300, Denver, Colorado 80202.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders wishing to contact the Board of Directors or a specified
members or committees of the Board should send correspondence to the
Corporate Secretary, Delta Petroleum Corporation, 370 Seventeenth Street,
Suite 4300, Denver, Colorado 80202. All communications so received from
stockholders of the Company will be forwarded to the members of the Board of
Directors, or to a specific Board member or committee if so designated by the
stockholder. A stockholder who wishes to communicate with a specific Board
member or committee should send instructions asking that the material be
forwarded to the Director or to the appropriate committee chairman. All
stockholders are also encouraged to communicate directly with both Officers
and Directors regarding issues affecting the Company at the Annual Meeting of
Shareholders.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE
ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers, directors and persons who beneficially own
more than ten percent (10%) of a registered class of our equity securities,
to file initial reports of securities ownership of Delta and reports of
changes in ownership of equity securities of Delta with the Securities and
Exchange Commission ("SEC"). Such persons also are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, during the fiscal year ended June 30, 2004, our
officers and directors complied with all applicable Section 16(a) filing
requirements, except as stated below. These statements are based solely on a
review of the copies of such reports furnished to us by our officers and
directors and their written representations that such reports accurately
reflect all reportable transactions. Russell S. Lewis and Jordan R. Smith,
Directors, and John R. Wallace, an Executive Officer, each filed one Form 4
reporting two transactions late; and Roger Parker, a Director and Executive
Officer, filed a Form 5 reporting seven gift transactions late.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
SHAREHOLDERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table presents information concerning persons known by us
to own beneficially 5% or more of our issued and outstanding voting
securities at December 8, 2005:
7
Amount and Nature
Name and Address of Beneficial Percent
Title of Class(1) of Beneficial Owner Ownership of Class(2)
- ----------------- ------------------- ----------------- -----------
Common Stock Sprott Asset Management, Inc. 7,565,576 shares 15.83%
Suite 2700 South Tower
Royal Bank Plaza
Toronto, Ontario M5J 2J1
Canada
Common Stock Castle Energy Corporation 6,700,000 shares 14.02%
One Radnor Corporate
Center, Suite 250
Radnor, PA 19087
Common Stock Capital Research Management 4,347,500 shares 9.20%
Company and SMALLCAP
World Fund, Inc.
333 South Hope Street
Los Angeles, CA 90071
Common Stock Touradji Capital Management, LP 3,895,963 shares 8.15%
101 Park Avenue, 48th Floor
New York, NY 10178
Common Stock Steinberg Asset Management, 2,863,965 shares 6.00%
Inc.
12 East 49th Street
Suite 1202
New York, NY 10017
___________________________
(1) We have an authorized capital of 300,000,000 shares of $.01 par value
Common Stock of which 47,796,775 shares were issued and outstanding as
of December 8, 2005. We also have an authorized capital of 3,000,000
shares of $.10 par value preferred stock of which no shares are
outstanding.
(2) The percentage set forth after the shares listed for each beneficial
owner is based upon total shares of Common Stock outstanding at December
8, 2005 of 47,796,775. The percentage set forth after each beneficial
owner is calculated as if any warrants and/or options owned had been
exercised by such beneficial owner and as if no other warrants and/or
options owned by any other beneficial owner had been exercised. Warrants
and options are aggregated without regard to the class of warrant or
option.
8
Security Ownership of Management
The following table presents information concerning the beneficial
ownership of the Executive Officers and Directors of the Company at December
8, 2005:
Amount and Nature
Name of of Beneficial Percent
Title of Class(1) Beneficial Owner Ownership of Class(2)
- ----------------- ---------------- ----------------- ----------
Common Stock Roger A. Parker 1,608,469 (3) 3.31%
Common Stock Aleron H. Larson, Jr. 574,500 (4) 1.19%
Common Stock Kevin K. Nanke 574,976 (5) 1.19%
Common Stock John R. Wallace 324,700 (6) .68%
Common stock James B. Wallace 78,500 (7) .16%
Common stock Russell S. Lewis 56,000 (8) .12%
Common stock Jerrie F. Eckelberger 42,725 (9) .09%
Common Stock Neal A. Stanley 19,000 (10) .04%
Common Stock Jordan R. Smith 16,000 (11) .03%
Common stock Kevin R. Collins - --
Common Stock James P. Van Blarcom - --
Common stock All Executive Officers 3,305,370 (12) 6.56%
and Directors as a Group
(11 persons)
_________________________
(1) See Note (1) to preceding table; includes options.
(2) See Note (2) to preceding table.
(3) Includes 788,469 shares owned by Mr. Parker directly. Also includes
options to purchase 250,000 shares of Common Stock at $5.00 per share
until October 9, 2010; options to purchase 500,000 shares of Common
Stock at $5.29 per share until August 26, 2013, and options to
purchase 70,000 shares of Common Stock at $15.34 per share until
December 21, 2004.
(4) Includes options to purchase 500,000 shares of Common Stock at $5.29
per share until August 26, 2013, and options to purchase 70,000
shares of Common Stock at $15.34 per share until December 21, 2014.
Also includes 4,500 shares held by his daughter.
(5) Consists of 42,500 shares of Common Stock owned directly by Mr.
Nanke; options to purchase 18,726 shares of Common Stock at $1.125
per share until September 1, 2008; options to purchase 13,750 shares
of Common Stock at $1.5625 per share until December 12, 2008; options
to purchase 55,000 shares of Common Stock at $1.75 per share until
May 12, 2009; options to purchase 41,250 shares of Common Stock at
$1.75 per share until November 5, 2009; options to purchase 68,750
shares of Common Stock at $3.75 per share until July 14, 2010;
9
options to purchase 55,000 shares of Common Stock at $3.29 until
January 9, 2011; options to purchase 55,000 shares of Common Stock
at $2.38 per share until October 5, 2011; options to purchase 137,500
shares of Common Stock at $5.29 per share until August 26, 2013; and
options to purchase 70,000 shares of Common Stock at $15.34 per share
until December 21, 2014.
(6) Includes 37,200 shares of Common Stock owned directly by Mr. John
Wallace, options to purchase 200,000 shares at $5.44 per share
until December 3, 2013, and options to purchase 70,000 shares of
Common Stock at $15.34 per share until December 21, 2014.
(7) Includes 22,000 shares of Common Stock owned directly by Mr. James B.
Wallace; options to purchase 2,500 shares at $2.02 per share until
February 5, 2002, options to purchase 20,000 shares at $1.87 per
share until February 7, 2013; options to purchase 20,000 shares
at $2.38; and options to purchase 87,500 shares of Common Stock at
$15.34 per share until December 21, 2014.
(8) Includes 2,000 shares of Common Stock owned directly by Mr. Russell
S. Lewis; 20,000 options to purchase shares of Common Stock at $1.87
per share until February 7, 2013; 20,000 options to purchase
shares of Common Stock at $2.31 until February 4, 2014; and options
to purchase 14,000 shares of Common Stock at $15.34 per share
until December 21, 2014.
(9) Includes 8,000 shares of Common Stock owned directly by Mr. Jerrie
F. Eckelberger; options to purchase 725 shares at $2.98 per share
until December 31, 2006; options to purchase 20,000 shares of
Common Stock at $2.31 until February 4, 2014; and options to purchase
14,000 shares of Common Stock at $15.34 per share until December 21,
2014.
(10) Includes 5,000 shares of Common Stock owned directly by Neal A.
Stanley and options to purchase 14,000 shares of Common Stock at
$15.34 per share until December 21, 2014.
(11) Includes 2,000 shares of Common Stock owned directly by Jordan A.
Smith and options to purchase 14,000 shares of Common Stock at
$15.34 per share until December 21, 2014.
(12) Includes all warrants, options and shares referenced in footnotes
(3), (4), (5), (6), (7), (8), (9), (10) and (11) above as if all
warrants and options were exercised and as if all resulting shares
were voted as a group.
10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long-term Compensation
--------------------------------------
Awards
----------------------
Annual Compensation Restricted
------------------- Stock Securities All Other
Name and Salary Bonus Awards(s) Underlying Compensation
Principal Position Period ($) (1) ($) ($) (7) Options (#) ($) (8)
- ------------------------ ---------- --------- -------- ---------- ----------- ------------
Roger A. Parker Year Ended
President, Chief 6/30/2005 $450,000 $340,000 $383,500 175,000 (2) $49,000
Executive Officer and Year Ended
Director 6/30/04 340,000 340,000 - 500,000 (2) 53,000
Year Ended
6/30/03 240,000 272,000 - - 52,000
Aleron H. Larson, Jr. Year Ended
Chairman, Secretary 6/30/05 $300,000 $ - $168,740 70,000 (4) $51,000
and Director(3) Year Ended
6/30/04 275,000 200,000 - 500,000 (4) 53,000
Year Ended
6/30/03 240,000 192,500 - - 53,000
Kevin K. Nanke Year Ended
Treasurer and Chief 6/30/05 $225,000 $180,000 $191,750 87,500 (5) $49,000
Financial Officer Year Ended
6/30/04 200,000 200,000 - 250,000 (5) 53,000
Year Ended
6/30/03 180,000 130,000 - - 42,000
John R. Wallace Year Ended
Executive Vice President 6/30/05 $225,000 $180,000 $191,750 87,500 (6) $49,000
and Chief Operating Year Ended
Officer 6/30/04 150,000 200,000 - 200,000 (6) -
__________________________
(1) Includes reimbursement of certain expenses.
(2) Includes options to purchase 175,000 shares of Common Stock at $15.34 per share until
December 31, 2014, and options to purchase 500,000 shares of Common Stock at $5.29
per share until August 26, 2013.
(3) Mr. Larson retired as Chairman on July 1, 2005.
(4) Includes options to purchase 70,000 shares of Common Stock at $15.34 per share until
December 31, 2014.
(5) Includes options to purchase 87,500 shares of Common Stock at $15.34 per share until
December 31, 2004, and options to purchase 250,000 shares of Common Stock at $5.29
per share until August 26, 2013.
(6) Includes options to purchase 87,500 shares of Common Stock at $15.34 per share until
December 31, 2004, and options to purchase 200,000 shares of Common Stock at $5.44
per share until December 8, 2013.
11
(7) For the year ended June 30, 2005, the dollar amounts shown represent the value of time-
based restricted stock awarded to the named executives under the Company's 2004 Stock
Incentive Plan, as amended, which is calculated by multiplying the total number of
restricted shares by the fair market value of Delta's common stock on the date of grant
(see below). The fair market values calculated do not reflect any adjustments for risk
of forfeiture or restrictions on transferability. The restricted shares vest on the third
anniversary of the date of grant. A holder of restricted shares has all the rights of a
holder of shares of common stock, including the right to receive dividends, if any.
Fair Market
Date of Restricted Shares Value on Date
Officer Grant Granted (#) of Grant ($/Share)
------- -------- ----------------- ------------------
Roger A. Parker 12/21/04 25,000 $15.34
Aleron H. Larson, Jr. 12/21/04 11,000 $15.34
Kevin K. Nanke 12/21/04 12,500 $15.34
John R. Wallace 12/24/04 13,500 $15.34
The table below lists the aggregate number of restricted shares not vested or subject
to risk of forfeiture held by the named executive officers and the value of such shares
on June 30, 2005. Fair market values are determined by multiplying the number of
unvested shares by $14.42, the June 30, 2005 closing price for Delta's common stock.
Officer Shares(#) Market Value
------- --------- ------------
Roger A. Parker 25,000 $353,000
Aleron H. Larson, Jr. 11,000 $155,320
Kevin K. Nanke 12,500 $176,500
John R. Wallace 12,500 $176,500
(8) Represents amounts contributed under the Company's Simple IRA Plan, Profit Sharing Plan
and 401(k) Plan and $12,000 of automobile allowance for each person per year.
OPTION GRANTS IN LAST FISCAL YEAR
___________________________________________________________________________________________________
Individual Grants
___________________________________________________________________________________________________
Number of Percent of Potential realizable value
securities total options at assumed annual rates of
underlying granted to stock price appreciation
options employees Exercise for option term (4)
granted (#) in fiscal price Expiration ---------------------------
Name (1)(2) year (3) ($/Sh) date 5% ($) 10% ($)
___________________________________________________________________________________________________
Roger A. Parker 175,000 16.91% $15.34 12/21/14 $1,688,268 $4,278,402
Aleron H. Larson, Jr. 70,000 6.77% $15.34 12/21/14 $ 675,307 $1,711,361
Kevin K. Nanke 87,500 8.46% $15.34 12/21/14 $ 844,134 $2,139,201
John R. Wallace 87,500 8.46% $15.34 12/21/14 $ 844,134 $2,139,201
__________________________________________________________________________________________________
12
(1) All options granted in fiscal 2005 have a term of ten years and are subject to a
three-year vesting schedule, with 33.3% of the options becoming exercisable on each
of the first three anniversaries of the date of grant.
(2) All of the unvested portion of these options vests in connection with certain
terminations of employment. See "Employee Contracts, Termination of Employment,
and Change of Control Arrangements."
(3) The percentage for each year is the amount of stock options granted to each of
the named executive officers as a percentage of the total stock options granted
to all employees and directors. During fiscal 2005, Delta granted options to
employees and directors to purchase a total of 1,034,700 shares.
(4) These amounts represent certain assumed rates of appreciation based on actual
option term and annual compounding from the date of grant. The 5% and 10%
appreciation rates are established by the Securities and Exchange Commission
and are not intended to forecast future appreciation rates for our common stock.
Actual gains, if any, on stock option exercises and common stock holdings are
dependent upon the future performance of our common stock. Neither the option
values reflected in the table nor the assumptions utilized in arriving at the
values should be considered indicative of our future stock performance.
There can be no assurance that the amounts reflected in this table will be
achieved. These numbers do not take into account provisions of the options
providing for termination of the option following employment termination,
non-transferability, or vesting.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in the Money
Shares Options at Options at
Acquired June 30, 2005(#) June 30, 2005($)
on Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
---- ----------- ----------- ------------------ --------------
Roger A. Parker 675,000 $ 5,616,950 925,000 / 175,000 $6,695,000 / 0
Aleron H. Larson, Jr. 1,205,000 $13,787,450 570,000 / 0 $4,415,000 / 0
Kevin K. Nanke - - 532,476 / 87,500 $4,775,061 / 0
John R. Wallace - - 50,000 / 237,500 $434,000/$1,302,000
Compensation of Directors
The following table provides information concerning compensation paid to
non-employee directors who served on the Board during fiscal 2005.
13
Non-Employee Director Compensation Table
For Fiscal 2005(1)
Annual Board Retainer ................................ $50,000
Audit Committee Chair Retainer ....................... $ 5,000
Other Committees' Retainer ........................... $ 2,500
Other Committees' Chair Retainer ..................... $ 3,750
Equity Compensation - Stock Option(2) ................ 14,000 Shares
- Restricted Stock(3) ............ 2,000 Shares
_________________
(1) Board and committee retainers are paid in cash.
(2) During fiscal 2005, each non-employee director received a fully-vested
stock option grant to purchase 14,000 shares of common stock. The
option price of the grants was $15.34, the closing price on the date
granted.
(3) During fiscal 2005, each non-employee director received a fully-vested
2,000 share grant of our restricted common stock.
Employment Contracts and Termination of Employment and Change in Control
Agreements
On May 5, 2005, we entered into Employment Agreements with the following
executive officers: Roger A. Parker, Kevin K. Nanke and John R. Wallace. The
initial term of employment under each of the Employment Agreements is through
December 31, 2006, and the term of each Employment Agreement will be
automatically extended for additional one year terms thereafter unless notice
of termination is given by either party at least 60 days prior to the end of
a term. The base annual salary for Mr. Parker is $450,000, and the base
annual salary for Messrs. Nanke and Wallace is $225,000. Each of these
executive officers will also be entitled to bonuses based on a percentage of
their base salary as determined by the Compensation Committee of the Board of
Directors upon satisfaction of performance criteria established by the
Compensation Committee.
In the event the employment of any of these executive officers is
terminated other than for cause (as defined in the Employment Agreement) or
if any of them resigns for "good reason" (as defined in the Employment
Agreement), then that executive officer will be entitled to receive a payment
equal to two times his annual base salary, annual automobile allowance and
his average annual bonus. In the event that any of these Employment
Agreements is not renewed, at the time that his employment is terminated the
executive officer will receive the same payment as stated above, reduced
proportionately by the number of months he continues to be employed by us.
The Employment Agreements also include non-solicitation and non-competition
obligations on the part of the executive officer that survive for one year
following the date of termination.
Also on May 5, 2005, we entered into Change of Control Executive
Severance Agreements ("CoC Agreements") with Messrs. Parker, Nanke and
Wallace which provide that, following a change in control of the Company as
defined in the CoC Agreements and the termination of employment of the
14
executive officer, the executive officer would receive, in addition to the
severance payments provided for in his Employment Agreement, the continuation
of certain benefits including medical insurance and other benefits provided
to the executive officer for a period of three years. The CoC Agreements also
include non-solicitation and non-competition obligations on the part of the
executive officer that survive for one year following the date of
termination. The CoC Agreements also provide that in certain circumstances
the severance payment may be reduced so that the payment will not be subject
to U.S. federal excise taxes. The CoC Agreements have an initial term
through December 31, 2006, and will be automatically extended for additional
two year terms thereafter unless notice of termination is given by either
party at least 60 days prior to the end of a term.
Retirement Savings Plan
We adopted a profit sharing plan on January 1, 2002. All employees are
eligible to participate and contributions to the profit sharing plan are
voluntary and must be approved by the Board of Directors. Amounts
contributed to the Plan will vest over a six year service period.
We adopted a 401k plan effective May 1, 2005. All employees are
eligible to participate and make employee contributions once they have met
the plan's eligibility criteria. Under the 401k plan, our employees make
salary reduction contributions in accordance with the Internal Revenue
Service guidelines. Our matching contribution is an amount equal to 100% of
the employee's elective deferral contribution which cannot exceed 3% of the
employee's compensation and 50% of the employee's elective deferral which
exceeds 3% of the employee's compensation but does not exceed 5% of the
employee's compensation.
For the year ended June 30, 2005, we contributed $291,000 under the
plan.
Equity Compensation Plan Information
The following table provides information about the Common Stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of June 30, 2005.
15
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities Weighted Average Equity Compensation
To be Issued Upon Exercise Exercise Price of Plans (excluding securities
of Outstanding Options, Outstanding Options, reflected in the second
Plan Category Warrants and Rights Warrants and Rights column)
- ------------- -------------------------- ------------------- ---------------------------
Equity Compensation 3,501,401 $7.59 585,300
Plans Approved by
Stockholders
Equity Compensation 50,243 (1) -- 99,757
Plans Not Approved by
Stockholders
Total 3,551,644 -- 685,057
________________
(1) Includes shares granted to new employees as an inducement to entering into employment
with Delta.
REPORT OF THE COMPENSATION PLAN COMMITTEE
REGARDING COMPENSATION ISSUES
The Compensation Committee is currently comprised of Messrs.
Eckelberger, Collins, Lewis, Smith and Stanley. The Committee is responsible
for establishing the compensation philosophy policies for Delta's executive
officers and non-employee directors, and making recommendations to the full
Board of Directors concerning compensation matters. In June 2005, the Board
of Directors adopted a charter for the Compensation Committee. A copy of the
charter is available on Delta's website (www.deltapetro.com.)
The Company's compensation program for its executive officers generally
is composed of three principal components: base salary, annual incentive
compensation and long-term incentive compensation in the form of stock-based
awards. Its compensation policy has been to offer its executive officers
overall compensation packages that are competitive with similar compensation
packages offered by other companies in the upper echelon of Delta's peer
group. The goal of the Compensation Committee (or the "Committee"), which
makes recommendations to the Board of Directors concerning the Company's
executive compensation program, is to ensure that the Company retains
qualified, experienced executives whose financial interests are aligned with
those of the shareholders.
During 2005, the Committee retained Pearl Meyer and Partners, an
executive compensation consulting firm ("Pearl Meyer"), to assist and advise
it in its efforts to establish competitive compensation and incentive
programs. The Committee received information from Pearl Meyer with respect
16
to the salaries of executive officers and the annual bonus opportunities and
equity award programs of comparable companies. The Committee considered
Pearl Meyer's advice, general industry practice, tax effects and other
factors in making its recommendations to the Board of Directors concerning
executive compensation in 2005.
Base Salaries: The Committee's recommendations concerning base salaries for
each of the Company's executives are determined by taking into consideration
performance and compensation paid to key executives by other public oil and
gas companies comparable to the Company in size and complexity. In order to
determine comparable salary levels paid within the industry, the Committee
reviews various information regarding a selected peer group of comparable
companies. The salaries paid to the Named Executive Officers in 2005 are
stated in the "Summary Compensation Table," above.
Annual Bonus Incentives: Performance contributions by key executives are
evaluated by several criteria which are considered important to the Company's
success. These criteria are not specifically weighted in the determination of
salary increases and bonuses, since the relative importance of such measures
may change from year to year and the relative responsibilities of individual
executives toward the achievement of corporate objectives may differ.
Examples of criteria considered are: (i) revenues and earnings; (ii) oil and
gas reserves; (iii) oil and gas production; (iv) obtaining additional equity
or debt investments from external sources to implement the Company's growth
strategy; (v) positioning the Company for future growth; and (vi) overall
financial management. The bonuses paid to the Named Executive Officers in
2005 are stated in the Summary Compensation Table.
Stock-Based Awards: The Committee also utilizes restricted stock as
incentives for executives. In making its recommendations concerning the
number of shares of restricted stock to be awarded by the Board of Directors
to each executive, the Committee considers the level of responsibility,
competitive practice, base salary, and the number of shares and options
already owned by the executives as a group relative to the total number of
outstanding stock options and shares held by all shareholders. Pearl Meyer,
the Company's independent executive compensation advisor, indicated in its
report to the Committee that that stock options were declining in
significance among the Company's peers as more companies were electing to
focus on restricted share grants to deliver long-term incentive awards. In
August of 2005, the Committee granted Roger A. Parker a restricted stock
award of 35,000 shares of Common Stock and also granted to each of John R.
Wallace and Kevin K. Nanke restricted stock awards for 17,500 shares of
Common Stock. To promote a Committee goal of retaining the executive
officers, these restricted stock awards will not vest for three (3) years, on
July 1, 2008.
Compensation of the Chief Executive Officer: During the fiscal year ended
June 30, 2005, Roger A. Parker, President and Chief Executive Officer,
received total annual compensation of $1,210,500 for his services. This
includes the recommendation by the Committee of a salary of $450,000, a bonus
of $340,000, a restricted stock award of $383,500 and other compensation of
$37,000. In recommending the salary for Mr. Parker for 2005, the Committee
17
considered all of the criteria described above in this report, along with
information confirmed by Pearl Meyer indicating that total compensation was
within the range of chief executive officers of comparable companies.
Section 162(m): Under Section 162(m) of the Internal Revenue Code of 1986
(the "Code"), federal income tax deductions of publicly traded companies may
be limited to the extent total compensation for certain executive officers
exceeds $1,000,000 in any one year. The Compensation Committee intends to
make recommendations concerning executive compensation that would preserve
the deductibility of compensation in accordance with the requirements of
Section 162(m) and related regulations to the extent that it is deemed
practical. However, the Company retains the flexibility to award compensation
that could exceed such levels under Section 162(m) if it is determined to be
in the best interests of the Company.
Respectfully submitted by the Compensation Committee of the Board of
Directors:
Jerrie F. Eckelberger, Chairman
Russell S. Lewis
Kevin R. Collins
Jordan R. Smith
Neal A. Stanley
REPORT OF THE AUDIT COMMITTEE
Delta has a standing Audit Committee of the Board of Directors (the
"Audit Committee"). The Audit Committee currently consists of Messrs.
Eckelberger, Lewis, Smith and Stanley, who are independent (as defined in the
Nasdaq listing standards). The Audit Committee operates pursuant to a
charter (the "Audit Committee Charter") approved and adopted by the Board. A
copy of the Audit Committee Charter, as restated and amended, is attached as
Appendix A to this Proxy Statement. The Audit Committee held four meetings
in fiscal 2005. The Audit Committee, on behalf of the Board, oversees
Delta's financial reporting process. In fulfilling its oversight
responsibilities, the Audit Committee reviewed and discussed the audited
financial statements and footnotes thereto in Delta's fiscal 2005 Annual
Report on Form 10 K with management and independent public accountants.
The Audit Committee has discussed with Delta's independent registered
public accountants the matters required to be discussed by Statement on
Auditing Standards No. 61, as amended.
The Audit Committee has discussed with Delta's independent registered
public accountants their independence from management and Delta, and received
confirmation from them regarding their independence required by the
Independence Standards Board Standard No. 1.
Based on the Audit Committee's review of the foregoing and discussions
with management and Delta's independent registered public accountants, the
Audit Committee recommended to the Board of Directors that the audited
financial statements be included in Delta's Annual Report on Form 10 K for
the fiscal year ended June 30, 2005, for filing with the SEC. The Audit
Committee also approved the selection of KPMG to serve as the Company's
independent public accountants for the fiscal year ending June 30, 2005.
18
MEMBERS OF THE AUDIT COMMITTEE:
Jerrie F. Eckelberger
John P. Keller
Russell S. Lewis
James B. Wallace
STOCK PERFORMANCE GRAPH
The performance graph shown below was prepared using data prepared by
CTA Public Relations. As required by applicable rules of the SEC, the graph
was prepared based upon the following assumptions:
1. $100 was invested in Common Stock, the Nasdaq Composite Index (U.S.)
and the Peer Group (as defined below) on June 30, 2000.
2. The Peer Group investment is weighted based on the market
capitalization of each individual company within the Peer Group at the
beginning of each year.
3. Dividends are reinvested on the ex dividend dates.
The companies that comprise the Peer Group are: Tipperary Corporation;
Range Resources Corporation; St Mary Land & Exploration Co.; Edge Petroleum
Corp.; Plains Exploration & Production Co.; Brigham Exploration Co.; Forest
Oil Corp.; Whiting Petroleum Corp.; and Cimarex Energy Co.
COMPARATIVE CUMULATIVE TOTAL RETURNS
DELTA PETROLEUM CORPORATION
NASDAQ COMPOSITE INDEX AND PEER GROUP
(Performance results through June 30, 2005)
TOTAL RETURN TO STOCKHOLDERS
(Assumes $100 investment on 6/30/00)
[GRAPH]
Total Return Analysis
6/30/2000 6/30/2001 6/30/2002 6/30/2003 6/30/2004 6/30/2005
Delta Petroleum Corp. $ 100.00 $ 116.83 $ 99.05 $ 116.32 $ 341.59 $ 358.60
Peer Group $ 100.00 $ 114.99 $ 116.00 $ 133.73 $ 202.40 $ 328.56
Nasdaq Composite $ 100.00 $ 54.49 $ 36.89 $ 40.92 $ 51.63 $ 51.86
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a list of certain relationships and related party
transactions that occurred during our past fiscal year, as well as
transactions that occurred since the beginning of our last fiscal year or are
currently proposed:
19
At June 30, 2005, we had $32,000 of receivables from officers and
directors. These amounts include drilling costs and lease operating expense
on wells owned by the officers and directors and operated by us. The amounts
were paid subsequent to the end of our fiscal year.
During fiscal 2001 and 2000, Mr. Larson and Mr. Parker guaranteed
certain borrowings which have subsequently been paid in full. As
consideration for the guarantee of our indebtedness, each officer was
assigned a 1% overriding royalty interest ("ORRI") in the properties acquired
with the proceeds of the borrowings. Each officer earned approximately
$105,000, $66,000 and $108,000 for his respective 1% ORRI during fiscal 2005,
2004 and 2003, respectively.
During the fiscal years ended June 30, 2005 and 2004, we used a jet
aircraft owned by an entity that is 50% owned by Roger A. Parker, our
President. We paid that entity a total of $138,000 and $121,000 for the use
of that aircraft during fiscal 2005 and 2004, respectively. These amounts
represented the actual costs of the operation of the aircraft for Delta's
business for which Mr. Parker was responsible.
Directors and officers were issued options and warrants as disclosed in
"Executive Compensation" above.
All past and future and ongoing transactions with affiliates are and
will be on terms which our management believes are no less favorable than
could be obtained from non-affiliated parties. All future and ongoing loans
to our affiliates, officials and shareholders will be approved by the
majority vote of disinterested directors.
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 2 of the Proxy)
Subject to ratification by our shareholders, the Audit Committee has
selected the firm of KPMG LLP, Suite 2300, 707 17th Street, Denver, Colorado
80202, as our independent registered public accounting firm to examine and
audit our financial statements for the six month period ended December 31,
2005. This firm has audited our financial statements for seven years and is
considered to be well qualified. The selection of such firm as the Company's
independent registered public accounting firm is being submitted for
ratification at the Annual Meeting. Action by shareholders is not required
under the law for the appointment of the independent registered public
accounting firm, but the ratification of their appointment is being submitted
by the Audit Committee in order to give our shareholders an opportunity to
vote on the designation of auditors. In the event that a majority of the
votes represented at the Annual Meeting are not voted in favor of the
appointment of KPMG LLP, the Audit Committee will reconsider their decision.
A representative of KPMG LLP will be present at the Annual Meeting with
the opportunity to make a statement if he desires to do so and will also be
available to respond to appropriate questions.
20
Principal Accounting Fees and Services
Audit Fees. The fees billed for professional services rendered by KPMG
LLP for the audit of Delta's financial statements for the fiscal years ended
June 30, 2005 and 2004, and for the reviews of the financial statements
included in Delta's Forms 10-Q during those fiscal years, amounted to
$461,000 and $178,000, respectively.
Audit Related Fees. The fees billed for professional services rendered
by KPMG LLP for assurance and related services that are reasonably related to
the performance of the audit or review of Delta's financial statements, that
are not included in audit fees above, billed in the fiscal years ended June
30, 2005 and 2004, amounted to $167,000 and $24,000, respectively.
Tax Fees. Not Applicable.
All Other Fees. The fees billed by KPMG LLP during the fiscal years
ended June 30, 2005 and 2004 for all other services rendered amounted to $0
and $80,000, respectively. These fees were related to consulting services
related to compliance with the Sarbanes Oxley Act of 2002.
Audit Committee Pre-Approval Policy. The Company's independent
registered public accounting firm may not be engaged to provide non-audit
services that are prohibited by law or regulation to be provided by it, nor
may the Company's independent registered public accounting firm be engaged to
provide any other non-audit service unless it is determined that the
engagement of the principal accountant provides a business benefit resulting
from its inherent knowledge of the Company while not impairing its
independence. The Audit Committee must pre-approve permissible non-audit
services. During the fiscal year ended June 30, 2005, the Audit Committee
approved 100% of the non-audit services provided to Delta by the independent
registered public accounting firm.
THE AUDIT COMMITTEE RECOMMENDS A VOTE FOR THIS PROPOSAL.
REINCORPORATION IN THE STATE OF DELAWARE
(Proposal 3 of the Proxy)
General
The Board of Directors has unanimously approved and recommends that the
shareholders approve the reincorporation of Delta from the State of Colorado
to the State of Delaware (the "Reincorporation Proposal"). The
reincorporation will be effected pursuant to an Agreement and Plan of Merger,
dated as of November 8, 2005 (the "Merger Agreement"), by and among Delta,
Delta Petroleum Corporation, a Delaware Corporation ("Delta- Delaware"),
Castle Energy Corporation ("Castle") and DPCA LLC, a Delaware limited
liability company. The boards of directors of Delta and Delta-Delaware have
unanimously approved the Merger Agreement. The Merger Agreement relates to
the proposed merger of Castle with DPCA LLC (a wholly owned subsidiary of
Delta) as well as the Reincorporation Proposal.
21
No Change in Business, Jobs, Physical Location, Etc.
The reincorporation merger will effect a change in the legal domicile of
Delta and other changes of a legal nature, the most significant of which are
described below under the heading "Comparison of Shareholder Rights Before
and After the Reincorporation." However, the reincorporation merger will not
result in any change in headquarters, business, jobs, management, location of
any of our offices or facilities, number of employees, taxes payable to the
State of Colorado, assets, liabilities or net worth (other than as a result
of the costs incident to the reincorporation merger). Our management,
including all directors and officers, will remain the same in connection with
the reincorporation merger and will assume identical positions with Delta-
Delaware. None of our subsidiaries will be changing their respective states
of organization in connection with the reincorporation merger. At the
effective time of the reincorporation merger, your shares of Delta Common
Stock will be converted into an equal number of shares of Delta-Delaware
Common Stock.
Reasons for the Reincorporation
Delaware is a nationally recognized leader in adopting and implementing
comprehensive and flexible corporate laws. The General Corporation Law of the
State of Delaware (the "DGCL") is frequently revised and updated to
accommodate changing legal and business needs and is more comprehensive,
widely used and interpreted than other state corporate laws, including the
Colorado Business Corporation Act (the "CBCA").
In addition, Delaware has established a specialized court, the Court of
Chancery, which has exclusive jurisdiction over matters relating to the DGCL.
The Chancery Court has no jurisdiction over criminal or tort cases, and
corporate cases are heard by judges, without juries, who have many years of
experience with corporate issues. Traditionally, this has meant that the
Delaware courts are able in most cases to process corporate litigation
relatively quickly and effectively. By comparison, many states, including
Colorado, do not have a specialized judiciary for matters relating to
corporate issues.
Delaware courts have developed considerable expertise in dealing with
corporate legal issues and produced a substantial body of case law construing
the DGCL, with multiple cases concerning areas that no Colorado court has
considered. Because our judicial system is based largely on legal precedents,
the abundance of Delaware case law should serve to enhance the relative
clarity and predictability of many areas of corporate law, which should offer
added advantages to Delta by allowing our Board of Directors and management
to make corporate decisions and take corporate actions with greater assurance
as to the validity and consequences of those decisions and actions.
Reincorporation from Colorado to Delaware may also make it easier to
attract future candidates willing to serve on our Board of Directors, because
many such candidates are already familiar with Delaware corporate law,
including provisions relating to director indemnification, from their past
business experience.
22
Delta-Delaware
Delta-Delaware, a wholly owned subsidiary of Delta, was incorporated
under the DGCL on November 7, 2005 exclusively for the purpose of merging
with Delta. The address and phone number of Delta-Delaware's principal office
are the same as those of Delta. Prior to the reincorporation merger, Delta-
Delaware will have no material assets or liabilities and will not have
carried on any business.
Upon completion of the reincorporation merger, the rights of the
shareholders of Delta-Delaware will be governed by the DGCL and the
certificate of incorporation and bylaws of Delta-Delaware (the "Delaware
Certificate of Incorporation" and the "Delaware Bylaws," respectively).
The Merger Agreement
The Merger Agreement provides that Delta will merge with and into Delta-
Delaware, with Delta-Delaware being the surviving corporation. Pursuant to
the Merger Agreement, Delta-Delaware will assume all assets and liabilities
of Delta, including obligations under our outstanding indebtedness and
contracts. Our existing Board of Directors and officers will become the Board
of Directors and officers of Delta-Delaware and our existing subsidiaries
will become the subsidiaries of Delta-Delaware.
At the effective time of the reincorporation merger, each outstanding
share of Delta's Common Stock will automatically be converted into one share
of Delta-Delaware Common Stock. You will not have to exchange your existing
stock certificates of Delta for stock certificates of Delta-Delaware.
However, after consummation of the reincorporation merger, any stockholder
desiring a new form of stock certificate may submit the existing stock
certificate to Delta-Delaware's transfer agent for cancellation and obtain a
new certificate.
Pursuant to the reincorporation merger, Delta-Delaware will assume all
of Delta's obligations under all of its existing stock incentive plans. Each
award of shares of Delta's Common Stock under such plans will be converted
into an award of shares of Delta-Delaware Common Stock on the same terms and
conditions as in effect immediately prior to the reincorporation, and each
outstanding option to purchase shares of Delta Common Stock under such plans
will be converted into an option to purchase the same number of shares of
Delta-Delaware Common Stock on the same terms and conditions as in effect
immediately prior to the reincorporation. Options and rights granted under
Delta's incentive plans in the future will be for shares of Delta-Delaware
Common Stock.
The Merger Agreement has been approved by the Board of Directors of
Delta-Delaware and by Delta, as the sole stockholder of Delta-Delaware.
Approval of the Reincorporation Proposal by Delta's stockholders requires the
affirmative vote of the holders of a majority of all of the votes entitled to
be cast thereon.
23
A vote in favor of the Reincorporation Proposal is a vote to approve the
Merger Agreement and therefore the reincorporation merger. A vote in favor of
the reincorporation proposal is also effectively a vote in favor of the
Delaware Certificate of Incorporation and the Delaware Bylaws.
Pursuant to Section 7-113-102(1.3) of the CBCA, Delta shareholders will
not have the right to dissent and demand payment for their shares.
Effective Time
If the Reincorporation Proposal is approved, it is anticipated that the
reincorporation merger will become effective at the time set forth in each of
the Articles of Merger to be filed with the Secretary of State of Colorado
(together with the Merger Agreement) in accordance with Section 7-111-105 of
the CBCA and the Certificate of Merger to be filed with the Secretary of
State of Delaware in accordance with Section 252 of the DGCL. However, the
Merger Agreement may be terminated and abandoned by action of the Board of
Directors at any time prior to the effective time of the reincorporation
merger, whether before or after the approval by Delta's shareholders, if the
Board of Directors determines for any reason, in its sole judgment and
discretion, that the consummation of the reincorporation merger would be
inadvisable or not in the best interests of Delta and its shareholders.
Effect of Not Obtaining the Required Vote for Approval
If the Reincorporation Proposal fails to obtain the requisite vote for
approval, the reincorporation merger will not be consummated and Delta will
continue to be incorporated in Colorado.
Comparison of Shareholder Rights Before and After the Reincorporation
Because of differences between the CBCA and the DGCL, as well as
differences between Delta's governing documents before and after the
reincorporation, the reincorporation will effect some changes in the rights
of Delta's shareholders. Summarized below are the most significant
differences between the rights of the shareholders of Delta before and after
the reincorporation, as a result of the differences among the CBCA and the
DGCL, the Articles of Incorporation of Delta (the "Colorado Articles of
Incorporation") and the Bylaws of Delta (the "Colorado Bylaws") and the
Delaware Certificate of Incorporation and the Delaware Bylaws.
Delta Delta-Delaware
----- --------------
Removal of Directors Because the Colorado Under the DGCL, directors may
Articles of Incorporation generally be removed by shareholders
do not contain any limita- with or without cause. However, the
tion on the removal of Delaware Certificate of Incorpora-
directors, shareholders tion provides that Directors may
may, under the CBCA, remove only be removed by the shareholders
directors of Delta with or for cause.
without cause.
24
Delta Delta-Delaware
----- --------------
Vacancies on the Under the CBCA, because the Under the DGCL and the Delaware
Board of Directors Colorado Articles of Certificate of Incorporation,
Incorporation do not provide vacancies on the board of directors
otherwise, any vacancies on of Delta-Delaware will be filled by
the Board of Directors may be the remaining directors.
filled either by the remaining
directors or the shareholders.
Number of Directors Under the CBCA, the number of The DGCL permits a certificate of
directors must be specified incorporation to specify the number
in a corporation's bylaws. of directors. Under the Delaware
The Colorado Bylaws state that Certificate of Incorporation, the
the Board of Directors is to board of directors of Delta-Delaware
have between three and five is to have between three and eleven
members. The CBCA, like the members. Under the DGCL, the
DGCL, provides that share- Delaware Certificate of Incorpora-
holders may amend a corpora- tion cannot be amended unless the
tion's bylaws without the amendment is approved by the board
approval of the board of of directors of Delta-Delaware;
directors. Accordingly, under shareholders will not have the
the CBCA, shareholders of ability to increase the size of
Delta have the ability to the board of directors of Delta-
determine the size of the Delaware to more than eleven without
Board of Directors. approval of the board.
Shareholders' Power to In accordance with the CBCA, Under the DGCL, special shareholder
Call Special Meetings the Colorado Bylaws provide meetings may be called by share-
that a special meeting of holders to the extent authorized
shareholders must be called by the certificate of incorporation
by the President at the request or bylaws. The Delaware Certifi-
of holders of not less than cate of Incorporation provides that,
10% of the outstanding shares except as otherwise required by law
of Delta. and subject to the rights of the
holders of any class or series of
preferred stock, special meetings of
the stockholders may be called only
by the chairman of the board, the
chief executive officer or any
officer of Delta-Delaware upon the
written request of a majority of the
board of directors.
Notice of Shareholder The Colorado Articles of The Delaware Bylaws provide that
Nominations for Incorporation and Colorado no business may be brought before
Directors and Bylaws do not contain any any meeting of shareholders,
Business to be provisions regarding advance including the nomination or election
Brought Before notice of shareholder nomina- of persons to the board of
Meetings tions of directors or notice directors, by a shareholder unless
of business to be brought the shareholder satisfies certain
before meetings of share- advance notice requirements.
holders. Advance notice of any such business
must generally be provided not less
than ninety days nor more than one
hundred twenty days prior to the
date of the meeting, unless public
disclosure of the date of the
meeting is first made less than one
hundred days prior to the date of
25
Delta Delta-Delaware
----- --------------
the meeting, in which case notice by
the shareholder must be provided not
later than the tenth day following
the date on which such public
disclosure of the date of the
meeting was made. A notice must
include specified information
concerning the business proposed to
be conducted, the shareholder making
the proposal and, if applicable, the
persons nominated to be elected as
directors. Any late or deficient
nominations or proposals may be
rejected by Delta-Delaware.
Indemnification Under the Colorado Articles The Delaware Certificate of Incor-
of Incorporation and the CBCA, portion provides for mandatory,
Delta may, but is generally not rather than permissive, indemnifi-
required to, indemnify former cation of former or current officers
and current directors, and directors of Delta-Delaware with
officers, employees, fiduci- respect to expenses incurred in any
aries and agents of Delta action brought against those persons
against expenses incurred in as a result of their role with
any action brought against Delta-Delaware if certain conditions
those persons as a result of are satisfied. Subject to certain
their role with Delta if conditions, the Delaware Certificate
certain conditions are satis- of Incorporation also provides for
fied. Similarly, Delta may, mandatory advancement of expenses
in some circumstances, advance incurred by those persons in defend-
to a person potentially elig- ing such an action. Under the DGCL,
ible for indemnification the a person seeking indemnficiation
expenses incurred in defending is generally required to have acted
such an action. The Colorado in a manner he or she reasonably
Articles of Incorporation believed to be in, or not opposed
generally require a person to, the best interests of the
seeking indemnification to have corporation.
acted in a manner he or she
reasonably believed to have
been in the best interests of
Delta.
Amendment to Articles Pursuant to the CBCA, amend- Under the DGCL, a proposed amendment
(Certificate) of ments to the Colorado Articles to a corporation's certificate of
Incorporation of Incorporation must be incorporation may not be submitted
submitted to a shareholder vote to a vote of shareholders without
if proposed either by the the approval of the board of
Board of Directors or by the directors. To the extent the
holders of shares representing Delaware Certificate of Incorpora-
at least 10% of all of the tion includes provisions that
votes entitled to be cast on would make a hostile takeover of
the amendment. The Board of Delta-Delaware more difficult, this
Directors need not recommend aspect of the DGCL would prevent
the amendment to the share- those provisions from being amended
holders if the amendment is or removed without the consent of
proposed by the shareholders the board of directors of Delta-
or if the Board of Directors Delaware, and may therefore have
determines that because of a anti-takeover effects. In addition,
26
Delta Delta-Delaware
----- --------------
conflict of interest or other the Delaware Certificate of Incor-
special circumstances it should poration provides that certain
make no recommendation with provisions of the certificate
respect to the amendment. Among (including those relating to
other consequences, this aspect the structure of the board of
of the CBCA may limit the directors of Delta-Delaware, the
effectiveness of any anti-take- removal of directors from the
over provisions contained in a board and the indemnification
corporation's articles of of directors and officers) may
incorporation. The Colorado be amended only with the approval
Articles of Incorporation do of two-thirds of the shares of
not impose any supermajority stock of Delta-Delaware entitled
voting requirements upon pro- to vote in an election of
posed amendments to the directors.
articles.
Amendment to Bylaws Pursuant to the CBCA, Under the DGCL, the power to
amendments to a corporation's amend the bylaws is conferred
bylaws can be made by the upon the shareholders, provided
board of directors unless however, that the certificate of
the articles of incorporation incorporation may confer the
or the bylaws reserve all or power to the directors. The
a portion of the power to fact that such power has been
amend the bylaws to the conferred to the directors does
shareholders. The Colorado not limit the power of the
Articles and Colorado Bylaws shareholders to amend the bylaws.
do not include such provisions. The Delta-Delaware Certificate
Bylaws may also be amended of Incorporation contains a
by the shareholders even provision conferring authority
though they may also be to amend the bylaws to the board
amended by the board of of directors. The Delta-Delaware
directors. Bylaws includes a provision that
the bylaws may be amended at any
annual meeting of the stockholders
or at any special meeting of the
stockholders called for that
purpose by the affirmative vote
of the holders of not less than
two-thirds of the outstanding
shares entitled to vote.
Business Combination The CBCA does not contain any Section 203 of the DGCL provides
Statute business combination provisions. for a three-year moratorium on
certain business combination
transactions with "interested
stockholders" (generally, persons
who beneficially own 15% or more of
the corporation's outstanding
voting stock). Delta-Delaware has
not opted out of Section 203 of the
DGCL in the Delaware Certificate of
Incorporation.
27
Delta Delta-Delaware
----- --------------
Franchise Tax There is no franchise The DGCL requires corporations to
tax in Colorado. pay franchise tax annually (the
current maximum is $165,000 a year).
Authorized Shares Under the Colorado Articles Under the Delaware Certificate of
of Incorporation, Delta is Incorporation, Delta-Delaware is
authorized to issue a total authorized to issue 300,000,000
of 300,000,000 shares of shares of common stock, par value
common stock, par value $.01 $.01 per share, and 3,000,000 shares
per share, and 3,000,000 of preferred stock, par value $.01
shares of preferred stock, per share.
$.10 par value.
Federal Income Tax Consequences of the Reincorporation Merger
The following discussion addresses the material federal income tax
consequences of the reincorporation merger that are applicable to holders of
shares of Delta's Common Stock. The discussion does not address all federal
income tax consequences that may be relevant to a particular holder of shares
of Delta's Common Stock, or any foreign, state or local tax considerations.
Accordingly, holders of Delta's Common Stock are urged to consult their own
tax advisors as to the specific federal, foreign, state and local tax
consequences to them as a result of the reincorporation merger.
The following discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
Delta has not and will not request a ruling from the Internal Revenue Service
regarding the tax consequences of the reincorporation merger.
Delta believes that the reincorporation merger and the resulting
reincorporation of Delta from Colorado to Delaware will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code. Accordingly,
for federal income tax purposes, (i) no gain or loss will be recognized by
the holders of shares of Delta's Common Stock upon consummation of the
reincorporation merger, (ii) the aggregate tax basis of shares of Delta-
Delaware Common Stock received in the reincorporation merger will be the same
as the aggregate tax basis of shares of Delta Common Stock exchanged in the
reincorporation merger and (iii) the holding period of the shares of Delta-
Delaware Common Stock received in the reincorporation merger will include the
period for which shares of Delta's Common Stock were held.
Accounting Treatment of The Reincorporation Merger
The reincorporation merger will be accounted for as a reverse merger
whereby, for accounting purposes, Delta will be considered the accounting
acquiror and Delta-Delaware will be treated as the successor to the
historical operations of Delta. Accordingly, the historical consolidated
financial statements of Delta, which previously have been reported to the SEC
on Forms 10-K and 10-Q, among others, as of and for all periods through the
28
date of this proxy statement, will be treated as the consolidated financial
statements of Delta-Delaware.
Regulatory Approval
To Delta's knowledge, the only required regulatory or governmental
approval or filing necessary in connection with the consummation of the
reincorporation merger will be the filing of the Articles of Merger
(including the Merger Agreement) with the Secretary of State of Colorado and
the filing of the Certificate of Merger with the Secretary of State of
Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
REINCORPORATION IN DELAWARE.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be included in the Board of Directors'
solicitation of proxies for the Annual Meeting of Shareholders for the
transition period ended December 31, 2005 must be received by Aleron H.
Larson, Jr., Secretary, at 370 Seventeenth Street, Suite 4300, Denver,
Colorado 80202, a reasonable amount of time prior to the time that the proxy
materials are to be mailed in connection with that meeting in order to be
included in the proxy statement and proxy relating to that meeting.
GENERAL AND OTHER MATTERS
The Board of Directors knows of no matter, other than those referred to
in this Proxy Statement, which will be represented at the Annual Meeting.
However, if any other matters are properly brought before the Meeting or any
of its adjournments, the person or persons voting the proxies will vote them
in accordance with their judgment on such matters.
The cost of preparing, assembling, and mailing this Proxy Statement, the
enclosed proxy card and the Notice of the Annual Meeting will be paid by us.
Additional solicitation by mail, telephone, telegraph or personal
solicitation may be done by our directors, officers and regular employees.
Such persons will receive no additional compensation for such services.
Brokerage houses, banks and other nominees, fiduciaries and custodians
nominally holding shares of Common Stock of record will be requested to
forward proxy soliciting material to the beneficial owners of such shares,
and will be reimbursed by us for their reasonable expenses.
AVAILABLE INFORMATION
Upon request of any shareholder, our Annual Report for the year ended
June 30, 2005 filed with the SEC on Form 10 K, including financial
statements, will be sent to the shareholder without charge by first class
mail within one business day of receipt of such request. All requests should
be addressed to our Secretary at 370 Seventeenth Street, Suite 4300, Denver,
Colorado 80202 or by telephone (303) 293 9133.
29
You are urged to complete, sign, date and return your proxy promptly.
You may revoke your proxy at any time before it is voted. If you attend the
Annual Meeting, as we hope you will, you may vote your shares in person.
By Order of the Board of Directors
Roger A. Parker, President and CEO
December 22, 2005
30
APPENDIX A
DELTA PETROLEUM CORPORATION
AUDIT COMMITTEE CHARTER
(As Restated and Amended Effective June 29, 2005)
I. PURPOSE
The Audit Committee will assist the Board of Directors of the Company in
fulfilling its responsibilities with respect to matters involving the
accounting, financial reporting and internal control functions of the Company
and its subsidiaries. This will include assisting the Board in overseeing
(a) the integrity of the Company's financial statements; (b) the Company's
compliance with legal and regulatory requirements; (c) the independent
auditor's qualifications and independence; and (d) the performance of the
Company's independent auditor. The Audit Committee also will prepare the
Audit Committee report that Securities and Exchange Commission ("SEC") rules
require to be included in the Company's annual proxy statement. The
Committee's responsibilities under this Charter do not relieve the Company's
management of its responsibilities for (a) preparing the Company's financial
statements so that they comply with generally accepted accounting principles
("GAAP") and fairly present the Company's financial condition, results of
operations and cash flows; (b) issuing financial reports that comply with the
requirements of the SEC; and (c) establishing and maintaining adequate
internal control structures and procedures for financial reporting.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall meet the independence and
experience requirements of applicable Nasdaq Marketplace Rules, Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the SEC. Each member of the Audit
Committee shall, in the judgment of the Board, be financially literate or
must become financially literate within a reasonable period of time after
appointment to the Audit Committee. At least one member of the Audit
Committee must have accounting or related financial management expertise, as
determined by the Board, and, unless otherwise determined by the Board of
Directors, at least one member shall be "an audit committee financial expert"
as defined by the SEC. Audit committee members shall not simultaneously
serve on the audit committees of more than two other public companies.
Committee members may enhance their familiarity with finance and accounting
by participating in educational programs conducted by the Company or an
outside consultant.
The members of the Committee shall be appointed by the Board annually
and shall serve until their successors are duly elected and qualified.
Unless a Chair is elected by the full Board, the members of the Committee may
designate a Chair by majority vote of the full Committee membership. The
Board will have the power at any time to change the size and membership of
the Committee, to remove Committee members and to fill vacancies on the
Committee, provided that any new member satisfy the requirements of this
Charter and any other applicable requirements.
A-1
III. MEETINGS
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. The Committee will meet following the end of each
fiscal quarter prior to the filing of the Company's quarterly or annual
report with the SEC to review the financial results of the Company for the
preceding fiscal quarter or the preceding fiscal year, as the case may be.
During each quarterly meeting, or at such other times as the Committee may
determine, the Committee shall meet separately with management and the
independent auditor to discuss any matters that the Committee or any of these
groups believe should be discussed privately and to review the Company's
periodic reports consistent with Section IV below. The Audit Committee may
request any officer or employee of the Company or the Company's outside
counsel or independent auditor to attend a meeting of the Committee with or
without the presence of management or to meet with any members of, or
consultants to, the Committee.
The Committee will record and maintain minutes of its meetings. The
Chairman of the Committee or a Committee member designated by the Chairman
will make a report to the Board of the Committee's meetings, actions taken at
meetings or by consent, and recommendations made since the most recent Board
meeting, unless the Committee has previously circulated an interim report
addressing the matter or matters.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
A. Documents/Reports Review
1. Review, reassess the adequacy of and update this Charter periodically,
at least annually, as conditions dictate and recommend any proposed
changes to the Board for approval.
2. Review and discuss with management and the independent auditor the
Company's annual audited financial statements and related disclosures,
including the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and
recommend to the Board that the audited financial statements be included
in the Company's annual report on Form 10-K.
3. Review and discuss with management and the independent auditor the
Company's quarterly financial statements and related disclosures prior
to the filing of its Form 10-Q, including the results of the independent
auditor's review of the quarterly financial statements.
4. In connection with each quarterly and annual report of the Company,
review (a) management's disclosure to the Committee under Section 302 of
the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"); and (b) the contents
of the Chief Executive Officer and Chief Financial Officer
certifications to be furnished or filed with the SEC under Sections 302
and 906 of Sarbanes-Oxley.
A-2
5. Review and discuss with management the Company's earnings press
releases, including the use of "pro forma" or "adjusted" non-GAAP
information, as well as financial information and earnings guidance
provided to analysts and rating agencies. The Chair of the Committee
may represent the entire Committee for purposes of this review.
6. Prepare the report required to be included in the Company's annual proxy
materials.
7. Review and discuss quarterly reports from the independent auditors on:
a) All critical accounting policies and practices to be used.
b) All alternative treatments of financial information within GAAP that
have been discussed with management, ramifications of the use of
such alternative disclosures and treatments, and the treatment
preferred by the independent auditor.
c) Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
8. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
B. Independent Auditor
9. Be directly responsible for the appointment (subject to shareholder
ratification, if applicable), retention, termination, compensation and
oversight of the work of the independent auditor (including resolution
of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work. The independent auditor shall report
directly to the Audit Committee.
10. Approve all audit and permissible non-audit services to be provided by
the independent auditor, establish a policy for the Committee's pre-
approval of audit and non-audit services to be provided by the
independent auditor and annually review and pre-approve the audit and
non-audit services that are to be covered by the pre-approval policy.
11. Obtain and review a report from the independent auditor at least
annually regarding (a) the independent auditor's internal quality-
control procedures; (b) any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent
audits carried out by the firm; (c) any steps taken to deal with any
such issues; and (d) all relationships between the independent auditor
and the Company. Evaluate the qualifications, performance and
A-3
independence of the independent auditor, including considering whether
the auditor's quality controls are adequate and the provision of
permitted non-audit services is compatible with maintaining the
auditor's independence, taking into account the opinions of management.
The Audit Committee shall present its conclusions with respect to the
independent auditor to the Board.
12. Discuss, as needed, with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit, including any difficulties encountered in the
course of the audit work, any restrictions on the scope of activities or
access to requested information, and any significant disagreements with
management.
13. Review and reassess, at least annually, the qualifications, performance
and independence of the independent auditor, including a review and
evaluation of the lead partner of the independent auditor team.
14. Prior to engaging the independent auditor to perform an audit of the
Company's financial statements, (a) obtain from the independent auditor
a formal written statement delineating all relationships between the
accountants and the Company, consistent with Independence Standards
Board Standard No. 1 or such other standard as may be promulgated by the
Public Company Accounting Oversight Board; (b) actively engage in a
dialogue with the independent auditor with respect to any disclosed
relationships or services that may impact the auditor's objectivity and
independence; and (c) recommend that the Board take appropriate action
in response to the independent auditor's report to satisfy the Board of
independence.
15. Oversee the rotation of the audit partners as required by law. Consider
whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the independent auditing firm
on a regular basis.
16. Establish hiring policies for employees or former employees of the
independent auditor who participated in any capacity in the audit of the
Company.
17. Discuss with the national office of the independent auditor issues on
which they were consulted by the Company's audit team and matters of
audit quality and consistency.
18. Confirm with the independent auditor that it is aware of no violations
of Rule 13b2-2 under the Exchange Act relating to improper influence on
the conduct of audits, or any illegal act that would require the
independent auditor to inform management of the Company and the Audit
Committee as required by Section 10A(b) of unusual transactions.
19. Meet with the independent auditor prior to the audit to discuss the
proposed scope, planning and staffing of the audit. Review the fees and
other significant compensation to be paid to the independent auditor.
A-4
C. Financial Reporting Process and Disclosure Matters
20. In consultation with management and the independent auditor, review the
integrity of the Company's financial reporting processes, both internal
and external.
21. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of
accounting principles, any major issues as to the adequacy of the
Company's internal controls and any special steps adopted in light of
material control deficiencies.
22. Review, on a quarterly basis, the significant accounting principles,
policies and practices followed by the Company in accounting for and
reporting its financial results of operations in accordance with GAAP.
D. Process Improvement
23. Establish regular and separate systems of reporting to the Audit
Committee by each of management and the independent auditor regarding
any significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of such
judgments.
24. Review with the independent auditor and management the extent to which
changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
E. Other
25. Review and advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations
relevant to the scope of the Audit Committee's responsibilities.
26. Review with the Company's internal and outside counsel legal matters
that may have a material impact on the financial statements, the
Company's compliance policies and any material reports or inquiries
received from regulators or governmental agencies.
27. Approve transactions between the Company and a related party and any
other conflict of interest situations.
28. Review the findings of any examinations by regulatory agencies.
29. Discuss with management and the independent auditor the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures, including the Company's risk assessment and
risk management policies.
A-5
30. Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and (b) the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
31. Respond as it determines to be appropriate (after consulting with legal
counsel selected by the Committee) to any report of evidence of a
material violation of the securities laws that the Committee receives
from the Company's chief legal officer, if any, or from any attorney
appearing and practicing before the SEC in the representation of the
Company.
32. Conduct a review and evaluation, at least annually, of the performance
of the Audit Committee and its members, including a review of the
compliance of the Committee with this Charter.
33. Undertake such additional actions within the scope of its primary
functions as the Board or Audit Committee shall determine.
V. ADDITIONAL RESOURCES
The Committee will have the right to use reasonable amounts of time of
the Company's accounting personnel and the independent auditor, other
internal staff and legal counsel and also will have the right to hire
independent accounting experts, lawyers and other consultants and advisors to
assist and advise the Committee in connection with its responsibilities. The
Company will provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor and any
experts, lawyers, consultants or advisors employed by the Audit Committee.
A-6
PRELIMINARY COPY
DELTA PETROLEUM CORPORATION
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Aleron H. Larson, Jr.
and Roger A. Parker, or each of them, lawful attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the Annual Meeting of Shareholders of
Delta Petroleum Corporation, to be held in the Georgetown Room of the Brown
Palace Hotel, 321 17th Street, Denver, Colorado 80202 on Tuesday, January 31,
2006, at 10:00 a.m. (MST), and any adjournment(s) thereof, with all powers
the undersigned would possess if personally present and to vote thereat, as
provided below, the number of shares the undersigned would be entitled to
vote if personally present.
(Check One)
For Against Abstain
----- ------- -------
Proposal 1: To approve the nine nominees to
the Board of Directors:
Aleron H. Larson, Jr. [ ] [ ] [ ]
Roger A. Parker [ ] [ ] [ ]
Jerrie F. Eckelberger [ ] [ ] [ ]
James B. Wallace [ ] [ ] [ ]
Russell S. Lewis [ ] [ ] [ ]
Kevin R. Collins [ ] [ ] [ ]
Jordan R. Smith [ ] [ ] [ ]
Neal A. Stanley [ ] [ ] [ ]
James P. Van Blarcom [ ] [ ] [ ]
Proposal 2: To ratify the appointment of [ ] [ ] [ ]
KPMG LLP as independent
registered public accounting firm
Proposal 3: To approve a proposed merger to [ ] [ ] [ ]
Reincorporate the Company in
The State of Delaware
In accordance with their discretion, said attorneys and proxies are
authorized to vote upon such other business as may properly come before the
meeting or any adjournment(s) thereof. Every properly signed proxy will be
voted in accordance with the specifications made thereon. IF NOT OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 and 3. All prior
proxies are revoked. This proxy will also be voted in accordance with the
discretion of the proxy or proxies on any other business. Receipt is hereby
acknowledged of the Notice of Annual Meeting and Proxy Statement.
___________________________________ ___________________________________
Signature Signature (if jointly held)
___________________________________ ___________________________________
Print Name Print Name
___________________________________ ____________________________________
Dated Dated
(Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., give full title as such.
For joint accounts, each joint owner should sign.)
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.