Item 10. Directors,
Executive Officers and Corporate Governance
Directors
The Company’s
Board currently consists of six directors. The Company’s Articles of Incorporation provide for the division of the Company’s
Board into three classes as equal in number as the total number of members of the Board provided in the Bylaws permits. The Company’s
Bylaws limit service of the independent directors to two three year terms. If recommended by the Chairman of the Board and approved
by the Board, an independent director may serve one additional term. Directors are subject to mandatory retirement at 70 years
of age. If a director reaches the age of 70 during his regularly elected term, he is allowed to serve out the term for which he
was elected. In a meeting of the Board of Directors on December 10, 2015, the Board waived the two term limit and the age limit
in the case of Chairman Conrad.
Executive Officers
The executive officers
of the Company are elected by the Board at the annual directors’ meeting which follows each annual shareholder’s meeting,
to serve until the officer's successor has been duly elected and qualified, or until earlier death, retirement, resignation or
removal. Please see biographical information for our sole executive officer below, under the heading “Business Experience
of Directors and Officers.”
Business Experience of Directors
and Officers
Set forth below is
certain biographical information for each director and executive officer as of the date of this report. The Nominating Committee
selects nominees based on their skills, achievements, and experience, and believes that each nominee should have experience in
positions of responsibility and leadership and an understanding of our oil and natural gas exploration and production business.
Our overall objective is to identify a group of directors that can best contribute to our long-term success. All of the directors
and the nominees discussed below are seasoned leaders who collectively bring to the Board a vast array of oil and gas industry,
public company, private company, and other business experience, all at the senior executive officer level, and who meet our director
qualification standards. Among other attributes, the members of our Board possess a wide breadth of varied skills, experience
and leadership in the natural resources and energy industries, finance and accounting, risk management, operations management,
strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation,
and public policy—qualities that led the Nominating Committee and the Board to conclude that these individuals should serve
as our directors at this time, in light of our business and structure, overall industry environment, and our long-term strategy.
The specific experiences, qualifications, attributes, and skills of each director and nominee are briefly described below. In
addition, the directors and nominees represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and
fresh perspectives on our Company, and have a demonstrated ability to work collaboratively with candid discussion.
Stephen V. Conrad
(69) - Independent Director and Director Nominee. Mr. Conrad was elected to the Board on June 25, 2010. Mr. Conrad is a former
Partner of Deloitte LLP and Arthur Andersen LLP. He has over 35 years of experience in serving public company clients including
numerous oil and gas and mining companies. For the past eleven years Mr. Conrad has been a managing partner of several oil and
gas exploration and development funds. Mr. Conrad is a CPA (inactive) with a B.S. Degree in Accounting from Montana State University.
The Board has concluded that Mr. Conrad’s experience qualifies him for service as an independent director and as a member
of the Audit Committee.
Thomas R. Bandy
(62) - Independent Director. Mr. Bandy was elected to the Board on June 29, 2012. Mr. Bandy has over 35 years of management
and operational experience in the oil and gas industry. In 1984 Mr. Bandy formed and managed ProTechnics Company, a company that
provides specialized tools and techniques to aid oil and gas companies in evaluating the efficiencies of fracture stimulation
projects throughout the world. ProTechnics was sold to Core Laboratories in 1996 and remains as a key part of Core Laboratories’
services portfolio. In 1998, Mr. Bandy formed and managed Production Access, a software development company that created software
for oil and gas companies to improve their field drilling and production operations. Production Access was sold to Petris Technologies
and eventually sold to Halliburton. From 2007 to 2012, Mr. Bandy worked for Blue Tip Energy Management, LLC, a private equity
company formed to purchase and exploit producing oil and gas assets in the U.S. In 2013, Mr. Bandy co-Founded IronHorse Resources
LLC, a privately held oil and gas company which currently owns producing assets in the Rocky Mountain region. The Board has concluded
that Mr. Bandy’s experience qualifies him for service as an independent director and as a member of the Compensation, Hedging
and Nominating Committees.
Jerry W. Danni
(63) - Independent Director. Mr. Danni was elected to the Board on June 24, 2011. Mr. Danni has more than 30 years of experience
in the domestic and international mining industry including as Senior Vice President Sustainability for Goldcorp, Inc., Executive
Vice President and Senior Vice President, Corporate Affairs for Golden Minerals Company; Senior Vice President, Environment, Health
and Safety for Kinross Gold Corporation; Vice President, Environmental Affairs for Cyprus Climax Metals Company; and Director,
Corporate Environmental and Government Affairs for Lac Minerals Ltd. Mr. Danni has a Bachelor of Chemistry degree from Western
State College and is a member of the Society of Mining Engineers. Mr. Danni has also served on the Board of Directors for the
National Mining Association and the Board of Trustees of the Northwest Mining Association. The Board has concluded that Mr. Danni’s
experience qualifies him for service as an independent director and as a member of the Audit and Compensation Committees.
Leo A. Heath
(66) - Independent Director. Mr. Heath was elected to the Board on June 24, 2011. Mr. Heath has nearly 40 years of experience
in the oil and gas industry including as Department Head/Assistant Professor of Petroleum Engineering at Montana Tech; Manager
of production engineering and field operations in Montana for EnCana Energy Resources, Inc.; District Manager and Production Manager
for North American Resources Company; Partner and Owner of Sylvan Petroleum Corp.; Development Manager for Petro Lewis Corp.;
Drilling and Production Manager for TXO Production Corp.; and other engineering positions with various other oil and gas companies.
Mr. Heath has both a Bachelor of Science degree in Petroleum Engineering and a Master’s degree in Project Engineering and
Management from Montana Tech. Mr. Heath is a Registered Professional Engineer, a member of the Society of Petroleum Engineers,
and also serves as a Member of the Board of Directors for the Montana Petroleum Association. The Board has concluded that Mr.
Heath’s experience qualifies him for service as an independent director and as a member of the Audit, Compensation and Nominating
Committees.
James B. Fraser
(62) – Independent Director. Mr. Fraser was elected to the Board on June 20, 2014. Mr. Fraser has over 35 years of management,
operational and technical experience in the oil and gas industry. Mr. Fraser is currently the Managing Partner & CEO of Source
Rock Energy Partners, a private equity firm formed in January 2014 to provide capital for North American upstream energy ventures.
Mr. Fraser was President/Owner of Fraser Consulting Inc., from 2012 to 2014 providing consulting services to the E&P industry
focusing on resource play strategy and development. Mr. Fraser’s prior experience includes: from 2008 to 2012, Senior Vice
President – Shale Division, North American Operations for Talisman Energy Inc.; Vice President – Operations, Southern
Division for Chesapeake Energy Corporation; and Operational and Exploration management roles with Burlington Resources and predecessor
companies. The Board has concluded that Mr. Fraser’s experience qualifies him for service as an independent director and
as a member of the Compensation and Hedging Committees. Mr. Fraser has a Bachelor of Science degree in Petroleum Engineering from
Montana Tech and a Masters of Business Administration-Finance degree from Regis College.
David A. Veltri
(58) – Director, Chief Executive Officer, President, Chief Operating Officer and Director Nominee. Mr. Veltri
has over 32 years of oil and natural gas industry experience with a major oil company and several independent oil companies, where
he has managed and provided engineering for all phases of upstream and mid-stream oil and natural gas operations, covering North
Dakota, Wyoming, the Rocky Mountains, the Southern U.S., Mid-Continent, Louisiana, Texas and various international locations.
Mr. Veltri served as Chief Operating Officer of Emerald Oil, Inc. from November 2012 until December 2014. In March 2016, Emerald
Oil filed voluntary Chapter 11 petitions in U.S. Bankruptcy Court. Mr. Veltri served as an independent petroleum engineering
consultant from October 2011 through November 2012. From August 2008 through September 2011, Mr. Veltri served as Vice President/General
Manager of Baytex Energy USA Ltd., where he managed business unit operations, capital drilling programs, lease maintenance and
producing properties in the Williston Basin in North Dakota. From September 2006 to July 2008, Mr. Veltri was Production Manager
at El Paso Exploration and Production Company, where he managed producing oil and natural gas properties located in northern New
Mexico. Mr. Veltri received a Bachelor of Science in Mining and Engineering from West Virginia University.
Board of Directors, Audit, Compensation
and Nominating Committees
Board Leadership
Stephen V. Conrad,
as Chairman of the Board of Directors, sets the agenda for and presides over Board meetings. The Company believes having a non-executive,
independent Board Chairman (i) provides greater transparency between management and the Board, (ii) strengthens board independence,
and (iii) and improves board efficiency. David A. Veltri, (CEO and President) is responsible for setting the strategic direction
for the Company.
Meetings of the
Board
The Board consists
of six members and they have primary responsibility for directing management of the business. During 2015, the Board held seven
formal meetings, which were attended by all of the directors serving on the Board.
Attendance at
Annual Meetings by Directors
Directors are encouraged,
but not required, to attend annual meetings. All of the directors attended the June 19, 2015 annual meeting of shareholders.
Communications
from Shareholders to the Board
The independent directors
have established a process for collecting and organizing communications from shareholders. Shareholders may send communications
to the Board by addressing their communications to Stephen V. Conrad, Chairman of the Board, at 4643 S. Ulster Street, Suite 970,
Denver, Colorado 80237. Pursuant to this process, Mr. Conrad determines which of the communications address matters of substance
that should be considered by all directors, and sends those communications to all the directors for their consideration.
Audit Committee
To provide effective
direction and review of fiscal matters, the Board has established an Audit Committee. The Audit Committee has the responsibility
of reviewing our financial statements, exercising general oversight of the integrity and reliability of our accounting and financial
reporting practices, and monitoring the effectiveness of our internal control systems. The Audit Committee also retains our independent
outside audit firm and recommends selection of the internal audit firm. It also exercises general oversight of the activities
of our independent auditors, principal financial officer, principal accounting officer, accounting employees and related matters.
The Chairman of the Audit Committee is Stephen V. Conrad, who is a Certified Public Accountant. The Board has determined that
Mr. Conrad is an audit committee financial expert as defined in Item 407(d) of SEC Regulation S-K. Other members of the Audit
Committee are Jerry W. Danni and Leo A. Heath. All members of the Audit Committee are independent directors under applicable NASDAQ
and SEC rules.
The Audit Committee
met five times in 2015. All Committee members attended each meeting in person or by telephone. The Committee reviewed our financial
statements for each quarter in 2015 and the year as a whole and discussed the financial statements with management and our independent
audit firm. After the November 5, 2015 quarterly meeting, the Committee met in executive session with our independent audit firm.
The Committee also discussed with the independent audit firm the various matters required to be discussed in the statement on
Auditing Standards No. 61, as amended and as adopted by the Public Accounting Oversight Board in Rule 3200T. Based on the foregoing,
the Committee recommended to the Board at the Audit Committee meeting held on March 22, 2016 that the audited financial statements
be included in our Annual Report on Form 10-K for the year ended December 31, 2015. During the year ended December 31, 2015, the
Audit Committee Chairman also met independently of management with the firm that performs internal control testing for the Company
pursuant to Section 404 of the Sarbanes-Oxley Act. The Committee also reviews and reassesses the adequacy of the Audit Committee
Charter on an annual basis.
Compensation Committee
The Company has a
Compensation Committee, the members of which are Jerry W. Danni (Chairman), Thomas R. Bandy, Stephen V. Conrad, James B. Fraser
and Leo A. Heath. These members are independent under applicable criteria established by NASDAQ. This Committee met formally on
four occasions in 2015, and discussed compensation matters informally several times during the year. All Compensation Committee
members attended all meetings of the Committee during 2015 either in person or by telephone.
The Compensation
Committee reviews and recommends to the Board compensation packages for the officers of the Company. The Compensation Committee
may delegate to a subcommittee or to the Chief Executive Officer or other officer of the Company such of its duties and responsibilities
as the Committee deems to be in the best interests of the Company, provided such delegation is not prohibited by law or NASDAQ
rule.
Nominating Committee
The Company has a
Nominating Committee, the members of which are Leo A. Heath (Chairman) and Thomas R. Bandy. These members are independent directors
under NASDAQ rules. The Nominating Committee is responsible for identifying and recommending to the Board nominees for election
to the Board. This process involves consulting with the Company’s CEO to identify qualified candidates with expertise in
one of the business areas of the Company, including financial, oil and gas, and investment banking expertise. Once identified,
the Nominating Committee reviews the qualifications (including capability, availability to serve, conflicts of interest, and other
relevant factors) of any identified potential director candidate and where necessary assists in interviewing such candidate. It
recommends to the Board appropriate nominees to election to be included in the Company’s proxy statement for the annual
shareholders meeting. The Nominating Committee met once during 2015 with all members attending either in person or by telephone.
Executive Committee
The Executive Committee
helps implement the Board’s overall directives as necessary. Members include David A. Veltri (Chairman) and Jerry W. Danni.
The Executive Committee does not regularly conduct formal meetings. The Executive Committee did not hold any meetings in 2015.
Family Relationships
Family relationships are set forth in
Item 13 hereof under the caption Family Employment.
Risk Oversight
The Company faces
various risks in its business, including liquidity and operational risks. Liquidity risk is encountered in the context of balancing
contractual commitments to spend capital, and also is involved in the Company’s hedging commitments for oil and gas price
protection. Any change in our hedging strategy will require the approval of the Board.
General business
operations are managed by our executive officer, who reports to the Board as needed on developments in approved areas. Operations
are run in conformity with the annual budget presented by management and approved, with appropriate modifications as needed throughout
the year, by the Board. However, material budget variations (for example, a proposed acquisition or disposition of a significant
property or an entry into a significant joint venture) are subject to prior approval by the Board, even if the category and fund
allocation generally had been previously approved by the Board. In these situations, the Chairman will call a Board meeting to
discuss specific terms, costs and variables, and associated risks, before committing the Company. We believe this process provides
the Board with a continuing and key role in risk oversight.
Compensation Risk
Assessment
We do not believe
that our compensation programs encourage excessive risk taking. Risk mitigating factors of our compensation program and Board
governance include:
|
·
|
A
mix of short-term and long-term incentives designed to incentivize creation of long-term
shareholder value;
|
|
·
|
Caps
on awards under our bonus programs, along with the use of targeted performance goals
designed to emphasize metrics that lead to long-term shareholder value creation; and
|
|
·
|
The
use of a Hedging Committee to review and approve all swap agreements.
|
Hedging Committee
The Company has a
Hedging Committee to review and approve the use of all swap agreements. Members include David A. Veltri (Chairman), Thomas R.
Bandy and James B. Fraser. This Committee met formally on four occasions in 2015, and discussed hedging matters informally several
times during the year. All Hedging Committee members attended all meetings of the Committee during 2015 either in person or by
telephone.
Code of Ethics
We are committed
to sound corporate governance principles. As evidence of this commitment, the Board has adopted charters for its committees and
a Code of Ethics. These documents, along with the Company’s Articles of Incorporation and Bylaws, provide the framework
for our corporate governance. The charters of the Audit Committee, the Compensation Committee, and the Nominating Committee may
be viewed at our web site (www.usnrg.com), at the tab “Investors,” then go to “Governance.” The Code of
Ethics also may be viewed at that location. If these documents are amended (or if the Code of Ethics is waived in a manner requiring
disclosure under SEC rules), the amendments (and the occurrence of the waiver of the Code of Ethics) will be disclosed on the
website as required by the SEC. Copies of each of these documents are available without charge to any person who requests them,
by sending a request to U.S. Energy Corp., Attn: David A. Veltri, Chief Executive Officer, 4643 S. Ulster Street, Suite 970, Denver,
Colorado 80237.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), directors, executive officers, and persons
beneficially holding more than 10% of our common stock must report their initial ownership of our common stock and any changes
in that ownership in reports that must be filed with the SEC and us. The SEC has designated specific deadlines for these reports
and we must identify in this report those persons who did not file these reports when due.
Based solely on a
review of reports furnished to us and written representations from the filing persons, all directors, executive officers, and
10% owners timely filed all reports regarding transactions in our securities required to be filed in 2015 under Section 16(a)
of the Exchange Act.
Item 11. Executive
Compensation.
Summary Compensation Table
As of December 31,
2015, our Chief Executive Officer was our only executive officer. The following table sets forth the cash and non-cash compensation
for the years ended December 31, 2015 and 2014 earned by each person who served as Chief Executive Officer during 2015, and our
other two most highly compensated executive officers (collectively, the “Named Executive Officers”). Beginning in
June 2015, each of our directors and executive officers agreed to a voluntary 20% base salary reduction as one of a number of
cost savings measures implemented in response to the steep downturn in the price of oil.
Name
and Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
(7)
|
|
|
Change
in Non-
Qualified
Deferred
Compensation
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Veltri,
|
|
2015
|
|
|
$
|
331,392
|
(1)
|
|
$
|
-
|
|
|
$
|
150,000
|
(6)
|
|
$
|
87,790
|
(8)
|
|
$
|
-
|
|
|
$
|
30,900
|
(11)
|
|
$
|
600,082
|
|
Chief Executive Officer
|
|
2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith G. Larsen,
|
|
2015
|
|
|
$
|
284,694
|
(2)
|
|
$
|
-
|
|
|
$
|
150,000
|
(6)
|
|
$
|
136,353
|
(8)(9)
|
|
$
|
45,704
|
(10)
|
|
$
|
580,900
|
(12)
|
|
$
|
1,197,651
|
|
former Chief Executive Officer
|
|
2014
|
|
|
|
306,100
|
(2)
|
|
|
30,600
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
26,000
|
(10)
|
|
|
31,400
|
(12)
|
|
|
394,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven D. Richmond,
|
|
2015
|
|
|
$
|
209,125
|
(3)
|
|
$
|
-
|
|
|
|
|
(6)
|
|
$
|
67,667
|
(8)(9)
|
|
$
|
-
|
|
|
$
|
155,146
|
(13)
|
|
$
|
431,938
|
|
former Chief Financial Officer
|
|
2014
|
|
|
|
201,400
|
(3)
|
|
|
20,100
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,700
|
(13)
|
|
|
254,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryon G. Mowry,
|
|
2015
|
|
|
$
|
203,763
|
(4)
|
|
$
|
-
|
|
|
|
|
(6)
|
|
$
|
65,730
|
(8)(9)
|
|
$
|
-
|
|
|
$
|
154,362
|
(14)
|
|
$
|
423,855
|
|
former Secretary and Principal Accounting Officer
|
|
2014
|
|
|
|
193,600
|
(4)
|
|
|
19,400
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,000
|
(14)
|
|
|
241,000
|
|
|
(1)
|
Mr. Veltri was hired
to serve as our President and Chief Operating Officer effective January 1, 2015 at an
annual base salary of $359,000 and eligibility to receive an annual performance bonus
of up to 150% of his base salary. Beginning in June 2015, Mr. Veltri agreed to a voluntary
20% base salary reduction. Effective September 25, 2015
,
Mr. Veltri
was appointed to also serve as our Chief Executive Officer and his compensation did not
change as a result of this appointment. However, effective October 18, 2015, Mr. Veltri’s
base salary was reinstated to his original annual base salary of $359,000.
|
|
(2)
|
Mr. Larsen served
as our Chief Executive Officer until his resignation on September 25, 2015. Beginning
in January 2014, his base salary was approximately $313,000 with an increase to $375,000
in January 2015. Beginning in June 2015, Mr. Larsen agreed to a voluntary 20% base salary
reduction.
|
|
(3)
|
Mr. Richmond served
as our Chief Financial Officer during 2014 and 2015 until his resignation effective December
31, 2015. Beginning in January 2014, his base salary was approximately $204,000 with
an increase to $234,000 in January 2015. Beginning in June 2015, Mr. Richmond agreed
to a voluntary 20% base salary reduction.
|
|
(4)
|
Mr. Mowry served as
our Principal Accounting Officer and Secretary during 2014 and 2015 until his resignation
effective December 31, 2015. Beginning in January 2014, his base salary was approximately
$198,000 with an increase to $228,000 in January 2015. Beginning in June 2015, Mr. Mowry
agreed to a voluntary 20% base salary reduction.
|
|
(5)
|
All of our officers
and employees were paid a holiday bonus equal to 10% of base salary in 2014. A holiday
bonus was not paid in 2015 as a cost savings measure implemented in response to the steep
downturn in the price of oil.
|
|
(6)
|
In January 2015, we
made a restricted stock awards of 100,000 shares to each of Mr. Veltri and Mr. Larsen,
71,316 shares to Mr. Richmond, and 69,395 shares to Mr. Mowry. Each of these awards was
valued based on the closing price of our common stock on the date of grant of $1.50 per
share. All of these awards were originally scheduled to vest for one-third of the shares
on the anniversary dates of the grants in January 2016, 2017 and 2018. In connection
with the resignation and related separation agreements entered into with Messrs. Larsen,
Richmond and Mowry, we agreed to immediately accelerate vesting of all shares on their
respective termination dates.
|
|
(7)
|
The aggregate grant
date fair value for stock awards and modifications was computed in accordance with FASB
ASC 718. A discussion of all assumptions made in the valuation of the awards is in Note
11, Shareholders’ Equity, to our consolidated financial statements for the year
ended December 31, 2015, included in our Form 10-K filed with the SEC on April 14, 2016.
For purposes of this table, the entire fair value of awards with graded vesting are reflected
in the year of grant, whereas under FASB ASC 718 the fair value of graded vesting awards
is recognized in our financial statements over the vesting period.
|
|
(8)
|
In January 2015, we
granted stock option awards for 100,000 shares to each of Mr. Veltri and Mr. Larsen,
71,316 shares to Mr. Richmond, and 69,395 shares to Mr. Mowry. Each of these awards was
valued at the estimated fair value on the grant date of approximately $0.88 per share.
All of these awards were originally scheduled to vest for one-third of the shares on
the anniversary dates of the grants in January 2016, 2017 and 2018. In connection with
the resignation and related separation agreements entered into entered into with Messrs.
Larsen, Richmond and Mowry, we agreed to immediately accelerate vesting of all options
on their respective termination dates.
|
|
(9)
|
In connection with
the resignation and related separation agreements entered into with Messrs. Larsen, Richmond
and Mowry, we also agreed to modify certain option awards that would have expired in
connection with the termination of their employment for a total of 346,666 shares, 192,983
shares and 187,728 shares, respectively. We agreed to permit exercise through the original
contractual expiration date of the options, which resulted in a revaluation of the options
to determine the fair value of the modified awards on the executive officers’ respective
termination dates. The fair value of the modified options for Messrs. Larsen, Richmond
and Mowry amounted to $48,563, $5,059 and $4,808, respectively.
|
|
(10)
|
The amounts shown
in this column are attributable to the increase in the actuarial value of benefits payable
to Mr. Larsen under our executive retirement plan determined using interest rate and
mortality assumptions consistent with those used in our financial statements. In December
2015, Mr. Larsen and the other retirement plan participants agreed to terminate the plan
in exchange for cash settlements of the plan obligations in the first quarter of 2016.
Mr. Larsen’s share of these cash payments amounted to approximately $360,000.
|
|
(11)
|
All Other Compensation
for Mr. Veltri is primarily comprised of a $27,000 contribution for the benefit if Mr.
Veltri to our 1989 Employee Stock Ownership Plan (the “ESOP Plan”) and a
$4,000 matching 401(k) plan contribution in 2015.
|
|
(12)
|
All Other Compensation
in 2015 for Mr. Larsen is primarily comprised of a severance payment of $550,000. Due
to his resignation, Mr. Larsen eliminated the possibility of vesting in our 2001 Retirement
Plan for which we had recognized an accrued retirement liability of approximately $360,000.
All Other Compensation consists primarily of (i) severance of $550,000, (ii) an ESOP
Plan contribution of $27,000, and (iii) a $4,000 matching 401(k) plan contribution during
2015. All Other Compensation in 2014 for Mr. Larsen is primarily comprised of an ESOP
Plan contribution of $27,000 and a $4,000 matching 401(k) plan contribution.
|
|
(13)
|
All Other Compensation in 2015 for Mr. Richmond
is primarily comprised of a severance payment of approximately $129,000, an ESOP contribution
of $22,000, and a $4,000 matching 401(k) plan contribution. All Other Compensation in
2014 for Mr. Richmond is primarily comprised of an ESOP Plan contribution of $27,000
and a $4,000 matching 401(k) plan contribution.
|
|
(14)
|
All Other Compensation in 2015 for Mr. Mowry
is primarily comprised of a severance payment of approximately $129,000, an ESOP contribution
of $21,000, and a $4,000 matching 401(k) plan contribution. All Other Compensation in
2014 for Mr. Mowry is primarily comprised of an ESOP Plan contribution of $27,000 and
a $4,000 matching 401(k) plan contribution.
|
Each executive officer participated in
the ESOP Plan, which was established to make annual contributions toward employee retirement. During 2015 and 2014, all officers
received an annual contribution to their ESOP Plan accounts of 10% of the executive’s plan year compensation in common stock
of the Company, up to an annual salary limitation of $265,000 for 2015. In addition to the 10% ESOP Plan contribution, the officers
received certain unallocated shares from terminated employees pursuant to the terms of the ESOP Plan. Each executive officer also
participated in the 401(k) plan and each received a $4,000 contribution during 2015 and 2014 as a matching amount on their 401(k)
contributions to the plan. In consideration of the administrative costs to maintain the 401(k) plan and the fact that we currently
only have one employee participating in the plan, our Board of Directors took action to dissolve the 401(k) plan by the end of
April 2016. During 2015 and 2014, we did not have any non-equity incentive compensation to report in the table above.
Agreements with Named Executive Officers;
Potential Payments upon Termination or a Change in Control
As
previously disclosed, in connection with the resignations of Keith G. Larsen
(
effective September 25, 2015), Steven D. Richmond (effective December 31, 2015) and Byron
G. Mowry (effective December 31, 2015), the Company entered into a separate Agreement of Mutual Release of All Claims with each
of Messrs. Larsen, Richmond, and Mowry, which provided, among other things, for severance (including health insurance) payments
to Messrs. Larsen, Richmond, and Mowry in the amount of $550,000, $129,000, and $129,000, respectively, and immediate vesting
of their outstanding options and restricted stock awards.
As of December 31,
2015, the Company is not subject to any employment agreements or any other agreements that provide for potential payments in the
event of a change of control of the Company.
Executive Retirement Plan
A retirement plan for executives was approved by our Board
of Directors on October 20, 2005. Eligibility requirements for receiving benefits under the plan include reaching age 60 and having
served for a minimum of 15 years as a designated executive and being employed by us on December 31, 2010.
Benefits include five years of payments equal to 50% of the
greater of the average of the individual’s last five years of base salary or the last annual base salary. In addition, upon
retirement, officers are generally eligible for healthcare insurance for themselves and their spouses for 18 months. In order
to fund the Retirement Plan obligation, we periodically made cash contributions to a separate trust account that was managed by
an independent trustee. We periodically engaged the services of a third party actuary to determine the estimated liability under
the Retirement Plan. The Company and the Retirement Plan participants mutually agreed to terminate the retirement plan in December
2015, and all obligations were settled through cash payments during the first quarter of 2016.
Outstanding
Equity Awards
The following table provides information relating to the unexercised
stock options and the unvested stock awards for the Named Executive Officers as of December 31, 2015. Each award to
each named executive is shown separately, with a footnote describing the award’s vesting schedule.
|
|
Stock Option Awards
|
|
|
Restricted Stock Awards
|
|
|
|
Number of Securities Underlying
|
|
|
Option
|
|
|
Option
|
|
|
Shares of Restricted Common
|
|
|
|
Unexercised Options
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Stock That Have Not Vested
|
|
Name
|
|
Exercisable
|
|
|
Unvested
|
|
|
Price
|
|
|
Date
|
|
|
Number
|
|
|
Market Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Veltri
|
|
|
-
|
|
|
|
100,000
|
(2)
|
|
$
|
1.50
|
|
|
|
1/2/25
|
|
|
|
100,000
|
(4)
|
|
$
|
16,250
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith G. Larsen
|
|
|
75,000
|
(1)
|
|
|
-
|
|
|
$
|
2.52
|
|
|
|
9/21/18
|
|
|
|
-
|
|
|
$
|
-
|
|
Keith G. Larsen
|
|
|
150,000
|
(1)
|
|
|
-
|
|
|
|
4.97
|
|
|
|
7/26/17
|
|
|
|
-
|
|
|
|
-
|
|
Keith G. Larsen
|
|
|
65,000
|
(1)
|
|
|
-
|
|
|
|
2.08
|
|
|
|
7/1/23
|
|
|
|
-
|
|
|
|
-
|
|
Keith G. Larsen
|
|
|
100,000
|
(1)
|
|
|
-
|
|
|
|
1.50
|
|
|
|
1/2/25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for Mr. Larsen
|
|
|
390,000
|
|
|
|
-
|
|
|
|
3.13
|
(3)
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven D. Richmond
|
|
|
50,000
|
(1)
|
|
|
-
|
|
|
$
|
2.08
|
|
|
|
7/1/23
|
|
|
|
-
|
|
|
$
|
-
|
|
Steven D. Richmond
|
|
|
25,000
|
(1)
|
|
|
-
|
|
|
|
2.32
|
|
|
|
7/10/22
|
|
|
|
-
|
|
|
|
-
|
|
Steven D. Richmond
|
|
|
30,000
|
(1)
|
|
|
-
|
|
|
|
2.52
|
|
|
|
9/21/18
|
|
|
|
-
|
|
|
|
-
|
|
Steven D. Richmond
|
|
|
75,000
|
(1)
|
|
|
-
|
|
|
|
4.97
|
|
|
|
7/26/17
|
|
|
|
-
|
|
|
|
-
|
|
Steven D. Richmond
|
|
|
71,316
|
(1)
|
|
|
-
|
|
|
|
1.50
|
|
|
|
1/2/25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for Mr. Richmond
|
|
|
251,316
|
|
|
|
-
|
|
|
|
2.85
|
(3)
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryon G. Mowry
|
|
|
40,000
|
(1)
|
|
|
-
|
|
|
$
|
2.08
|
|
|
|
7/10/22
|
|
|
|
-
|
|
|
$
|
-
|
|
Bryon G. Mowry
|
|
|
25,000
|
(1)
|
|
|
-
|
|
|
|
2.32
|
|
|
|
7/10/22
|
|
|
|
-
|
|
|
|
-
|
|
Bryon G. Mowry
|
|
|
30,000
|
(1)
|
|
|
-
|
|
|
|
2.52
|
|
|
|
9/21/18
|
|
|
|
-
|
|
|
|
-
|
|
Bryon G. Mowry
|
|
|
75,000
|
(1)
|
|
|
-
|
|
|
|
4.97
|
|
|
|
7/26/17
|
|
|
|
-
|
|
|
|
-
|
|
Bryon G. Mowry
|
|
|
69,395
|
(1)
|
|
|
-
|
|
|
|
1.50
|
|
|
|
1/2/25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for Mr. Mowry
|
|
|
239,395
|
|
|
|
-
|
|
|
|
2.90
|
(3)
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
(1)
|
In connection with the resignation and related
separation agreements entered into with Messrs. Larsen, Richmond and Mowry, we agreed
to accelerate vesting for all outstanding options and we modified certain option awards
that would have expired in connection with the termination of their employment. Accordingly,
all options held by these individuals are exercisable as of December 31, 2015.
|
|
(2)
|
In January 2015, Mr.
Veltri was granted a stock option award for 100,000 shares of common stock, of which
one-third of the shares vest on the anniversary dates of the grants in January 2016,
2017 and 2018.
|
|
(3)
|
Represents the weighted
average exercise price for all options held by each individual.
|
|
(4)
|
In January 2015, Mr.
Veltri was granted a restricted stock award for 100,000 shares of common stock, of which
33,333 shares vested on January 2, 2016, 33,333 shares will vest on January 2, 2017,
and the remaining 33,334 shares will vest on January 2, 2018.
|
|
(5)
|
Mr. Veltri’s
unvested shares of restricted stock had a market value of $16,250 on December 31, 2015,
based on the closing market price for the Company’s common stock of $0.1625 on
such date.
|
Non-Employee Director Compensation
We generally use a combination of
cash and share-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors. Additionally,
our directors are reimbursed for reasonable travel expenses incurred in attending meetings. In setting director compensation,
we consider the significant amount of time that directors expend fulfilling their duties to us as well as the skill level required
of such directors. For the year ended December 31, 2015, all non-employee director compensation was paid in cash as shown below:
|
|
Nature of Director Fees
|
|
|
|
|
Director
Name
(1)
|
|
Director
|
|
|
Committee
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Thomas R. Bandy
|
|
$
|
45,000
|
(2)
|
|
$
|
-
|
|
|
$
|
45,000
|
|
Stephen V. Conrad
|
|
|
45,000
|
(2)
|
|
|
13,500
|
(4)
|
|
|
58,500
|
|
Jerry W. Danni
|
|
|
45,000
|
(2)
|
|
|
6,750
|
(4)
|
|
|
51,750
|
|
Leo A. Heath
|
|
|
45,000
|
(2)
|
|
|
4,500
|
(4)
|
|
|
49,500
|
|
James B. Fraser
|
|
|
45,000
|
(2)
|
|
|
-
|
(4)
|
|
|
45,000
|
|
Mark J. Larsen
|
|
|
-
|
(3)
|
|
|
-
|
(3)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors as a group
|
|
$
|
225,000
|
|
|
$
|
24,750
|
|
|
$
|
249,750
|
|
|
(1)
|
David A. Veltri was appointed to our Board of
Directors on December 31, 2015 as a replacement to Mark J. Larsen who resigned on that
date. Mr. Veltri has been omitted from this table since he does not receive additional
compensation for serving as a director of the Company. Mr. Veltri’s compensation
is described above under “Executive Compensation.”
|
|
(2)
|
Effective July 1, 2015, each of our independent
directors receives annual cash compensation for serving on our Board of Directors of
$40,000, payable at the rate of $3,333 per month. Prior to July 1, 2015, the annual compensation
of independent directors was $50,000, payable at the rate of $4,167 per month. Effective
July 1, 2015, each of our independent directors agreed to a voluntary 20% fee reduction
as one of a number of cost savings measures implemented in response to the steep downturn
in the price of oil.
|
|
(3)
|
During 2015, Mark J. Larsen served as a member
of our Board of Directors until his resignation on December 31, 2015. Mr. Larsen previously
served as our President, Chief Operating Officer and Treasurer until his resignation
as an executive officer on December 31, 2014. As discussed below under the
caption Certain Relationships and Related Transactions, we retained Mr. Larsen to provide
consulting services for a one-year term ending on December 31, 2015. During 2015,
we did not pay Mr. Larsen any fees for services in his capacity as a member of our Board
of Directors.
|
|
(4)
|
Independent directors receive additional fees
for serving as the Chairman of our board committees. Effective July 1, 2015, Mr. Conrad
receives an annual fee of $12,000 to serve as Chairman of the Audit Committee; Mr. Danni
receives an annual fee of $6,000 to serve as Chairman of our Compensation Committee;
and Mr. Heath receives an annual fee of $5,000 to serve as Chairman of our Nominating
Committee. Prior to July 1, 2015, Mr. Conrad received an annual fee of $15,000 to serve
as Chairman of the Audit Committee; Mr. Danni received an annual fee of $7,500 to serve
as Chairman of the Compensation Committee; and Mr. Heath received an annual fee of $5,000
to serve as Chairman of the Nominating Committee. Effective July 1, 2015, each of our
committee chairmen agreed to a voluntary 20% reduction in their fees as one of a number
of cost savings measures implemented in response to the steep downturn in the price of
oil.
|
Due to the resignation of Keith Larsen
in September 2015, Mr. Conrad assumed the duties of Chairman of the Board of Directors. In recognition of the additional time
required by Mr. Conrad to fulfill these duties, the Board of Directors increased Mr. Conrad’s board compensation by $2,333
per month effective January 1, 2016.
Item 13. Certain Relationships
and Related Transactions, and Director Independence
Except as described below, during the
past two years, there have been no transactions, whether directly or indirectly, between our company and any of our officers,
directors, beneficial owners of more than 5% of our outstanding common stock or their family members, that exceeded $120,000.
Family Employment
Keith G. Larsen,
former Chairman and CEO, and Mark J. Larsen, a former director, President and COO, are brothers. Former employee Richard Larsen
is the brother of Keith and Mark Larsen and former employee Reginald Larsen is the son of Richard Larsen. As of December 31, 2015,
none of these family members continued to be employed or serve as directors of the Company. The following table sets forth the
amounts paid to these family members for compensation for the years ended December 31, 2015 and 2014:
Name
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Change
in Non-
Qualified
Deferred
Compensation
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith G. Larsen
|
|
$
|
284,694
|
(1)
|
|
$
|
-
|
|
|
$
|
150,000
|
(1)
|
|
$
|
136,353
|
(1)
|
|
$
|
45,704
|
(1)
|
|
$
|
580,900
|
(1)
|
|
$
|
1,197,651
|
|
Mark J. Larsen
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
273,816
|
(2)
|
|
|
273,816
|
|
Richard Larsen
|
|
|
159,335
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,119
|
(3)
|
|
|
178,454
|
|
Reginald Larsen
|
|
|
100,996
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,761
|
(4)
|
|
|
135,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
545,025
|
|
|
$
|
-
|
|
|
$
|
150,000
|
|
|
$
|
136,353
|
|
|
$
|
45,704
|
|
|
$
|
908,596
|
|
|
$
|
1,785,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith G. Larsen
|
|
$
|
306,100
|
|
|
$
|
30,600
|
(5)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,000
|
(6)
|
|
$
|
31,400
|
(3)
|
|
$
|
394,100
|
|
Mark J. Larsen
|
|
|
297,300
|
|
|
|
29,700
|
(5)
|
|
|
-
|
|
|
|
24,300
|
|
|
|
280,600
|
(6)
|
|
|
31,400
|
(3)
|
|
|
663,300
|
|
Richard Larsen
|
|
|
162,000
|
|
|
|
16,200
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,100
|
(3)
|
|
|
202,300
|
|
Reginald Larsen
|
|
|
88,500
|
|
|
|
8,900
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,100
|
(3)
|
|
|
109,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
853,900
|
|
|
$
|
85,400
|
|
|
$
|
-
|
|
|
$
|
24,300
|
|
|
$
|
306,600
|
|
|
$
|
99,000
|
|
|
$
|
1,369,200
|
|
|
(1)
|
Please refer to the
Summary Compensation Table under “Executive Compensation” for information
about compensation for Keith Larsen.
|
|
(2)
|
In September 2014,
Mark J. Larsen notified us that he intended to resign as President, Chief Operating Officer
and Treasurer effective December 31, 2014. We retained Mr. Larsen to provide
consulting services relating to our Mt. Emmons mining project for a one-year term beginning
January 1, 2015. In consideration for those services, we agreed to pay Mr.
Larsen consulting fees equal to his then current annual salary of $304,240. Effective
July 1, 2015, Mr. Larsen agreed to a voluntary 20% reduction in his consulting fee as
one of a number of cost savings measures implemented in response to the steep downturn
in the price of oil. Mr. Larsen remained on our Board of Directors until his resignation
on December 31, 2015.
|
|
(3)
|
All Other Compensation
is primarily comprised of contributions under our ESOP Plan.
|
|
(4)
|
All Other Compensation
for Reginald Larsen is comprised of a severance payment of approximately $23,000 upon
his termination of employment on December 31, 2015, a $10,000 ESOP Plan contribution,
and a $2,000 matching 401(k) plan contribution in 2015.
|
|
(5)
|
All officers and employees
were paid a holiday bonus equal to 10% of base salary for the year ended December 31,
2014.
|
|
(6)
|
The amounts shown
in this column are attributable to the increase in the actuarial value of each NEO's
combined benefits under our executive retirement plan determined using interest rate
and mortality assumptions consistent with those used in our financial statements. No
NEO received preferential or above market earnings on deferred compensation.
|
The Company has adopted
a nepotism policy pursuant to which family members of any employee, which include fathers, mothers, siblings, sons, daughters,
nieces, nephews or grandchildren, may not be hired or terminated by a direct family member. Additionally, family members are not
allowed to participate in any discussion relating to the setting of compensation rates for other family members. In addition,
an immediate relative of any employee can only be hired after the Compensation Committee has reviewed the application of the direct
family member and has satisfied itself that (a) the position is necessary, (b) the position has been adequately advertised, (c)
other applicants have been interviewed by non-family managers of the Company and (d) that the family member is the most qualified
for the position. Further, written approval from the Chairman of the Compensation Committee must be received along with an approved
rate of pay before any family members of any employees, officers or directors can be employed and paid by the Company.
Related Person Transaction Policy
From time to time,
we have entered into transactions with certain “related persons,” a category that generally includes executive officers,
directors, and beneficial owners of five percent or more of our common stock, and immediate family members of these persons and
entities in which one of these persons has a direct or indirect material interest. We refer to transactions with these related
persons as “related party transactions.” The Audit Committee is responsible for the review and approval of each related
party transaction exceeding $120,000, although, as a matter of practice, the Committee reviews, and, if appropriate, approves,
all related party transactions regardless of the amount involved.
The Audit Committee
considers all relevant factors when determining whether to approve a proposed related party transaction, including (without limitation):
|
·
|
the
size of the transaction and the amount of consideration that might be paid to a related
person;
|
|
·
|
the
nature of the interest of the applicable related person; and
|
|
·
|
whether
the transaction involves the provision of goods or services to us that are available
from unaffiliated third parties.
|
Implementation
of the Policy
In determining whether
to approve a proposed related party transaction, the Audit Committee must be reasonably satisfied that:
|
·
|
the
transaction likely will significantly benefit all shareholders, even though it will provide
a benefit to the related parties; and
|
|
·
|
goods
or services of comparable quality either cannot be obtained from third parties in time
to meet the Company’s needs, or can be obtained but at a significantly higher cost.
|
In appropriate circumstances,
the Committee may enlist outside sources to obtain information about the possibility of using third party vendors’ goods
and/or services.
Compensation of certain
related persons other than executive officers is determined by the Compensation Committee rather than the Audit Committee as discussed
in “Family Employment.” The policy has been followed by the Committee since 2004.
Director Independence
We are committed
to sound corporate governance principles. As evidence of this commitment, the Board has adopted charters for its committees and
a Code of Ethics. These documents, along with the Company’s Articles of Incorporation and Bylaws, provide the framework
for our corporate governance. The charters of the Audit Committee, the Compensation Committee, and the Nominating Committee may
be viewed at our web site (www.usnrg.com), at the tab “Investors,” then go to “Governance.” The Code of
Ethics also may be viewed at that location. If these documents are amended (or if the Code of Ethics is waived in a manner requiring
disclosure under SEC rules), the amendments (and the occurrence of the waiver of the Code of Ethics) will be disclosed on the
website as required by the SEC. Copies of each of these documents are available without charge to any person who requests them,
by sending a request to U.S. Energy Corp., Attn: David A. Veltri, Chief Executive Officer, 4643 S. Ulster Street, Suite 970, Denver,
Colorado 80237.
Board and Committee Independence
The Board is comprised
of a majority of independent directors. Specifically, the Board has determined that Stephen V. Conrad (an incumbent director nominee),
Jerry W. Danni, Leo A. Heath, James B. Fraser, and Thomas R. Bandy are independent under applicable NASDAQ rules. In addition,
the Audit Committee, the Compensation Committee, and the Nominating Committee are each comprised solely of independent directors
as required under the applicable requirements of NASDAQ and the SEC.