The Return on Investment Bonus Percentage shall be calculated first using a recognized petroleumengineering cash flow model (such as Aries, PowerTools, etc.) to determine the Internal Rate ofReturn (IRR) of anticipated cash flows for the current and future years less capital expenditures.While calculated on a cash flow model, the metric conceptually is as follows:           Return on Investment   æ     öBonus Award Percentage = 2 X ç After Tax IRR – 8.0% ÷    è     ø“After Tax Internal Rate of Return” (IRR) is the discount rate, expressed as a percentage, atwhich the summation of all discounted, after-tax cash flows (including Discounted Future Cash Flow,Discounted Current Year Cash Flow and Discounted Capital Expenditures) is equal to zero ($0).“Discounted Capital Expenditures” shall mean the capital expenditures that were incurred in themost recent fiscal year and were associated with GAAP proved properties, including geological andgeophysical costs, land, drilling (including dry holes), completions, recompletions andacquisitions. Capital Expenditures that were incurred during the year (or over a fiscal year end),and for which no reserves have been determined, shall be deferred and not included in thedetermination for that fiscal year. Likewise, Capital Expenditures associated with a GAAP unprovedproperty shall be deferred and not included in the determination for that fiscal year. Once adeferred property for which these Capital Expenditures were incurred has been transferred fromunproven to proven, or a year-end reserve determination has been made and recorded, such property,and all deferred capital expenditures associated with that property, shall be included in thedetermination for that fiscal year. Capital expenditures shall be input into the model at thebeginning of the fiscal year or as near the month that they were incurred as possible.“Discounted Future Cash Flow” from the properties that are to be evaluated in a particular year(whether newly added or previously deferred) shall be initially based on the most recentGAAP-based, third party engineering reserve report. However, the report shall be modified to beginthe report on the first day of the fiscal year, but future cash flow shall not start until firstday after the end of the fiscal year. The report shall be further modified to use oil and gasprices based on the average annual NYMEX futures strip price and then remain fixed once futuresprices are relatively unchanged or unavailable. Lease operating expenses shall escalate at 3% peryear until commodity prices remain unchanged.“Discounted Current Year Cash Flow” is the cash flow generated during the fiscal year from theevaluated properties and is added to the model at the end of the fiscal year or as near themidpoint of the cash flow as possible.The Return on Investment Bonus Award Percentage shall be determined by subtracting an 8% hurdlerate from the ROI and multiplying by 2. The 8% hurdle rate approximates the company’s cost offunds. In each case the percentage award shall be a maximum of 25% and a minimum of 0%. Thereturn on investment bonus award shall equal the Return on Investment Bonus Award Percentagemultiplied by the chief executive officer’s salary as of the end of the fiscal year to which thebonus relates.Share Price Bonus Award PercentageThe Compensation Committee believes that, in addition to the above, the chief executive officershould focus on the fundamentals of the business, net income and EBITDA. Furthermore, theCompensation Committee believes that the market will reward solid, consistent growth in theseareas. For this reason, the Compensation Committee has chosen Share Price as the metric mostsuitable for rewarding consistent improvement in the fundamentals of the business. TheCompensation Committee is aware that market forces, or even more superficial forces, can have apositive or negative influence on stock price. Furthermore, that incenting stock price growthcould cause management to take unjustified risk or artificially influence stock prices. TheCompensation Committee has determined, however, that by balancing this metric against the otherthree, by limiting this award component to 25% and by creating the need to follow this year’sperformance with a similar performance next year, the incentive to take
 

 
unnecessary risk and the incentive to use superficial and artificial means to promote stock pricewill not be justified.The percentage increase or decrease in the Company’s stock price will be evaluated relative to theCompany’s peers on a quartile basis. Peer companies will be selected by the Compensation Committeebased on a number of factors, including but not limited to, market capitalization, stock exchange,similarity of business model (producer, operator), availability of compensation data, location ofproducing assets, number of employees, location of headquarters and director/officer ownership.The Compensation Committee shall determine the group of peer companies by October 15th of thefiscal year being evaluated. The average closing price per share for the ten trading dayspreceding April 1st following the end of the fiscal year (beginning of new fiscal year)will be divided by the average closing price per share for the ten trading days preceding April1st of the fiscal year to be evaluated. One hundred percent (100%) will be subtractedfrom this number to determine the percentage increase or percentage decrease in the Company’s stockprice. A similar computation will be made for peer companies. The Company’s stock performanceshall be ranked relative to its peers. The Share Price Bonus Award Percentage shall be based onquartile standing as follows:         Company Standing Calculation  Bonus Award First Quartile 100.0% of 25%  25.000%Second Average Quartile 62.5% of 25%  15.625%Third Average Quartile 37.5% of 25%  9.375%Fourth Quartile 0.0% of 25%  0.000%The share price bonus award shall equal the Share Price Bonus Award Percentage multiplied by thechief executive officer’s salary as of the end of the fiscal year to which the bonus relates.Payment of BonusThe bonus shall be paid to the chief executive officer following determination of the amount by theCompensation Committee, provided that payment must be made before March 15th of the yearfollowing the end of the fiscal year earned (for fiscal years ended March 31st). Forexample, the bonus for the fiscal year ended March 31, 2010, shall be paid by March 15, 2011. Nochief executive officer shall be entitled to a bonus if such chief executive officer was notemployed at the end of the fiscal year to which the bonus relates or was employed for less than thefull fiscal year to which the bonus relates. If a chief executive officer was not employed by theCompany as of the end of the fiscal year, the Compensation Committee may, in its sole discretion,prorate the bonus for that portion of the fiscal year that the chief executive officer was employedor decide not to pay a bonus. Likewise, if a chief executive officer is employed at the end of thefiscal year but not for the full fiscal year, the Compensation Committee may, in its discretion,prorate the bonus for that portion of the fiscal year that the chief executive officer was employedor decide not to pay a bonus.Miscellaneous ProvisionsThe Compensation Committee of the Board of Directors shall have the complete and exclusiveauthority to terminate this Bonus Plan. Nothing in this Bonus Plan shall limit or be deemed tolimit the authority of the Board of Directors or the Compensation Committee to authorizecompensation under this Bonus Plan.The Compensation Committee may correct any defect, supply any omission or reconcile anyinconsistency in this Bonus Plan in the manner and to the extent it shall deem proper and in thebest interest of the Company. No member of the Compensation Committee shall be liable for anyaction or determination made in good faith, and all members of the Compensation Committee shall, inaddition to their rights as Directors, be fully indemnified by the Company with respect to any suchaction, determination or interpretation in respect of this Bonus Plan.The Board of Directors intends that, except as may be otherwise determined by the CompensationCommittee, any award, award agreement, payment, distribution, deferral election, transaction or anyother
 

 
action or arrangement contemplated by the provisions of this Bonus Plan (an “Award”) is eitherexempt from or satisfies the requirements of Section 409A of the Internal Revenue Code of 1986, asamended, and related regulations and Treasury pronouncements (“Section 409A”) to avoid theimposition of any taxes, including additional income or penalty taxes, thereunder. If theCompensation Committee determines, in its sole discretion, that an Award is or would be subject toany taxes, including additional income or penalty taxes, under Section 409A, unless theCompensation Committee expressly determines otherwise, such Award shall not be undertaken and therelated provisions of this Bonus Plan and/or award agreement will be deemed modified or, ifnecessary, rescinded in order to render the Award not subject to any taxes, including additionalincome or penalty taxes, under Section 409A to the extent determined by the Compensation Committeewithout the consent of, or notice to, the participant.This Bonus Plan shall be governed by and subject to the laws of the State of Delaware.