Document:

Exhibit 10.12

 

SUMMARY OF COMPENSATION OF
NON-EMPLOYEE DIRECTORS

 

Upon recommendation by the
Corporate Governance/Nominating Committee and approval by the Board of
Directors at its April 2005 meeting, effective May 1, 2005, the
annual compensation for Non-employee Directors was revised to increase the
annual retainer, which is paid in arrears. In accordance with the new annual
compensation arrangement, Non-employee Directors are paid an annual retainer
equal to the sum of (1) $20,000 (paid in cash) and (2) $36,000
payable in Common Stock of the Company valued as of the award date (subject to
rounding up or down such that the number of shares issued to each director is
evenly divisible by three). Accordingly, each Non-employee Director then
serving was awarded 2,505 restricted shares of Common Stock on May 2, 2005.
The shares vest ratably over three years beginning on the first anniversary of
the grant date. The fair market value of the shares on the May 2, 2005
award date was $35,972 per Non-employee Director. No option awards were made to
Non-employee Directors in 2005.

 

In addition, effective May 1,
2005, the amount each Non-employee Director receives for in-person attendance
at a meeting of the Board of Directors was increased from $1,000 to $1,500 cash
(increased from $400 to $500 if such attendance is telephonic) and was
increased from $750 to $1,500 cash for each meeting of a standing Committee of
the Board of Directors attended (increased from $400 to $500 if telephonic). The
chairman of the Audit Committee will receive an additional annual retainer of
$10,000 and the respective chairmen of the Compensation and the Corporate
Governance/Nominating Committees will each receive an additional annual
retainer of $5,000, such amounts payable for the first time at the annual
shareholders meeting in 2005.

 

On March 9,
2006, the Board approved the following recommendations of the Corporate
Governance/Nominating Committee and Compensation Committee of the Board.  On March 9, 2006, the Corporate
Governance/Nominating Committee of the Board recommended certain changes to the
compensation of non-employee directors of the Company.  The Committee recommended that effective June
1, 2006, the annual retainer, which is payable in arrears, be increased by
$14,000 from $56,000 ($20,000 of which is payable in cash and $36,000 of which
is payable in common or restricted stock of the Company) to $70,000, consisting
of $20,000 payable in cash and $50,000 payable in common or restricted stock of
the Company (subject to rounding up or down such that the number of shares
issued to each director is evenly divisible by three, but not to exceed $50,000
in value). The Committee also recommended that each director be required to own
shares of common stock of the Company equal to three times their annual
director compensation and that such ownership be achieved within three years
from July 1, 2006.  All directors, except
Messrs. Clarkson and Creel, currently own stock in the Company worth at least
three times their annual director compensation.

 

All directors are reimbursed
for out-of-pocket expenses incurred in attending meetings of the Board or Board
committees and for other expenses incurred in their capacity as directors.Exhibit 10.13

 

SALARIES AND OTHER COMPENSATION OF EXECUTIVE OFFICERS

 

The table below shows a
summary of the amounts of compensation paid to the Company’s executive officers
for the last three fiscal years.

 

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Long Term Compensation

  	
   

  	
   

  	
   

  
	
  Name and Principal

  	
   

  	
   

  	
   

  	
  Annual Compensation (1)

  	
   

  	
  Restricted

  Stock

  Awards

  	
   

  	
  Securities

  Underlying

  Options

  	
   

  	
  All Other

  Compensation

  	
   

  
	
  Position

  	
   

  	
  Year

  	
   

  	
  Salary

  	
   

  	
  Bonus

  	
   

  	
  (2)

  	
   

  	
  (Shares)

  	
   

  	
  (3)

  	
   

  
	
  John W.
  Elias

  	
   

  	
  2005

  	
   

  	
  $

  	
  350,000

  	
   

  	
   

  	
  (4)

  	
  $

  	
  141,019

  	
   

  	
  —

  	
   

  	
  $

  	
  4,040

  	
   

  
	
  Chairman of
  the Board, President

  	
   

  	
  2004

  	
   

  	
  $

  	
  350,000

  	
   

  	
  $

  	
  210,000

  	
   

  	
  $

  	
  93,852

  	
   

  	
  50,000

  	
   

  	
  $

  	
  4,040

  	
   

  
	
  and Chief ExecutiveOfficer

  	
   

  	
  2003

  	
   

  	
  $

  	
  350,000

  	
   

  	
  $

  	
  200,000

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  	
  $

  	
  2,630

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michael G.
  Long

  	
   

  	
  2005

  	
   

  	
  $

  	
  194,625

  	
   

  	
   

  	
  (4)

  	
  $

  	
  76,942

  	
   

  	
  —

  	
   

  	
  $

  	
  7,000

  	
   

  
	
  Executive
  Vice President

  	
   

  	
  2004

  	
   

  	
  $

  	
  178,500

  	
   

  	
  $

  	
  109,000

  	
   

  	
  $

  	
  47,203

  	
   

  	
  —

  	
   

  	
  $

  	
  6,500

  	
   

  
	
  and Chief
  Financial Officer

  	
   

  	
  2003

  	
   

  	
  $

  	
  166,700

  	
   

  	
  $

  	
  59,000

  	
   

  	
  $

  	
  29,808

  	
   

  	
  —

  	
   

  	
  $

  	
  6,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John O.
  Tugwell

  	
   

  	
  2005

  	
   

  	
  $

  	
  199,500

  	
   

  	
   

  	
  (4)

  	
  $

  	
  76,942

  	
   

  	
  —

  	
   

  	
  $

  	
  7,000

  	
   

  
	
  Executive
  Vice President

  	
   

  	
  2004

  	
   

  	
  $

  	
  183,000

  	
   

  	
  $

  	
  111,000

  	
   

  	
  $

  	
  47,203

  	
   

  	
  —

  	
   

  	
  $

  	
  5,935

  	
   

  
	
  and Chief
  Operating Officer

  	
   

  	
  2003

  	
   

  	
  $

  	
  172,000

  	
   

  	
  $

  	
  59,000

  	
   

  	
  $

  	
  29,808

  	
   

  	
  —

  	
   

  	
  $

  	
  6,000

  	
   

  

 

(1)                                  Other annual compensation for the named
individuals during each of 2005, 2004 and 2003 did not exceed the lesser of
$50,000 or 10% of the annual compensation earned by such individual.

 

(2)                                  Reflects restricted stock awards made
pursuant to the Incentive Plan. The dollar value included in the table reflects
the valuation at the time of the award. In the case of all restricted stock
awards made to executive officers in the last three fiscal years, shares were
not issued at the time of the award and instead are issued ratably over three
years beginning on the first anniversary of the date of grant, in accordance
with the vesting schedule for the award. 
Mr.  Elias received awards of
7,110 and 8,583 shares of restricted stock on April 1, 2004 and April 1, 2005,
respectively.  Messrs. Long and Tugwell
each received awards of 7,200, 3,576 and 4,683 shares of restricted stock on
April 1, 2003, April 1, 2004 and April 1, 2005, respectively. Awards of
restricted stock, all of which provide that actual shares are 

 

 

issued
only upon vesting, have also been made in prior periods. If actual shares had
been issued at grant for the restricted stock awards made in 2005 and all prior
periods, the number and value of restricted shares held by the named officers
at December 31, 2005 would be as follows: Mr. Elias: 13,323 shares ($331,876);
Mr. Long: 9,467 shares ($235,823); and Mr. Tugwell: 9,467 shares ($235,823).

 

(3)                                  In the case of Mr. Elias, amounts shown
represent payments by the Company for life insurance on his account. In the
case of Messrs. Long and Tugwell, amounts shown represent the Company’s
contributions under its 401(k) Plan. No amounts are included for Mr. Tugwell
for payments received by him in respect of overriding royalty interests granted
prior to his becoming an executive officer.

 

(4)                                  The 2005 bonus plan is described in further
detail in the “Description of 2005 Bonus Program” filed as Exhibit 10.14 to
this Form 10-K and incorporated by reference. The bonus amounts under the 2005
bonus plan will be reported in the 2006 proxy statement.Exhibit 10.14

 

DESCRIPTION OF 2005 BONUS
PROGRAM FOR EXECUTIVE OFFICERS

 

Under the Company’s bonus program, the annual bonus
of the executive officers is determined by recommendation of the Compensation
Committee, after reviewing recommendations of the Chairman and Chief Executive
Officer, which is then submitted for approval by the full Board.  The
amount of bonus that may be earned is based on a targeted percentage of the
executive officer’s annual salary, subject to a maximum-targeted percentage.
Subject to adjustment by the Board of Directors, the bonuses of the executive
officers for 2005 are based 80% on achievement of the Company’s performance
objectives as established by the Compensation Committee and 20% on achievement
of the individual’s performance objectives. The Company’s overall performance
objectives are measured by certain operational and financial objectives. 
The operational objectives for the Company for 2005 consisted of targeted
annual increases in reserves (weighted 40%) and production (weighted 30%),
competitive finding and development costs (“F&D”) (weighted 15%), lease
operating expense (“LOE”) (weighted 7.5%) and general and administrative costs
(“G&A”) (weighted 7.5%), as compared with those projected in the Company’s
annual budget for the applicable period. Both the LOE and G&A measures are calculated
on the unit-of-production basis with targets set by the Compensation Committee.
In addition, the F&D objective, weighted at 15%, is calculated as a
three-year moving average using a unit-of-production basis, and is determined
without including any F&D costs associated with acquisitions. This is the
only category of the performance objectives where acquisitions are excluded. The
financial goals for the Company for 2005 were: (1) to ensure that funds were
available to execute the Company’s overall recommended case capital spending
program as projected in its 2005 annual budget and plan (the “Recommended Case”)
while maintaining a prudent financial structure with a debt-to-total capital
ratio of less than 30%, subject to adjustment due to acquisitions; (2) to fund
the Recommended Case, excluding acquisitions, from internal cash flow rather
than taking on more debt; and (3) building pre-tax cash flow from our
exploration and production activities to a level sufficient to provide the
necessary funds to conduct a program that will provide consistent physical
(reserve and production) and fiscal (cash flow and net income) growth for the
Company.

 

Individual performance is assessed by a performance management
process based on mutually defined expectations for each employee, including
executive officers. The process includes individual appraisal components that
are both objective and subjective. The objective components include
quantifiable objectives and the subjective performance components include roles
and accountabilities, performance attributes and behaviors. Individual
performance of the executive officers, except the Chief Executive Officer, is
first assessed by the Chief Executive Officer, who makes recommendations to the
Compensation Committee for its consideration.  Bonus opportunities for
2005 for Mr. Long ranged from 0% to 80% of base salary, for Mr. Tugwell from 0%
to 80% of base salary, and for Mr. Elias from 0% to 100% of his base salary
subject to the achievement of specific objective and subjective performance
criteria established mutually between the Compensation Committee and Mr. Elias
on an annual basis. Bonus awards, if any, to be paid for 2005 performance are
not determined as of the date of this Form 10-K and will be reported in the
Proxy Statement for the 2006 Annual Meeting. Under the
bonus program, the 2005 bonuses will be paid in cash. All bonuses are subject
to the final approval of the Board of Directors.

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